My institution is a statutory regulator that charges fees for coaching and placement and ends up with a surplus — does that make it a trade or business under the proviso to section 2(15)?
No. The Delhi High Court held that a body incorporated to regulate a profession, which imparts education and training as part of that statutory function, is not carrying on trade, commerce or business merely because it charges fees and generates a surplus. Coaching classes and campus placement interviews were held to be activities in furtherance of the Institute's main object, so they are neither business nor services rendered in relation to any trade, commerce or business. The orders refusing exemption were set aside and the Director General was directed to recognise the Institute under section 10(23C)(iv) for assessment years 2006-07 to 2011-12.
Decided by the High Court (High Court of Delhi — Badar Durrez Ahmed, Acting Chief Justice, and Vibhu Bakhru J (judgment by Vibhu Bakhru J)) on 2013-07-04, reported as W.P.(C) Nos. 3147/2012, 3148/2012 and 7181/2012 (Delhi High Court). It bears on section 2(15), section 10(23C)(iv), section 11, section 13 of the Income Tax Act 1961, in Charitable Trusts & Exemption and Capital Gains Exemptions matters.
This is the leading case on regulators and the proviso to section 2(15), and it settles two things for any statutory or professional body. First, activities carried on to discharge a function Parliament has assigned are not converted into business by the charging of a fee — the Court adopted the reasoning of Bureau of Indian Standards, which refused to read 'rendering any service in relation to trade, commerce or business' widely enough to catch regulatory and sovereign authorities acting as agencies of the State. Second, dominant object and profit motive remain the tests, and the absence of a profit motive, while not conclusive, indicates that no business is being carried on. It also shows how to use the accounts: the Institute demonstrated that salaries and depreciation exceeded the coaching surplus and that study material and library facilities came at no material extra cost.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner is a body corporate constituted under section 3 of the Chartered Accountants Act 1949. It had been treated as established for charitable purposes since incorporation, and had been notified under section 10(23C)(iv) from time to time, the last notification of 18 October 2004 covering assessment years 2003-04 to 2005-06 on the usual conditions. Applications for renewal for later years drew no response. Meanwhile the Assessing Officer took up the return for assessment year 2006-07 in scrutiny and assessed income of about Rs 33.48 crore with tax of about Rs 14.97 crore, on the footing that holding coaching classes for students preparing for the Institute's own examinations, for a fee, was business, that separate books had not been kept for it, and that an outstanding balance of Rs 5.65 crore against the ICAI Accounting Research Foundation was an investment outside the modes permitted by section 11(5), violating section 13(1)(d). The Institute answered that coaching was part of conducting the accountancy course, and that the amount with the Foundation — a section 25 company set up to establish a university in Rajasthan for accountancy education — was application of funds towards its own objects. Both contentions were rejected on 31 December 2008, and a similar assessment followed for 2007-08. A section 263 order of 29 March 2010 took the same view for 2005-06; the Tribunal set it aside on 18 October 2010, holding the Institute's activity revolved around education and training for chartered accountancy, and the Delhi High Court dismissed the Revenue's appeal on 19 September 2011, reported at 347 ITR 86, against which a special leave petition was said to be pending. The Director General nevertheless refused exemption under section 10(23C)(iv) by orders of 13 April 2012 for 2006-07 to 2008-09 and for 2009-10 and 2010-11, and of 28 September 2012 for 2011-12. Those three similarly worded orders were challenged in these petitions.
The writ petitions were allowed. The impugned orders of 13 April 2012 and 28 September 2012 were set aside and the Director General was directed to recognise the Institute as eligible under section 10(23C)(iv), as an institution established for charitable purposes having regard to its objects and importance, for assessment years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12, subject to compliance with the other provisions of the Act. Parties were left to bear their own costs. On the merits, after examining the ICAI Act, the regulations framed under it and the Institute's actual activities, the Court held that the Institute carries on no business, trade or commerce. Imparting education in accountancy and conducting courses at pre-qualification and post-qualification level are activities in furtherance of the objects for which it was constituted; providing coaching classes and holding campus placement interviews for a fee are activities in relation to that main object, and so cannot be treated as rendering a service in relation to any trade, commerce or business. On the second limb, concerning funds provided to the ICAI Accounting Research Foundation, the Court noted that the Revenue had found no violation of section 13 — the Assessing Officer for 2008-09 had recorded that the activities fell within section 2(15) and no section 13 violation was found — that the Director General's impugned orders contained no such finding, and that no such contention was pressed before the Court, so that dispute too stood concluded in the Institute's favour.
