Citation Codes

Equivalent Citations

citation codes

Case Number

I.T.A Nos. 88 of 2003, 7 to 10, 12, 15 to 21, 23 and 24 of 2004

Judges

P.G Agarwal
M.B.K Singh, JJ.

Acts

section 10(22) of the Income-tax Act, 1961 (hereinafter referred
section 10(22) of the Income-tax Act, 1961,
INCOME TAX ACT 1961
section 10(22) of the Income-tax Act.
provision of section 10(22)
COMPANIES ACT 1956

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Smart Summary

Case Summary — M.B.K. Singh, J.

Factual and Procedural Background

These appeals arise under section 260A of the Income-tax Act, 1961, challenging three orders of the Income-tax Appellate Tribunal (Gauhati Bench) dated April 30, 2003, June 30, 2003 and June 19, 2003. The Tribunal had held that the assessee-respondent was an educational institution existing solely for educational purposes and therefore granted exemption from income-tax under section 10(22) of the Income-tax Act for assessment years commencing 1981-82 to 1996-97 (excluding 1989-90).

The assessee-respondent is a Government company incorporated under the Companies Act, 1956, as M/s. Assam State Book Production and Publication Corporation Ltd. For the relevant assessment years the assessee claimed exemption under section 10(22); the Assessing Officer denied that claim. The assessee appealed to the Commissioner of Income-tax (Appeals), who rejected the appeal. The assessee then appealed to the Income-tax Appellate Tribunal. The two members of the Tribunal differed and referred the matter to a Third Member. The Judicial Member and the Third Member held in favour of the assessee (granting exemption), while the Accountant Member dissented.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was an educational institution within the meaning of section 10(22) of the Income-tax Act, 1961, and was thereby entitled to exemption under that section?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in holding that the assessee was a non-profit making organisation although the constitutive document under which it was created provided for carrying on of any other trade or business apart from printing and publication of books and also for distribution of dividends amongst its members?

Arguments of the Parties

Appellant's (Revenue) Arguments

The assessee-respondent is a profit-earning corporation whose main activities are printing, production and publication of books, sale of textbooks and other books, and carrying on business activities as directed by the Government of Assam.
The assessee is neither a university nor an educational institution within the meaning of section 10(22) of the Act.
The memorandum of association shows main objects that are commercial (prepare, print, publish, sell textbooks and other publications; carry on publishing/printing business) and includes an object allowing distribution of dividends or bonus shares among members, indicating potential for profit distribution.
Allowing exemption for the assessee's activities (printing and selling textbooks) would open the door for other suppliers of school-related goods to claim exemption under section 10(22).

Assessee-Respondent's Arguments

The assessee's admitted activities include preparing, printing, publishing and dealing in textbooks and educational literature for primary, secondary and teachers' education, and in that respect it is an educational institution existing solely for educational purposes.
The assessee relied on the decision in Aditanar Educational Institution v. Additional Commissioner of Income Tax ([1997] 224 ITR 310) to support the proposition that an entity whose objects are to establish, run, manage or assist educational institutions can be regarded as an "other educational institution" under section 10(22).
On the specific point of dividend distribution, the assessee's counsel stated that no dividend or bonus had in fact been distributed to members in any relevant year.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Aditanar Educational Institution v. Additional Commissioner Of Income Tax ([1997] 224 ITR 310)	Holds that an educational society whose sole purpose is to establish, run, manage or assist colleges/schools and which thereby imparts education can be regarded as an "other educational institution" under section 10(22) even if it raises funds and does not itself directly teach.	The court distinguished Aditanar: in that case the objects were to establish and run educational institutions (colleges and schools), whereas in the instant case the assessee's main objects were commercial activities (printing, publishing, sale) and did not include running educational institutions or imparting teaching/training.
Oxford University Press v. Commissioner Of Income Tax ([2001] 247 ITR 658)	States that the basic requirement of section 10(22) is the existence of an "educational purpose," which entails imparting education or some educational activity in India; exemption assumes existence of educational activity.	The court relied on this principle to emphasize that imparting education (teaching/training) is a fundamental requirement for exemption under section 10(22), and found the assessee did not engage in such activities.

