Holding

An institution seeking exemption under Section 10(23C)(vi) must exist exclusively for educational purposes, may earn only incidental profits, the authority may examine accounts beyond the objects, and compliance with state charitable registration is required.

Summary

The Supreme Court examined whether societies and trusts claiming exemption under Section 10(23C)(vi) of the Income‑Tax Act must exist exclusively for educational purposes and not for profit. It held that “solely” means the institution’s objects must be limited to education; any surplus is permissible only if it arises incidentally from educational activities. The Court clarified that the prescribed authority may scrutinise audited accounts and other documents, not merely the objects, to ascertain genuineness. It also ruled that compliance with state charitable registration laws, such as the Andhra Pradesh Charities Act, is a prerequisite for obtaining approval. The judgments in American Hotel and Queen’s Education Society regarding the meaning of “solely” were overruled, and the law declared in this judgment will operate prospectively. The appeals were dismissed.

Issues considered

The proper meaning of the term “solely” in Section 10(23C)(vi) of the Income‑Tax Act
Whether the generation of surplus or profit disqualifies an educational institution from exemption
Whether the Commissioner may examine audited accounts and other documents beyond the objects of the institution at the stage of approval
Whether registration under the Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987 is a condition precedent for approval under Section 10(23C)
The scope and effect of the various provisos to Section 10(23C), especially the third, seventh and thirteenth provisos

Legislation cited

Andhra Pradesh Charitable and Hindu Religious Institutions and Endowments Act, 1987s. 43, s. 44
Andhra Pradesh Societies Registration Act, 2001
Finance Act (No. 2) 1998
Income Tax Act, 1961s. 10(23C)(iiad), s. 10(23C)(iiiab), s. 10(23C)(vi), s. 11(4A), s. 2(15)

Subjects

Income Tax ActSection 10(23C)(vi)solelyeducational institutiontax exemptioncharitable trustprofit motivestate registrationprovisosincidental business

Judgment

1082 [2022]
SUPREME COURT 18 S.C.R. 1082
REPORTS [2022] 18 S.C.R.

A M/S NEW NOBLE EDUCATIONAL SOCIETY
v.
THE CHIEF COMMISSIONER OF INCOME TAX 1 AND ANR.
(Civil Appeal No. 3795 of 2014)
B OCTOBER 19, 2022
[UDAY UMESH LALIT, CJI, S. RAVINDRA BHAT AND
PAMIDIGHANTAM SRI NARASIMHA, JJ.]
Income Tax Act, 1961 – s.10(23C)(vi) –”solely” –
s.10(23C)(vi) exempts income of “university or other educational
C
institution existing solely for educational purposes and not for purposes
of profit” – Meaning of “solely” – Held: The requirement of the
charitable institution, society or trust etc., to ‘solely’ engage itself
in education or educational activities, and not engage in any activity
of profit, means that such institutions cannot have objects which
D are unrelated to education – Thus, 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 u/s.10(23C) – At the same time, where surplus accrues in
a given year or set of years per se, it is not a bar, provided such
E
surplus is generated in the course of providing education or
educational activities – The reference to ‘business’ and ‘profits’ in
the seventh proviso to s.10(23C) and s.11(4A) merely means the
profits of business which is ‘incidental’ to educational activity i.e.,
relating to education such as sale of text books, providing school
F bus facilities, hostel facilities, etc.–Reasoning and conclusions in
American Hotel and Queen’s Education Society case so far as they
pertain to the interpretation of expression ‘solely’ are disapproved
andthe judgments are overruled to that extent–The law declared in
the present judgment shall operate prospectively– Andhra Pradesh
Charitable and Hindu Religious Institutions and Endowments Act,
G
1987.
Income Tax Act, 1961 – s.10(23C) – Held: While considering
applications for approval u/s.10(23C), the Commissioner or the
concerned authority as the case may be under the second proviso
is not bound to examine only the objects of the institution – To
H
1082
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1083
COMMISSIONER OF INCOME TAX 1

ascertain the genuineness of the institution and the manner of its A
functioning, the Commissioner or other authority is free to call for
the audited accounts or other such documents for recording
satisfaction where the society, trust or institution genuinely seeks to
achieve the objects which it professes – The Commissioner or other
authority is not in any manner constrained from examining accounts
B
and other related documents to see the pattern of income and
expenditure.
Income Tax Act, 1961 – s.10(23C)– Andhra Pradesh
Charitable and Hindu Religious Institutions and Endowments Act,
1987 – Held:Wherever registration of trust or charities is obligatory
under state or local laws, the concerned trust, society, other C
institution etc. seeking approval u/s.10(23C) should also comply
with provisions of such state laws – This would enable the
Commissioner or concerned authority to ascertain the genuineness
of the trust, society etc.
Interpretation of Statutes – Proviso – Scope and object of – D
Discussed.
Words & Phrases–”solely” – Discussed.
Dismissing the appeals, the Court
HELD : 1.This court has spelt out the following to be E
considered by the revenue, when trusts or societies apply for
registration or approval on the ground that they are engaged in
or involved in education: (i) The society or trust may not directly
run the school imparting education. Instead, it may be
instrumental in setting up schools or colleges imparting F
education. As long as the sole object of the society or trust is to
impart education, the fact that it does not do so itself, but its
colleges or schools do so, does not result in rejection of its claim.
(ii) To determine whether an institution is engaging in education
or not, the court has to consider its objects. (iii) The applicant
institution should be engaged in imparting education, if it claims G
to be part of an entity or university engaged in education. This
condition was propounded in Oxford University where the
applicant was a publisher, part of the Oxford University established
in the U.K. The assessee did not engage in imparting education,
but only in publishing books, periodicals, etc. for profit. Therefore,
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1084 SUPREME COURT REPORTS [2022] 18 S.C.R.

A the court by its majority opinion held that the mere fact that it
was part of a university (incorporated or set up abroad) did not
entitle it to claim exemption on the ground that it was imparting
education in India. (iv) The judgement in American Hotel states
that to discern whether the applicant’s claim for exemption can
be allowed, the ‘predominant object’ has to be considered. It
B
was also held that the stage of examining whether and to what
extent profits were generated and how they were utilised was
not essential at the time of grant of approval, but rather formed
part of the monitoring mechanism. (v) Queen’s Educational Society
approved and applied the ‘predominant object’ test (which
C extensively quoted Surat Art and applied it with approval). The
court also held that the mere fact that substantial surpluses or
profits were generated could not be a bar for rejecting the
application for approval under Section 10(23C)(vi) of the IT Act.
[Para 48][1128-D-H; 1129-A-C]
D Aditanar Educational Institution v. Additional
Commissioner of Income Tax (1997) 3 SCC 346 : [1997]
1 SCR 948; Oxford University Press v. Commissioner
of Income Tax (2001) 3 SCC 359 : [2001] 1 SCR 574 –
referred to.
E 2.1 It is evident, that in construing the term ‘any university
or other educational institution existing solely for educational
purposes and not for purposes of profit’ the other negative reference
to profit, in respect of educational institutions, is in the seventh
proviso which states that incomes which are profits of business,
cannot be exempt, “unless the business is incidental to the
F attainment of its objectives and separate books of account are
maintained by it in respect of such business”. The basic provision
granting exemption, thus enjoins that the institution should exist
‘solely for educational purposes and not for purposes of profit’.
This requirement is categorical. While construing this essential
G requirement, the proviso, which carves out the exception, so to
say, to a limited extent, cannot be looked into. 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 ‘sole’ or ‘solely’
however, is ‘only’ or ‘exclusively’. P. Ramanath Aiyar’s Advanced
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1085
COMMISSIONER OF INCOME TAX 1

Law Lexicon explains the term as, “‘Solely’ means exclusively and A
not primarily”. The Cambridge Dictionary defines ‘solely’ to be,
“Only and not involving anyone or anything else”. The synonyms
for ‘solely’ are “alone, independently, single-handed, single-
handedly, singly, unaided, unassisted” and its antonyms are
“inclusively, collectively, cooperatively, conjointly etc. Term ‘solely’
B
is not the same as ‘predominant / mainly’. The term ‘solely’ means
to the exclusion of all others. None of the previous decisions –
especially American Hotel or Queens Education Society – explored
the true meaning of the expression ‘solely’. The approach and
reasoning applicable to charitable organizations set up for
advancement of objects of general public utility are entirely C
different from charities set up or established for the object of
imparting education. In the case of the latter, the basis of
exemption is Section 10(23C) (iiiab), (iiiad) and (vi). In all these
provisions, the positive condition ‘solely for educational purposes’
and the negative injunction ‘and not for purposes of profit’ loom
D
large as compulsive mandates, necessary for exemption. The
expression ‘solely’ is therefore important. Thus, in the opinion
of this court, a trust, university or other institution imparting
education, as the case may be, should necessarily have all its
objects aimed at imparting or facilitating education. Having regard
to the plain and unambiguous terms of the statute and the E
substantive provisions which deal with exemption, there cannot
be any other interpretation. [Paras 49-51][1129-D-G; 1130-A-F]
Commissioner of Customs (Import), Mumbai v. Dilip
Kumar and Company & Ors. (2018) 9 SCC 1 : [2018]
7 SCR 1191 – followed. F
2.2 The seventh proviso to Section 10 (23C) (vi) alludes to
business and profits (‘being profits and gains of business, unless
the business is incidental to the attainment of its objectives and
separate books of account are maintained by it in respect of such
business’). The interpretation of Section 10 (23C) therefore, is G
that the trust or educational institution must solely exist for the
object it professes (in this case, education, or educational activity
only), and not for profit. The seventh proviso however carves an
exception to this rule, and permits the trust or institution to record

H
1086 SUPREME COURT REPORTS [2022] 18 S.C.R.

A (or earn) profits, provided the ‘business’ which has to be read as
the education or educational activity - and nothing other than that -
is incidental to the attainment of its objectives (i.e., the objectives
of, or relating to, education). [Para 58][1134-B-C]
P. Ramanatha Aiyar, Advanced Law Lexicon, (6th Edn.),
B Pg. 5249-5250 (2019); Solely, Cambridge Dictionary
(4th Edn.) (2013) – referred to.
2.3 The second question which this court has to address is
whether the PA (Commissioner or any other designated authority)
is in any manner enjoined to confine the nature of inquiry to
C discern the object of a society, trust or other institution at the
stage when it approaches the authority for approval under Section
10 (23C). Having regard to the plain terms of the second proviso
to Section 10(23C), which refers to the procedure for approval of
applications including those made by trusts and institutions
imparting education, one can discern no such restrictions. From
D the pointed reference to ‘audited annual accounts’ as one of the
heads of information which can be legitimately called or
requisitioned for consideration at the stage of approval of an
application, the inference is clear: the Commissioner or the
concerned authority’s hands are not tied in any manner
E whatsoever. [Paras 61, 63][1135-C-D; 1136-B-C]
3.1 Applicability of Other Laws
Charitable objects – defined by the A.P. Charities Act, are
parimateria with the IT Act. Thus, establishments or associations
or organizations (widely phrased terms) formed for ‘charitable
F purpose’ fall within the meaning of charitable institutions. These
include societies and trusts, set up for educational purposes. The
assessees had argued that since they were registered under the
Andhra Pradesh Societies Registration Act, 2001 or were trusts
duly registered, they could not be compelled to comply with state
G laws as a condition for consideration of their application as
charitable institutions, under Section 10 (23C). The findings in
the impugned judgment on this aspect are sound. The
requirement of registration of every charitable institution is not
optional. Aside from the fact that the consequences of non-
registration are penal, which indicates the mandatory nature of
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1087
COMMISSIONER OF INCOME TAX 1

the provisions of the A.P. Charities Act, such local laws provide A
the regulatory framework by which annual accounts, manner of
choosing the governing body (in terms of the founding instrument:
trust, society, etc.), acquisition and disposal of properties, etc.
are constantly monitored. The A.P. Charities Act provides a
statutory regulatory framework in regard to activities of charitable
B
institutions in the state. Sections 72-74 deal with surplus funds
and their treatment; Sections 75-77 deal with properties of trusts
and charitable institutions and restrictions on transfers. These
and other provisions enable the State, which is concerned in the
proper administration of such organizations, to ensure that they
are managed efficiently without misfeasance. They also contain C
provisions to protect the interests of trusts, especially funds and
properties. [Paras 65, 68 and 69][1137-F; 1138-C-F; 1139A-B ]
3.2 Thus, charitable institutions and societies, which may
be regulated by other state laws, have to comply with them just
as in the case of laws regulating education (at all levels). D
Compliance with or registration under those laws, are also a
relevant consideration which can legitimately weigh with the
Commissioner or other concerned authority, while deciding
applications for approval under Section 10 (23C). This reasoning
equally applies especially in Section 11(4A) which speaks of
profits incidental which specifies that exemption in relation to E
income or trust of an institution which are profits or means of
business cannot be exempted ‘unless the business is incidental,
trust or as the case may be institution and separate books of accounts
are maintained by such trusts or institution in respect of such
business’. Thus, the underlying objective of seventh proviso to F
Section 10(23C) and of Section 11(4A) are identical. These have
to be read in the light of the main provision which spells out the
conditions for exemption under Section 10(23C) - the same
conditions would apply equally to the other sub-clauses of Section
10(23C) that deal with education, medical institution, hospitals
etc. [Paras 70, 71][1159-C-F] G

3.3 Conclusions:
(a) It is held that the requirement of the charitable
institution, society or trust etc., to ‘solely’ engage
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1088 SUPREME COURT REPORTS [2022] 18 S.C.R.

