[1994] 208 ITR 608 (PAT.)


Bihar Institute of Mining and Mine Surveying


Commissioner of Income-tax



DECEMBER 1, 1993




S.B. Sinha, J.—This application is directed against an order dated March 19, 1993, passed by the respondent whereby and wherein the petitioner's application filed under section 12A of the Income-tax Act, 1961 (hereinafter referred to as "the said Act"), was rejected.

According to the petitioner, it is a society registered under the Societies Registration Act. The certificate of registration is contained in annexure1 to the writ application. According to the petitioner, its principal objects, inter alia, are as follows :

"3. Objects for which the society is established : The society has been established for the promotion of science.

3.1. Particularly for instruction, research and development, study and diffusion of knowledge in the field of mining and mines surveying.

3.2. Study of allied subjects and their applications and to provide facilities for the exchange of information and ideas among the students of the institute.

3.3. Coaching, teaching and preparing students for appearing in various examinations, conducted by the Board of Mining Examination and/or A.M.I.E. (1) Section (A & B).

The petitioner's objects incidental or ancillary to the attainment of the main objects are as follows :

4.1. Establish a library in the institute consisting of books, pamphlets work or manuscripts.

4.2. Hold meetings class rooms and seminars.

4.3. Print, publish, sell, lend or distribute proceedings and reports for promotion of said subjects.

4.4. Encourage the operation of facilities for promotion of research and inventions in mining surveying and instruments and designs connected with such works.

4.5. Establish and maintain a full-fledged laboratory and research centre.

4.6. Acquire, own, use and dispose of any property/assets movable or immovable for and on behalf of the society and to receive, hold and disburse funds for the implementation and promotion of the aims and objects of the society.

4.7. Foster such other activities as would be conducive to the fulfilment of the above objectives.

4.8. To purchase and acquire property/buildings or construct buildings for the institute.

4.9. Establish coaching centre for the students of the institute, schools and other institutions.

4.10. To procure recognition/affiliation of the said school with appropriate Board.''

According to the petitioner, it is regularly running classes for imparting training in the following courses :

"4 years mine foreman/overman course ;

3 years mine surveyor's course ;

4 years engineering degree (A. M. I. E.), India ;

4 years engineering degree (I. E. T. E. Electronics and Telecommunication Engineering) ;

3 years Diploma in Electronics and Telecommunication on Engineering.''

According to the petitioner, it is one of the most important institutions for running classes and providing vocational training to the students. It is, therefore, contended that the petitioner's institute has regularly been imparting education in an organised and systematic manner and also for the advancement of objects of general public utility and in such a situation the petitioner is entitled to registration as a "charitable institution" in terms of section 12A of the said Act.

The petitioner has, therefore, contended that the respondent has committed an illegality in rejecting its application for grant of registration.

In this case a counter-affidavit has been filed wherein it has been stated that from a perusal of paragraph 3 of the memorandum of association, it would appear that the petitioner-institute is not precluded from carrying out the objects incidental and ancillary to clause (3) which includes carrying on of business. It was further submitted that the purported object for promotion of science is too vague and too general. It has further been submitted that although the word "charitable" includes education, the same must be held to mean systematic instruction, schooling or training and not for such vague purposes.

Mr. S. B. Gadodia, learned counsel appearing on behalf of the petitioner, has raised a short question in support of this application.

Learned counsel has submitted that the respondent has committed an illegality in passing the impugned order in so far as it failed to take into consideration the amendment carried out in section 12A of the said Act. Learned counsel further submitted that the respondent has also committed an illegality in relying upon the decision in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC). Learned counsel has further submitted that even if there is a profit motive in running the said institution, the same would come within the purview of section 12A of the Income-tax Act.

Mr. Debi Prasad, learned S. C. C. G., on the other hand, submitted that the word "education" must be confined to the meaning assigned thereto as contained in section 2(15) of the Act.

Section 2(15) of the said Act defines "charitable purpose". It says that charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.

Section 12A of the said Act lays down registration of trusts. Section 2(15), before its amendment made by the Finance Act, 1983, which came into effect on April 1, 1984, reads thus :

" 'Charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. "

From a comparison of the definition of "charitable purpose" as existed prior to April 1, 1984, and thereafter it is significant in so far as by reason of the said amendment, the words "not involving the carrying on of any activity for profit" have been deleted.

In the decision upon which the respondents have relied, namely, Sole Trustee, Loka Shikshana Trust's case [1975] 101 ITR 234 (SC), it was held as follows (at page 241) :

" The sense in which the word 'education' has been used in section 2(15) is the systematic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. . . . What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling."

It was further held that the trust in question was carrying on business having a profit motive.

The Supreme Court observed as follows (at page 244) :

" Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive. "

It is further evident that profit motive is not now one of the relevant considerations for coming to the conclusion as to whether the institution in question is a charitable institution or not.

In Laurence Arthur Adamson v. Melbourne and Metropolitan Board of Works, AIR 1929 PC 181, it was held (headnote) :

" The word 'charitable purpose' must be taken in its technical legal sense unless the contrary intention appears. "

In Commrs. for Special Purposes of the Income Tax v. John Frederick Pemsel [1891] AC 531, the House of Lords laid down a similar rule.

