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TMI Blog2013 (7) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of the Section must be kept in mind and a broad and extended definition of business would not be applicable for the purpose of interpreting and applying the first proviso to Section 2(15) - The activities being undertaken by the petitioner substantially involve imparting education in the field of accountancy in order to ensure that the standards or profession of accountancy are maintained - The petitioner institute is the sole body empowered to conduct or approve a course in the field of accountancy - The activity of petitioner in conducting coaching classes is integral to the activity of the petitioner institute in conducting the courses in accountancy - The coaching classes being conducted by the petitioner cannot be equated with private coaching classes being conducted by organisations on commercial basis for preparing students to undertake entrance or other examinations in various professional courses The comparison of the petitioner institute with UPSC (Union Public Service Commission) is also not apposite - The object of the study programme or post-qualification courses being conducted by the petitioner institute is to impart knowledge and skill in the field of accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Foundation and in any event the funds paid to the Jaipur Development Authority and Government of Rajasthan for establishing an institution by ICAI Accounting Research Foundation must be considered as application of funds towards the object of the petitioner institute since ICAI Accounting Research Foundation has been incorporated under Section 25 of the Companies Act,1956 as a company not for profit and for the purposes of carrying on research in the field of accountancy - ICAI Accountancy Research Foundation is also entitled to exemption under Section 10 (23C)(iv) read with Section 11 - No violation of Section 13 - Decided in favour of Assessee. - W. P. (C) No. 3147/2012, W. P. (C) No. 3148/2012, W. P. (C) No. 7181/2012 - - - Dated:- 4-7-2013 - Badar Durrez Ahmed And The Acting CJ. And Vibhu Bakhru,JJ. For the Petitioners : Mr N. K. Poddar, Mr Promad Dayal, Mr Nikunj Dayal, Ms Payal Dayal and Mr Ranjit Kumar Singh For the Respondents : Mr Abhishek Maratha, Ms Anshul Sharma, Mr Amrit Pal Singh with Ms Sweety, Manchanda JUDGMENT Vibhu Bakhru, J. 1. These writ petitions have been filed by the Institute of Chartered Accountants of India. The petitioner has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application, wholly and exclusively to the objects for which it is established; (ii) the assessee will not invest or deposit its funds (other than voluntary contributions received and maintained in the form of jewellery, furniture etc. for any period during the previous year s relevant to the assessment years mentioned above otherwise than in any one or more of the forms or modes specified in sub section (5) of section 11; (iii) this notification will not apply in relation to any income being profits and gains of business, unless the business is incidental to the attainment of the objectives of the assessee and separate books of accounts are maintained in respect of such business. (iv) the assessee will regularly file its return of income before the Income Tax Authority in accordance with the provisions of the Income Tax Act, 1961. (v) that the event of dissolution, its surplus and the assets will be given to a charitable organization with similar objectives. Sd/- Deepak Garg Under Secretary to the Government of India (F.No.197/115/2004-ITA-I) 4. The petitioner applied for the renewal of the exemption under Section 10(23C)(iv) of the Act in the prescribed form ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dents was a part of its function of conducting a course in accountancy which was not business and thus, would not disqualify the petitioner from the exemption as available under Section 11 of the Act. The petitioner also contended that the amount outstanding against the ICAI Accountant Research Foundation was not an investment but the amount expended by the petitioner in establishing another institute in furtherance of its object. The petitioner explained that ICAI Accountant Research Foundation was a company registered under Section 25 of the Companies Act, 1956 and intended to establish a university in Rajasthan for education in the field of Accountancy. Research and imparting education in the field of Accountancy was one of the objects for which the petitioner had been constituted, accordingly, it was contended that the amount expended by the petitioner and standing to the debit of ICAI Accountant Research Foundation amounted to applying funds of the petitioner towards its object and could not be considered as a deposit or investment made by the petitioner. Both the contentions raised by the petitioner were rejected by the Assessing Officer by the order dated 31.12.2008. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but also under section 11. The institute is an educational institute and hence its income will also be exempt under section 11 as education falls within the meaning of charitable purpose under section 2(15) of the Act. 12. An appeal was preferred on behalf of the revenue against the order dated 18.10.2010 passed by the Tribunal. This court rejected the appeal vide its decision dated 19.09.2011 which is reported as Director General of Income Tax (Exemptions) v. Institute of Chartered Accountants of India: [2012] 347 ITR 86 (Del). We are informed that a special leave petition has been preferred against the order dated 19.09.2011 which is pending. 13. The CIT (Appeals) also allowed the appeals preferred by the petitioner against the assessment orders passed in respect of the assessment years 2006-07 2007-08. The revenue filed appeals before the Income Tax Appellate Tribunal against the orders dated 31.12.2010 and 24.01.2011 passed by CIT (Appeals) in respect of assessment years 2006-07 2007-08. The said appeals were also dismissed by the Tribunal vide orders dated 09.01.2012 16.06.2011 respectively. 