India’s Constitution equates education with charity and it can never be treated as a business, trade or commerce, the Supreme Court stressed on Wednesday in ruling that a charitable institution will only be entitled to tax relief if she does not engage in any gainful activity. .
Section 10(23C) of the Income Tax Act 1961 provides tax exemption for trusts, companies or charities existing ‘solely’ for educational purposes and not for profit.
The word ‘solely’ has, however, been interpreted by two previous high court judgments in 2008 and 2015 to mean that the criterion for determining is whether the main or principal activity is education or not, rather than whether certain profits had been made incidentally.
On Wednesday, a three-judge bench headed by India’s Chief Justice Uday Umesh Lalit overruled previous judgments, saying the word ‘only’ must be given a literal interpretation since the legislature’s intent is clear that tax exemptions should be granted. only to establishments that provide formal school learning, as defined by IT law under the heading of “charitable” purposes. The court ruling applies to all non-governmental institutions established for educational purposes. Income received by a university or educational institution that exists solely for educational purposes is exempt from tax if authorized by the prescribed authority.
After what the SC held on Wednesday, all these institutions must prove to IT authorities that they are involved exclusively in the transmission of education and that no ancillary or additional commercial activity has been undertaken for profit.
“In the opinion of this court, a trust, university or other institution providing education, as the case may be, should necessarily have all its objects aimed at providing or facilitating education. Given the clear and unambiguous terms of the law and the substantive provisions that deal with the exemption, there can be no other interpretation,” said the bench, which is also comprised of Justices S Ravindra Bhat and PS Narasimha.
He added that the trust or educational institution seeking an exemption under the Information Technology Act should only be engaged in education or education-related activities.
“If, incidentally, while pursuing these objectives, the trust makes a profit, it must keep separate books of account,” the court said, adding that an exemption or approval cannot be refused solely on the ground that it There are certain ancillary revenues that accrue to an institution while providing education.
The decision follows a series of appeals stemming from a judgment by the Andhra Pradesh High Court, which ruled that the tax exemption would require an investigation into the activities of an institution.
The court, while interpreting the law, relied heavily on the judgment of the bench of 11 judges in the 2002 TMA Pai Foundation case.
“Our Constitution reflects a value that equates education with charity. That it should not be treated as a business, trade or commerce was declared by one of this court’s most authoritative statements in TMA Pai Foundation. The interpretation of education being the “single” object of any trust or organization that seeks to propagate it, by this ruling, is consistent with constitutional understanding and, moreover, maintains its pristine and unblemished nature,” he pointed out.
“In a knowledge-based, information-driven society, the real wealth is education – and access to it. Every social order welcomes, and even cherishes, charitable endeavor, as it is driven by the desire to give back, what one has taken or benefited from society,” the bench added.
The Supreme Court further called education the key that unlocks the golden door of freedom. “Education ennobles the spirit and refines the sensitivity of every human being. It aims to train individuals to make the right choices. Its primary goal is to liberate human beings from the grip of preconceived habits and attitudes. It should be used to promote humanity and universal brotherhood. By removing the darkness of ignorance, education helps us discern right from wrong. There is hardly a generation that has not extolled the virtues of education and sought to increase knowledge,” he said.