TaxTMI 
TaxTMI 
2001 (1) TMI 79
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....that arose for consideration in reference to the High Court under section 256(1) of the Income-tax Act, 1961, read : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Oxford University Press, Bombay, which, is part of the Oxford University, is exempt under section 10(22) of the Income-tax Act, 1961?" The question was answered by the High Court in the negative and in favour of the Revenue. 2. The assessee is a branch of the Oxford University Press, which, as the question itself notes, is a part of the University of Oxford in the United Kingdom. The assessee publishes books and carries on similar business in India. It was treated as a non-resident company under the terms of a notification issued by the Central Board of Revenue on July 31, 1954, at its request from the assessment year 1952-53 onwards. For the assessment year 1976-77, the assessee returned an income of Rs. 19.94 lakhs, but, in the course of the assessment proceedings before the Income-tax Officer, it claimed that, as it was a branch of the University of Oxford, the same was exempt from the payment of income-tax by virtue of the provisions of secti....
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....rs to earn profit. This activity amounted to carrying on the business of selling or supplying books for profit. Income made therefrom could not be regarded as the income of a University existing solely for educational purposes merely because the assessee claimed to be a part of the University of Oxford, which did not exist in India. The High Court added, : "If it does not exist as a University or an educational institution solely for such purposes and does not carry on the primary activities of a University or educational institution, but merely runs the business of press in India for printing and publishing books and selling and supplying the same as well as books published by other publishers for the purpose of profit, it cannot be held to be a 'University' within the meaning of section 10(22) of the Act merely by reason of the fact that it is run, by a University existing outside India for educational purposes or that it is a part of such University ... If the case of the assessee is that in the true sense of the term it is a part and parcel of the Oxford University and has no independent existence of its own, and all its income is the income of the said University, the ....
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.... the University of Oxford, as the Tribunal had found and the question before it indicated, and that the income that was under consideration for assessment was, therefore, the income of the University of Oxford. The "person" that was being taxed was not and could not be a branch of the University of Oxford ; it could only be the University of Oxford. That the University of Oxford is a hallowed institution of learning that exists, or is, solely for educational purposes is not, and cannot reasonably be, in dispute. That the income is derived by the printing, publishing and selling of books has no relevance because it is still the income of an University that exists for educational purposes. 7. It is trite law and now needs no authority that a taxing statute must be read as it stands : no words may be added, no words subtracted. Further, learned counsel for the assessee was right in pointing out that where Parliament had intended the exemption under section 10 to be limited in any way to the territory of India it had been assiduous in so stating ; (see, for example, clauses (20A), (22B), (23), (24), (26) and (29) thereof). 8. It was submitted by learned counsel for the Revenue th....
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....) in support of the contention. 10. In K. P. Varghese's case [1981] 131 ITR 597 (SC), the assessee owned a house which he had purchased in 1958 for the price of Rs. 16,500. In 1965, he sold the house for the same price of Rs. 16,500 to his daughter-in-law and five children. It was not disputed that this sale was an honest and bona fide transaction and that the consideration was in fact Rs. 16,500. However, after completion of the assessment for the year 1966-67 in the normal course in this manner, the Income-tax Officer issued a notice to reopen the assessment on the basis that section 52(2) of the 1961 Act was attracted because the fair market value of the property as on the date of the transfer exceeded the consideration of Rs. 16,500 by not less than 15 per cent. The Income-tax Officer proposed, accordingly, to fix the fair market value of the house at Rs. 65,000 and assess the difference of Rs. 48,500 as capital gains in the hands of the assessee. The assessee filed a writ petition. It was allowed, but, in appeal, the Full Bench of the Kerala High Court (ITO v. K. P. Varghese [1973] 91 ITR 49) accepted as correct the Income-tax Officer's view. This court reversed the....
