Cwjc/20296/2010 Of Bihar State Text Book Publishi v. The Commissioner Of Income Tax-I, Patna

IN THE HIGH COURT OF JUDICATURE AT PATNACivil Writ Jurisdiction Case No.20296 of 2010 ====================================================== Bihar State Text Book Publishing Corporation, a Corporation incorporatedunder the Company Act, 1956 having its office at Budh Marg, P.S.Kotwali,Distt., Patna, through its Registrar Cum Secretary Basant Kumar S/O ShriSatrughan Prasad Kunwar R/O Budh Marg, P.S.Kotwali, Distt.-Patna. ... ... Petitioner/s Versus 1.The Commissioner of Income Tax-I, Patna, having its office at CentralRevenue Building, Birchand Patel Marg, Patna-800001. Revenue Building, Birchand Patel Marg, Patna-800001. 2.Asst. Commissioner Of Income Tax, Circle-2, Having Its Office At CentralRevenue Building (Annexe), Birchand Patel Marg, Patna-800001.Revenue Building (Annexe), Birchand Patel Marg, Patna-800001. ... ... Respondent/s ======================================================Appearance :For the Petitioner/s: Mr.D.V.Pathy, Advocate. For the Respondent/s: Mrs. Archana Sinha, Advocate. ====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE and HONOURABLE MR. JUSTICE S. KUMARORAL JUDGMENT(Per: HONOURABLE THE CHIEF JUSTICE) Date : 04-09-2020 The sole issue arising consideration in the presentproceedings is as to whether the petitioner is entitled toexemption in terms of Sections 10 sub Section 23C(iiiab) of theIncome Tax Act or not. Certain facts are not in dispute. The petitioner,namely, Bihar State Text Book Publishing Corporation,incorporated under the Companies Act, 1956, is wholly ownedby the Government of Bihar and as such is an instrumentality ofthe State. It undertakes activities of printing, publishing anddistribution of textbooks under the State. Before this Court it is also not in dispute that the petitioner was incorporated solely foreducational purpose. Also, it is wholly or substantially financedby the Government. However, whether it generates profit or isestablished to generate profit, needs to be examined. It is also not in dispute that petitioner received anotice dated 28.1.2010 (Annexure-1) issued under Section 148of Income Tax Act, 1961 (hereinafter referred to be as ‘theAct’), by the Assistant Commissioner of Income Tax, Circle-2,Patna, informing his reasons to believe that income assessable ischargeable to tax for the assessment year 2006-07 and as to whyit be not so done. Petitioner assailed the said notice by filing theinstant petition on 30.11.2010 and vide interim order dated21.12.2010, this Court, directed the Revenue not to take anycoercive action pursuant to any order of re-assessment whichmay be passed in such proceedings. It is a matter of record that pending considerationof the present petition, assessment proceedings were concludedwith the passing of assessment order dated 23.12.2010 byAdditional Commissioner of Income Tax, Range-2, Patna,(Annexure-10) which is placed on record vide separateapplication. As is evident from the said order, the petitionerreceived subsidy @ 50% on the general sales amounting to Rs.8 crore 43 lakh (approximately). Hence the Assessing Officerdetermined the Income chargeable to tax amounting to beRs.7,66,06450/-. We notice, the impugned order of assessmentrunning into five pages. However, the Assessing Officer notdealt with anyone of the contentions raised on behalf of thepetitioner or assigned any reason for not applying the ratio oflaw laid down in several judicial decisions, particulars of which,stand referred to in paragraphs 3, 4, 6, 7 and 8 of the order itself. In fact, we find the order to be cryptic, assigningthe only reason of belief of the assessee receiving subsidy ongeneral sales under the programme termed as “Sarva ShikshaAbhiyan”, sufficient enough to reassess the scheme. Thisundisputedly is under a programme undertaken pursuant to andunder a policy decision of the Government and not any privateindividual. We notice, the impugned order of assessmentrunning into five pages. However, the Assessing Officer notdealt with anyone of the contentions raised on behalf of thepetitioner or assigned any reason for not applying the ratio oflaw laid down in several judicial decisions, particulars of which,stand referred to in paragraphs 3, 4, 6, 7 and 8 of the order itself. In fact, we find the order to be cryptic, assigningthe only reason of belief of the assessee receiving subsidy ongeneral sales under the programme termed as “Sarva ShikshaAbhiyan”, sufficient enough to reassess the scheme. Thisundisputedly is under a programme undertaken pursuant to andunder a policy decision of the Government and not any privateindividual. To begin with, Ms Archana Sinha, learned counselfor