A itself in education or educational activities, and not
engage in any activity of profit, means that such
institutions cannot have objects which are unrelated
to education.
(b) Where the objective of the institution appears to be
B profit-oriented, such institutions would not be entitled
to approval under Section 10(23C) of the IT Act.
(c) The seventh proviso to Section 10(23C), as well as
Section 11(4A) refer to profits which may be
‘incidentally’ generated or earned by the charitable
C institution. In the present case, the same is applicable
only to those institutions which impart education or
are engaged in activities connected to education.
(d) The reference to ‘business’ and ‘profits’ in the seventh
proviso to Section 10(23C) and Section 11(4A) merely
D means that the profits of business which is ‘incidental’
to educational activity –
(e) The reasoning and conclusions in American Hotel and
Queen’s Education Society so far as they pertain to
the interpretation of expression ‘solely’ are hereby
E disapproved. The judgments are accordingly
overruled to that extent.
(f) While considering applications for approval under
Section 10(23C), the Commissioner or the concerned
authority as the case may be under the second proviso
F is not bound to examine only the objects of the
institution.
(g) It is held that wherever registration of trust or
charities is obligatory under state or local laws, the
concerned trust, society, other institution etc. seeking
approval under Section 10(23C) should also comply
G
with provisions of such state laws. [Para 76][1141-A-
G; 1142-C-D]
American Hotel and Lodging Association v. Central
Board of Direct Taxes (2008) 10 SCC 509 : [2008] 8
SCR 117; Queen’s Education Society v Commissioner
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1089
COMMISSIONER OF INCOME TAX 1

of Income Tax (2015) 8 SCC 47 : [2015] 3 SCR 838 – A
partly overruled.
Ishverlal Thakorelal Almaula v. MotibhaiNagjibhai
[1966] 1 SCR 367; Indore Development Authority v.
Manoharlal (2020) 8 SCC 129 : [2020] 3 SCR 1; S.
Sundaram Pillai v. V.R. Pattabiraman (1985) 1 SCC 591 B
: [1985] 2 SCR 643 – relied on.
Avinash Mehrotra v. Union of India (2009) 6 SCC 398
: [2009] 5 SCR 913; T.M.A Pai Foundation v. State of
Karnataka (2002) 8 SCC 481 : [2002] 3 Suppl. SCR
587; PA Inamdar v. State of Maharashtra (2005) 6 SCC C
537 : [2005] 2 Suppl. SCR 603; Dharmadeepti v.
Commissioner of Income Tax (1978) 3 SCC 449; Indian
Chamber of Commerce v. Commissioner of Income Tax
(1976) 1 SCC 324 : [1976] 1 SCR 830; A.V. Fernandez
v. State of Kerala [1957] SCR 837; Mangalore
Chemicals and Fertilisers Ltd. v. Deputy Commissioner D
of Commercial Taxes & Ors (1992) Supp (1) SCC 21 :
[1991] 3 SCR 336; Delhi Cloth & General Mills Co.
Ltd. v. Workmen & Ors. [1967] 1 SCR 882; Assam State
Text Book Production & Publication Corpn. Ltd. v.
Commissioner of Income Tax (2009) 17 SCC 391 – E
referred to.
Case Law Reference
[2009] 5 SCR 913 referred to Para 1
[1997] 1 SCR 948 referred to Para 10 F
[2001] 1 SCR 574 referred to Para 16
[2002] 3 Suppl. SCR 587 referred to Para 22
[2005] 2 Suppl. SCR 603 referred to Para 24
[1976] 1 SCR 830 referred to Para 38 G
[2018] 7 SCR 1191 referred to Para 52
[1957] SCR 837 referred to Para 53
[1991] 3 SCR 336 referred to Para 54
[1966] 1 SCR 367 relied on Para 55 H
1090 SUPREME COURT REPORTS [2022] 18 S.C.R.

A [2020] 3 SCR 1 relied on Para 56
[1985] 2 SCR 643 relied on Para 57
[1967] 1 SCR 882 referred to Para 59
[2008] 8 SCR 117 partly overruled Para 76
B [2015] 3 SCR 838 partly overruled Para 76
CIVIL APPELLATE JURISDICTION: Civil Appeal No.3795
of 2014.
From the Judgment and Order dated 11.11.2010 of the High Court
of Judicature for Andhra Pradesh at Hyderabad in Writ Petition No.21248
C
of 2010.
With
Civil Appeal Nos.3793, 3794 of 2014, 9108, 6418 of 2012.
N. Venkataraman, ASG, Ms. Prabha Swami, Nikhil Swami, Ms.
D Divya Swami, Ms. Gargi Khanna, Ms. Alka Agrawal, Rupesh Kumar,
H. Raghavendra Rao, Shyam Gopal, Chandrashekara Bharati, Raj
Bahadur Yadav, Ms. Daisy Hannah, Ms. Oindrila Sen, Shekhar Kumar,
Advs. for the appearing parties.
The Judgment of the Court was delivered by
E
S. RAVINDRA BHAT, J.
1. It has been said that education is the key that unlocks the golden
door to freedom.1In Avinash Mehrotra v Union of India2, this court
underlined the object and value of education in the following words:
F “29. Education today remains liberation - a tool for the
betterment of our civil institutions, the protection of our civil
liberties, and the path to an informed and questioning
citizenry.Then as now, we recognize education’s
1
An aphorism common to all faiths. Proverb 4:13 states, “Take hold of instruction, do
G not let go. Guard her, for she is your life.”The Pavamana Mantras (purifying mantras)
appealing to be taken from darkness to light inBrihadaranyaka Upanishad, as part of
verse 1.3.28 too emphasizes the value of knowledge and education, “Lead me from the
darkness of ignorance to the light (of knowledge).”Surah Al-Baqarah, gives an important
interpretation about learning, “He gives knowledge and wisdom to whomever He wills
and to whomsoever knowledge is given, much good has been given.”
2
Avinash Mehrotra v Union of India, (2009)6 SCC 398.
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M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1091
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“transcendental importance” in the lives of individuals and A
in the very survival of our Constitution and Republic.”
2. The subject matter of these appeals3 is the rejection of the
appellants’ claim for registration as a fund or trust or institution or any
university or other educational institution(hereinafter collectively referred
to as “institution / trust”) set up for the charitable purpose of education, B
under the Income Tax Act, 1961 (hereinafter, “IT Act”). The Andhra
Pradesh High Court, by its detailed impugned judgment4, held that the
appellant trusts which claimed benefit of exemption under Section 10
(23C) of the IT Act were not created ‘solely’for the purpose of education,
and that to determine that issue, the court had to consider the memorandum
of association or the rules or the constitution of the concerned trust. C
Additionally, the appellants were denied registrationon the ground that
they were not registered under the Andhra Pradesh Charitable and Hindu
Religious Institutions and Endowments Act, 1987(hereinafter, “A.P.
Charities Act”) as condition precedent for grant of approval.
3. The parties had urged that such a preconditionwas absent in D
the provisos to Section 10(23C)(vi)of the IT Act, and that since the tax
statute was a complete code in itself, other acts such as A.P. Charities
Act could not form the basis for denying approval. Rejecting the same,
the High Court interpreted Section 10 (23C) (vi) of the IT Act in light of
the previous decisions of this court, and held as follows: E
“7. An educational society, running an educational institution
solely for educational purposes and not for the purpose of
profit, must be regarded as “other educational institution”
under section 10(23C)(vi) of the Act. It would be unreal and
hyper-technical to hold that the assessee-society is only a F
financing body and will not come within the scope of “other
educational institution”. If, in substance and reality, the sole
purpose for which the assessee has come into existence is to
3
M/s St. Augustine Educational Society v The Chief Commissioner of Income Tax,
C.A.No.3793/2014; M/s St. Patrick Educational Society v The Chief Commissioner of
Income Tax, C.A. No. 3794/2014; M/s New Noble Educational Society v The Chief
G
Commissioner of Income Tax, C.A. No. 3795/ 2014; M/s R.R.M Educational Society
Hyderabad v The Chief Commissioner of Income Tax, C.A. No. 6418/2012and M/s Sri
Koundinya Educational Society v The Chief Commissioner of Income Tax, C.A. No.
9108/2012.
4
M/s New Noble Educational Society v The Chief Commissioner of Income Tax,
(2011) 334 ITR 303. This batch of writ petitions was decided on 11.11.2010. H
1092 SUPREME COURT REPORTS [2022] 18 S.C.R.

A impart education at the level of colleges and schools, such
an educational society should be regarded as an “educational
institution”. (Aditanar Educational Institution v. Addl. CIT, [1997]
224 ITR 310 (SC)). Educational institutions, which are
registered as a society, would continue to retain their character
as such and would be eligible to apply for exemption under
B
section 10(23C)(vi) of the Act. (Pine-grove International
Charitable Trust v. Union of India, [2010] 327 ITR 73 (P&H)).
The distinction sought to be made between the society, and
the educational institution run by it, does not, therefore, merit
acceptance.
C 8. In order to be eligible for exemption, under section
10(23C)(vi) of the Act, it is necessary that there must exist an
educational institution. Secondly, such institution must exist
solely for educational purposes and, thirdly, the institution
should not exist for the purpose of profit. (CIT v. Sorabji
D Nusserwanji Parekh, [1993] 201 ITR 939 (Guj)). In deciding the
character of the recipient of the income, it is necessary to
consider the nature of the activities undertaken. If the activity
has no co-relation to education, exemption has to be denied.
The recipient of the income must have the character of an
educational institution to be ascertained from its objects.
E (Aditanar Educational Institution, [1997] 224 ITR 310 (SC)). The
emphasis in section 10(23C)(vi) is on the word “solely”.
“Solely” means exclusively and not primarily. (CIT v. Gurukul
Ghatkeswar Trust, (2011) 332 ITR 611 (AP); CIT v. Maharaja
Sawai Mansinghji Museum Trust, [1988] 169 ITR 379 (Raj)). In
F using the said expression, the Legislature has made it clear
that it intends to exempt the income of the institutions
established solely for educational purposes and not for
commercial activities. (Oxford University Press v. CIT, [2001]
247 ITR 658 (SC)). This requirement would militate against an
institution pursuing the objects other than education. (Vanita
G Vishram Trust v. Chief CIT, [2010] 327 ITR 121 (Bom)). Even if
one of the objects enables the institution to undertake
commercial activities, it would not be entitled for approval
under section 10(23C)(vi) of the Act. (American Hotel and
Lodging Association Educational Institute, [2008] 301 ITR 86
H (SC)). It is only if the objects reveal that the very being of the
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1093
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assessee-society, as an educational institution, is exclusively A
for educational purposes and not for profit, the assessee would
be entitled for exemption under section 10(23C)(vi) of the
Act. (Gurukul Ghatkeswar Trust, [2011] 332 HR 611 (AP))”.
4. On the second question, i.e., whether registration under the
A.P. Charities Act was an essential prerequisite for registration or B
approval under the IT Act, the impugned judgmentheld that such
registration was mandatory:
“21. Application of the provisions of A.P. Act 30 of 1987 to
all public charitable institutions, whether registered or not in
accordance with the provisions of the Act, continues to be the C
same as in the repealed A.P. Act 17 of 1966. Chapter IV of
A.P. Act 30 of 1987 relates to registration of charitable
institutions. Section 43 relates to registration of charitable
institutions and, under sub-section (1) thereof, the trustee or
other person in charge of the management of every charitable
institution is required to make an application for its registration D
to the concerned Assistant Commissioner. Under section 43(5),
on receipt of the application, the Assistant Commissioner shall,
after making such enquiry as he thinks fit and after hearing
any person having interest in the institution, pass an order
directing its registration, and to grant a certificate of E
registration containing the particulars furnished in the
application with the alterations, if any, made by him as a result
of his enquiry. Section 43(6) requires the particulars relating
to every institution, contained in the certificate of registration,
to be entered in the Register of Institutions and Endowments
maintained by the Assistant Commissioner. One copy thereof F
is required to be furnished to the Deputy Commissioner, and
another to the Commissioner. Under section 43(11) where any
trustee or other person fails to apply for registration of a
charitable institution, within the time specified, he shall be
punishable with fine which may extend to one thousand G
rupees. Section 44 relates to the power of the Commissioner
to have the institution registered and, thereunder, where any
trustee or other person in charge of the management of a
charitable institution fails to apply for registration of the
institution, the Commissioner shall give notice to the trustee,
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1094 SUPREME COURT REPORTS [2022] 18 S.C.R.

A or the other person, to make an application in that regard
within a specified period and, if he fails to make such an
application within the period specified, the Commissioner is
empowered to have the charitable institution registered after
following the prescribed procedure.
B 22. On a conjoint reading of the Explanation to section
1(3)(a), section 2(4) and 2(5) of A.P. Act 30 of 1987 it is
evident that a society running an educational institution in
the State of Andhra Pradesh is a public charitable institution.
The submission that, in the absence of registration, the
provisions of A.P. Act 30 of 1987 are not applicable is not
C tenable. The provisions of A.P. Act 30 of 1987 apply to all
public charitable institutions whether registered or not in
accordance with the provisions of the Act. A public charitable
institution is required, in law, to conduct the management of
its affairs strictly in accordance with the provisions of A.P.
D Act 30 of 1987. Registration under A.P. Act 30 of 1987 would
also ensure that the activities of the educational agency are
monitored by the State agencies, section 58 of A.P. Act 30 of
1987 relates to accounts and audit and, under sub-section
(2)(a) thereof, the accounts of every charitable institution the
annual income of which, as calculated for the purpose of
E section 65 for the financial year immediately preceding,
exceeds rupees one lakh, shall be subject to concurrent audit
by an agency specified by the Government, and the audit shall
take place as and when expenditure is incurred. The mere
fact that the authorities failed to act in the matter to get the
F institution registered under the provisions of the Act is of no
legal consequence. (Secretary to Government, Revenue
(Endowments) Department of AP v. Sri Swamy Ayyappa Co-
operative Housing Societies Ltd., [2003] 6 ALT 62 (AP)).
23. Imparting of education is regarded as an activity that is
G charitable in nature. Education has so far not been regarded
as a trade or business where profit is the motive. (State of
Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699; T.M.A.
Pai Foundation v. State of Karnataka, (2002) 8 SCC 481 : AIR
2003 SC 355; Islamic Academy of Education, (2003) 6 SCC 697).
Section 2(15) of the Income-tax Act defines “charitable
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1095
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

purpose” to include “education”. The sense in which the word A
“education” has been used in section 2(15) is the systematic
instruction, schooling or training given to the young in
preparation for the work of life. It also connotes the whole
course of scholastic instruction which a person has received.
The word “education”, in section 2(15), has not been used in
B
that wide and extended sense according to which every
acquisition of further knowledge constitutes education. What
education connotes, in that clause, is the process of training
and developing the knowledge, skill, mind and character of
students by formal schooling. (Sole Trustee, Loka Shikshana
Trust v. CIT, [1975] 101 ITR 234 (SC)). This definition of C
“education” is wide enough to cover the case of an
“educational institution” as, under section 10(23C)(vi), the
“educational institution” must exist “solely” for educational
purposes. (Maharaja Sawai Mansinghji Museum Trust, [1988]
169 ITR 379 (Raj)). The element of imparting education to
D
students or the element of normal schooling where there are
teachers and taught must be present so as to fall within the
sweep of section 10(23C)(vi) of the Act. Such an institution
may, incidentally, take up other activities for the benefit of
students or in furtherance of their education. It may invest its
funds or it may provide scholarships or other financial E
assistance which may be helpful to the students in pursuing
their studies. Such incidental activities alone, in the absence
of the actual activity of imparting education by normal
schooling or normal conduct of classes, would not suffice
for the purpose of qualifying the institution for the benefit of
F
section 10(23C)(vi). (Sorabji Nusserwanji Parekh, [1993] 201
ITR 939 (Guj)). Section 2(15) is wider in terms than section
10(23C)(vi) of the Act. If the assessee’s case does not fall
within section 2(15), it is difficult to put it in section
10(23C)(vi) of the Act. (Maharaja Sawai Mansinghji Museum
Trust, [1988] 169 ITR 379 (Raj)). As “education” falls within G
the scope of “charitable purpose” both under section 2(5) of
A.P. Act 30 of 1987 and section 2(15) of the Income-tax Act
and, inasmuch as A.P. Act 30 of 1987 requires all charitable
institutions in the State of A.P. to be registered, the Chief
Commissioner was justified in holding that the petitioner-
H
1096 SUPREME COURT REPORTS [2022] 18 S.C.R.

