Our society runs a college but also earns from hostels and events. Can we get 10(23C)(vi) approval?
Only if education is your sole object. 'Solely' means to the exclusion of all others, and the older predominant object test was rejected. Business receipts stay exempt only where the business is incidental to the educational object and separate books are kept, so letting hostels to non-students or hosting outside conferences falls outside that.
Decided by the Supreme Court (Uday Umesh Lalit CJI, S. Ravindra Bhat J and Pamidighantam Sri Narasimha J) on 2022-10-19, reported as (2022) 448 ITR 594 / 219 DTR 89 / 329 CTR 137 / 143 taxmann.com 276 / (2023) 290 Taxman 206 (SC); 2022 SCC OnLine SC 1458; Civil Appeal Nos. 6418 & 9108 of 2012 and 3793, 3794 & 3795 of 2014. It bears on section 10(23C), section 10(23C)(vi), section 10(23C)(iiiab), section 10(23C)(iiiad), section 11(4A), section 2(15) of the Income Tax Act 1961, in Charitable Trusts & Exemption matters.
This case favours the revenue and you need to know it because the department will cite it against every trust whose memorandum carries non-educational objects alongside education. It also adds a requirement practitioners miss: compliance with the applicable State charity law. The one piece of relief is that the Court directed prospective operation, so a rejection or reassessment that reaches back into earlier years on this reasoning can be resisted on that footing.
Binding on every court and authority in India.
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Educational societies in Andhra Pradesh applied for approval under s.10(23C)(vi). The prescribed authority rejected the applications, and the Andhra Pradesh High Court upheld the rejections on the footing that the societies were not created solely for education and were not registered under the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987. Appeals were carried to the Supreme Court.
The assessees' appeals were dismissed without order as to costs, the Andhra Pradesh High Court being affirmed (para 78). The Court's conclusions are set out at para 76. 'Solely' is not the same as 'predominantly' or 'mainly'; it means to the exclusion of all others, so all the objects of the trust or society must relate to imparting education or to educational activities (paras 51 and 76(a)). Where the objective appears to be profit-oriented there is no approval, but a surplus arising in a year is not by itself a bar provided it is generated in the course of providing education (para 76(b)). The seventh proviso to s.10(23C) and s.11(4A) permit only profits of a business incidental to educational activity - the Court's examples are the sale of textbooks and the provision of school bus and hostel facilities - and separate books must be kept (paras 76(c) and (d)). The Commissioner is not confined to examining the objects: he may call for audited accounts and other documents to test genuineness and the pattern of income and expenditure, and this applies to existing trusts as well as newly set up ones (para 76(f)). Where registration is obligatory under state or local law, the institution must also comply with that law (para 76(g)). Because the judgment departs from the earlier rulings, the law declared operates prospectively; the assessees' claims for approval remain open to be considered on fresh applications in the light of subsequent events (para 78).
The plain and grammatical meaning of 'solely' is 'only' or 'exclusively', and the lexicons bear that out; the earlier decisions never explored the word's true meaning and instead applied the 'predominant object' test from Surat Art Silk without question (paras 50-51). That was an error, because Surat Art Silk concerned a society claiming charitable status for the advancement of objects of general public utility, not one imparting education; the approach applicable to the two is entirely different, and in ss.10(23C)(iiiab), (iiiad) and (vi) the positive condition 'solely for educational purposes' and the negative injunction 'and not for purposes of profit' are compulsive mandates. A trust or institution imparting education must therefore have all its objects aimed at imparting or facilitating education, and on the plain terms of the statute no other interpretation is open (para 51). That view is fortified by the constitution bench in Commissioner of Customs (Import) v. Dilip Kumar and Company, that taxing statutes are construed on their plain language (para 52). The proviso carving out an exception cannot be used to construe the substantive requirement (para 55 of the reproduced text). Because the interpretation departs from the settled understanding, prospective operation was directed to avoid disruption and to let affected institutions realign (para 78).
It is, therefore, clear that term 'solely' is not the same as 'predominant/mainly'. The term 'solely' means to the exclusion of all others.
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Handle my notice → Ask a CA on WhatsAppOnly if education is your sole object. 'Solely' means to the exclusion of all others, and the older predominant object test was rejected. Business receipts stay exempt only where the business is incidental to the educational object and separate books are kept, so letting hostels to non-students or hosting outside conferences falls outside that. This was decided by the Supreme Court (Uday Umesh Lalit CJI, S. Ravindra Bhat J and Pamidighantam Sri Narasimha J) and bears on section 10(23C), section 10(23C)(vi), section 10(23C)(iiiab), section 10(23C)(iiiad), section 11(4A), section 2(15) of the Income Tax Act 1961. It is reported as (2022) 448 ITR 594 / 219 DTR 89 / 329 CTR 137 / 143 taxmann.com 276 / (2023) 290 Taxman 206 (SC); 2022 SCC OnLine SC 1458; Civil Appeal Nos. 6418 & 9108 of 2012 and 3793, 3794 & 3795 of 2014. This case favours the revenue and you need to know it because the department will cite it against every trust whose memorandum carries non-educational objects alongside education. It also adds a requirement practitioners miss: compliance with the applicable State charity law. The one piece of relief is that the Court directed prospective operation, so a rejection or reassessment that reaches back into earlier years on this reasoning can be resisted on that footing. If it applies to you, the first step is this: Read the objects clause of your trust deed or memorandum and identify any non-educational object, because a single such object is what the prescribed authority will rely on.
