TaxTMI 
TaxTMI 
2013 (7) TMI 205
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....xemption with respect to the assessment years 2006-2007, 2007- 2008 and 2008-2009, the 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 exem....
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....1.10.2006 and the return of income for the assessment year 2007-2008 on 31.10.2007. In both the returns, the assessee showed its taxable income as nil and claimed 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 lia....
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.... year 2006-2007 and denied the petitioner benefit of exemption available under Section 11 of the Act and passed an assessment order dated 30.12.2009 assessing the petitioner'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 Charte....
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....rofession of Chartered Accountants in India. The coaching facilities provided by the petitioner for its members and other students are with the pre-dominant object of maintaining and upholding 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 19.05.2....
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....distance education programme where study material is provided by the petitioner institute to all the students undergoing the pre-qualification course. In order to facilitate further learning, the 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 pro....
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....ategory being "advancement of any other object of general public utility" insofar as the petitioner controls and regulates the profession of chartered accountants. It is contended that the activity of holding 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 o....
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....f artistic or historical importance, and (vi) advancement of any other object of general public utility. 28. Section 2(15) was substituted w.e.f. 01.04.2009. Prior to its substitution by the Finance Act, 2008, section 2(15) as amended by the Finance Act, 1983 read as under:- "15:- 'Charitable purpose' 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 Accoun....
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....es concerned." 32. The preamble of the ICAI Act also indicates that the purpose of the ICAI Act was to make provision for the regulation of the profession of Chartered Accountants. The relevant extract from the preamble of the ICAI Act is as under:- "WHEREAS it is expedient to make provision for the regulation of the profession of chartered 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 ....
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.... Discipline, the Disciplinary Committee and the Appellate Authority constituted under the provisions of this Act; (n) to enable functioning of the Quality Review Board; (o) consideration of the recommendations of the Quality Review Board made under Clause (a) of Section 28B and the details of action taken thereon in its annual report ;and (p) to ensure the functioning of the Institute in accordance with the provisions of this Act and in performance of other statutory duties 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 th....
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....te and the annual fees payable by associates and fellows of the Institute in respect of their certificates; (g) the manner in which elections to the Regional Councils may be held; (h) the particulars to be entered in the Register; (i) the functions of Regional Councils; (j) the training of articled and audit assistants, the fixation of limits within which premia may be charged from articled assistants and the cancellation of articles and termination of audit service for misconduct or for any other sufficient cause; (k) the regulation and maintenance of the status and standard of professional 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 Pre....
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.... can appear for the final examination which serving the last six months of his article training or thereafter. (vii) On passing the final examination and completing the article training or thereafter, a student is eligible to be enrolled as a member of the petitioner institute. 41. The petitioner institute has not only approved and designed the course and the training required to a student to obtain the proficiency in accountancy but also imparts education in the subjects comprising the curriculum for the examinations conducted by the petitioner institute. In addition, the petitioner institute also conducts post qualification courses in Corporate Management, Tax Management and Information System Audit and awards certificates/degrees to the students on successfully 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 professi....
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....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 [1994] 208 ITR 608 (Patna) 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 [1975] 101 ITR 234 (SC)." 43. Although, this Court has held that the activities of the petitioner fell within the term "education", it was nonetheless held that the petitioner institute fell under the category of "advancement of any object 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 utilit....
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....itable purpose' as it existed prior to 01.04.2009. The only question that remains to be considered is whether the activities of the petitioner fall in the proviso to Section 2(15) as introduced w.e.f. 01.04.2009. 46. The first proviso to Section 2(15) of the Act carves out an exception which excludes advancement of any other object or general public utility from the scope of charitable purpose to the extent that it involves carrying on any activity in the nature of trade, commerce or business or any activity of rendering certain services in relation to any trade, commerce or business, for a cess or fee or any other consideration is irrespective of the nature of the use or obligation, or retention of the income from such activity. 47. This court on the earlier occasion had considered the entire controversy 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....
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....ute on March 17, 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 lakhs) 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 the impugned order dated May 19, 2009, passed by 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 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 17....
