NEW DELHI, SEPT 22, 2011: THE issues before the Bench are - Whether the order u/s 263 can be passed without assigning any reasoning as to the object and role of the institute in proper and correct perspective for denying the exemption as charitable institution - Whether activities of the institute approved u/s 10(23C), viz. holding classes for students/article clerks/members and charging fee for classes and for providing literature/material can be regarded as a business activity and hence not entitled to exemption as a charitable institution. NO is the HC's answer.
Facts of the case
The assessee is the Institute of Chartered Accountants of India (Institute, for short), a statutory body established under the Chartered Accountants Act, 1949 (1949 Act, for short), for regulating the profession of Chartered Accountants in India. CBDT, since the AY 1996-97, has been approving the said Institute under sub-clause (iv) of Section 10(23C) of the 1961 Act. Vide order dated 18th October, 2004, approval u/s 10(23C)(iv) was granted for the AYs 2003-04 to 2005-06.
For the AY 2005-06, the assessee filed its return declaring its income as NIL, which was accepted by the assessment order dated 21st August, 2007 u/s 143(3) of the 1961 Act. The assessment order records that a notice u/s 142(1) was issued calling for detailed information which was furnished by the institute. Books of accounts were also furnished and examined on test check basis.
The DIT(E), on the basis of a proposal received from the AO, passed an order u/s 263 of the Act on two grounds, namely, coaching activity was undertaken by the institute and the said activity was "business" and not a charitable activity. In these circumstances, the institute was required to maintain separate books of accounts and thus there was violation of Section 11(4A) of the Act. Secondly, it was also held that the institute had incurred expenses of Rs.164.33 lacs on overseas activities including travelling, membership of foreign professional bodies etc. without permission from CBDT as required u/s 11(1)(c) of the 1961 Act. Thus, income of the institute was not entitled to exemption as a charitable institution. On appeal by the institute, ITAT by order dated 18th October, 2010, held that the power u/s 263 of the 1961 Act was wrongly exercised and the DIT(E) was not justified in giving the directions on the two grounds relied upon by him.
On appeal by the Revenue, the High Court held that,
++ as far as scope of Section 263 of the 1961 Act is concerned, there is merit in the contention of the appellant that the observations made by the Tribunal in the impugned order are somewhat ambiguous and contradictory. This does not, however, justify interference and framing of question of law. The jurisdiction u/s 263 can be exercised when (i) when order of the AO is erroneous and (ii) it should be prejudicial to the interest of the Revenue;
++ what is noticeable and clear from the order dated 29th March 2010 of the appellant is lack of discussion, and examination of the concept/term `business', the object and role assigned to and performed by the institute. On the other hand, ITAT examined the provisions of 1949 Act and the role assigned to and undertaken by the institute. It was held 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/article clerks who are appearing in the examinations and aspire to be enrolled as member of the institute;
++ the findings of the ITAT 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. 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;
++ the second question which arises for consideration is whether activities of the institute mentioned above including those of holding classes for students/article clerks/members and charging fee for classes and for providing literature/material can be regarded as a business activity. Again, the order passed by the appellant dated 29th March, 2010 is devoid of any reasons and relevant consideration on the aspects like of what is meant and understood by the term of "business". The appellant proceeded on an erroneous basis that mere holding of classes amounts to business and the same was outside the scope, ambit and object of the institute. The last aspect is not correct. The order passed by the appellant is, therefore, bereft of reasons and does not meet the requirement of Section 263 of the Act. The term '`business', is a word of large and infinite import but it represents an activity carried on continuously in an organized manner with a said purpose and with a view to earn profit;
++ the purpose and object to do business is normally to earn and is carried out with a profit motive; in some cases the absence of profit motive may not be determinative. The appellant has given no such finding as far as the activities of the institute are concerned. The appellant without examining the concept of business has held that the institute was carrying on business as coaching and programmes were held by them and a fee is being charged for the same. On the basis of the findings recorded in the order dated 29th March 2010, u/s 263 of the Act, it is not sufficient to hold that the institute is carrying on business. In these circumstances, the order passed by the appellant u/s 263 of the Act cannot be sustained and was, therefore, rightly upset and set aside by the Tribunal.
