# M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF COMMISSIONER OF INCOME TAX 1 AND ANR

- **Citation:** [2022] 18 S.C.R. 1082
- **Court:** Supreme Court of India
- **Decided:** 2022-10-19
- **Case number:** Civil Appeal No. 3795 of 2014
- **Bench:** Uday Umesh Lalit, S. Ravindra Bhat, Pamidighantam Sri Narasimha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-new-noble-educational-society-v-the-chief-commissioner-of-income-tax-1-and-35776
- **Pages:** 62

## Headnote

Income Tax Act, 1961 - s.10(23C)(vi) -"solely" -
s.10(23C)(vi) exempts income of "university or other educational
institution existing solely for educational purposes and not for purposes
of profit" - Meaning of "solely" - Held: 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 - Thus, all objects of the society, trust
etc., must relate to imparting education or be in relation to
educational activities- Where the objective of the institution appears
to be profit-oriented, such institutions would not be entitled to
approval u/s.10(23C) - 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 - The reference to 'business' and 'profits' in
the seventh proviso to s.10(23C) and s.11(4A) merely means the
profits of business which is 'incidental' to educational activity i.e.,
relating to education such as sale of text books, providing school
bus facilities, hostel facilities, etc.-Reasoning and conclusions in
American Hotel and Queen's Education Society case so far as they
pertain to the interpretation of expression 'solely' are disapproved
andthe judgments are overruled to that extent-The law declared in
the present judgment shall operate prospectively- Andhra Pradesh
Charitable and Hindu Religious Institutions and Endowments Act,
1987.
Income Tax Act, 1961 - s.10(23C) - Held: While considering
applications for approval u/s.10(23C), the Commissioner or the
concerned authority as the case may be under the second proviso
is not bound to examine only the objects of the institution - To
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ascertain the genuineness of the institution and the manner of its
functioning, the Commissioner or other authority is free to call for
the audited accounts or other such documents for recording
satisfaction where the society, trust or institution genuinely seeks to
achieve the objects which it professes - The Commissioner or other
authority is not in any manner constrained from examining accounts
and other related documents to see the pattern of income and
expenditure.
Income Tax Act, 1961 - s.10(23C)- Andhra Pradesh
Charitable and Hindu Religious Institutions and Endowments Act,
1987 - Held:Wherever registration of trust or charities is obligatory
under state or local laws, the concerned trust, society, other
institution etc. seeking approval u/s.10(23C) should also comply
with provisions of such state laws - This would enable the
Commissioner or concerned authority to ascertain the genuineness
of the trust, society etc.
Interpretation of Statutes - Proviso - Scope and object of -
Discussed.
Words & Phrases-"solely" - Discussed.
Dismissing the appeals, the Court
HELD : 1.This court has spelt out the following to be
considered by the revenue, when trusts or societies apply for
registration or approval on the ground that they are engaged in
or involved in education: (i) The society or trust may not directly
run the school imparting education. Instead, it may be
instrumental in setting up schools or colleges imparting
education. As long as the sole object of the society or trust is to
impart education, the fact that it does not do so itself, but its
colleges or schools do so, does not result in rejection of its claim.
(ii) To determine whether an institution is engaging in education
or not, the court has to consider its objects. (iii) The applicant
institution should be engaged in imparting education, if it claims
to be part of an entity or university engaged in education. This
condition was propounded in Oxford University where the
applicant was a publisher, part of the Oxford University established
in the U.K. The assessee did not engage in imparting education,
but only in publishing book

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SUPREME COURT REPORTS
[2022] 18 S.C.R.
 [2022] 18 S.C.R. 1082
1082
M/S NEW NOBLE EDUCATIONAL SOCIETY
v.
THE CHIEF COMMISSIONER OF INCOME TAX 1 AND ANR.
(Civil Appeal No. 3795 of 2014)
OCTOBER 19, 2022
[UDAY UMESH LALIT, CJI, S. RAVINDRA BHAT AND
PAMIDIGHANTAM SRI NARASIMHA, JJ.]
Income Tax Act, 1961 - s.10(23C)(vi) -"solely" -
s.10(23C)(vi) exempts income of "university or other educational
institution existing solely for educational purposes and not for purposes
of profit" - Meaning of "solely" - Held: 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 - Thus, all objects of the society, trust
etc., must relate to imparting education or be in relation to
educational activities- Where the objective of the institution appears
to be profit-oriented, such institutions would not be entitled to
approval u/s.10(23C) - 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 - The reference to 'business' and 'profits' in
the seventh proviso to s.10(23C) and s.11(4A) merely means the
profits of business which is 'incidental' to educational activity i.e.,
relating to education such as sale of text books, providing school
bus facilities, hostel facilities, etc.-Reasoning and conclusions in
American Hotel and Queen's Education Society case so far as they
pertain to the interpretation of expression 'solely' are disapproved
andthe judgments are overruled to that extent-The law declared in
the present judgment shall operate prospectively- Andhra Pradesh
Charitable and Hindu Religious Institutions and Endowments Act,
1987.