14. The revenue filed an appeal under Section 260A of the Act against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption under Section 11 of the Act. The Assessing Officer categorically found that the activities of the petitioner fell within the ambit of Section 2(15) of the Act and further that the petitioner had complied with the provisions of Section 11 of the Act. The Assessing Officer further held that no violation of Section 13 of the Act was found. Although the proceedings under Section 263 of the Act were initiated by the Commissioner of Income Tax in respect of the assessment order dated 27.12.2010, however, it has been stated by the learned counsel for the petitioner that the said proceedings have been dropped and no order under Section 263 of the Act has been passed by the Commissioner of Income Tax. 17. In the myriad of all the proceedings as noted above, the central issue remains the same, which is, whether the petitioner is an institution established for charitable purposes having regard to the objectives of the institution. Charitable purpose has been defined under Section 2(15) of the Act and the controversy revolves around the question whether activities carried out by the petitioner fall within the ambit of the definition of charitable purpose . Another issue that also n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are enrolled with the petitioner and during the financial year ending 31.03.2012, 10,70,839 students appeared for examination conducted by the petitioner institute. It has been further contended on behalf of the petitioner that providing education to the students enrolled with the institute at the prequalification stage as well as to member chartered accountants is the primary and the main object of the petitioner institute and the activity of controlling and regulating the conduct of the profession of chartered accountants is wholly ancillary and incidental to its main object of providing formal education. It is, thus, contended that the first proviso to Section 2(15) of the Act is wholly inapplicable to the activity for providing education, thus, the exemption under Section 10(23C)(iv) of the Act cannot be denied to the petitioner on account of the petitioner institute holding coaching classes or carrying on certain incidental activities for a fee. 23. In the alternative, it is submitted that the objects and activities carried on by the petitioner fall in two categories specified in the definition of the expression charitable purposes . The first category being education ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity: Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year. xxxx xxxx xxxx xxxx xxxx 10. Incomes not included in total income.-In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be includedxxxx xxxx xxxx xxxx xxxx (23C) any income received by any person on behalf of xxxx xxxx xxxx xxxx xxxx (iv) any other fund or institution established for charitable purposes which may be notified by the Central Government in the Official Gazette, having regard to the objects of the fund or institution and its importance throughout India or throughout any State of States . 27. A plain reading of Section 2(15) of the Act indicates that expression charitable purpose has been divided into six categories, namely, (i) relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia is at present regulated by the Auditors Certificates Rules framed in 1932 in exercise of the powers conferred on the Government of India by section 144 of the Indian Companies Act, 1913, and the Indian Accountancy Board advises Government in all matters relating to the profession and assists it in maintaining the standards of the professional qualifications and conduct required of the members of the profession. The majority of the Board s members are elected by Registered Accountants members of the profession from all parts of India. These arrangements have, however, all long been intended to be only transitional, to lead up to a system in which such accountants will, in autonomous association of themselves, largely assume the responsibilities involved in the discharge of their public duties by securing maintenance of the requisite standard of professional qualifications, discipline and conduct, the control of the Central Government being confined to a very few specified matters. The Bill seeks to authorize the incorporation by statute of such an autonomous professional body and embodies a scheme which is largely the result of a detailed examination of the whole position by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the examination of candidates for enrolment and the prescribing of fees therefor. (c) the regulation of the engagement and training of the articled and audit assistants; (d) the prescribing of qualifications for entry in the Register; (e) the recognition of foreign qualifications and training for the purposes of enrolment ; (f) the granting or refusal of certificates of practice under this Act. (g) the maintenance and publication of a Register of persons qualified to practice as chartered accountant ; (h) the levy and collection of fees from members, examinees and other persons ; (i) subject to the orders of the appropriate authorities under the Act, the removal of names from the Register and the restoration to the Register of names which have been removed; (j) the regulation and maintenance of the status and standard of professional qualifications of members of the Institute ; (k) the carrying out by granting financial assistance to persons other than members of the Council or in any other manner, of research in accountancy; (l) the maintenance of a library and publication of books and periodicals relating to accountancy ; (m) to enable functioning of the Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the council to make regulations for carrying out the objects of the ICAI Act, inter alia with respect to the matters as specified in Section 30(2). Section 30 of the Act is relevant and is quoted below: 30. - Power to make regulations. (1) The Council may, by notification in the Gazette of India , make regulations for the purpose of carrying out the objects of this Act. (2) In particular, and without prejudice to the generality of the foregoing