Delhi High Court
The Institute Of Chartered ... vs The Director General Of Income Tax ... on 19 September, 2011
Author: Sanjiv Khanna
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ WRIT PETITON (CIVIL) NO. 1927 OF 2010
Reserved on : 21st July, 2011.
% Date of Decision : 19th September, 2011.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
& ANR. .... Petitioners
Through Mr. N.K. Poddar, Sr. Advocate with
Mr. Pramod Dayal, Advocate.
VERSUS
THE DIRECTOR GENERAL OF INCOME TAX (EXEMPTIONS),
DELHI & ORS. .....Respondents
Through Mr. Abhishek Maratha, Standing
Counsel for the Revenue.
CORAM:
HON'BLE MR. JUSTICE DIPAK MISRA, THE CHIEF JUSTICE
HON'BLE MR. JUSTICE SANJIV KHANNA
1. Whether Reporters of local papers may be allowed to see the judgment?
2. To be referred to the Reporter or not ? Yes.
3. Whether the judgment should be reported in the Digest ? Yes.
SANJIV KHANNA, J.:
The Institute of Chartered Accountants of India and Mr.
Amarjit Chopra, President and Member of the Central Council of
the Institute of Chartered Accountants of India (hereinafter
referred to as the petitioners) have filed the present writ petition
under Article 226 of the Constitution of India for setting aside the
order dated 19th May, 2009 passed by the Director General of
Income-Tax (Exemptions), New Delhi (hereinafter referred to as
the respondent) dismissing/rejecting the institute‟s application
under Section 10(23C)(iv) of the Income-Tax Act, 1961 (Act, for
short) for the assessment year 2009-10 onwards. The
petitioners have prayed that the respondent should be directed
to recognize and grant approval to the petitioner institute under
the aforesaid Section for the assessment years 2006-07, 2007-
08, 2008-09 and 2009-10 and onwards.
2. On 7th May, 2008, the petitioner institute had filed an
application in form No. 56 for grant of exemption under Section
10(23C)(iv) of the Act for the assessment year 2009-10
onwards. The petitioners claim that the institution was/is
established for charitable purpose as defined under Section
2(15) of the Act and that they were/are complying with all
conditions/pre-requisites and, therefore, they were entitled to
exemption under Section 10(2C)(iv) of the Act. The impugned
order dated 19th May, 2009 has rejected the application on
several grounds. Firstly, the petitioner institute was holding
coaching classes and, therefore, was not an educational
institution as per the interpretation placed on the word
"education" used in Section 2(15) of the Act. Reliance was
placed on Sole Trustee, Loka Shikshana Trust versus
Commissioner of Income Tax, [1975] 101 ITR 234 (SC) and
Bihar Institute of Mining and Mine Surveying versus CIT,
[1994] 208 ITR 604 (Patna). Secondly, the petitioner- institute
was covered under the last limb of charitable purpose, i.e.
advancement of any other object of general public utility. In view
of the amendment made in Section 2(15) of the Act with effect
from 1st April, 2009 for the assessment year 2009-10 onwards,
the petitioner institute was not entitled to exemption as it is an
institution which conducts an activity in nature of business and
also charges fee or consideration. It was earning huge profits in
a systematic and organized manner and, therefore, it was not an
institute existing for charitable purposes under the last limb of
Section 2(15) of the Act. Thirdly, the petitioner-institute had
advanced an interest free loan to a sister concern, namely ICAI
Accounting Research Foundation, of Rs.565.20 lacs. The
petitioner-institute had accordingly violated the third proviso to
Section 10(23C) as the cumulated funds have not been invested
in one or more specified funds/institutions stipulated in sub-
section 5 to Section 11 of the Act.
3. To decide the contentions raised by the parties, it is
necessary to examine Section 10(23C)(iv) and Section 2(15)
after its amendment with effect from 1st April, 2009. The
relevant provisions read as under:
"Section 2. Definitions-
(15) "charitable purpose" includes relief of the
poor, education, medical relief, preservation of
environment (including watersheds, forests
and wildlife) and preservation of monuments
or places or objects of artistic or historic
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 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:
Provided further that the first proviso shall not
apply if the aggregate value of the receipts
from the activities referred to therein is ten
lakh rupees or less in the previous year.
10. Incomes not included in total income.--
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--
(23-C) any income received by any person on
behalf of--
(iv) any other fund or institution established
for charitable purposes which may be notified
by the Central Government in the Official
Gazette, having regard to the objects of the
fund or institution and its importance
throughout India or throughout any State or
States"
4. The core or real controversy raised in the present writ
petition, as we perceive, relates to two issues. Whether the
petitioner is an institution which carries on charitable activities in
the nature of education or advancement of any other object of
general public utility and secondly, in case the petitioner-
institute is engaged in the activity of advancement of any other
object of general public utility, can the institute be denied
exemption in view of the proviso to Section 2(15), which was
introduced with effect from 1st April, 2009.
5. A scrutiny of Section 2(15) of the Act elucidates that
charitable purpose for the purpose of the Act has been divided
into six categories, namely, (i) Relief to the poor (ii) education
(iii) medical relief, (iv) preservation of environment (including
watersheds, forests and wildlife), (v) preservation of monuments
or places or objects of artistic or historical importance and (vi)
advancement of any other object of general public utility.
6. The petitioner- institute will fall under the sixth category,
i.e. advancement of any other object of general public utility.
The petitioner institute cannot be regarded as an educational
institute as the petitioner‟s main or predominant objective is to
regulate the profession of, and the conduct of, Chartered
Accountants enrolled with them. The petitioner is a statutory
authority under the Chartered Accountants Act, 1949 (the "CA
Act") and its fundamental or dominant function is to exercise
overall control and regulate the activities of the
members/enrolled Chartered Accountants. This is apparent
from the CA Act, and the regulations framed under the said Act.
7. The CA Act was enacted, as per the preamble, to make
provisions for regulation of the profession of Chartered
Accountants and for that purpose to establish an institute of
Chartered Accountants. As per the statement of objects and
purpose the enactment was to authorize incorporation of a
autonomous professional body for the said purpose. The
function and the object and purpose of the institute can be also
gathered from Section 15 of the CA Act, which prescribes
functions of the Council. For the sake of convenience Section
15 is reproduced below:
"15. Functions of the Council.- (1) The duty
of carrying out the provisions of this Act shall
be vested in the Council.
(2) In particular, and without prejudice to the
generality of the foregoing power, the duties of
the Council shall include-
(a) the examination of candidates for
enrolment and the prescribing of fees therefor;
(b) the regulation of the engagement and
training of a[articled and audit clerks];
(c) the prescribing of qualifications for entry in
the Register.
(d) the recognition of foreign qualifications and
training for purposes of enrolment;
(e) the granting or refusal of certificates of
practice under this Act;
(f) the maintenance and publication of a
Register of persons qualified to practice as
chartered accountants;
(g) the levy and collection of fees from b[* *
* *] members, examinees and other persons;
(h) the removal of names from the Register
and the restoration to the Register of names
which have been removed;
(i) the regulation and maintenance of the
status and standard of professional
qualifications of c[members of the Institute];
(j) the carrying out, by financial assistance to
persons other than members of the Council or
in any other manner, of research in
accountancy;
(k) the maintenance of a library and
publication of books and periodicals relating to
accountancy; and
(l) the exercise of disciplinary powers
conferred by this Act.
[a] Substituted for the words "articled clerks"
by the Chartered Accountants (Amendment)
Act (15 of 1959) S.13 (1-7-1959).
[b] Words "chartered accountants", omitted,
ibid.
[c] Substituted for the words "chartered
accountants", ibid."
8. Similarly, the functions of the Council can be gathered
from Section 30, which authorizes the Council to make
regulations for the purpose of carrying out the objects of the CA
Act. Sub-section 2 to Section 30 authorises and permits
regulations to be made in the matter of the standard and
conduct of examinations; qualifications for entry of the name of
any person in the register as its member; the conditions under
which examination or training may be treated as equivalent to
examination or training prescribed; manner in which and
conditions for entry into the register of members; fee payable for
membership of the institute and annual fee payable, training of
articled and audit clerks, fixation of limits within which premium
may be charged from the articled clerks etc, regulation and
maintenance of the status and standard of professional
qualifications of members of the institute etc.
