M/S New Noble Educational Society v. The Chief Commissioner Of Income Tax 1 And Anr

1082 [2022] 18 S.C.R. AM/S NEW NOBLE EDUCATIONAL SOCIETY THE CHIEF COMMISSIONER OF INCOME TAX 1 AND ANR. (Civil Appeal No. 3795 of 2014) BOCTOBER 19, 2022 [UDAY UMESH LALIT, CJI, S. RAVINDRA BHAT ANDPAMIDIGHANTAM SRI NARASIMHA, JJ.] Income Tax Act, 1961 – s.10(23C)(vi) –”solely” –s.10(23C)(vi) exempts income of “university or other educationalCinstitution existing solely for educational purposes and not for purposesof profit” – Meaning of “solely” – Held: The requirement of thecharitable institution, society or trust etc., to ‘solely’ engage itselfin education or educational activities, and not engage in any activityof profit, means that such institutions cannot have objects whichDare unrelated to education – Thus, all objects of the society, trustetc., must relate to imparting education or be in relation toeducational activities– Where the objective of the institution appearsto be profit-oriented, such institutions would not be entitled toapproval u/s.10(23C) – At the same time, where surplus accrues ina given year or set of years per se, it is not a bar, provided suchEsurplus is generated in the course of providing education oreducational activities – The reference to ‘business’ and ‘profits’ inthe seventh proviso to s.10(23C) and s.11(4A) merely means theprofits of business which is ‘incidental’ to educational activity i.e.,relating to education such as sale of text books, providing schoolFbus facilities, hostel facilities, etc.–Reasoning and conclusions inAmerican Hotel and Queen’s Education Society case so far as theypertain to the interpretation of expression ‘solely’ are disapprovedandthe judgments are overruled to that extent–The law declared inthe present judgment shall operate prospectively– Andhra PradeshCharitable and Hindu Religious Institutions and Endowments Act,G1987. Income Tax Act, 1961 – s.10(23C) – Held: While consideringapplications for approval u/s.10(23C), the Commissioner or theconcerned authority as the case may be under the second provisois not bound to examine only the objects of the institution – ToH ascertain the genuineness of the institution and the manner of itsfunctioning, the Commissioner or other authority is free to call forthe audited accounts or other such documents for recordingsatisfaction where the society, trust or institution genuinely seeks toachieve the objects which it professes – The Commissioner or otherauthority is not in any manner constrained from examining accountsand other related documents to see the pattern of income andexpenditure. Income Tax Act, 1961 – s.10(23C)– Andhra PradeshCharitable and Hindu Religious Institutions and Endowments Act,1987 – Held:Wherever registration of trust or charities is obligatoryunder state or local laws, the concerned trust, society, otherinstitution etc. seeking approval u/s.10(23C) should also complywith provisions of such state laws – This would enable theCommissioner or concerned authority to ascertain the genuinenessof the trust, society etc. Interpretation of Statutes – Proviso – Scope and object of –Discussed. Words & Phrases–”solely” – Discussed. Dismissing the appeals, the Court Section: CONCLUSION HELD : 1.This court has spelt out the following to beconsidered by the revenue, when trusts or societies apply forregistration or approval on the ground that they are engaged inor involved in education: (i) The society or trust may not directlyrun the school imparting education. Instead, it may beinstrumental in setting up schools or colleges impartingeducation. As long as the sole object of the society or trust is toimpart education, the fact that it does not do so itself, but itscolleges or schools do so, does not result in rejection of its claim.(ii) To determine whether an institution is engaging in educationor not, the court has to consider its objects. (iii) The applicantinstitution should be engaged in imparting education, if it claimsto be part of an entity or university engaged in education. Thiscondition was propounded in Oxford University where theapplicant was a publisher, part of the Oxford University establishedin the U.K. The assessee did not engage in imparting education,but only in publishing books, periodicals, etc. for profit. Therefore, Athe court by its majority opinion held that the mere fact that itwas part of a university (incorporated or set up abroad) did notentitle it to claim exemption on the ground that it was impartingeducation in India. (iv) The judgement in American Hotel statesthat to discern whether the applicant’s claim for exemption canbe allowed, the ‘predominant object’ has to be considered. ItBwas also held that the stage of examining whether and to whatextent profits were generated and how they were utilised wasnot essential at the time of grant of approval, but rather formedpart of the monitoring mechanism. (v) Queen’s Educational Societyapproved and applied the ‘predominant object’ test (whichCextensively quoted Surat Art and applied it with approval). Thecourt also held that the mere fact that substantial surpluses orprofits were generated could not be a bar for rejecting theapplication for approval under Section 10(23C)(vi) of the IT Act.