power, such regulations may provide for all or any of the following matters : (a) the standard and conduct of examinations under this Act; (b) the qualifications for the entry of the name of any person in the Register as a member of the Institute; (c) the conditions under which any examination or training may be treated as equivalent to the examination and training prescribed for members of the Institute; (d) the conditions under which any foreign qualification may be recognised; (e) the manner in which and the conditions subject to which applications for entry in the Register may be made; (f) the fees payable for membership of the Institute and the annual fees payable by associates and fellows of the Institute in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation (10+2) Examination and after completing the period of 60 days from the date of registration for CPT with the board of studies. (iv) After clearing the CPT, a student joins the Integrated Proficiency Competence Court (IPCC) /Accounting Technician Court (ETC) and registers for 100 hours of Information Technology Training (ITT). (v) A student has to undergo 100 hours of ITT and appear in IPCC examination which is divided into two groups. The student can appear for IPCC after completion of a specified period of study course. After clearing group I of IPCC a student is eligible to enroll as an article clerk for practical training, the duration of which is three years. (vi) After the student has cleared both the groups of IPCC, he has to enroll for the final course with the board of studies and he is provided study material for the final examination. Student also has to undergo the course of General Management Skills while studying for his final course and can appear for the final examination which serving the last six months of his article training or thereafter. (vii) On passing the final examination and completing the article training or thereafter, a student is eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement and information system audit. It awards certificates to members of the Institute who successfully complete the said courses. Post-qualification diploma courses are also conducted in several fields. The examination conducted by the petitioner institute consists of Common Proficiency Test, Professional Education Examination, Professional Competence Examination, Accounting Technician Course, Integrated Professional Competence Course, final and post-qualification courses. The conduct of these courses cannot be equated and categorized as mere coaching classes which are conducted by private institutes to prepare students to appear for entrance examination or for pre-admission or examinations being conducted by the universities, school-boards or other professional examinations. The courses of the institute, per se, it does appears cannot be equated to a private coaching institute. There is a clear distinction between coaching classes conducted by private coaching institutions and the courses and examinations which are held by the petitioner-Institute. The decision, in the case of Bihar Institute of Mining and Mine Surveying [1994] 208 ITR 608 (Patna) is not applicable. A private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these classes are not held for coaching or for appearance in an examination conducted by some other entity / body. Conducting of coaching classes is with the predominant object of maintaining and upholding the standards of the accountancy profession and in furtherance of the object and purpose for which the institute is established, i.e., professional excellence and promotion of accountancy as a preferred profession. Members of petitioner Institute attend courses/lectures etc. to sharpen their skill and knowledge. These are ancillary activities to the main activity performed and the object for which the institute has been established. 45. Given the aforesaid findings, the issue whether the petitioner was entitled to exemption under section 10(23C)(iv) of the Act prior to 01.04.2009 is no longer res integra and the said issue stands concluded in favour of the petitioner as its activities fell within the definition of charitable purpose as it existed prior to 01.04.2009. The only question that remains to be considered is whether the activities of the petitioner fall in the proviso to Section 2(15) as introduced w.e.f. 01.04.2009. 46. The first proviso to Section 2(15) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own as coaching/revisionary expenses in the financial statements. These expenses are in the nature of rental of premises, payment of faculties, hiring charges of projectors, etc., printing and stationery, cost of study material, entertainment expenses, etc. Further, the amount of expenditure incurred for these classes are not inclusive of other common expenditure, which includes the cost of free study material issued to the students for the purpose of coaching/revisionary classes. 33. Such common administrative expenses also include, inter alia, depreciation on assets installed and salaries paid to the staff employed by the branches of the Institute, which are the main centres for holding coaching and revisionary classes for the students enrolled for the chartered accountancy course throughout the country, as per details given in paragraph 4 of the supplementary affidavit sworn on behalf of the Institute on March 17, 2010, and already filed in this Hon'ble court earlier, which details are again set out hereunder for ready reference:- Financial years Salaries (Rs. in lakhs) Depreciation Total 2003-04 2004-05 2005-06 2006-07 2007-08 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 48. In addition, the DGIT(E) was also required to examine the facts relating to the funds paid by the petitioner institute to Jaipur Development Authority and the Government of Rajasthan which had been reflected as debit balance against ICAI Accounting Research Foundation. ICAI Accounting Research Foundation had been incorporated by the petitioner institute with the object to impart training, promote knowledge, learning and education in various fields relating to accountancy and the funds paid by the petitioner were for the purposes