DELHI BUREAU OF TEXT BOOKS vs. DIRECTOR OF INCOME TAX (E)

Through: Ms. Prem Lata Bansal, Senior Advocate

with Ms. Nidhi Raman and Ms. Isha Khanna,

Advocates along with Mr. Ashok Kumar,

Accounts Officer, DBTB

versus

DIRECTOR OF INCOME TAX (E)

..... Respondent

Through: Mr. Rahul Kaushik, Senior standing

counsel.

And 35 +

ITA 812/2015

DELHI BUREAU OF TEXT BOOKS

..... Appellant

Through: Ms. Prem Lata Bansal, Senior Advocate

with Ms. Nidhi Raman and Ms. Isha Khanna,

Advocates along with Mr. Ashok Kumar,

Accounts Officer, DBTB

versus

DIRECTOR OF INCOME TAX (E)

..... Respondent

Through: Mr. Rahul Kaushik, Senior standing

counsel.

CORAM: JUSTICE S. MURALIDHAR JUSTICE CHANDER SHEKHAR

O R D E R %

03.05.2017

Dr. S. Muralidhar, J. 1. These four appeals by the Delhi Bureau of Text Books („the Assessee') under Section 260-A of the Income Tax Act, 1961 („Act‟) are directed against the common impugned order dated 23rd April 2015 passed by the

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Income Tax Appellate Tribunal („ITAT‟) in ITA Nos. 2362/Del/2010, 2363/Del/2010, 3796/Del/2011 and 56/Del/2013 for the Assessment Years („AYs‟) 2006-07, 2007-08, 2008-09 and 2009-10 respectively.

Questions of law 2. While admitting these appeals on 16th December 2015 this Court framed the following questions of law:

(i) Whether ITAT was correct in law and on facts in setting aside

the order passed by CIT (A) and thereby denying exemption to the

Assessee under Sections 11 and 12 of the Income Tax Act?

(ii) Whether the ITAT was correct in law and on facts in holding that

the activities carried out by the Assessee fall under the 4th limb i.e.,

“the advancement of any other object of General Public Utility” of the

definition of the term “charitable purpose” under Section 2 (15) of the

Act and not under the 2nd limb “education”?

(iii) Whether ITAT could re-examine the issue already decided by it vide order dated 30.09.1980 in favour of the Assessee for AY 1975- 76 and 1976-77, without referring the same to the large Bench particularly when there is no change in the activities carried out by the Assessee throughout these years?

Background facts 3. The background facts are that the Assessee is a society registered under the Societies Registration Act, 1860. It was set up by the Ministry of Education, Government of India as well as by the Government of NCT of Delhi („GNCTD‟). It was registered on 28th March 1970. The Assessee was set up to ensure timely supply of prescribed text books at fair prices to school students and to improve the quality of primary and secondary school education in Delhi schools.

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1) To aid and promote the advancement of education particularly

elementary and secondary education through production of high

quality text books and other instructional material such as teachers

hand-books, work books etc.,

2) To arrange for printing, publishing, stocking and distribution of

approved text books and other teaching learning materials,

3) To encourage through training or otherwise authors and writers of

text books and other teaching material,

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4) To undertake evaluation and research for improvement of

curricula, text books and other instructional material,

5) To make available at subsidized cost or free of cost or in some

other suitable manner text books and other learning material to the

children of economically weak families and similarly to make

teaching material and aid available to teachers at subsidized cost or

free of cost or in other suitable manner so as to promote better

teaching in Delhi Schools with the prior approval of Delhi Admin,

and

6) To obtain manuscripts of subject text books prepared by the Text

Book Branch of the Directorate of Education on such terms and

conditions as may be determined by the Director of Education for

printing, publishing and distribution in the Union Territory of Delhi.

Past tax history 8. The Assessee's income was exempt from tax under Section 11 of the Act during the AYs 1971-72 to 2005-06. When in AYs 1975-76 and 1976-77, the benefit of exemption from payment of income tax was denied by the concerned Assessing Officer („AO‟), the Assessee went in appeal before the Commissioner of Income Tax (Appeals) [„CIT (A)‟] who allowed the appeal and restored the exemption. The Revenue‟s appeals against the said order were dismissed by the ITAT vide order dated 30th September 1980 in ITA Nos.1239/Del/1979 & 4448/Del/1979. Those orders of the ITAT for AYs 1975-76 and 1976-77 attained finality. The net result is that continuously

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from AY 1971-72 to AY 2005-06 the Assessee has had the benefit of exemption from payment of income tax.