The Court applied the dominant object test. It accepted that utilisation of income is no longer a relevant consideration given the express words of the first proviso to section 2(15), but held that the older learning on dominant object still governs the anterior question whether an entity is carrying on business at all: where the predominant object is to carry out the charitable purpose and not to earn profit, the purpose does not lose its character merely because some profit arises. Profit motive is not essential to a finding of business, but its existence is a vital indicator, and on the material the Institute's expenditure on salaries and depreciation exceeded the coaching surplus, while study material, library facilities, self-assessment CDs, model papers, online guidance and computer training were supplied at no material extra cost. Applying H. Abdul Bakhi and Bros., business connotes a course of dealings actually continued or contemplated with a profit motive, not for sport or pleasure; nothing on record contradicted the Institute's assertion that its activities were not fuelled by profit motive, and the absence of that motive, though not conclusive, indicated that no business was carried on. The functions performed are in the genre of public welfare and not for private gain. The Court then followed its own decision in Bureau of Indian Standards, which held that 'rendering any service in relation to trade, commerce or business' cannot receive so wide a construction as to enfold regulatory and sovereign authorities set up under statute and tasked to act as agencies of the State in public duties that private bodies cannot discharge, and that prescribing and enforcing standards is not trade or commerce merely because fees are charged. It also relied on the Tribunal's findings of 18 October 2010, affirmed by the Division Bench in 347 ITR 86, that the Institute is required by the 1949 Act and its regulations to provide education, training and monitoring of professional skills — no candidate may sit the professional examination without a certificate from the head of the coaching organisation — so that conducting classes is the discharge of a statutory function rather than a commercial activity.
The functions performed by the petitioner institute are in the genre of public welfare and not for any private gain or profit and in this view, it cannot be said that the petitioner is involved in carrying on any business, trade or commerce.
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Handle my notice → Ask a CA on WhatsAppNo. The Delhi High Court held that a body incorporated to regulate a profession, which imparts education and training as part of that statutory function, is not carrying on trade, commerce or business merely because it charges fees and generates a surplus. Coaching classes and campus placement interviews were held to be activities in furtherance of the Institute's main object, so they are neither business nor services rendered in relation to any trade, commerce or business. The orders refusing exemption were set aside and the Director General was directed to recognise the Institute under section 10(23C)(iv) for assessment years 2006-07 to 2011-12. This was decided by the High Court (High Court of Delhi — Badar Durrez Ahmed, Acting Chief Justice, and Vibhu Bakhru J (judgment by Vibhu Bakhru J)) and bears on section 2(15), section 10(23C)(iv), section 11, section 13 of the Income Tax Act 1961. It is reported as W.P.(C) Nos. 3147/2012, 3148/2012 and 7181/2012 (Delhi High Court). This is the leading case on regulators and the proviso to section 2(15), and it settles two things for any statutory or professional body. First, activities carried on to discharge a function Parliament has assigned are not converted into business by the charging of a fee — the Court adopted the reasoning of Bureau of Indian Standards, which refused to read 'rendering any service in relation to trade, commerce or business' widely enough to catch regulatory and sovereign authorities acting as agencies of the State. Second, dominant object and profit motive remain the tests, and the absence of a profit motive, while not conclusive, indicates that no business is being carried on. It also shows how to use the accounts: the Institute demonstrated that salaries and depreciation exceeded the coaching surplus and that study material and library facilities came at no material extra cost. If it applies to you, the first step is this: Trace each disputed activity back to the statute or constitution document that requires it, as the Institute traced coaching to its own regulations governing eligibility to sit examinations.
