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Petitioner: OXFORD UNIVERSITY PRESS VS Respondent: COMMISSIONER OF INCOME-TAX (and other JUDGMENT
Court Name: Supreme Court of India Judge(s): S. P. Bharucha, D. P. Mohapatra, I. Y. K. Sabharwal Title:OXFORD UNIVERSITY PRESS vs COMMISSIONER OF INCOME-TAX (and other
JUDGMENT
Reported As: 2001 PTD 2484 Result: Appeals dismissed Judgment JUDGMENT S.P. BHARUCHA, J.---These appeals by special leave are filed by the assessee. They impugn the correctness of the judgment and order of the High Court at Bombay, dated December 21, 1995 (see (1996) 221 ITR 77), in respect of the assessment year 1976-77 and subsequent orders of the High Court following the aforestated judgment for the assessment years 1972-73, 1973-74, 1974-75, 1977- 78, 1979-80 and 1983-84. The question that arose for consideration in reference to the High Court under section 256(1) of the Income-tax Act, 1961, read (page 79). "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Oxford University Press. Bombay, which is part of the Oxford University, is exempt under section 10(22) of the Income-tax Act, 1961?" The question was answered by the High Court in the negative and in favour of the Revenue. The assessee is a branch of the Oxford University Press, which, as the question itself notes, is a part of the University of Oxford in the United Kingdom. The assessee published books and carries on similar business in India. It was treated as a non-resident company under the terms of a notification issued by the Central Board of Revenue on July 31, 1954, at its request from the assessm ent year 1952-53 onwards. For the assessment year 1976-77, the assessee returned an Income of Rs.19.94 lakhs, but in the course of the assessment proceedings before the Income-tax Officer, it claimed that, as it was a branch of the University of Oxford, the same was exempt from the payment of income-tax by virtue of the provisions of section 10, clause (22), of the Income-tax Act, 1961. The Income-tax Officer rejected the contention and brought the income to tax. The Commissioner (Appeals), in the appeal tiled by the assessee, overturned the assessment by the
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Income-tax Officer. Aggrieved by the order of the Commissioner (Appeals), the Revenue approached the Income-tax Appellate Tribunal. The Tribunal dismissed the appeal. Arising out of the judgment and order of the Tribunal, the question aforestated was referred to the High Court. The High Court stated in the judgment and order under challenge that, admittedly, the assessee was the Oxford University Press and not the University of Oxford, but there was a finding of the Tribunal to the effect that the assessee was a part of the University of Oxford. In its view, what was necessary for availing of the benefit of the exemption under section 10(22) was that the income should be the income of an University or an educational institution existing solely for educational purposes and not for the purposes of profit. In the context and setting of clause (22), the word "existing" in the expression "existing solely for educational purposes and not for the purposes of profit" meant and referred to the existence of such University or institution solely for educational purposes in India. In other words, a University or an educational institution, whether established in India or abroad, had to retain the character of a University or an educational institution in India, and the income in respect of which the exemption was claimed that to be income derived by it in its capacity as a University or an educational institution. If it did not carry on its activities as a University or educational institution in India, it could not be regarded as a University or educational institution existing solely for educational purposes and hence, the income derived by it from any other activities would not qualify for exemption under section 10(22). The assessee was the Oxford University Press and not the University of Oxford. The University of Oxford did not exist in India nor did it carry on the activities of a University in India. What existed in India was the Oxford University Press. The only activity carried on by the Press, which was the assessee, in India was the activity of printing and publishing books and selling them as well as publications of other publishers to earn profit. This activity amounted to carrying on the business of selling or supplying books for profit. Income made therefrom could not be regarded as the income of a University existing solely for educational purposes merely because the assessee claimed to be a part of the University of Oxford, which did not exist in India. The High Court added, (page 87): "If it does not exist as a University or an educational institution solely for such purposes and does not carry on the primary activities of a University or educational institution, but merely runs the business of press in India for printing and publishing books and selling and supplying the same as well as books published by other publishers for the purpose of profit, it cannot be held to be a University within the meaning of section 10(22) of the Act merely by reason of the fact that it is run by a University existing outside India for educational purposes or that it is a part of such University... If the case of the assessee is that in the true sense of the term it is a part and parcel of the Oxford University and has no independent existence of its own, and all its income is the income of the said University the assessee for the purpose of the Income-tax Act would have been the Oxford University and not the Press. The Press as an assessee might have been entitled to claim exemption in respect of its income under section 10(22) of the Act if it could establish that the income is the income of the Oxford University which existed solely for educational purposes." On this basis, the High Court held against the assessee. Section-10. Clause (22), reads thus: "10. Income not included in total income.---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:- (22) any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit." By reason of section 10(22) any income of a University or other educational institution, existing solely for educational purposes and not for purposes of profit, is not includible in its total income. A University is the creation of a charter or a statute. It is created exclusively for educational purposes. And not of profit. An educational institution, while it may impart education, may yet have a profit