[Para 48][1128-D-H; 1129-A-C] DAditanar Educational Institution v. AdditionalCommissioner of Income Tax (1997) 3 SCC 346 : [1997]1 SCR 948; Oxford University Press v. Commissionerof Income Tax (2001) 3 SCC 359 : [2001] 1 SCR 574 –referred to. E2.1 It is evident, that in construing the term ‘any universityor other educational institution existing solely for educationalpurposes and not for purposes of profit’ the other negative referenceto profit, in respect of educational institutions, is in the seventhproviso which states that incomes which are profits of business,cannot be exempt, “unless the business is incidental to theFattainment of its objectives and separate books of account aremaintained by it in respect of such business”. The basic provisiongranting exemption, thus enjoins that the institution should exist‘solely for educational purposes and not for purposes of profit’.This requirement is categorical. While construing this essentialGrequirement, the proviso, which carves out the exception, so tosay, to a limited extent, cannot be looked into. The expression‘solely’ has been interpreted, as noticed previously, by otherjudgments as the ‘dominant / predominant /primary/ main’ object.The plain and grammatical meaning of the term ‘sole’ or ‘solely’however, is ‘only’ or ‘exclusively’. P. Ramanath Aiyar’s AdvancedH Law Lexicon explains the term as, “‘Solely’ means exclusively andnot primarily”. The Cambridge Dictionary defines ‘solely’ to be,“Only and not involving anyone or anything else”. The synonymsfor ‘solely’ are “alone, independently, single-handed, single-handedly, singly, unaided, unassisted” and its antonyms are“inclusively, collectively, cooperatively, conjointly etc. Term ‘solely’is not the same as ‘predominant / mainly’. The term ‘solely’ meansto the exclusion of all others. None of the previous decisions –especially American Hotel or Queens Education Society – exploredthe true meaning of the expression ‘solely’. The approach andreasoning applicable to charitable organizations set up foradvancement of objects of general public utility are entirelydifferent from charities set up or established for the object ofimparting education. In the case of the latter, the basis ofexemption is Section 10(23C) (iiiab), (iiiad) and (vi). In all theseprovisions, the positive condition ‘solely for educational purposes’and the negative injunction ‘and not for purposes of profit’ loomlarge as compulsive mandates, necessary for exemption. Theexpression ‘solely’ is therefore important. Thus, in the opinionof this court, a trust, university or other institution impartingeducation, as the case may be, should necessarily have all itsobjects aimed at imparting or facilitating education. Having regardto the plain and unambiguous terms of the statute and thesubstantive provisions which deal with exemption, there cannotbe any other interpretation. [Paras 49-51][1129-D-G; 1130-A-F] Commissioner of Customs (Import), Mumbai v. DilipKumar and Company & Ors. (2018) 9 SCC 1 : [2018]7 SCR 1191 – followed. 2.2 The seventh proviso to Section 10 (23C) (vi) alludes tobusiness and profits (‘being profits and gains of business, unlessthe business is incidental to the attainment of its objectives andseparate books of account are maintained by it in respect of suchbusiness’). The interpretation of Section 10 (23C) therefore, isthat the trust or educational institution must solely exist for theobject it professes (in this case, education, or educational activityonly), and not for profit. The seventh proviso however carves anexception to this rule, and permits the trust or institution to record A(or earn) profits, provided the ‘business’ which has to be read asthe education or educational activity - and nothing other than that -is incidental to the attainment of its objectives (i.e., the objectivesof, or relating to, education). [Para 58][1134-B-C] P. Ramanatha Aiyar, Advanced Law Lexicon, (6th Edn.),BPg. 5249-5250 (2019); Solely, Cambridge Dictionary(4th Edn.) (2013) – referred to. 2.3 The second question which this court has to address iswhether the PA (Commissioner or any other designated authority)is in any manner enjoined to confine the nature of inquiry