the Revenue, with vehemence, argued that petitioner had gotan alternative remedy of filing an appeal under the provisions ofthe Act and as such, must take recourse to such remedy. Notfinding favour with such submission, we called upon the learnedcounsel for the parties to argue the matter on merits. For at such a belated stage, we are not inclined, more so when the order ofassessment stands passed during the pendency of the instantproceeding, to relegate the parties for exhausting alternativeremedy, particularly as would unfurl from our discussionshereinafter, the impugned action is totally in violation of thestatutory provisions and judicial pronouncements. On merits, opposing the petition, Ms Archana Sinhalays much emphasis on the most recent decision on the issuerendered by Hon’ble Apex Court in (2016) 12 SCC 258 titledas Visvesvaraya Technological University Vs. AssistantCommissioner of Income Tax. Otherwise, she could not pointout as to how the petitioner was not fulfilling any one of theconditions prescribed under the Act.On the other hand, insupport of his submission, Sri D.V.Pathy, learned counsel for thepetitioner, while assailing the impugned order submitted that theissue in question is no longer res integra, as stands squarelysettled not only by this Court vide judgment dated 1.4.2011rendered in M.A. No. 425 of 2010 titled as Bihar State TextBook Publishing Corporation Vs. The Commissioner of IncomeTax-I, Patna but also by Hon’ble Apex Court in a case titled asAssam State Text Book Production and PublicationCorporation Limited Vs. Commissioner of Income Tax [(2009)XVII SCC 391]. At this stage, we may take note of the statutoryprovisions which we are called upon to examine with itsapplicability to the attending facts and circumstances. It standsextracted hereinbelow : "Income not included in total Income.10. In computing the total Income of aprevious year of any person, any incomefalling within any of the following clausesshall not be included……… …….(23C) any income received by anyperson on behalf of………. ……..(iiiab) any university or othereducational institution existing solely foreducational purposes and not for purposes ofprofit, and which is wholly or substantiallyfinanced by the Government.” The said provision was introduced with effect from1.4.1999 with the enactment of the Finance (No.2) Act, 2019. Prior to it, the statutory provision read differentlyand the Hon’ble Apex Court in (2015) 8 SCC 47 titled asQueen’s Educational Society Vs. Commissioner of IncomeTax examined the legislative history with the object sought tobe achieved, necessitating subsequent enactment. Reference ofthe legislative development is only in the context of thesubmission made by Ms Archana Sinha emphasizing the …….(23C) any income received by anyperson on behalf of………. ……..(iiiab) any university or othereducational institution existing solely foreducational purposes and not for purposes ofprofit, and which is wholly or substantiallyfinanced by the Government.” The said provision was introduced with effect from1.4.1999 with the enactment of the Finance (No.2) Act, 2019. Prior to it, the statutory provision read differentlyand the Hon’ble Apex Court in (2015) 8 SCC 47 titled asQueen’s Educational Society Vs. Commissioner of IncomeTax examined the legislative history with the object sought tobe achieved, necessitating subsequent enactment. Reference ofthe legislative development is only in the context of thesubmission made by Ms Archana Sinha emphasizing the significance and value which must prevail upon the Court, ininterpreting the object and purpose of the subsequent enactment.Section 10 of the Act stipulates that whilecomputing total Income from the previous year of any person, ifany income falls within any one of the clauses specified therein,the same shall not be included as an income for the purposes ofcomputation. One of the defined clauses allowing suchexpansion, with which we are concerned, stands reproduced(supra): The ingredients, sine qua non for making such aclause of exemption applicable are (a) the person must be aUniversity/other educational institution; (b) existing solely foreducational purpose, “and” (c) not for the purposes of profit;“and” (d) must be wholly or substantially financed by theGovernment. The Hon’ble Apex Court in Visvesvaraya case(supra) while taking note of its earlier decisions rendered inQueen’s Educational Society (supra) has already observed that ifa surplus of Revenue accrued is applied for educationalpurposes, then the educational institution can be said tofunctioning solely for educational purpose and not for thepurposes of profit. Also, the earlier principle enunciated in Queen’s Educational Society stands