The Supreme Court has held that an institution earning profit from educational activities will not get exemption from income tax. With this it has reversed Punjab & Haryana High Court judgment where Baba Banda Singh Bahadur Education Trust was allowed exemption despite making profit from educational activities.

“In the recent decision of this Court in the case of New Noble Educational Society (supra), it is specifically observed and held by the three-Judge Bench of this Court that for claiming the benefit/exemption under Section 10(23C)(iii)(ab) (of the Income Tax Act) which is para materia to Section 10(23C)(vi) the activity of the assessee must be solely for educational purposes and if ultimately it is found that the activity is for profits the assessee is not entitled to the exemption under Section 10(23C)(vi) of the Act,” a division bench of Justices M R Shah and C T Ravikumar said in a recent judgement.

Section 10 of the Income Tax Act prescribes which incomes not to be included in income for tax calculation. Under this, sub section (23C)(iii)(ab) lists “any income received by any person on behalf of any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government,” for exclusion from taxable income.

The bench noted that Income Tax Commissioner specifically observed and held that the activity of the assessee cannot be said to be solely for imparting the education and that the assessee is indulging into the profit which was found to be 67.81 per cent without depreciation and 44.48 per cent with depreciation. “The finding of fact recorded by the Commissioner, as such, not been upset by the High Court in the impugned judgment and order,” it said.

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