Court's Reasoning and Analysis

The court undertook a close examination of the assessee's memorandum of association and the stated main objects and ancillary objects. The analysis proceeded as follows:

Identification of the core statutory test: the court treated section 10(22)'s requirement of an educational institution "existing solely for educational purposes and not for the purposes of profit" as central. It noted (with reliance on Oxford University Press) that the "educational purpose" contemplates imparting education or educational activity (teaching, training) in India.
Examination of the assessee's objects: the memorandum discloses primary objects of acquiring the business of textbook production and research, preparing, printing, publishing, selling and otherwise dealing in textbooks and other publications, and to carry on business as publishers and printers. Ancillary objects include research related to publishing and regulating prices, and an object permitting distribution of dividends or bonus shares.
Comparison with cited authority (Aditanar): the court contrasted Aditanar’s facts — where the society's objects were to establish, run or assist colleges and schools (media through which education was imparted) — with the present case, where the assessee did not run educational institutions nor itself impart teaching or training.
Application of principle to facts: because the assessee’s activities were largely production, printing, publication and sale of books (commercial activities) and there was no evidence of imparting education or operating schools/colleges, the court concluded these activities cannot be equated with an educational institution established solely for educational purposes under section 10(22).
Consideration of the distributive object: the presence in the memorandum of an object allowing distribution of dividends or bonus shares was noted by the appellant and considered by the court as relevant to the character of the corporation, even though the assessee contended no dividends were in fact distributed.
Policy and practical consideration: the court expressed concern that treating the assessee's textbook production and subsidised sale as sufficient to qualify under section 10(22) would open the door to many commercial suppliers of school-related items seeking the same exemption.

On the totality of these considerations the court found that the assessee had not engaged in teaching, training or other educational activity either directly or through operation of schools/colleges for any relevant assessment year, and therefore could not be regarded as an educational institution within the meaning of section 10(22).

Holding and Implications

Holding: The court quashed the orders of the Income-tax Appellate Tribunal dated April 30, 2003, June 30, 2003 and June 19, 2003; it answered the substantial questions of law in favour of the appellant and allowed the appeals.

Direct consequences: the assessee-respondent is not entitled to exemption under section 10(22) for the assessment years in question, and the Tribunal's orders granting exemption have been set aside.

The opinion does not purport to establish a novel legal principle beyond applying and distinguishing existing precedents; it limits its decision to the facts and the statutory test under section 10(22).

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Commissioner Of Income-Tax v. Assam State Book Production And Publication Corporation Ltd. (And Other Appeals)

M.B.K Singh, J.:— These appeals are filed under section 260A of the Income-tax Act, 1961, challenging the orders dated April 30, 2003, June 30, 2003, and June 19, 2003, passed by the Income-tax Appellate Tribunal, Gauhati Bench, Guwahati, respecting the income of the assessee-respondent for the assessment years commencing from 1981-82 to 1996-97 excluding the assessment year 1989-90. By the above orders the Income-tax Appellate Tribunal accepted the assessee-respondent as an educational institution existing solely for educational purposes and thus granted exemption from payment of income-tax under section 10(22) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”).

2. These appeals are taken up together for disposal by this common judgment and order as the substantial question of law involved in these appeals are the same. The indispensable facts for disposal of these appeals, in short are that the assessee-respondent is a Government company incorporated under the Companies Act, 1956, under the name and style M/s. Assam State Book Production and Publication Corporation Ltd. In all the relevant assessment years the assessee claimed exemption from payment of income-tax under the provisions of section 10(22) of the Act which the Assessing Officer declined to accept. The assessee took the matter by filing appeals before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) rejected the appeal by holding that the assessee does not fulfil either of the criteria and as such the exemption under section 10(22) of the Act cannot be allowed. Thereafter, the assessee agitated the matter again before the Income-tax Appellate Tribunal, Gauhati Bench, Guwahati. The matter was heard by the Income-tax Appellate Tribunal, Gauhati Bench, Guwahati, but because of the difference of opinion between the two members of the learned Tribunal on the matter which was in issue, they referred the same to the Third Member for opinion. The Judicial Member and the Third Member expressed the view that the assessee is an educational institution and as such its income is to be exempted under section 10(22) of the Income-tax Act. The Accountant Member, however, formed his opinion against the assessee.

