Assam State Text Boo... v. Commissioner Of Inco...

Judgment

1. Heard the learned counsel on both sides. The appellant Corporation (the assessee) was initially constituted as “Central Textbook Committee”, which was attached to the office of the Director of Public Instruction. In 1950, the name was changed to “Assam Textbook Committee” with ten members nominated by the State Government. In the year 1968, the Government reconstituted the said Committee as “Board of Textbook Production and Research”. The said Board was converted into a corporation in 1972 and the name was changed to Assam State Textbook Production and Publication Corporation Ltd. vide Notification dated 26-7-1972 (for short “the Corporation”). All the assets of the said Board stood transferred to the Corporation with effect from 1-7-1972.

2. The Corporation had paid-up share capital of rupees one crore and the break-up of the shareholding was as follows:

Name Shares Face value (Rs.) 1. Governor of Assam, represented by the Secretary, Education Department, Government of Assam 9998 nos. 99,98,000 2. Financial Commissioner and Secretary, Finance Department, Government of Assam 1 no. 1000 3. The Chairman, Board of Secondary Education, Assam 1 no. 1000

As can be seen from the shareholding pattern, quoted above, almost the entire share capital of the Corporation was owned by the Government of Assam and consequently, the said Corporation became a government company as defined under Section 617 of the Companies Act, 1956. In other words, the control of the Government ceased to exist after 26-7-1972, and the erstwhile Board came to be corporatorised under the Companies Act, 1956. The main object of the government company was to do research, printing and publishing of textbooks for school students as per the norms prescribed and approved by the Education Department, State of Assam.

3. In these appeals, we are concerned with Assessment Years 1981-1982 to 1996-1997, except Assessment Year 1989-1990. The question which arose before the assessing officer was whether the Corporation could be termed as an “educational institution” in terms of Section 10(22) of the 1961 Act?

4. According to the assessing officer, since the assessee, during the relevant years, had income exclusively from publication and selling of textbooks to the students, exemption under Section 10(22) of the Income Tax Act, 1961 (for short “the Act”), as it stood at the material time, was not admissible. According to the assessing officer, the assessee did not exist solely for educational purposes, particularly in view of Clause 21 of the memorandum of association which provides for distribution of dividends, hence, its income was not exempt under Section 10(22) of the Act. This decision of the assessing officer was upheld by the Commissioner of Income Tax (Appeals).

5. In the Tribunal, there was a difference of opinion between the Member (Judicial) and the Member (Accountant). By decision of the majority, it was held that the Corporation was an educational institution and consequently, the Corporation was entitled to the benefit of exemption under Section 10(22) of the Act for the relevant assessment years in question. However, in appeal filed by the Department, the High Court came to the conclusion (2007) 288 ITR 352 (Gau) that the income of the Corporation, during the relevant assessment years, was not exempt, particularly in view of the fact that the assessee did not exist solely for educational purposes; that it did not solely impart education and that its income during the relevant assessment years was only from publishing and sale of textbooks, which, according to the High Court, constituted a profit-earning activity. Against the said decision, the assessee has come to this Court by way of civil appeals.

6. On going through the records, we find that the High Court has not taken into account the prior history of the case, particularly in the context of incorporation of the Corporation under the Companies Act, 1956, as a government company. Initially, as stated above, the assessee was a State-controlled Committee and Board, which were attached to the office of the Director of Public Instruction, State of Assam. It is only in the year 1972, that the government company got constituted under Section 617 of the Companies Act, 1956. That, prior to 1972, the entire funding for the working of the Committee/Board was done by the State of Assam and that even the ownership of the assets remained vested in the State of Assam which stood transferred to the Corporation in 1972, when it got incorporated under the Companies Act, 1956.

7. It is important to note that the assessee is a government company. It is controlled by the State of Assam. The aim of the said Corporation is to implement the State's policy on education. That, Clause 21 of the memorandum and articles of association provides a return on investment to the State of Assam. That, in the year 1975, in a similar situation, the Central Board of Direct Taxes (for short “the CBDT”) had granted exemption under Section 10(22) of the Act, vide Letter dated 19-8-1975, to the Tamil Nadu Textbooks Society, which performed activities similar to those of the assessee.

8. The Letter dated 19-8-1975, is referred to in the judgment of the Rajasthan High Court in CIT v. Rajasthan State Textbook Board (2000) 244 ITR 667 (Raj). As can be seen from the facts of that case, a similar question came up for consideration before the Rajasthan High Court, namely, whether the Rajasthan State Textbook Board was entitled to exemption under Section 10(22) of the Income Tax Act, 1961? One of the arguments advanced in that case on behalf of the Revenue was that the assessee was making profit on account of publishing and sale of textbooks and consequently, it was not entitled to the benefit of exemption under Section 10(22) of the Act. However, the High Court noticed the letter issued by the CBDT on 19-8-1975, to the Tamil Nadu Textbook Society which, as stated above, in similar circumstances had granted exemption to the Tamil Nadu Textbook Society as an educational institution within the meaning of Section 10(22) of the Act. The judgment of the High Court further recites that, under a similar situation, the CBDT had also extended the benefit of exemption under Section 10(22) of the Act to the Orissa Secondary Board Education, as reported in Secondary Board of Education v. ITO (1972) 86 ITR 408 (Ori). Following these circulars/letters issued by the CBDT, the Rajasthan High Court came to the conclusion that the assessee in that case, namely, Rajasthan State Textbook Board, was entitled to claim the benefit of exemption under Section 10(22) of the Act.

9. The operative part of the Rajasthan High Court's judgment reads as under: (ITR p. 669)

“It is not disputed before us that the aims and objects of the Tamil Nadu Textbook Society and those of the respondent assessee are almost identical. It is also not shown to us that the surplus amount, if any, of the respondent assessee, is used for any other purpose or distributed to other members. The Commissioner of Income Tax (Appeals) as well as the Tribunal have noticed that even if some amount remains surplus, that is utilised only for the purposes of education. Thus, having regard to the concurrent findings of fact recorded by the Commissioner of Income Tax (Appeals) and the Tribunal and also taking note of the letter of the Central Board of Direct Taxes itself, it is not possible for us to say that the order of the Tribunal is erroneous in any way. In this way, no question of law arises for consideration much less a substantial question of law.”

10. Following the judgment of the Rajasthan High Court, we are of the view that, in this case, the High Court, in its impugned judgment, has not considered the historical background in which the Corporation came to be constituted; secondly, the High Court ought to have considered the source of funding, the shareholding pattern and aspects, such as return on investment; thirdly, it has not considered the letters issued by the CBDT which are referred to in the judgment of the Rajasthan High Court granting benefit of exemption to various boards/societies in the country under Section 10(22) of the Act; fourthly, it has failed to consider the judgments mentioned hereinabove; and lastly, it has failed to consider the letter of the Central Government dated 9-7-1973, to the effect that all State-controlled educational committee(s)/board(s) have been constituted to implement the educational policy of the State(s); consequently, they should be treated as educational institution.

11. For the aforestated reasons, we are of the view that, instead of remanding the matter to the High Court, it would be in the fitness of things that the matter stands remitted to the assessing officer to consider it de novo in the light of the judgments of the Rajasthan High Court and the Orissa High Court, particularly, with reference to the letter of the CBDT dated 19-8-1975, referred to in the judgment of the Rajasthan High Court in Rajasthan State Textbook Board (2000) 244 ITR 667 (Raj) as also the letter of the Central Government dated 9-7-1973, referred to above.

12. Accordingly, the appeals stand allowed with no order as to costs.