Facts of the case
The assessee is the Institute of Chartered Accountants of India (Institute, for short), a statutory body established under the Chartered Accountants Act, 1949 (1949 Act, for short), for regulating the profession of Chartered Accountants in India. CBDT, since the AY 1996-97, has been approving the said Institute under sub-clause (iv) of Section 10(23C) of the 1961 Act. Vide order dated 18th October, 2004, approval u/s 10(23C)(iv) was granted for the AYs 2003-04 to 2005-06.
For the AY 2005-06, the assessee filed its return declaring its income as NIL, which was accepted by the assessment order dated 21st August, 2007 u/s 143(3) of the 1961 Act. The assessment order records that a notice u/s 142(1) was issued calling for detailed information which was furnished by the institute. Books of accounts were also furnished and examined on test check basis.
The DIT(E), on the basis of a proposal received from the AO, passed an order u/s 263 of the Act on two grounds, namely, coaching activity was undertaken by the institute and the said activity was "business" and not a charitable activity. In these circumstances, the institute was required to maintain separate books of accounts and thus there was violation of Section 11(4A) of the Act. Secondly, it was also held that the institute had incurred expenses of Rs.164.33 lacs on overseas activities including travelling, membership of foreign professional bodies etc. without permission from CBDT as required u/s 11(1)(c) of the 1961 Act. Thus, income of the institute was not entitled to exemption as a charitable institution. On appeal by the institute, ITAT by order dated 18th October, 2010, held that the power u/s 263 of the 1961 Act was wrongly exercised and the DIT(E) was not justified in giving the directions on the two grounds relied upon by him.
On appeal by the Revenue, the High Court held that,
++ as far as scope of Section 263 of the 1961 Act is concerned, there is merit in the contention of the appellant that the observations made by the Tribunal in the impugned order are somewhat ambiguous and contradictory. This does not, however, justify interference and framing of question of law. The jurisdiction u/s 263 can be exercised when (i) when order of the AO is erroneous and (ii) it should be prejudicial to the interest of the Revenue;
++ what is noticeable and clear from the order dated 29th March 2010 of the appellant is lack of discussion, and examination of the concept/term `business', the object and role assigned to and performed by the institute. On the other hand, ITAT examined the provisions of 1949 Act and the role assigned to and undertaken by the institute. It was held 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/article clerks who are appearing in the examinations and aspire to be enrolled as member of the institute;
++ the findings of the ITAT 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. 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;
++ the second question which arises for consideration is whether activities of the institute mentioned above including those of holding classes for students/article clerks/members and charging fee for classes and for providing literature/material can be regarded as a business activity. Again, the order passed by the appellant dated 29th March, 2010 is devoid of any reasons and relevant consideration on the aspects like of what is meant and understood by the term of "business". The appellant proceeded on an erroneous basis that mere holding of classes amounts to business and the same was outside the scope, ambit and object of the institute. The last aspect is not correct. The order passed by the appellant is, therefore, bereft of reasons and does not meet the requirement of Section 263 of the Act. The term '`business', is a word of large and infinite import but it represents an activity carried on continuously in an organized manner with a said purpose and with a view to earn profit;
++ the purpose and object to do business is normally to earn and is carried out with a profit motive; in some cases the absence of profit motive may not be determinative. The appellant has given no such finding as far as the activities of the institute are concerned. The appellant without examining the concept of business has held that the institute was carrying on business as coaching and programmes were held by them and a fee is being charged for the same. On the basis of the findings recorded in the order dated 29th March 2010, u/s 263 of the Act, it is not sufficient to hold that the institute is carrying on business. In these circumstances, the order passed by the appellant u/s 263 of the Act cannot be sustained and was, therefore, rightly upset and set aside by the Tribunal.
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