of establishing a university in Rajasthan. In the impugned order, the DGIT(E) has not given any finding that the funds paid by the petitioner institute violate Section 13 of the Act. 49. On remand, the DGIT(E) has passed the impugned order dated 13.04.2012, holding that the petitioner s activity of conducting classes is purely a commercial activity. The DGIT(E) has proceeded on the basis that the functions of ICAI are similar to the functions performed by UPSC and held that the position of ICAI, in providing coaching classes to its students was similar to the position of private organisations imparting similar training to the aspirants. The releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wingly for training and improvement of the skills may be necessary as in the case of civil servants which should affect the examination part. So, the above comparison clearly indicates that the sort of action/conducting of classes for preparing the aspirants for chartered accountant examination are purely commercial activities and there is no difference between the activity done by ICAI and such other private organization/individuals who are also imparting training to such aspirants. 50. The DGIT(E) held that the petitioner institute had received fees for holding interviews with respect to campus placement program and this also amounted to the petitioner working as a service provider between the members and the industry and were similar to the activities undertaken by any placement agency providing manpower to the industry. 51. The DGIT(E) further held that the petitioner s contention that it was charging very nominal fee could not be considered as a charitable purpose as there was no specific arrangement for poor or needy candidates to get coaching from the institute without payment of fees. The DGIT(E) held that in order to fall within the definition of charitable purpose un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... candidates for preparing for CA examination for which fee is charged. The coaching is being provided against fee and is therefore squarely covered by the proviso to section 2(15) of the Act." 52. The DGIT(E) vide impugned order held that the ratio of the decision of the Patna High Court in the case of Bihar Institute of Mining and Mine Surveying v. CIT: (1994) 208 ITR 604 (Patna) squarely covered the facts of the petitioner institute and therefore, the petitioner was liable to be taxed as a commercial establishment. The relevant finding of the DGIT(E) is as under:- As it is on the same line as any other coaching institute, the case of Bihar Institute of Mining and Mine Surveying v. CIT (1994) 2008 ITR 604 (Patna) squarely covers of the fact of the applicant and therefore to be taxed as commercial establishment. 53. We find that the entire approach of the DGIT(E) in passing the impugned order is erroneous and runs contrary to the findings and observations of this court while remanding the matter to DGIT(E). This court held that the petitioner institute fell within the category of advancement of any object of general public utility . As such the petitioner would be an instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abour of a person and is clearly associated with the object of making profit. 56. In the case of Institute of Chartered Accountants in England Wales v. Customs and Excise Commissioners :(1999) 1 W.L.R. 701, the House of Lords also examined the expression business with reference to the question whether the Institute of Chartered Accountants in England Wales was carrying on economic activity for the purpose of the Value Added Tax, 1994 and held as under:- Although differences between them may arise, it seems to me that the Appellants were right in their case to accept that The expression business, it is accepted, represents economic activity . It is not necessarily sufficient (though it may often be sufficient in different contexts) that money is paid and a benefit obtained, performing on behalf of the state this licensing function is not the carrying on of a business. In relation to the Directive, the tribunal said: Any regulatory activity carried out under a statutory power for the purpose of protecting the public by supervising and maintaining the standard of practitioners in, for example, the Financial Services field fall on the other side of the line from econom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of trade, commerce and business. Thus, if the dominant activity of the assessee was not business then any incidental or ancillary activity would also not fall within the definition of business. In that case, the Supreme Court was examining the issue whether the activity of the trust in bringing out and selling a publication to spread the message of Sai Baba would make the assessee trust a dealer. The Supreme Court also referred to various other decisions wherein it was held that if the principal object or purpose of an assessee was not business then an incidental activity would also not be exigible to sales tax and constitute the assessee as a dealer. In the case of State of Gujarat v. Raipur Manufacturing Co. Ltd.: (1967) 19 STC 1 (SC), the Supreme Court held that in order for any activity to be considered as business, there must be a course of dealings either actually continued or contemplated to be continued with the motive to earn profit and not for sport or pleasure. 59. This court while remanding the matter quoted the relevant passages from the decisions of the Supreme Court in the case of Raipur Manufacturing Co. (supra) and Sai Publication Fund (supra) and held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but also practical knowledge. The object of the study programme or post-qualification courses being conducted by the petitioner institute is to impart knowledge and skill in the field of accountancy and related subjects to students and the same is not similar to the function as performed by UPSC. In our opinion, the DGIT(E) erred in proceeding on the basis that the object of the petitioner was limited to conducting examinations for a selection process enabling the successful candidates to be selected as chartered accountants. The impugned order completely ignores the nature of the educational programme being conducted by the petitioner which includes not only designing of the course, imparting of training, providing study material but also instructions by an expert faculty. 