However, the Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 affirmed the decision in CIT v. Sole Trustee, Loka Shikshana Trust [1970] 77 ITR 61 (Mys) and held as follows (at page 248) :

" It appears to us that, with this profit-making background of the trust, its loosely stated objects, the wide powers of the sole trustee and the apparently profitable mode of conducting business, just like any commercial concern, disclosed not only by the terms of the trust but by the statement of total expenditure and income by the trustee, it is very difficult to see what educational or other charitable purpose the trust was serving unless the dissemination of information and expression of opinions through the publications of the trust was in itself treated as the really educational and charitable purpose. "

After the amendment has been carried out, test 'c' laid down by the Supreme Court in the aforementioned case will have no application.

In the case of CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC), the Supreme Court departed from the rules laid down in Pemsel's case holding that the said decision proceeded upon the interpretation of language different from the Indian statute. But having considered some other English decision, it proceeded to observe (at page 735) :

" This court, in a recent judgment Laxman Balwant Bhopatkar v. Charity Commissioner [1963] 2 SCR 625 ; AIR 1962 SC 1589, considered whether for the purposes of the Bombay Public Trusts Act (29 of 1950), a trust to educate public opinion and to make people conscious of political rights was a trust for a charitable purpose. The court held (Subha Rao J. dissenting) that the object for which the trust was founded was political, and political purpose being not a charitable purpose, did not come within the meaning of the expression 'for the advancement of any other object of general public utility' in section 9(4) of the Bombay Public Trusts Act, 1950. "

In the case of CIT v. Sorabji Nusserwanji Parekh [1993] 201 ITR 939, the Gujarat High Court was considering the matter of grant of exemption under section 10(22) of the Act and held that for that purpose, an educational institution or an institution must primarily engage itself in educational activity. The Gujarat High Court relied upon the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) and held (at page 945) :

" In the above context, it shall have to be seen as to what meaning should be given to the word 'education' which occurs in section 2(15) of the Act. In the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC), in the context of an institution carrying on activities to educate the people of India in general, and of Karnataka in particular, the Supreme Court had an occasion to deal with the definition of 'charitable purpose' to ascertain the meaning and scope of the word 'education' as it occurs in section 2(15) of the Act. It was in this context the Supreme Court observed as under (at page 241) . . .

" It becomes clear from the aforesaid provision that in order to be eligible to gain total exemption under section 10(22) of the Act, it is necessary that there must exist an educational institution. Secondly, such institution must solely exist for educational purposes, and thirdly, the institution should not exist for the purpose of profit. It is not disputed before us that the assessee is an institution which was existing at the relevant time. It is not necessary, therefore, for us to undertake the exercise of ascertaining the meaning of the word 'institution' and to find out as to whether the assessee is an institution or not. The Revenue has, however, seriously urged before us that the assessee was not an educational institution and was therefore not entitled to the total exemption under section 10(22) of the Act. "

The Supreme Court, upon consideration of a large number of decisions, held (at page 950) :

"From the aforesaid observations, it becomes clear that, in order to earn total exemption under section 10(22) of the Act, an assessee should be an educational institution or an establishment which primarily engages itself in educational activities. Though the words 'educational activities' are words of very wide amplitude, we would like to add that the element of imparting education to students or the element of normal schooling where there are teachers and taught must be present so as to fall within the sweep of section 10(22) of the Act. We would, at the same time, like to add that such an institution may, incidentally, take other activities for the benefit of students or in furtherance of their education. It may invest its funds in any manner it likes or it may provide scholarships or other financial assistance which may be helpful to the students in pursuing their studies. However, such incidental activities alone, in the absence of actual activity of imparting education by normal schooling or normal conducting of classes, would not be sufficient for the purpose of qualifying the institution to earn the benefit of section 10(22) of the said Act. "

In that case, therefore, it was held that such income of the institution was not being utilised for the activities of imparting education and, therefore, it is not entitled to the grant of exemption.

In this case, the school in question does not appear to be recognised by any authority.

It is true that by reason of the Finance Act, 1983, the question as to whether any charitable institution is being run with a profit motive or not has lost its relevance. However, the word "charitable" prefixing the word "institution" has to be given its full effect. It appears that one of the principal projects of the petitioner's institution has the object of coaching and preparing the students for appearing in various examinations conducted by the Board of Mining Examination and/or MI(1) section (a)(b) and the said coaching of students in an institute is not, in our opinion, an imparting of education which can be said to be a process of training and developing knowledge and character of students by normal schooling. A coaching institute cannot be said to be an institution where normal schooling is done. The definition of "charitable purpose" is inclusive and not exhaustive.

As indicated hereinbefore, the institution is being run for a specific purpose, namely, to prepare the students for appearing in various examinations, but it itself appears to be not authorised therefor, nor can it be said to have any element of normal schooling. If such a wide meaning is given to the word "education" so as to bring within its purview coaching institutions, it will defeat the purpose of the Act.

Even assuming that in view of the amendment in section 2(15) of the said Act, a profit motive is no longer a factor which should be taken into consideration, as, in our opinion, section 12A provides for an exemption clause, it is necessary that a person claiming an exemption has to prove that he is entitled thereto in terms of the provisions of this section.

Keeping in view the facts and circumstances of the case, therefore, in our considered opinion, the running of a private coaching institute for the purpose of training the students to appear at some specified examinations upon taking specified sum from the trainees would not bring the petitioner within the provisions of section 2(15) of the Act.

This application is, therefore, dismissed, but without any order as to costs.

Narayan Roy, J.—I agree.