Income Tax Act, 1961 - s.10(23C) - Held: While considering
applications for approval u/s.10(23C), the Commissioner or the
concerned authority as the case may be under the second proviso
is not bound to examine only the objects of the institution - To
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ascertain the genuineness of the institution and the manner of its
functioning, the Commissioner or other authority is free to call for
the audited accounts or other such documents for recording
satisfaction where the society, trust or institution genuinely seeks to
achieve the objects which it professes - The Commissioner or other
authority is not in any manner constrained from examining accounts
and other related documents to see the pattern of income and
expenditure.
Income Tax Act, 1961 - s.10(23C)- Andhra Pradesh
Charitable and Hindu Religious Institutions and Endowments Act,
1987 - Held:Wherever registration of trust or charities is obligatory
under state or local laws, the concerned trust, society, other
institution etc. seeking approval u/s.10(23C) should also comply
with provisions of such state laws - This would enable the
Commissioner or concerned authority to ascertain the genuineness
of the trust, society etc.
Interpretation of Statutes - Proviso - Scope and object of -
Discussed.
Words & Phrases-"solely" - Discussed.
Dismissing the appeals, the Court
HELD : 1.This court has spelt out the following to be
considered by the revenue, when trusts or societies apply for
registration or approval on the ground that they are engaged in
or involved in education: (i) The society or trust may not directly
run the school imparting education. Instead, it may be
instrumental in setting up schools or colleges imparting
education. As long as the sole object of the society or trust is to
impart education, the fact that it does not do so itself, but its
colleges or schools do so, does not result in rejection of its claim.
(ii) To determine whether an institution is engaging in education
or not, the court has to consider its objects. (iii) The applicant
institution should be engaged in imparting education, if it claims
to be part of an entity or university engaged in education. This
condition was propounded in Oxford University where the
applicant was a publisher, part of the Oxford University established
in the U.K. The assessee did not engage in imparting education,
but only in publishing books, periodicals, etc. for profit. Therefore,
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF
COMMISSIONER OF INCOME TAX 1
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the court by its majority opinion held that the mere fact that it
was part of a university (incorporated or set up abroad) did not
entitle it to claim exemption on the ground that it was imparting
education in India. (iv) The judgement in American Hotel states
that to discern whether the applicant's claim for exemption can
be allowed, the 'predominant object' has to be considered. It
was also held that the stage of examining whether and to what
extent profits were generated and how they were utilised was
not essential at the time of grant of approval, but rather formed
part of the monitoring mechanism. (v) Queen's Educational Society
approved and applied the 'predominant object' test (which
extensively quoted Surat Art and applied it with approval). The
court also held that the mere fact that substantial surpluses or
profits were generated could not be a bar for rejecting the
application for approval under Section 10(23C)(vi) of the IT Act.
[Para 48][1128-D-H; 1129-A-C]
Aditanar Educational Institution v. Additional
Commissioner of Income Tax (1997) 3 SCC 346 : [1997]
1 SCR 948; Oxford University Press v. Commissioner
of Income Tax (2001) 3 SCC 359 : [2001] 1 SCR 574 -
referred to.
2.1 It is evident, that in construing the term 'any university
or other educational institution existing solely for educational
purposes and not for purposes of profit' the other negative reference
to profit, in respect of educational institutions, is in the seventh
proviso which states that incomes which are profits of business,
cannot be exempt, "unless the business is incidental to the
attainment of its objectives and separate books of account are
maintained by it in respect of such business". The basic provision
granting 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 essential
requirement, the proviso, which carves out the exception, so to
say, to a limited extent, cannot be looked into. The expression
'solely' has been interpreted, as noticed previously, by other
judgments 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 Advanced
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Law Lexicon explains the term as, "'Solely' means exclusively and
not primarily". The Cambridge Dictionary defines 'solely' to be,
"Only and not involving anyone or anything else". The synonyms
for 'solely' are "alone, independently, single-handed, singlehandedly, singly, unaided, unassisted" and its antonyms are
"inclusively, collectively, cooperatively, conjointly etc. Term 'solely'
is not the same as 'predominant / mainly'. The term 'solely' means
to the exclusion of all others. None of the previous decisions -
especially American Hotel or Queens Education Society - explored
the true meaning of the expression 'solely'. The approach and
reasoning applicable to charitable organizations set up for
advancement of objects of general public utility are entirely
different from charities set up or established for the object of
imparting education. In the case of the latter, the basis of
exemption is Section 10(23C) (iiiab), (iiiad) and (vi). In all these
provisions, the positive condition 'solely for educational purposes'
and the negative injunction 'and not for purposes of profit' loom
large as compulsive mandates, necessary for exemption. The
expression 'solely' is therefore important. Thus, in the opinion
of this court, a trust, university or other institution imparting
education, as the case may be, should necessarily have all its
objects aimed at imparting or facilitating education. Having regard
to the plain and unambiguous terms of the statute and the
substantive provisions which deal with exemption, there cannot
be any other interpretation. [Paras 49-51][1129-D-G; 1130-A-F]
Commissioner of Customs (Import), Mumbai v. Dilip
Kumar and Company & Ors. (2018) 9 SCC 1 : [2018]
