Our society does not teach anyone itself - it runs a college. Can the society claim the exemption meant for an educational institution?
Yes. The Supreme Court held that a society, trust or similar body running an educational institution solely for educational purposes and not for profit is itself an 'other educational institution' within section 10(22). It rejected the Revenue's argument that such a body is only a financing agency, holding it would be unreal and hyper-technical to say so where the society's college is the medium through which it imparts education. The Court added that the exemption must be evaluated year by year, and that a surplus arising incidentally does not take the institution outside the clause. The decisive test is whether, on an overall view, the object is to make profit.
Decided by the Supreme Court (Supreme Court of India - B.P. Jeevan Reddy and K.S. Paripoornan JJ; judgment delivered by Paripoornan J) on 1997-02-05, reported as (1997) 224 ITR 310; 1997 (3) SCC 346; AIR 1997 SC 1436; (1997) 90 Taxman 528; (1997) 1 SCR 948; 1997 AIR SCW 1565. It bears on section 10(22) of the Income Tax Act 1961, in Capital Gains Exemptions and Charitable Trusts & Exemption matters.
This is the case that settles who may claim the educational exemption: the entity that runs the school or college, not merely the school or college as a physical institution. It disposes of the Revenue's recurring 'you are only a financier' point, and it supplies the two tests practitioners still argue from - the year-by-year evaluation of whether the institution existed solely for educational purposes in the relevant year, and the acid test of whether, taking an overall view, the object is to make profit. It also puts incidental surplus in its place: a surplus left after meeting expenditure does not by itself convert an educational purpose into a profit purpose. The reasoning carries directly into the successor provisions in section 10(23C).
Binding on every court and authority in India.
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The main assessee was a society registered under the Societies Registration Act whose objects were to establish, run, manage or assist colleges, schools and other educational organisations existing solely for educational purposes. In the years relevant to assessment years 1965-66 to 1967-68 it received donations from Thanthi Trust of about Rs 15.71 lakh, Rs 5.62 lakh and Rs 4.79 lakh. It filed nil returns on the footing that it was an educational institution existing solely for educational purposes, and the Income Tax Officer closed the assessments on the basis that there was no taxable income. The Commissioner acted under section 263, holding those orders erroneous and prejudicial to the Revenue because the voluntary contributions had not been considered, and took the view that section 10(22) exempts only a college, academy or school and not anyone financing one. The Tribunal held the society was itself an educational institution within section 10(22), and the Madras High Court agreed. Eighteen appeals raising the same question, involving this and other societies, were heard together.
The Court held that an educational society, trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit can be regarded as an 'other educational institution' within section 10(22). It agreed with the High Court that the society came into existence to establish and run colleges and schools, that the college was the medium through which it imparted education, and that it would be unreal and hyper-technical to treat it as only a financing body. On the assessee's apprehension about observations in the penultimate paragraph of the High Court's judgment, the Court clarified that the language of section 10(22) is plain: availability of the exemption must be evaluated each year to see whether the institution existed in that year solely for educational purposes and not for profit. A surplus arising incidentally from the activity does not take the institution out of the clause, the decisive test being whether on an overall view the object is to make profit. Subject to those observations the appeals filed by the assessee also failed and were dismissed, with no order as to costs.
The question was whether the assessee fell within the words 'other educational institution' in section 10(22), which exempts the income of a university or other educational institution existing solely for educational purposes and not for purposes of profit. The High Court had held that a university cannot be the genus and other educational institutions the species: the categories are different, and any educational institution falls within the clause whether or not it has anything to do with a university. The Supreme Court accepted the concurrent findings of the Tribunal and the High Court that the society existed for educational purposes and not to earn profit, and that the college it had established was the means by which it carried out its objects. On that footing the label 'financing body' did not fit. The Court noted the same approach in decisions of the Allahabad, Calcutta and Rajasthan High Courts. It then addressed the two matters that would otherwise be left uncertain. First, because the words of the clause are plain, entitlement is not settled once for all: it has to be tested in each year against the state of affairs in that year. Second, an educational institution does not lose the character of existing solely for educational purposes merely because a surplus is left after meeting expenditure, where that surplus is incidental to lawful activity and the object is not to make profit.
