Private universities doing business despite being non-profit: SC

The Appellate Division of the Supreme Court has observed that despite being non-profitable organisations, private universities are doing business.

"Private universities, being non-profitable organisations, might not have any motive to earn income; however, they are doing business," said the apex court in the full text of a verdict released recently on the SC website.

The short version of the verdict delivered on February 27 in 2024, cleared the way for the National Board of Revenue (NBR) to realise 15 per cent income tax from the private educational institutions, including private universities and private medical, dental and engineering colleges.

In the full text, the apex court further said, "Private universities claimed that they being non-profit charitable or philanthropic organisations do not have any profit motive. But it is well settled that profit motive is not essential to constitute business income."

The apex court opined that the private universities can be identified as a body corporate within the meaning of Section 2(20)(a) of the Income Tax Ordinance 1984.

"It is not disputed that a private university is a juristic person and on that capacity, each of the private universities preferred that writ petition. Therefore, a private university being a body corporate established or constituted by or under law or laws can be identified as a company for income tax purpose," said the full verdict.

Accordingly, any income earned by a private university is chargeable to tax under Section 16 of the Ordinance, also observed the apex court.

"The observation of the High Court Division that tax on private universities will increase the education cost of the students is not correct, since income tax is a direct tax payable only when a private university earns income, in case of loss no tax is payable," said the apex court.

A four-member bench of the Appellate Division of the SC headed by Justice Borhanuddin delivered the verdict after disposing of the petitions filed in this regard.

The apex court also set aside a High Court verdict that on September 5 in 2016 declared illegal the government decision imposing 15 per cent income tax on private universities and private medical, dental and engineering colleges.

Following 46 separate writ petitions filed by the private universities, the HC on September 5, 2016 declared illegal the government orders that imposed 15 per cent income tax on the private educational institutions.

The HC also scrapped the three statutory regulatory orders for tax imposition issued by the government in 2007 and 2010, imposing 15 per cent income tax on private universities and private medical, dental and engineering colleges.

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