[ICAI v. DGIT, (2011) 13 Taxman.com 175 (Del.)]
The assessee, the Institute of Chartered Accountants of India (ICAI), had filed an application in Form No. 56 for grant of exemption u/s.10(23C) (iv) of the Income-tax Act, 1961 for the A.Y. 2009- 10 onwards. It claimed that the institution was/ is established for charitable purpose as defined u/s.2(15); and that it was/is complying with all conditions/ pre-requisites and, therefore, was entitled to exemption u/s.10(23C)(iv). The application was rejected mainly on the following grounds. Firstly, the assessee-institute was holding coaching classes and, therefore, was not an educational institution as per the interpretation placed on the word ‘education’ used in section 2(15). Secondly, it was covered under the last limb of charitable purpose, i.e., advancement of any other object of general public utility and in view of the amendment made in section 2(15) with effect from 1-4-2009 for the A.Y. 2009-10 onwards, the assessee-institute was not entitled to exemption as it is an institution which conducts an activity in nature of business and also charges fee or consideration. It was earning huge profits in a systematic and organised manner and, therefore, it was not an institute existing for charitable purposes under the last limb of section 2(15). Thirdly, the assessee institute had advanced an interest-free loan to a sister concern, namely, ICAI Accounting Research Foundation and, thus, had violated the third proviso to section 10(23C) as the accumulated funds have not been invested in one or more specified funds/institutions stipulated in sub-section (5) to section 11.
The Delhi High Court allowed the writ petition filed by the assessee ICAI, set aside the order of rejection and remanded the matter back to the DGIT with directions. The High Court held as under:
“(i) A scrutiny of section 2(15) elucidates that charitable purpose for the purpose of the Act has been divided into six categories. The assessee-institute will fall under the sixth category, i.e., advancement of any other object of general public utility. The assesseeinstitute cannot be regarded as an educational institute as its main or predominant objective is to regulate the profession of and the conduct of Chartered Accountants enrolled with it. It is a statutory authority under the Chartered Accountants Act, 1949 (the ‘CA Act’) and its fundamental or dominant function is to exercise overall control and regulate the activities of the members/enrolled as chartered accountants.
(ii) No doubt, the assessee holds classes and provides coaching facilities for candidates/ articled and audit clerks who want to appear in the examinations and want to get enrolled as chartered accountants as well as for members of the assessee-institute who want to update their knowledge and develop and sharpen their professional skills, but this is not the sole or primary activity. The assessee-institute may hold classes and give diploma/degrees to the members of its institute in various subjects, but this activity is only an ancillary part of the activities or functions performed by the assessee-institute. This one or part activity, by itself, does not mean that the assessee is an educational institute or is predominantly or exclusively engaged in the activity of education. It is engaged in multifarious activities of diverse nature, but the primary and the dominant activity is to regulate the profession of chartered accountancy.
(iii) Section 2(15) defines the term ‘charitable purpose’. Therefore, while construing the term business for the said section, the object and purpose of the said section has to be kept in mind. A very broad and extended definition of the term ‘business’ is not intended for the purpose of interpreting and applying the first proviso to section 2(15) to include any transaction for a fee or money.
(iv) The real issue and question is whether the assessee-institute pursues the activity of business, trade or commerce. The DGIT, while dealing with the said question, has not applied his mind to the legal principles enunciated above and has taken a rather narrow and myopic view by holding that the assesseeinstitute is holding coaching classes; and that this amounts to business.
(v) The assessee-institute provides education and training in their post-qualification courses, corporate management, tax management and information system audit. It awards certificates to members of the institute who successfully complete the said courses. The conduct of these courses cannot be equated and categorised 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 appear, 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 assessee-institute. A private coaching institute has no statutory or regulatory duty to perform. It cannot award degrees or enrol members as chartered accountants. These activities undertaken by the assessee-institute satisfy the requirement of the term ‘education’.
(vi) The question, which remains unanswered in spite of the aforesaid finding that the assesseeinstitute also undertakes educational activity, is whether it is carrying on any business, trade or commerce. This question requires an answer but remains unanswered as it was not addressed and examined in the impugned order in proper perspective. The reasoning given in the order is with reference to the fee charged, expenditure and profit earned. The impugned order is cryptic and a myopic view has been taken without examining the legal principles.
(vii) In view of the aforesaid, the instant writ petition is allowed and a writ of certiorari is issued quashing the impugned order passed by the DGIT (Exemptions) with a direction to reconsider the application filed by the assessee-institute u/s.10(23C)(iv) in the light of the findings and observations made above. While setting aside the impugned order the DGIT is to be directed to examine the said aspect in the light of the observations and findings made above.”
