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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 12th November, 2013
+ W.P.(C) 10881/2009
ALL INDIA MANAGEMENT ASSOCIATION ..... Petitioner
Through Mr. Ajay Vohra, Ms. Kavita
Jha and Mr. Vaibhav Kulkarni, Advocates.
versus
DG OF INCOME TAX (E) & ORS. ..... Respondent
Through Mr. Rohit Madan, Sr. Standing
Counsel with Mr. Ruchir Bhatia, Advocate.
+ W.P.(C) 1735/2012
ALL INDIA MANAGEMENT ASSOCIATION & ANR
.... Petitioner
Through Mr. Ajay Vohra, Ms. Kavita
Jha and Mr. Vaibhav Kulkarni, Advocates.
versus
DIRECTOR GENERAL OF INCOME TAX(E) & ORS
..... Respondent
Through Mr. Rohit Madan, Sr. Standing
Counsel with Mr. Ruchir Bhatia, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL)
This common judgment will dispose of the aforesaid two
W.P.(C) Nos.10881/2009 & 1735/2012 Page 1 of 13
connected writ petitions filed by All India Management Association
impugning order dated 29th July, 2009 relating to assessment years
2005-06 to 2007-08 and order dated 28th February, 2012 relating to
assessment year 2008-09 and onwards. These orders have been passed
by the Director General of Income Tax (Exemptions) in exercise of
powers under Section 10(23C)(vi) of the Income Tax Act, 1961 (Act,
for short). In brief, in the impugned orders it has been held that the
activities undertaken by the petitioner do not fall in the category of
"other educational institutions" and, secondly, the petitioner was
indulging in business but was not maintaining separate books of
accounts. We shall elaborate upon the findings recorded by the
Director General of Income Tax (Exemptions) in later portion of this
judgment.
2. At the outset, undisputed facts may be noted. The petitioner is a
society registered under the Societies Registration Act, 1860 with the
Registrar of Societies, Delhi since 1960. From the beginning the
petitioner society was granted exemption or treated as a charitable
institution under the provisions of the Act. Petitioner was granted
exemption under Section 10(22) of the Act up to 1998-99. After
substitution of Section 10(22) by Section 10(23C), the petitioner was
granted exemption under clause (vi) with effect from 1 st April, 1999
onwards. The petitioner has placed on record order dated 16th October,
W.P.(C) Nos.10881/2009 & 1735/2012 Page 2 of 13
2000 for the period 1999-2000, 2000-01 and 2001-02. The petitioner
has also placed on record order dated 15th October, 2003 for the period
2002-03, 2003-04 and 2004-05. For the period 2005-06 to 2007-08,
notification under Section 10(23C)(vi) was issued on 9 th September,
2005. Similarly, for the period 2008-09 onwards tax notification was
issued vide order dated 26th May, 2008. The first impugned order
dated 29th July, 2009 seeks and cancels the said notification for the
period 2005-06 to 2007-08. The second impugned order dated 28th
February, 2012 seeks and cancels the registration of the petitioner under
Section 10(23C)(vi) for the period 2008-09 onwards. At the outset, we
notice that the power to cancel a registration already granted is stipulated
and governed by 13th proviso to Section 10(23C) which reads as under:-
"Provided also that where the fund or institution
referred to in sub-clause (iv) or trust or institution
referred to in sub-clause (v) is notified by the
Central Government [or is approved by the
prescribed authority, as the case may be,] or any
university or other educational institution referred
to in sub-clause (vi) or any hospital or other
medical institution referred to in sub-clause (via)
is approved by the prescribed authority and
subsequently that Government or the prescribed
authority is satisfied that-
(i) such fund or institution or trust or any
university or other educational institution or any
hospital or other medical institution has not
(A) applied its income in accordance with the
provisions contained in clause (a) of the third
proviso; or
(B) invested or deposited its funds in
accordance with the provisons contained in
W.P.(C) Nos.10881/2009 & 1735/2012 Page 3 of 13
clause (b) of the third proviso; or
(ii) the activities of such fund or institution or
trust or any university or other educational
institution or any hospital or other medical
institution-
(A) are not genuine; or
(B) are not being carried out in accordance with all
or any of the conditions subject to which it was
notified or approved,
it may, at any time after giving a reasonable
opportunity or showing cause against the
proposed action to the concerned fund or
institution or trust or any university or other
educational institution or any hospital or other
medical institution, rescind the notification or, by
order, withdraw the approval, as the case may be,
and for a copy of the order rescinding the
notification or withdrawing the approval to such
fund or institution or trust or any university or
other education institution or any hospital or other
medical institution and to the Assessing Officer."