7 SCR 1191 - followed.
2.2 The seventh proviso to Section 10 (23C) (vi) alludes to
business and profits ('being profits and gains of business, unless
the business is incidental to the attainment of its objectives and
separate books of account are maintained by it in respect of such
business'). The interpretation of Section 10 (23C) therefore, is
that the trust or educational institution must solely exist for the
object it professes (in this case, education, or educational activity
only), and not for profit. The seventh proviso however carves an
exception to this rule, and permits the trust or institution to record
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF
COMMISSIONER OF INCOME TAX 1
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(or earn) profits, provided the 'business' which has to be read as
the education or educational activity - and nothing other than that -
is incidental to the attainment of its objectives (i.e., the objectives
of, or relating to, education). [Para 58][1134-B-C]
P. Ramanatha Aiyar, Advanced Law Lexicon, (6th Edn.),
Pg. 5249-5250 (2019); Solely, Cambridge Dictionary
(4th Edn.) (2013) - referred to.
2.3 The second question which this court has to address is
whether the PA (Commissioner or any other designated authority)
is in any manner enjoined to confine the nature of inquiry to
discern the object of a society, trust or other institution at the
stage when it approaches the authority for approval under Section
10 (23C). Having regard to the plain terms of the second proviso
to Section 10(23C), which refers to the procedure for approval of
applications including those made by trusts and institutions
imparting education, one can discern no such restrictions. From
the pointed reference to 'audited annual accounts' as one of the
heads of information which can be legitimately called or
requisitioned for consideration at the stage of approval of an
application, the inference is clear: the Commissioner or the
concerned authority's hands are not tied in any manner
whatsoever. [Paras 61, 63][1135-C-D; 1136-B-C]
3.1 Applicability of Other Laws
Charitable objects - defined by the A.P. Charities Act, are
parimateria with the IT Act. Thus, establishments or associations
or organizations (widely phrased terms) formed for 'charitable
purpose' fall within the meaning of charitable institutions. These
include societies and trusts, set up for educational purposes. The
assessees had argued that since they were registered under the
Andhra Pradesh Societies Registration Act, 2001 or were trusts
duly registered, they could not be compelled to comply with state
laws as a condition for consideration of their application as
charitable institutions, under Section 10 (23C). The findings in
the impugned judgment on this aspect are sound. The
requirement of registration of every charitable institution is not
optional. Aside from the fact that the consequences of nonregistration are penal, which indicates the mandatory nature of
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the provisions of the A.P. Charities Act, such local laws provide
the regulatory framework by which annual accounts, manner of
choosing 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 a
statutory regulatory framework in regard to activities of charitable
institutions in the state. Sections 72-74 deal with surplus funds
and their treatment; Sections 75-77 deal with properties of trusts
and charitable institutions and restrictions on transfers. These
and other provisions enable the State, which is concerned in the
proper administration of such organizations, to ensure that they
are managed efficiently without misfeasance. They also contain
provisions to protect the interests of trusts, especially funds and
properties. [Paras 65, 68 and 69][1137-F; 1138-C-F; 1139A-B ]
3.2 Thus, charitable institutions and societies, which may
be regulated by other state laws, have to comply with them just
as in the case of laws regulating education (at all levels).