Educational societies in Andhra Pradesh applied for approval under s.10(23C)(vi). The prescribed authority rejected the applications, and the Andhra Pradesh High Court upheld the rejections on the footing that the societies were not created solely for education and were not registered under the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987. Appeals were carried to the Supreme Court. The matter was decided on 2022-10-19 by the Supreme Court (Uday Umesh Lalit CJI, S. Ravindra Bhat J and Pamidighantam Sri Narasimha J). On those facts the Supreme Court held as follows. The assessees' appeals were dismissed without order as to costs, the Andhra Pradesh High Court being affirmed (para 78). The Court's conclusions are set out at para 76. 'Solely' is not the same as 'predominantly' or 'mainly'; it means to the exclusion of all others, so all the objects of the trust or society must relate to imparting education or to educational activities (paras 51 and 76(a)). Where the objective appears to be profit-oriented there is no approval, but a surplus arising in a year is not by itself a bar provided it is generated in the course of providing education (para 76(b)). The seventh proviso to s.10(23C) and s.11(4A) permit only profits of a business incidental to educational activity - the Court's examples are the sale of textbooks and the provision of school bus and hostel facilities - and separate books must be kept (paras 76(c) and (d)). The Commissioner is not confined to examining the objects: he may call for audited accounts and other documents to test genuineness and the pattern of income and expenditure, and this applies to existing trusts as well as newly set up ones (para 76(f)). Where registration is obligatory under state or local law, the institution must also comply with that law (para 76(g)). Because the judgment departs from the earlier rulings, the law declared operates prospectively; the assessees' claims for approval remain open to be considered on fresh applications in the light of subsequent events (para 78).
The plain and grammatical meaning of 'solely' is 'only' or 'exclusively', and the lexicons bear that out; the earlier decisions never explored the word's true meaning and instead applied the 'predominant object' test from Surat Art Silk without question (paras 50-51). That was an error, because Surat Art Silk concerned a society claiming charitable status for the advancement of objects of general public utility, not one imparting education; the approach applicable to the two is entirely different, and in ss.10(23C)(iiiab), (iiiad) and (vi) the positive condition 'solely for educational purposes' and the negative injunction 'and not for purposes of profit' are compulsive mandates. A trust or institution imparting education must therefore have all its objects aimed at imparting or facilitating education, and on the plain terms of the statute no other interpretation is open (para 51). That view is fortified by the constitution bench in Commissioner of Customs (Import) v. Dilip Kumar and Company, that taxing statutes are construed on their plain language (para 52). The proviso carving out an exception cannot be used to construe the substantive requirement (para 55 of the reproduced text). Because the interpretation departs from the settled understanding, prospective operation was directed to avoid disruption and to let affected institutions realign (para 78). In the words reproduced by the source cited on this page: "It is, therefore, clear that term 'solely' is not the same as 'predominant/mainly'. The term 'solely' means to the exclusion of all others." The decision followed or applied American Hotel and Lodging Association v. CBDT [2008] 170 Taxman 306 / 301 ITR 86 (SC) / [2008] 10 SCC 509 - overruled on the meaning of 'solely'; Queen's Educational Society v. CIT [2015] 55 taxmann.com 255 / 231 Taxman 286 / 372 ITR 699 (SC) / [2015] 8 SCC 47 - overruled on the meaning of 'solely'; Commissioner of Customs (Import) v. Dilip Kumar and Company [2018] 95 taxmann.com 327 / [2018] 9 SCC 1 (SC) - followed; New Noble Educational Society v. Chief CIT [2011] 12 taxmann.com 267 / 201 Taxman 33 / 334 ITR 303 (AP) - affirmed; Addl. CIT v. Surat Art Silk Cloth Manufacturers' Association [1978] 121 ITR 1 (SC) - distinguished as decided in a different context.
