TaxTMI 
TaxTMI 
2013 (7) TMI 205
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....he writ petition No.3148/2012 has been preferred against the order dated 13.04.2012 passed by the DGIT(E) refusing to grant the exemption to the assessee under Section 10(23C)(iv) of the Act for the assessment years 2009-2010 and 2010-2011. The assessee has preferred the writ petition No.7181/2012 against the order dated 28.09.12 passed by the DGIT(E) declining exemption for the assessment year 2011-2012. All the three orders impugned in the three petitions are similarly worded. As the three petitions raise common issues the same have been considered together. 2. The petitioner has been incorporated by virtue of Section 3 of the Institute of Chartered Accountants Act, 1949 (hereinafter referred to as the "ICAI Act") as a body corporate which is constituted by all members whose names are entered in the register of members maintained under the ICAI Act. 3. The Income Tax Authorities have, since incorporation of the petitioner, considered the petitioner as having been formed for charitable purposes as defined under Section 2(15) of the Act. Declarations that the petitioner is entitled to the exemption under Section 10(23)(iv) of the Act subject to fulfilment of certain conditions ha....
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.... exemption as available under Section 11 of the Act. 6. On 07.05.2008, the petitioner once again made an application in the prescribed form for renewal of the exemption under Section 10(23C)(iv) of the Act for the assessment year 2009-2010. No response to this application was also received by the petitioner at the material time. However, the Assessing Officer took up the return filed by the petitioner for the assessment year 2006-2007 for scrutiny and determined the total taxable income of the petitioner at Rs. 33,47,92,000/- and computed the tax payable thereon at Rs. 14,96,59,474/- and raised a demand accordingly. 7. The petitioner was denied exemption under the Act on the ground that the petitioner was holding coaching classes for preparing students for the examinations being conducted by the petitioner and was charging fees for the same. The Assessing Officer concluded that the activity undertaken by the petitioner of providing coaching to students amounted to carrying on business and income from the same was liable to be treated as business income. As the petitioner was not maintaining separate books of accounts with respect to the activity of coaching students, the Assessin....
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....ner's taxable income at Rs. 35,34,12,000/-. This assessment order was also carried in appeal by the petitioner before the CIT (Appeals). 10. In the meantime, the Commissioner of Income Tax passed an order dated 29.03.2010 under Section 263 of the Act holding that the Assessment order dated 21.08.2007 passed by the Assessing Officer with respect to the assessment year 2005-06 was prejudicial to the interest of the revenue and the petitioner could not be allowed exemption under Section 10(23C)(iv) of the Act as the petitioner was conducting coaching classes which according to the Commissioner of Income Tax was not a charitable activity and would disentitle the petitioner from claiming exemption under Section 11 of the Act. 11. The petitioner approached the Income Tax Appellate Tribunal for setting aside the said order and the Tribunal passed an order dated 18.10.2010 allowing the appeal of the petitioner. The Tribunal held that the activity of the petitioner revolved around the education and training for Chartered Accountancy and that the view that coaching activity was not permissible under the Act was contrary to the Act. The relevant extract of the decision of the Tribunal is qu....
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....ding standards of the profession of chartered accountancy and is in furtherance of the object for which the petitioner has been established. This court further held that there was no finding by the Assessing Officer that the pre-dominant object of the petitioner in holding coaching classes was to generate profits. Special leave petitions have been preferred both by the petitioner as well as by the revenue in the Supreme Court which, we are informed, are pending. 15. The DGIT(E) passed an order dated 19.05.2009 rejecting the application dated 07.05.2008 filed by the petitioner seeking the notification under Section 10(23C)(iv) of the Act. The petitioner preferred the writ petition against the order dated 19.05.2009 passed by DGIT(E) which was allowed by this court by the judgment dated 19.09.2011 which is reported as The Institute of Chartered Accountants of India and Anr v. Director General of Income Tax (Exemptions) and Ors: [2012] 347 ITR 99 (Del). This court set aside the order dated 19.05.2009 passed by DGIT(E) and remanded the matter for consideration of certain facts and aspects as well as further developments which had taken place subsequent to the passing of the order date....
