2011 (9) TMI 78 - HC - Income Tax

Charitable Activity - Whether running of coaching classes is business activity or charitable activity - It was held by ITAT that the institute has been created to regulate the profession of Chartered Accountancy and for this purpose the institute can and is required to provide education, training and monitor professional skills of the members - The institute is accountable as per the provisions of the Act establishing it and the institute also has disciplinary control over the students who are required to be registered with its in the first place and who appear at the exams being held by the institute - appellant has taken a very narrow and myopic view and has not examined the question of object and role of the institute in proper and correct perspective Business Activity or not - whether activities of the institute can be regarded as a business activity - The purpose and object to do business is normally to earn and is carried out with a profit motive; in some cases the absence of profit motive may not be determinative - appellant without examining the concept of business has held that the institute was carrying on business as coaching and programmes were held by them and a fee is being charged for the same On the basis of the findings recorded in the order dated 29th March 2010, under section 263 of the Act, it is not sufficient to hold that the institute is carrying on business. - the order passed by the appellant under Section 263 of the 1961 Act can not be sustained and was, therefore, rightly upset and set aside by the Tribunal.

Issues Involved:
1. Whether the ITAT was justified in passing the impugned order ignoring that the DIT(E) passed the order under Section 263 of the Income Tax Act, 1961 because the Assessing Officer had not made necessary inquiries during the assessment proceedings.
2. Whether running of coaching classes by the Institute of Chartered Accountants of India constitutes a business activity in violation of the provisions of the Income Tax Act.
3. Whether the impugned order passed by the ITAT is perverse in law and facts.

Issue-wise Detailed Analysis:

1. Justification of ITAT's Order under Section 263 of the Income Tax Act:

The Director of Income Tax (Exemption) argued that the ITAT's order was incorrect because the Assessing Officer (AO) had not conducted necessary inquiries during the assessment proceedings. The appellant contended that the jurisdiction under Section 263 was rightly invoked as the AO's order was erroneous and prejudicial to the interest of the Revenue. The appellant referenced the Supreme Court's judgments in Malabar Industrial Co. Ltd. vs. CIT and CIT vs. Max India Ltd., which clarified that Section 263 can be invoked when the AO's order is erroneous and prejudicial to the interest of the Revenue. However, the ITAT held that the power under Section 263 was wrongly exercised and that the appellant was not justified in giving directions based on the two grounds relied upon.

2. Running of Coaching Classes as a Business Activity:

The appellant claimed that the Institute's coaching activities constituted a business, requiring separate books of accounts under Section 11(4A) of the Income Tax Act. The appellant argued that the receipts from coaching classes were business income and thus violated the provisions of the Act. The ITAT, however, examined the provisions of the Chartered Accountants Act, 1949, and the role of the Institute, concluding that the coaching activities were part of its statutory functions and not a commercial activity. The Tribunal cited the Gujarat High Court's judgment in Saurashtra Education Foundation vs. CIT, which supported the view that the Institute's activities were educational and not business-oriented.

3. Perversity of the ITAT's Order:

The appellant argued that the ITAT's order was perverse in law and facts. However, the Tribunal found that the appellant had taken a narrow view and had not examined the object and role of the Institute correctly. The Tribunal noted that the appellant's order lacked reasoning and failed to consider the broader context of the Institute's activities. The Supreme Court's judgments in cases like State of Andhra Pradesh vs. H. Abdul Bakhi and Bros. and CST v. Sai Publication Fund were referenced to explain that business activities require a profit motive and systematic conduct, which was not evident in the Institute's case.

Conclusion:

The High Court concluded that the appellant's order was devoid of reasoning and did not meet the requirements of Section 263 of the Income Tax Act. The Tribunal's findings that the Institute's activities were educational and not business-oriented were upheld. Consequently, the appeal was dismissed, and no question of law was found to arise in the present appeal.

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