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motive. Strictly speaking, therefore, the phrase "existing solely for educational purposes and not for the purposes of profit" in clause (22) qualifies only the words "other educational institution" and not the words "a University". But this strict interpretation is of no great account for the purposes of this case, and the expression may be read to qualify both "a University" and "other educational institution." For the purposes of obtaining the exemption under clause (22), the University must be "existing solely for educational purposes and not for the purposes of profit". What this means is that the sole purposes of a University must be to impart education and not at all to make profit. The word "existing" in the context means "being". It has no locational sense. The clause does not say "existing in India" and the words "in India" cannot be read into it. The clause does not require that the University must impart education in India before it can qualify for exemption thereunder. The High Court was in error in interpreting the clause differently. The High Court failed to appreciate that the assessee was a part of the University of Oxford, as the Tribunal had found and the question before it indicated, and that the income that was under consideration for assessm ent was, therefore, the income of the University of Oxford. The "person" that was being taxed was not and could not be a branch of the University of Oxford; it could only be the University of Oxford. That the University of Oxford is a hallowed institution of learning that exists, or is, solely for an educational purposes is not, and cannot reasonably be, in dispute. That the income is derived by the printing, publishing and selling of books has no relevance because it is still the income of an University that exists for educational purposes. It is trite law and now needs no authority that a taxing statute must be read as it stands: no words may be added, no words subtracted. Further, learned counsel for the assessee was right in pointing out that where Parliament had intended the exemption under section 10 to be limited in any way to the territory of India it had been assiduous in so stating: (see for example, clauses (20A), (22B), (23), (24), (26) and (29) thereof). It was submitted by learned counsel for the Revenue that the word "University" used in section 10(22) should be read in the manner in which it was defined in section 2(f) of the University Grants Commission Act, 1956, that is to say, to mean a University established or incorporated by or under a Central Act, a Provincial Act or a State Act: in other words, to mean an Indian University. It is not permissible to read the definition of a word in one Act into another Act unless the latter Act so requires. It is all the more difficult when the University Grants Commission Act, can by its very purpose namely, to make provision for the co-ordination and determination of standards in universities and for that purpose to establish a University Grants Commission, apply only to universities in India. Further, a clause identical to clause (22) was inserted into the Indian Income- tax Act, 1922, by a Notification, dated March 21, 1922 and that clause in the 1922, Act was in terms brought into the 1961 Act. A definition in an Act of 1956 cannot be read to limit the scope of a word first used in an Act of 1922 and then incorporated in an Act of 1961. Learned counsel for the Revenue then drew attention to section 10(22A), which reads thus: "(22A) any income of a hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness, or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing, solely for philanthropic purposes and not for purposes of profit." In the submission of learned counsel for the Revenue clauses (22) and (22A) could not have been intended to grant the exemption for the benefit of children and the sick and infirm outside India. Parliament in his submission, would not forgo tax revenue for the benefit of educating people in the University of Oxford in the United Kingdom. A construction that would enable this to happen was he contended, manifestly unreasonable and absurd and could never have been intended. It was, therefore, necessary to read clause (22) as applying only to Universities and educational
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institutions which existed in India or, at least, imparted education in India. Our attention was drawn by learned counsel for the Revenue to the judgments of this Court in K.P. Varghese v. ITO (1981) 131 ITR 597 and CIT v. J.H. Gotla (1985) 156 ITR 323 (SC) in support of the contention. In K.P. Varghese's case (1981) 131 ITR 597 (SC), the assessee owned a house which he had purchased in 1958 for the price of Rs.16,500. In 1965, he sold the house for the same price of Rs. 16,500 to his daughter-in-law and five children. It was not disputed that this sale was an honest and bona fide transaction and that the consideration was in fact Rs.16,500. However, after completion of the assessm ent for the year 1966-67 in the normal course in this manner, the Income-tax Officer issued a notice to reopen the assessment on the basis that section 52(2) of the 1961 Act was attracted because the fair market value of the property as on the date of the transfer exceeded the consideration of Rs.16,500 by not less than 15 per cent. The Income-tax Officer proposed, accordingly, to fix the fair market value of the house at Rs.65,000 and assess the difference of Rs.48,500 as capital gains in the hands of the assessee. The assessee filed a writ petition. It-was allowed, but in appeal, the Full Bench of the Kerala High Court (ITO v. K.P. Varghese (1973) 91 ITR 49) accepted as correct the Income-tax Officer's view. This