New Delhi: The Indian Constitution sees education as charity and it can never be treated as a business, commerce, or trade, the Supreme Court said on Wednesday while ruling that a charitable institution will be entitled to tax relief only if it does not engage in any profit-making activity.
Section 10(23C) of the 1961 Income Tax Act provides for tax exemption to charitable trusts, societies, or institutions existing “solely” for educational purposes and not for the purposes of profit.
The word “solely” was, however, interpreted by two previous judgments of the top court in 2008 and 2015 to mean that the test for determination was whether the principal or main activity was education or not, rather than whether some profits were incidentally earned.
A three-judge bench headed by Chief Justice of India Uday Umesh Lalit overruled the previous judgments, declaring that the word “solely” must be given a literal interpretation since the intention of the legislature is clear that tax exemptions should be granted to only those institutions which enhance formal scholastic learning, as defined by the IT Act under the head of “charitable” purposes.
The court ruling applies to all non-governmental institutions that are set up for educational purposes. Revenue received by any university or educational institution that exists solely for educational purposes is exempt from tax if it is authorized by the prescribed authority.
The apex court called education the key that unlocks the golden door to freedom. “Education ennobles the mind and refines the sensibilities of every human being. It aims to train individuals to make the right choices. Its primary purpose is to liberate human beings from the thrall of habits and preconceived attitudes. It should be used to promote humanity and universal brotherhood. By removing the darkness of ignorance, education helps us discern between right and wrong. There is scarcely any generation that has not extolled the virtues of education, and sought to increase knowledge,” it added.