A societies should have registered themselves under the
provisions of A.P. Act 30 of 1987, as failure to so hold would
have resulted in one arm of the law being utilized to defeat
another arm of the law which would not only be opposed to
public policy, but would also bring the law into ridicule. (Bihari
Lal Jaiswal v. CIT, [1996] 217 ITR 746 (SC)).”
B
The Appellants’ Arguments
5. Ms. Prabha Swami, learned counsel appearing for one of the
appellants (R.R.M Educational Society), contended that the impugned
judgment was in error of the law. She submitted that the High Court’s
C approach in considering the memorandum of association, rules or the
constitution of the trust was no doubt correct,however the literal
interpretation of the expression ‘solely’under Section 10(23C)(vi) was
not correct.
6. It was urged that there was no bar or restriction imposed by
D law on trusts involved or engaged in activities other than education,from
claiming exemption under Section 10(23C)(vi), provided their motive
wasnot-for-profit. It was submitted that in the present case, the assesses
had other objects apart from education which were charitable.
Consequently, the denial of registration by the Commissioner was contrary
to law.
E
7. Learned counsel relied on the decision of this court in American
Hotel and Lodging Association v Central Board of Direct Taxes 5
and Queen’s Education Society v Commissioner of Income Tax6 to
submit that the test for determination was whether the ‘principal’ or
‘main’ activity was education or not, rather than whether some profits
F were incidentally earned. The observations relied upon from American
Hotel (supra) were:
“38. In deciding the character of the recipient, it is not
necessary to look at the profits of each year, but to consider
the nature of the activities undertaken in India. If the Indian
G activity has no correlation with education, exemption has to
be denied (see judgment of this Court in Oxford University
Press [(2001) 3 SCC 359 : (2001) 247 ITR 658] ). Therefore, the
5
American Hotel and Lodging Association v Central Board of Direct Taxes, (2008)
10 SCC 509.
6
H Queen’s Education Society v Commissioner of Income Tax, (2015) 8 SCC 47.
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1097
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

character of the recipient of income must have character of A
educational institution in India to be ascertained from the
nature of the activities. If after meeting expenditure, surplus
remains incidentally from the activity carried on by the
educational institution, it will not cease to be one
existing solely for educational purposes. In other words,
B
existence of surplus from the activity will not mean absence
of educational purpose (see judgment of this Court
in Aditanar Educational Institution v. CIT [(1997) 3 SCC 346
: (1997) 224 ITR 310] ). The test is—the nature of activity. If
the activity like running a printing press takes place it is not
educational. But whether the income/profit has been applied C
for non-educational purpose has to be decided only at the
end of the financial year.”
8. It was further held that the third proviso was in effect operative
after the registration or approval of the trust at the stage of assessment
to determine the actual application of income of any given trust. The D
provisos, according to the court, were divided into the processing (or
vetting) provisions(applicable at the stage of grant or refusal of an
application) and the monitoring provisions, involving consideration of
application of income of the trust:
“40. We shall now consider the effect of insertion of provisos E
to Section 10(23-C)(vi) vide the Finance (No. 2) Act, 1998.
Section 10(23-C)(vi) is analogous to Section 10(22). To that
extent, the judgments of this Court as applicable to Section
10(22) would equally apply to Section 10(23-C)(vi). The
problem arises with the insertion of the provisos to Section
10(23-C)(vi). With the insertion of the provisos to Section F
10(23-C)(vi) the applicant who seeks approval has not only
to show that it is an institution existing solely for educational
purposes [which was also the requirement under Section
10(22)] but it has now to obtain initial approval from the PA,
in terms of Section 10(23-C)(vi) by making an application in G
the standardised form as mentioned in the first proviso to that
section. That condition of obtaining approval from the PA
came to be inserted because Section 10(22) was abused by
some educational institutions/universities. This proviso was
inserted along with other provisos because there was no
H
1098 SUPREME COURT REPORTS [2022] 18 S.C.R.

A monitoring mechanism to check abuse of exemption provision.
With the insertion of the first proviso, the PA is required to vet
the application. This vetting process is stipulated by the second
proviso.
***
B 42. Under the twelfth proviso, the PA is required to examine
cases where an applicant does not apply its income during
the year of receipt and accumulates it but makes payment
therefrom to any trust or institution registered under Section
12-AA or to any fund or trust or institution or university or
C other educational institution and to that extent the proviso
states that such payment shall not be treated as application
of income to the objects for which such trust or fund or
educational institution is established. The idea underlying the
twelfth proviso is to provide guidance to the PA as to the
meaning of the words “application of income to the objects
D for which the institution is established”. Therefore, the twelfth
proviso is the matter of detail.
43. The most relevant proviso for deciding this appeal is the
thirteenth proviso. Under that proviso, the circumstances are
given under which the PA is empowered to withdraw the
E approval earlier granted. Under that proviso, if the PA is
satisfied that the trust, fund, university or other educational
institution, etc. has not applied its income in accordance with
the third proviso or if it finds that such institution, trust or
fund, etc. has not invested/deposited its funds in accordance
F with the third proviso or that the activities of such fund or
institution or trust, etc. are not genuine or that its activities
are not being carried out in accordance with the conditions
subject to which approval is granted then the PA is empowered
to withdraw the approval earlier granted after complying with
the procedure mentioned therein.
G
44. Having analysed the provisos to Section 10(23-C)(vi) one
finds that there is a difference between stipulation of
conditions and compliance therewith. The threshold conditions
are actual existence of an educational institution and approval
of the prescribed authority for which every applicant has to
H move an application in the standardised form in terms of the
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1099
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

first proviso. It is only if the prerequisite condition of actual A
existence of the educational institution is fulfilled that the
question of compliance with requirements in the provisos
would arise. We find merit in the contention advanced on
behalf of the appellant that the third proviso contains
monitoring conditions/requirements like application,
B
accumulation, deployment of income in specified assets whose
compliance depends on events that have not taken place on
the date of the application for initial approval.
45. To make the section with the proviso workable we are of
the view that the monitoring conditions in the third proviso
like application/utilisation of income, pattern of investments C
to be made, etc. could be stipulated as conditions by the PA
subject to which approval could be granted”.
9. Likewise, the decision in Queen’s Education Society (supra)
was also cited, in which this courtheld that income earned incidentally,
or profits incidental to the main activity, per se would not debar a trust’s D
application for approval, or registration, as a tax-exempt organization.
10. Counsel further submitted that in a similar manner, the previous
decision of this court in Aditanar Educational Institution v. Additional
Commissioner of Income Tax7was relevant. The same observed that:
E
“8. We may state that the language of Section 10(22) of the
Act is plain and clear and the availability of the exemption
should be evaluated each year to find out whether the
institution existed during the relevant year solely for
educational purposes and not for the purposes of profit. After
meeting the expenditure, if any surplus results incidentally F
from the activity lawfully carried on by the educational
institution, it will not cease to be one existing solely for
educational purposes since the object is not one to make profit.
The decisive or acid test is whether on an overall view of the
matter, the object is to make profit. In evaluating or appraising G
the above, one should also bear in mind the distinction/
difference between the corpus, the objects and the powers of
the concerned entity”.

7
Aditanar Educational Institution v. Additional Commissioner of Income Tax, (1997) 3
SCC 346. H
1100 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 11. It was submittedthat in American Hotel (supra), with the
insertion of the provisos to Section 10(23C)(vi), a trust seeking approval
had to show that it existed ‘solely’ for educational purposes,and should’ve
also obtained initial approval of the Prescribed Authority (hereinafter,
“PA”), through an application in the standardized formas mandated by
the first proviso. The condition of obtaining approval from the PA was
B inserted because Section 10(22) was misused. The proviso was inserted
along with other provisos because there was no monitoring mechanism
to check abuse of exemption provision. The process of examination of
the application was stipulated by the second proviso, which stated that
the PA could call for such documents including annual accounts or
C information from the applicant to check its genuineness. Under the third
proviso, the PA had the power to judge the genuineness of the activities
of the applicant and consider if it applied its income wholly and exclusively
to the objects for which it was constituted/established. Under the twelfth
proviso, the PA had to examine cases where an applicant did not apply
its income during the year of receipt and accumulated it but made payment
D therefrom to any trust or institution registered under Section 12AA or to
any trust and to that extent the proviso stated that such payment shall
not be treated as application of income to the objects for which such
trust was established. This was to guide the PA to determine the meaning
of the words “application of income to the objects for which the
institution is established”. The thirteenth proviso listed the
E circumstances under which the PA was empowered to withdraw the
approval granted earlier, if the authority was satisfied that the trusthad
not applied its income in accordance with the third proviso or if it found
that the trust had not invested/deposited its funds in accordance with the
third proviso or that the activities of such trust etc. were not genuine or
F that its activities were not being carried out in accordance with the
conditions subject to which approval was granted. In such cases, the
authority could withdraw the approval granted earlier after complying
with the procedure stipulated.
12. It was urged that there could be no dispute that the appellant
G R.R.M. Educational Society was running an educational institution. The
fact that the appellant had other objects did not mean that itceased to be
an institution existing ‘solely’ for educational purposes. The emphasis of
the word ‘solely’was in relation to the institution’s motive to not operate
for the purposes of making profit; it ought not to be interpreted in relation
to the objects of the institution. It was argued that the threshold conditions
H were actual existence of an educational institution and approval of the
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1101
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

PA for which every applicant had to move an application in the A
standardized form in terms of the first proviso. If the prescribed conditions
of actual existence of the educational institution were fulfilled, then the
question of compliance with the requirements as spelt out in the other
provisos would arise. At the present stage, such considerations were not
relevant.
B
13. It was also contended by the counsel that Section 10 (23)
(iiiab), (iiiad) and (vi) required the institutions to exist solely for educational
purposes and not for profit. The term ‘exist’ connoted the purpose, goal,
object and mission of the institution. Where the purpose of the institution
and the defining character of its mission were education, and education
alone, the test was fulfilled. That incidentally, a surplus had resulted in a C
year,was irrelevant and would not change the essential nature of the
institution into a profit-oriented one. ‘Existence’ meant the central causal
purpose of its being, though the manner in which it carried on its activities
may assume relevance. Institutions existed for what they were formed
to pursue, and if that was solely and exclusively for the purpose of D
education, the statutory condition was satisfied.
14. Learned counsel lastly urged that the appellants had established
and were managing educational institutions which did not make profit. It
was submitted that the IT Act did not stipulate registration under the
A.P. Charities Act, or any other state law as a condition precedent for E
grant of approval. As long as the trust was registered under some law
(such as the Andhra Pradesh Societies Registration Act, 2001) or even
a not-for-profit was duly incorporated, no other requirement under
provisos to Section 10(23C)(vi) of the IT Act compelled further registration
or approval under any state law. It was reiterated that the IT Act was a
complete code in itself, and other acts, including the A.P. Charities Act, F
could not be the basis for denying institutions the benefit of approval. It
was submitted that the provisions of the IT Act ought not be linked to, or
taken together with, provisions of other enactments. The objects and
reasons and the various provisions of the A.P. Charities Act regulated
and protected the property of charitable institutions.The activities of the G
appellant trusts and societies were not prohibited under any law including
the A.P. Charities Act and non-registration under that Act could not
result in discontinuance of their activities.
15. Ms. Daisy Hannah, learned advocate appearing on behalf of
some of the appellants, supported the arguments of Ms. Prabha Swami. H
1102 SUPREME COURT REPORTS [2022] 18 S.C.R.

