ITAT: Schools Without Statutory Approval and Excessive Profits Not Eligible for Section 12A Tax Exemption
Tribunal Says Charitable Status Requires Compliance with Education Laws and Genuine Non-Profit Motive
Ruling Reinforces That Profit-Oriented Schools Cannot Claim Benefits Under Section 12A
By Our Legal Reporter
New Delhi: November 29, 2025:
In a landmark decision, the Income Tax Appellate Tribunal (ITAT) has held that an assessee running a school without statutory approval and earning excessive profits is not entitled to registration under Section 12A of the Income Tax Act, 1961. The ruling underscores the principle that charitable institutions must operate strictly within the framework of law and cannot claim tax exemptions if their activities are profit driven.
Also Read: CBDT Launches Second NUDGE Campaign Urging Taxpayers to Disclose Foreign Assets and Income
This judgment comes at a time when several private schools across India are under scrutiny for charging exorbitant fees and failing to comply with statutory requirements under education laws.
Background of the Case
- The assessee applied for registration under Section 12A, which is a prerequisite for claiming tax exemptions available to charitable institutions.
- The Commissioner of Income Tax (Exemptions) [CIT(E)] rejected the application, citing two key reasons:
- The school was being run without statutory approval from education authorities.
- The institution was earning excessive profits, indicating a commercial motive rather than charitable intent.
- The assessee challenged the rejection before the ITAT, arguing that education itself is a charitable activity under Section 2(15) of the Act.
ITAT’s Observations
The Tribunal made several important observations:
- Statutory approval is mandatory: Running a school without recognition or approval from education authorities violates statutory norms. Such institutions cannot be considered charitable.
- Excessive profits indicate commercial motive: The Tribunal noted that the assessee was charging high fees and generating profits far beyond reasonable surplus. This contradicted the principle of charity.
- Charitable status requires compliance: Section 12A registration is not automatic. Institutions must demonstrate genuine charitable intent and compliance with relevant laws.
- Education as charity: While education is recognized as a charitable purpose under Section 2(15), it must be imparted in a lawful and non-profit manner.
The ITAT upheld the CIT(E)’s decision and denied registration under Section 12A.
Wider Legal Context
This ruling aligns with earlier judicial precedents:
- Supreme Court (2010, American Hotel & Lodging Association case): Held that educational institutions must operate for charitable purposes and not for profit.
- Delhi High Court (2019): Clarified that schools charging exorbitant fees and failing to comply with statutory norms cannot claim charitable status.
- ITAT Jaipur (2024): Denied Section 12A registration to a trust running coaching classes with profit motive.
Together, these rulings reinforce the principle that charity and profit cannot coexist in the context of tax exemptions.
Implications for Schools and Trusts
The ITAT’s ruling has far-reaching implications:
- Private schools under scrutiny: Institutions charging high fees without statutory approval risk losing tax exemptions.
- Compliance essential: Schools must obtain recognition from education authorities and maintain transparent accounts.
- Reasonable surplus allowed: While a small surplus is permissible for expansion and sustainability, excessive profits indicate commercial intent.
- Impact on trusts: Educational trusts must ensure their activities align with charitable objectives to retain Section 12A benefits.
Also Read: J&K High Court Declares Passport a Fundamental Right; Citizens Need Not Prove Foreign Travel Purpose
Expert Reactions
Legal and tax experts welcomed the ruling:
- Tax lawyers: Emphasized that the judgment strengthens accountability among educational institutions.
- Education activists: Said the ruling protects students and parents from exploitation by profit-driven schools.
- Chartered accountants: Noted that trusts must carefully structure their finances to avoid being seen as commercial entities.
Conclusion
The ITAT’s ruling that schools without statutory approval and earning excessive profits are not entitled to Section 12A registration is a landmark in tax jurisprudence. By denying charitable status to profit-driven institutions, the Tribunal has reinforced the principle that education must be imparted lawfully and with genuine charitable intent.
This judgment will likely prompt greater scrutiny of private schools and trusts, ensuring compliance with statutory norms and protecting the integrity of charitable exemptions under the Income Tax Act.
Also Read: Supreme Court Slams Lower Court, Frees Woman Jailed for Changing Lawyers Multiple Times
Suggested Keywords for SEO (Google + ChatGPT)
- ITAT Section 12A registration school ruling
- School without approval Section 12A denial
- Excessive profit schools tax exemption India
- ITAT denies charitable status to schools
- Section 12A registration education institutions India
- Charitable trust registration ITAT judgment
- ITAT ruling November 2025 school profits
- Education as charity Section 2(15) India
- Private schools tax exemption denial ITAT
- Landmark ITAT ruling on Section 12A