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....t from the strict literal construction, then, that construction should be preferred to the strict literal construction. The court, therefore, held, on a consideration of the scheme of the Act and the relevant provisions, that the income of the wife and the minor children included in the assessee's total income under section 16(3) should be regarded as business income derived from business carried on by the assessee and, in that view, the assessee was entitled to set off his loss carried forward from the previous years. 12. Now, learned counsel's submission is that Parliament could never have intended to forgo tax revenue for the purpose of educating people outside India; this was manifestly unreasonable and absurd and, therefore, clause (22) should be so read as applying to universities established in India, or at least providing educational facilities in India. I find no unjustness, unreasonableness, irrationality or absurdity in the provisions of clause (22). It does not strike me as being beyond the bounds of possibility that Parliament should be willing to forgo a very small percentage of tax revenue for the purposes of education, even though it might mean the educat....
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....led a return showing income of Rs. 1994 lakhs. It claimed exemption from payment of tax under section 10(22) of the Act mainly on the basis that it is a part of the Oxford University incorporated in the United Kingdom. The Assessing Officer did not accept the claim of exemption and passed the order of assessment under section 144B of the Act. On appeal, the Commissioner of Income-tax (Appeals) accepted the assessee's contention that being a part and parcel of the University of Oxford of the U. K. it is entitled to the exemption under section 10(22) of the Act; On the said finding the appeal was allowed and the assessment order was set aside. A further appeal filed by the Revenue before the Income-tax Appellate Tribunal proved futile. Thereafter, the Tribunal referred the question as noted earlier to the High Court under section 256(1) of the Act. The High Court accepted the contention raised on behalf of the Revenue that the assessee, in the facts and circumstances of the case, did not qualify for the exemption provided under section 10(22) of the Act. 18. From the discussions in the judgment of the High Court it appears that the main thrust of the contentions raised on beha....
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.... According to Shri Verma, the Oxford University has no existence in this country as a university. The Oxford University Press, assuming that it is a part of that university, is engaged in commercial activities like printing, publishing and selling of books from which the amount has been earned during the assessment year in question. According to Shri Verma accepting the contention raised on behalf of the assessee will lead to an absurd position that a university which is not engaged in any educational activity in this country is given total exemption of tax in respect of income entirely earned from business activities in this country. It was the further submission of Shri Verma that though the provision to be interpreted is a part of a taxing statute still a purposive and meaningful interpretation is necessary to avoid such absurd result as aforementioned. 21. As noted earlier, the main basis for the claim for exemption from the tax is that the Oxford University Press is a part of the Oxford University in the U. K. and, therefore, its income is exempted from tax under section 10(22) of the Act. This contention which found favour with the Tribunal appears to have been based on th....
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.... from tax under section 10(22) of the Act by the assessee on the ground that the Oxford University Press is a part of the Oxford University of the U. K. can be accepted ? 24. The answer to this question depends on the interpretation of the provision under section 10(22). The section reads : "10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included---. . . (22) any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit." 25. On a plain reading of the section it is clear that the provision is intended to cover any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit. The purpose for which and the object with which the institution is established and the source from which the income is earned are relevant considerations to determine whether the income earned by the assessee is exempted from tax under the provision. The section does not provide that the university or other educational institution should be one established or inco....
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....Official Gazette, specify in that behalf provided that the news agency applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members. 31. Similarly section 10(23) deals with exemption of any income of an association or institution established in India which may be notified by the Central Government in the Official Gazette having regard to the fact that the association or institution has as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as the Central Government may, by notification in the Official Gazette, specify in that behalf. The proviso to the said clause makes provision regarding accumulation and application of the income wholly and exclusively for the objects for which the association is established. 32. I am of the view that the expression "existing solely for the educational purposes and not for the purposes of profit" qualifies a "university or other educational institution". In a case where a dispute is raised whether the claim of exemption from the tax by the....
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....uage is permissible." 34. In Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1, this court held that in a taxation statute where literal interpretation leads to a result not intended to subserve the object of the legislation another construction in consonance with the object should be adopted. Therein referring to the words of Thomas M. Cooley in Law of Taxation, volume 2, this court observed : "Artificial and unduly latitudinarian rules of construction, which with their general tendency to 'give the taxpayer the breaks', are out of place where the legislation has a fiscal mission. Indeed, taxation has ceased to be regarded as an 'impertinent intrusion into the sacred rights of private property' and it is now increasingly regarded as a potent fiscal tool of State policy to strike the required balance---required in the context of the felt needs of the times---between the citizens' claim to enjoyment of his property on the one hand and the need for an equitable distribution of the burdens of the community to sustain special services and purposes on the other. These words of Thomas M. Cooley in Law of Taxation, volume 2, are worth mentioning : ....