A She submitted that the existence of more than one object could not hinder
or bar a trust’s claim to exemption, so long as it ‘mainly’ carried on
education, or education-related activities. The emphasis was not on the
absence or existence of objects other than education, rather, the negative
mandate against profit, in that profit could not motivate a trust’s
functioning. She stressed that the manner of utilization of surplus or
B
profits and conditions imposed by the tax authorities while granting
approval or exemption, were irrelevant at the stage of considering
application seeking exemption under Section 10 (23C). Those
considerations were valid only when tax authorities examined the
functioning of the trust during the course of assessments to examine its
C compliance with the law.
16. Counsel relied on the decision of Oxford University Press v.
Commissioner of Income Tax8, where interpretation of the expression
‘solely’ for the purpose of educationmeant that the sole purpose of an
institution must be to impart education and not make profit. The word
D ‘existing’ was held to mean ‘being’.
17. It was submitted that the High Court’s reasoning upholding
the threshold rejection of the appellant’s cases on the ground that the
appellant had several objects,only some of which were ‘educational’while
others were not, leaving the trustees with discretion to apply the income
E or property to any object, was erroneous. The PA no doubt had to be
satisfied through the material on record that the applicant did existand
was involved in a charitable activity, for which the objects of the institution
had to be examined. However, if more than one object did exist, and all
the objects were essentially charitable in nature, what needed to be seen
was the actual functioning. The mere possibility that the trustees
F possessed the discretion to apply the surplus or earnings in respect of
any object, and not only education, was not sufficient.
18. Mr. N. Venkataraman, learned Additional Solicitor General
(hereinafter, “ASG”) appeared on behalf of the revenue. He pointed out
that from the inception of the IT Act, till 31March 2009, the definition of
G charitable purposes under Section 2(15) included only four activities.By
the amendment of 2009 – and later in 2015 – other objects, such as
preservation of watersheds, forests and wildlife, monuments and places
or objects of artistic or historic interest, and yoga were included as
8
Oxford University Press v. Commissioner of Income Tax,(2001) 3SCC359.
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1103
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

activities deemed charitable in nature. The result was that once an activity A
was identified as charity,the income of that unit or entity was excluded
from the ambit of taxation by virtue of Section 10. Likewise, deduction
for income from property held for charitable purposes was provided
under Section 11.
19. It was alleged that since the inception of the IT Act in 1961 B
till31 March 1975, income from education was excluded as a head under
Section 10. By Section 10 (22), income of university or other educational
institutions existing ‘solely’ for educational purposes, and not for the
purpose of profit, was excluded from tax liability. An identical provision
was enacted by Section 10 (22A)for hospitals. It was pointed out that
there were two key elements to the definition of what could be excluded C
from the ambit of taxation – (i) that the institution should exist ‘solely’
for the purpose of education; and(ii) it should not exist for the purpose of
profit.
20. By the Taxation Laws (Amendment)Act, 1975,Section 10
(23C) was brought into force for the first time, and by virtue of sub- D
clauses (iv) and (v), other funds and institutions established for charitable
purposes and trusts including any other legal obligation or institution being
solely for public religious purposes and charitable purposes, could be
notified by the Central Government. Likewise, similar provisions were
made for the purposes of universities and educational institutions. The
DirectTax Laws (Amendment)Act, 1987 deleted Section 10 (23C) (iv) E
and (v). These clauses were, however, restored by the Direct Tax Laws
(Amendment)Act, 1989 with effect from 1 April 1990. Parliament also
introduced six provisos to Section 10 (23C), broadly dealing with the
considerations that were to weigh with the Central Government before
issuing notifications exempting income of such entities. The conditions
F
embodied in the six provisos dealt with genuineness of activities of the
institution - application of income or its accumulation for its application
in future to be wholly and exclusively for the objects for which the
institution had been established, and allowing profits and gains for the
purpose of exclusion, subject tothe business being incidental to the
attainment of its objectives and maintenance of separate books of G
accounts.
21. It was submitted that by the Finance Act 1998, which came
into force on 1 April 1999, significant changes were affected in that
section. These were that sub-clauses (iiiab) (iiiac)(iiiad) and (iiiae) were
added to Section 10(23C). Furthermore, two sub-clauses namely (vi)
H
1104 SUPREME COURT REPORTS [2022] 18 S.C.R.

A and (via) were added. Sub-clause (vi) dealt with education. At the same
time, Parliament deleted Section 10 (22)and Section 10 (22A). These
amendments, it was highlighted,were crucial inasmuch they changed
the complexion and contours of Section 10 (23C). Firstly, institutions
solely or substantially financed by the government were classified under
one category. Secondly, institutions whose aggregate annual receipts did
B not exceed the prescribed limits were classified under another category.
Thirdly, institutions approved by the PA, having regard to their importance
throughout the country or throughout any state, were classified under
one category. Fourthly, institutions solely for educational purposes and
not for the purpose of making a profit, were classified under one category
C (i.e., Section 10 (23C) (vi) and (via)). It was submitted that of the several
provisos added,the most important of them having a bearing on the subject
matter of these appeals were the first, second, third, seventh, thirteenth,
fourteenth, fifteenth and sixteenth provisos.
22. The ASG urged that the expression ‘education’ found place in
several provisions of the Constitution. As to what was the precise scope
D of the expression was examined by this court on several occasions. The
ASG relied on the decision of the eleven-judge bench in T.M.A Pai
Foundation v State of Karnataka9 where it was held that ‘education’
under the Constitution meant and included education at all levels, from
primary school up to postgraduation, and also included professional
E education. The expression ‘educational institution’ meant institutions
which imparted education as understood in the formal sense of schooling.It
was further elaborated that having regard to the demographics and the
geographical spread of the nation, as well as the challenges faced by the
country, it was beyond the economic capacity of the State to providefree
or subsidised universal education at all levels. Therefore, per force private
F educational institutions had to function to fill the needs of students. Within
that framework, the role of charitable institutions in imparting education
was vital and prominent. Imparting education had always been regarded
as head of charity. Tracing the history of the law relating to charities, the
learned ASG submitted that even in England, charitable objects included
G imparting education.10 It was submitted that various articles in the
9
T.M.A Pai Foundation v State of Karnataka,2002 (8)SCC 481.
10
Special Commissioners of Income Tax v. Pemsel [1891] A.C. 531. Per Lord
MacNaughten, “”Charity” in its legal sense comprises four principal divisions: trusts
for the relief of poverty; trusts for the advancement of education; trusts for the
advancement of religion; and trusts for other purposes beneficial to the community, not
falling under any of the preceding heads.”
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1105
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

Constitution, namely Article 21-A, Articles 28 to 30,Article 41, Articles A
45- 46 and Article 51 (k) as well as several entries in the Seventh Schedule
made it apparent that education meant mainstream curriculum-based
education and not education as was broadly or commonly understood.
He emphasised the importance of this aspect because while deciding
whether tax exemption under the IT Act could be granted for educational
B
institutions,the term ‘education’ as a charitable purpose could not be
comprehended as the enlarged meaning. It was in the constitutional sense,
and under the IT Act, of curriculum-based schooling,that education had
to be understood under Section 2 (15) of the IT Act as a head of
charitable purpose.
23. The learned ASG submitted that the ratio in T.M.A Pai C
Foundation (supra) had established that education per se was regarded
as a charitable activity. It could not be regarded as trade or business
with profit motive driving it. There could be some doubt about whether
education was to be regarded as a profession; nevertheless, it was covered
by the term ‘occupation’. It was submitted that the court in this context D
ruled an ‘occupation’ would be an activity of a person undertaken as a
means of livelihood or as a mission in life. Counsel also pointed to certain
portionsof the judgement in T.M.A Pai Foundation (supra) to highlight
that the rights conferred under Articles 29 and 30 were to be regarded
as guarantees to ensure equality to minority communities either based
on religion or language. E

24. It was submitted that given this enunciationof the principle
that education was an occupation and was per se, charitable, it was
antithetical to commerce or business. In other words, education could
not, either under the Constitution or under the IT Act, be regarded as a
business activity. Thus, any commercialisation of education would result F
in loss of the benefit of tax exemption which an institution would otherwise
be entitled to claim legitimately as a charitable trust. The ASG also relied
upon the subsequent seven-judge decision in PA Inamdar v State of
Maharashtra 11 which had followed the reasoning in T.M.A Pai
Foundation (supra). G
25. It was submitted next, that this court held in Aditanar (supra)-
in the context of Section 10 (22) of the IT Act -that the language of the
provision was plain and that every year the tax authorities had to discern

11
P.A. Inamdar v State of Maharashtra, (2005) 6 SCC 537.
H
1106 SUPREME COURT REPORTS [2022] 18 S.C.R.

A whether the institution existed solely for educational purposes and not
for the purpose of profit after meeting the expenditure, and that if any
surplus resulted incidentally from the lawful activities carried on by the
educational institution, it would not cease to be one existing ‘solely’ for
educational purposes. It was held that the decisive test or litmus test
was whether on an overall view of the matter, the object of the institution
B was to make profit or to impart education.
26. Turning next to the decision in Oxford University
Press(supra)the learned ASG pointed out that the majority judgement
had recognised that the term ‘existing solely for educational purposes
and not for the purposes of profit’ qualified ‘university or other
C educational institution’. It was submitted that the majority judgement
stated clearly that being part of an educational institution was insufficient
and the concerned entity had to engage in imparting education itself, and
in the course of such activity could generate surplus. However, the claim
that a unit which was part of a university abroad and was thus entitled to
be treated as a charity in India was held to be untenable, because the
D
assessee’s sole activity was to print and publish books for profit.
27. The ASG also pointed out that the decision of this court in
American Hotel (supra) was in the context of peculiar facts. The
organization was a non-profit set up in U.S.A. and was granted tax
exemption as an educational institution there. It had a branch office in
E India mainly to comply with its obligations under various agreements
with the Ministry of Tourism of the Government of India. That branch
provided a focal point in India for Indian missions to avail of its educational
courses. The branch collected data from educational institutions/persons
wishing to take courses offered in the field of hospitality andwho paidfees
for the required course material which was thereafter remitted to U.S.A.
F
It was highlighted that like in Oxford University (supra), the assessee
did not carry on any educational activityin India per se. It was in the
nature of a support establishment for an entity which was granted
charitable status in the U.S.A. The ASG contended that American Hotel
(supra)propounded an erroneous test, i.e., of ‘predominant object’ (also
G known variously as ‘dominant/primary/main’ object), though the statute
expressly stipulated that the institution must exist ‘solely’ for the purpose
of education. It was pointed out that the test of predominant object was
used in Additional Commissioner of Income Tax v Surat Art Silk
Cloth Manufacturers’ Association12 which was not a case dealing with
12
Additional Commissioner of Income Tax v Surat Art Silk Cloth Manufacturers’
H Association, (1980) 2SCC 31.
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1107
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

educational institutions, but rather with charities that were engaged in A
advancing objects of general public utility. It was held that to” ascertain
whether the institute is carried on with the object of making profit
or not it is the duty of the prescribed authority to ascertain whether
the balance of income is applied wholly and exclusively to the objects
for which the applicant is established”.13
B
28. The revenue also urged that the decision in American Hotel
(supra)was wrong in holding that the stipulations in monitoring conditions
set out in various provisos to Section 10 (23C) were different from
compliance with those conditions, and that compliance or non-compliance
was to be considered only at the assessment stage.
C
29. It was submitted that the decision in Queen’s Education
Society(supra),too could not be sustained, as it relied on the ‘predominant
object’ test enunciated and applied in Oxford University and American
Hotel (supra). Learned ASG submitted that the court’s reasoning in
Queen’s Education Society (supra), in which the ‘predominant object’
test was applied, and a distinction was drawn between making a ‘surplus’ D
and carrying on an activity for profit, with the former not debarring an
institution from claiming tax exemption – was incorrect.
Relevant Provisions
30. An analysis of the relevant provisions is called for.Section 2
E
(15) of the IT Act defines ‘charitable purpose’ as follows:
“(15) “charitable purpose” includes relief of the poor,
education, yoga, medical relief, preservation of environment
(including watersheds, forests and wildlife) and preservation
of monuments or places or objects of artistic or historic
F
interest, and the advancement of any other object of general
public utility:
Provided that the advancement of any other object of general
public utility shall not be a charitable purpose, if it involves
the carrying on of any activity in the nature of trade, commerce
G
or business, or any activity of rendering any service in relation
to any trade, commerce or business, for a cess or fee or any
other consideration, irrespective of the nature of use or
application, or retention, of the income from such activity,
unless—
13
American Hotel relying on Surat Art, para 37. H
1108 SUPREME COURT REPORTS [2022] 18 S.C.R.

A (i) such activity is undertaken in the course of actual carrying
out of such advancement of any other object of general public
utility; and
(ii) the aggregate receipts from such activity or activities
during the previous year, do not exceed twenty per cent of
B the total receipts, of the trust or institution undertaking such
activity or activities, of that previous year”.
31. Section 10 of the IT Act exempts from the field of taxation
certain classes of income. Section 10 (23C), which is relevant for
the purposes of this case, reads as follows:
C “10. In computing the total income of a previous year of any
person, any income falling within any of the following clauses
shall not be included—
(23C) any income received by any person on behalf of—

D (i)*******************
(iiiab) any university or other educational institution existing
solely for educational purposes and not for purposes of profit,
and which is wholly or substantially financed by the
Government; or
E *******************
Explanation.—For the purposes of sub-clauses (iiiab) and
(iiiac), any university or other educational institution, hospital
or other institution referred therein, shall be considered as
being substantially financed by the Government for any
F previous year, if the Government grant to such university or
other educational institution, hospital or other institution
exceeds such percentage of the total receipts including any
voluntary contributions, as may be prescribed, of such
university or other educational institution, hospital or other
institution, as the case may be, during the relevant previous
G year; or
(iiiad) any university or other educational institution existing
solely for educational purposes and not for purposes of profit
if the aggregate annual receipts of such university or
educational institution do not exceed the amount of annual
H receipt as may be prescribed or
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1109
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

(iv) any other fund or institution established for charitable A
purposes which may be approved by the prescribed authority,
having regard to the objects of the fund or institution and its
importance throughout India or throughout any State or
States; or
(v) any trust (including any other legal obligation) or B
institution wholly for public religious purposes or wholly for
public religious and charitable purposes, which may be
approved by the prescribed authority, having regard to the
manner in which the affairs of the trust or institution are
administered and supervised for ensuring that the income
accruing thereto is properly applied for the objects thereof; C

(vi) any university or other educational institution existing
solely for educational purposes and not for purposes of profit,
other than those mentioned in sub-clause (iiiab) or sub-clause
(iiiad) and which may be approved by the prescribed
authority; or…” D

The first, second, third, seventh, thirteenth, fourteenth, fifteenth
and sixteenth provisos (as of 2012) are relevant to Section 10 (23C).
They are reproduced below:
Proviso 1: E
Provided that the fund or trust or institution [or any
university or other educational institution or any hospital
or other medical institution] referred to in sub-clause (iv)
or sub-clause (v)[or sub-clause (vi) or sub-clause (via)]
shall make an application in the prescribed form and F
manner to the prescribed authority for the purpose of grant
of the exemption, or continuance thereof, under sub-clause
(iv) or sub-clause (v) [or sub-clause (vi) or sub-clause
(via)]
Proviso 2:
G
[Provided further that the prescribed authority, before
approving any fund or trust or institution or any university
or other educational institution or any hospital or other
medical institution, under sub-clause (iv) or sub-clause (v)
or sub-clause (vi) or sub-clause (via), may call for such
H
1110 SUPREME COURT REPORTS [2022] 18 S.C.R.

