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?
No. The Supreme Court held that a surplus ploughed back into the institution does not destroy the exemption. What matters is the predominant object: if the institution exists solely for education and not for profit, the fact that receipts exceed expenditure is beside the point. The Court set aside the Uttarakhand High Court's contrary judgment in Queen's Educational Society, approved the Punjab and Haryana, Delhi and Bombay High Court decisions, and restored the Tribunal's view. It reaffirmed Surat Art Silk Cloth, Aditanar and American Hotel and Lodging as the governing tests, while stressing that the thirteenth proviso requires the authorities to monitor actual application of income year by year. Read subject to a date, though: on 19 October 2022 the Supreme Court in New Noble Educational Society v Chief CIT disapproved the reasoning of this judgment and of American Hotel and Lodging so far as it pertains to the interpretation of 'solely', and held instead that all the objects of the institution must relate to imparting education, so the predominant-object test stated here is no longer the test for that word. New Noble para 78 directs that the law it declares operate prospectively.
Decided by the Supreme Court (Supreme Court of India - Justice T.S. Thakur and Justice R.F. Nariman (judgment by R.F. Nariman, J)) on 2015-03-16, reported as AIR 2015 SC 3253; 2015 (8) SCC 47; 2015 AIR SCW 2112; (2015) 3 SCALE 641; (2015) 3 Mad LJ 494; (2015) 3 Bom CR 1. It bears on section 10(23C)(iiiad), section 10(23C)(vi), section 11, section 2(15), section 10(22) of the Income Tax Act 1961, in Charitable Trusts & Exemption and Capital Gains Exemptions matters.
For fifteen years the Uttarakhand judgment gave assessing officers a simple, wrong rule - profit means no exemption - and exemptions under section 10(23C) were withdrawn wholesale on the strength of it. This judgment removes that rule and puts the predominant object test back at the centre for both section 10(23C)(iiiad) and section 10(23C)(vi). It is the authority to cite whenever an officer treats a healthy surplus, or spending on new premises and equipment, as evidence of a profit motive. But read the last paragraph too: the Court was equally clear that the thirteenth proviso obliges the prescribed authority to check, year by year, that income is actually applied and funds are invested as the law requires, that activities must be genuine and in accordance with the conditions of approval, and that the Revenue was free to pass fresh orders on a proper footing. One caution that now comes before all of that: the predominant-object test this judgment restored ceased on 19 October 2022 to be the test for the word 'solely'. New Noble Educational Society v Chief CIT disapproved the reasoning and conclusions of this judgment and of American Hotel and Lodging 'so far as they pertain to the interpretation of expression ‘solely’' and overruled them 'to that extent', holding that all the objects must relate to imparting education and that an object unrelated to education is fatal even where education predominates. So check the date of the approval application or the assessment year before writing 'predominant object' anywhere: New Noble para 78 directs that the law it declares operate prospectively, so a matter governed by the law as it stood before 19 October 2022 can still be argued on this judgment and a matter after it cannot. What this judgment settled about a ploughed-back surplus is not itself displaced — New Noble para 76(b) accepts that a surplus in a year is not per se a bar provided it is generated in the course of providing education — but the route to that result through the predominant object is.
Binding on every court and authority in India.
Read aloud by your device. Press again to stop.
Queen's Educational Society, established solely to impart education, returned surpluses of Rs.6,58,862 and Rs.7,82,632 for assessment years 2000-01 and 2001-02 and claimed exemption under section 10(23C)(iiiad), the limb for institutions whose aggregate annual receipts do not exceed the amount prescribed by Rule 2CA. The Assessing Officer refused the exemption on 20 February 2003 on the reasoning that an institution which makes a profit ceases to exist solely for educational purposes. The Commissioner (Appeals) allowed the society's appeal and the Tribunal dismissed the Revenue's appeal, but on 24 September 2007 the Uttarakhand High Court set the Tribunal aside and restored the officer's order. Separately, the Chief Commissioner at Chandigarh withdrew approvals under section 10(23C)(vi) in a number of cases, resting almost entirely on that Uttarakhand judgment; the Punjab and Haryana High Court set those orders aside on 29 January 2010 in Pine Grove International Charitable Trust, and the Union and the Board appealed. The Supreme Court heard the society's appeals and the Revenue's appeals together, along with one further appeal by an assessee whose application for approval under section 10(23C)(vi) for assessment year 2008-09 had been filed on 23 September 2008, after the 31 March 2008 deadline.
