The Supreme Court Division Bench of Chief Justice of India Uday Umesh Lalit, Justice S. Ravindra Bhat and Justice P S Narasimha, while deciding that educational institutions making profits and gains cannot claim Income Tax exemption under Section 10(23C) of the Income Tax Act, 1961, held that, statutory/professional bodies including the Institute of Chartered Accountants of India (ICAI) are eligible for income tax exemption as long as the amounts charged are nominal as to meet the costs of operations and functions.
It was held that the requirement of the charitable institution, society or trust etc., to ‘solely’ engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education.
The Institute of Chartered Accountants of India (ICAI) was represented by Senior counsel Arvind Datar.
The exponential increase in the number of members of ICAI was noted by the Supreme Court. “At the end of financial year 2005, the membership was 1.23 lakhs, which had increased to 1,86,440 on 31.03.2012. Likewise, there was an exponential growth in the students appearing in the examination – in 2005, it was 2,96,294, and on 31.03.2012, it had increased to 10,70,839.”
The Revenue highlighted that conducting courses leading to a professional qualification and charging fee for it is in the nature of a ‘service’, and all services in relation to trade, commerce or business squarely falls within the mischief of Section 2(15), which has to invalidate the Institute’s claim for exemption as a General Public Utility (GPU) charity.
During the hearings, rival contentions were made in regard to the facial nature of the public utility character of regulatory bodies.
In the Supreme Court’s judgement on the grounds of exemption available to educational institutions/trusts under Section 10(23C) of the Income Tax Act,1961, it was observed, “As things stand, the Institute is the only body which prescribes the contents of professional education and entirely regulates the profession of Chartered Accountancy. There is no other body authorised to perform any other duties which it performs. It, therefore, clearly falls in the description of a charity advancing general public utility”.
The Apex Court also clarified that, “It is important, at times, while considering the nature of activities (which may be part of a statutory mandate) that regulatory bodies may perform, whether the kind of consideration charged is vastly or significantly higher than the costs it incurs”.
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