Whether Educational institution running on commercial lines are entitled to exemption from payment of general tax?

 Therefore, an element of public benefit or philanthropy has to be present. The reason why we stress on this aspect of the matter as if education is run on commercial lines, merely because it is a school, it does not mean it would be entitled to the exemption under Section 115(4) of the Act. {Para 66}

 If the gain derived by running the institution continues to be impressed with the trust which is a charitable trust, then it is immaterial whether the institution is run as a commercial institution or not, but if in the running of the institution profits are made and the profit goes to any private individual or if the institution is intended for any private gain, then undoubtedly the running of the institution could not be considered as being run for a charitable object."

73. In Addl. C.I.T. v. Surat Art Silk Cloth Assocn., 121 ITR 1 at 24 : (AIR 1980 SC 387 at p. 401), it is observed:

"Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guize of the former."

74. In view of the above rulings it would be clear that where the predominant object is to subserve charitable purpose and not to earn profit it would be a charitable purpose. 

75. We have already seen that merely because education is imparted in the school, that by itself, cannot be regarded as a charitable object. Today, education has acquired a wider meaning. If education is imparted with a profit motive, to hold, in such a case, as charitable purpose, will not be correct. We are inclined to agree with Mr. B. Sen, learned Counsel for the Delhi Municipal Corporation in this regard. Therefore, it would necessarily involve public benefit.

76. The rulings arising out of Income-tax Act may not be of great help in the Income-tax Act "charitable purpose" includes the relief of the poor, education, medical relief and the advancement of any other object of general public utility. The advancement of any other object of general public utility is not found under the Delhi Municipal Cornoration Act. In other words, the definition is narrower in scope. This is our answer to question No. 1.

81. The word "contribution" used in the proviso must also be given its due meaning. It cannot be understood as donations. If that be so, a voluntary contribution cannot amount to a compulsive donation. If the donor, in order to gain an advantge or benefit, if he apprehends that but for the contribution some adverse consequence would follow, makes a donation certainly it ceases to be voluntary.

88. There is another way of looking at the matter. The school being a separate entity, premises occupied by the school will belong to it and not to the society. Therefore, the society cannot claim to be in exclusive occupation and use of the land and building in question. In fact, the proposal for assessment sets out these aspects clearly which are extracted below:

"The first step would be to determine whether the activity in which the society is engaged is charitable or not. The charitable purpose has not been defined in the Act, but it definitely means to include only such acts as relief of the poor, medical relief to the poor and education relief. In P. C. Rajaratnam Institutions v. MCD (Civil Writ Petition No. 1764 of 1979) Division Bench of the Delhi High Court has held that to be held as charitable institutions for the purpose of S. 115(4), the society must give education relief. It was further held by the Hon'ble Court that where fees are charged, exemption cannot be granted. The scrutiny of the Income and Expenditure account of the school shows that the activity which is being carried out by the society i.e. running of school, generates positive income from year to year. Positive income in the years 1977 to 1987 ranged between 32,000/- to Rs. 3 lacs per year. 1 do not know on what criteria this activity can be called as charitable activity. The institute is being run purely on commercial lines for the purposes of profits. Even the society for which receipts and payments accounts have not been filed are in receipt of income generated from this activity in the form of building fund and donations etc. which are forced on the students and their guardians.

The figures picked up from some of the final accounts of the society show that contributions from the school to the society was Rs. 1,56,895/ - in the year ending 31-3-79, and every year thereafter the amount of contribution from school to the society has been increasing. Since the institute is not only self-supporting but also is generating positive income, I hold that the activitiy carried out by the society is not a charitable activity. The second confusion that the institute/society should be supported wholly or in part by voluntary contribution is also not fulfilled. The element of voluntary contributions comes only if there is an excess of expenditure over the receipts of the society. Even otherwise the donations received by the society if any cannot be treated as voluntary in view of the fact that they are all forced on the students/parents. The very fact that the tax payer society has claimed depreciation in the income and expenditure account of the school shows that what they are preparing is not the income and expenditure account, but a Profit

and Loss Account as is done in commercial establishments. Depreciation is not an expenditure but is only a deduction @ certain percentage of the capital assets for arriving at profits and gains of the business. In view of the foregoing discussions 1 have no hesitation to decline exemption from payment of general tax in respect of the property known as Green Field School, A-2 Block, S.J.D.A., New Delhi. Accordingly, all property taxes are payable by the tax payer."