The Uttarakhand High Court's judgment of 24 September 2007 was set aside and the Tribunal's reasoning approved as more in consonance with the law. The Court held that a surplus ploughed back to construct the institution's own premises does not take it outside section 10(23C); to hold otherwise ignores the language of the section and the tests in Surat Art Silk Cloth, Aditanar and American Hotel and Lodging. The Revenue's appeals against the Punjab and Haryana High Court were dismissed, because the Chief Commissioner's orders withdrawing approval had rested almost solely on the Uttarakhand judgment and could not survive its reversal; the judgments of the Punjab and Haryana, Delhi and Bombay High Courts were approved. The Court added two things. First, the thirteenth proviso to section 10(23C) is of great importance: the assessing authorities must monitor year by year whether income is applied and funds invested or deposited as the law requires, and approval must be withdrawn at once where activities are not genuine or the conditions of approval are not observed. The Revenue was left at liberty to pass fresh orders. Second, the appeal about the late application under section 10(23C)(vi) was dismissed - an application filed on 23 September 2008 for assessment year 2008-09, when it had to be made by 31 March 2008, was rightly rejected as not maintainable.
The Court read section 10(23C)(iiiad) as having three requirements - the institution must exist solely for educational purposes, not for purposes of profit, and its aggregate annual receipts must not exceed the prescribed amount - and traced it to the predecessor section 10(22), replaced with effect from 1 April 1999. It then set the governing tests out from three of its own decisions. Surat Art Silk Cloth, on "activity for profit" in section 2(15), holds that it is not enough that an activity in fact results in profit; profit-making must be the end to which the activity is directed, so the predominant object controls, and the charitable purpose must not be a cover for an activity whose predominant object is profit. Aditanar, on section 10(22), holds that exemption is to be evaluated year by year, and that a surplus resulting incidentally after meeting expenditure does not stop an institution existing solely for educational purposes - the acid test is whether, on an overall view, the object is to make profit. American Hotel and Lodging, on section 10(23C)(vi), holds that a purpose does not lose its character merely because some profit arises, since running education so that expenditure exactly balances income would be impracticable and unsound management, and that the prescribed authority's duty is to see whether the income is applied wholly and exclusively to the objects. Measured against these, the Uttarakhand High Court had applied a test of the Assessing Officer's own devising and had imported ideas foreign to section 10(23C)(iiiad). The Court also drew on S.RM.M.CT.M. Tiruppani Trust, where money spent on a building to be used as a hospital was held to be income applied for charitable purposes under section 11(1)(a).
It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held that a surplus ploughed back into the institution does not destroy the exemption. What matters is the predominant object: if the institution exists solely for education and not for profit, the fact that receipts exceed expenditure is beside the point. The Court set aside the Uttarakhand High Court's contrary judgment in Queen's Educational Society, approved the Punjab and Haryana, Delhi and Bombay High Court decisions, and restored the Tribunal's view. It reaffirmed Surat Art Silk Cloth, Aditanar and American Hotel and Lodging as the governing tests, while stressing that the thirteenth proviso requires the authorities to monitor actual application of income year by year. Read subject to a date, though: on 19 October 2022 the Supreme Court in New Noble Educational Society v Chief CIT disapproved the reasoning of this judgment and of American Hotel and Lodging so far as it pertains to the interpretation of 'solely', and held instead that all the objects of the institution must relate to imparting education, so the predominant-object test stated here is no longer the test for that word. New Noble para 78 directs that the law it declares operate prospectively. This was decided by the Supreme Court (Supreme Court of India - Justice T.S. Thakur and Justice R.F. Nariman (judgment by R.F. Nariman, J)) and bears on section 10(23C)(iiiad), section 10(23C)(vi), section 11, section 2(15), section 10(22) of the Income Tax Act 1961. It is reported as AIR 2015 SC 3253; 2015 (8) SCC 47; 2015 AIR SCW 2112; (2015) 3 SCALE 641; (2015) 3 Mad LJ 494; (2015) 3 Bom CR 1. For fifteen years the Uttarakhand judgment gave assessing officers a simple, wrong rule - profit means no exemption - and exemptions under section 10(23C) were withdrawn wholesale on the strength of it. This judgment removes that rule and puts the predominant object test back at the centre for both section 10(23C)(iiiad) and section 10(23C)(vi). It is the authority to cite whenever an officer treats a healthy surplus, or spending on new premises and equipment, as evidence of a profit motive. But read the last paragraph too: the Court was equally clear that the thirteenth proviso obliges the prescribed authority to check, year by year, that income is actually applied and funds are invested as the law requires, that activities must be genuine and in accordance with the conditions of approval, and that the Revenue was free to pass fresh orders on a proper footing. One caution that now comes before all of that: the predominant-object test this judgment restored ceased on 19 October 2022 to be the test for the word 'solely'. New Noble Educational Society v Chief CIT disapproved the reasoning and conclusions of this judgment and of American Hotel and Lodging 'so far as they pertain to the interpretation of expression ‘solely’' and overruled them 'to that extent', holding that all the objects must relate to imparting education and that an object unrelated to education is fatal even where education predominates. So check the date of the approval application or the assessment year before writing 'predominant object' anywhere: New Noble para 78 directs that the law it declares operate prospectively, so a matter governed by the law as it stood before 19 October 2022 can still be argued on this judgment and a matter after it cannot. What this judgment settled about a ploughed-back surplus is not itself displaced — New Noble para 76(b) accepts that a surplus in a year is not per se a bar provided it is generated in the course of providing education — but the route to that result through the predominant object is. If it applies to you, the first step is this: Frame the reply around the predominant object of the institution, not around the size of the surplus, and cite Surat Art Silk Cloth, Aditanar and American Hotel and Lodging as the tests the Supreme Court has reaffirmed. That framing holds only for a year or an approval application governed by the law as it stood before 19 October 2022; from that date New Noble Educational Society v Chief CIT displaces the predominant-object reading of 'solely' and requires that every object relate to imparting education, so establish the date first.