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...., in providing coaching classes to its students was similar to the position of private organisations imparting similar training to the aspirants. The relevant extract from the impugned order is as under:- "8. The function of ICAI may be considered similar to functions in the administrative governance which are performed by UPSC. At state level the State Public Service Commissions are rendering such services. This examination conducted by UPSC is the backbone of civic governance. The functions of ICAI are in the field of financial governance of the country and economy. Now just imagine a situation wherein UPSC also starts coaching for the aspirants of civil services with the arguments that this is being done in order to improve the quality of the administrators or civil servants. It is well known fact that many of such institutes in the private capacity are working in this field. Coaching by UPSC itself to the aspirants of civil services can be a very reprehensive act and will not 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 tra....
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....r poor or needy candidates to get coaching from the institute without payment of fees. The DGIT(E) held that in order to fall within the definition of charitable purpose under the Act, it was necessary that the welfare and interest of public and specially poor section of the public be taken care of and since the fees structure of the petitioner institute remained the same for all categories of students and no arrangement was made by the petitioner institute for providing free coaching or coaching at concessional rate to poor section of the society, the petitioner could not be stated to be involved in charity. In this regard the relevant extract from the impugned order is quoted below:- "The applicant's contention that it provides coaching at a very nominal fee cannot be ground for regarding it as a Charitable Institution. Section 2(15) defines "charitable purpose" for availing the benefits of section 11 & 12 of the I.T. Act, 1961 that an assessee must be carrying on charitable activities. The 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 o....
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.... matter to DGIT(E). This court held that the petitioner institute fell within the category of "advancement of any object of general public utility". As such the petitioner would be an institution established for charitable purposes unless it is excluded by the application of the first proviso to Section 2(15) of the Act. The first proviso carves out an exception and excludes "advancement of any object of general public utility" from the ambit of charge to the extent any activity is carried on 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 a fee or any other consideration. This court had while remanding the matter examined in detail the meaning of the terms "trade", "commerce" and "business" and directed the DGIT(E) to apply the said principles. This court has expressly held that the decision in the case of Bihar Institute of Mining and Mine Surveying (supra) was not applicable. The private coaching concerns did not have 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 ....
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....r 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." 57. After discussing various decisions with regard to the scope of the words trade, commerce & business, this court in The Institute of Chartered Accountant of India v. Director General of Income-tax (Exemption) (supra) held that while construing the term business for the purpose of Section 2(15) of the Act the object and purpose of the Section must be kept in mind and a broad and extended definition of business would not be applicable for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act. The relevant extract of the said judgment is as under:- "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 extende....
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....r sport or pleasure. 59. This court while remanding the matter quoted the relevant passages from the decisions of the Supreme Court in the case of Raipur Manufacturing Co. (supra) and Sai Publication Fund (supra) and held that the test as prescribed in the said decisions can be applied to determine whether the petitioner institute was carrying on any business, trade or commerce. The DGIT(E) has completely ignored the said observations of this court and has proceeded to mechanically hold that the activities of the petitioner institute amounted to carrying on business. This, in our view, is completely erroneous. 60. The petitioner institute has been constituted under the ICAI Act with the object to regulate the profession of Chartered Accountants in India and to ensure that the standards of professional knowledge and skill are met and maintained. The activities being undertaken by the petitioner substantially involve imparting education in the field of accountancy in order to ensure that the standards or profession of accountancy are maintained. The petitioner institute is the sole body empowered to conduct or approve a course in the field of accountancy. No other person can co....
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.... business. Campus placement is only a small incidental activity carried on by the petitioner institute like several other universities for placement of their students in gainful employment. This too is an activity ancillary to the educational programme being conducted by the petitioner institute and cannot be considered as a business being carried on by a placement agency. The object of the petitioner institute is not to carry on such business but to assist its students in securing employment. In this case, the object with which the activity of campus placement is carried on would determine its nature and the same is our view is not business, trade or commerce. 64. The reasoning of the DGIT(E) that since the petitioner institute charges a uniform fee from all students for providing coaching classes, thus, it cannot be said to be carrying on a charitable activity is also erroneous. It is now well settled that an eleemosynary is not an essential element of charitable purpose as defined under the Act. It is not necessary that a person should give something for free or at a concessional rate to qualify as being established for a charitable purpose. If the object or purpose of an ins....