Court reversed the Full Bench decision, and it said that if subsection (2) of section 52 was literally construed, as applying to cases where the consideration in respect of the transfer was correctly declared and there was no understatement of consideration, it would result in amounts being taxed which had neither accrued to the assessee nor were received by him and (page 617); "which from no view point can be rationally considered as capital gains or any other type of income. It is a well-settled rule of interpretation that the Court should as far as possible avoid that construction which attributes irrationality to the Legislature." It was also found that so construed, subsection (2) was violative of the Constitution and the Court (page 618): "must obviously prefer a construction which renders the statutory provision constitutionally valid rather than that makes it void." The Court said in the course of the judgment (page 605): "It is now a well settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, he Court may modify the language used by the Legislature or even do some violence to it, so as to achieve the obvious intention of the Legislature and produce a rational construction". Accordingly,.The Court read into section 52(2) the condition that it would apply only where the consideration for the transfer was understated and it would have no application in the case of a bona fide transaction when the full value of the consideration was correctly declared by the assessee. In J.H. Gotla's case (1985) 156 ITR 323 (SC), a strict and literal construction of section 16(3) read with section 24(2) of the 1922 Act led to the conclusion that where the wife or minor child were carrying on business, while the right to carry forward the loss in the business would be available to the wife or the minor child if they themselves were assessed, the right would be lost if the individual in whose total income the loss was to be included was not permitted to carry forward the loss under section 24(2). The Court held that this could not have been the intention of Parliament if a strict literal construction led to an absurd result, i.e., a result not intended to be subserved by the object of the legislation, and if another construction was possible apart from the strict literal construction, then, that construction should be preferred to the strict literal construction. The Court, therefore, held, on a consideration of the scheme of the Act and the relevant provisions, that the income of the wife and the minor children included in the assessee's total income under section 16(3) should be regarded as business income derived from business carried on by the assessee and, in that view, the assessee was entitled to set off his loss carried forward from the previous years. Now, learned counsel's is submission is that Parliament could never have intended to forgo tax revenue for the purpose of educating, people outside India; this was manifestly unreasonable and absurd and, therefore, clause (22) should be so read as applying to universities established in
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India, or at least providing educational facilities in India. I find no unjustness, unreasonableness, irrationality or absurdity in the provisions of clause (22). It does not strike me as being beyond the bounds of possibility that Parliament should be willing to forgo a very small percentage of tax revenue for the purposes of education, even though it might mean the education of people outside India, if that education was being provided by a university or other educational institution whose sole purpose was to provide education and not at all to make a profit. I do not think Parliament could not possibly have meant what clause (22) so plainly says. I see, therefore, no reason to read clause (22) in a fashion that is not literal. It should be noticed that clause (22A), which also gives an exemption without any limitation as to location, was introduced into section 10 in 1970. It cannot be that Parliament yet again failed to express its true intendment. If Parliament had meant to provide an exemption with a locational limitation in clause (22A) it would have made it clear, and it would have amended clause (22). The judgment and order under challenge cannot stand, and the question quoted above must be answered in the affirmative and in favour of the assessee. The appeals are allowed accordingly. No order as to costs. D.P. MOHAPATRA, J.---I have had the privilege of reading the draft judgment prepared by my learned brother, Bharucha, J., in which he has taken the view that the High Court erred in holding that the assessee is not entitled to exemption from tax under section 10(22) of the Income-tax Act, 1961 (for short "the Act") with respect, I am unable to agree with the view taken in the draft judgment. The question which was referred by the Income-tax Appellate Tribunal to the High Court reads (1996) 221 ITR 77, 79 (Born.): "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the Oxford University Press'. Bombay, which is a part of the Oxford University is exempt under section 10(22) of the Income-tax Act, 1961?" The High Court in the judgment under challenge, answered the question in the negative and in favour of the Revenue. The relevant facts appearing from the orders passed by the statutory authorities may be stated thus: The assessee, Oxford University Press, is engaged in the business of printing, publishing and selling of books. It has been assessed to income-tax as a company from the assessment year 1952-53, onwards on the basis of the Notification issued by the Central Board of Revenue. The said notification was issued on the application filed by the assessee. For the assessment year 1976-77, the assessee filed a return showing income of Rs. 19.94 lakhs. It claimed exemption from payment of tax under section 10(22) of the Act mainly on the basis that it is a part of the Oxford University incorporated in the United Kingdom. The Assessing Officer did not accept the claim of exemption and passed the order of assessm ent under section 144B of the Act. On appeal, the Commissioner of Income-tax (Appeals) accepted