reiterated in the followingterms : “6. The relevant principles of law which willgovern the first issue i.e. whether an educationalinstitution or a university, as may be, exists onlyfor educational purpose and not for profit are nolonger res integra, having been dealt with by along line of decisions of this Court which havebeen elaborately noticed and extracted in arecent pronouncement i.e. Queen's EducationalSociety vs. Commissioner of Income Tax (2015)8 SCC 47). The principles that emanate from theviews expressed by this Court are set out inparagraph 11 in Queen's Educational Society(supra), which are extracted below: “11. Thus, the law common to Section 10(23C)(iiiad) and (vi) may be summed up as follows: (1) Where an educational institution carries onthe activity of education primarily for educatingpersons, the fact that it makes a surplus does notlead to the conclusion that it ceases to existsolely for educational purposes and becomes aninstitution for the purpose of making profit. (2) The predominant object test must be applied– the purpose of education should not besubmerged by a profit making motive. (3) A distinction must be drawn between themaking of a surplus and an institution beingcarried on “for profit”. No inference arises that merely because imparting education results inmaking a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arisesincidentally from the activity carried on by theeducational institution, it will not be cease to beone existing solely for educational purposes. (5) The ultimate test is whether on an overallview of the matter in the concerned assessmentyear the object is to make profit as opposed toeducating persons.” (2) The predominant object test must be applied– the purpose of education should not besubmerged by a profit making motive. (3) A distinction must be drawn between themaking of a surplus and an institution beingcarried on “for profit”. No inference arises that merely because imparting education results inmaking a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arisesincidentally from the activity carried on by theeducational institution, it will not be cease to beone existing solely for educational purposes. (5) The ultimate test is whether on an overallview of the matter in the concerned assessmentyear the object is to make profit as opposed toeducating persons.” 7. To the above principles, one further test aslaid down in CIT vs. Surat Art Silk ClothManufacturers' Assn. (1980) 2 SCC 31)andculled out in American Hotel and LodgingAssociation Educational Institute vs. CentralBoard of Direct Taxes and Others (2008 (10)SCC 509)may be added which is as follows:“In order to ascertain whether the institute iscarried on with the object of making profit ornot it is the duty of the prescribed authority toascertain whether the balance of income isapplied wholly and exclusively to the objects forwhich the applicant is established.” (Paragraph37) 8. The above principle has been specificallyreiterated in paragraph 19 of the decision inQueen's Educational Society (supra) in thefollowing terms: “The final conclusion that if a surplus is madeby an educational society and ploughed back toconstruct its own premises would fall out ofSection 10(23-C) is to ignore the language of thesection and to ignore the tests laid down in SuratArt Silk Cloth case [CIT v. Surat Art Silk ClothManufacturers' Assn.(1980) 2 SCC 31], Aditanarcase [Aditanar Educational Institution v. CIT[(1997) 3 SCC 346] and American Hotel &Lodging case [American Hotel & Lodging Assn.Educational Institute v. CBDT [(2008) 10 SCC509]. It is clear that when a surplus is ploughedback for educational purposes, the educationalinstitution exists solely for educational purposesand not for purposes of profit.” 9. In the present case, we find that during a shortperiod of a decade i.e. from the year 1999 to2010 the appellant University had generated asurplus of about Rs.500 crores. There is nodoubt that the huge surplus has beencollected/accumulated by realizing fees underdifferent heads in consonance with the powersvested in the University under Section 23 of theVTU Act. The difference between the feescollected and the actual expenditure incurred forthe purposes for which fees were collected issignificant. In fact the expenditure incurredrepresents only a minuscule part of the feescollected. No remission, rebate or concession inthe amount of fees charged under the differentheads for the next Academic Year(s) had been granted to the students. The surplus generated isfar in excess of what has been held by this Courtto be permissible (6 to 15%) in IslamicAcademy of Education and another vs. State ofKarnataka though the percentage of surplus inIslamic Academy of