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
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court held that a society, trust or similar body running an educational institution solely for educational purposes and not for profit is itself an 'other educational institution' within section 10(22). It rejected the Revenue's argument that such a body is only a financing agency, holding it would be unreal and hyper-technical to say so where the society's college is the medium through which it imparts education. The Court added that the exemption must be evaluated year by year, and that a surplus arising incidentally does not take the institution outside the clause. The decisive test is whether, on an overall view, the object is to make profit. This was decided by the Supreme Court (Supreme Court of India - B.P. Jeevan Reddy and K.S. Paripoornan JJ; judgment delivered by Paripoornan J) and bears on section 10(22) of the Income Tax Act 1961. It is reported as (1997) 224 ITR 310; 1997 (3) SCC 346; AIR 1997 SC 1436; (1997) 90 Taxman 528; (1997) 1 SCR 948; 1997 AIR SCW 1565. This is the case that settles who may claim the educational exemption: the entity that runs the school or college, not merely the school or college as a physical institution. It disposes of the Revenue's recurring 'you are only a financier' point, and it supplies the two tests practitioners still argue from - the year-by-year evaluation of whether the institution existed solely for educational purposes in the relevant year, and the acid test of whether, taking an overall view, the object is to make profit. It also puts incidental surplus in its place: a surplus left after meeting expenditure does not by itself convert an educational purpose into a profit purpose. The reasoning carries directly into the successor provisions in section 10(23C). If it applies to you, the first step is this: Show the objects and the actual running of the school or college by your society or trust, not just its funding, when the claim is challenged as that of a mere financier.
The main assessee was a society registered under the Societies Registration Act whose objects were to establish, run, manage or assist colleges, schools and other educational organisations existing solely for educational purposes. In the years relevant to assessment years 1965-66 to 1967-68 it received donations from Thanthi Trust of about Rs 15.71 lakh, Rs 5.62 lakh and Rs 4.79 lakh. It filed nil returns on the footing that it was an educational institution existing solely for educational purposes, and the Income Tax Officer closed the assessments on the basis that there was no taxable income. The Commissioner acted under section 263, holding those orders erroneous and prejudicial to the Revenue because the voluntary contributions had not been considered, and took the view that section 10(22) exempts only a college, academy or school and not anyone financing one. The Tribunal held the society was itself an educational institution within section 10(22), and the Madras High Court agreed. Eighteen appeals raising the same question, involving this and other societies, were heard together. The matter was decided on 1997-02-05 by the Supreme Court (Supreme Court of India - B.P. Jeevan Reddy and K.S. Paripoornan JJ; judgment delivered by Paripoornan J). On those facts the Supreme Court held as follows. The Court held that an educational society, trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit can be regarded as an 'other educational institution' within section 10(22). It agreed with the High Court that the society came into existence to establish and run colleges and schools, that the college was the medium through which it imparted education, and that it would be unreal and hyper-technical to treat it as only a financing body. On the assessee's apprehension about observations in the penultimate paragraph of the High Court's judgment, the Court clarified that the language of section 10(22) is plain: availability of the exemption must be evaluated each year to see whether the institution existed in that year solely for educational purposes and not for profit. A surplus arising incidentally from the activity does not take the institution out of the clause, the decisive test being whether on an overall view the object is to make profit. Subject to those observations the appeals filed by the assessee also failed and were dismissed, with no order as to costs.