Compliance with or registration under those laws, are also a
relevant consideration which can legitimately weigh with the
Commissioner or other concerned authority, while deciding
applications for approval under Section 10 (23C). This reasoning
equally applies especially in Section 11(4A) which speaks of
profits incidental which specifies that exemption in relation to
income or trust of an institution which are profits or means of
business cannot be exempted 'unless the business is incidental,
trust or as the case may be institution and separate books of accounts
are maintained by such trusts or institution in respect of such
business'. Thus, the underlying objective of seventh proviso to
Section 10(23C) and of Section 11(4A) are identical. These have
to be read in the light of the main provision which spells out the
conditions for exemption under Section 10(23C) - the same
conditions would apply equally to the other sub-clauses of Section
10(23C) that deal with education, medical institution, hospitals
etc. [Paras 70, 71][1159-C-F]
3.3 Conclusions:
(a)
It is held that the requirement of the charitable
institution, society or trust etc., to 'solely' engage
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COMMISSIONER OF INCOME TAX 1
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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.
(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.
(c)
The seventh proviso to Section 10(23C), as well as
Section 11(4A) refer to profits which may be
'incidentally' generated or earned by the charitable
institution. In the present case, the same is applicable
only to those institutions which impart education or
are engaged in activities connected to education.
(d)
The reference to 'business' and 'profits' in the seventh
proviso to Section 10(23C) and Section 11(4A) merely
means that the profits of business which is 'incidental'
to educational activity -
(e)
The reasoning and conclusions in American Hotel and
Queen's Education Society so far as they pertain to
the interpretation of expression 'solely' are hereby
disapproved. The judgments are accordingly
overruled to that extent.
(f)
While considering applications for approval under
Section 10(23C), the Commissioner or the concerned
authority as the case may be under the second proviso
is not bound to examine only the objects of the
institution.
(g)
It is held that wherever registration of trust or
charities is obligatory under state or local laws, the
concerned trust, society, other institution etc. seeking
approval under Section 10(23C) should also comply
with provisions of such state laws. [Para 76][1141-AG; 1142-C-D]
American Hotel and Lodging Association v. Central
Board of Direct Taxes (2008) 10 SCC 509 : [2008] 8
SCR 117; Queen's Education Society v Commissioner
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of Income Tax (2015) 8 SCC 47 : [2015] 3 SCR 838 -
partly overruled.
Ishverlal Thakorelal Almaula v. MotibhaiNagjibhai
[1966] 1 SCR 367; Indore Development Authority v.
Manoharlal (2020) 8 SCC 129 : [2020] 3 SCR 1; S.
Sundaram Pillai v. V.R. Pattabiraman (1985) 1 SCC 591
: [1985] 2 SCR 643 - relied on.
Avinash Mehrotra v. Union of India (2009) 6 SCC 398
: [2009] 5 SCR 913; T.M.A Pai Foundation v. State of
Karnataka (2002) 8 SCC 481 : [2002] 3 Suppl. SCR
587; PA Inamdar v. State of Maharashtra (2005) 6 SCC
537 : [2005] 2 Suppl. SCR 603; Dharmadeepti v.
Commissioner of Income Tax (1978) 3 SCC 449; Indian
Chamber of Commerce v. Commissioner of Income Tax
(1976) 1 SCC 324 : [1976] 1 SCR 830; A.V. Fernandez
v. State of Kerala [1957] SCR 837; Mangalore
Chemicals and Fertilisers Ltd. v. Deputy Commissioner
of Commercial Taxes & Ors (1992) Supp (1) SCC 21 :
[1991] 3 SCR 336; Delhi Cloth & General Mills Co.
Ltd. v. Workmen & Ors. [1967] 1 SCR 882; Assam State
Text Book Production & Publication Corpn. Ltd. v.
Commissioner of Income Tax (2009) 17 SCC 391 -
referred to.
Case Law Reference
[2009] 5 SCR 913
referred to
Para 1
[1997] 1 SCR 948
referred to
Para 10
[2001] 1 SCR 574
referred to
Para 16
[2002] 3 Suppl. SCR 587
referred to
Para 22
[2005] 2 Suppl. SCR 603
referred to
Para 24
[1976] 1 SCR 830
referred to
Para 38
[2018] 7 SCR 1191
referred to
Para 52
[1957] SCR 837
referred to
Para 53
[1991] 3 SCR 336
referred to
Para 54
[1966] 1 SCR 367
relied on
Para 55
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[2020] 3 SCR 1
relied on
Para 56
[1985] 2 SCR 643
relied on
Para 57
[1967] 1 SCR 882
referred to
Para 59
[2008] 8 SCR 117
partly overruled
Para 76
[2015] 3 SCR 838
partly overruled
Para 76
CIVIL APPELLATE JURISDICTION: Civil Appeal No.3795
of 2014.
From the Judgment and Order dated 11.11.2010 of the High Court
of Judicature for Andhra Pradesh at Hyderabad in Writ Petition No.21248
of 2010.
With
Civil Appeal Nos.3793, 3794 of 2014, 9108, 6418 of 2012.
