The Hon'ble Supreme Court of India has through another
landmark judgment proved that PATIENCE ALWAYS PAYS. Definitely a
relief for all the educational institutions running in the country,
this judgment shall put an end to running controversies and the
harassment all these institutions were going through all this
A Common judgment passed in the case of Queens Educational
Society and Pine groove International Charitable Trust1
has distinguished the long relied case of Municipal Corpn. of Delhi
V Children Book Trust and Safdurjung Enclave Educational Society,
reported in (1992) 3 SCC 390 by the Income Tax Authorities.
The Court while relying on the judgments of Surat Art Silk Cloth
reported in 121 ITR 1 (SC), Aditanar reported in 224 ITR 310 (SC),
and American Hotel and Lodging reported on 2008-TIOL-115-SC-IT,
decided the issue with regards exemption to be granted U/s
10(23C)(iiad) of the Income Tax Act and summed up Section 10(23C)
(iiad) as follows:
Where an educational institution carries on the activity of
education primarily for educating persons, the fact that it makes a
surplus does not lead to the conclusion that it ceases to exist
solely for educational purposes and becomes an institution for the
purpose of making profit.
The predominant object test must be applied – the purpose
of education should not be submerged by a profit making
A distinction must be drawn between the making of a surplus and
an institution being carried on "for profit". No
inference arises that merely because imparting education results in
making a profit, it becomes an activity for profit.
If after meeting expenditure, a surplus arises incidentally
from the activity carried on by the educational institution, it
will not be cease to be one existing solely for educational
The ultimate test is whether on an overall view of the matter
in the concerned assessment year the object is to make profit as
opposed to educating persons.
Furthermore, the Court bringing in all cheers for the
educational institutions upheld its own view in the Surat Art Silk
Manufactureres Associations Case and Aditanar educational
institution case that "The fact that the Petitioner has a
surplus of income over expenditure for the three years in question,
cannot by any stretch of logical reasoning lead to the conclusion
that the Petitioner does not exist solely for educational purposes
or, as that Chief Commissioner held that the Petitioner exists for
profit. The test to be applied is as to whether the predominant
nature of the activity is educational. In the
present case, the sole and dominant nature of the activity is
education and the Petitioner exists solely for the purposes of
imparting education.An incidental surplus which
is generated, and which has resulted in additions to the fixed
assets is utilized as the balance-sheet would indicate towards
upgrading the facilities of the college including for the purchase
of library books and the improvement of infrastructure. With the
advancement of technology, no college or institution can afford to
remain stagnant. The Income-tax Act 1961 does not condition the
grant of an exemption under Section 10(23C) on the requirement that
a college must maintain the status-quo, as it were, in regard to
its knowledge based infrastructure. Nor for that matter is an
educational institution prohibited from upgrading its
infrastructure on educational facilities save on the pain of losing
the benefit of the exemption under Section 10(23C). Imposing such a
condition which is not contained in the statute would lead to a
perversion of the basic purpose for which such exemptions have been
granted to educational institutions." Knowledge in
contemporary times is technology driven.Educational institutions have to modernize, upgrade and
respond to the changing ethos of education.
This landmark judgment is surely going to put an end to alot of
tax litigations pending in the country. A very good news for the
education industry and a move towards unnecessary harassment of the
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