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.... 2(15) of the Act unless it is found that the petitioner falls within the scope of the first proviso to Section 2(15) of the Act i.e. the petitioner carries on any trade, business or commerce or any activity of rendering any service in relation to any trade, commerce or business, for a cess or a fee. 66. As stated earlier the matter was remanded to DGIT(E) to consider the submissions of the petitioner that it had been incurring administrative expenses which were much greater than the surplus and that had resulted due to the coaching provided to the students. Having erroneously come to the conclusion that the petitioner was carrying on business, the DGIT(E) has rejected the submission of the petitioner that its common administrative expenditure exceeded the surplus generated from coaching, as being not relevant. The DGIT(E) has also failed to consider that the activities being pursued by the petitioner are not with the object of earning profit but with the object of imparting knowledge and skill to ensure that Chartered Accountants in India have the requisite skill and professional competence and comprehend the code of ethics to be followed by them. 67. The expressions "trade"....
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....t purpose, the petitioner institute conducts an extensive educational program to ensure that the profession is fed by Chartered Accountants having high standards of knowledge, skill and professional competence. Coaching classes conducted by the petitioner are also in aid of its objects. 69. In the case of Addl. Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers Association: [1980] 121 ITR 1 (SC), the Supreme Court held as under: "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 any out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely be cause some profit arises from the activity." 70. Although in that case the statutory provisions being considered by the Supreme Court were different and the utilisation of income earne....
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....dian standards in awarding licences and granting certification for fees amounted to carrying on business, trade or commerce held as under: "In these circumstances, "rendering any service in relation to trade, commerce or business" cannot, in the opinion of the Court, receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the State in public duties which cannot be discharged by private bodies. Often, apart from the controlling or parent statutes, like the BIS Act, these statutory bodies (including BIS) are empowered to frame rules or regulations, exercise co-ercive powers, including inspection, raids; they possess search and seizure powers and are invariably subjected to Parliamentary or legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility. The prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection etc., cannot be considered as trade, business or commercial activity, merely because the testing procedures, or accreditation involves charging of....
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....ts of the theoretical education scheme. The candidate is also required to pay such fee as may be fixed by the Council for such professional education. Before a student is eligible for appearing in the examination, he has to produce a certificate from the head of the coaching organization to the effect that he has complied with the requirements of postal tuition scheme. An articled clerk who has completed the practical training as provided in these regulations, before applying for membership of the Institute, shall be required to attend a course on general management and communication skill or any other course as may be specified in the Council from time to time. For this purpose, the Council is to arrange funds for this purpose, the Institute is also conducting classes for chartered accountancy students registered with it. We found that these classes for chartered accountancy students registered with it. We found that these classes are conducted for which classes are provided to the students registered with the Institute to train and is discharging its statutory function as required by Parliament, which does not amount to any commercial activity. From the detailed brochure, we also....
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....nstitute does not carry on any business, trade or commerce. The activity of imparting education in the field of accountancy and conducting courses both at pre-qualification as well as post-qualification level are activities in furtherance of the objects for which the petitioner has been constituted. Activities of providing coaching classes or undertaking campus placement interviews for a fee are in relation to the main object of the petitioner which as stated earlier cannot be held to be trade, business or commerce. Accordingly, even though fees are charged by the petitioner institute for providing coaching classes and for holding interviews with respect to campus placement, the said activities cannot be stated to be rendering service in relation to any trade, commerce or business as such activities are undertaken by the petitioner institute in furtherance of its main object which as held earlier are not trade, commerce or business. 78. The second aspect for which the matter was remanded to DGIT(E) was to consider the issue whether the funds provided by the petitioner institute to ICAI Accounting Research Foundation would violate Section 13 of the Act. In this regard, the petiti....