Queen's Educational Society, established solely to impart education, returned surpluses of Rs.6,58,862 and Rs.7,82,632 for assessment years 2000-01 and 2001-02 and claimed exemption under section 10(23C)(iiiad), the limb for institutions whose aggregate annual receipts do not exceed the amount prescribed by Rule 2CA. The Assessing Officer refused the exemption on 20 February 2003 on the reasoning that an institution which makes a profit ceases to exist solely for educational purposes. The Commissioner (Appeals) allowed the society's appeal and the Tribunal dismissed the Revenue's appeal, but on 24 September 2007 the Uttarakhand High Court set the Tribunal aside and restored the officer's order. Separately, the Chief Commissioner at Chandigarh withdrew approvals under section 10(23C)(vi) in a number of cases, resting almost entirely on that Uttarakhand judgment; the Punjab and Haryana High Court set those orders aside on 29 January 2010 in Pine Grove International Charitable Trust, and the Union and the Board appealed. The Supreme Court heard the society's appeals and the Revenue's appeals together, along with one further appeal by an assessee whose application for approval under section 10(23C)(vi) for assessment year 2008-09 had been filed on 23 September 2008, after the 31 March 2008 deadline. The matter was decided on 2015-03-16 by the Supreme Court (Supreme Court of India - Justice T.S. Thakur and Justice R.F. Nariman (judgment by R.F. Nariman, J)). On those facts the Supreme Court held as follows. The Uttarakhand High Court's judgment of 24 September 2007 was set aside and the Tribunal's reasoning approved as more in consonance with the law. The Court held that a surplus ploughed back to construct the institution's own premises does not take it outside section 10(23C); to hold otherwise ignores the language of the section and the tests in Surat Art Silk Cloth, Aditanar and American Hotel and Lodging. The Revenue's appeals against the Punjab and Haryana High Court were dismissed, because the Chief Commissioner's orders withdrawing approval had rested almost solely on the Uttarakhand judgment and could not survive its reversal; the judgments of the Punjab and Haryana, Delhi and Bombay High Courts were approved. The Court added two things. First, the thirteenth proviso to section 10(23C) is of great importance: the assessing authorities must monitor year by year whether income is applied and funds invested or deposited as the law requires, and approval must be withdrawn at once where activities are not genuine or the conditions of approval are not observed. The Revenue was left at liberty to pass fresh orders. Second, the appeal about the late application under section 10(23C)(vi) was dismissed - an application filed on 23 September 2008 for assessment year 2008-09, when it had to be made by 31 March 2008, was rightly rejected as not maintainable.
The Court read section 10(23C)(iiiad) as having three requirements - the institution must exist solely for educational purposes, not for purposes of profit, and its aggregate annual receipts must not exceed the prescribed amount - and traced it to the predecessor section 10(22), replaced with effect from 1 April 1999. It then set the governing tests out from three of its own decisions. Surat Art Silk Cloth, on "activity for profit" in section 2(15), holds that it is not enough that an activity in fact results in profit; profit-making must be the end to which the activity is directed, so the predominant object controls, and the charitable purpose must not be a cover for an activity whose predominant object is profit. Aditanar, on section 10(22), holds that exemption is to be evaluated year by year, and that a surplus resulting incidentally after meeting expenditure does not stop an institution existing solely for educational purposes - the acid test is whether, on an overall view, the object is to make profit. American Hotel and Lodging, on section 10(23C)(vi), holds that a purpose does not lose its character merely because some profit arises, since running education so that expenditure exactly balances income would be impracticable and unsound management, and that the prescribed authority's duty is to see whether the income is applied wholly and exclusively to the objects. Measured against these, the Uttarakhand High Court had applied a test of the Assessing Officer's own devising and had imported ideas foreign to section 10(23C)(iiiad). The Court also drew on S.RM.M.CT.M. Tiruppani Trust, where money spent on a building to be used as a hospital was held to be income applied for charitable purposes under section 11(1)(a). In the words reproduced by the source cited on this page: "It is clear that when a surplus is ploughed back for educational purposes, the educational institution exists solely for educational purposes and not for purposes of profit."