9. In Commissioner of Income-Tax, Bombay versus Bar
Council of Maharashtra, (1981) 130 ITR 28 (SC), the Supreme
Court had examined whether the Bar Council of Maharashtra, a
body corporate established under the Advocates Act, 1961,
qualifies and can be regarded as „charitable institution‟ under the
last limb of Section 2(15) of the Act. Looking at the preamble,
nature and functions of the Bar Council prescribed under the
Advocates Act, 1961, it was held that the primary purpose and
object of the Bar Council is the advancement of the object of
general public utility and hence it is covered by Section 2(15).
However, with reference to the provisions that permitted
constitution of one or more funds for the indigent, disabled or
other Advocates and the effect thereof, the question was left
open but it was held that even if such fund was constituted,
question would be considered and the Court would have to
decide whether the functions so undertaken had become the
dominant purpose.
10. No doubt, the petitioner holds classes and provides
coaching facilities for candidates/articled and audit clerks who
want to appear in the examinations and want to get enrolled as
Chartered Accountants and as well as for members of the
petitioner-institute who want to update their knowledge and
develop and sharpen their professional skills, but this is not the
sole or primary activity. The petitioner-institute may hold classes
and give diploma/degrees to the members of their institute in
various subjects but this activity is only an ancillary part of the
activities or functions performed by the petitioner institute. This
one or part activity by itself, does not mean that the petitioner is
an educational institute or is predominantly or exclusively
engaged in the activity of education. The petitioner institute is
engaged in multifarious activities of diverse nature, but the
primary and the dominant activity is to regulate the profession of
Chartered Accountancy. For this purpose it holds entrance
examination and enrolls members. It regulates the conduct of its
members, prescribes and fixes accountancy standards, etc.
11. Thus, we uphold the impugned order dated 19th May, 2009
passed by the respondent to the extent it has been held that the
petitioner institute is covered by the last limb of Section 2(15)
and is not an institute providing education but for reasons
different than those ascribed in the said order. We are conscious
of the fact that in Mohinder Singh Gill versus Chief Election
Commissioner (1978) 1 SCC 405, and other cases it has been
held that only reasons mentioned in the impugned order can be
looked into, but we have gone into the said aspect as we
perceive there cannot be any cavil or dispute with regard to the
object and purpose of the petitioner institute and the statutory
functions assigned to them. We have done so to avoid any
prolix and lengthy litigation on the said aspect though the matter
is being remitted to the authorities concerned on the second
aspect i.e. application of the first proviso to Section 2(15) of the
Act introduced with effect from 1st April, 2009.
12. As the first proviso was introduced with effect from 1st
April, 2009, the scope and ambit of the said proviso to Section
2(15) of the Act has to be examined and considered. Earlier
orders under Section 10(23C)(iv) are not relevant and are
inconsequential, as they have not examined the scope and
ambit of the first proviso. The proviso applies only if an institution
is engaged in advancement of any other object of general public
utility and postulates that such an institute is not "charitable" if it
is involved in carrying on any activity in the nature of trade,
commerce or business or any activity of rendering any service in
relation to any trade, commerce or business. The second part,
"any activity of rendering any service in relation to any trade,
commerce or business" obviously intends to expand the scope
of the proviso to include services, which are rendered in relation
to any trade, commerce or business. The proviso further
stipulates that the activity must be for a cess or fee or any other
consideration. The last part states that the proviso will apply
even if the cess or fee or any other consideration is applied for a
charitable activity/purpose. The proviso has to be given full
effect to. Thus, even if cess, fee or consideration is used or
utilized for charitable purposes, the proviso and the bar will
apply. An institution will not be regarded as established for
charitable purpose/activity under the last limb, if cess, fee or
consideration is received for carrying on any activity in nature of
trade, commerce or business or for any activity of rendering of
any service in relation to any trade, commerce or business, even
if the consideration or the money received is used in furtherance
of the charitable purposes/activities. In view of the first proviso,
the decisions that the application of money/profit is relevant for
determining whether or not a person is carrying on charitable
activity, are no longer relevant and apposite. Even if the profits
earned are used for charitable purposes, but fee, cess or
consideration is charged by a person for carrying on any activity
in the nature of trade, commerce or business or any activity of
rendering of any service in addition to any trade, commerce or
business, it would be covered under the proviso and the
bar/prohibition will apply.
13. Reliance place by the petitioners on Additional CIT
versus Surat Art Silk Cloth Manufacturers Association,
(1980) 121 ITR 1 (SC) may not be fully appropriate after
introduction of the first proviso as the statutory requirements
were then different. Utilization of the funds or income earned
whether for charitable purpose or otherwise is not relevant now
in view of the first proviso and cannot be a determining factor for
deciding whether the petitioner institute is covered by Section
2(15) of the Act. In the said decision, it was held that the
primary or dominant purpose of the trust or institution has to be
examined to determine whether the said trust/institution was
involved in carrying out any activity for profit. If the "object" of
the trust or institution was to carry out object of general public
utility and this was the primary or dominant purpose and not
carrying on any activity for profit, the same would satisfy the
requirements of Section 2(15) as it existed. It was immaterial
whether members had benefitted from some of the activities.
The aforesaid observations of the Supreme Court in the said
case and other cases will be relevant only for determining and
deciding the question whether the trust or institution is carrying
on any business. In pursuance to the above stated, the
following paragraphs are reproduced:-
"3. ....The test which has, therefore,
now to be applied is whether the
predominant object of the activity involved
in carrying out the object of general public
utility is to subserve the charitable
purpose or to earn profit. Where profit-
making is the predominant object of the
activity, the purpose, though an object of
general public utility, would cease to be a
charitable purpose. But where the
predominant object of the activity is to
carry out the charitable purpose and not
to earn profit, it would not lose its
character of a charitable purpose merely
because some profit arises from the
activity. The exclusionary clause does not
require that the activity must be carried on
in such a manner that it does not result in
any profit. It would indeed be difficult for
persons in charge of a trust or institution
to so carry on the activity that the
expenditure balances the income and
there is no resulting profit. That would not
only be difficult of practical realisation but
would also reflect unsound principle of
management. We, therefore, agree with
Beg J. when he said in Sole Trustee,
Loka Sikhshana Trust's case [1975] 101
ITR 234, 256 (SC) that:
"If the profits must necessarily feed a
charitable purpose under the terms of the
trust, the mere fact that the activities of
the trust yield profit will not alter the
charitable character of the trust. The test
now is, more clearly than in the past, the
genuineness of the purpose tested by the
obligation created to spend the money
exclusively or essentially on charity."
The learned judge also added that the
restrictive condition "that the purpose
should not involve the carrying on of any
activity for profit would be satisfied if
profit-making is not the real object."
(emphasis* supplied). We wholly endorse
these observations.
xxx
If, for example, in the illustration given by
us, it is found that the publication of the
monthly journal is carried on wholly on
commercial lines and the pricing of the
monthly journal is made on the same
basis on which it would be made by a
commercial organisation leaving a large
margin of profit, it might be difficult to
resist the inference that the activity of
publication of the journal is carried on for
profit and the purpose is non-charitable.
We may take by way of illustration
another example given by Krishna Iyer J.
in the Indian Chamber of Commerce
[1975] 101 ITR 796 (SC) where a blood
bank collects blood on payment and
supplies blood for a higher price on
commercial basis. Undoubtedly, in such a
case, the blood bank would be serving an
object of general public utility but since it
advances the charitable object by sale of
blood as an activity carried on with the
object of making profit, it would be difficult
to call its purpose charitable. Ordinarily,
there should be no difficulty in
determining whether the predominant
object of an activity is advancement of a
charitable purpose or profit-making. But
cases are bound to arise in practice which
may be on the border line and in such
cases the solution of the problem whether
the purpose is charitable or not may
involve much refinement and present real
difficulty."