 90. We are in entire agreement with these findings.

SUPREME COURT

S. MOHAN AND G.N. RAY, JJ.

Municipal Corporation of Delhi Vs. Children Book Trust

Civil Appeal No. 2805 and Civil Appeal No. 228 1990 of 1980

21st April, 1992

Citation: 1992 ALLMR ONLINE 386 (S.C.),(1992)3SCC 390

Print Page

Whether charitable trust can claim exemption from payment of property tax if it is running educational institution on commercial lines?

Therefore, an element of public benefit or philanthropy has to be present. The reason why we stress on this aspect of the matter as if education is run on commercial lines, merely because it is a school, it does not mean it would be entitled to the exemption under Section 115(4) of the Act.{Para 66}

74. In view of the above rulings it would be clear that where the predominant object is to subserve charitable purpose and not to earn profit it would be a charitable purpose. However, the argument of the appellant is as per the Delhi School Education Act and the Rules framed thereunder, if the society cannot utilise the fund and the school cannot be run for private gain in the absence of any profit, it would be a charitable purpose.

75. We have already seen that merely because education is imparted in the school, that by itself, cannot be regarded as a charitable object. Today, education has acquired a wider meaning. If education is imparted with a profit motive, to hold, in such a case, as charitable purpose, will not be correct. We are inclined to agree with Mr. B. Sen, learned Counsel for the Delhi Municipal Corporation in this regard. Therefore, it would necessarily involve public benefit.

76. The rulings arising out of Income-tax Act may not be of great help in the Income-tax Act "charitable purpose" includes the relief of the poor, education, medical relief and the advancement of any other object of general public utility. The advancement of any other object of general public utility is not found under the Delhi Municipal Cornoration Act. In other words, the definition is narrower in scope. This is our answer to question No. 1.

80. It cannot be gainsaid that the municipal general tax is an annual tax. Therefore, normally speaking, the liability for taxation must be determined with reference to each year. In other words, the society claiming exemption will have to show that it fulfils the conditions for exemption each year.  We would consider the reasonable way of giving effect to the exemption, will be to take each case and assess for a period of five years and find out whether the society or body depends on voluntary contributions. Of course, at the end of each five year period the assessing authority could review the position. In other words, what we want to stress is, ,where a society or body is making systematic profit, even though that profit is utilised only for charitable purposes, yet it cannot be said that it could claim exemption. If, merely qualitative test is applied to societies, even schools which are run on commercial basis making profits would go out of the purview of taxation and could demand exemption. 

81. The word "contribution" used in the proviso must also be given its due meaning. It cannot be understood as donations. If that be so, a voluntary contribution cannot amount to a compulsive donation. If the donor, in order to gain an advantge or benefit, if he apprehends that but for the contribution some adverse consequence would follow, makes a donation certainly it ceases to be voluntary.

 Where, therefore, the funds are transferred, even calling the contributions from the school to the society, would be nothing more than transfer of oneself. In fact, we do not find under the Delhi School Education Act any provision by which the school is made a separate juristic entity.

88."Merely because the petitioner society is not distributing profits or is applying the profits earned from running of the school on construction of school building is not enough for it to claim exemption. It has to be shown that the petitioner society is supported wholly or in part by voluntary contributions. The learned Deputy Assessor and Collector has given weighty reasons to come to the conclusion that there were no voluntary contributions to the petitioner society and also to show that the case of the petitioner society was not covered by S. 115(4) of the Act. As has been noted above, in the present case it is the school which is generating income for the petitioner society and no amount whatsoever is being spent by the petitioner society on the school. The learned Deputy Assessor and Collector has further observed that the petitioner society is being run purely on commercial lines for the purpose of profits and it is in receipt of income generated from this activity in the form of building fund and donations etc., which are forced on the students and their guardians. Thus, there is no voluntary contribution."