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....rder for costs. Y. K. SABHARWAL J. 38. The main question for consideration in this matter is about the interpretation of clause (22) of section 10 of the Income-tax Act, 1961 (for short "the Act"). I have gone through the judgments proposed by justice S. P. Bharucha and justice D. P. Mohapatra. Justice Bharucha has come to the conclusion that the question must be answered in favour of the assessee and the appeal be allowed. Justice Mohapatra, on the other hand, has expressed the view that the assessee is not entitled to the exemption from tax under section 10(22) of the Act. With utmost respect, I am unable to agree with the conclusion arrived at by justice Bharucha. The reasons for my conclusion that the assessee is not entitled to the exemption under section 10(22) and the appeals merit dismissal are set out hereinafter. 39. The question referred to the High Court under section 256(1) of the Act was [1996] 221 ITR 77, 79 (Bom) : "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that Oxford University Press, Bombay, which is part of Oxford University, is exempt under section 10(22) of the Income-tax Act, 1961?" 4....
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....t of sole existence for educational purposes and not for purposes of profit applies to universities as well as to other educational institutions. Unfortunately, the existence of the so-called universities ostensibly for sole educational purposes and in reality for purposes of profit is not unknown in this country. Words to similar effect have also been used in clause (22A) of section 10 of the Act in relation to a "hospital" or "other institution for the reception and treatment of persons . . . ." . The words used in the similar setting in clause (22A) are "existing solely for philanthropic purposes and not for purposes of profit". There is no reason to restrict the application of these words only to "other institution" and not to "a hospital" by holding that these words do not qualify the words "a hospital". 44. The requirement of existing solely for educational purposes and not for purposes of profit will also be applicable to the universities and to this extent I am in respectful agreement with the reasoning of brother Mohapatra. For the present purposes, however, as already said, I will assume that the sole purpose of the University of Oxford is educational and not profit. ....
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....n and distribution of news as the Central Government may, by notification in the Official Gazette, specify in this behalf : Provided that the news agency applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members : Provided further that any notification issued by the Central Government under this clause shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification ; 10. (23) any income of an association or institution established in India which may be notified by the Central Government in the Official Gazette having regard to the fact that the association or institution has as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey,. football, tennis or such other games or sports as the Central Government may, by notification in the Official Gazette, specify in this behalf . . ." 48. From the above provisions, it ....
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.... the contention of Mr. Dastur, learned counsel for the appellant, that for the purposes of claiming exemption under clause (22) of section 10, the source of income is not relevant and, therefore, the question whether the income of the press is from sale and printing of books, is of no consequence and on that ground exemption cannot be denied to the appellant. Mr. Dastur has also relied upon the decision of this court in Orissa State Warehousing Corporation v. CIT [1999] 237 ITR 589. In this case, the question involved was about the interpretation of clause (29) of section 10 of the Act. The assessee was in appeal before this court against the decision of the High Court opining that the Tribunal was not justified in holding that the interest received by the assessee from the banks on fixed deposits was exempt under section 10(29) of the Act. The contention urged on behalf of the assessee-Warehousing Corporation was that regard being had to sections 16 and 24 of the Warehousing Corporations Act, 1962, all moneys coming in the hands of the Corporation have to be deposited in the bank account maintained by the Corporation and the same being a statutory obligation, the question of incom....