14. The most material and relevant words in the proviso are
"trade, business or commerce". The activities which are
undertaken by the institute/person should be in the nature of
trade, commerce or business or any activity of rendering any
service in relation to any trade, commerce or business. The
three words "trade", "commerce" or "business" have been
interpreted by the Supreme Court and other courts in various
decisions. The word "trade" was elucidated in the case of State
of Punjab v. Bajaj Electricals Ltd., (1968) 2 SCR 536. It has
been opined:-
"3. The expression "trade" is not defined in
the Act. "Trade" in its primary meaning is the
exchanging of goods for goods or goods for
money; in its secondary meaning it is
repeated activity in the nature of business
carried on with a profit motive, the activity
being manual or mercantile, as distinguished
from the liberal arts or learned professions or
agriculture. The question whether trade is
carried on by a person at a given place must
be determined on a consideration of all the
circumstances. No test or set of tests which
is or are decisive for all cases can be evolved
for determining whether a person carries on
trade at a particular place. The question,
though one of mixed law and fact, must in
each case be determined on a consideration
of the nature of the trade, the various steps
taken for carrying on the trade and other
relevant facts.
4. In the present case, the respondent has no
shop or office within the State of Punjab. The
respondent supplies goods within the State
pursuant to orders received and accepted at
New Delhi, and also receives price for the
goods within the State. But these are
ancillary activities and do not in our judgment
amount to carrying on trade within the State
of Punjab. We need not refer in detail to
cases such as Grainger and Son v. Gough
(Surveyor of Taxes); F.L. Smith & Co. v. F.
Greenwood (Surveyor of Taxes) and
Firestone Tyre Co. Ltd. v. Lewellin which
interpret the expression "trade exercised
within the United Kingdom" in the English
Income Tax Acts, for they merely lay down
that for the purpose of the Income Tax Acts,
there is no single, decisive or "crucial" test to
determine whether the taxpayer exercises
trade at a given place"
15. The Supreme Court in Khoday Distilleries Ltd. v. State
of Karnataka, (1995) 1 SCC 574 was of the opinion :-
"68. There is no doubt that the word
„business‟ is more comprehensive than the
word „trade‟ since it will include manufacture
which the word „trade‟ may not ordinarily
include. The primary meaning of the word
„trade‟ is the exchange of goods for goods or
goods for money. However, the word „trade‟
has also secondary meaning, viz., business
carried on with a view to profit. In fact, the
words „trade‟ and „industry‟ are also used
interchangeably many times. It all depends
upon the context in which the words occur. In
Words and Phrases Legally Defined, 3rd Edn.,
(Vol. 4; R-Z) by John B. Saunders, the word
„trade‟ is explained as:
" „Trade‟ in its primary meaning is the
exchange of goods for goods or goods
for money and in a secondary
meaning it is any business carried on
with a view to profit, whether manual
or mercantile, as distinguished from
the liberal arts, or learned professions
and from agriculture. However, the
word is of very general application,
and must always be considered in the
context in which it is used. As used in
various revenue Acts, 'trade' is not
limited to buying and selling, but may
include manufacture. In the expression
„restraint of trade‟ the word is used in
its loosest sense to cover every kind of
trade, business, profession or
occupation."
69. In Skinner v. Jack Breach Ltd., Lord
Hewart, C.J. has observed:
"No doubt in a great many contexts
the word „trade‟ indicates a process of
buying and selling, but that is by no
means an exhaustive definition of its
meaning. It may also mean a calling or
industry or class of skilled labour."
70. While interpreting the provisions of the
Industrial Courts Act, 1919 Lord Wright in
National Assn. of Local Government Officers
v. Bolton Corpn. has observed thus:
"Section 11 of the Act of 1919 shows
that „trade‟ is used as including
„industry‟ because it refers to a trade
dispute in the industry of agriculture. ...
Trade and industry are thus treated as
interchangeable terms. Indeed, „trade‟
is not only in the etymological or
dictionary sense, but in legal usage, a
term of the widest scope. It is
connected originally with the word
„tread‟ and indicates a way of life or an
occupation. In ordinary usage it may
mean the occupation of a small
shopkeeper equally with that of a
commercial magnate; it may also
mean a skilled craft."
71. In Aviation and Shipping Co. Ltd. v.
Murray (Inspector of Taxes), Lord Donovan
has observed:
"A trade is an organised seeking after
profits, as a rule with the aid of
physical assets."
72. Thus it is apparent that the word „trade‟
may include all the connotations of the word
„business‟..."
16. "Trade", as per the Webster‟s New Twentieth Centuary
Dictionary (2nd edition), means amongst others, "a means of
earning one‟s living, occupation or work. In Black‟s ,Law
Dictionary, trade means a business which a person has learnt
or he carries on for procuring subsistence or profit; occupation
or employment, etc.
17. The meaning of "commerce" as given by the Concise
Oxford Dictionary is "exchange of merchandise, specially on
large scale". In ordinary parlance, trade, and commerce carry
with them the idea of purchase and sale with a view to make
profit. If a person buys goods with a view to sell them for profit,
it is an ordinary case of trade. If the transactions are on a large
scale it is called commerce. Nobody can define the volume,
which would convert a trade into commerce. For the purpose of
the first proviso to section 2(15), trade is sufficient, therefore
this aspect is not required to be examined in detail.
18. The word "business" is the broadest term and is
encompasses trade, commerce and other activities. Section
2(13) of the Income Tax Act defines the term „Business‟ as
under: -
"2. Definitions-
xxx
(13) "business" includes any trade, commerce
or manufacture or any adventure or concern in
the nature of trade, commerce or manufacture"
19. The word "Business" is a word of large and indefinite
import. Section 2(13) defines business to include any trade,
commerce or manufacture or any adventure or concern in the
nature of trade, commerce or manufacture. The intention of the
legislature is to make the definition extensive as the term
"inclusive" has been used. The legislature has deliberately
departed from giving a definite import to the term "business" but
made reference to several other general terms like "trade",
"commerce", "manufacture" and "adventure or concern in the
nature of trade, commerce and manufacture".
20. In Black Law‟s dictionary, Sixth Edition, the word
„business‟ has been defined as under:
"Employment, occupation, profession or
commercial activity engaged in for gain or
livelihood. Activity or enterprise for gain,
benefit, advantage or livelihood. Union
League Club v. Johnson, 18 Cal. 2d 275
Enterprise in which person engaged shows
willingness to invest time and capital on future
outcome. Doggett v. Burnet, 62 App.D.C. 103,
65 f.2D 191, 194.
That which habitually busies or occupies or
engages the time, attention, labour and effort
of persons as a principal serious concern or
interest or for livelihood or profit."
21. According to Sampath Iyengar‟s Law of Income Tax (9th
edition), a business activity has four essential characteristics.
Firstly, a business must be a continuous and systematic
exercise of activity. Business is defined as an active occupation
continuously carried on. Business vocation connotes some real,
substantive and systematic course of activity or conduct with a
set purpose. Second essential characteristic is profit motive or
capable of producing profit. To regard an activity as business,
there must be a course of dealings continued, or contemplated
to be continued, normally with an object of making profit and not
for sport or pleasure [Bharat Development (P) Ltd v. CIT
(1982) 133 ITR 470 (Del)]. The third essential characteristic is
that a business transaction must be between two persons.
Business is not a unilateral act. It is brought about by a
transaction between two or more persons. And lastly, the
business activity usually involves a twin activity. There is usually
an element of reciprocity involved in a business transaction.
22. In Barendra Prasad Ray versus Income Tax Officer,
[1981] 129 ITR 295 (SC), the Supreme Court has examined the
scope of the term "business" in the general law or in common
parlance as well as Indian Partnership Act, 1932 and held as
under:-
"The expression "business" does not
necessarily mean trade or manufacture only. It
is being used as including within its scope
professions, vocations and callings from a
fairly long time. The Shorter Oxford English
Dictionary defines "business" as "stated
occupation, profession or trade" and "a man of
business" is defined as meaning "an attorney"
also. In view of the above dictionary meaning
of the word " business ", it cannot be said that
the definition of business given in s. 45 of the
Partnership Act, 1890 (53 & 54 Vic. c. 39),
was an extended definition intended for the
purpose of that Act only. Section 45 of that Act
says:
" . . . . . . . . . The expression '
business ' includes every trade,
occupation, or profession. "
Section 2(b) of the Indian Partnership Act,
1932, also defines "business" thus:
"„Business ' includes every trade, occupation
and profession." The observation of
Rowlatt J. in Christopher Barker & Sons v.