Order of the AO for the AYs in question 9. For AY 2006-07, the Assessee filed its return of income on 31st October 2007 declaring „Nil‟ income claiming exemption under Sections 11 and 12 of the Act. The AO called upon the Assessee to explain why the activity of publication and sale/purchase of books should not be treated as business activity. Secondly, the Assessee was asked whether it was maintaining books of accounts as mandated by Section 11 (4A) of the Act. The approach of the AO was to consider the Assessee as a „General Public Utility.‟ Referring to the decision of the Supreme Court in Sole Trustee Loka Shikshana Trust v. Commissioner of Income Tax (1975) 101 ITR 234 (SC), the AO observed that since the Assessee was earning huge profit margins of about 35.15%, the activity of publication and sale of books could not be said to be a „charitable activity‟. Accordingly, the AO treated the income from the sale and publication of books as taxable for each of the AYs in question.

Order of the CIT (A) 10. Aggrieved by the above order, the Assessee filed appeals before the CIT (A) who by order dated 31st March 2010 reversed the AO‟s decision. The CIT (A) noted that the AO had not returned a finding that the Assessee‟s activities were beyond the aims and objectives of the Society as per its Memorandum of Association & Rules. Once registration had been granted under Section 12 A of the Act, the AO could not re-examine the issue

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whether what was being carried on by the Assessee was a charitable activity under Section 2 (15) of the Act. The CIT (A) referred to the decision in ACIT v. Surat City Gymkhana (2008) 300 ITR 214 (SC).

(A) referred to the decisions in ACIT v. Surat Art Silk Cloth Manufacturers Association (1980) 2 SCC 31, Aditanar Education Institution v. ACIT (1997) 3 SCC 346 and ACIT v. Thanthi Trust (2001) 247 ITR 785 (SC).

Impugned order of the ITAT 13. Aggrieved by the above orders of the CIT (A), the Revenue went in appeal before the ITAT which by a common order allowed the appeals. The impugned order of the ITAT may be summarised as under:

(a) After perusing the income and expenditure statement for the AYs in question, the ITAT observed that the AO had rightly held that the activity of the Assessee was prima facie in the nature of a business

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activity of sale and purchase of books. The books had been sold at a huge profit margin about 40% which showed that the Assessee was engaged in the activities of earning profit. Accordingly, it was held that the activities of the Assessee society are in the nature of business and not charitable purpose. The decisions in Sole Trustee, Loka Shikshana Trust v. CIT (supra) and Oxford University Press v. Commissioner of Income Tax (2001) 247 ITR 658 (SC) were referred to.

(b) Even if the registration is granted to the Assessee under

Section 12 AA of the Act, the AO was not precluded from

examining whether the Assessee complied with the requirement of

Section 11 of the Act in every AY.

(c) The ITAT held that its earlier order dated 30th September 1980 for AYs 1975-76 and 1976-77 had not considered the income and expenditure statements filed by the Assessee for those AYs and other relevant evidence. It was observed that the facts on hand were different. It further held that the Assessee has not maintained separate books of accounts for its activities of sale and purchase of books for the AY in question and thus has violated the provisions of Section 11 (4A) of the Act. The Assessee had made accumulation in excess and “without specifying any purpose” and “was not wholly for the charitable purpose.” Reliance was placed on the decision of the Supreme Court in Nachimuthu Industrial Association v. CIT (1999) 235 ITR 190 (SC).

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Submissions on behalf of the Assessee 14. Ms. Prem Lata Bansal, learned Senior counsel for the Assessee, submitted that the ITAT erred in not appreciating the law governing the grant of exemption to a charitable institution as defined under Section 2 (15) read with Sections 11 (1) and 12 of the Act. Ms. Bansal submitted that in terms of the law explained in Sole Trustee, Loka Shikshana Trust v. CIT (supra), the Assessee‟s income was derived from activity that constituted „charitable purpose‟ which included „education‟. Ms. Bansal submitted that the ITAT had erred in affirming the view of the AO that the income was from „trade, commerce or business‟ and therefore, within the ambit of „general public utility‟. Ms. Bansal referred to the decision in Assam Text Book Production & Publication Corporation Limited v. CIT (2009) 319 ITR 317 (SC) which had reversed the view taken by the Gauhati High Court which, incidentally, was followed by the ITAT in the present case. Ms. Bansal also placed reliance on the decisions in CIT v. Rajasthan State Text Book Board (2000) 244 CTR 667 (Raj), Secondary Board of Education v. ITO (1972) 86 ITR 408 (Ori).

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(Exemptions) (2012) 347 ITR 99 (Del) where the dominant function of the institution was examined in order to determine whether its earnings were for charitable purposes.

(1992) 193 ITR 321 (SC)

Submissions on behalf of the Revenue

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question of eligibility of the Assessee to examine, Mr. Kaushik referred to the case law referred to by the ITAT and submitted that the AO was within his rights to again examine whether those conditions were satisfied in every one of the AYs in question.

