2012 (11) TMI 891 - HC - Income Tax

Exemption u/s 10(23C) - Charitable activity u/s 2(15) - advancement of object of general public utility - held that - BIS is a statutory body established under the BIS Act and was brought into existence for the harmonious development of the activities of standardisation, marking and quality certification of goods . This was, and has been, its primary and pre-dominant object. Even though it does take license fee for granting marks/certification, the same cannot be said to be done for the purpose of profit. If any profit/revenue is earned, it is purely incidental. The BIS performs sovereign and regulatory function, in its capacity of an instrumentality of the state. Therefore, this Court has no doubt in holding that it is not involved in carrying any activity in the nature of trade, commerce or business. It seems that the exception (the first proviso) is intended to catch with its ambit any and all commercial activity, except what falls within the second proviso (which bars application of the exception in cases where the aggregate value of the receipts from the activities mentioned therein is less than ten lakh rupees in the relevant previous year). 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. 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 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. - Revenue directed to grant exemption u/s 10(23C)(iv).

Issues Involved:
1. Justification of the withdrawal of exemption under Section 10(23C)(iv) of the Income Tax Act, 1961.
2. Determination of whether BIS's activities fall under the definition of "charitable purpose" as per Section 2(15) of the Income Tax Act.
3. Examination of whether BIS's activities constitute trade, commerce, or business.

Detailed Analysis:

1. Justification of the Withdrawal of Exemption:
The Bureau of Indian Standards (BIS) challenged the order dated 24.2.2012, which withdrew its exemption under Section 10(23C)(iv) of the Income Tax Act. The respondent argued that BIS's activities were commercial in nature, thus disentitling it from the exemption. The court examined whether the withdrawal was justified based on the nature of BIS's activities and the applicable legal provisions.

2. Determination of Charitable Purpose:
The court analyzed whether BIS's activities fall under the definition of "charitable purpose" as per Section 2(15) of the Income Tax Act. It noted that the term "charitable purpose" includes relief of the poor, education, medical relief, preservation of the environment, and the advancement of any other object of general public utility. The proviso to Section 2(15) excludes activities involving trade, commerce, or business from being considered charitable if they are carried out for a fee or other consideration.

The court referred to the BIS Act, highlighting that BIS's functions include establishing standards, granting licenses, and ensuring quality certification, which are aimed at the "advancement of object of general public utility." The court emphasized that BIS's primary and predominant object is to promote public welfare through standardization and quality certification, which falls within the definition of charitable purpose.

3. Examination of Trade, Commerce, or Business:
The court examined whether BIS's activities constitute trade, commerce, or business. It referred to various judicial precedents to interpret the terms "trade," "commerce," and "business." The court concluded that BIS's activities, such as granting licenses and certifications, are not carried out with a profit motive and are incidental to its primary objective of public welfare. The court noted that BIS performs sovereign and regulatory functions as an instrumentality of the state, which cannot be considered as trade, commerce, or business.

The court also referred to the ICAI case, where it was held that even if an institution charges a fee for its services, it does not necessarily mean it is engaged in trade or commerce if the primary purpose is charitable. The court concluded that BIS's activities do not fall within the ambit of trade, commerce, or business and are instead aimed at public utility.

Conclusion:
The court quashed the impugned order dated 24.2.2012, holding that BIS's activities are charitable in nature and do not constitute trade, commerce, or business. The court directed the respondent to process BIS's case and issue the exemption under Section 10(23C)(iv) of the Income Tax Act within ten weeks. The petition was allowed with no costs.

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