3. After hearing the parties this court framed substantial questions of law as follows:

“I. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was an educational institution within the meaning of section 10(22) of the Income-tax Act, 1961, and was hereby entitled to exemption under that section?

II. Whether, on the facts and in the circumstances of the case, the Tribunal was justified and correct in law in holding that the assessee was a non-profit making organisation although the constitutive document under which it was created provided for carrying on of any other trade or business apart from printing and publication of books and also for distribution of dividends amongst its members ?”

4. A core question involved for decision in these appeals is whether the assessee can be treated as an educational institution existing solely for educational purpose and not for the purposes of profits within the meaning of the provision of section 10(22) of the Act.

5. Heard Mr. U. Bhuyan, learned counsel appearing for the appellant, and also heard Mr. K.H Choudhury, learned counsel appearing for the asses-see-respondent.

6. Learned counsel appearing for the appellant submits that the assessee-respondent is a profit earning corporation and the main activities of the assessee are printing, production, publication of books, sale of text-books and different books and to carry on such business activities which may be from time to time assigned or directed by the Government of Assam. The assessee-respondent, according to learned counsel, is neither an university nor an educational institution within the meaning of section 10(22) of the Act. In view of the above contention of learned counsel it will be relevant to examine the main objects of the assessee-respondent. The main objects of the assessee-respondent incorporated in the memorandum of association are as follows:

“1. To acquire and take over the business and other activities of the Board of Text-book Production and Research, Assam relating to production, publication and sale of text-books and reference books together with all the assets, rights, privileges and liabilities of the said board and to carry on such business and activities, and do, exercise, perform and carry on such functions, powers, and authorities as may from time to time be given, assigned and directed by the Government of Assam in that regard or with regard to any other like matter and objects.

2. To prepare, print, publish, sell, supply or otherwise deal in textbooks, supplementary books and literature on all subjects and in all languages for primary, secondary and teachers' education in the State of Assam and elsewhere prescribed and approved by the competent authorities and/or approved or required by the Government of Assam or other educational authorities, institutions and bodies, statutory or otherwise.

3. To carry on business as publishers and printers in all its branches and of all kinds.

4. To purchase or otherwise acquire, own, establish, either wholly or in part and print, publish, edit and sell, import or export or otherwise deal in any magazines, pamphlets, leaflets, posters, journals, reviews, pictorials, books of all kinds, pictures, atlases and maps, to carry on business of press; to manufacture and deal in pictures, charts.

5. (a) To regulate and fix prices of the publication of the corporation consistent with its objects.

5. (b) To establish and conduct research work and promote studies in connection with the preparing, printing and publishing text-books, reference books, and other instructional literature, and other allied business and trade that may be considered by the corporation likely to assist the corporation business and to provide grants for such purpose.”

7. The objects incidental or ancillary to the main objects of the assessee-respondent are also reflected in the memorandum of association. Learned counsel appearing on behalf of the assessee-respondent admitted that the main objects of the assessee are to prepare, print, publish, sale, supply or otherwise deal in text books, supplementary books and literature on all subjects and in all languages for primary, secondary and teachers' education in the State of Assam and to deal in any magazines, pamphlets, leaflets, posters, journals, etc. In view of the above activities, learned counsel, contends that the assessee-respondent is an educational institution existing solely for educational purposes.

8. Learned counsel appearing for the assessee-respondent in support of his contention relied on the decision of Aditanar Educational Institution v. Additional Commissioner Of Income Tax reported in [1997] 224 ITR 310, in which the hon'ble apex court held that (headnote):

“Affirming the decision of the High Court, that it would be unreal and hypertechnical to hold that the assessee-society was only a financing body and would not come within the scope of ‘other educational institution’ as specified in section 10(22) of the Act. The object of the society was to establish, run, manage or assist colleges or schools or other educational institutions solely for educational purposes and in that regard to raise or collect funds, donations, gifts, etc. Colleges and schools were the media through which the assessee imparted education and effectuated its objects. In substance and reality, the sole purpose for which the assessee had come into existence was to impart education at the levels of colleges and schools and so, such an educational society should be regarded as an ‘educational institution’ coming within section 10(22) of the Act.

An educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purposes of profit could be regarded as ‘other educational institution’ coming within section 10(22) of the Act.”

9. On a careful examination of the main objects and the objects incidental or ancillary to the main objects, it is clear that the assessee-respondent has been doing the activities of production, printing and publication and sale of books and other commercial activities which in our consider view are not the activities of an educational institution established solely for educational purposes within the meaning of section 10(22) of the Act. In the case of Aditanar, [1997] 224 ITR 310, the hon'ble apex court held the Aditanar Educational Institution as an educational institution existed solely for educational purposes and not for the purpose of profits on the fact that the objects of the Aditanar Educational Institution were to establish run, manage or assist colleges, schools and other educational organisation. In the instant case, the main objects of the assessee-respondent are neither to run any educational institution nor to impart training, teaching through any colleges, etc. In fact, the respondent-assessee did not involve in any activities of teaching, imparting training by itself. The intention of the Legislature is to give exemption only to the University or educational institution which are existing solely for educational purposes and not for the purposes of profit. In Oxford University Press v. Commissioner Of Income Tax reported in [2001] 247 ITR 658, the hon'ble apex court held that (headnote):

“The imparting of education is service to the society. From the language of section 10(22), it does not appear that without any such service in India, the Legislature intended to exempt the total income of the assessee. The requirement of imparting education or some other educational activity in this country can be read into section 10(22). That is the basic assumption of section 10(22). A university established in a foreign country is not excluded from the ambit of section 10(22) in case it is imparting education in India or has some educational activity in India. It is evident that for the purposes of granting exemption under section 10(22) the Legislature assumed the existence of educational activity in India by a university or other educational institution. The basic requirement of the section is the existence of ‘educational purpose’ which, in other words, means the imparting of education which has to be in India. The absence of the words ‘India’ in this provision is inconsequential. It has to be read into section 10(22).”

10. The decision of the above case clearly indicates that the basic requirement of section 10(22) of the Act is the existence of educational purposes that is imparting of education by way of teaching or training, etc. In the absence of such training activities, the provision of section 10(22) of the Act are not applicable to any firm or corporation.

11. The activities of the assessee-respondent by any stretch of imagination cannot be considered as an educational institution established for imparting teaching, training, etc. If the assessee-respondent is to be taken as an educational institution within the meaning of section 10(22) of the Act for doing the activities of production, printing, sale of text books to the primary and secondary schools, etc., it will open the flood gates to others whose activities are to supply approved note books, school dresses, etc., for claiming exemption of income-tax under section 10(22) of the Act.

12. Learned counsel appearing for the appellant further submitted that the other object of the assessee-company is also to distribute any money belonging to the corporation as dividend or bonus shares among the members of the corporation from time So time and also to contribute to the charitable and other funds which are directly or indirectly related to the business of the corporation or not for the welfare of the employees. In view of the above object, the assessee-respondent is not an educational institution within the purview of section 10(22) of the Act, learned counsel contended. On the other hand, learned counsel appearing for the assessee-respondent refuted the above contention by stating that no dividend or bonus has been distributed to the members of the corporation at any relevant point of time. It is immaterial to examine as to whether the dividend has been actually distributed or not, learned counsel for the appellant has only pointed out the object of the assessee-respondent. Upon hearing the rival contentions of the parties considering the facts and circumstances of the case, we are of the view that the respondent has not done anything relating to teaching, training or education either by the assessee-respondent itself or through any school in any relevant assessment year except to print, publish, sale of text books at the subsidized rate. In the above facts we are unable to hold that the assessee-respondent as an educational institution within the meaning of section 10(22) of the Act. We find force in the submission of learned counsel appearing for the appellant.

13. In the result, the orders of the Income-tax Appellate Tribunal, Gauhati Bench, Guwahati, dated April 30, 2003, June 30, 2003 and June 19, 2003, are quashed. The substantial questions of law are answered in favour of the appellant. The appeals stand allowed.

Commissioner Of Inco... v. Assam State Book Pro...