2012 (11) TMI 891 - HC - Income Tax

Statutory Body's Regulatory Role Qualifies as Charitable Under Section 2(15) and Exempt Under Section 10(23C)(iv)

Bureau of Indian Standards Versus Director General of Income-tax (Exemptions)

Bureau of Indian Standards Versus Director General of Income-tax (Exemptions) - [2013] 358 ITR 78 Issues Involved:1. Justification of the withdrawal of exemption under Section 10(23C)(iv) of the Income Tax Act, 1961.2. Determination of whether BIS's activities fall under the definition of 'charitable purpose' as per Section 2(15) of the Income Tax Act.3. Examination of whether BIS's activities constitute trade, commerce, or business.Detailed Analysis:1. Justification of the Withdrawal of Exemption:The Bureau of Indian Standards (BIS) challenged the order dated 24.2.2012, which withdrew its exemption under Section 10(23C)(iv) of the Income Tax Act. The respondent argued that BIS's activities were commercial in nature, thus disentitling it from the exemption. The court examined whether the withdrawal was justified based on the nature of BIS's activities and the applicable legal provisions.2. Determination of Charitable Purpose:The court analyzed whether BIS's activities fall under the definition of 'charitable purpose' as per Section 2(15) of the Income Tax Act. It noted that the term 'charitable purpose' includes relief of the poor, education, medical relief, preservation of the environment, and the advancement of any other object of general public utility. The proviso to Section 2(15) excludes activities involving trade, commerce, or business from being considered charitable if they are carried out for a fee or other consideration.The court referred to the BIS Act, highlighting that BIS's functions include establishing standards, granting licenses, and ensuring quality certification, which are aimed at the 'advancement of object of general public utility.' The court emphasized that BIS's primary and predominant object is to promote public welfare through standardization and quality certification, which falls within the definition of charitable purpose.3. Examination of Trade, Commerce, or Business:The court examined whether BIS's activities constitute trade, commerce, or business. It referred to various judicial precedents to interpret the terms 'trade,' 'commerce,' and 'business.' The court concluded that BIS's activities, such as granting licenses and certifications, are not carried out with a profit motive and are incidental to its primary objective of public welfare. The court noted that BIS performs sovereign and regulatory functions as an instrumentality of the state, which cannot be considered as trade, commerce, or business.The court also referred to the ICAI case, where it was held that even if an institution charges a fee for its services, it does not necessarily mean it is engaged in trade or commerce if the primary purpose is charitable. The court concluded that BIS's activities do not fall within the ambit of trade, commerce, or business and are instead aimed at public utility.Conclusion:The court quashed the impugned order dated 24.2.2012, holding that BIS's activities are charitable in nature and do not constitute trade, commerce, or business. The court directed the respondent to process BIS's case and issue the exemption under Section 10(23C)(iv) of the Income Tax Act within ten weeks. The petition was allowed with no costs.