The question was whether the assessee fell within the words 'other educational institution' in section 10(22), which exempts the income of a university or other educational institution existing solely for educational purposes and not for purposes of profit. The High Court had held that a university cannot be the genus and other educational institutions the species: the categories are different, and any educational institution falls within the clause whether or not it has anything to do with a university. The Supreme Court accepted the concurrent findings of the Tribunal and the High Court that the society existed for educational purposes and not to earn profit, and that the college it had established was the means by which it carried out its objects. On that footing the label 'financing body' did not fit. The Court noted the same approach in decisions of the Allahabad, Calcutta and Rajasthan High Courts. It then addressed the two matters that would otherwise be left uncertain. First, because the words of the clause are plain, entitlement is not settled once for all: it has to be tested in each year against the state of affairs in that year. Second, an educational institution does not lose the character of existing solely for educational purposes merely because a surplus is left after meeting expenditure, where that surplus is incidental to lawful activity and the object is not to make profit. In the words reproduced by the source cited on this page: "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"
It was decided by the Supreme Court on 1997-02-05 and is reported as (1997) 224 ITR 310; 1997 (3) SCC 346; AIR 1997 SC 1436; (1997) 90 Taxman 528; (1997) 1 SCR 948; 1997 AIR SCW 1565. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 10(22), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Court held that an educational society, trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit can be regarded as an 'other educational institution' within section 10(22). It agreed with the High Court that the society came into existence to establish and run colleges and schools, that the college was the medium through which it imparted education, and that it would be unreal and hyper-technical to treat it as only a financing body. On the assessee's apprehension about observations in the penultimate paragraph of the High Court's judgment, the Court clarified that the language of section 10(22) is plain: availability of the exemption must be evaluated each year to see whether the institution existed in that year solely for educational purposes and not for profit. A surplus arising incidentally from the activity does not take the institution out of the clause, the decisive test being whether on an overall view the object is to make profit. Subject to those observations the appeals filed by the assessee also failed and were dismissed, with no order as to costs. It arises in Capital Gains Exemptions and Charitable Trusts & Exemption matters, on section 10(22) of the Income Tax Act 1961, and was decided by Supreme Court of India - B.P. Jeevan Reddy and K.S. Paripoornan JJ; judgment delivered by Paripoornan J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Prove the position for each year separately - the Court required the exemption to be evaluated year by year, not once for all. Where there is a surplus, show it arose incidentally after meeting expenditure and that the object is not to make profit; that is the test the Court set. Keep the corpus, the objects and the powers of the entity distinct in your submission, as the Court said the distinction matters.
Validity check could not be completed. Read the judgment in full; later history not checked. Section 10(22) itself was in force for the years in question and has since been replaced in the statute book by section 10(23C), a change this judgment does not deal with. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The harvested text has a splice in the passage that runs from paragraph 7 into paragraph 8: a stretch is missing in which the Revenue's appeals appear to have been disposed of and the assessee's apprehension about the High Court's penultimate paragraph introduced. The text is otherwise continuous and reaches the operative order. The judgment does not decide the position under section 10(23C) or under section 11. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Court held that an educational society, trust or other similar body running an educational institution solely for educational purposes and not for the purpose of profit can be regarded as an 'other educational institution' within section 10(22). It agreed with the High Court that the society came into existence to establish and run colleges and schools, that the college was the medium through which it imparted education, and that it would be unreal and hyper-technical to treat it as only a financing body. On the assessee's apprehension about observations in the penultimate paragraph of the High Court's judgment, the Court clarified that the language of section 10(22) is plain: availability of the exemption must be evaluated each year to see whether the institution existed in that year solely for educational purposes and not for profit. A surplus arising incidentally from the activity does not take the institution out of the clause, the decisive test being whether on an overall view the object is to make profit. Subject to those observations the appeals filed by the assessee also failed and were dismissed, with no order as to costs.
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My society runs a college and ended the year with a surplus. Does that surplus mean we no longer exist solely for educational purposes and not for profit?
My school makes a surplus every year and puts it back into buildings and equipment. Does that mean it no longer exists solely for education?