The technical education regulator has advised universities and colleges to comply with a Supreme Court judgment that says only trusts or societies that “solely” impart education without earning profit are eligible for tax exemption.
The All India Council for Technical Education (AICTE) last week wrote to the vice-chancellors of technical universities and principals of its approved colleges to follow in “letter and spirit” the October 2022 judgment in New Noble Education Society vs Chief Commissioner of Income Tax.
While it’s the income-tax department’s job to ensure compliance with the court order, what the AICTE advisory implies is that education trusts and societies should not, in the first place, claim tax exemption if they are earning profit.
Section 10(23C) of the Income Tax Act says any university or other educational institution, charitable institution or trust that exists solely for educational purposes, and not for profit, would receive tax exemption.
The New Noble Education Society in Andhra Pradesh had moved court after certain institutions run by it were denied tax exemption by the income-tax department. Andhra Pradesh High Court held the trust was not created “solely” for the purpose of education.
On October 19, 2022, the apex court bench of then Chief Justice U.U. Lalit and Justices S. Ravindra Bhat and P.S. Narasimha clarified how “solely” should be interpreted.
“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(s) ‘sole’ or ‘solely’, however, is ‘only’ or ‘exclusively’. The term ‘solely’ means to the exclusion of all others,” the judgment said.
So, to claim tax exemption, an educational institution “should necessarily have all its objects aimed at imparting or facilitating education” and “cannot have objects which are unrelated to education”, it said.
“...Since the present judgment has departed from the previous rulings regarding the meaning of the term ‘solely’, in order to avoid disruption, and to give time to institutions likely to be affected to make appropriate changes and adjustments, it would be in the larger interests of society that the present judgment operates hereafter.... It is hereby directed that the law declared in the present judgment shall operate prospectively,” it said.
The VC of a state government-run technical university said that private trusts and societies were being set up by “profit-oriented” promoters.
“Many trust members borrow from the corpus of the institutions and invest the fund in furthering their businesses. This is misuse of the surplus, which is supposed to be spent on development of the institution,” he said.
He cited another “malpractice”: private institutions paying employees below the AICTE-mandated norms.
He added that apart from earning profit from non-education activities, some educational trusts and societies also earned profit illegally from the educational venture itself.
“Education is a not-for-profit sector. Many institutions run medical colleges and hospitals. They make profits from hospitals, which cannot be allowed since the hospitals are part of medical education,” he said.
Another senior academic said the AICTE and the accrediting agencies tended to ignore malpractices by private institutions.
“Now it has issued an advisory. I feel it’s a ritual. The errant institutions will find ways of maintaining ‘clean’ records while continuing to violate the directive,” he said.
