India: ‘Education’ Is An Object, Charitable Per Se Under The I.T Act

Last Updated: 10 June 2013
Article by Shipra Makkar Devgun

Most Read Contributor in India, September 2016

It is often a topic of dispute amongst the various judicial authorities that whether the high end educational institutions, especially schools, providing modern and equipped educational aids, maintaining the highest standards of hygiene, offering air-conditioned classroom, buses etc. are involved in activities which are charitable or commercial in nature.

Both starting from the word 'C', but still carry a huge difference while considering from the point of view of taxation. The income of a charitable trust or a society under whose aegis these schools run is exempt from Income tax according to the provisions of Section 11, 12 and 13of the Income Tax Act. However, to avail the said exemption, the activities of such trust/society should fall within the definition of 'Charitable purpose' as defined U/s 2[15] of the Income Tax Act.

Here, it shall be worth quoting Section 2[15] which is defined to include relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest] and the advancement of any other object of general public utility.

There are many judicial pronouncements which have covered this dispute, however taking contradictory views.

Analyzing the scheme of the Act in the context of tax liabilities of a Chamber Commerce, the Hon'ble Apex Court has observed in the case of Indian Chamber of Commerce Vs. Commissioner of Income Tax [101 ITR 0796] that "Income is taxable., but certain incomes shall not be included in the total income of the previous years if the person in receipt of income." Emphasizing on the element of "Non Profit": to availing the exemption under the Act, the Hon'ble Supreme Court further observed as under:- "it may be noted here that though subsequent amendments to Section 2[15] has further restricted the extent to which such fees can be charged, there is no dilution in the underlying principle that in Section 2[15] the benefit of exclusion from total income is taken away when in accompanying a charitable propose the institution engages itself in activities of profit. Their objects are charitable but their activities are for profit."

However the said judgment has been overruled by the 5 bench judgment in Additional Commissioner of Income Tax Gujrat V. Surat Silk Cloth Manufacturers Association reported in [1980] 2 SCC 31, wherein the majority view has been taken that "the words 'not involving the carrying on of any activity for profit" qualify or govern only the last head of charitable purpose and not the earlier three heads. Where therefore the purpose of a trust or institution is relief of poor, education, medical relief, the requirement of the definition of 'charitable purpose' would be fully satisfied, even if an activity for profit is carried on in course of the actual carrying out of the primary purpose of the trust or institution."

In the case of Society for Small Medium Exporter vs. DIT [Exemption] Delhi, Hon'ble ITAT Delhi has held that the "DIT exemption was right in refusing registration to the assessee as even though the objects of the society may have been charitable, but, the activities carried out by the society which yielded income to the society were commercial in nature. Applicability of the proviso to section 2(15) was upheld in this case."

It is also noted that while deciding on whether an educational institution charging the high fees can be termed as a "charitable institutions"; the Hon'ble Chennai ITAT in the case of M/s Rajah Sir Sannamalai Chettiar Foundation Vs. The Director of income Tax [Exemptions] ITA NO. 2927/Mds./2010 has observed as under: "the definition clearly shows that carrying on educational activities by itself is not a charitable purpose. The concept of charitable purpose may be manifested in different forms like relief of the poor, education, medical relief, etc, but a charitable purpose should always take care of the welfare and interest of the public and especially the poor section of the public. Running schools by collecting huge amounts of fees with five star facilities cannot be treated as charitable activity only on the ground that the business carried on by such institutions is the business of education."

The Hon'ble Uttrakhand High Court in the case of CIT Haldwani v M/s Queens Education Society, Nainital & St Paul Sr. Sec School, Nainital in ITA no. 105/104/2007 has held that "educational institutions making systematic profits are not eligible for exemption".

In the case of Punjab Urban Planning and Development Authority, ITAT Chandigarh has observed that "no activity can be carried on efficiently, properly unless and until carried out on business principle but it does not mean that the provision is misused in any manner under the garb of charity and any institution be allowed to become richer and richer under the garb of by making it a non tax payable organization. A charitable institution provided services for charitable purposes free of cost and not for gain".