3. The Director General, therefore, before cancelling a registration
already granted has to ensure and arrive at a finding that the
stipulations or pre-conditions mentioned in the aforesaid proviso are
satisfied.
4. The two impugned orders in question refer to the fact that the
petitioner has been conducting examinations like Management
Aptitude Test (MAT), screening and admission tests. MAT is a
national level test and the scores obtained in the said examination
were/are recognised by business schools for admission to their MBA
and allied programmes. The said exams were/are conducted four times
in a year. The petitioner charges fee from the
W.P.(C) Nos.10881/2009 & 1735/2012 Page 4 of 13
students who take the said examinations/tests. The petitioner had also
conducted admission and selection tests for screening of candidates for
admission to programmes, other than MBA and for induction of
employees at various levels in different organisations. For this
purpose, the petitioner was authorised and paid by the organizations
including government bodies like Air India. This, according to the
Director General as mentioned in the impugned orders, showed and
established that the petitioner was not carrying on "solely educational
activities" and, therefore, did not qualify and meet the prescribed
parameters of Section 10(23C)(vi).
5. Section 10(23C) (vi) of the Act reads as under:-
"(23C) any income received by any person on
behalf of
(vi) any university or other educational
institution existing solely for educational
purposes and not for purposes of profit, other
than those mentioned in sub-clause (iiiab) or
sub-clause (iiiad) and which may be approved by
the prescribed authority."
6. The expression "educational purposes" used in the said section
has come up for interpretation in several cases and the test prescribed
are no longer res integra. A reading of the provision shows that a
university or other educational institution existing solely for
educational purposes qualify under the said clause. Secondly,
university or other educational institution should not be for the purpose
W.P.(C) Nos.10881/2009 & 1735/2012 Page 5 of 13
of profit. The second requirement is negative in nature, whereas the
first requirement is positive. A similar controversy had arisen in the
case of Council for the Indian School Certificate Examinations vs.
Director General of Income Tax reported in 188 (2012) DLT 553
(DB). In the said case reference was made to the decision of the Orissa
High Court in Secondary Board of Education Vs. ITO, (1972) 86 ITR
408 (Orissa) wherein it has been held that the Board in question was
created to control secondary education, prescribe courses of study and
award certificates to the successful candidates. It was also conducting
examinations, etc. The High Court held that the Board was an
educational institution and rejected the contention that the fee, etc.
constitutes and should be regarded as activities for purpose of profit.
Reference was also made to Assam State Text Book Production and
Publication Corporation Ltd. v. CIT, (2009) 319 ITR 317 (SC)
wherein decision in Secondary Board of Education (supra) was
referred to and the Supreme Court approved the principle and ratio
enunciated therein. It was held that the said corporation was engaged
in educational purposes and, therefore, as an educational institution
was entitled to exemption under Section 10 (22) of the Act. Both in
the case of Secondary Board of Education and Assam State Text
Book Production and Publication Corporation Ltd.B (supra), the two
institutions were not engaged in directly imparting education to
W.P.(C) Nos.10881/2009 & 1735/2012 Page 6 of 13
students or conducting teaching classes.
7. Similarly, Madhya Pradesh High Court in CIT Vs. M.P. Rajya
Pathya Pustak Nigam, (2009) 226 CTR (MP) 497 referred to several
decisions and has held that the term "educational purpose" was not
restricted merely to holding of teaching classes or lectures but
educational purpose is equally served when educational text books are
published. Accordingly, in the case of Council for the Indian School
Certificate Examinations it was observed as under:-
"7. ..................It is, therefore, clear that courts
have laid emphasis on the activity undertaken,
while construing or deciding whether or not a
particular institution can be regarded as an
educational institution. The courts have repeatedly
held that the holding of classes is not mandatory
for an institution to qualify and to be treated as an
educational institution. If the activity undertaken
and engaged is educational, it is sufficient.