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....petitioner institute also organizes class room instructions by way of coaching/revisionary classes for students enrolled with it. The coaching and revisionary classes are with respect to the curriculum approved by the petitioner institute for various examinations. These coaching classes are with the object to prepare the students for the examinations being conducted by the petitioner institute. 19. The petitioner institute charges fees ranging between Rs. 1,500/- to Rs. 2,500/- for one group and Rs. 4,000/- to Rs. 6,000/- for both groups depending on the places or cities where such classes are held. The Board of studies of the petitioner - institute has an expert faculty who conducts oral classes. 20. The petitioner has contended that the coaching and revisionary classes are conducted without any commercial motive and are a part of its object of imparting education to the students registered with it. It is further contended that students enrolled with the petitioner institute are provided with comprehensive study material including model test papers and question banks for which no separate fee is charged. These activities of the petitioner institute are stated to be undertaken wi....
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....ng coaching classes is an integral part of providing formal education and, thus, is relatable to the first object of providing education to which the first proviso to section 2(15) of the Act is wholly inapplicable. 24. It is submitted by the petitioner that the amount expended by the petitioner on account of ICAI Accounting Research Foundation does not violate Section 13 of the Act as ICAI Accounting Research Foundation is itself a charitable institution as being the company incorporated under Section 25 of the Companies Act, 1956 which cannot distribute profits to its members. It is further pointed out that Section 15(2)(k) of the ICAI Act authorises the petitioner for giving financial assistance to persons other than members of the council for carrying out research in accountancy. The balance outstanding against ICAI Accounting Research Foundation, thus, represents application of funds towards the objectives of the petitioner institute and cannot be stated to be violative of Section 13 of the Act. The petitioner has further placed reliance on assessment order dated 27.12.2010 wherein the Assessing Officer has accepted that the petitioner has not violated section 13 of the Act. ....
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....e' includes relief to the poor, education, medical relief and the advancement of any other object of general public utility." 29. Section 2(15) was substituted by the Finance Act, 2008 by introducing the proviso, the effect of which was to exclude from the ambit of the expression "charitable purpose" any activity which is in the nature of a trade, commerce or business or any activity of rendering service in relation to any trade, commerce or business for a fee or any other consideration. 30. The issue whether the income of the petitioner is exempt under Section 10(23C)(iv) of the Act has to be considered by examining the provisions of the ICAI Act, the functions performed and the activities carried on by the petitioner and determining whether the same fall within the definition of the expression 'charitable purpose'. 31. The petitioner - Institute of Chartered Accountant of India is a statutory body established by the ICAI Act. Prior to enactment of the ICAI Act, in 1932 the Government of India had framed the Auditors Certificates Rules in 1932 in exercise of the powers conferred by section 144 of the Indian Companies Act, 1913 and the profession of accountancy in India was regu....
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....ed accountants and for that purpose to establish an Institute of Chartered Accountants;" 33. The petitioner has been incorporated by virtue of Section 3 of the ICAI Act as a body corporate constituted by all members whose names are entered in the 'register'. The register is defined under Section 2(i)(g) of the ICAI Act to mean 'register of members' maintained under the Act. Section 19 of the ICAI Act provides for maintaining of register of members of the institute wherein, the particulars of the members of the petitioner as specified are to be included. Section 20 of the ICAI Act provides for power to remove the names of the members from the register. By virtue of Section 7 of the ICAI Act, the constituent members of the petitioner who are in practice are required to use the designation of 'Chartered Accountant' and no member of the petitioner is entitled to practice the profession of Accountancy unless he has obtained a certificate for practice from the petitioner. 34. The petitioner institute functions through a Council constituted in terms of Section 9 of the ICAI Act. The Council includes elected members of the petitioner and also persons who are nominated by the Central Gove....
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....uties as may be entrusted to the Institute from time to time." 35. The petitioner conducts academic courses which leads successful students completing the courses to be eligible for being inducted as members of the petitioner. The petitioner has specified the code of conduct and ethics which are required to be followed by its members in practice of the profession of accountancy. In addition, the petitioner as an expert body also prescribes the accounting principles, practices and standards which are required to be followed by various entities in reporting their affairs. 36. The functions of the Council as are listed in Section 15(2) of the ICAI Act are not exhaustive as indicated by the opening words of Section 15(2) of the ICAI Act and the Council, thus, has the power to take all necessary actions and conduct all activities that are necessary for developing and regulating the profession of public accountants in India. 37. The petitioner is the only body that can confer the qualification of a Chartered Accountant to any person successfully undergoing courses which are designed and conducted by the institute. No other person is entitled to confer any degree, diploma or bestow any....