Is the Assessee engaged in the activity of 'education'? 20. The Court first considers the question of the interpretation placed on the word „education‟ occurring in Section 2 (15) of the Act. The exclusive activity of the Assessee is the publication and printing of text books and their distribution to Government schools and schools of the MCD, NDMC, etc. This activity has continued uninterruptedly since the time of its inception, i.e., from AY 1971-72 onwards. The fact that the Assessee is a non-profit organisation is not in dispute. Its essential activities are administered by the BODs comprising of officers of the Government of India as well as GNCTD, in its ex officio capacity. The textbooks are provided by the Assessee to the students at subsidized rates. Even the textbooks books, reading materials and school bags are being distributed free to deserving students. The essential activity of the Assessee is

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connected with „education‟ and nothing else.

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23.1 In Assam State Text Book Production and Publication Corporation Limited v. CIT (supra), the facts were more or less similar. There, the Assessee which was initially constituted as „Central Text Book Committee‟ changed its name to the „Assam Text Book Committee‟ with ten members nominated by the State Government. The Board was then converted into a corporation in 1972. The entire share capital of the corporation was owned by the Government of Assam.

23.2 There again, the AO sought to deny exemption on the ground that the Corporation was not an „educational institution‟ under Section 10 (22) of the Act. According to the AO, during the relevant AYs, the Assessee “had income exclusively from publication and selling of text books to the students” and, therefore, the exemption was not available.

23.3 The High Court agreed with the AO and concluded 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 text books.” The High Court construed this as „profit-earning activity‟.

23.4 The Supreme Court disagreed with the High Court. It noted that “the aim of the said Corporation is to implement the State‟s policy on education”. It took note of the fact that in the year 1975, the CBDT had granted exemption under Section 10 (22) of the Act to the Tamil Nadu Text Books Society, which had performed activity similar to the Assessee. The Supreme Court also referred to the decision in Commissioner of Income Tax v.

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Rajasthan State Text Book Board (supra) as well as the decision of the Orissa High Court in Secondary Board of Education v. ITO (supra). It concurred with the approval of the following operative portion of the judgment in CIT v. Rajasthan State Text Book Board (supra):

"It is not disputed before us that the aims and objects of the Tamil

Nadu Text Book 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.”

23.5 The Supreme Court in Assam State Text Book Production and Publication Corporation Limited v. CIT (supra) concluded as under:

“Following the judgement of the Rajasthan High Court, we are of the

view that, in this case, the High Court, in its impugned judgement, 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 share-holding pattern and

aspects, such as return on Investment; thirdly, it has not considered

the letters issued by C.B.D.T. which are referred to in the judgement

of the Rajasthan High Court granting benefit of exemption to various

Board/Societies in the country under Section 10(22) of the Act;

fourthly, it has failed to consider the judgements mentioned

hereinabove; and lastly, it has failed to consider the letter of the

Central Government dated 9th July, 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.”

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(2009) 226 CTR 497 (MP) the Madhya Pradesh High Court held as under:

“17. From a perusal of the aforesaid decisions, it is lucid that for the

entitlement for getting exemption for the assessment year, it is

required to see the activities of the Assessee. That is the acid test. If

the income/profit is applied for non-educational purposes, it is

decided only at the end of the financial year. It is to be seen whether

the Assessee is engaged in any kind of educational activities. The

authorities which we have referred to above have laid down the

criteria under what circumstances an Assessee can claim exemption

being involved in educational purposes and how the income is spent.”

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General of Income-Tax (Exemptions) (2014) 362 ITR 436 (Del) the Court held the Council for the Indian School Certificate Examinations to be an educational institution and quashed the order which denied it exemption under Section 10 (23c) (vi) of the Act. It was reiterated as under:

“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.”

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Assessee under Section 11 and Section 12 of the Act. The ITAT erred in holding that the activities carried out by the Assessee fell under the 4th limb of Section 2 (15) of the Act, i.e., „the advancement of any other object of general public utility‟ and that its activities were not solely for purpose of advancement of „education‟. Questions (i) and (ii) framed by the Court are, therefore, answered in the negative, i.e., in favour of the Assessee and against the Revenue.

Consistency 29. On the issue of consistency, the Court notes that in the present case, continuously from AYs 1971-72 till 2005-06, exemption had been granted to the Assessee under Sections 11 and 12 of the Act. When for AYs 1975-76 and 1976-77 the AO sought to take a different view, the ITAT reversed that view and the decision of the ITAT was not challenged further by the Revenue. Apart from the fact that the Assessee was earning more profits from its essential activity of education, there was no change in the circumstances concerning the said activity since AY 2005-06 to warrant a different approach in the AYs in question.

"We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging

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the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.

"On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter - and if there was no change it was in support of the Assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken."

"Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the Plaintiff and traversable by the Defendant, has not been traversed. In that case also a Defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken."

"31. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the Assessee and did not pursue the matter any further but in respect of some

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assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers' money in pursuing litigation for the sake of it."

S. MURALIDHAR, J

CHANDER SHEKHAR, J MAY 03, 2017/Rm