The petitioner is a body corporate constituted under section 3 of the Chartered Accountants Act 1949. It had been treated as established for charitable purposes since incorporation, and had been notified under section 10(23C)(iv) from time to time, the last notification of 18 October 2004 covering assessment years 2003-04 to 2005-06 on the usual conditions. Applications for renewal for later years drew no response. Meanwhile the Assessing Officer took up the return for assessment year 2006-07 in scrutiny and assessed income of about Rs 33.48 crore with tax of about Rs 14.97 crore, on the footing that holding coaching classes for students preparing for the Institute's own examinations, for a fee, was business, that separate books had not been kept for it, and that an outstanding balance of Rs 5.65 crore against the ICAI Accounting Research Foundation was an investment outside the modes permitted by section 11(5), violating section 13(1)(d). The Institute answered that coaching was part of conducting the accountancy course, and that the amount with the Foundation — a section 25 company set up to establish a university in Rajasthan for accountancy education — was application of funds towards its own objects. Both contentions were rejected on 31 December 2008, and a similar assessment followed for 2007-08. A section 263 order of 29 March 2010 took the same view for 2005-06; the Tribunal set it aside on 18 October 2010, holding the Institute's activity revolved around education and training for chartered accountancy, and the Delhi High Court dismissed the Revenue's appeal on 19 September 2011, reported at 347 ITR 86, against which a special leave petition was said to be pending. The Director General nevertheless refused exemption under section 10(23C)(iv) by orders of 13 April 2012 for 2006-07 to 2008-09 and for 2009-10 and 2010-11, and of 28 September 2012 for 2011-12. Those three similarly worded orders were challenged in these petitions. The matter was decided on 2013-07-04 by the High Court (High Court of Delhi — Badar Durrez Ahmed, Acting Chief Justice, and Vibhu Bakhru J (judgment by Vibhu Bakhru J)). On those facts the High Court held as follows. The writ petitions were allowed. The impugned orders of 13 April 2012 and 28 September 2012 were set aside and the Director General was directed to recognise the Institute as eligible under section 10(23C)(iv), as an institution established for charitable purposes having regard to its objects and importance, for assessment years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12, subject to compliance with the other provisions of the Act. Parties were left to bear their own costs. On the merits, after examining the ICAI Act, the regulations framed under it and the Institute's actual activities, the Court held that the Institute carries on no business, trade or commerce. Imparting education in accountancy and conducting courses at pre-qualification and post-qualification level are activities in furtherance of the objects for which it was constituted; providing coaching classes and holding campus placement interviews for a fee are activities in relation to that main object, and so cannot be treated as rendering a service in relation to any trade, commerce or business. On the second limb, concerning funds provided to the ICAI Accounting Research Foundation, the Court noted that the Revenue had found no violation of section 13 — the Assessing Officer for 2008-09 had recorded that the activities fell within section 2(15) and no section 13 violation was found — that the Director General's impugned orders contained no such finding, and that no such contention was pressed before the Court, so that dispute too stood concluded in the Institute's favour.
The Court applied the dominant object test. It accepted that utilisation of income is no longer a relevant consideration given the express words of the first proviso to section 2(15), but held that the older learning on dominant object still governs the anterior question whether an entity is carrying on business at all: where the predominant object is to carry out the charitable purpose and not to earn profit, the purpose does not lose its character merely because some profit arises. Profit motive is not essential to a finding of business, but its existence is a vital indicator, and on the material the Institute's expenditure on salaries and depreciation exceeded the coaching surplus, while study material, library facilities, self-assessment CDs, model papers, online guidance and computer training were supplied at no material extra cost. Applying H. Abdul Bakhi and Bros., business connotes a course of dealings actually continued or contemplated with a profit motive, not for sport or pleasure; nothing on record contradicted the Institute's assertion that its activities were not fuelled by profit motive, and the absence of that motive, though not conclusive, indicated that no business was carried on. The functions performed are in the genre of public welfare and not for private gain. The Court then followed its own decision in Bureau of Indian Standards, which held that 'rendering any service in relation to trade, commerce or business' cannot receive so wide a construction as to enfold regulatory and sovereign authorities set up under statute and tasked to act as agencies of the State in public duties that private bodies cannot discharge, and that prescribing and enforcing standards is not trade or commerce merely because fees are charged. It also relied on the Tribunal's findings of 18 October 2010, affirmed by the Division Bench in 347 ITR 86, that the Institute is required by the 1949 Act and its regulations to provide education, training and monitoring of professional skills — no candidate may sit the professional examination without a certificate from the head of the coaching organisation — so that conducting classes is the discharge of a statutory function rather than a commercial activity. In the words reproduced by the source cited on this page: "The functions performed by the petitioner institute are in the genre of public welfare and not for any private gain or profit and in this view, it cannot be said that the petitioner is involved in carrying on any business, trade or commerce."