It was decided by the Supreme Court on 2015-03-16 and is reported as AIR 2015 SC 3253; 2015 (8) SCC 47; 2015 AIR SCW 2112; (2015) 3 SCALE 641; (2015) 3 Mad LJ 494; (2015) 3 Bom CR 1. 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)(iiiad), section 10(23C)(vi), section 11, section 2(15), 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 Uttarakhand High Court's judgment of 24 September 2007 was set aside and the Tribunal's reasoning approved as more in consonance with the law. The Court held that a surplus ploughed back to construct the institution's own premises does not take it outside section 10(23C); to hold otherwise ignores the language of the section and the tests in Surat Art Silk Cloth, Aditanar and American Hotel and Lodging. The Revenue's appeals against the Punjab and Haryana High Court were dismissed, because the Chief Commissioner's orders withdrawing approval had rested almost solely on the Uttarakhand judgment and could not survive its reversal; the judgments of the Punjab and Haryana, Delhi and Bombay High Courts were approved. The Court added two things. First, the thirteenth proviso to section 10(23C) is of great importance: the assessing authorities must monitor year by year whether income is applied and funds invested or deposited as the law requires, and approval must be withdrawn at once where activities are not genuine or the conditions of approval are not observed. The Revenue was left at liberty to pass fresh orders. Second, the appeal about the late application under section 10(23C)(vi) was dismissed - an application filed on 23 September 2008 for assessment year 2008-09, when it had to be made by 31 March 2008, was rightly rejected as not maintainable. It arises in Charitable Trusts & Exemption and Capital Gains Exemptions matters, on section 10(23C)(iiiad), section 10(23C)(vi), section 11, section 2(15), section 10(22) of the Income Tax Act 1961, and was decided by Supreme Court of India - Justice T.S. Thakur and Justice R.F. Nariman (judgment by R.F. Nariman, 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. Document that the surplus was applied to the educational objects - land, buildings, laboratories, equipment - and show the application year by year, because the thirteenth proviso makes that the live question. Check which limb applies: the third proviso to section 10(23C)(vi) has no application to a case under section 10(23C)(iiiad), a distinction the Punjab and Haryana High Court relied on. File any application for approval under section 10(23C)(vi) within the prescribed period; one appeal in this very batch failed purely because the application was made after 31 March of the preceding financial year.
Partly overruled — read this first. Partly overruled by New Noble Educational Society v. Chief Commissioner of Income Tax (Supreme Court, 19 October 2022, Civil Appeal No. 3795 of 2014 with Civil Appeal Nos. 3793, 3794, 9108 and 6418 of 2012; Uday Umesh Lalit, S. Ravindra Bhat and Pamidighantam Sri Narasimha JJ). Summarising its conclusions at para 76, that Court held at sub-paragraph (e): 'The reasoning and conclusions in American Hotel (supra) and Queen's Education Society (supra) so far as they pertain to the interpretation of expression ‘solely’ are hereby disapproved. The judgments are accordingly overruled to that extent.' (New Noble prints the name as 'Queen's Education Society' and cites it at para 7 as (2015) 8 SCC 47, which is this judgment.) The overruling is confined by its own words to the interpretation of 'solely' and to that extent, which is why this entry is labelled partly overruled and not overruled. WHAT DOES NOT SURVIVE: the predominant-object route this judgment took to the word 'solely', and with it the citation of Surat Art Silk Cloth, Aditanar and American Hotel and Lodging as the governing tests of that word. New Noble para 76(a) holds instead: 'It is held that the requirement of the charitable institution, society or trust etc., to ‘solely’ engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education. In other words, all objects of the society, trust etc., must relate to imparting education or be in relation to educational activities.' So an object unrelated to education is now fatal even where education predominates. WHAT SURVIVES: the disposal and everything that does not run through 'solely' — the setting aside of the Uttarakhand High Court judgment of 24 September 2007 and the approval of the Tribunal's view on these facts, the approval of the Punjab and Haryana, Delhi and Bombay High Court decisions, the direction on the thirteenth proviso and the Revenue's liberty to pass fresh orders, and the dismissal of the appeal on the s.10(23C)(vi) application filed after the deadline. The surplus proposition also survives in substance, because New Noble itself holds at para 76(b): 'Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C) of the IT Act. At the same time, where surplus accrues in a given year or set of years per se, it is not a bar, provided such surplus is generated in the course of providing education or educational activities.' A ploughed-back surplus is therefore still not by itself disqualifying; what has gone is the