90. We are in entire agreement with these findings.

SUPREME COURT

S. MOHAN AND G.N. RAY, JJ.

Municipal Corporation of Delhi Vs. Children Book Trust

Civil Appeal No. 2805 and Civil Appeal No. 228 1990 of 1980

21st April, 1992

Citation: 1992 ALLMR ONLINE 386 (S.C.),1991 SCALE (2)491

Print Page

Whether state can regulate working of minority educational institution?

 The Society then seeks to justify its action by virtue of the rights and privileges which it claims to be entitled to as it has been granted the status of a linguistic minority Institution. As per Article 30 of the Constitution of India all minorities based on religion or language have been granted the right to establish and administer educational institutions of their choice. The nature of right of a minority institution to establish and administer an educational institution has been the subject matter of consideration in various decisions of the Hon'ble Supreme Court. While the right to 'establish' an educational institution has been held to mean to bring into existence an educational institution, the word 'administer' means the right to manage and conduct the affairs of the institution. There is a freedom to choose the managing body, the Principal and the staff. There is also freedom to admit students of its own choice. However the right to administer is not an absolute right and there is requirement to comply with conditions of recognition and affiliation. The right to administer has been held not to include the right of mal-administer. The general rules and regulations relating to the conditions of service and tenure of teachers under the employment of minority institutions are required to be consistent with such rules and regulations as framed by the State. Applicability of the provisions of Article 30(1) of the Constitution to a minority institution would not make it immune from the operation of regulatory measures. The extent of regulations by the State is permissible in the matter of service conditions of employees but without interfering with the overall administrative control by the Management over the staff.

IN THE HIGH COURT OF BOMBAY (NAGPUR BENCH)

Writ Petition No. 5448/2011

Decided On: 20.03.2020

 Manorama Prakash Khandekar  Vs.  The State of Maharashtra and Ors.

Hon'ble Judges/Coram:

A.S. Chandurkar and Vinay Joshi, JJ.

Citation: 2020 SCC Online Bom 471

Print Page

Whether agricultural tenancy is heritable on death of tenant in case of lands belonging to trust or educational institution?

 There is an another angle.   During the pendency of
appeal the original appellant has expired.   The legal heirs are

brought on record.  In view of the clear pronouncement of law by
the Apex Court in the case of Shriram Mandir Sansthan (cited
supra) in case of the lands belonging to a trust or an educational
institution falling within Section 129(b) of the Bombay Tenancy
Act, the tenancy is not heritable on the death of the tenant.  We
have made reference to this fact since the said subsequent event
has taken place during the pendency of present appeal
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR
LETTERS PATENT APPEAL NO.39 OF 2005.
IN
WRIT PETITION NO.516 of 1992 (D).
Digamber s/o Pandhari Bhise,

             V
   Shri Gajanan Maharaj Sansthan,
  CORAM:     B.R.GAVAI AND
          P.N.DESHMUKH, JJ.
          DATE :     23rd NOVEMBER, 2015.
Citation:2016(5) MHLJ163

Print Page

Whether exemption granted to educational institution under Income tax Act can be withdrawn if educational institution is making surpluses?

 Coming closer to the section at hand, in Aditanar
Educational Institution v. Additional Commissioner of
Income Tax, (1997) 224 ITR 310, this Court while construing
the predecessor Section, namely, Section 10(22) of the Income
Tax act, held:
“The High Court has made an observation that any
income which has a direct relation or incidental to
the running of the institution as such would qualify
for exemption. We may state that the language of