N. Venkataraman, ASG, Ms. Prabha Swami, Nikhil Swami, Ms.
Divya Swami, Ms. Gargi Khanna, Ms. Alka Agrawal, Rupesh Kumar,
H. Raghavendra Rao, Shyam Gopal, Chandrashekara Bharati, Raj
Bahadur Yadav, Ms. Daisy Hannah, Ms. Oindrila Sen, Shekhar Kumar,
Advs. for the appearing parties.
The Judgment of the Court was delivered by
S. RAVINDRA BHAT, J.
1. It has been said that education is the key that unlocks the golden
door to freedom.1In Avinash Mehrotra v Union of India2, this court
underlined the object and value of education in the following words:
"29. Education today remains liberation - a tool for the
betterment of our civil institutions, the protection of our civil
liberties, and the path to an informed and questioning
citizenry.Then as now, we recognize education's
1An aphorism common to all faiths. Proverb 4:13 states, "Take hold of instruction, do
not let go. Guard her, for she is your life."The Pavamana Mantras (purifying mantras)
appealing to be taken from darkness to light inBrihadaranyaka Upanishad, as part of
verse 1.3.28 too emphasizes the value of knowledge and education, "Lead me from the
darkness of ignorance to the light (of knowledge)."Surah Al-Baqarah, gives an important
interpretation about learning, "He gives knowledge and wisdom to whomever He wills
and to whomsoever knowledge is given, much good has been given."
2Avinash Mehrotra v Union of India, (2009)6 SCC 398.
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"transcendental importance" in the lives of individuals and
in the very survival of our Constitution and Republic."
2. The subject matter of these appeals3 is the rejection of the
appellants' claim for registration as a fund or trust or institution or any
university or other educational institution(hereinafter collectively referred
to as "institution / trust") set up for the charitable purpose of education,
under the Income Tax Act, 1961 (hereinafter, "IT Act"). The Andhra
Pradesh High Court, by its detailed impugned judgment4, held that the
appellant trusts which claimed benefit of exemption under Section 10
(23C) of the IT Act were not created 'solely'for the purpose of education,
and that to determine that issue, the court had to consider the memorandum
of association or the rules or the constitution of the concerned trust.
Additionally, the appellants were denied registrationon the ground that
they were not registered under the Andhra Pradesh Charitable and Hindu
Religious Institutions and Endowments Act, 1987(hereinafter, "A.P.
Charities Act") as condition precedent for grant of approval.
3. The parties had urged that such a preconditionwas absent in
the provisos to Section 10(23C)(vi)of the IT Act, and that since the tax
statute was a complete code in itself, other acts such as A.P. Charities
Act could not form the basis for denying approval. Rejecting the same,
the High Court interpreted Section 10 (23C) (vi) of the IT Act in light of
the previous decisions of this court, and held as follows:
"7. An educational society, running an educational institution
solely for educational purposes and not for the purpose of
profit, must be regarded as "other educational institution"
under section 10(23C)(vi) of the Act. It would be unreal and
hyper-technical to hold that the assessee-society is only a
financing body and will not come within the scope of "other
educational institution". If, in substance and reality, the sole
purpose for which the assessee has come into existence is to
3M/s St. Augustine Educational Society v The Chief Commissioner of Income Tax,
C.A.No.3793/2014; M/s St. Patrick Educational Society v The Chief Commissioner of
Income Tax, C.A. No. 3794/2014; M/s New Noble Educational Society v The Chief
Commissioner of Income Tax, C.A. No. 3795/ 2014; M/s R.R.M Educational Society
Hyderabad v The Chief Commissioner of Income Tax, C.A. No. 6418/2012and M/s Sri
Koundinya Educational Society v The Chief Commissioner of Income Tax, C.A. No.
9108/2012.
4M/s New Noble Educational Society v The Chief Commissioner of Income Tax,
(2011) 334 ITR 303. This batch of writ petitions was decided on 11.11.2010.
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]
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impart education at the level of colleges and schools, such
an educational society should be regarded as an "educational
institution". (Aditanar Educational Institution v. Addl. CIT, [1997]
224 ITR 310 (SC)). Educational institutions, which are
registered as a society, would continue to retain their character
as such and would be eligible to apply for exemption under
section 10(23C)(vi) of the Act. (Pine-grove International
Charitable Trust v. Union of India, [2010] 327 ITR 73 (P&H)).
The distinction sought to be made between the society, and
the educational institution run by it, does not, therefore, merit
acceptance.