A documents (including audited annual accounts) or
information from the fund or trust or institution or any
university or other educational institution or any hospital
or other medical institution, as the case may be, as it thinks
necessary in order to satisfy itself about the genuineness
of the activities of such fund or trust or institution or any
B
university or other educational institution or any hospital
or other medical institution, as the case may be, and the
prescribed authority may also make such inquiries as it
deems necessary in this behalf:]
Proviso 3:
C
Provided also that the fund or trust or institution[or any
university or other educational institution or any hospital
or other medical institution] referred to in sub-clause (iv)
or sub-clause (v)[or sub-clause (vi) or sub-clause (via)]—
D [(a) applies its income, or accumulates it for
application, wholly and exclusively to the objects for
which it is established and in a case where more than
fifteen per cent of its income is accumulated on or after
the 1st day of April, 2002, the period of the
accumulation of the amount exceeding fifteen per cent
E of its income shall in no case exceed five years; and]
[(b) does not invest or deposit its funds, other than—
(i) any assets held by the fund, trust or institution [or
any university or other educational institutionor any
F hospital or other medical institution] where such assets
form part of the corpus of the fund, trust or
institution [or any university or other educational
institution or any hospital or other medical institution]
as on the 1st day of June, 1973;
[(ia) any asset, being equity shares of a public company,
G
held by any university or other educational institution
or any hospital or other medical institution where such
assets form part of the corpus of any university or other
educational institution or any hospital or other medical
institution as on the 1st day of June, 1998;]
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1111
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

(ii) any assets (being debentures issued by, or on behalf A
of, any company or corporation), acquired by the fund,
trust or institution [or any university or other
educational institutionor any hospital or other medical
institution] before the 1st day of March, 1983;
(iii) any accretion to the shares, forming part of the B
corpus mentioned in sub-clause (i)[and sub-clause (ia)],
by way of bonus shares allotted to the fund, trust or
institution[or any university or other educational
institution or any hospital or other medical institution];
(iv) voluntary contributions received and maintained C
in the form of jewellery, furniture or any other article
as the Board may, by notification in the Official Gazette,
specify,
for any period during the previous year otherwise than in
any one or more of the forms or modes specified in sub-section
D
(5) of Section 11".
Proviso 7:
“Provided also that nothing contained in sub-clause (iv)
or sub-clause (v)[or sub-clause (vi) or sub-clause (via)]
shall apply in relation to any income of the fund or trust
E
or institution [or any university or other educational
institution or any hospital or other medical institution],
being profits and gains of business, unless the business is
incidental to the attainment of its objectives and separate
books of account are maintained by it in respect of such
business:” F
Proviso 13:
“Provided also that where the fund or institution referred
to in sub-clause (iv) or trust or institution referred to in
sub-clause (v) is notified by the Central Government [or
is approved by the prescribed authority, as the case may G
be,] or any university or other educational institution
referred to in sub-clause (vi) or any hospital or other
medical institution referred to in sub-clause (via), is
approved by the prescribed authority and subsequently that
Government or the prescribed authority is satisfied that— H
1112 SUPREME COURT REPORTS [2022] 18 S.C.R.

A (i) such fund or institution or trust or any university or
other educational institution or any hospital or other
medical institution has not—
(A) applied its income in accordance with the provisions
contained in clause (a) of the third proviso; or
B (B) invested or deposited its funds in accordance with
the provisions contained in clause (b) of the third
proviso; or
(ii) the activities of such fund or institution or trust or any
university or other educational institution or any hospital
C or other medical institution—
(A) are not genuine; or
(B) are not being carried out in accordance with all or
any of the conditions subject to which it was notified
D or approved,
it may, at any time after giving a reasonable opportunity of
showing cause against the proposed action to the concerned
fund or institution or trust or any university or other
educational institution or any hospital or other medical
institution, rescind the notification or, by order, withdraw the
E
approval, as the case may be, and forward a copy of the order
rescinding the notification or withdrawing the approval to
such fund or institution or trust or any university or other
educational institution or any hospital or other medical
institution and to the Assessing Officer”.
F
Proviso 14:
“Provided also that in case the fund or trust or institution
or any university or other educational institution or any
hospital or other medical institution referred to in the first
proviso makes an application on or after the 1st day of
G June, 2006 for the purposes of grant of exemption or
continuance thereof, such application shall be 1[made on
or before the 30th day of September of the relevant
assessment year] from which the exemption is sought”.
Proviso 15:
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1113
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

“Provided also that any anonymous donation referred to A
in section 115BBC on which tax is payable in accordance
with the provisions of the said section shall be included in
the total income”.
Proviso 16:
Provided also that all pending applications, on which no B
notification has been issued under sub-clause (iv) or sub-
clause (v) before the 1st day of June, 2007, shall stand
transferred on that day to the prescribed authority and
the prescribed authority may proceed with such applications
under those sub-clauses from the stage at which they were C
on that day”.
Analysis and Conclusion
32. 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 D
preconceived attitudes14. 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. E
33. The subject of education is vast, even sublime. Yet, it is not
the broad meaning of the expression which is involved in this case. As
was held in T.M.A Pai Foundation (supra), education in the narrower
meaning of the term as scholastic structured learning is what is meant
in Article21-A, Articles 29-30 and Articles 45-46 of the Constitution. As F
to what is ‘education’ in the context of the IT Act, was explained in
Loka Shikshana Trust v. Commissioner of Income Tax 15 in the
following terms:
“5. The sense in which the word “education” has been used
in section 2(15) is the instruction, schooling or training given
G
14
Rabindranath Tagore’s Gitanjali, famous for its unforgettable verses, yearns for a
place where, “Knowledge is free”, and where,”The world has not been broken up into
fragments by narrow domestic walls, where words come from the depths of truth”, and
“Where the clear stream of reason has not lost its way into the dreary desert sand of
dead habit”.
15
Loka Shikshana Trust v. Commissioner of Income Tax,(1976) 1 SCC254. H
1114 SUPREME COURT REPORTS [2022] 18 S.C.R.

A to the young in preparation for the work of life. It also
connotes the whole course of scholastic instruction which a
person has received. The word “education” has not been used
in that wide and extended sense, according to which every
acquisition of further knowledge constitutes education.
According to this wide and extended sense, travelling is
B
education, because as a result of travelling you acquire fresh
knowledge. Likewise, if you read newspapers and magazines,
see pictures, visit art galleries, museums and zoos, you thereby
add to your knowledge.…All this in a way is education in the
great school of life. But that is not the sense in which the
C word “education” is used in clause (15) of section 2. What
education connotes in that clause is the process of training
and developing the knowledge, skill, mind and character of
students by formal schooling.”
Thus, education i.e., imparting formal scholastic learning, is what
D the IT Act provides forunder the head of “charitable” purposes, under
Section 2 (15).
34. The issues which require resolution in these cases are firstly,the
correct meaning of the term ‘solely’in Section 10 (23C) (vi) which
exempts income of “university or other educational institution
E existing solely for educational purposes and not for purposes of
profit”. Secondly,the proper manner in considering any gains, surpluses
or profits, when such receipts accrue to an educational institution, i.e.,
their treatment for the purposes of assessment, and thirdly, in addition to
the claim of a given institution to exemption on the ground that it actually
exists to impart education, in law, whether the concerned tax authorities
F require satisfaction of any other conditions, such as registration of
charitable institutions, under local or state laws.
I. Institutions existing ‘solely’ for profit
35. The revenue contends that the expression ‘solely’ has to be
G given its plain and grammatical meaning. It is emphasized that though
there are several heads of charity and several kinds of organizations
which are recognised by the IT Act, the statute underlines that those
which claim to be educational institutions should have only the sole object
of education, and no other. On the other hand, the assessee-appellants
contend that the expression ‘solely’ has never been understood in its
H literal sense, but that this court has consistently held that the expression
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1115
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

means that the predominant object, among other objects of the institution A
claiming exemption, should be education.
36. The decision in Loka Shikshana Trust (supra) was rendered
in the background of whether a newspaper published by a trust, set up
with the object of publishing it, and educating the Kannada speaking
public, could be said to have the object of education. It is in that context B
that this court clearly enunciated what is meant by education-i.e., in its
scholastic sense of structured learning rather than the wider meaning of
the expression.
37. Before the advent of the IT Act, under the old Income Tax
Act, 1922, charitable purposes – much like the present one - included C
four broad heads. The last head was advancement of objects of general
public utility. The court had to deal with the changed definition, brought
about by the IT Act of 1961, which contained restrictive terms, in that
the making of profit in the course of carrying on of objects of general
public utility was prohibited. In a couple of decisions of this court 16, it
was held that the prohibition against making profit applied only to trusts D
that had as their objective the advancement of general public utility. The
prohibition from making profits therefore, did not apply to trusts meant
to advance education, medical relief or relief for the poor.
38. This court in subsequent decisions, notably in Indian Chamber
of Commerce v Commissioner of Income Tax17 followed in principle, E
the ratio in Loka Shikshana Trust (supra) and held that profit-making
cannot be an object at all in the case of trusts set up with the object of
advancing general public utility.Matters came to a head when this court
had occasion to review the previous law in Surat Art (supra). The
assessee in Surat Art (supra) was a trade promotion association set up F
to advance the interests of silk weavers and promote exports.Some of
its objects included permitting the association to obtain export licenses
and export cloth manufactured by members, “To buy and sell and
deal in all kinds of cloth and other goods and fabrics belonging to
and on behalf of the Members.” This court was of the opinion that the
principal object, or in the exact words of the decision, ‘the predominant’ G
object or purpose of the assessee was to advance the interests of silk
manufacturers. The other objects were only incidental. It was in that
16
SeeDharmadeepti v. Commissioner of Income Tax (1978) 3SCC449.
17
Indian Chamber of Commerce v Commissioner of Income Tax,(1976) 1 SCC 324.
H
1116 SUPREME COURT REPORTS [2022] 18 S.C.R.

A context that the court held that profit-making in the course of carrying
on the predominant objective of a trust or other institution is not per se
prohibited. Notably it was held that:
“6. …But if the primary or dominant purpose of a trust or
institution is charitable, another object which by itself may
B not be charitable but which is merely ancillary or incidental
to the primary or dominant purpose would not prevent the
trust or institution from being a valid charity: Vide
Commissioner of Income Tax Madras v Andhra Chamber of
Commerce ((1965) 1 SCR 565).The test which has, therefore,
to be applied is whether the object which is said to be non-
C charitable is a main or primary object of the trust or institution
or it is ancillary or incidental to the dominant or primary
object which is charitable.”
The court then interpreted the definition in the following terms:

D “10a. It is clear on a plain natural construction of the
language used by the Legislature that the ten crucial words
“not involving the carrying on of any activity for profit” go
with “object of general public utility” and not with
“advancement”. It is the object of general public utility which
must not involve the carrying on of any activity for profit and
E not its advancement or attainment. What is inhibited by these
last ten words is the linking of activity for profit with the object
of general utility and not its linking with the accomplishment
or carrying out of the object. It is not necessary that the
accomplishment of the object or the means to carry out the
F object should not involve an activity for profit. That is not the
mandate of the newly added words. What these words require
that the object should not involve the carrying on of any
activity for profit. The emphasis is on the object of general
public utility and not on its accomplishment or attainment.
The decisions of the Kerala and Andhra Pradesh High Courts
G in Commissioner of Income Tax v Cochin Chamber of
Commerce and Industry and Andhra Pradesh State Road
Transport Corporation v Commissioner of Income Tax in our
opinion lay down the correct interpretation of the last ten
words, in section 2 clause (15). The true meaning of these
H last ten words is that when the purpose of a trust or institution
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1117
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

is the advancement of an object of general public utility, it is A
that object of general public utility and not its accomplishment
or carrying out which must not involve the carrying on of
any activity for profit.”
39. It is thus evident that the seeds of the ‘predominant object’
test wasevolved for the first time in Surat Art (supra). Noticeably, B
however, Surat Art (supra) was rendered in the context of a body claiming
to be a charity, as it had advancement of general public utility for its
objects. It was not rendered in the context of an educational institution,
which at that stage was covered by Section 10 (22)18. In that sense, the
courthad no occasion to deal with the term‘educational institution,
existing solely for educational purposes and not for purposes of C
profit’. Therefore, the application of the ‘predominant object’ test was
clearly in apt in the context of charities set up for advancing education.
It is important to highlight this aspect at this stage itself, because the
enunciation of ‘predominant object’testin Surat Art (supra) crept in to
the interpretation of ‘existing solely for educational purposes’, which D
occurred then in Section 10 (22) and now in Section 10 (23C).
40. The issue in Aditanar (supra) was whether the assessee
society, whose objects were education, could be denied exemption, on
the ground that it was not engaged in educational activities, but its schools
were. The Income Tax Appellate Tribunal and the High Court granted E
relief on that score, holding that the assessee’s objects were ‘solely’
educational. This court endorsed that view:
“7. It will be rather unreal and hyper-technical to hold that
the assessee-society is only a financing body and will not
come within the scope of ‘other educational institution’ as F
specified in section 10(22). The object of the society is to
establish, run, manage or assist colleges or schools or other
educational institutions solely for educational purposes and
in that regard to raise or collect funds, donations, gifts, etc.
Colleges and schools are the media through which the assessee
imparts education and effectuates its objects. In substance G
and reality, the sole purpose for which the assessee has come
into existence is to impart education at the levels of colleges
and schools and so, such an educational society should be
18
Section 10 (22) exempted “any income of a university or other educational institution,
existing solely for educational purposes and not for purposes of profit”
H
1118 SUPREME COURT REPORTS [2022] 18 S.C.R.

A regarded as an ‘educational institution’ coming within section
10(22). We hold accordingly. In our view, the judgment of the
High Court does not merit interference.”
From Aditanar (supra), what can be gleaned is that a society
may not by itself carry on educational activities, however if it sets up
B and governs such institutions, and its object is solely educational, it would
be regarded as a charity set up solely for the purpose of education.
41. The next relevant decision is Oxford University (supra).The
High Court was of the view that to avail the benefit of exemption under
Section 10(22), it was necessary that the income should be the income
C of a university or an educational institution ‘existing solely for
educational purposes and not for the purposes of profit’. There
was a divergence of judicial opinion in this court. S.P. Bharucha, J. who
wrote the dissenting opinion, observed as follows:
“5. By reason of Section 10(22), any income of a university
D or other educational institution, existing solely for educational
purposes and not for purposes of profit, is not includible in
its total income. A university is the creation of a charter or a
statute. It is created exclusively for educational purposes, and
not for profit. An educational institution, while it may impart
education, may yet have a profit motive. Strictly speaking,
E therefore, the phrase “existing solely for educational purposes
and not for the purposes of profit” in clause (22) qualifies
only the words “other educational institution” and not the
words “a university”. But this strict interpretation is of no
great account for the purposes of this case, and the expression
F may be read to qualify both “a university” and “other
educational institution”. For the purposes of obtaining the
exemption under clause (22) the university must be “existing
solely for educational purposes and not for purposes of
profit”. What this means is that the sole purpose of a university
must be to impart education and not at all to make profit. The
G word “existing” in the context means “being”. It has no
locational sense. The clause does not say “existing in India”
and the words “in India” cannot be read into it. The clause
does not require that the university must impart education in
India before it can qualify for exemption thereunder. The High
H Court was in error in interpreting the clause differently.”
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1119
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

42. D. P.Mohapatra, J. expressed a different view, in which he A
was joined by Y.K. Sabharwal, J.:
“32. I am of the view that the expression ‘existing solely for
the educational purpose and not for the purpose of profit’
qualifies a ‘university’or other educational institution’. In a
case where a dispute is raised whether the claim of exemption B
from the tax by the assessee is admissible or not, it is necessary
for the assessee to establish that it is a part of
a university which is engaged solely or at least primarily for
educational purposes and not for purposes of profit and the
income in respect of which the exemption is claimed is a part
of the income of the university. This question assumes C
importance in a case like the one in hand where the assessee
is nothing more than a commercial establishment/business
enterprise engaged in the business of printing, publishing
and selling of books in this country. The label ‘
university press’ is not sufficient to establish that it is engaged D
in any educational activity. The purpose of the existence of
the assessee in this country as appears from the material on
record, is possibly to earn profit. If the interpretation of the
provision in section 10(22) as urged on behalf of the assessee
is accepted, the provision will be exposed to challenge on the
ground of being irrational and, therefore, arbitrary. Then the E
question will arise for what purpose is this exemption from
tax extended to the assessee? How is it different from the large
number of such establishments engaged in the business of
printing, publishing and selling of books.”
Y.K. Sabharwal, J.’s opinion was: F

“41. The plain language of clause (22) does not suggest that
the words mentioned above qualify only other educational
institution and not universities. Mr. Dastur though faintly
suggested that it can be argued that these words do not
qualify universities and qualify other educational institutions G
but the learned counsel did not argue on that basis. The
learned counsel assumed that the requirement of sole existence
for educational purposes and not for purposes of profit applies
to universities as well as to other educational institutions.
Unfortunately, the existence of the so-called universities ostensibly H
1120 SUPREME COURT REPORTS [2022] 18 S.C.R.

