HIGH COURT OF DELHI
Bureau of Indian Standards
Versus
Director General of Income-tax (Exemptions)
W.P. (C) No. 1755 of 2012
SEPTEMBER 27, 2012
JUDGMENT
S. Ravindra Bhat, J.
This judgment will dispose of a proceeding under Article 226 of the Constitution, whereby the writ petitioner, Bureau of Indian Standards (hereafter “BIS”) challenges the order dated 24.2.2012 passed by the respondent by which the exemption granted to it under section 10(23C)(iv) of the Income Tax Act, 1961 (“the Act”, in short) was withdrawn. BIS is a statutory body established under the Bureau of Indian Standards Act, 1986 (“the BIS Act”, in short). The question that this Court has to decide is whether the withdrawal of exemption under section 10 was justified.
2. The BIS had been granted exemption under Section 10 (23C). By the impugned order, the Director of Income Tax Exemption withdrew the same. The reasoning employed by the respondent in withdrawing the exemption available under section 10(23C)(iv) can be gathered from the following extracts:
“12. It is undisputed that the activities of BIS fall into the last limb of definition of charitable activity as envisaged u/s 2(15) of I.T. Act i.e. ‘advancement of object of general public utility.
13. …While deciding whether any assessee is engaged in trade or commerce or is rendering any service in relation to any trade and commerce, status and importance of the assessee are irrelevant considerations. That BIS is a body corporate incorporated by an Act of the Parliament and is managed by the very senior officers of Govt. of India are not valid grounds for taking a decision with regard to commercial activities carried on by the organization. There are a large number of government and semi-government organizations including Public Sector Undertakings where the shares are held by the government and the management and administration also vest with government officers. The profits of such organizations are treated as taxable like any other private entities engaged in trade and commerce.
15. The activities carried out by BIS fulfill all the attributes of business as BIS awarded the licenses under the various product certification schemes for which a fee or consideration is charged. These licenses are not transferable and awarded for specific period. While it is not mandatory for a person to have such a license, the facts of having a license and publishing it through advertising, hence increases the marketability of the product. This shows that the activities of the assessee are in the nature of business and hence covered by the proviso to section 2(15) of the Income Tax Act.
16. …It is not disputed that the BIS is engaged in these socially, economically desirable activities relating to promotion of Indian trade. In fact it is for this reason that the activities of the organizations are treated as advancement of objects of general public utility. This however, will not make any difference so far as application of the new proviso to Section 2(15) is concerned. So far as applicability of this proviso is concerned in respect of commercial activities, there is nothing in the Income tax Act to warrant differential treatment to a private entity and an organization claiming to be a public charitable institution.
18. As seen from the above, it is evident that the assessee has earned substantial amount of its income by way of Product Certification, Gold Hallmarking Certification, Systems certification, from outside companies, business firms, etc. towards granting licenses to them. Under the circumstances, the assessee is directly hit by the newly introduced proviso below section 2(15) of the Income Tax Act. Accordingly, there is no doubt that the activity of the assessee are in the nature of business and hence covered by the proviso below section 2(15) of the Income Tax Act, 1961.”
3. Learned counsel for BIS contended that it is an instrumentality of the state falling within the description, under Article 12 of the Constitution. It relied on provisions of the BIS Act, to say that BIS was established for the purpose of fixing standards to ensure that the public at large is assured of quality, in the larger good, and is not cheated; these functions are sovereign and regulatory provided for under Section 10 of the BIS Act. It was argued that the license fee received by BIS is not by reason of any service rendered to business industry, but due to the statutory conditions imposed to use the ISI mark conforming to the standards prescribed by the Central Government. This license fee is mandatory for business or industry if it wants to claim that its products conform to the standards prescribed by the Central Government. The BIS’s argument was that merely because there is a charge, its activities cannot be said to be commercial; an intention to make profits is essential, which is lacking in this case. This Court’s attention was drawn to Sections 22 and 23 of the BIS Act to convey the sovereign nature of the BIS. Section 26, BIS Act was highlighted to indicate the power of search and seizure, akin to those of investigative agencies of the government. To support his contentions, counsel relied on the decisions cited as Commissioner of Income Tax v. APSRTC, 151 (ITR) 1 and The Institute of Chartered Accountants of India and Anr v. The Director General of Income Tax (Exemptions) and Ors., Writ Petition (Civil) No. 1927 of 2010, decided on 19.09.201 (“ICAI case”, in short).
4. The revenue defended the impugned order contending that since the BIS collected license fee from those who were using the certification given by it, its activities were not charitable, and were instead commercial. Reliance was placed on the amended proviso to section 2(15) of the Act to contend that the BIS was engaged in “business activity” disentitling it from the exemption under section 10(23C)(iv) of the Act. It was also contended that even otherwise, the activities performed by the BIS were not leading to the advancement of any object of general public utility, and therefore, in any case, it did not fall within the scope of definition of charitable purpose as provided under section 2(15).
5. This Court has considered the submissions of the parties, and has perused through the impugned judgment. The relevant provisions of the Income Tax Act, 1961 are extracted hereunder:
“Section 10(23C)(iv):
“10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included