8. In order to be eligible for exemption, under section
10(23C)(vi) of the Act, it is necessary that there must exist an
educational institution. Secondly, such institution must exist
solely for educational purposes and, thirdly, the institution
should not exist for the purpose of profit. (CIT v. Sorabji
Nusserwanji Parekh, [1993] 201 ITR 939 (Guj)). In deciding the
character of the recipient of the income, it is necessary to
consider the nature of the activities undertaken. If the activity
has no co-relation to education, exemption has to be denied.
The recipient of the income must have the character of an
educational institution to be ascertained from its objects.
(Aditanar Educational Institution, [1997] 224 ITR 310 (SC)). The
emphasis in section 10(23C)(vi) is on the word "solely".
"Solely" means exclusively and not primarily. (CIT v. Gurukul
Ghatkeswar Trust, (2011) 332 ITR 611 (AP); CIT v. Maharaja
Sawai Mansinghji Museum Trust, [1988] 169 ITR 379 (Raj)). In
using the said expression, the Legislature has made it clear
that it intends to exempt the income of the institutions
established solely for educational purposes and not for
commercial activities. (Oxford University Press v. CIT, [2001]
247 ITR 658 (SC)). This requirement would militate against an
institution pursuing the objects other than education. (Vanita
Vishram Trust v. Chief CIT, [2010] 327 ITR 121 (Bom)). Even if
one of the objects enables the institution to undertake
commercial activities, it would not be entitled for approval
under section 10(23C)(vi) of the Act. (American Hotel and
Lodging Association Educational Institute, [2008] 301 ITR 86
(SC)). It is only if the objects reveal that the very being of the
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assessee-society, as an educational institution, is exclusively
for educational purposes and not for profit, the assessee would
be entitled for exemption under section 10(23C)(vi) of the
Act. (Gurukul Ghatkeswar Trust, [2011] 332 HR 611 (AP))".
4. On the second question, i.e., whether registration under the
A.P. Charities Act was an essential prerequisite for registration or
approval under the IT Act, the impugned judgmentheld that such
registration was mandatory:
"21. Application of the provisions of A.P. Act 30 of 1987 to
all public charitable institutions, whether registered or not in
accordance with the provisions of the Act, continues to be the
same as in the repealed A.P. Act 17 of 1966. Chapter IV of
A.P. Act 30 of 1987 relates to registration of charitable
institutions. Section 43 relates to registration of charitable
institutions and, under sub-section (1) thereof, the trustee or
other person in charge of the management of every charitable
institution is required to make an application for its registration
to the concerned Assistant Commissioner. Under section 43(5),
on receipt of the application, the Assistant Commissioner shall,
after making such enquiry as he thinks fit and after hearing
any person having interest in the institution, pass an order
directing its registration, and to grant a certificate of
registration containing the particulars furnished in the
application with the alterations, if any, made by him as a result
of his enquiry. Section 43(6) requires the particulars relating
to every institution, contained in the certificate of registration,
to be entered in the Register of Institutions and Endowments
maintained by the Assistant Commissioner. One copy thereof
is required to be furnished to the Deputy Commissioner, and
another to the Commissioner. Under section 43(11) where any
trustee or other person fails to apply for registration of a
charitable institution, within the time specified, he shall be
punishable with fine which may extend to one thousand
rupees. Section 44 relates to the power of the Commissioner
to have the institution registered and, thereunder, where any
trustee or other person in charge of the management of a
charitable institution fails to apply for registration of the
institution, the Commissioner shall give notice to the trustee,
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF
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or the other person, to make an application in that regard
within a specified period and, if he fails to make such an
application within the period specified, the Commissioner is
empowered to have the charitable institution registered after
following the prescribed procedure.
22. On a conjoint reading of the Explanation to section
1(3)(a), section 2(4) and 2(5) of A.P. Act 30 of 1987 it is
evident that a society running an educational institution in
the State of Andhra Pradesh is a public charitable institution.
The submission that, in the absence of registration, the
provisions of A.P. Act 30 of 1987 are not applicable is not
tenable. The provisions of A.P. Act 30 of 1987 apply to all
public charitable institutions whether registered or not in
accordance with the provisions of the Act. A public charitable
institution is required, in law, to conduct the management of
its affairs strictly in accordance with the provisions of A.P.
Act 30 of 1987. Registration under A.P. Act 30 of 1987 would
also ensure that the activities of the educational agency are
monitored by the State agencies, section 58 of A.P. Act 30 of
1987 relates to accounts and audit and, under sub-section
(2)(a) thereof, the accounts of every charitable institution the
annual income of which, as calculated for the purpose of
section 65 for the financial year immediately preceding,
exceeds rupees one lakh, shall be subject to concurrent audit
by an agency specified by the Government, and the audit shall
take place as and when expenditure is incurred. The mere
fact that the authorities failed to act in the matter to get the
institution registered under the provisions of the Act is of no
legal consequence. (Secretary to Government, Revenue
(Endowments) Department of AP v. Sri Swamy Ayyappa Cooperative Housing Societies Ltd., [2003] 6 ALT 62 (AP)).