IRC [1919] 2 KB 222, 228 (KB), "All
professions are businesses, but all businesses
are not professions . . . . . . . . . . . . . . . "also
supports the view that professions are
generally regarded as businesses. The same
learned judge in another case, IRC v. Marine
Steam Turbine Co. Ltd. [1920] 1 KB 193, 203
(KB) held:
The word 'business', however, is also
used in another and a very different
sense, as meaning an active
occupation or profession continuously
carried on and it is in this sense that
the word is used in the Act with which
we are here concerned. "
The word "business " is one of wide import
and it means an activity carried on
continuously and systematically by a person
by the application of his labour or skill with a
view to earning an income. We are of the view
that in the context in which the expression
"business connection" is used in s. 9(1) of the
Act, there is no warrant for giving a restricted
meaning to it excluding "professional
connections" from its scope."
23. In State of Andhra Pradesh versus H. Abdul Bakhi &
Bros., (1964) 15 STC 664, the Supreme Court elucidated that
the expression "business" is an extensively used word of
indefinite import. In the taxing statutes it is used in the sense of
an occupation or profession which occupies time, attention or
labour of a person and normally associated with the object of
making profit. It was held as under:
"4. ....To regard an activity as business there
must be a course of dealings, either actually
continued or contemplated to be continued with
a profit motive, and not for sport or pleasure.
But to be a dealer a person need not follow the
activity of buying selling and supplying the
same commodity. Mere buying for personal
consumption i.e. without a profit motive will not
make a person, dealer within the meaning of
the Act, but a person who consumes a
commodity bought by him in the course of his
trade, or use in manufacturing another
commodity for sale, would be regarded as a
dealer...."
24. In CIT versus Lahore Electric Supply Company Limited,
[1966] 60 ITR 1 (SC) it was held that the term "business", as
contemplated under the Indian Income Tax Act, 1922,
contemplates activity capable of producing profit which can be
taxed. A closed business when the person has no intention of
continuing or intention to resume, cannot be inferred and
considered to be a business when the activities are for the purpose
of paying off the outstanding liabilities.
25. In the State of Gujarat versus Raipur Manufacturing
Company, (1967) 19 STC 1 (SC) it was stated that business is
normally with the object of making profit. To regard an activity as
business, there must be a course of dealings either actually
continued or contemplated to be continued with profit motive and
not for sport or pleasure. The expression "profit motive" does not
postulate or intends that profit must, in fact, be earned. Nor does
the expression cover a mere desire to make some monetary gain
out of a transaction or a series of transactions. It predicates a
motive which pervades the transaction(s) effected by the person in
the course of his activity. Thereafter, it was observed as under:
"In actual practice, the profit motive may be
easily discernible in some transactions: in
others it would have to be inferred from a
review of the circumstances attendant upon
the transaction. For instance, where a person
who purchases a commodity in bulk and sells
it in retail it may be readily inferred that he has
a profit motive in entering into the series of
transactions of purchase and sale. A similar
inference may be raised where a person
manufactures finished goods from raw
materials belonging to him or purchased by
him, and sells them. But there a person
comes to own in the course of his business of
manufacturing or selling a commodity, some
other commodity which is not a bye-product or
a subsidiary product of that business and he
sells that commodity, cogent evidence that he
has intention to carry on business of selling
that commodity would be required. Where a
person in the course of carrying on a business
is required to dispose of what may be called
his fixed assets or his discarded goods
acquired in the course of the business, an
inference that he desired to carry on the
business of selling his fixed assets or
discarded goods would not ordinarily arise. To
infer from a course of transactions that it is
intended thereby to carry on business
ordinarily the characteristics of volume,
frequency, continuity and regularity indicating
an intention to continue the activity of carrying
on the transactions must exist. But no test is
decisive of the intention to carry on the
business: in the light of all the circumstances
an inference that a person desires to carry on
the business of selling goods may be raised."
26. A similar view has been expressed in the Director of
Supplies and Disposal versus Member, Board of Revenue,
(1967) 20 STC 398 (SC) wherein it has been held:-
14. ...The expression "business" though
extensively used in taxing statutes, is a word
of indefinite import. In taxing statutes, it is
used in the sense of an occupation, or
profession which occupies the time, attention
and labour of a person, normally with the
object of making profit. To regard an activity
as business there must be a course of
dealings, either actually continued or
contemplated to be continued with a profit-
motive; there must be some real and
systematic or organised course of activity or
conduct with a set purpose of making profit.
To infer from a course of transactions that it is
intended thereby to carry on business
ordinarily there must exist the characteristics
of volume, frequency, continuity and system
indicating an intention to continue the activity
of carrying on the transactions for a profit. But
no single test or group of tests is decisive of
the intention to carry on the business. It must
be decided in circumstances of the each
particular case whether an inference could be
raised that the is carrying on the business of
purchasing or selling of goods within the
meaning of the statute."
27. We may now refer to some High Court judgments. In
Sarojini Rajah versus CIT, (1969) 71 ITR 504 (Mad) in the
context of difference between investment and business, the
following observations, which we feel are relevant to the present
context, have been made:-
"We think that the presence of commercial
motive is a primary legal requisite of trade.
Purchase and sale as a business deal in the
present context may be another requisite.
Intention to make a profit normally inspires
trade and commerce, but it seems it may not
be the essence of trade. Likewise, habitual
dealing is ordinarily indicative of trade or
commerce, but is not necessarily so, as
pointed out by Rowlatt K. in Graham v. Green.
There may be other legal requisites which
may have to be satisfied with reference to the
character of particular transactions in different
kinds of trade or businesses. But whether
these legal requisites are satisfied or are
present will themselves, in their turn, be a
mixed question of law and fact. The character
of the motive or intention with reference to a
transaction is a matter of inference from the
other facts. It is here the badges of trade
indicated by the Royal Commission earlier
referred to are of assistance. The subject-
matter of a transaction may by such as is
commonly or usually dealt with in trade or
commerce."
28. Almost identical view has been expressed by the Patna
High Court, Orissa High Court and Madras High Court in Eclat
Construction Private Limited versus CIT, [1988] 172 ITR 84
(Pat), CIT versus M.P. Bazaz, [1993] 200 ITR 131 (Ori) and
Commissioner of Income Tax versus Meenakshisundaram
(R.M.), [1995] 212 ITR 220 (Mad). Delhi High Court in Bharat
Development Private Limited versus CIT (supra) has
expressed the view and elucidated that the term "business"
means some real, substantive, systematic or organized course
of activity or conduct capable of producing profit.
29. It may be, however, pointed out that the term "profit
motive" is not only the sole or relevant consideration that has to
be kept in mind. It is one of the aspects. Normally intention to
earn profit is required. Emphasis, however it does appear, has
shifted and the concept and principle of "economic activity" has
gained acceptability. The definition of the term "business" may
also vary when we are examining taxability under Sales Tax,
Excise Duty, Value Added Tax, etc. because these are not taxes
on income but the taxable event occurs because of the
"economic activity" involved. Even if a person/an organization is
carrying on trading on the principle of "no loss no profit", it may
be liable to pay taxes or comply with the statute when the
charge, or incidence of tax, is on the "economic activity". This
concept is today well recognized in European Union and
England (see Riverside Housing Association Limited versus
Revenue and Customs Commissioner, (2006) EWHC 2383
(Ch) and the case law cited therein). It may also be also
appropriate here to refer the decision of the House of Lords in
Town Investments Limited and Others versus Department
of the Environment, (1977) 1 All ER 813. In this case, a
Government department was claiming benefit under a legislation
that protected "business tenancies" from increase in rent. The
term "business" in the said case by a majority decision was held
to include Government activities. It was held that the word
"business" is a etymological chameleon; it suits its meaning to
the context in which it is found. It is not the term of legal art but
in its dictionary meaning it includes anything which is an
occupation, as distinguished from pleasure-- anything which is
an occupation or a duty which requires attention is business. It
was also observed that business conveys in ordinary meaning
the notion of a distinct enterprise (not necessarily for profit)
having its distinct object, distinct management and distinct
assets and liabilities.