However taking a contrary view there are many instances wherein the courts after careful reading of the definition of Charitable purpose in the Act have observed that "...Where, therefore, the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of "charitable purpose" would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution." [Victoria Technical Institute Vs. Addl. Commissioner of Income-tax, Madras and another reported in AIR 1991 SC 997]

The Hon'ble ITAT Delhi 'F' Bench in Dy. CIT v. Beer Shiva Educational Social Welfare Society reported in [2007] 103 ITD 403 [Delhi] while discussing the definition of the word "Charitable Purpose" under Section 2 [15] of the Income Tax Act has held that:"relief of poor, education and medical relief are charitable activities per se and if any institution is carrying out any of these objects, then, such an institution would be pursuing a charitable purpose."

"Charitable purpose" includes relief of poor, education, medical relief, and the advancement of any other object of general public utility. Before proceeding further, it may be pointed out that the words "not involving the carrying on of any activity of profit", finding place in the section at the end of the words "objects of general public utility", were omitted by the Finance Act, 1983, with effect from 1-04-1984. Therefore, the cases relied upon under the old definition will not come to the aid of the revenue. This definition does not make a distinction between the institutions carrying on any activity for profit or nonprofit institutions. It is further seen that punctuation, and the word "and" are used after medical relief and, therefore, the words "relief of poor, education, medical relief stand on different footing than the words "advancement of any other object of general public utility". The Hon'ble Supreme Court has pointed out that private profit motive is manifestly excluded by the words "general public utility", but these words qualify the words "advancement of any other object". Therefore, we are of the considered view that relief of poor, education and medical relief are charitable activities per se and if any institution is carrying out any of these objects, then, such an institution will be pursuing a charitable purpose."

The case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association reported in (1980) 121 ITR 1, from which it is evident that the 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 realization 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.

The Hon'ble High Court of Punjab and Haryana at Chandigarh in Pinegrove International Charitable Trust Vs. Union of India and Others reported [2010] 230 CTR [P&H] 477 has categorically held that "it is obligatory on the part of the Chief Commissioner of Income Tax or the Director, which are the prescribed authorities, to comply with proviso thirteen [unnumbered]. Accordingly, it has to be ascertained whether the educational institution has been applying its profit wholly and exclusively to the object for which the institution is established. Merely because an institution is earning profit would not be deciding factor to conclude that the educational institution exists for profit."

Hon'ble High Court of Delhi in St. Lawrence Education Society [Regd] and Anr. V. Commissioner of Income Tax Delhi [Central] and Anr. The Baptist Education Society and Anr. Vs. Chief Commissioner of Income Tax reported in [2011] 197 TAXMAN504 [Delhi] while deciding the appeal and discussing various authorities on the said subject, allowing the Writ petition held that "the opinion expressed by the respondent that the educational institution seeking exemption should not generate any quantitative surplus is legally untenable and incorrect. The chief Commissioner has erred in assuming that for exemption there should not be any surplus; otherwise the institution society exists for profit and not charity i.e education in the present case. In view of the aforesaid judgments of the Supreme Court, Bombay High Court and Punjab and Haryana High Court, reasoning inscribed by the competent authority solely on the foundation that there has been some surplus profit is unjustified."

Nevertheless, here, it is pertinent to bring to notice a clarification issued by the Board in Circular No. 11/2008 dated December 19, 2008, which further elucidates the picture and most likely to settle the dispute on the issue which states as under.

"The amendment made by the finance Act, 2008 will not apply in respect to the first three limbs of Section 2[15]. Consequently, where the purpose of a trust or institution is relief for the poor, education or medical relief, preservation of environment and preservation of monuments, it will constitute 'Charitable Purpose' even if it incidentally involves the carrying on of commercial activities.

Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that

  1. the business should be incidental to the attainment of the objectives of the entity, and
  2. separate books of account should be maintained in respect of such business.

Similarly, entities whose object is 'education' or 'medical relief' would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above.

The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity."

Here, it shall also be important to note that this circular in the light of Section 119 of the I.T Act and in light of the case of Catholic Syrian Bank Ltd. Vs. Commissioner of Income Tax, Thrissur [MANU/SC/0127/2012] is binding on the Income Tax Authorities.

Considering the discussion above, it can be inferred that schools imparting education, even if earning some amount of profits and charging high fees shall still be said to be engaged in charitable activities. Meaning thereby entities whose object is Education would continue to be eligible for exemption as charitable institutions even if they incidentally carry on commercial activities and Education as an object is charitable per se under the Indian Income Tax Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.