8. When we apply the aforesaid principle to
the admitted nature of activity undertaken by the
petitioner, we have no hesitation in quashing the
impugned order dated 08.10.2008 and holding that
the petitioner is an educational institution. Writ of
certiorari is accordingly issued............."
8. There is one more reason why the submission of the petitioner
deserves acceptance. The petitioner has drawn our attention to the
objects and purpose for which the petitioner society was setup. The
main objects and reasons are as under:-
"i) Propagation of professional management
in India.
W.P.(C) Nos.10881/2009 & 1735/2012 Page 7 of 13
ii) To be and act as the apex body of the
management profession and to enrol as its
members, local management associations,
government departments, corporate bodies,
institutions, professional individuals.
iii) To undertake on its own and/or in
collaboration with other educational and research
institutions, education, training and research for
the promotion and development of scientific
management.
iv) To organise, hold and conduct meetings,
group discussions, lectures, speeches,
workshops, clinics, research projects, seminars,
conferences, study programmes for the purpose
of exchange and dissemination of information
and ideas.
v) To organise classes for imparting
education and training and to hold and conduct
examinations or test in one or more aspects of
management either by itself and/or in
collaboration with other institutions having
similar objects in such manner as may be
considered necessary and to award certificates,
diplomas, etc.
vi) To collect, analyse, collate, tabulate and
circulate data, statistics, information etc., relating
to or connected with any discipline of
management;
xxxxxxxxxx
xxiv) To make available the benefits of its
activities to the public at large without restricting
the same only to the members of the AIMA; and
xxv) The society shall be a non-profit making
organisation and its income shall be utilised for
promotion of its aims and objectives."
9. Thus, the petitioner carries on varied and different activities and as
a part of the activities also conducts aptitude, screening and selection
tests. These tests cannot and should not be considered or be cynosure
W.P.(C) Nos.10881/2009 & 1735/2012 Page 8 of 13
in isolation, but as a part of their overall activities. This apart, the
Revenue has not stated that the petitioner's Articles of Association,
activities or their actual purpose has undergone any change from the
date of setting up in 1960. The petitioner has continued to carry on the
same "activities" through the passage of time. One of the activities
undertaken by the petitioner was/is to conduct examinations and
several candidates participate in the said examinations. Results
secured help the colleges select students for further studies. Course
material, syllabus, contents of papers, question paper etc. are
insegregate part and parcel of the education system. Therefore, as
held above, the petitioner cannot be denied the character of "other
education institution" because it conducts examinations or tests.
10. At this stage, learned counsel for the respondents has drawn our
attention to the findings recorded in the order dated 28 th February,
2012. The said findings read as under:-
"13. The second activity of assessee is
professional development programme from which
assessee has earned income of Rs.6,52,82,034/-
and Rs.6,10,23,991/- for the A.Y. 2008-09 and
2009-10 respectively. Under this head, the
assessee is engaged in conducting short terms
management development programme for two to
three days. These programmes are organized in
various hotels across the country for various
corporate for which fees is being collected from
the corporate regarding the candidates nominated
by them. In these programmes, no degree or
diploma is awarded. These are programmes only
W.P.(C) Nos.10881/2009 & 1735/2012 Page 9 of 13
for two to three days and cannot be termed as
imparting of education as understood in view of
decision of Hon'ble Supreme Court in the case of
Sole Trustee, Lok Shikshan Trust Vs. CIT, 101
ITR 234, as by these short term programmes
assessee is not training and developing the
knowledge, skill and character of the students by
normal schooling. Every imparting of
information cannot be termed as education, in
view of this decision. Thus, the programmes
organized by assessee for various corporate to
provide information to the candidates nominated
by such corporate cannot be termed as educational
activity. It is a professional consultancy activity
of rendering services of organizing specialized
development programmes for fees recoverable
from the parties for whom such programmes are
organized. It is therefore held that the
professional development programmes is not the
part of educational activity, but is an activity of
deriving profit from business and profession.