30. In Institute of Chartered Accountants in England and
Wales Vs. Customs and Excise Commissioners, (1999) 1
W.L.R. 701, the House of Lords examined the question whether
the aforesaid institute was liable to pay value added tax for
supply of goods and services as it was issuing licences and
certificates under three enactments for a fee. Question arose
whether the Institute was carrying on "economic activity" for the
purposes of Value Added Tax Act, 1994, the definition of which
is rather extensive and wide. However, the expression „business‟
was examined with reference to the statutory mandate imposed
on the institute and whether the statutory activities can be
classified as a business, and it was observed as under:-
"Although differences between them may
arise, it seems to me that the appellants were
right in their case to accept that "The
expression „business‟, it is accepted,
represents „economic activity‟". It is not
necessarily sufficient (though it may often be
sufficient in different contexts) that money is
paid and a benefit obtained, performing on
behalf of the state this licensing function is
not the carrying on of a business.
In relation to the Directive, the tribunal said:
"Any regulatory activity carried out under a
statutory power for the purpose of protecting
the public by supervising and maintaining the
standard of practitioners in, for example, the
Financial Services field fall on the other side
of the line from economic activities.
In the present case, I agree that that is
entirely right and the same goes for
"business" in the context of these three
Statutes."
31. In the said decision reference was made to an earlier
decision in the case Customs and Excise Commissioner vs.
Lord Fisher, [1981] S.T.C. 238, and it was observed as under:
"In regard to "business" for the purpose of the Act.
Ralph Gibson J. held in Customs and Excise
Commissioners v. Lord Fisher on earlier
authority "that „business‟ is or may be in particular
contexts a word of very wide meaning," but that
"the ordinary meaning of the word „business‟ in
the context of this Act excludes, in my judgment,
any activity which is no more than an activity for
pleasure and social enjoyment", though the fact
that the pursuit of profit or earnings was not the
motive did not prevent an activity from being a
business if in any other respect it plainly was. He
referred, at p. 245, to six indicia listed by the
counsel for the commissioners as the test as to
weather an activity was a business- was it- (a) a
"serious undertaking earnestly pursued;" (b)
pursued with reasonable continuity; (c) substantial
in amount; (d) conducted regularly on sound and
recognized business principles; (e) predominantly
concerned with the making of taxable supplies to
consumers for a consideration; (f) such as
consisted of taxable supplies of a kind commonly
made by those who seek to make profit from
them."
32. In Commissioner of Sales Tax v. Sai Publication Fund,
(2002) 4 SCC 57 the Supreme Court interpreted the word
"business" under section 2(5-A) of the Bombay Sales Tax Act,
1959. It opined:-
"11. No doubt, the definition of "business"
given in Section 2(5-A) of the Act even
without profit motive is wide enough to
include any trade, commerce or manufacture
or any adventure or concern in the nature of
trade, commerce or manufacture and any
transaction in connection with or incidental or
ancillary to the commencement or closure of
such trade, commerce, manufacture,
adventure or concern. If the main activity is
not business, then any transaction incidental
or ancillary would not normally amount to
"business" unless an independent intention to
carry on "business" in the incidental or
ancillary activity is established. In such
cases, the onus of proof of an independent
intention to carry on "business" connected
with or incidental or ancillary sales will rest on
the Department. Thus, if the main activity of a
person is not trade, commerce etc., ordinarily
incidental or ancillary activity may not come
within the meaning of "business". To put it
differently, the inclusion of incidental or
ancillary activity in the definition of "business"
presupposes the existence of trade,
commerce etc. The definition of "dealer"
contained in Section 2(11) of the Act clearly
indicates that in order to hold a person to be
a "dealer", he must "carry on business" and
then only he may also be deemed to be
carrying on business in respect of transaction
incidental or ancillary thereto. We have stated
above that the main and dominant activity of
the Trust in furtherance of its object is to
spread message. Hence, such activity does
not amount to "business". Publication for the
purpose of spreading message is incidental
to the main activity which the Trust does not
carry on as business. In this view, the activity
of the Trust in bringing out publications and
selling them at cost price to spread message
of Saibaba does not make it a dealer under
Section 2(11) of the Act.
XXX
15. This Court in the aforementioned
judgment further examined the cases to find
out if the main activity was not "business". In
para 32, reference is made to the case of the
Bombay High Court in State of Bombay v.
Ahmedabad Education Society. In that case,
the educational society was entrusted with
the task of founding a college and for that
purpose it was to construct buildings therefor.
It was held that it could not be said to be
"carrying on business" merely because for
the above purposes, it established a brick kiln
and sold surplus bricks and scrap at cost
price without intending to make profit or gain.
Having regard to main activities and its
objects, it was held that the educational
society was not established "to carry on
business" and the sale of bricks was held not
excisable to sales tax. Chagla, C.J. pointed
out that it was not merely the act of selling or
buying etc. that constituted a person a
"dealer" but the "object" of the person who
carried on the activities was important. It was
further stated that it was not every activity or
any repeated activity resulting in sale or
supply of goods that would attract sales tax. If
the legislature intended to tax every sale or
purchase irrespective of the object of the
activities out of which the transaction arose,
then it was unnecessary to state that the
person must "carry on business" of selling,
buying etc.
16. In para 33 of the same judgment, this
Court has referred to various decisions to
consider whether one is a "dealer" or carries
on "business" and the nature and object of
activity. The said para reads thus: (SCC pp.
648-50)
"33. In Girdharilal Jiwanlal v. CST,
relied on for the respondent-Port
Trust, the Bombay High Court
held that an agriculturist did not
necessarily fall within the
definition of a 'dealer' under
Section 2(c) of the C.P. & Berar
Sales Tax Act (21 of 1967),
merely because he sold or
supplied commodities. It must be
shown that he was carrying on a
business. It was held that it must
be established that his primary
intention in engaging himself in
such activities must be to carry on
the business of sale or supply of
agricultural produce. This High
Court held that there was „nothing
to show that the petitioner
acquired these lands with a view
to doing "the business of selling or
supplying" agricultural produce.
According to (the assessee), he
(was) principally an agriculturist
who also deals in cotton, coal,
oilseeds and groundnuts‟.
(emphasis supplied)
He was having agriculture for the purpose of
earning income from the fields but there was
nothing to show that he acquired the lands
with the primary intention of doing business
of selling or buying agricultural produce. This
decision was approved by this Court in Dy.
Commr. of Agricultural Income Tax & Sales
Tax v. Travancore Rubber & Tea Co. and it
was held that where the only facts
established were that the assessee
converted latex tapped from rubber trees into
sheets and effected a sale of those sheets to
its customers, the conversion of latex into
sheets being a process essential for transport
and marketing of the produce, the
Department had failed to prove that „the
assessee was formed‟ with a commercial
purpose. The Allahabad High Court in
Swadeshi Cotton Mills Co. Ltd. v. STO was
dealing with a batch of cases where different
bodies were running canteens. One of the
cases concerned Aligarh Muslim University
which was maintaining dining halls where it
was serving food and refreshments to its
resident-students. It was held, referring to
observations of this Court in University of
Delhi v. Ram Nath that it was incongruous to
call educational activities of the University as
amounting to 'carrying on business'. The
activity of serving food in the dining hall was
a minor part of the overall activity of the
University. Education was more a mission
and avocation rather than a profession or
trade or business. The aim of education was
the creation of a well-educated, healthy,
young generation imbued with a rational and
progressive outlook of life. On this reasoning,
it was held that Aligarh University was not
„carrying on business‟ and the sale of food at
the dining halls was not liable to tax. Likewise
after the amendment of the definition of
„business‟ question arose in Indian Institute of
Technology v. State of U.P. with respect to
the visitors' hostel maintained by the Indian
Institute of Technology where lodging and
boarding facilities were provided to persons
who would come to the Institute in connection
with education and the academic activities of
the Institute. It was observed that the
statutory obligation of maintenance of the
hostel which involved supply and sale of food
was an integral part of the objects of the
Institute. Nor could the running of the hostel
be treated as the principal activity of the
Institute. The Institute could not be held to be
doing business. Similarly, in the case of a
research organization, in Dy. Commr. (C.T.)
v. South India Textile Research Assn. which
was purchasing cotton and selling the cotton
yarn/cotton waste resulting from the research
activities, it was held that the Institute was
solely and exclusively constituted for the
purposes of research and was not carrying
on 'business' and these sales and purchases
abovementioned could not be subjected to
sales tax. Likewise, in State of T.N. v.