It was decided by the High Court on 2013-07-04 and is reported as W.P.(C) Nos. 3147/2012, 3148/2012 and 7181/2012 (Delhi High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 2(15), section 10(23C)(iv), section 11, section 13, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The writ petitions were allowed. The impugned orders of 13 April 2012 and 28 September 2012 were set aside and the Director General was directed to recognise the Institute as eligible under section 10(23C)(iv), as an institution established for charitable purposes having regard to its objects and importance, for assessment years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12, subject to compliance with the other provisions of the Act. Parties were left to bear their own costs. On the merits, after examining the ICAI Act, the regulations framed under it and the Institute's actual activities, the Court held that the Institute carries on no business, trade or commerce. Imparting education in accountancy and conducting courses at pre-qualification and post-qualification level are activities in furtherance of the objects for which it was constituted; providing coaching classes and holding campus placement interviews for a fee are activities in relation to that main object, and so cannot be treated as rendering a service in relation to any trade, commerce or business. On the second limb, concerning funds provided to the ICAI Accounting Research Foundation, the Court noted that the Revenue had found no violation of section 13 — the Assessing Officer for 2008-09 had recorded that the activities fell within section 2(15) and no section 13 violation was found — that the Director General's impugned orders contained no such finding, and that no such contention was pressed before the Court, so that dispute too stood concluded in the Institute's favour. It arises in Charitable Trusts & Exemption and Capital Gains Exemptions matters, on section 2(15), section 10(23C)(iv), section 11, section 13 of the Income Tax Act 1961, and was decided by High Court of Delhi — Badar Durrez Ahmed, Acting Chief Justice, and Vibhu Bakhru J (judgment by Vibhu Bakhru J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put the cost side on record — salaries, depreciation, free study material, nominal charges — because the Court examined whether the surplus reflected a profit motive at all. Argue dominant object rather than the presence of receipts, and cite Bureau of Indian Standards where the body exercises regulatory or supervisory functions on the State's behalf. Watch the separate limbs of the Revenue's case: the section 13 investment objection was disposed of here only because the Department itself had found no violation, so deal with it on its own facts.
Validity check could not be completed. The judgment itself records that a special leave petition against the earlier Division Bench decision in the Institute's own case, reported at 347 ITR 86, was pending as at July 2013; what became of it was not checked. The Supreme Court has since considered the scope of the proviso to section 2(15) in relation to regulators and statutory bodies, and whether that decision preserves or modifies this reasoning was not examined. No later authority was read, and the source page records no citing decisions. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The harvested text is clipped: about 48,000 characters from the middle are not reproduced, covering the Director General's reasoning in the impugned orders, the parties' arguments in full and the earlier part of the Court's discussion including its treatment of the first proviso to section 2(15) itself. The opening facts and procedural history and the concluding reasoning and operative order are present, so the holding and its grounds are secure, but the intermediate reasoning has been read only in part — in particular, what the Court said about the words 'trade, commerce or business' in the proviso before paragraph 70 could not be read. No reporter citation is carried by the source, so the writ petition numbers are given instead. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petitions were allowed. The impugned orders of 13 April 2012 and 28 September 2012 were set aside and the Director General was directed to recognise the Institute as eligible under section 10(23C)(iv), as an institution established for charitable purposes having regard to its objects and importance, for assessment years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12, subject to compliance with the other provisions of the Act. Parties were left to bear their own costs. On the merits, after examining the ICAI Act, the regulations framed under it and the Institute's actual activities, the Court held that the Institute carries on no business, trade or commerce. Imparting education in accountancy and conducting courses at pre-qualification and post-qualification level are activities in furtherance of the objects for which it was constituted; providing coaching classes and holding campus placement interviews for a fee are activities in relation to that main object, and so cannot be treated as rendering a service in relation to any trade, commerce or business. On the second limb, concerning funds provided to the ICAI Accounting Research Foundation, the Court noted that the Revenue had found no violation of section 13 — the Assessing Officer for 2008-09 had recorded that the activities fell within section 2(15) and no section 13 violation was found — that the Director General's impugned orders contained no such finding, and that no such contention was pressed before the Court, so that dispute too stood concluded in the Institute's favour.
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We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
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Our society runs a college but also earns from hostels and events. Can we get 10(23C)(vi) approval?
The department accepted your position for years and has now reversed it. Can it?