TaxTMI 
TaxTMI 
2011 (9) TMI 77
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.... 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 li....
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....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) advan....
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....nancial 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 an....
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....er 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 ....
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....e 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 ....
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.... 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 ex....
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....ords 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 L....
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....finite 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. Acc....
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..... . . . . . . . . . "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 and 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, attentio....
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....o 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 Suppl....
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....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 Sal....
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....t 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 ....
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.... 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 pric....
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....ber 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 '....
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....e 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 ....
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.... 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 for providing coaching (Rs.in lacs) Expenditure incurred on coaching (Rs.in lacs) Profit earned through providing 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 an....
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....uated 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 ....
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....nded 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 wis....
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................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 engage....
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....ution 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 c....
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....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 Years Salaries (Rs.In lacs) Depreciation Total 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....
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....o 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....