reasoning by which this judgment reached that result. PROSPECTIVE OPERATION, AND THE TENSION IN ITS SCOPE: New Noble para 78 reads: 'In the light of the foregoing discussion, the assessees’ appeals fail. It is however clarified that their claim for approval or registration would have to be considered in the light of subsequent events, if any, disclosed in fresh applications made in that regard. This court is further of the opinion that since the present judgment has departed from the previous rulings regarding the meaning of the term ‘solely’, in order to avoid disruption, and to give time to institutions likely to be affected to make appropriate changes and adjustments, it would be in the larger interests of society that the present judgment operates hereafter. As a result, it is hereby directed that the law declared in the present judgment shall operate prospectively. The appeals are hereby dismissed, without order on costs.' The reason para 78 gives for the direction is confined to the departure on the meaning of 'solely', while the direction as worded covers 'the law declared in the present judgment' as a whole, which on its face is wider. The text does not resolve which reading is right and no later authority resolving it has been traced. Read practically: for an approval application or an assessment year governed by the law as it stood before 19 October 2022 this judgment can still be argued, and the prospectivity direction should be pleaded expressly and the date of the application or the year stated; for anything after that date the meaning of 'solely' is New Noble's, not this judgment's. Two limits on this note. Beyond New Noble, no systematic check has been made for later Supreme Court decisions on s.10(23C) that reconsider this judgment, so nothing here should be read as a finding that none exists. And the Court in this judgment itself preserved the Revenue's power to act under the thirteenth proviso and to pass fresh orders, so a favourable disposal on the 'solely' point does not close the file. 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 page is clipped: the source itself marks that about 13,690 characters of the middle are not reproduced, and paragraphs 11 to 19 are absent. That covers the Court's discussion of the intervening authorities and the first part of its criticism of the Uttarakhand High Court; paragraph 19 survives from the point where it deals with the ploughing back of surplus. Paragraphs 1 to 10 and 20 to 27, including the tests, the Punjab and Haryana reasoning the Court approved, and the whole operative disposal, are intact. The batch line listed section 2(15); the appeals were decided under section 10(23C)(iiiad) and 10(23C)(vi), with section 2(15) reaching the judgment only through the quotation from Surat Art Silk Cloth, and section 11 and the former section 10(22) are added from the judgment. The Court did not deal with the merits of any individual withdrawal of approval, leaving those to fresh orders. 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 Uttarakhand High Court's judgment of 24 September 2007 was set aside and the Tribunal's reasoning approved as more in consonance with the law. The Court held that a surplus ploughed back to construct the institution's own premises does not take it outside section 10(23C); to hold otherwise ignores the language of the section and the tests in Surat Art Silk Cloth, Aditanar and American Hotel and Lodging. The Revenue's appeals against the Punjab and Haryana High Court were dismissed, because the Chief Commissioner's orders withdrawing approval had rested almost solely on the Uttarakhand judgment and could not survive its reversal; the judgments of the Punjab and Haryana, Delhi and Bombay High Courts were approved. The Court added two things. First, the thirteenth proviso to section 10(23C) is of great importance: the assessing authorities must monitor year by year whether income is applied and funds invested or deposited as the law requires, and approval must be withdrawn at once where activities are not genuine or the conditions of approval are not observed. The Revenue was left at liberty to pass fresh orders. Second, the appeal about the late application under section 10(23C)(vi) was dismissed - an application filed on 23 September 2008 for assessment year 2008-09, when it had to be made by 31 March 2008, was rightly rejected as not maintainable.
TaxSphere, “Queen's Educational Society v CIT”, https://taxnotice.vittsphere.com/caselaw/case/queen-s-educational-society-v-cit/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Our society runs a college but also earns from hostels and events. Can we get 10(23C)(vi) approval?
My institution filed its audit report on time but in Form 10B when Form 10BB was the right form, and the CPC has denied the exemption and raised a demand on the gross receipts. Is filing the wrong audit form fatal?
A foreign non-profit runs hospitality courses in India through a branch and charges licence fees and course fees to Indian institutes. Is that income exempt as an educational institution, and does a surplus destroy the exemption?
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?