Cement Research Institute of India it was
held that the Institute was an organisation,
the objects of which were to promote
research and other scientific work, that the
laboratories and workshops were maintained
by the organization for conducting
experiments, and that though the cement
manufactured as a result of research was
sold, it could not be considered to be a
trading activity within Section 2(d) of the
Tamil Nadu General Sales Tax Act, 1959.
Again in Tirumala Tirupati Devasthanam v.
State of Madras the dispute arose with regard
to the sales of silverware etc. which are
customarily deposited in the hundis by
devotees. It was held by the Madras High
Court that the Devasthanam's main activities
were religious in nature and these sales were
not liable to tax. (No doubt, the case related
to a period where the profit motive was not
excluded by statute.) We are of the view that
all these decisions involve the general
principle that the main activity must be
'business' and these rulings do support the
case of the respondent-Port Trust."
(emphasis supplied)
17. This decision is directly on the point
supporting the case of the respondent after
noticing number of decisions on the point
including the decisions cited by the learned
counsel before us. It may be stated that the
question of profit motive or no-profit motive
would be relevant only where a person
carries on trade, commerce, manufacture or
adventure in the nature of trade, commerce
etc. On the facts and in the circumstances of
the present case irrespective of the profit
motive, it could not be said that the Trust
either was "dealer" or was carrying on trade,
commerce etc. The Trust is not carrying on
trade, commerce etc., in the sense of
occupation to be a "dealer" as its main object
is to spread message of Saibaba of Shirdi as
already noticed above. Having regard to all
aspects of the matter, the High Court was
right in answering the question referred by
the Tribunal in the affirmative and in favour of
the respondent-assessee. We must however
add here that whether a particular person is a
"dealer" and whether he carries on
"business", are the matters to be decided on
facts and in the circumstances of each case."
33. Section 2(15) defines the term „charitable purpose‟.
Therefore, while construing the term „business‟ for the said
Section, the object and purpose of the Section has to be kept in
mind. We do not think that a very broad and extended definition
of the term „business‟ is intended for the purpose of interpreting
and applying the first proviso to Section 2(15) of the Act to
include any transaction for a fee or money. An activity would be
considered "business" if it is undertaken with a profit motive, but
in some cases this may not be determinative. Normally the profit
motive test should be satisfied but in a given case activity may
be regarded as business even when profit motive cannot be
established/proved. In such cases, there should be evidence
and material to show that the activity has continued on sound
and recognized business principles, and pursued with
reasonable continuity. There should be facts and other
circumstances which justify and show that the activity
undertaken is infact in the nature of business. The test as
prescribe in Raipur Manufacturing Company (supra) and Sai
Publications Fund (supra) can be applied. The six indicia
stipulated in Lord Fisher (supra) are also relevant. Each case,
therefore, has to be examined on its own facts.
34. In view of the aforesaid enunciation, the real issue and
question is that whether the petitioner-institute pursues the
activity of business, trade or commerce. To our mind, the
respondent while dealing with the said question has not applied
their mind to the legal principles enunciated above and have
taken a rather narrow and myopic view by holding that the
petitioner institute is holding coaching classes and that this
amounts to business. This is apparent from a reading of
paragraph 4 and a part of paragraph 5 of the impugned order,
which are as under:
"4. Thus, the word „education‟ used in the
above sections is the process of training and
developing of knowledge, skill, mind and
character of students by normal schooling.
The coaching cannot be treated at par with
normal schooling. In normal schooling the
education culminates in some certificate,
degree etc. but in coaching this does not take
place. The issue of coaching classes also
came up before Hon‟ble High Court in the
case of Bihar Institute of Mining and Mine
Surveying Vs. CIT (1994) 208 ITR 608
(Patna). It was held that coaching of the
students in an institution could not be held as
education as it was not a process of training
and development of students in normal
schooling. Thus, coaching of the students can
not be treated as education for the purpose of
Section 2(15) of the I.T. Act.
5. .....In other words, if an institution conduct
any activity in the nature of business or
charges fee for services then it will not be
considered as charitable w.e.f. 01.04.2009.
As applicant is charging fee for coaching the
students, its activities are squarely covered
under the proviso of the Section 2(15). It is
also seen that such activities are resulting into
huge profit year after year. The summary of
fee charged, expenditure and profit earned is
given below:
Asstt. Year Fess charged Expenditure Profit earned
for providing incurred on through
coaching (Rs. coaching (Rs. providing
in lacs) in lacs) coaching (Rs.
in lacs)
2002-03 115.36 68.03 47.33
2003-04 178.51 96.63 81.88
2004-05 192.08 110.46 81.62
2005-06 237.11 133.14 103.97
2006-07 228.40 139.95 88.45
2007-08 301.90 164.75 137.15
2008-09 385.99 172.18 213.81"
35. The aforesaid view in our opinion is clearly laconic, cryptic
and does not examine and consider the legal concept of the
term "business" and apply the law to the given facts. Section 15
of the CA Act prescribes the object and purpose of the Council
under whose supervision the institute is to act and has been
given the duty of carrying out the provisions of the CA Act. This
section has been quoted above and clearly reflects that the
institute has been given the duty and function to approve
academic courses, conduct examinations for enrolment,
prescribe fee, make regulations for encouragement, training of
articled and audit clerks, prescribe qualification for registration,
grant or refuse to grant certificate of practice and regulate and
maintain the standards of members. Further, Section 30-A of
the CA Act empowers the Central Government to give such
direction or special directions to the Council constituted under
Section 9 to ensure compliance and the Council in discharge of
their functions is required to comply with the said directions.
Section 30 of the CA Act empowers the Council to make
regulations for carrying out the provisions of the Act, including
the standard and conduct of examination, the qualifications for
entry of any person in the register as a member of the institute,
the conditions under which any examination or training may be
treated as equivalent to the examination and training prescribed
for members of the Institute, the training of articled and audit
clerks and the regulation and maintenance of status and
standards of professional qualifications. The Institute has framed
the Chartered Accountants Regulations, 1988 and the said
Regulations provide for training of students, their examination,
award of degrees and membership of the Institute.
36. It may be noted that the petitioner institute provides
education and training in their post qualification courses,
corporate management, tax management and information
system audit. It awards certificates to members of the institute
who successfully complete the said courses. Post qualification
diploma courses are also conducted in several fields. The
examination conducted by the petitioner institute consists of
Common Proficiency Test, Professional Education Examination,
Professional Competence Examination, Accounting Technician
Course, Integrated Professional Competence Course, final and
post qualification courses. The conduct of these courses cannot
be equated and categorized as mere coaching classes which
are conducted by private institutes to prepare students to appear
for entrance examination or for pre-admission or examinations
being conducted by the universities, school-boards or other
professional examinations. The courses of the institute, per se,
it does appears cannot be equated to a private coaching
institute. There is a clear distinction between coaching classes
conducted by private coaching institutions and the courses and
examinations which are held by the petitioner institute. The
decision, in the case of Bihar Institute of Mining and Mine
Surveying (supra) is not applicable. A private coaching institute
has no statutory or regulatory duty to perform. It cannot award
degrees or enroll members as Chartered Accountants. These
activities undertaken by the petitioner- institute satisfies the
requirement of the term "education" as defined by the Supreme
Court in Sole Trustee, Loka Shikshana Trust (supra) wherein
it has been held as under:
"5. The sense in which the word "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" 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
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.