23. Imparting of education is regarded as an activity that is
charitable in nature. Education has so far not been regarded
as a trade or business where profit is the motive. (State of
Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699; T.M.A.
Pai Foundation v. State of Karnataka, (2002) 8 SCC 481 : AIR
2003 SC 355; Islamic Academy of Education, (2003) 6 SCC 697).
Section 2(15) of the Income-tax Act defines "charitable
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purpose" to include "education". The sense in which the word
"education" has been used in section 2(15) is the systematic
instruction, schooling or training given to the young in
preparation for the work of life. It also connotes the whole
course of scholastic instruction which a person has received.
The word "education", in section 2(15), has not been used in
that wide and extended sense according to which every
acquisition of further knowledge constitutes education. What
education connotes, in that clause, is the process of training
and developing the knowledge, skill, mind and character of
students by formal schooling. (Sole Trustee, Loka Shikshana
Trust v. CIT, [1975] 101 ITR 234 (SC)). This definition of
"education" is wide enough to cover the case of an
"educational institution" as, under section 10(23C)(vi), the
"educational institution" must exist "solely" for educational
purposes. (Maharaja Sawai Mansinghji Museum Trust, [1988]
169 ITR 379 (Raj)). The element of imparting education to
students or the element of normal schooling where there are
teachers and taught must be present so as to fall within the
sweep of section 10(23C)(vi) of the Act. Such an institution
may, incidentally, take up other activities for the benefit of
students or in furtherance of their education. It may invest its
funds or it may provide scholarships or other financial
assistance which may be helpful to the students in pursuing
their studies. Such incidental activities alone, in the absence
of the actual activity of imparting education by normal
schooling or normal conduct of classes, would not suffice
for the purpose of qualifying the institution for the benefit of
section 10(23C)(vi). (Sorabji Nusserwanji Parekh, [1993] 201
ITR 939 (Guj)). Section 2(15) is wider in terms than section
10(23C)(vi) of the Act. If the assessee's case does not fall
within section 2(15), it is difficult to put it in section
10(23C)(vi) of the Act. (Maharaja Sawai Mansinghji Museum
Trust, [1988] 169 ITR 379 (Raj)). As "education" falls within
the scope of "charitable purpose" both under section 2(5) of
A.P. Act 30 of 1987 and section 2(15) of the Income-tax Act
and, inasmuch as A.P. Act 30 of 1987 requires all charitable
institutions in the State of A.P. to be registered, the Chief
Commissioner was justified in holding that the petitionerM/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF
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societies should have registered themselves under the
provisions of A.P. Act 30 of 1987, as failure to so hold would
have resulted in one arm of the law being utilized to defeat
another arm of the law which would not only be opposed to
public policy, but would also bring the law into ridicule. (Bihari
Lal Jaiswal v. CIT, [1996] 217 ITR 746 (SC))."
The Appellants' Arguments
5. Ms. Prabha Swami, learned counsel appearing for one of the
appellants (R.R.M Educational Society), contended that the impugned
judgment was in error of the law. She submitted that the High Court's
approach in considering the memorandum of association, rules or the
constitution of the trust was no doubt correct,however the literal
interpretation of the expression 'solely'under Section 10(23C)(vi) was
not correct.
6. It was urged that there was no bar or restriction imposed by
law on trusts involved or engaged in activities other than education,from
claiming exemption under Section 10(23C)(vi), provided their motive
wasnot-for-profit. It was submitted that in the present case, the assesses
had other objects apart from education which were charitable.
Consequently, the denial of registration by the Commissioner was contrary
to law.
7. Learned counsel relied on the decision of this court in American
Hotel and Lodging Association v Central Board of Direct Taxes5
and Queen's Education Society v Commissioner of Income Tax6 to
submit that the test for determination was whether the 'principal' or
'main' activity was education or not, rather than whether some profits
were incidentally earned. The observations relied upon from American
Hotel (supra) were:
"38. In deciding the character of the recipient, it is not
necessary to look at the profits of each year, but to consider
the nature of the activities undertaken in India. If the Indian
activity has no correlation with education, exemption has to
be denied (see judgment of this Court in Oxford University
Press [(2001) 3 SCC 359 : (2001) 247 ITR 658] ). Therefore, the
5American Hotel and Lodging Association v Central Board of Direct Taxes, (2008)
10 SCC 509.
6Queen's Education Society v Commissioner of Income Tax, (2015) 8 SCC 47.