the assessee's contention that being a part and parcel of the University of Oxford of the U.K. It is entitled to the exemption under section 10(22) of the Act. On the said finding the appeal was allowed and the assessment order was set aside. A further appeal tiled by the Revenue before the Income-tax Appellate Tribunal proved futile. Thereafter, the Tribunal referred the question as noted earlier to the High Court under section 256(1) of the Act. The High Court accepted the contention raised on behalf of the Revenue that the assessee, in the facts and circumstances of the case, did not qualify for the exemption provided under section 10(22) of the Act. From the discussions in the judgment of the High Court it appears that the main thrust of the contentions raised on behalf of the assessee was that the Oxford University Press being a part of the Oxford University of the U.K. The income earned by it is the income of the University and as such entitled to exemption from the tax. It was also urged on behalf of the assessee that in order to
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qualify for the exemption it is not necessary that the University should be incorporated in India or should be engaged in any activity relating to education or concerning the field of education in India. The High Court held that even assuming that the Oxford University Press is a part of the Oxford University, what is existing in India is only the "Oxford University Press" which is the assessee and in such a situation the assessee cannot be regarded as a university or an educational institution existing solely for educational purposes and not for the purpose of profit; therefore, the assessee is not entitled to the exemption provided under section 10(22) of the Act. Shri S.E. Dastur, learned senior counsel appearing for the appellant, contended that only a person can be assessed to income-tax as provided in section 4 of the Act and such a person in the present case is the Oxford University of which the Oxford University Press is a part: any income earned by the Oxford University Press has to be taken as the income of the University and in that event the entire income is totally exempted from tax under section 10(22) of the Act. It was the further contention of Shri Dastur that in the case of a university the nature of the activities undertaken by it in India and the form and character of the establishment of the university in this country, are not relevant. According to learned counsel once an institution or establishment in the country which earns the income is accepted as a part of a University no matter whether it is incorporated in India or in a foreign country, the exemption from tax extends to such income. Shri M.L. Verma, learned senior counsel appearing for the Revenue, on the other hand, contended that the expression "existing solely for educational purposes, etc." qualifies the expression "income of a university or other educational institutions". Therefore, even assuming that the Oxford University Press is a part of the Oxford University still it does not qualify for exemption since the Oxford University does not exist solely for educational purposes in India. According to Shri Verma, the Oxford University has no existence in this country as a university. The Oxford University Press, assuming that it is a part of that university, is engaged in commercial activities like printing publishing and selling of books' from which the amount has been earned during the assessment year in question. According to Shri Verma accepting the contention raised on behalf of the assessee will lead to an absurd position that a university which is not engaged in any educational activity in this country is given total exemption of tax in respect of income entirely earned from business activities in this country. It was the further submission of Shri Verma that though the provision to be interpreted is a part of a taxing statute still a purposive and meaningful interpretation is necessary to avoid such absurd result as aforementioned. As noted earlier, the main basis for the claim for exemption from the tax is that the Oxford University Press is a part of the Oxford University in the U.K. And, therefore, its income is exempted from tax under section 10(22) of the Act. This contention which found favour with the Tribunal appears to have been based on the name of the assessee in this case, the Oxford University Press, and the averment made in the petition filed by 'the assessee for being treated as a company that it is a part of the University. The Tribunal has also noted that no material was produced by the Revenue to show that the assessee is an independent entity having no connection either with the Oxford University in the U.K. Or the Oxford University Press. In paragraph 8 of its order the Tribunal has observed "it is well within everybody's knowledge that Oxford University is purely an educational institution". The discussion in paragraph 9 are based on the assumption that the assessee being a part of the Oxford University which is engaged in educational activities the claim of exemption is to be accepted. The position that emerges from the discussion in the order of the Tribunal, as I read it, is that since the name of the assessee is the Oxford University Press and it claims to be a part of the Oxford University in the U.K. That is sufficient to enable it to get exemption from the tax. To put it differently the description of the name of the assessee has been accepted as a major factor for determination of the question whether its claim
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for exemption is acceptable or, not. If a business establishment has the word "university" as a part of its name but is engaged in commercial activities and has earned the amount by such activities then its claim of exemption of tax as a part of a university has to be accepted. Another reason stated by the Tribunal in support of its finding in this regard is that no material has been placed by the Revenue to show that the assessee has an identity independent of the university, which in…
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