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....qualifications of members of the Institute; (l) the carrying out of research in accountancy; (m) the maintenance of a library and publication of books and periodicals on accountancy; (n) the management of the property of the Council and the maintenance and audit of its accounts; (o) the summoning and holding of meetings of the Council, the times and places of such meetings, the conduct of business there at and the number of members necessary to form a quorum; (p) the powers, duties and functions of the President and the Vice-President of the Council; (q) the functions of the Standing and other Committees and the conditions subject to which such functions shall be discharged; (r) the terms of office, and the powers,duties and functions of the Secretary and other officers and servants of the Council; and (s) xxxx xxxx xxxx xxxx xxxx (t) any other matter which is required to be or may be prescribed under this Act. 39. All regulations made by the council under the ICAI Act require publication and prior approval of the Central Government. In exercise of the powers, the council has published the Chartered Accountants Regulations, 1988 which provide for regulations for training ....
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....essfully completing the said courses. There are several other workshops and post qualification courses that are conducted by the petitioner institute for the benefit of its members for maintaining and improving the professional standards of chartered accountants. 42. Indisputably, substantial activity of the petitioner institute revolves around providing education to students for the purposes of feeding the profession of Chartered Accountancy in India. It is only those students who successfully undergo the courses conducted by the petitioner who are eligible to practice the profession of a Chartered Accountant in India. The special programmes also include providing coaching classes to students to enable them to attain the requisite level of proficiency in various subjects forming the course as approved by the petitioner. This Court in the case of Institute of Chartered Accountants of India v. Director General of Income Tax (Exemptions) (supra) while disposing of writ petition no. 1927/2010 and remanding the matter to the respondent DGIT(E) also held that the petitioner was providing education and the conduct of the courses by the petitioner could not be equated or categorized as c....
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....ect of general public utility" as the petitioner is a statutory body constituted under the ICAI Act and its fundamental or dominant object was to exercise control and regulate the activities of Chartered Accountants in India. The relevant finding of this court is as under: "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." 44. This Court while dismissing the appeal (ITA no. 274/2012) preferred by the revenue under section 260A of the Act against the order dated 16.06.2011 passed by the Tribunal in relation to the Assessment year 2007-08 by its judgment dated 11.5.2012 h....
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....ersy and after elucidating the legal principles had remanded the matter to the respondent for a limited purpose for considering and examining the submissions made by the petitioner with regard to the expenses incurred by the petitioner and for answering the question whether the petitioner was carrying on any business, trade or commerce in the light of the observations and finding made by this court in its judgment The Institute of Chartered Accountant of India v. Director General of Income-tax (Exemption) (supra). This court had remanded the matter, inter alia, on the grounds that the figures with respect to the fee charged, expenditure and profits had been disputed by the petitioner institute. We find from the impugned order that DGIT(E) has failed to follow the legal principles and the observations made by this court while remanding the matter. The DGIT(E) was required to consider the submissions made by the petitioner which had been quoted by this court while remanding the matter and are quoted hereunder for convenience:- "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 provi....
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....is also setout hereunder for ready reference:- Assessment year Fees charged for providing coaching (Rs. In lakhs) Direct expenditure incurred in coaching (Rs. in lakhs) Direct surplus arising in providing coaching*(Rs. in lakhs) 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 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 and 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 hereinab....
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....be acceptable to the society or the government. This may also undermine the dignity of the UPSC and also affect the quality adversely. Since those aspirants who get training in the branches of training centers managed by UPSC will have special advantages in much respect like probable questions, change of trend & so on. These candidates will have access to the inner policies and perspectives of the UPSC and will be in special advantageous position vis-à-vis the other candidates who are not availing such grooming/training or are being trained by other private organization/institutes. The importance of the work can be judged from the fact that a special place has been assigned to the UPSC in constitution. This is also the case with ICAI which has been created by the Act of Parliament. When ICAI is also conducting classes by recruiting/engaging the teachers locally and charging fees for the services which is also being done by other private persons/organizations for a fee or profit motives, then there is no difference between this activity of ICAI and the private business organizations. This is not the case that ICAI is upgrading the skill of the Chartered Accountants who have a....