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character of the recipient of income must have character of
educational institution in India to be ascertained from the
nature of the activities. If after meeting expenditure, surplus
remains incidentally from the activity carried on by the
educational institution, it will not cease to be one
existing solely for educational purposes. In other words,
existence of surplus from the activity will not mean absence
of educational purpose (see judgment of this Court
in Aditanar Educational Institution v. CIT [(1997) 3 SCC 346
: (1997) 224 ITR 310] ). The test is-the nature of activity. If
the activity like running a printing press takes place it is not
educational. But whether the income/profit has been applied
for non-educational purpose has to be decided only at the
end of the financial year."
8. It was further held that the third proviso was in effect operative
after the registration or approval of the trust at the stage of assessment
to determine the actual application of income of any given trust. The
provisos, according to the court, were divided into the processing (or
vetting) provisions(applicable at the stage of grant or refusal of an
application) and the monitoring provisions, involving consideration of
application of income of the trust:
"40. We shall now consider the effect of insertion of provisos
to Section 10(23-C)(vi) vide the Finance (No. 2) Act, 1998.
Section 10(23-C)(vi) is analogous to Section 10(22). To that
extent, the judgments of this Court as applicable to Section
10(22) would equally apply to Section 10(23-C)(vi). The
problem arises with the insertion of the provisos to Section
10(23-C)(vi). With the insertion of the provisos to Section
10(23-C)(vi) the applicant who seeks approval has not only
to show that it is an institution existing solely for educational
purposes [which was also the requirement under Section
10(22)] but it has now to obtain initial approval from the PA,
in terms of Section 10(23-C)(vi) by making an application in
the standardised form as mentioned in the first proviso to that
section. That condition of obtaining approval from the PA
came to be inserted because Section 10(22) was abused by
some educational institutions/universities. This proviso was
inserted along with other provisos because there was no
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF
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monitoring mechanism to check abuse of exemption provision.
With the insertion of the first proviso, the PA is required to vet
the application. This vetting process is stipulated by the second
proviso.
***
42. Under the twelfth proviso, the PA is required to examine
cases where an applicant does not apply its income during
the year of receipt and accumulates it but makes payment
therefrom to any trust or institution registered under Section
12-AA or to any fund or trust or institution or university or
other educational institution and to that extent the proviso
states that such payment shall not be treated as application
of income to the objects for which such trust or fund or
educational institution is established. The idea underlying the
twelfth proviso is to provide guidance to the PA as to the
meaning of the words "application of income to the objects
for which the institution is established". Therefore, the twelfth
proviso is the matter of detail.
43. The most relevant proviso for deciding this appeal is the
thirteenth proviso. Under that proviso, the circumstances are
given under which the PA is empowered to withdraw the
approval earlier granted. Under that proviso, if the PA is
satisfied that the trust, fund, university or other educational
institution, etc. has not applied its income in accordance with
the third proviso or if it finds that such institution, trust or
fund, etc. has not invested/deposited its funds in accordance
with the third proviso or that the activities of such fund or
institution or trust, etc. are not genuine or that its activities
are not being carried out in accordance with the conditions
subject to which approval is granted then the PA is empowered
to withdraw the approval earlier granted after complying with
the procedure mentioned therein.
44. Having analysed the provisos to Section 10(23-C)(vi) one
finds that there is a difference between stipulation of
conditions and compliance therewith. The threshold conditions
are actual existence of an educational institution and approval
of the prescribed authority for which every applicant has to
move an application in the standardised form in terms of the
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first proviso. It is only if the prerequisite condition of actual
existence of the educational institution is fulfilled that the
question of compliance with requirements in the provisos
would arise. We find merit in the contention advanced on
behalf of the appellant that the third proviso contains
monitoring conditions/requirements like application,
accumulation, deployment of income in specified assets whose
compliance depends on events that have not taken place on
the date of the application for initial approval.
45. To make the section with the proviso workable we are of
the view that the monitoring conditions in the third proviso
like application/utilisation of income, pattern of investments
to be made, etc. could be stipulated as conditions by the PA
subject to which approval could be granted".
9. Likewise, the decision in Queen's Education Society (supra)
was also cited, in which this courtheld that income earned incidentally,
or profits incidental to the main activity, per se would not debar a trust's
application for approval, or registration, as a tax-exempt organization.
10. Counsel further submitted that in a similar manner, the previous
decision of this court in Aditanar Educational Institution v. Additional
Commissioner of Income Tax7was relevant. The same observed that:
"8.