A for sole educational purposes and in reality for purposes of profit
is not unknown in this country. The words to the similar effect
have also been used in clause (22A) of section 10 in relation to a
‘hospital’ or ‘other institution for the reception and treatment of
persons. . . .’ The words used in the similar setting in clause (22A)
are ‘existing solely for philanthropic purposes and not for purposes
B
of profit’. There is no reason to restrict the application of these
words only to ‘other institution’ and not to ‘a hospital’ by
holding that these words do not qualify the words ‘a hospital’.
42. The requirement of existing university solely for
educational purposes and not for purposes of profit will also
C be applicable to the universities and to this extent I am in
respectful agreement with the reasoning of brother
Mohapatra. For the present purposes, however, as already
said, I will assume that sole purpose of University of Oxford is
educational and not profit.
D ************* **************
Auniversity or other educational institution which exists solely
for educational purposes and not for purposes of profit though
not established in India but having some educational activity
in this country alone would be entitled to claim exemption.
E Such a university or educational institution having
educational activity in India but being established or
constituted in some other country would not be denied the
benefit of exemption only on the ground that it has not been
establishedor constituted in India. The imparting of education
F or existence of educational activity in India is the basic
assumption of section 10(22) and the place of the
establishment or constitution of a university or other
educational institution is of no consequence. Similar
phraseology has also been used in clause (22A) in relation to
the income of a hospital or other institution for the reception
G and treatment of the ailments referred to in the said provision.
The requirement there is about existence solely for
philanthropic purposes and not for the purposes of profit.
Clause (22A) of section 10 reads as under:
(22A) any income of a hospital or other institution for the
H reception and treatment of persons suffering from illness or
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1121
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

mental defectiveness or for the reception and treatment of A
persons during convalescence or of persons requiring
medical attention or rehabilitation, existing solely for
philanthropic purposes and not for purposes of profit.”
***
“60. If the contention urged on behalf of the assessee is B
accepted, it would result in an university or other educational
institution [clause (22)] or hospital or other institution as
contemplated by [clause (22A)], without providing in India
any educational or philanthropic activity, as the case may
be, claiming the benefit of exemption on the ground that such C
a service is being provided in some part of the world though
in India such body is engaged itself or through its branch in
an activity akin to a business or profit-making activity. The
existence of activity, which is in the nature of service to society
in India is implicit in clauses (22) and (22A) of section 10.
Further, under clause (29) though the words ‘Indian law’ are D
not used, but to claim exemption the authority therein has to
be constituted under any law for the time being in force in
India.”
43. The next decision which dealt with education and its charitable
nature was American Hotel (supra). The appellant was a U.S.A E
registered non-profit organization which was granted tax exemption in
that country. It had a branch office in India to comply with its obligations
under various agreements with the Ministry of Tourism of the Government
of India. In accordance with the terms of the Memorandum of
Understanding, it was responsible inter alia, for providing a full and F
complete curriculum recognized throughout the world for all hospitality
educational programmes in India, making available text books, course
materials and software programmes utilized in the appellant’s ‘Hospitality
Management Diploma’, offering a comprehensive certification and
registration programme for the Indians desirous of availing an education
in the hospitality field in India. The appellant received tax exemption G
under Section 10(22) up to the year ending 31 March 1998. The branch
office accounts showed surplus, which was repatriated outside India.
Its claim for approval under Section 10 (23C) after the repeal of Section
10 (22) was rejected as the authority held that the assessee had not
applied its income for the purpose of education in India. H
1122 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 44. This court held that:
“27. Actual existence of the educational institution was the
pre-condition of the application for initial approval under
section 10(22). On grant of approval, under section 10(22),
sections 11 and 13 did not apply. Therefore, earlier prior to
B 1-4-1999 when exemption was given to the appellant, there
was no assessment nor demand section 10(22) had an
automatic effect. Once an applicant-institution came within
the phrase ‘exists solely for educational purposes and not
for profit’ no other conditions like application of income were
required to be complied with. The Prescribed Authority was
C only required to examine the nature, activities and genuineness
of the Institution. The above phrase was the only requirement
for initial approval. The mere existence of profit/surplus did
not disqualify the institution if the sole purpose of its existence
was not profit-making but educational activities as section
D 10(22) by its very nature contemplated income of such
institution to be exempted. Under section 10(22) the test was
restricted to the character of the recipient of
income, viz, whether it had the character of educational
institution in India, its character outside India was irrelevant
for deciding whether its income would be exempt under section
E 10(22).
28. The moot question in section 10(22) was - whether the
activities of the applicant came within the definition of ‘income
of educational institution’. Under section 10(22) one had to
closely analyse the activities of the Institute, the objects of
F the Institute and its source of income and its utilization. Even
if one of the objects enabled the Institute to undertake,
commercial activity, the institute would not be entitled to
approval under section 10(22). The said section inter
alia excludes the income of the educational institute from the
G Total Income…
29. In Surat Art Silk Cloth Mfg. Association’s case (supra) it
has been held by this Court that test of predominant object of
the activity is to be seen whether it exists solely for education
and not to earn profit. However, the purpose would not lose
H its character merely because some profit arises from the
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1123
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

activity. That, it is not possible to carry on educational activity A
in such a way that the expenditure exactly balances the income
and there is no resultant profit, for, to achieve this, would not
only be difficult of practical realization but would reflect
unsound principles of management. In order to ascertain
whether the Institute is carried on with the object of making
B
profit or not it is duty of the prescribed authority to ascertain
whether the balance of income is applied wholly and
exclusively to the objects for which the applicant is established.
30. In deciding the character of the recipient, it is not
necessary to look at the profits of each year, but to consider
the nature of the activities undertaken in India. If the Indian C
activity has no co-relation to education, exemption has to be
denied, (see judgment of this Court in Oxford University
Press case (supra). Therefore, the character of the recipient
of income must have character of educational institution in
India to be ascertained from the nature of the activities, if D
after meeting expenditure, surplus remains incidentally from
the activity carried on by the educational institution, it will
not cease to be one existing solely for educational purposes.
In other words, existence of surplus from the activity will not
mean absence of educational purpose (see judgment of this
Court in Aditanar Educational Institution v. Addl. CIT 1997 E
(224) ITR 310 . The test is the nature of activity. If the activity
like running a printing press takes place it is not educational.
But whether the income/profit has been applied for non-
educational purpose has to be decided only at the end of the
financial year”. F
*********** ***********
“32. We shall now consider the effect of insertion of provisos
to section 10(23C)(vi) vide Finance Act, 1998. section
10(23C)(vi) is analogous to section 10(22). To that extent,
the judgments of this Court as applicable to section 10(22) G
would equally apply to section 10(23C)(vi). The problem arises
with the insertion of the provisos to section 10(23C)(vi). With
the insertion of the provisos to section 10(23C)(vi) the
applicant who seeks approval has not only to show that it is
an institution existing solely for educational purposes [which H
1124 SUPREME COURT REPORTS [2022] 18 S.C.R.

A was also the requirement under section 10(22)] but it has
now to obtain initial approval from the prescribed authority,
in terms of section 10(23C)(vi) by making an application in
the standardized form as mentioned in the first proviso to that
section. That condition of obtaining approval from the
prescribed authority came to be inserted because section
B
10(22) was abused by some educational institutions/
universities. This proviso was inserted along with other
provisos because there was no monitoring mechanism to check
abuse of exemption provision. With the insertion of the first
proviso, the prescribed authority is required to vet the
C application. This vetting process is stipulated by the second
proviso. It is important to note that the second proviso also
indicates the powers and duties of the prescribed authority.
While considering the approval application in the second
proviso, the prescribed authority is empowered before giving
approval to call for such documents including annual
D
accounts or information from the applicant to check the
genuineness of the activities of the applicant institution.
Earlier that power was not there with the prescribed authority.
Under the third proviso, the prescribed authority has to
ascertain while judging the genuineness of the activities of
E the applicant institution as to whether the applicant applies
its income wholly and exclusively to the objects for which it is
constituted/established. Under the twelfth proviso, the
prescribed authority is required to examine cases where an
applicant does not apply its income during the year of receipt
and accumulates it but makes payment therefrom to any trust
F
or institution registered under section 12AA or to any fund or
trust or institution or university or other educational institution
and to that extent the proviso states that such payment shall
not be treated as application of income to the objects for
which such trust or fund or educational institution is
G established. The idea underlying the twelfth proviso is to
provide guidance to the prescribed authority as to the meaning
of the words ‘application of income to the objects for which,
the institution is established’. Therefore, the twelfth proviso
is the matter of detail. The most relevant proviso for deciding
this appeal is the thirteenth proviso. Under that proviso, the
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1125
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

circumstances are given under which the prescribed authority A
is empowered to withdraw the approval earlier granted. Under
that proviso, if the prescribed authority is satisfied that the
trust, fund, university or other educational institution etc. has
not applied its income in accordance with the third proviso or
if it finds that such institution, trust or fund etc. has not
B
invested/deposited its funds in accordance with the third
proviso or that the activities of such fund or institution or
trust etc., are not genuine or that its activities are not being
carried out in accordance with the conditions subject to which
approval is granted then the prescribed authority is
empowered to withdraw the approval earlier granted after C
complying with the procedure mentioned therein.
33. Having analysed the provisos to section 10(23C)(vi) one
finds that there is a difference between stipulation of
conditions and compliance thereof. The threshold conditions
are actual existence of an educational institution and approval D
of the prescribed authority for which every applicant has to
move an application in the standardized form in terms of the
first proviso. It is only if the pre-requisite condition of actual
existence of the educational institution is fulfilled that the
question of compliance of requirements in the provisos would
arise. We find merit in the contention advanced on behalf of E
the appellant that the third proviso contains monitoring
conditions/requirements like application, accumulation,
deployment of income in specified assets whose compliance
depends on events that have not taken place on the date of
the application for initial approval. F
34. To make the section with the proviso workable we are of
the view that the Monitoring Conditions in the third proviso
like application/utilization of income, pattern of investments
to be made etc., could be stipulated as conditions by the
prescribed authority subject to which approval could be G
granted. For example, in marginal cases like the present case,
where appellant-Institute was given exemption up to financial
year ending 31-3-1998 (assessment year 1998-99) and where
an application is made on 7-4-1999, within seven days of the
new dispensation coming into force, the prescribed authority
H
1126 SUPREME COURT REPORTS [2022] 18 S.C.R.

A can grant approval subject to such terms and conditions as it
deems fit provided they are not in conflict with the provisions
of the 1961 Act (including the above-mentioned monitoring
conditions). While imposing stipulations subject to which
approval is granted, the prescribed authority may insist on
certain percentage of accounting Income to be utilized/
B
applied for imparting education in India. While making such
stipulations, the prescribed authority has to examine the
activities in India which the applicant has undertaken in its
Constitution, MoUs, and Agreement with Government of India/
National Council. In this case, broadly the activities
C undertaken by the appellant are - conducting classical
education by providing course materials, designing courses,
conducting exams, granting diplomas, supervising exams, all
under the terms of an Agreement entered into with Institutions
of the Government of India. Similarly, the prescribed authority
may grant approvals on such terms and conditions as it deems
D
fit in case where the Institute applies for initial approval for
the first time. The prescribed authority must give an opportunity
to the applicant-institute to comply with the monitoring
conditions which have been stipulated for the first time by
the third proviso. Therefore, cases where earlier the applicant
E has obtained exemption(s), as in this case, need not be re-
opened on the ground that the third proviso has not been
complied with. However, after grant of approval, if it is brought
to the notice of the prescribed authority that conditions on
which approval was given are breached or that circumstances
mentioned in the thirteenth proviso exists then the prescribed
F
authority can withdraw the approval earlier given by
following the procedure mentioned in that proviso. The view
we have taken, namely, that the prescribed authority can
stipulate conditions subject to which approval may be granted
finds support from sub-clause (ii)(B) in the thirteenth proviso.”
G 45. The next judgement is that of Queen’s Education Society
(supra). In that case, the society was engaged in imparting education
through its schools. For two successive assessment years the society
recorded some profits. It was denied exemption, on the ground that the
society’s objects included not only education, but others as well, and that
H its aim was to make profit. The Uttarakhand High Court affirmed the
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1127
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

view of the revenue. On appeal, this court after considering the previous A
judgements (discussed above), held that the High Court was in error.
After quoting extensively from the judgement in Surat Art Silk(supra),
this court recorded its conclusions, entirely affirming the ‘predominant
object’ test:
“11. Thus, the law common to Section 10 (23C) (iiiad) and B
(vi) may be summed up as follows:
(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 C
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 D
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 E
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.” F
46. The court disapproved the Uttarakhand High Court’s view
that generating surplus was prohibited and adversely commented on the
inferences drawn by the High Court. It was held that the High Court
had misconstrued the judgement in Aditanar (supra).It then discussed
the appeal directed against the judgement of the Punjab and Haryana G
High Court in Pinegrove International Charitable Trust Vs. Union of
India19, where the exemption application was denied by the revenue on
the ground that the level of fees collected and the surplus generated
19
Pinegrove International Charitable Trust Vs. Union of India, (2010) 327 ITR 73
(P&H). H
1128 SUPREME COURT REPORTS [2022] 18 S.C.R.