Education (supra) was inthe context of the determination of thereasonable fees to be charged by privateeducational bodies.” It is not in dispute that petitioner stands establishedfor educational purpose. It is also not in dispute that it is whollyand substantially financed by the Government. Applying theratio laid down in Queen’s Educational Society (supra), it alsocannot be said that the purpose and object of the petitioner is notto carry on the activity of education; established primarily foreducational purpose; and that, the purpose and object is notprofit making. Judicial notice can be taken on the fact that in theState of Bihar, petitioner Corporation is distributing books freeof cost to children studying in various Government schools. It is not in dispute that petitioner stands establishedfor educational purpose. It is also not in dispute that it is whollyand substantially financed by the Government. Applying theratio laid down in Queen’s Educational Society (supra), it alsocannot be said that the purpose and object of the petitioner is notto carry on the activity of education; established primarily foreducational purpose; and that, the purpose and object is notprofit making. Judicial notice can be taken on the fact that in theState of Bihar, petitioner Corporation is distributing books freeof cost to children studying in various Government schools. This Court, in Bihar State Text Book PublishingCorporation (supra), with respect to the very same petitioner,under identical circumstances, quashed and set aside the orderpassed by the Revenue, as confirmed by the Tribunal. We fail tounderstand as to why the Assessing Officer ignored such fact, by not taking cognizance thereof, particularly when attentionwhereof was invited. Equally we fail to understand as to whythe Revenue persisted in opposing the instant petition and notwithdraw its action, particularly when the said view of thisCourt was to their knowledge; never assailed; and attainedfinality. In the said decision, this Court also examined thelegislative development, i.e., repealing of the existing Sections10(22) and introducing a new provision, i.e., Section10(23C(iiiab)). It held that the instant petitioner was carrying onthe activity which squarely fell within the definition of Section10(15) of the Act (charitable purpose) and was dependent uponthe finance of the State. The Court was concerned with thefactual matrix where gross receipts from different sourcesreceived by the petitioner exceeded more than a crore but sincethe organization was carrying out such activity, which fellwholly and squarely within the ambit and scope, fulfilling allthe essential ingredients stipulated under Section 22 of the Act,action of the Revenue in initiating proceedings for assessmentof Income untenable in law. In fact, the Court answered thefollowing four questions in favour of the petitioner: “(i) Whether the Tribunal was correct in law inholding that the amount of Rs.8,23,15,167/- being the amount of subsidy receivable on saleof text books though not received either by theend of the final year or till date, could bebrought to tax as Income under the scheme ofthe Act? (ii) Whether the Tribunal was in error inapplying the ratio of the judgment of theHon’ble Supreme Court in Sahni Steel Case(supra) which is distinguishable on facts? (iii) Whether the Tribunal was in error inholding that the subsidy receivable from theState Government of Bihar on sale of text bookswas taxable on mercantile system of accountingwithout any appropriate consideration of the factthat such subsidy not having been received wasnot real Income and, therefore, not liable to tax?(iv) Whether the Tribunal erred in consideringthe fact that even otherwise sale of text bookwas an educational activity exempt from tax?” And while doing so it took note of an earlier decision renderedby Hon’ble Apex Court in Assam State Text Book (supra). We find favour with the submission made by SriPathy, that following observations in Assam State Text Book(supra), more so on facts and law, as is evident from paragraphs6, 9 and 10 of the said report, to be squarely applicable to theinstant case. “6. On going through the records, we find that theHigh Court has not taken into account the prior And while doing so it took note of an earlier decision renderedby Hon’ble Apex Court in Assam State Text Book (supra). We find favour with the submission made by SriPathy, that following observations in Assam State Text Book(supra), more so on facts and law, as is evident from paragraphs6, 9 and 10 of the said report, to be squarely applicable to theinstant case. “6. On going through the records, we find that theHigh Court has not taken into account the prior history