The bench of Chief Justice of India UU Lalit, Justices S Ravindra Bhat and PS Narasimha, however, clarified that if profits accrue in the course of providing education or educational activities, it will not be a bar on exemption under IT Act.
“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 under Section 10(23C) of the IT Act. 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 Court held
The Court also held that the reference to ‘business’ and ‘profits’ in the seventh proviso to Section 10(23C) and Section 11(4A) of the Income Tax Act, 1961, “merely means that 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.”
Source: Barandbench