A consistently for several years indicated that the trust was essentially
engaging itself in profitable activity under the garb of imparting education.
The High Court had held that the generation of profits could not be the
only reason to deny exemption, and what was relevant was the
‘predominant’ or main object of the society, which in that case was to
impart education. The High Court also heldthat after granting approval,
B
if the PA notices that the conditions in which approval had been granted
were violated under the circumstances detailed in the thirteenth proviso
(as it existed then), approval could be withdrawn after following the
procedure prescribed.
47. This court in Queens Educational Society (supra) approved
C the judgement of the Punjab and Haryana High Court in Pinegrove
International (supra). By the same judgement,it also approved other
judgements of High Courts which had followed Pinegrove and disagreed
with the Uttarakhand High Court’s judgement.
48. From the above discussion, it is evident that this court has
D spelt out the following to be considered by the revenue, when trusts or
societies apply for registration or approval on the ground that they are
engaged in or involved in education:
(i) The society or trust may not directly run the school imparting
education. Instead, it may be instrumental in setting up schools or
E colleges imparting education. As long as the sole object of the
society or trust is to impart education, the fact that it does not do
so itself, but its colleges or schools do so, does not result in rejection
of its claim. (Aditanar (supra)).
(ii) To determine whether an institution is engaging in education
F or not, the court has to consider its objects (Aditanar (supra)).
(iii) The applicant institution should be engaged in imparting
education, if it claims to be part of an entity or university engaged
in education. This condition was propounded in Oxford University
(supra) where the applicant was a publisher, part of the Oxford
G University established in the U.K. The assessee did not engage in
imparting education, but only in publishing books, periodicals, etc.
for profit. Therefore, the court by its majority opinion held that the
mere fact that it was part of a university (incorporated or set up
abroad) did not entitle it to claim exemption on the ground that it
was imparting education in India.
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1129
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

(iv) The judgement in American Hotel (supra) states that to A
discern whether the applicant’s claim for exemption can be
allowed, the ‘predominant object’ has to be considered. It was
also held that the stage of examining whether and to what extent
profits were generated and how they were utilised was not
essential at the time of grant of approval, but rather formed part
B
of the monitoring mechanism.
(v) Queen’s Educational Society (supra) approved and applied
the ‘predominant object’ test (which extensively quoted Surat
Art (supra) and applied it with approval). The court also held that
the mere fact that substantial surpluses or profits were generated
could not be a bar for rejecting the application for approval under C
Section 10(23C)(vi) of the IT Act.
Examination of the term‘solely’
49. It is evident, that in construing the term ‘any university or
other educational institution existing solely for educational purposes D
and not for purposes of profit’ the other negative reference to profit,
in respect of educational institutions, is in the seventh proviso which
states that incomes which are profits of business, cannot be exempt,
“unless the business is incidental to the attainment of its objectives
and separate books of account are maintained by it in respect of
such business”. E

50. The basic provision granting exemption, thus enjoins that
the institution should exist ‘solely for educational purposes and not
for purposes of profit’. This requirement is categorical.While construing
this essential requirement, the proviso, which carves out the exception,
so to say, to a limited extent, cannot be looked into. The expression F
‘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 ‘sole’ or ‘solely’ however, is ‘only’ or
‘exclusively’. P.Ramanath Aiyar’s Advanced Law Lexicon20 explains
the term as, “‘Solely’ means exclusively and not primarily”. The G
Cambridge Dictionary defines ‘solely’ to be,”Only and not involving
anyone or anything else”.21 The synonyms for ‘solely’ are “alone,
independently, single-handed, single-handedly, singly, unaided,
20
P. RAMANATHA AIYAR, ADVANCED LAW LEXICON , (6thEdn.), Pg. 5249-5250 (2019).
21
Solely, Cambridge Dictionary (4thEdn.) (2013). H
1130 SUPREME COURT REPORTS [2022] 18 S.C.R.

A unassisted” and its antonyms are “inclusively, collectively,
cooperatively, conjointly etc.”
51. It is, therefore, clear that term ‘solely’ is not the same as
‘predominant / mainly’. The term ‘solely’ means to the exclusion of all
others. None of the previous decisions – especially American Hotel
B (supra) or Queens Education Society (supra) – explored the true
meaning of the expression ‘solely’.Instead, what is clear from the previous
discussion is that the applicable test enunciated in Surat Art (supra) i.e.,
the ‘predominant object’ test was applied unquestioningly in cases relating
to charitable institutions claiming to impart education. The obvious error
in the opinion of this court which led the previous decisions in American
C Hotel (supra) and in Queens Education Society (supra) was that Surat
Art (supra) was decided in the context of asociety that did not claim to
impart education. It claimed charitable statusas an institution set up to
advance objects of general public utility. The Surat Art (supra) decision
picked the first among the several objects (some of them being clearly
D trading or commercial objects) as the ‘predominant’ object which had to
be considered while judging the association’s claim for exemption. The
approach and reasoning applicable to charitable organizations set up for
advancement of objects of general public utility are entirely different
from charities set up or established for the object of imparting education.
In the case of the latter, the basis of exemption is Section 10(23C) (iiiab),
E (iiiad) and (vi). In all these provisions, the positive condition ‘solely for
educational purposes’ and the negative injunction ‘and not for
purposes of profit’ loom large as compulsive mandates, necessary for
exemption. The expression ‘solely’ is therefore important. Thus, in the
opinion of this court, a trust, university or other institution imparting
F education, as the case may be, should necessarily have all its objects
aimed at imparting or facilitating education. Having regard to the plain
and unambiguous terms of the statute and the substantive provisions
which deal with exemption,there cannot be any other interpretation.
52. The view of this court is fortified by the previous judgements
G in Commissioner of Customs(Import), Mumbai v. Dilip Kumar and
Company & Ors. 22 where a constitution bench held that taxing statutes
are to be construed in terms of their plain language:
22
Commissioner of Customs(Import), Mumbai v. Dilip Kumar and Company & Ors.,
(2018) 9 SCC 1.
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1131
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

“21. The well-settled principle is that when the words in a A
statute are clear, plain and unambiguous and only one
meaning can be inferred, the courts are bound to give effect
to the said meaning irrespective of consequences. If the words
in the statute are plain and unambiguous, it becomes necessary
to expound those words in their natural and ordinary sense.
B
The words used declare the intention of the legislature”.
The Court, while noting the nuances between ‘strict’ and ‘literal’
interpretation, held as follows:
“29. …We may reiterate at the cost of repetition that strict
interpretation of a statute certainly involves literal or plain C
meaning test. The other tools of interpretation, namely,
contextual or purposive interpretation cannot be applied nor
any resort be made to look to other supporting material,
especially in taxation statutes. Indeed, it is well settled that in
a taxation statute, there is no room for any intendment; that
regard must be had to the clear meaning of the words and D
that the matter should be governed wholly by the language
of the notification. Equity has no place in interpretation of a
tax statute. Strictly one has to look to the language used;
there is no room for searching intendment nor drawing any
presumption. Furthermore, nothing has to be read into nor E
should anything be implied other than essential inferences
while considering a taxation statute”.
If the language is unambiguous and capable of one meaning, that
alone should be applied and not any other, based under surmise that the
Parliament or the legislature intended it to be so. In other words, it is F
only in cases of ambiguity that the court can use other aids to discern the
true meaning.Where the statute is clear and the words plain, the legislation
has to be given effect in its own terms.
53. In A.V. Fernandez v State of Kerala23, a constitution bench
discussed how tax laws should ordinarily be construed: G
“29. It is no doubt, true that in construing fiscal statutes and
in determining the liability of a subject to tax one must have
regard to the strict letter of the law and not merely to the
spirit of the statute or the substance of the law. If the Revenue
23
A.V. Fernandez v State of Kerala,1957 SCR 837. H
1132 SUPREME COURT REPORTS [2022] 18 S.C.R.

A satisfies the Court that the case falls strictly within the
provisions of the law, the subject can be taxed. If, on the
other hand, the case is not covered within the four corners of
the provisions of the taxing statute, no tax can be imposed by
inference or by analogy or by trying to probe into the
intentions of the legislature and by considering what was the
B
substance of the matter”.
54. It is only when the application of literal interpretation gives
rise to an absurdity, should the interpretation be expansive. This was
reiterated in Mangalore Chemicals and Fertilisers Ltd. v. Deputy
Commissioner of Commercial Taxes & Ors.24:
C
“24. …The choice between a strict and a liberal construction
arises only in case of doubt in regard to the intention of the
legislature manifest on the statutory language. Indeed, the
need to resort to any interpretative process arises only where
the meaning is not manifest on the plain words of the statute.
D If the words are plain and clear and directly convey the
meaning, there is no need for any interpretation”.
55. This court has, in many judgments, stressed that the object of
a proviso is to except from the main provision something enacted in the
substantive clause. It cannot however, by itself be read as a substantive
E provision. Ishverlal Thakorelal Almaula v. Motibhai Nagjibhai 25
considered the function and effect of a proviso:
“8. The proper function of a proviso is to except or qualify
something enacted in the substantive clause, which but for
the proviso would be within that clause. It may ordinarily be
F presumed in construing a proviso that it was intended that
the enacting part of the section would have included the
subject-matter of the proviso.”
56. In Indore Development Authority v. Manoharlal26 it was
held that:
G
“192. A proviso has to be construed as a part of the clause to
which it is appended. A proviso is added to a principal
24
Mangalore Chemicals and Fertilisers Ltd. v. Deputy Commissioner of Commercial
Taxes & Ors, (1992) Supp (1) SCC 21.
25
Ishverlal Thakorelal Almaula v. Motibhai Nagjibhai, 1966 (1) SCR 367.
H 26
Indore Development Authority v. Manoharlal,(2020) 8 SCC 129.
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1133
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

provision to which it is attached. It does not enlarge the A
enactment. In case the provision is repugnant to the enacting
part, the proviso cannot prevail. Though in absolute terms of
a later Act. Its placement has been considered, and purpose
has been considered in the following decisions. It was
observed in State of Rajasthan v. Leela Jain [State of
B
Rajasthan v. Leela Jain, (1965) 1 SCR 276 : AIR 1965 SC
1296] : (AIR p. 1300, para 14)
“14. … So far as a general principle of construction of a
proviso is concerned, it has been broadly stated that the
function of a proviso is to limit the main part of the section
and carve out something which but for the proviso would C
have been within the operative part.”
57. The scope of a proviso was dealt with in great detail in S.
Sundaram Pillai v. V.R. Pattabiraman.27 This court observed that
normally a proviso is meant to be an exception to something within the
main enactment or to qualify something enacted therein which but for D
the proviso would be within the purview of the enactment. A proviso
cannot be torn apart from the main enactment nor can it be used to
nullify or set at naught the real object of the main enactment. After
quoting previous decisions and authoritative texts, this court summarized
the correct legal position, as follows: E
“43. We need not multiply authorities after authorities on this
point because the legal position seems to be clearly and
manifestly well established. To sum up, a proviso may serve
four different purposes:
(1) qualifying or excepting certain provisions from the main F
enactment:
(2) it may entirely change the very concept of the intendment
of the enactment by insisting on certain mandatory
conditions to be fulfilled in order to make the enactment
workable: G
(3) it may be so embedded in the Act itself as to become an
integral part of the enactment and thus acquire the tenor
and colour of the substantive enactment itself; and

27
S. Sundaram Pillai v. V.R. Pattabiraman,1985 (1) SCC 591. H
1134 SUPREME COURT REPORTS [2022] 18 S.C.R.

A (4) it may be used merely to act as an optionaladdenda to
the enactment with the sole object of explaining the real
intendment of the statutory provision.”
58. The seventh proviso to Section 10 (23C) (vi) alludes to business
and profits (‘being profits and gains of business, unless the business
B is incidental to the attainment of its objectives and separate books
of account are maintained by it in respect of such business’). The
interpretation of Section 10 (23C) therefore, is that the trust or educational
institution must solely exist for the object it professes (in this case,
education, or educational activity only), and not for profit. The seventh
proviso however carves an exception to this rule, and permits the trust
C or institution to record (or earn) profits, provided the ‘business’ which
has to be read as the education or educational activity- and nothing
other than that- is incidental to the attainment of its objectives (i.e.,
the objectives of, or relating to, education).
59. In this court’s judgment in Delhi Cloth & General Mills Co.
D Ltd. v Workmen &Ors.28 the question involved was the jurisdiction of
an industrial tribunal.Under the Industrial Disputes Act, 1947, as to
whether it can decide disputes referred to it, and matters incidental
thereto, this court explained the meaning of ‘incidental’ in the following
manner:
E “21. [T]he word ‘incidental’ means according to Webster’s
New World Dictionary:
“happening or likely to happen as a result of or in connection
with somethingmore important; being an incident; casual;
hence, secondary or minor, but usually associated:”
F
“Something incidental to a dispute” must therefore mean
something happening as a result of or; in connection with the
dispute or associated with the dispute. The dispute is the
fundamental thing while something incidental thereto is an
adjunct to it. Something incidental, therefore, cannot cut at
G the root of the main thing to which it is an adjunct.”
The above decision has been followed in other cases.
‘Incidental’therefore, means, in the context of the present case,
something connected with the activity of education.
28
H Delhi Cloth & General Mills Co. Ltd. v Workmen & Ors.,1967 (1) SCR 882.
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1135
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

60. In the light of the above discussion, this court is of the opinion A
that the interpretation adopted by the judgments in American Hotel (supra)
as well as Queens Education Society (supra) as to the meaning of the
expression ‘solely’ are erroneous. The trustor educational institution, which
seeks approval or exemption, should solely be concerned with education,
or education related activities. If, incidentally, while carrying on those
B
objectives, the trust earns profits, it has to maintain separate books of
account.It is only in those circumstances that ‘business’ income can be
permitted-provided, as stated earlier, that the activity is education, or
relating to education.The judgment in American Hotel (supra) as well
as Queens Education Society (supra) do not state the correct law, and
are accordingly overruled. C
61. The second question which this court has to address is whether
the PA (Commissioner or any other designated authority) is in any manner
enjoined to confine the nature of inquiry to discern the object of a society,
trust or other institution at the stage when it approaches the authority for
approval under Section 10 (23C). D
62. Section 10(23C) has many provisos. The first proviso enjoins
the concerned fund, trust or institution to apply to the concerned authority
i.e., the Commissioner, for grant of approval and sets out the timeline for
doing so. These include situations where atrust or institution was granted
approval up to a particular point in time and sought extension. The second E
proviso by sub-clause (ii) requires the Commissioner to make such
enquiries to specify about the genuineness of the activities of the fund,
trust or institution and compliance of such requirements of other laws in
force by such fund, trust or institution. Upon considering the materials
the Commissioner or the concerned authority can pass an appropriate
order granting approval for a specific period of time, or reject the F
application. The second proviso importantly indicates that before granting
approval to any fund, trust or institution, the Commissioner or the
concerned authority ‘may call for such documents’ including audited
annual accounts or information from the fund, or trust or institution etc.,
as is deemed necessary for recording satisfaction about the genuineness G
of the activities. The judgment in American Hotel (supra) dealt
extensively with the effect of the provisos to Section 10(23C). While
doing so, the court made certain remarks with respect to the effect of
these provisos characterizing a few of them as those dealing with the
stage of considering applications for approval or registration and other
H
1136 SUPREME COURT REPORTS [2022] 18 S.C.R.