Claim of assessee of this activity being education,
is therefore rejected.
14. Having held that Management Services
& Professional Development Programmes are not
educational activities but are activities deriving
profit from business and profession, it has to be
examined whether assessee maintains separate
books of accounts for such activities, as required
by the proviso below section 10(23C) whether the
assessee is maintaining separate books of
accounts or not is a matter of fact. The assessee
was asked to produce the books of accounts,
which were produced as per details mentioned in
order sheet entries dated 20.01.2012 and
08.02.2012 for the AY 2008-09 and 2009-10
respectively."
11. We have considered the said observation but the said findings
are general and vague findings. They are conclusions without referring
to full facts, contentions and legal position. In depth and proper
W.P.(C) Nos.10881/2009 & 1735/2012 Page 10 of 13
verification or examination is required to be made before it is held or
observed that the activities of the petitioner were not genuinely
charitable or were not being undertaken in accordance with the
provisions of Section 10(23C)(vi). This necessarily entails and
requires petitioner's cooperation and furnishing of full details. General
observations should not and cannot become the basis of invoking 13th
proviso to Section 10(23C). While examining the said aspect, the
Director General has to keep in mind the decision and ratio in ICAI
Accounting Research Foundation & Anr. Vs. Director General of
Income Tax (Exemptions) & Others, 2009 VII AD (Delhi) 586 and
decision dated 19th November, 2011 in W.P.(C) 9986/2009, All India
J.D. Educational Society Vs. Director General of Income Tax
(Exemptions) Delhi in which terms "business" and "charity" have
been elucidate and explained.
12. In view of the aforesaid position, we are inclined to pass an
order of remit. The Director General will keep in mind the
observations made in the two decisions and other cases, while deciding
all aspects and questions.
13. Another incidental issue raised is whether the petitioner was
maintaining separate books of accounts. The requirement to maintain
separate books of account is stipulated in the 7 th proviso to Section
10(23C) of the Act. The said proviso applies only if the authority
W.P.(C) Nos.10881/2009 & 1735/2012 Page 11 of 13
comes to the conclusion that the charitable institution is incidentally
carrying on business for the purpose of attainment of objects. It is only
in these circumstances that separate books of account are required to be
maintained. Another aspect which arises is what is meant by the term
"separate books of account"? The primary requirement is that the
authority should be in a position to ascertain and know the income
earned through incidental activity of business and there should not be
overlapping or confusion relating to business activity and charitable
activity. This is necessary as there are stipulations of application of
funds for charitable activities and certain percentage of expenditure or
outgo for charitable purposes is required under the Act. Full and fair
earnings relating to business and amounts relating to charity should be
ascertainable from the "separate books of accounts".
14. As we have passed an order of remit, the Director General can
also examine the aforesaid question. It is open to the petitioner to
plead that the petitioner's returns for the earlier years have been duly
accepted by the Assessing Officer without any objection or observation
that the maintenance of accounts was defective and separate books
were not maintained for the "incidental business". We also note that
the petitioner has submitted that the Director General has accepted and
issued exemption notification under Section 80G of the Act dated 4th
March, 2010. Accordingly, it is submitted that there is contradiction in
W.P.(C) Nos.10881/2009 & 1735/2012 Page 12 of 13
the impugned orders, specially, in the order dated 29th July, 2009, as
exemption under Section 80G was issued and granted subsequently.
This aspect can be also highlighted at the time of hearing before the
Director General.
15. In view of the aforesaid discussion, we allow the present writ
petition and writ of certiorari is issued quashing the orders dated 29th
July, 2009 and 28th February, 2012 and an order of remit is passed.
The Director General of Income Tax (Exemptions) while deciding the
issue will consider the observations made above but can ascertain full
and true facts and after applying legal ratio, decide the question of
cancellation afresh. The petitions are disposed of. No costs.
SANJIV KHANNA, J.
SANJEEV SACHDEVA, J.
NOVEMBER 12, 2013
NA/VKR
W.P.(C) Nos.10881/2009 & 1735/2012 Page 13 of 13
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