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....e inclusive definition of charitable purpose states among other things, relief of the poor, education, and medical relief etc. are in the nature of charitable purpose. The concept of charitable purpose may be manifested in different forms like relief of the poor; education, medical relief etc. but a charitable purpose should always take care of the welfare and interest of the public and especially the poor section of the public. The fee structure for coaching as explained by the institute is for all categories of students/candidates enrolled with the institution. In other words, there is no arrangement made by the institute to provide free coaching or coaching at concessional rates to the poor section of the society. If fee is similar to all the candidates, then how it can be said that the institute is doing charity in the field of education by taking care of the welfare and interest of the students enrolled from poor section of the society. It cannot be ruled out that many candidates/students enrolled with the institution must have come from remote areas and do not have enough money to compete with the candidates coming from urban areas and having strong financial backgrounds. The....
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....ave a statutory or regulatory duty to perform and thus, coaching classes being provided by the petitioner could not be categorised as mere coaching classes conducted by a private institute. This court had set aside the order dated 19.05.2009 passed by DGIT(E) wherein reliance had been placed on the decision of Patna High Court in the case of Bihar Institute of Mining and Mine Surveying (supra). However, we find that despite an express finding of this court that the said decision was not applicable to the facts of the present case, The DGIT(E) has proceeded to hold to the contrary. It is, thus, apparent that DGIT(E) has failed to comprehend the decision or the directions of this court while remanding the matter. 54. The expression "trade" was discussed by the Supreme Court in its decision in the case of Khoday Distilleries Ltd. v. State of Karnataka: (1995) 1 SCC 574. In the said case, Supreme Court held as under:- "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....
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....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 prescribed in Raipur Manufacturing Company [1967] 19 STC 1 (SC) and Sai Publication Fund [2002] 258 ITR 70 (SC) ; [2002] 126 STC 288 (SC) can be applied. The six indicia stipulated in Lord Fisher [1981] STC 238 are also relevant. Each case, therefore, has to be examined....
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....itute is the sole body empowered to conduct or approve a course in the field of accountancy. No other person can conduct any course or award any degree or certificate which indicates a level of proficiency or competence in the field of accountancy similar to that as of a chartered accountant. The activity of petitioner in conducting coaching classes is integral to the activity of the petitioner institute in conducting the courses in accountancy. 61. The coaching classes being conducted by the petitioner cannot be equated with private coaching classes being conducted by organisations on commercial basis for preparing students to undertake entrance or other examinations in various professional courses. The coaching carried on by private organisations are not integral to the courses being conducted by them but for preparing students for examinations being conducted by other institutes and universities. In the case of the petitioner institute, the coaching classes are integral to the curriculum of the programme being conducted by the petitioner institute. 62. The comparison of the petitioner institute with UPSC (Union Public Service Commission) is also, in our view, not apposite. Whe....
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....cessional rate to qualify as being established for a charitable purpose. If the object or purpose of an institution is charitable, the fact that the institution collects certain charges does not alter the character of the institution. In the case of King v. Commissioners for Special Purposes of Income-tax: 5 TC 408, the Court of Appeal held that the purpose of advancement of education does not cease to be charitable merely because education is not confined to the poor and it extends to professional or commercial education as well as to higher education. Similar view has been expressed by the privy council in Re:Trustees of Tribune: (1939) 7 ITR 415 (PC) wherein the court opined as under:- "In the High Court stress was laid by the learned Chief Justice and by Addison, J., on the fact that the Tribune newspaper charges its readers and advertisers at ordinary commercial rates for the advantages which it affords. As against this the evidence or findings do not disclose that any profit was made by the newspaper or press before 1918 and it is at least certain that neither was founded for private profit whether to the testator or any other person. By the terms of the trust it is not to b....
