Institutions earning profit from educational activities will not get tax exemption, reiterates Supreme Court

Recently, the Supreme Court overturned a judgement by the Punjab and Haryana High Court which allowed an educational institution, Baba Banda Singh Bahadur Education Trust, to receive tax exemption despite earning a profit from educational activities. The Supreme Court held that an institution must exist solely for educational purposes and not for profit in order to claim the benefit of exemption under Section 10(23C)(iii)(ab) of the Income Tax Act. The court found that the trust in question was engaged in profit-making activities, with profits of 67.81% without depreciation and 44.48% with depreciation. The court’s ruling confirms the principles laid out in the case of New Noble Education Society, which stated that exemption can only be granted to educational institutions that exist solely for educational purposes, to the exclusion of all others. Tax experts have commented that the ruling serves as a reminder to charitable institutions that they must be mindful of the profit motive in their activities if they wish to claim tax exemption.