Again, when you grow up and have dealings
with other people, some of whom are not
straight, you learn by experience and thus add
to your knowledge of the ways of the world. If
you are not careful, your wallet is liable to be
stolen or you are liable to be cheated by some
unscrupulous person. The thief who removes
your wallet and the swindler who cheats you
teach you a lesson and in the process make
you wiser though poorer. If you visit a night
club, you get acquainted with and add to your
knowledge about some of the not much
revealed realities and mysteries of life. All this
in a way is education in the great school of
life. But that is not the sense in which the 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."
37. In this regard we may also refer to the decision of Gujarat
High Court in Saurashtra Education Foundation versus CIT,
(2005) 273 ITR 139 (Guj) wherein it has been held as under:
"The exemption is granted to the income of a
university or other educational institution. The
expression, "educational institution" would,
therefore, take colour from the preceding
word, "university". Noscitur a sociio (a word is
known by the company its keeps) is a well
settled rule of interpretation of a statute. A
university is admittedly an educational
institution set up for imparting formal
education. Hence, applying the aforesaid rule
of interpretation the expression, "other
educational institution" would mean an
institution imparting formal education in an
organised and systematic training where the
institution would be accountable to some
authority and where there would be teachers
and the taught the former having some
degree of control over the latter."
38. The aforesaid ratio was expounded in the Sole Trustee,
Loka Shikshana Trust (supra) has been rightly interpreted by
the Gujarat High Court in Gujarat State Co-Operative Union
versus CIT, (1992) 195 ITR 279 (Guj) wherein it has been held
as under:
"The Supreme Court, in the above
observations, by referring to the systematic
instruction, schooling or training given to the
young has only cited an instance in order to
indicate as to what the word "education"
appearing in section 2(15) of the Act which
defines "charitable purposes" is intended to
mean. We are certain that these observations
were not intended to keep out of the meaning
of the word "education", persons other than
"young". The expression "schooling" also
means "that schools, instructs or educates"
(The Oxford English Dictionary, Vol. IX, page
217). The Supreme Court has observed that
the word "education" also connotes the whole
course of scholastic instruction which a
person has received.
This clearly indicates that the observations of
the Supreme Court were not intended to give
a narrow or pedantic sense to the word
"education".
By giving further illustrations of a traveller
gaining knowledge, victims of swindlers and
thieves becoming wiser, the visitors to night
clubs adding to their knowledge the hidden
mysteries of life, the Supreme Court has
indicated that the word "education" is not used
in a loose sense so as to include acquisition of
even such knowledge. The observations of
the Supreme Court only indicate the proper
confines of the word "education" in the context
of the provisions of section 2(15) of the Act. It
will not be proper to construe these
observations in a manner in which they are
construed by the Tribunal when it infers from
these observations, in para 17 of its judgment,
that the word "education" is limited to schools
colleges and similar institutions and does not
extend to any other media for such acquisition
of knowledge. The observations of the
Supreme Court do not confine the word
"education" only to scholastic instructions but
other forms of education also are included in
the word "education". As noticed above, the
word "schooling" also means instructing or
educating. It, therefore, cannot be said that
the word "education" has been given an
unduly restricted meaning by the Supreme
Court in the said decision.
Though, in the context of the provision of
section 10(22), the concept of education need
not be given any wide or extended meaning, it
surely would encompass systematic
dissemination of knowledge and training in
specialised subjects as is done by the
assessee. The changing times and the ever
widening horizons of knowledge may bring in
changes in the methodology of teaching and a
shift for the better in the institutional set-up.
Advancement of knowledge brings within its
fold suitable methods of its dissemination and
though the primary method of sitting in a
classroom may remain ideal for most of the
initial education, it may become necessary to
have a different outlook for further education.
It is not necessary to nail down the concept of
education to a particular formula or to flow it
only through a defined channel. Its progress
lies in the acceptance of new ideas and
development of appropriate means to reach
them to the recipients."
39. The petitioner institute cannot be equated with and the
ratio of Oxford University Press versus CIT, (2001) 247 ITR
658 (SC) is not applicable. The said institute was publishing
books and was not carrying on any educational or teaching
activities in India. In such context it was held by D.P. Mohapatra,
J. as under:
".............Therefore, even a university or
other educational institution established or
incorporated outside India can be eligible for
the exemption from tax under the provision
provided that it exists solely for educational
purposes and not for purposes of profit. On
a closer examination of the provision it
becomes clear that in using the expression
"existing solely for educational purposes and
not for purposes of profit" the Legislature has
made it clear that it intends to exempt the
income of institutions established solely for
the educational purposes and not for
commercial activities. Such a provision is
meant to encourage institutions (including
universities) engaged in educational
activities and it is not intended to benefit
institutions engaged in commercial activities
with the intention of earning profit. In my
view this interpretation will not only serve the
intent and purpose of the statutory provision
but will also help in avoiding the criticism of
want of rationale in granting the exemption."
"...........This question assumes 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 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) of the Act 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
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?"
40. Y.K. Sabharwal, J. (as his lordship then was) has held as
under:
"I have no difficulty in accepting the contention
of Mr. Dastur, learned counsel for the
appellant, that for the purpose of claiming
exemption under clause (22) of section 10, the
source of income is not relevant and,
therefore, the question whether the income of
the press is from sale and printing of books, is
of no consequence and on that ground
exemption cannot be denied to the
appellant............."
"The imparting of education is service to the
society. From the language of section 10(22),
it does not appear that without any such
service in India, the Legislature intended to
exempt the total income of the assessee. I do
not think that from the language of section
10(22), it can be said that the hands of the
court are so tied that it cannot read into this
provision, the requirement of imparting
education or some other educational activity in
this country. A university 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. 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 it has not been
established or constituted in India. The
imparting of education or existence of
educational activity in India is the basis
assumption of section 10(22) and the place of
the establishment or constitution of a
University or other educational institution is of
no consequence................
"Thus, it is evident that for the purposes of
granting exemption the Legislature assumed
the existence of educational activity in India by
a University or other educational institution but
did not want to restrict the exemption only to
such university or educational institution which
is established or constituted or set up in India.
That seems to be the reason for not placing
limitation as to the setting up of such a body in
India. In this view a foreign university would
also be entitled to claim exemption so long as
it was imparting education in India. The basic
requirement of the section is the existence of
"education purpose" which, in other words,
means the imparting of education which has
to be in India. A university established in a
foreign country is not excluded from the ambit
of section 10(22) in case it is imparting
education in India or has some educational
activity in India. It is not the case of the
assessee nor is there any such finding that
the assesse is imparting any education or has
any educational activity in India. In this view
the assesssee is not entitled to claim
exemption............."
41. The question, which remains unanswered in spite of the
aforesaid finding that the petitioner institute also undertakes
educational activity, is whether the petitioner was carrying on
any business, trade or commerce. This question requires an
answer but remains unanswered as it was not addressed and
examined in the impugned order dated 19th May, 2009 in proper
perspective. The reasoning given in the order is with reference
to the fee charged, expenditure and profit earned which is
mentioned in paragraph 5 of the impugned order. We have
already held that the impugned order is cryptic and a myopic
view has been taken without examining the legal principles. The
aforesaid figures have been disputed and denied by the
petitioner-institute on various grounds including the fact that it
takes into account only direct expenses and does not include
several expenses like common expenditure, cost of free study
material given to the students for the purpose of coaching and
depreciation of assets, salary paid to the staff employed by the
branches etc. In this regard the petitioner-institute in the written
submissions has pointed out as under:
"31. The Assessee Institute does not get
any grant from any source and the only
source of its income is fees received from its
members and students. For providing quality
education to its students, the Assessee
Institute charges very nominal fees from its
students and in turn provides them with the
study material, course modules, infrastructural
facilities, library services, books/reading
material, web based teaching e-learning,
facility of interaction with faculty etc. This is
done purely on a charitable basis, without any
profit motive, and in terms of its statutory
duties and obligations under the Chartered
Accountants Act, 1949 and the Regulations
made there under:
32. The receipts from holding such
coaching/revisionary classes are also
accompanied with various expenses, which
are shown as Coaching/revisionary Expenses
in the Financial Statements. These expenses
are in the nature of Rental of premises,
payment of faculties, hiring charges of
projectors etc., printing and stationery, cost of
study material, entertainment expenses etc.
