2009 (8) TMI 61 - HC - Income Tax

Meaning and Scope of Charitable Purpose - Institute of Chartered Accountants of India - Government projects were undertaken by the Petitioner Foundation, namely, that of Municipal Corporation of Delhi (MCD), Kolkata Municipal Corporation (KMC) project and Strengthening Rural Decentralization (SRD) project for research and consultancy work - Held that - there is not even an iota of doubt that the ICAI is involved in education and, thus, meets the description of charitable institution - It is hardly possible for a charitable trust to work with no source of income. - As long as the user of that money is charitable, then the exemption has to be granted - Merely because some remuneration was taken by the Petitioner Foundation for undertaking these projects would not alter the character of these projects, which remained research and consultancy work - The amended definition of charitable purpose would not alter this position - Direction/mandamus given to the department to accord requisite exemption to the Petitioner Foundation under Section 10(23C)(iv)

Issues Involved:
1. Whether the Petitioner Foundation qualifies as a "charitable institution" under Section 2(15) of the Income Tax Act.
2. Whether the activities of the Petitioner Foundation constitute "business/commercial activity" disqualifying it from tax exemption under Section 10(23C)(iv) of the Income Tax Act.
3. The impact of the Infosys Fellowship Funds on the charitable status of the Petitioner Foundation.
4. The relevance of the Petitioner Foundation's status as a deemed company under Section 25 of the Companies Act.

Issue-Wise Detailed Analysis:

1. Charitable Institution Qualification:
The Petitioner Foundation, established by the Institute of Chartered Accountants of India (ICAI), aims to promote knowledge in fields related to accountancy. It is registered under Section 25 of the Companies Act, 1956, and Section 12-A of the Income Tax Act, 1961. The Foundation's objectives, as outlined in its Memorandum of Association, include conducting research, organizing training programs, and publishing academic materials. The Court concluded that these objectives fall within the definition of "charitable purpose" under Section 2(15) of the Income Tax Act, which includes "relief of the poor, education, medical relief, and the advancement of any other object of general public utility." The Court noted, "If one is to go by the purpose and objective with which the Petitioner Foundation was created, it will clearly fall in those category of institutions which are devoted to research and are of charitable nature."

2. Business/Commercial Activity:
The Respondent No.1 denied the exemption on the basis that the Petitioner Foundation engaged in activities that constituted business, such as providing research and consultancy services to government bodies for consideration. The Court examined the nature of these activities and concluded that they were incidental to the Petitioner Foundation's primary educational objectives. The Court stated, "The aforesaid projects undertaken on behalf of these local bodies is not a regular activity of the Petitioner Foundation. Primary activity remains the same, namely, research in accounting related fields." The Court emphasized that these activities did not convert the Foundation into a commercial entity, as the income generated was used to further its charitable objectives.

3. Infosys Fellowship Funds:
The Respondent No.1 argued that the Infosys Fellowship Funds indicated a non-charitable activity as the funds were provided by Infosys Technologies Ltd. and the Petitioner Foundation acted merely as a facilitator. The Court rejected this reasoning, stating, "The essential character of this fellowship is that a student is given the fellowship/scholarship for undertaking research projects." The Court found that the funds were used for their intended purpose of supporting research, thus maintaining the Foundation's charitable status.

4. Status as a Deemed Company:
The Petitioner Foundation's status as a deemed company under Section 25 of the Companies Act was a significant factor. This status is granted to entities established for promoting commerce, art, science, religion, charity, or any other useful object, and prohibits the distribution of profits to members. The Court noted, "The status which is granted by the Government itself is the recognition of the fact that the Petitioner Foundation is essentially established for the purpose of education and/or for advancement of any other project of general public utility." This status further affirmed the Foundation's charitable nature.

Conclusion:
The Court set aside the impugned order of Respondent No.1 and directed that the Petitioner Foundation be granted the requisite exemption under Section 10(23C)(iv) of the Income Tax Act. The Court concluded that the Petitioner Foundation's activities were charitable and not commercial, and that its status as a deemed company under Section 25 of the Companies Act supported its claim for tax exemption.

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