HC quashes govt order,restores tax exemption to educational institutions

“Merely because there is surplus (revenue) with educational institutions would not ipso facto lead to a conclusion that such institution is running for making profits and not solely for educational purposes. Therefore,the interpretation by the Chief IT Commissioner that there has to be a reasonable profit only and then only an institution can be said to be not existing solely for the purposes of profit,is a misconception of law,” read the order.

“The approach of the commissioner is erroneous,contrary to the provisions of the Income Tax Act. Capital expenditure has to be deducted from the gross income of educational institutions and the commissioner has committed grave error of law by refusing to do so,” the Bench ruled,adding that “the income tax commissioner and revenue department have not brought any material to prove that the surplus earned by the petitioner (educational institutions) was utilised for personal profit/gain.”

Disapproving the methodology adopted by the commissioner in withdrawing the tax exemption to educational institutions,the Bench held:” The commissioner wrongly held that since substantial profits are being earned year after year,the educational society was not entitled to tax exemption.”

Welcoming the judgment,Advocate Saurabh and Rishabh Kapoor,counsels for educational institutions,said: “The main objective of the institutes is to impart education to youths.”

The exemption had been earlier granted to the educational institutions vide order May 31,2007 which was later withdrawn on December 31,2008 by the Chief Commissioner of Income Tax,Chandigarh.