A as those dealing with application of income or receipts of the trust. In
respect of the latter, this court was of the opinion that the question of
application of income or profits could arise only at the stage of
assessment. The court was also of the opinion that the audited books of
accounts would be of little or no relevance at the stage of registration or
B approval.
63. Having regard to the plain terms of the second proviso to
Section 10(23C), which refers to the procedure for approval of
applications including those made by trusts and institutions imparting
education, one can discern no such restrictions. From the pointed
C reference to ‘audited annual accounts’ as one of the heads of information
which can be legitimately called or requisitioned for consideration at the
stage of approval of an application, the inference is clear: the
Commissioner or the concerned authority’s hands are not tied in any
manner whatsoever. The observations to the contrary in American Hotel
(supra) appear to have overlooked the discretion vested in the
D Commissioner or the relevant authority to look into past history of
accounts, and to discern whether the applicant was engaged in fact,
‘solely’ in education. American Hotel (supra) excluded altogether inquiry
into the accounts by stating that such accounts may not be available.
Those observations in the opinion of the court assume that only newly
E set up societies, trusts, or institutions may apply for exemption. Whilst
the statute potentially applies to newly created organizations, institutions
or trusts, it equally applies to existing institutions, societies or trust, which
may seek exemption at a later point. At the same time, this court is also
of the opinion that the Commissioner or the concerned authority,while
F considering an application for approval and the further material called
for (including audited statements), should confine the inquiry ordinarily
to the nature of the income earned and whether it is for education or
education related objects of the society (or trust). If the surplus or profits
are generated in the hands of the assessee applicant in the imparting of
education or related activities, disproportionate weight ought not be given
G to surpluses or profits, provided they are incidental. At the stage of
registration or approval therefore focus is on the activity and not the
proportion of income. If the income generating activity is intrinsically
part of education, the Commissioner or other authority may not on that
basis alone reject the application.
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1137
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

Applicability of Other Laws A
64. In some appeals a grievance was articulated that the revenue
did not grant approval to the society or educational institution because it
was not registered under the A.P. Charities Act. Section 1(3)(a) the
A.P. Charities Act is applicable to all public charitable institutions whether
registered or not. The term‘public charitable institutions’ is defined, B
and includes every charitable institution the administration of which is
for the time being, amongst others, carried on by a society. ‘Charitable
institution’, under Section 2(4), and ‘charitable purpose’ under Section
2 (5) of A.P Charities Act are defined as follows:
“2 Definitions C
*******
(4) ‘charitable institution ‘ means any establishment,
undertaking, organisation or association formed for a
charitable purpose and includes a specific endowment and
dharmadayam; D
(5) ‘charitable purpose’ includes-
(a) relief of poverty or distress;
(b) education;
(c) medical relief; E

(d) advancement of any other object of utility or welfare to
the general public or a section thereof not being an object of
an exclusively religious nature.”
65. Clearly, charitable objects – defined by the A.P. Charities Act, F
are pari materia with the IT Act. Thus, establishments or associations
or organizations (widely phrased terms) formed for ‘charitable purpose’
fall within the meaning of charitable institutions. These include societies
and trusts, set up for educational purposes.
66. By Section 43(1), every charitable institution, existing as on G
the date of commencement of the A.P. Charities Act was obliged to
apply for registration.‘New trusts or institutions are obliged, within
ninety days of their formation, to apply for registration’ through
persons in charge - the Registrar, by Section 43(2) to Section 43 (4) is
obliged to inquire into the material provided with the application, and
take into account other relevant material. Section 43 (5) reads as follows: H
1138 SUPREME COURT REPORTS [2022] 18 S.C.R.

A “43(5) On receipt of the application, the Assistant
Commissioner shall, after making such enquiry as he thinks
fit and hearing any person having interest in the institution
or endowment, pass an order directing its registration and
grant to the trustee or other person a certificate of registration
containing the particulars furnished in the application with
B
the alterations, if any, made by him as a result of his enquiry.”
67. In the event of failure to comply with Section 43(1), or failure
to intimate changes in the trust, or for supplying false information, the
trustee or other person in charge, can be penalized by Section 43 (11).
Section 44 empowers the Commissioner to direct charitable organizations
C and trusts to comply and register under the Act.
68. The assessees had argued that since they were registered
under the Andhra Pradesh Societies Registration Act, 2001 or were trusts
duly registered, they could not be compelled to comply with state laws
as a condition for consideration of their application as charitable
D institutions, under Section 10 (23C).
69. This court is of the opinion that the findings in the impugned
judgment on this aspect are sound. The requirement of registration of
every charitable institution is not optional. Aside from the fact that the
consequences of non-registration are penal, which indicates the
E mandatory nature of the provisions of the A.P. Charities Act, such local
laws provide the regulatory framework by which annual accounts, manner
of choosing the governing body (in terms of the founding instrument:
trust, society, etc.), acquisition and disposal of properties, etc. are
constantly monitored. Entry 32 of List II of the Seventh Schedule to the
F Constitution reads as follows:
“32. Incorporation, regulation and winding up of
corporations, other than those specified in List I, and
universities; unincorporated trading, literary, scientific,
religious and other societies and associations; cooperative
G societies.”
By Entry 28, List III of the Seventh Schedule, the states have
undoubted power to enact on the subject of charities:
“28. Charities and charitable institutions, charitable and
religious endowments and religious institutions.”
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1139
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

The A.P. Charities Act provides a statutory regulatory framework A
in regard to activities of charitable institutions in the state. Sections 72-
74 deal with surplus funds and their treatment; Sections 75-77 deal with
properties of trusts and charitable institutions and restrictions on transfers.
These and other provisions enable the State, which is concerned in the
proper administration of such organizations, to ensure that they are
B
managed efficiently without misfeasance. They also contain provisions
to protect the interests of trusts, especially funds and properties.
70. In view of the above discussion, it is held that charitable
institutions and societies, which may be regulated by other state laws,
have to comply with them- just as in the case of laws regulating education
(at all levels). Compliance with or registration under those laws, are also C
a relevant consideration which can legitimately weigh with the
Commissioner or other concerned authority, while deciding applications
for approval under Section 10 (23C).
71. This reasoning equally applies especially in Section 11(4A)
which speaks of profits incidental which specifies that exemption in D
relation to income or trust of an institution which are profits or means of
business cannot be exempted ‘unless the business is incidental, trust
or as the case may be institution and separate books of accounts
are maintained by such trusts or institution in respect of such
business’. Thus, the underlying objective of seventh proviso to Section E
10(23C) and of Section 11(4A) are identical. These have to be read in
the light of the main provision which spells out the conditions for exemption
under Section 10(23C) - the same conditions would apply equally to the
other sub-clauses of Section 10(23C) that deal with education, medical
institution, hospitals etc.
F
72. What then is ‘incidental’ business activity in relation to
education? Imparting education through schools, colleges and other such
institutions would be per se charity. Apart from that there could be
activities incidental to providing education. One example is of text books.
This court in a previous ruling in Assam State Text Book Production &
Publication Corpn. Ltd. v. Commissioner of Income Tax29 has held G
that dealing in text books is part of a larger educational activity. The
Court was concerned with State established institutions that published
and sold text books. It was held that if an institution facilitated learning
29
Assam State Text Book Production & Publication Corpn. Ltd. v. Commissioner of
Income Tax, (2009) 17 SCC 391. H
1140 SUPREME COURT REPORTS [2022] 18 S.C.R.

A of its pupils by sourcing and providing text books, such activity would be
‘incidental’to education. Similarly, if a school or other educational
institution ran its own buses and provided bus facilities to transport
children, that too would be an activity incidental to education. There can
be similar instances such as providing summer camps for pupils’ special
educational courses, such as relating to computers etc., which may benefit
B
its pupils in their pursuit of learning.
73. However, where institutions provide their premises or
infrastructure to other entities, trusts, societies etc., for the purposes of
conducting workshops, seminars or even educational courses (which
the concerned trust is not actually imparting) and outsiders are permitted
C to enrol in such seminars, workshops, courses etc., then the income
derived from such activity cannot be characterised as part of education
or ‘incidental’ to the imparting education. Such income can properly fall
under the other heads of income.
74. In R.R.M Educational Society’s appeal before this court,the
D charitable status of the appellant within Section 10(23C) was denied
inter alia on the ground that the institution was not merely imparting
education but also was running hostels. It is clarified that providing hostel
facilities to pupils would be an activity incidental to imparting education.
It is unclear from the record whether R.R.M Educational Society was
E providing hostel facility only to its students or to others as well.If the
institution provided hostel and allied facilities(such as catering etc.) only
to its students, that activity would clearly be ‘incidental’ to the objective
of imparting education.
75. The last ground urged was with respectto the refusal by the
F Commissioner to register certain institutions who had amended their
objectives. This court is of the opinion that the impugned judgment cannot
be faulted with in rejecting the challenge by the appellant societies and
trusts, because the requirement of trust or societies applying for
registration or approval under the provisos to Section 10(23)(C) spell out
a specific time (before 30 September). As the High Court has observed,
G there is no provision to extendsuch a deadline. In the circumstances for
the concerned year, the reasoning of the High Court in refusing to interfere
with the concerned authorities decisions to approve or reject the
registration of the institution, is hereby affirmed.
76. The conclusions of this court are summarized as follows:
H
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1141
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

a. It is held that the requirement of the charitable institution, A
society or trust etc., to ‘solely’ engage itself in educationor
educational activities, and not engage in any activity of
profit,means that such institutions cannot have objects
which are unrelated to education. In other words,all objects
of the society, trust etc., mustrelate to imparting education
B
or be in relation to educational activities.
b. 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 C
course of providing education or educational activities.
c. The seventh proviso to Section 10(23C), as well as Section
11(4A) refer to profits which may be ‘incidentally’ generated
or earned by the charitable institution. In the present case,
the same is applicable only to those institutions which impart D
education or are engaged in activities connected to
education.
d. The reference to ‘business’ and ‘profits’ in the seventh
proviso to Section 10(23C) and Section 11(4A)merely means
that the profits of business which is ‘incidental’ to educational E
activity – as explained in the earlier part of the judgment
i.e., relating to education such as sale of text books, providing
school bus facilities, hostel facilities, etc.
e. The reasoning and conclusions in American Hotel
(supra)and Queen’s Education Society(supra)so far as F
they pertain to the interpretation of expression ‘solely’are
hereby disapproved.The judgments are accordingly
overruled to that extent.
f. While considering applications for approval under Section
10(23C), the Commissioner or the concerned authority as G
the case may be under the second proviso is not bound to
examine only the objects of the institution. To ascertain the
genuineness of the institution and the manner of its
functioning, the Commissioner or other authority is free to
call for the audited accounts or other such documents for
H
1142 SUPREME COURT REPORTS [2022] 18 S.C.R.

A recording satisfaction where the society, trust or institution
genuinely seeks to achieve the objects which it professes.
The observations made in American Hotel (supra) suggest
that the Commissioner could not call for the records and
that the examination of such accountswould be at the stage
of assessment. Whilst that reasoning undoubtedly applies
B
to newly set up charities, trusts etc. the proviso under Section
10(23C) is not confined to newly set up trusts – it also applies
to existing ones. The Commissioner or other authority is
not in any manner constrained from examining accounts
and other related documents to see thepattern of income
C and expenditure.
g. It is held that wherever registration of trust or charities is
obligatory under state or local laws, the concerned trust,
society, other institution etc. seeking approval under Section
10(23C) should also comply with provisions of such state
D laws. This would enable the Commissioner or concerned
authority to ascertain the genuineness of the trust, society
etc. This reasoning is reinforced by the recent insertion of
another proviso of Section 10(23C) with effect from
01.04.2021.
E 77. In a knowledge based, information driven society, true wealth
is education – and access to it. Every social order accommodates, and
even cherishes, charitable endeavour, since it is impelled by the desire to
give back, what one has taken or benefitted from society. Our Constitution
reflects a value which equates education with charity. That it is to be
treated as neither business, trade, nor commerce, has been declared by
F one of the most authoritative pronouncements of this court in T.M.A Pai
Foundation (supra). The interpretation of education being the ‘sole’
object of every trust or organization which seeks to propagate it, through
this decision, accords with the constitutional understanding and, what is
more, maintains its pristine and unsullied nature.
G 78. In the light of the foregoing discussion, the assessees’ appeals
fail. It is however clarified that their claim for approval or registration
would have to be considered in the light of subsequent events, if any,
disclosed in fresh applications made in that regard. This court is further
of the opinion that since the present judgment has departed from the
H previous rulings regarding the meaning of the term ‘solely’, in order to
M/S NEW NOBLE EDUCATIONAL SOCIETY v. THE CHIEF 1143
COMMISSIONER OF INCOME TAX 1 [S. RAVINDRA BHAT, J.]

avoid disruption, and to give time to institutions likely to be affected to A
make appropriate changes and adjustments, it would be in the larger
interests of society that the present judgment operates hereafter. As a
result, it is hereby directed that the law declared in the present judgment
shall operate prospectively. The appeals are hereby dismissed, without
order on costs.
B

Divya Pandey Appeals dismissed.
(Assisted by : Priyanshu Agarwal, LCRA)

C

D

E

F

G

H