It was decided by the Supreme Court on 2022-10-19 and is reported as (2022) 448 ITR 594 / 219 DTR 89 / 329 CTR 137 / 143 taxmann.com 276 / (2023) 290 Taxman 206 (SC); 2022 SCC OnLine SC 1458; Civil Appeal Nos. 6418 & 9108 of 2012 and 3793, 3794 & 3795 of 2014. 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(23C), section 10(23C)(vi), section 10(23C)(iiiab), section 10(23C)(iiiad), section 11(4A), section 2(15), 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 department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The assessees' appeals were dismissed without order as to costs, the Andhra Pradesh High Court being affirmed (para 78). The Court's conclusions are set out at para 76. 'Solely' is not the same as 'predominantly' or 'mainly'; it means to the exclusion of all others, so all the objects of the trust or society must relate to imparting education or to educational activities (paras 51 and 76(a)). Where the objective appears to be profit-oriented there is no approval, but a surplus arising in a year is not by itself a bar provided it is generated in the course of providing education (para 76(b)). The seventh proviso to s.10(23C) and s.11(4A) permit only profits of a business incidental to educational activity - the Court's examples are the sale of textbooks and the provision of school bus and hostel facilities - and separate books must be kept (paras 76(c) and (d)). The Commissioner is not confined to examining the objects: he may call for audited accounts and other documents to test genuineness and the pattern of income and expenditure, and this applies to existing trusts as well as newly set up ones (para 76(f)). Where registration is obligatory under state or local law, the institution must also comply with that law (para 76(g)). Because the judgment departs from the earlier rulings, the law declared operates prospectively; the assessees' claims for approval remain open to be considered on fresh applications in the light of subsequent events (para 78). It arises in Charitable Trusts & Exemption matters, on section 10(23C), section 10(23C)(vi), section 10(23C)(iiiab), section 10(23C)(iiiad), section 11(4A), section 2(15) of the Income Tax Act 1961, and was decided by Uday Umesh Lalit CJI, S. Ravindra Bhat J and Pamidighantam Sri Narasimha 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. If the objects are wide, amend them and apply afresh rather than arguing that education is the dominant activity in practice. Maintain separate books for any incidental business such as hostels or events, and be ready to show the activity is incidental to the educational object. Check registration under the applicable State charity or endowments law and place proof on record, since the Court treated that as a condition.
Still good law. Followed by the Supreme Court in Union of India v. Baba Banda Singh Bahadur Education Trust [2023] 150 taxmann.com 40 / 293 Taxman 428 / 454 ITR 273 (SC), decided 26 April 2023 by M.R. Shah and C.T. Ravikumar, JJ., whose case review records this decision as followed; applying it, the Court set aside a Punjab and Haryana High Court order and restored the Commissioner's refusal of approval. This judgment overruled American Hotel and Lodging Association and Queen's Educational Society on the meaning of 'solely', and affirmed the Andhra Pradesh High Court below. The law it declares operates prospectively (para 78), so past assessments are not to be reopened on this basis. 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.
Do not cite American Hotel and Lodging Association or Queen's Educational Society for the predominant object test: this judgment overruled both on the meaning of 'solely'. The new interpretation was directed to operate prospectively (para 78), which is worth taking expressly if an earlier year is in issue, and the appellants were left free to make fresh applications for approval to be considered on subsequent events. Two holdings that are easy to miss cut in opposite directions: a surplus generated in the course of providing education is not by itself a bar (para 76(b)), but the Commissioner may call for audited accounts and other documents to test genuineness, in the case of existing trusts as well as new ones (para 76(f)). Paragraph numbering differs between renderings of this judgment. In the text read here the passage defining 'solely' is numbered para 51 and the summary of conclusions para 76; in the text of the same judgment reproduced by the Supreme Court in Union of India v. Baba Banda Singh Bahadur Education Trust the corresponding paragraphs are numbered 56 and 68. Check the paragraph number against the official report before citing it in a submission. 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 assessees' appeals were dismissed without order as to costs, the Andhra Pradesh High Court being affirmed (para 78). The Court's conclusions are set out at para 76. 'Solely' is not the same as 'predominantly' or 'mainly'; it means to the exclusion of all others, so all the objects of the trust or society must relate to imparting education or to educational activities (paras 51 and 76(a)). Where the objective appears to be profit-oriented there is no approval, but a surplus arising in a year is not by itself a bar provided it is generated in the course of providing education (para 76(b)). The seventh proviso to s.10(23C) and s.11(4A) permit only profits of a business incidental to educational activity - the Court's examples are the sale of textbooks and the provision of school bus and hostel facilities - and separate books must be kept (paras 76(c) and (d)). The Commissioner is not confined to examining the objects: he may call for audited accounts and other documents to test genuineness and the pattern of income and expenditure, and this applies to existing trusts as well as newly set up ones (para 76(f)). Where registration is obligatory under state or local law, the institution must also comply with that law (para 76(g)). Because the judgment departs from the earlier rulings, the law declared operates prospectively; the assessees' claims for approval remain open to be considered on fresh applications in the light of subsequent events (para 78).
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