toCdiscern the object of a society, trust or other institution at thestage when it approaches the authority for approval under Section10 (23C). Having regard to the plain terms of the second provisoto Section 10(23C), which refers to the procedure for approval ofapplications including those made by trusts and institutionsimparting education, one can discern no such restrictions. FromDthe pointed reference to ‘audited annual accounts’ as one of theheads of information which can be legitimately called orrequisitioned for consideration at the stage of approval of anapplication, the inference is clear: the Commissioner or theconcerned authority’s hands are not tied in any mannerEwhatsoever. [Paras 61, 63][1135-C-D; 1136-B-C] 3.1 Applicability of Other Laws Charitable objects – defined by the A.P. Charities Act, areparimateria with the IT Act. Thus, establishments or associationsor organizations (widely phrased terms) formed for ‘charitableFpurpose’ fall within the meaning of charitable institutions. Theseinclude societies and trusts, set up for educational purposes. Theassessees had argued that since they were registered under theAndhra Pradesh Societies Registration Act, 2001 or were trustsduly registered, they could not be compelled to comply with stateGlaws as a condition for consideration of their application ascharitable institutions, under Section 10 (23C). The findings inthe impugned judgment on this aspect are sound. Therequirement of registration of every charitable institution is notoptional. Aside from the fact that the consequences of non-registration are penal, which indicates the mandatory nature ofH the provisions of the A.P. Charities Act, such local laws providethe regulatory framework by which annual accounts, manner ofchoosing the governing body (in terms of the founding instrument:trust, society, etc.), acquisition and disposal of properties, etc.are constantly monitored. The A.P. Charities Act provides astatutory regulatory framework in regard to activities of charitableinstitutions in the state. Sections 72-74 deal with surplus fundsand their treatment; Sections 75-77 deal with properties of trustsand charitable institutions and restrictions on transfers. Theseand other provisions enable the State, which is concerned in theproper administration of such organizations, to ensure that theyare managed efficiently without misfeasance. They also containprovisions to protect the interests of trusts, especially funds andproperties. [Paras 65, 68 and 69][1137-F; 1138-C-F; 1139A-B ] 3.2 Thus, charitable institutions and societies, which maybe regulated by other state laws, have to comply with them justas in the case of laws regulating education (at all levels).Compliance with or registration under those laws, are also arelevant consideration which can legitimately weigh with theCommissioner or other concerned authority, while decidingapplications for approval under Section 10 (23C). This reasoningequally applies especially in Section 11(4A) which speaks ofprofits incidental which specifies that exemption in relation toincome or trust of an institution which are profits or means ofbusiness cannot be exempted ‘unless the business is incidental,trust or as the case may be institution and separate books of accountsare maintained by such trusts or institution in respect of suchbusiness’. Thus, the underlying objective of seventh proviso toSection 10(23C) and of Section 11(4A) are identical. These haveto be read in the light of the main provision which spells out theconditions for exemption under Section 10(23C) - the sameconditions would apply equally to the other sub-clauses of Section10(23C) that deal with education, medical institution, hospitalsetc. [Paras 70, 71][1159-C-F] 3.3 Conclusions: (a)It is held that the requirement of the charitableinstitution, society or trust etc., to ‘solely’ engage 1088SUPREME COURT REPORTS Aitself in education or educational activities, and notengage in any activity of profit, means that suchinstitutions cannot have objects which are unrelatedto education. (b)Where the objective of the institution appears to beBprofit-oriented, such institutions would not be entitledto approval under Section 10(23C) of the IT Act. (c)The seventh proviso to Section 10(23C), as well asSection 11(4A) refer to profits which may be‘incidentally’ generated or earned by the charitableCinstitution. In the present case, the same is applicableonly to those institutions which impart education orare engaged in activities connected to education. (d)The reference to ‘business’ and ‘profits’ in the seventhproviso to Section 10(23C) and Section 11(4A) merelyDmeans that the profits of business which is ‘incidental’to educational activity –