(2022) 448 ITR 594 (SC)
Application for registration of charitable trusts and NPOs; regular income of a registered NPO
'Solely' means exclusively. An institution with objects extending beyond education does not qualify, even if education is its predominant activity. Compliance with applicable state and regulatory law is also relevant to approval.
Does an educational institution seeking exemption have to exist 'solely' for education, and must it comply with other applicable laws to be approved?
A number of educational societies in Andhra Pradesh and Telangana applied for approval as institutions existing solely for educational purposes and not for purposes of profit. Their memoranda and trust deeds contained objects extending well beyond education — including relief of the poor, medical relief and other charitable and religious activities — even though in practice they ran educational institutions. Approval was refused, partly on the ground that the objects were not confined to education and partly on the footing that the societies had not established compliance with the state legislation governing educational institutions.
The Andhra Pradesh High Court upheld the refusals. The societies appealed to the Supreme Court, which considered the correctness of an earlier line of authority — including American Hotel and Queen's Educational Society — that had been read as endorsing a predominant object approach.
For the assessee
Earlier decisions of the Court had accepted that an institution whose predominant activity is education qualifies, and that incidental objects do not disqualify it. The institutions were in fact running only educational activities, and the wider objects in the deeds were dormant. Registration under other statutes is a separate matter and cannot govern approval under the tax legislation.
For the Revenue
The provision confers exemption on an institution existing 'solely' for educational purposes. Where the constitutive document permits a range of non-educational activities, the institution does not exist solely for education, whatever it may currently be doing. The authority is also entitled to satisfy itself that the applicant is genuine and lawfully operating.
The Court undertook a detailed review of the authorities and departed from the more permissive approach. It held that where Parliament has used the word 'solely', it must be given full effect: the institution must exist only for education and for no other substantial object. A predominant object test, which suffices under the general definition of charitable purpose, does not satisfy a provision framed in exclusive terms. The Court reasoned that the exemption in question is a distinct and more generous code than the general provisions for charitable trusts, and the stricter threshold is the price of that generosity. Objects clauses permitting the trust to undertake relief of the poor, medical relief or religious activity therefore disqualify the institution, even if unexercised. On the second question, the Court held that the approving authority may require the applicant to demonstrate compliance with the regulatory and state law framework governing educational institutions, since genuineness cannot be assessed in isolation from lawfulness. Conscious of the disruption a change of this magnitude would cause, the Court expressly directed that its interpretation would apply prospectively.
Directly affects registration under Section 332 of the IT Act 2025. In practice it means object clauses need auditing: a widely drafted trust deed is now a live risk at registration or renewal, even where the organisation's actual activity is narrowly educational. Many institutions have responded by amending their constitutive documents to confine the objects, which remains the practical answer.