Queens Educational Society vs. CIT (Supreme Court)

DATE: March 16, 2015 (Date of pronouncement)
DATE: March 18, 2015 (Date of publication)
AY: -
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S. 10(23C)(v) & (vi): Mere surplus does not mean institution is existing for making profit. The predominant object test must be applied. The AO must verify the activities of the institution from year to year

The Supreme Court had to consider appeals arising from the judgements of the Uttarakhand High Court in Queens Equcational Society 319 ITR 160 and the Punjab and Haryana High Court in Pine Grove International Charitable Trust v. Union of India (2010) 327 ITR 273 concerning the interpretation of s.10(23C) (iiiad) and (vi) of the Income-tax Act. HELD by the Supreme Court reversing Queens Equcational Society and affirming Pine Grove International Charitable Trust v. Union of India:

(1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it makes a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit.

(2) The predominant object test must be applied – the purpose of education should not be submerged by a profit making motive.

(3) A distinction must be drawn between the making of a surplus and an institution being carried on “for profit”.No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit.

(4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes.

(5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons.

(6) The correct tests which have been culled out in the three Supreme Court judgments, namely, Surat Art Silk Cloth 121 ITR 1 (SC), Aditanar 224 ITR 310 (SC), and American Hotel and Lodging, would all apply to determine whether an educational institution exists solely for educational purposes and not for purposes of profit.

(7) In addition, we hasten to add that the 13th proviso to Section 10(23C) is of great importance in that assessing authorities must continuously monitor from assessment year to assessment year whether such institutions continue to apply their income and invest or deposit their funds in accordance with the law laid down. Further, it is of great importance that the activities of such institutions be looked at carefully. If they are not genuine, or are not being carried out in accordance with all or any of the conditions subject to which approval has been given, such approval and exemption must forthwith be withdrawn. All these cases are disposed of making it clear that revenue is at liberty to pass fresh orders if such necessity is felt after taking into consideration the various provisions of law contained in Section 10(23C) read with Section 11 of the Income Tax Act.

(St. Lawrence Educational Society (Regd.) v. Commissioner of Income Tax & Anr., (2011) 53 DTR (Del) 130 and Tolani Education Society v. Deputy Director of Income Tax (Exemption) & Ors., (2013) 351 ITR 184 also approved)

One comment on “Queens Educational Society vs. CIT (Supreme Court)
  1. true.

    you can see whether globalization for for international trade is great, when you read great economists like Paul A Samuelson, Leipzig you would soon realize what would happen to the about 3/4th of world illiterates, unskilled persons in the face of competition of so called educated… that shows how the globalization affects the economies but governments all over just unrealistically tax tax payers more than their capacities while saddling them with a perpetual loans like in old age when some one would lend you pittance but put you as slave or bonded labor same is surfacing as long as people do not have common sense to question the so called legislators.

    so what i say is Apex courts need to have experts as Amicus Curie to provide gap of knowledge to be read with fundamental rights so that the largest interests of people is served that is the very purpose of separation of powers or due process of law that does not mean the laws of the law makers every now and then unless every law of the legislature is tested on the anvil of the constitution of the country after all constitution is the basic bible of the people of any country is meant under the ‘due process of law…like under Art 265 in indian constitution… if the constitutional courts fail in good faith on the governments in place the country would overnight become slaves and nomads in due course is my warning to all those who adore in the separation of powers..

    expertise does not stay in governments only, judiciary ,legislature only but all these wings need to take help from learned men who can be even by education is spread all over, may be elsewhere, that way British used in their colonial age used highly talented persons to help them that way even Privy council worked that way its judgements even today highly respected..

    why cannot present day india use when highly talented spread all over, is my view.

    tax laws are not any great bible of taxationat all and subject to a lot of modification.

    i do not trust indian taxation of laws are not several defects ad those defects need be tested under anvil of the indian constitution, as taxpayers moneys are squandered in thousands of very many useless and unproductive ways by submitting the wage earners commit their lives for 20 plus years ie equal to one third of productive life besides they are perpetually tied up with life long loans nothing short of bonded slavery sooner or later, if corrective steps are not taken is my considered opinion.

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