of the case, particularly in the context ofincorporation of the Corporation under theCompanies Act, 1956, as a government company.Initially, as stated above, the assessee was a State-controlled Committee and Board, which wereattached to the office of the Director of PublicInstruction, State of Assam. It is only in the year1972, that the government company got constitutedunder Section 617 of the Companies Act, 1956.That, prior to 1972, the entire funding for theworking of the Committee/Board was done by theState of Assam and that even the ownership of theassets remained vested in the State of Assam andthat even the ownership of the assets remainedvested in the State of Assam which stoodtransferred to the Corporation in 1972, when it gotincorporated under the Companies Act, 1956. 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 theTamil Nadu Textbook Society and those of the respondentassessee are almost identical. It is also not shown to us thatthe surplus amount, if any, of the respondent assessee, isused for any other purpose or distributed to other members.The Commissioner of Income Tax (Appeals) as well as theTribunal have noticed that even if some amount remainssurplus, that is utilized only for the purposes of education.Thus, having regard to the concurrent findings of factrecorded by the Commissioner of Income Tax (Appeals)and the Tribunal and also taking note of the letter of theCentral 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 considerationmuch less a substantial question of law.” 10. Following the judgment of the Rajasthan HighCourt, we are of the view that, in this case, the HighCourt, in its impugned judgment, has not consideredthe historical background in which the Corporationcame to be constituted; secondly, the High Courtought to have considered the source of funding, theshareholding pattern and aspects, such as return oninvestment; thirdly, it has not considered the lettersissued by the CBDT which are referred to in thejudgment of the Rajasthan High Court grantingbenefit of exemption to various boards/societies inthe country under Section 10(22) of the Act;fourthly, it has failed to consider the judgmentsmentioned hereinabove; and lastly, it has failed toconsider the letter of the Central Government dated9.7.1973, to the effect that all State-controllededucational committee(s)/board(s) have beenconstituted to implement the educational policy ofthe State(s); consequently, they should be treated aseducational institution.” (emphasis supplied) Coming to the decision on which Ms ArchanaShahi vehemently relies upon, we notice that in Visvesvarayacase (supra) on facts the Court found the petitioner therein, notto be fulfilling the essential ingredients mandatorily requiredentitling applicability of the exemption clause. In fact, the Courtreiterated its earlier view in Queen’s Education Society case Coming to the decision on which Ms ArchanaShahi vehemently relies upon, we notice that in Visvesvarayacase (supra) on facts the Court found the petitioner therein, notto be fulfilling the essential ingredients mandatorily requiredentitling applicability of the exemption clause. In fact, the Courtreiterated its earlier view in Queen’s Education Society case (supra). It found the University established by the Governmentof Karnataka to be financed neither wholly nor substantially bythe Government. Nor was it dependent upon it for finance. Thefinance of the University from the Government was only to theextent of 1% and profit from the relevant year was surplus to theextent of 500 crores, which also was not ploughed back for anyactivity for which the University was set up; fulfilled its object;or fees of the students reduced. Also, profits generated were farmore than the permissible limits (6 to 15%) as laid down by inIslamic Academy of Education Vs. State of Karnataka[(2003) 6 SCC 697]. It is under these circumstances; the Courtheld that the mandate of the law of securing contributions fromthe Government source and not fees collected under the statuteto be Income not generated from the sources of finance of theGovernment. For all the reasons above, we agree with thesubmission made by Sri Pathy that the impugned action is notonly misconceived but wholly unsustainable and untenable inlaw. As such we quash the notice dated 28.1.2010(Annexure-1) issued by Assistant Commissioner of Income Tax,Circle-2, Patna as also consequential order dated 23.12.2010 sujit/- AFR/NAFRCAV DATEUploading DateTransmission Date (Annexure-10) passed by Additional Commissioner of Income Tax, Range-2, Patna. The writ petition stands allowed. No order as to costs. Interlocutory application, if any, stands disposed of. (Sanjay Karol, CJ) ( S. Kumar, J)