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.... ITR 1 (SC), referring the case of Orissa State Warehousing Corporation [1999] 237 ITR 589 (SC), to a larger Bench. For the present purposes, however, the decisions relevant to be considered are those which examined, in particular, the fiscal provisions from the angle of ambiguity and the absurd results that may follow, if literal interpretation is adopted. The case of Orissa State Warehousing Corporation [1990] 237 ITR 589 (SC) does not fall in that category. 54. In K. P. Varghese v. ITO [1981] 131 ITR 597 (SC), section 52(2) of the Act, the interpretation whereof came up for consideration was as under : "52. (2) Without prejudice to the provisions of sub-section (1), if in the opinion of the Income-tax Officer the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than 15 per cent. of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the d....
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....r which was found as Rs. 65,000 and, therefore, as on the date of the transfer, it exceeded the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than 15 per cent. 56. On the aspect of interpretation of section 52(2) the contention of the Revenue which found favour with the Full Bench of the Kerala High Court was that on a plain and natural construction the only condition for attracting the applicability of the said provision is that the fair market value of the capital asset transferred by the assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer by an amount of not less than 15 per cent. of the value so declared. Once the Income-tax Officer is satisfied that this condition exists he can proceed to invoke the provision in section 52, sub-section (2), and take the fair market value of the asset transferred by the assessee as on the date of the transfer as representing the full value of the consideration for the transfer of the capital asset and compute the capital gains on that basis. The Revenue contended that no more....
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....section 52(2) the court would read into it a condition that it would apply only where the consideration for the transfer is understated or, in other words, the assessee has actually received a larger consideration for the transfer than what is declared in the instrument of transfer and it would have no application in the case of a bona fide transaction where the full value of the consideration of transaction is correctly declared by the assessee. Thus, a condition though not expressed, was read into section 52(2) constituting the basic assumption underlying the said sub-section. 58. In CIT v. J. H. Gotla [1985] 156 ITR 323 (SC), the facts in brief were that the assessee, an individual, was carrying on business in purchase and sale of groundnut oil and was also running an oil mill. He was also an abkari contractor. On June 1, 1957, he gifted away a part of the oil mill machinery, viz., a solvent extraction plant, to his wife and three minor children. A firm was constituted by the assessee's wife and another person to the profits of which the three minor sons of the assessee were also admitted. The mill premises as well as the remaining machinery of the assessee were leased ou....
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....16(3) of the Act should be regarded as business income derived from the business carried on by the assessee and in that view of, the matter, the assessee was entitled to set off his loss carried forward from the previous year. The question was thus answered by the High Court in the affirmative and in favour of the assessee. The Revenue came up with the appeal before this court, The main question for consideration was the interpretation of section 16(3). The said provision as noticed in J. H. Gotla's case [1985] 156 ITR 323 (SC) reads as under : "16. Exemptions and exclusions in determining the total income.--. . . (3) In computing the total income of any individual for the purpose of assessment, there shall be included--- (a) so much of the income of a wife or minor child of such individual. as arises directly or indirectly--- (i) from the membership of the wife in a firm of which her husband is a partner ; (ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner ; (iii) from assets transferred directly or indirectly to the wife by the husband otherwise than for adeq....
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....e whole scheme of the Act, which in this case is to counteract the effect of the transfer of assets so far as computation of income of the assessee is concerned then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. Furthermore, in the instant case, we are dealing with an artificial liability created for counteracting the effect only of attempts by the assessee to reduce tax liability by transfer. It has also been noted how for various purposes the business from which profit is included or loss is set off is treated in various situations as the assessee'....
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....ent the written word so as to give 'force and life' to the intention of the Legislature. Primarily, it is always the duty to find out the intention of the Legislature and if it can be done without doing much violence to the language as we find it can be done in this case, though, as we have noted that when the purpose was writ large in the scheme of the section 'some violence' is permissible, here we are of the opinion that the construction put by the assessee cannot be accepted and the contention urged on behalf of the revenue in this case should be preferred." 62. The imparting of education is service to the society. From the language of section 10(22), it does not appear that without any such service in India, the Legislature intended to exempt the total income of the assessee. I do not think that from the language of section 10(22), it can be said that the hands of the court are so tied that it cannot read into this provision, the requirement of imparting education or some other educational activity in this country. A university or other educational institution which exists solely for educational purposes and not for purposes of profit though not established ....