63. We are also unable to agree with the reasoning of the DGIT(E) that holding interviews for a fee for the purposes of campus placement of its students amounts to carrying on a business. Campus placement is only a small incidental activity carried on by the petitioner institute like several other universities for placement of their students in gainful employment. This too is an activity ancillary to the educ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h view of charitable uses [Commissioners v. University College of North Wales (i)]. There seems to be no solid distinction to be taken under the phrase general public utility between a school founded by a testator but charging fees to its pupils and a paper founded by a testator and sold to its readers. The purpose of providing the poor or the community in general with some useful thing without price or at a low price may doubtless be in itself a purpose of general public utility. But if another object be independently in itself of general public utility the circumstances that the testator s (sic) bounty was only in respect of the initial capital assets, or had only to meet a working loss temporarily and not permanently will not, necessarily at least, alter the character of the object. 65. The fact that the petitioner institute charges a uniform fee from all students for coaching would not exclude the petitioner from the ambit of Section 2(15) of the Act unless it is found that the petitioner falls within the scope of the first proviso to Section 2(15) of the Act i.e. the petitioner carries on any trade, business or commerce or any activity of rendering any service in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected. The expressions business , trade or commerce as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable any incidental activity for furtherance of the object would not fall within the expressions business , trade or commerce . 68. In the case of Sai Publication Fund (supra) the activity of publishing and selling publication was not held to be business by the Supreme Court since the dominant object of the activity was not to carry on business but to spread the message of Sai Baba for the welfare of the public at large. In the present case, there can be little doubt that the dominant object of the petitioner institute is to regulate the profession of Chartered Accountants in India and for that purpose, the petitioner institute conducts an extensive educational program to ensure that the profession is fed by Chartered Accountants having high standards of knowledge, skill and professional competence. Coaching classes conducted by the petitioner are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntinued with a profit motive, and not for sport or pleasure. (Underlining added) 72. There is nothing on record to indicate the assertion of the petitioner that its activities are not fuelled by profit motive is incorrect. Absence of profit motive, though not conclusive, does indicate that the petitioner is not carrying on any business. 73. The petitioner institute has been established to perform a function of regulating the profession of Chartered Accountants. The functions performed by the petitioner institute are in the genre of public welfare and not for any private gain or profit and in this view, it cannot be said that the petitioner is involved in carrying on any business, trade or commerce. This court in the case of Bureau of Indian Standards v. Director General of Income Tax (Exemptions) : W.P. (C) 1755 of 2012 decided on 27.09.2012 while considering whether the activities of the Bureau of Indian standards in awarding licences and granting certification for fees amounted to carrying on business, trade or commerce held as under: In these circumstances, rendering any service in relation to trade, commerce or business cannot, in the opinion of the Court, receive s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. It is also required to provide education and training to students/articles clerks who are appearing in the examinations and aspire to be enrolled as members of the Institute. In the impugned order, it has been elucidated by the Tribunal as under : "We have gone through the various regulations of the ICAI which provide for coaching, etc., to the students of chartered accountancy course. These regulations, inter alia, provide that no candidate shall be admitted to the professional examination unless he produces a certificate from the head of the coaching organization to the effect that he is registered with coaching organization and has complied with the requirements of the theoretical education scheme. The candidate is also required to pay such fee as may be fixed by the Council for such professional education. Before a student is eligible for appearing in the examination, he has to produce a certificate from the head of the coaching organization to the effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countable 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 I nstitute." 16. The aforesaid findings as to the object, purpose and role of the Institute cannot be disputed. The 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. As noticed above, the order passed by the appellant is devoid of reasoning. This has resulted in the error made by the appellant, which has been corrected by the Tribunal. 77. After going through the provisions of the ICAI Act and the Regulations framed therein as well as various activities carried on by the petitioner, we are of the view that the petitioner institute does not carry on any business, trade or commerce. The activity of imparting education in the field of accountancy and conducting courses both at pre-qualification as well as post-qualification level are activities in furtherance of the objects for which the petitioner has been constituted. Activities of providing coac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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