2011 (9) TMI 77 - HC - Income Tax

Approval u/s 10(23C)(iv) for the assessment years 2006-07, 2007-08, 2008-09 and 2009-10 and onwards - An institution will not be regarded as established for charitable purpose/activity under the last limb, if cess, fee or consideration is received for carrying on any activity in nature of trade, commerce or business or for any activity of rendering of any service in relation to any trade, commerce or business, even if the consideration or the money received is used in furtherance of the charitable purposes/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 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 ICAI Accounting Research Foundation (ICAI-ARF, for short) has been incorporated by the petitioner institute with an objective to impart training, to promote knowledge, learning and education, and to understand various fields relating to the profession of accountancy - It is pointed out that the Executive Committee of the petitioner institute had considered the proposal for formation of ICAI University in February, 2004 and felt the need for formation of the said university - writ petition is allowed by way of direction to reconsider the application filed by the petitioner institute under Section 10(23C)(iv) of the Act

Issues Involved:
1. Whether the petitioner institute qualifies as an educational institution or falls under "advancement of any other object of general public utility."
2. Whether the petitioner institute can be denied exemption under Section 10(23C)(iv) of the Income Tax Act, 1961, in light of the proviso to Section 2(15) introduced from 1st April 2009.
3. Whether the petitioner institute violated the third proviso to Section 10(23C) by advancing an interest-free loan to ICAI Accounting Research Foundation.

Issue-wise Detailed Analysis:

1. Educational Institution vs. General Public Utility:
The court examined whether the petitioner institute falls under the category of an educational institution or "advancement of any other object of general public utility" as per Section 2(15) of the Income Tax Act. The petitioner institute argued that it was established for charitable purposes, including education. However, the court held that the petitioner institute's primary objective is to regulate the profession of Chartered Accountants, not to provide education. The court referenced the Chartered Accountants Act, 1949, and concluded that the institute's main function is to regulate and control the activities of its members, not to educate. Thus, the petitioner institute falls under the sixth category of charitable purposes, i.e., "advancement of any other object of general public utility."

2. Denial of Exemption under Section 10(23C)(iv):
The court analyzed the applicability of the first proviso to Section 2(15), introduced from 1st April 2009, which states that an institution involved in any activity in the nature of trade, commerce, or business cannot be considered as established for charitable purposes if it charges fees or consideration. The court noted that the petitioner institute charges fees for coaching classes and earns substantial profits, which could be seen as engaging in business activities. However, the court emphasized that the term "business" should not be interpreted broadly to include any transaction for a fee or money. The court directed the respondent to reconsider whether the petitioner institute's activities amount to business, trade, or commerce, taking into account the legal principles and the broader context of the institute's statutory duties and functions.

3. Violation of the Third Proviso to Section 10(23C):
The court addressed the issue of whether the petitioner institute violated the third proviso to Section 10(23C) by advancing an interest-free loan to ICAI Accounting Research Foundation (ICAI-ARF). The petitioner institute argued that the payments were made directly to the Jaipur Development Authority and the Government of Rajasthan for the establishment of ICAI University and not as a loan to ICAI-ARF. The court noted that these aspects were not adequately examined in the impugned order and directed the respondent to reconsider this issue afresh, taking into account all relevant facts and subsequent developments.

Conclusion:
The court allowed the writ petition and quashed the impugned order dated 19th May 2009, directing the Director General of Income Tax (Exemptions) to reconsider the petitioner institute's application under Section 10(23C)(iv) in light of the court's findings and observations. The court also directed the respondent to consider the application for the assessment years 2006-07 to 2008-09 and expedite the proceedings within six months from 17th October 2011.

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