Section 10(22) of the Act is plain and clear and the
availability of the exemption should be evaluated
each year to find out whether the institution existed
during the relevant year solely for educational
purposes and not for the purposes of profit. After
meeting the expenditure, if any surplus results
incidentally from the activity lawfully carried on by
the educational institution, it will not cease to be one
existing solely for educational purposes since the
object is not one to make profit. The decisive or acid
test is whether on an overall view of the matter, the
object is to make profit. In evaluating or appraising
the above, one should also bear in mind the
distinction/difference between the corpus, the
objects and the powers of the concerned entity.”
10. In American Hotel & Lodging Assn. Educational
Institute v. CBDT, (2008) 301 ITR 86, this Court dealt with
Section 10(23C)(vi) as follows:
“29. In CIT v. Surat Art Silk Cloth Manufacturers'
Assn. [(1980) 2 SCC 31 : 1980 SCC (Tax) 170 :
(1980) 121 ITR 1] it has been held by this Court that
test of predominant object of the activity is to be
seen whether it exists solely for education and not
to earn profit. However, the purpose would not lose
its character merely because some profit arises
from the activity. That, it is not possible to carry on
educational activity in such a way that the
expenditure exactly balances the income and there
is no resultant profit, for, to achieve this, would not
only be difficult of practical realisation but would
reflect unsound principles of management. In order
to ascertain whether the institute is carried on with
the object of making profit or not it is the duty of the
prescribed authority to ascertain whether the

balance of income is applied wholly and exclusively
to the objects for which the applicant is established.
30. In deciding the character of the recipient, it is
not necessary to look at the profits of each year, but
to consider the nature of the activities undertaken in
India. If the Indian activity has no correlation with
education, exemption has to be denied (see
judgment of this Court in Oxford University
Press [(2001) 3 SCC 359 : (2001) 247 ITR 658] ).
Therefore, the character of the recipient of income
must have character of educational institution in
India to be ascertained from the nature of the
activities. If after meeting expenditure, surplus
 remains incidentally from the activity carried on by
the educational institution, it will not cease to be one
 existing solely for educational purposes. In other
words, existence of surplus from the activity will not
mean absence of educational purpose (see
judgment of this Court in Aditanar Educational
Institutionv. CIT [(1997) 3 SCC 346 : (1997) 224 ITR
310] ). The test is—the nature of activity. If the
activity like running a printing press takes place it is
not educational. But whether the income/profit has
been applied for non-educational purpose has to be
decided only at the end of the financial year.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5167 OF 2008
M/S. QUEEN’S EDUCATIONAL SOCIETY …APPELLANT
VERSUS
COMMISSIONER OF INCOME TAX …RESPONDENT
WITH
C.A. NO.5168 OF 2008
Citation;AIR 2015 SC 3253
R.F.Nariman, J.

Print Page

Supreme court;Educational institution can charge prescribed fee for one semester/year and not for entire course.

The contention of the complainant/respondent is that the OP recovered from him a sum of Rs.1,85,957/- for two years course. The Fee Plan, however, shows that the fees was to be recovered in eight installments. The conduct of the OP/appellant in collecting the fee in advance amounts to unfair trade practice. In the case Islamic Academy of Education and another Vs. State of Karnataka and others, 2003 (6) SCC 697, the Honble Supreme Court held that an educational institution could only charge the prescribed fee for one semester/year and not for the entire course. On its basis, the Honble National Commission in the case Brilliant Tutorials Pvt. Ltd. Vs. Ashwani Verma (Supra) held as follows: -

The principles laid down by the Apex Court would apply with equal force to the training institutes who collect fees in advance, though not due, in order to prepare the students for various examinations. Charging fees in advance beyond the current semester/year would certainly amount to unfair trade practice and the same cannot be countenanced In the case Atam Parkash Khattar Vs. Commissioner & Secretary to Govt. of Haryana, Civil Writ Petition No.13308 of 2009 decided on 21.7.2010 by the Honble High Court of Punjab and Haryana, it was observed that educational institutions cannot be permitted to behave like a business establishment who work with profit motive.

State Consumer Disputes Redressal Commission

Manmeet vs Fiitjee on 24 March, 2011

PER JAGROOP SINGH MAHAL, MEMBER.

Print Page