Educational trust indulging into huge systematic profit is not eligible for exemption u/s 10(23C)

Allowing the appeal of Revenue Department, the Supreme Court of India held that an educational trust cannot be said to be established solely for imparting education if it is indulging into huge systematic profit, and therefore not eligible for exemption u/s 10(23C) of the Income tax Act, 1961.

While considering an appeal challenging the order of the High Court, whereby the order passed by the Commissioner denying the exemption under Section 10(23C)(vi) was set aside, the Division Bench of Justice M R Shah and Justice C T Ravikumar observed that “the Commissioner, while considering the application of the assessee for grant of exemption under Section 10(23C)(vi) specifically observed and held that the activity of the assessee cannot be said to be solely for imparting the education and that the assessee is indulging into the profit which was found to be 67.81% without depreciation and 44.48% with depreciation”.

ASG Balbir Singh & AOR Raj Bahadur Yadav appeared for the Revenue/Appellant, whereas none represented the Respondent/Assessee.

Briefly, the assessee was indulged in the activity of imparting the education, and therefore, claimed exemption u/s 10(23C)(vi) by submitting an application before the Jurisdictional Commissioner. On appreciation of evidence and considering the material on record, it was found that the assessee has been earning systematic profits year after year and, in the year in question, earned profit to the extent of 67.81% without depreciation and therefore, the Commissioner was of the opinion that the activity of the assessee cannot be said to be solely for imparting the education and, therefore, not entitled to the benefit/exemption u/s 10(23C)(vi). This order of the CIT was negated by the High Court. Hence, present appeal by the Revenue Department.

After considering the submission, the Apex Court found that in the recent decision of New Noble Educational Society vs. Chief Commissioner of Income Tax and Another [2022 SCC OnLine 1458], it was specifically observed by the three-Judge Bench of this Court that for claiming the benefit/exemption u/s 10(23C)(iii)(ab) which is para materia to Section 10(23C)(vi), the activity of the assessee must be solely for educational purposes and if ultimately it is found that the activity is for profits, the assessee is not entitled to the exemption u/s 10(23C)(vi).

Therefore, applying the law laid down by this Court in the case of New Noble Educational Society to the facts of the case on hand, the Apex Court observed that the judgment and order passed by the High Court is unsustainable.

The Top Court also noted that the Commissioner, while considering the application of the assessee for grant of exemption u/s 10(23C)(vi) specifically found that the activity of the assessee cannot be said to be solely for imparting the education and that the assessee is indulging into the profit, which finding of fact was not upset by the High Court.

Accordingly, the Top Court answered in favour of the Revenue Department.

Cause Title: Union of India & Ors. vs. Baba Banda Singh Bahadur Education Trust [CIVIL APPEAL NO. 10511 OF 2013 / 2023-Enterslice-6-SC-IT]

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