Further, the amount of expenditure incurred
for these classes are not inclusive of other
common expenditure, which includes the cost
of free study material issued to the students
for the purpose of coaching/revisionary
classes.
33. Such common administrative expenses
also include inter alia Depreciation on assets
installed and Salaries paid to the staff
employed by the Branches of the Institute,
which are the main centres for holding
coaching and revisionary classes for the
students enrolled for the Chartered
Accountancy Course throughout the Country,
as per details given in paragraph 4 of the
Supplementary Affidavit sworn on behalf of
the Institute on 17th March, 2010 and already
filed in this Hon‟ble Court earlier, which details
are again set out hereunder for ready
reference:
Financial Salaries (Rs. In lacs) Total
Years Depreciation
2003-04 55.27 51.64 106.91
2004-05 66.38 54.32 120.70
2005-06 85.96 73.04 159.00
2006-07 81.51 118.77 200.28
2007-08 98.40 226.54 324.94
2008-09 136.94 467.48 604.42
34. The common administrative expenses
referred to hereinabove are far more than the
so called surplus directly arising in providing
the coaching facilities to the students, as set
out in the Table appearing under paragraph 5
of the impugned order dated 19th May, 2009
passed by the Respondent No. 1 herein
under section 10(23C)(iv) of the Income-Tax
Act, 1961 (kindly see pages 76-83 of the
instant WP, and in particular at page 80
thereof. The said Table is also set out
hereunder for ready reference:
Assessment Fees charged Direct Direct
Year for providing Expenditure Surplus
coaching (Rs. incurred in arising in
In lacs) coaching (Rs. providing
In lacs) coaching*
(Rs. In lacs)
2002-03 115.36 68.03 47.33
2003-04 178.51 96.63 81.88
2004-05 192.08 110.46 81.62
2005-06 237.11 133.14 103.97
2006-07 228.40 139.95 88.45
2007-08 301.90 164.75 137.15
2008-09 385.99 172.18 213.81
* Direct surplus before charging common
administrative expenses referred to in the
Table appearing under paragraph 33 above.
35. The surplus generated out of the
activities of the Institute is utilized towards the
infrastructure development and other
students/members related activities. It is not a
commercial or business income and no part of
the surplus is being utilized for the purposes
other than the purposes specified in the
Chartered Accountants Act. The whole of the
income is utilized directly or indirectly for the
development & benefits of the persons
pursuing and who have already pursued the
Chartered Accountancy Course.
36. No amount of the surplus, in any
manner, can be distributed or utilized for any
activity other than the activities specified
within the Charter of the Assessee Institute.
37. In the facts and circumstances stated
hereinabove, holding of these coaching and
revisional classes is not a business or
commercial activity; it is wholly incidental and
ancillary to the objects of the Assessee
Institute for providing education and
conducting examinations of the candidates
enrolled for chartered accountancy course, so
as to bring out the true professionals, as part
of its main objectives."
42. These are factors which require detailed consideration
and examination by the respondent. We do not intend to go into
and examine the said aspects on merits in the present writ
petition as these are issues which require adjudication and
decision at the first level, i.e., when the issue and question of
exemption under Section 10(23C)(vi) is examined by the
respondent. These are also questions of facts. Accordingly,
while setting aside the impugned order dated 19th May, 2009, we
direct the respondent to examine the said aspect in the light of
the observations and findings made above.
43. We are conscious of the fact that we are dismissing ITA
No. 869/2010 relating to the assessment year 2005-2006. In the
said case, we are concerned with the order under Section 263 of
the Act and a limited issue has arisen for consideration as to
whether the said order under section 263, dated 29th March
2010, on merits, can be sustained for the reasons stated therein.
The order dated 29th March 2010 was not an order of mere remit
but an order of remit with specific finding on merits and with
conclusive directions. An order under Section 263 has to be
sustained or rejected for the reasons mentioned therein.
However, in the present case, we are concerned with the order
under Section 10(23C)(iv) of the Act which casts an onus both
on the assessee and the department to reach a fair and just
conclusion. Moreover, the first proviso to section 2(15) is not
applicable to the assessment year 2005-06.
44. With regard to the third reasoning that section 11(5)
has been violated, it has been recorded in the order dated 19th
May 2009 as under:-
"9. The other issue involved is that the
applicant has advanced the interest free loan to
its sister concern namely „ICAI Accounting
Research Foundation‟. On examining the
balance sheet as on 31.03.2008, it is seen that
there is outstanding balance of Rs.565.20 lakhs
made as interest free advance to ICAI
Accounting Research Foundation. Thus, this
amount has not been invested in prescribed
securities. As per 3rd proviso of Section
10(23C), the accumulated fund should be
invested in one or more of the form or modes
specified in sub-section (5) of Section 11. The
applicant has advanced an amount of
Rs.565.20 lakhs to ICAI Accounting Research
Foundation which is not the prescribed mode
u/s 11(5). Thus the applicant has also violated
the 3rd proviso of Section 10(23C)."
45. ICAI Accounting Research Foundation (ICAI-ARF, for
short) has been incorporated by the petitioner institute with an
objective to impart training, to promote knowledge, learning and
education, and to understand various fields relating to the
profession of accountancy. It has been stated that ICAI-ARF is
a company and an institution enjoying exemption under Section
10(23C)(iv) read with Section 11 of the Act. Reliance has been
placed on decision of this Court in ICAI Accounting Research
Foundation and Another vs. Director General of Income-tax
(Exemptions) & Ors., (2010) 321 ITR 73 (Del.). Special Leave
Petition filed by the Revenue against the said judgment has
been dismissed. All the factual aspects, the manner, the mode
and why the payments were made have been set out. It is
pointed out that the Executive Committee of the petitioner
institute had considered the proposal for formation of ICAI
University in February, 2004 and felt the need for formation of
the said university. This was approved in principle in the
meeting of the Council of the petitioner institute in March, 2004.
On the basis of legal opinion, ICAI ARF was incorporated under
Section 25 of the Companies Act, 1956. Reference is made to
Section 15(2)(j) of the CA, Act. Thereafter, the Executive
Committee of the petitioner institute in November, 2004
approved the action for creation of ICAI ARF. The reason why
payments were made to Jaipur Development Authority and
Govt. of Rajasthan have been explained in the written
arguments by the petitioner- institute. It is stated that substantial
payments have been refunded. The petitioner- institute
maintains that it never granted any loan and/or advance to ICA-
ARF. The monies in question were paid directly to the Jaipur
Development Authority and the Government of Rajasthan and
the ICAI- ARF used no portion for its own purpose, at anytime,
whatsoever. Accordingly, the petitioner- institute maintains that
there has been no violation of Section 13, Section 11(5) or the
third proviso to Section 10(23C)(iv) of the Act. Reliance is also
placed on assessment order dated 27th December, 2010, for the
assessment year 2008-09 passed in the case of the petitioner
institute. Reference is also made to some circulars issued by
CBDT.
46. These facts and aspects have not been examined and
considered in the impugned order dated 19th May, 2009. There
have been subsequent developments, which are material and
relevant. As we are setting aside the order, the Competent
Authority will go into the said aspect afresh and examine the
contentions raised by the assessee.
47. In view of the aforesaid, the present writ petition is
allowed and a writ of certiorari is issued quashing the impugned
order dated 19th May, 2009 passed by the Director General of
Income Tax (Exemptions) with a direction to reconsider the
application filed by the petitioner institute under Section
10(23C)(iv) of the Act, in the light of the findings and
observations made above.
48. Directions are also issued to the Director General of
Income Tax (Exemptions), Delhi to consider the application of
the petitioner institute under Section 10(23C)(iv) for the
assessment years 2006-07 to 2008-09.
49. To cut short any delay, it is directed that the petitioner
institute shall appear before the Director General of Income Tax
(Exemptions) on 17th October, 2011 at 2.00 when a date of
hearing will be fixed. The hearing will be expedited and every
endeavor should be made to complete the proceedings within
six months w.e.f. 17th October, 2011.
50. In the facts and circumstances of the case, there will be
no orders as to costs.
(SANJIV KHANNA)
JUDGE
(DIPAK MISRA)
CHIEF JUSTICE
SEPTEMBER 19th , 2011
VKR