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....etence and comprehend the code of ethics to be followed by them. 67. The expressions "trade", "commerce" and "business" as occurring in the first proviso to section 2(15) of the Act must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organised manner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of "charitable purpose". The purpose of introducing the proviso to Section 2(15) of the Act can be understood from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008. The relevant extract to the Speech is as under:- "......."Charitable purpose" includes relief of the poor, education, medical relief and any other object of general public ....
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.... the Supreme Court were different and the utilisation of income earned is, now, not a relevant consideration in view of the express words of the first proviso to section 2(15) of the Act, nonetheless the test of dominant object of an entity would be relevant to determine whether the entity is carrying on business or not. In the present case, there is little doubt that the objects of the activities of the petitioner are entirely for charitable purposes. 71. Although, it is not essential that an activity be carried on for profit motive in order to be considered as business, but existence of profit motive would be a vital indicator in determining whether an organisation is carrying on business or not. In the present case, the petitioner has submitted figures to indicate that expenditure on salaries and depreciation exceeds the surplus as generated from holding coaching classes. In addition, the petitioner institute provides study material and other academic support such as facilities of a library without any material additional costs. The Supreme Court in the case of State of Andhra Pradesh v. H. Abdul Bakhi and Bros. (supra) held as under: "The expression "business" though extensiv....
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....edures, or accreditation involves charging of such fees. It cannot be said that the public utility activity of evolving, prescribing and enforcing standards, "involves" the carrying on of trade or commercial activity." 74. Following the decision of this court in the case of Bureau of Indian Standards (supra), it cannot be said that the petitioner is carrying on any business, trade or commerce. 75. The question whether the petitioner carries on business has also been examined by the Tribunal in its order dated 18.10.2010 and the Tribunal has after examining the activities of the petitioner come to the conclusion that the major activity of the petitioner revolves around accountancy education and training and the petitioner cannot be stated to be carrying on any business. 76. An appeal was preferred on behalf of the revenue against the order of the Tribunal dated 18.10.2010 which has been rejected by this court vide its decision dated 19.09.2011 in the case of Director General of Exemption v. Institute of Chartered Accountants of India (supra), wherein this court affirmed the finding of the Tribunal and has held as under :- "14. What is noticeable and clear from the order dated Ma....
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....ailed brochure, we also found that the Institute provides a comprehensive study package including large question bank for which no separate cost is charged from the students. The board of studies also provides a CD for self-assessment and model test papers. Expenditure is being incurred for preparation of the study package, CD, etc., salary of the faculty and other professionals, printing and stationery, research and development, etc. The students registered for chartered accountancy are also provided on-line guidance through the Institute's own website. At a very nominal cost, these services are provided to the students. The Institute also provides computer training to the students registered with it, at a very low fee." 15. Thereafter, the Tribunal has quoted a judgment of the Gujarat High Court in Saurashtra Education Foundation v. CIT [2005] 273 ITR 139 (Guj) at page 146, in which it has been observed as under: "As regards the illustration of the Institute of Chartered Accountants of India, although the Institute was earlier not running formal classes and there was no geographical proximity when instructions were being imparted through postal tuitions, the Institute of Charte....
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....submitted that it had not granted any loan or advance to ICAI Accounting Research Foundation and in any event the funds paid to the Jaipur Development Authority and Government of Rajasthan for establishing an institution by ICAI Accounting Research Foundation must be considered as application of funds towards the object of the petitioner institute since ICAI Accounting Research Foundation has been incorporated under Section 25 of the Companies Act,1956 as a company not for profit and for the purposes of carrying on research in the field of accountancy. The ICAI Accountancy Research Foundation is also entitled to exemption under Section 10 (23C)(iv) of the Act read with Section 11 of the Act. The petitioner has also placed reliance on the fact that the CIT (Appeals) in its order dated 31.12.2010 relevant to the assessment year 2006-07 has accepted this contention of the petitioner and the same has been affirmed by the Tribunal by its order dated 09.01.2010. The petitioner has further placed reliance on the assessment order dated 27.12.2010 relevant to the assessment year 2008-09 wherein the Assessing Officer has held as under: "On verification, it is found out that its activities f....