IN HIGH COURT OF JUDICATURE AT PATNA Civil Writ Jurisdiction Case No.20296 of 2010 Bihar State Text Book Publishing Corporation, Corporation incorporated under Company Act, 1956 having its office at Budh Marg, P.S.Kotwali, Distt., Patna, through its Registrar Cum Secretary Basant Kumar S/O Shri Satrughan Prasad Kunwar R/O Budh Marg, P.S.Kotwali, Distt.-Patna. Petitioner/s Versus 1. Commissioner of Income Tax-I, Patna, having its office at Central Revenue Building, Birchand Patel Marg, Patna-800001. 2. Asst. Commissioner Of Income Tax, Circle-2, Having Its Office At Central Revenue Building (Annexe), Birchand Patel Marg, Patna-800001. Respondent/s Appearance : For Petitioner/s : Mr.D.V.Pathy, Advocate. For Respondent/s : Mrs. Archana Sinha, Advocate. CORAM: HONOURABLE CHIEF JUSTICE and HONOURABLE MR. JUSTICE S. KUMAR ORAL JUDGMENT (Per: HONOURABLE CHIEF JUSTICE) Date : 04-09-2020 sole issue arising consideration in present proceedings is as to whether petitioner is entitled to exemption in terms of Sections 10 sub Section 23C(iiiab) of Income Tax Act or not. Certain facts are not in dispute. petitioner, namely, Bihar State Text Book Publishing Corporation, incorporated under Companies Act, 1956, is wholly owned by Government of Bihar and as such is instrumentality of State. It undertakes activities of printing, publishing and distribution of textbooks under State. Before this Court it is Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 2/16 also not in dispute that petitioner was incorporated solely for educational purpose. Also, it is wholly or substantially financed by Government. However, whether it generates profit or is established to generate profit, needs to be examined. It is also not in dispute that petitioner received notice dated 28.1.2010 (Annexure-1) issued under Section 148 of Income Tax Act, 1961 (hereinafter referred to be as Act ), by Assistant Commissioner of Income Tax, Circle-2, Patna, informing his reasons to believe that income assessable is chargeable to tax for assessment year 2006-07 and as to why it be not so done. Petitioner assailed said notice by filing instant petition on 30.11.2010 and vide interim order dated 21.12.2010, this Court, directed Revenue not to take any coercive action pursuant to any order of re-assessment which may be passed in such proceedings. It is matter of record that pending consideration of present petition, assessment proceedings were concluded with passing of assessment order dated 23.12.2010 by Additional Commissioner of Income Tax, Range-2, Patna, (Annexure-10) which is placed on record vide separate application. As is evident from said order, petitioner received subsidy @ 50% on general sales amounting to Rs.8 Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 3/16 crore 43 lakh (approximately). Hence Assessing Officer determined Income chargeable to tax amounting to be Rs.7,66,06450/-. We notice, impugned order of assessment running into five pages. However, Assessing Officer not dealt with anyone of contentions raised on behalf of petitioner or assigned any reason for not applying ratio of law laid down in several judicial decisions, particulars of which, stand referred to in paragraphs 3, 4, 6, 7 and 8 of order itself. In fact, we find order to be cryptic, assigning only reason of belief of assessee receiving subsidy on general sales under programme termed as Sarva Shiksha Abhiyan , sufficient enough to reassess scheme. This undisputedly is under programme undertaken pursuant to and under policy decision of Government and not any private individual. To begin with, Ms Archana Sinha, learned counsel for Revenue, with vehemence, argued that petitioner had got alternative remedy of filing appeal under provisions of Act and as such, must take recourse to such remedy. Not finding favour with such submission, we called upon learned counsel for parties to argue matter on merits. For at such Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 4/16 belated stage, we are not inclined, more so when order of assessment stands passed during pendency of instant proceeding, to relegate parties for exhausting alternative remedy, particularly as would unfurl from our discussions hereinafter, impugned action is totally in violation of statutory provisions and judicial pronouncements. On merits, opposing petition, Ms Archana Sinha lays much emphasis on most recent decision on issue rendered by Hon ble Apex Court in (2016) 12 SCC 258 titled as Visvesvaraya Technological University Vs. Assistant Commissioner of Income Tax. Otherwise, she could not point out as to how petitioner was not fulfilling any one of conditions prescribed under Act. On other hand, in support of his submission, Sri D.V.Pathy, learned counsel for petitioner, while assailing impugned order submitted that issue in question is no longer res integra, as stands squarely settled not only by this Court vide judgment dated 1.4.2011 rendered in M.A. No. 425 of 2010 titled as Bihar State Text Book Publishing Corporation Vs. Commissioner of Income Tax-I, Patna but also by Hon ble Apex Court in case titled as Assam State Text Book Production and Publication Corporation Limited Vs. Commissioner of Income Tax Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 5/16 [(2009)XVII SCC 391]. At this stage, we may take note of statutory provisions which we are called upon to examine with its applicability to attending facts and circumstances. It stands extracted hereinbelow : "Income not included in total Income. 10. In computing total Income of previous year of any person, any income falling within any of following clauses shall not be included .(23C) any income received by any person on behalf of . ..(iiiab) any university or other educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by Government. said provision was introduced with effect from 1.4.1999 with enactment of Finance (No.2) Act, 2019. Prior to it, statutory provision read differently and Hon ble Apex Court in (2015) 8 SCC 47 titled as Queen s Educational Society Vs. Commissioner of Income Tax examined legislative history with object sought to be achieved, necessitating subsequent enactment. Reference of legislative development is only in context of submission made by Ms Archana Sinha emphasizing Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 6/16 significance and value which must prevail upon Court, in interpreting object and purpose of subsequent enactment. Section 10 of Act stipulates that while computing total Income from previous year of any person, if any income falls within any one of clauses specified therein, same shall not be included as income for purposes of computation. One of defined clauses allowing such expansion, with which we are concerned, stands reproduced (supra): ingredients, sine qua non for making such clause of exemption applicable are (a) person must be University/other educational institution; (b) existing solely for educational purpose, and (c) not for purposes of profit; and (d) must be wholly or substantially financed by Government. Hon ble Apex Court in Visvesvaraya case (supra) while taking note of its earlier decisions rendered in Queen s Educational Society (supra) has already observed that if surplus of Revenue accrued is applied for educational purposes, then educational institution can be said to functioning solely for educational purpose and not for purposes of profit. Also, earlier principle enunciated in Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 7/16 Queen s Educational Society stands reiterated in following terms : 6. relevant principles of law which will govern first issue i.e. whether educational institution or university, as may be, exists only for educational purpose and not for profit are no longer res integra, having been dealt with by long line of decisions of this Court which have been elaborately noticed and extracted in recent pronouncement i.e. Queen's Educational Society vs. Commissioner of Income Tax (2015) 8 SCC 47). principles that emanate from views expressed by this Court are set out in paragraph 11 in Queen's Educational Society (supra), which are extracted below: 11. Thus, law common to Section 10(23C) (iiiad) and (vi) may be summed up as follows: (1) Where educational institution carries on activity of education primarily for educating persons, fact that it makes surplus does not lead to conclusion that it ceases to exist solely for educational purposes and becomes institution for purpose of making profit. (2) predominant object test must be applied purpose of education should not be submerged by profit making motive. (3) distinction must be drawn between making of surplus and institution being carried on for profit . No inference arises that Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 8/16 merely because imparting education results in making profit, it becomes activity for profit. (4) If after meeting expenditure, surplus arises incidentally from activity carried on by educational institution, it will not be cease to be one existing solely for educational purposes. (5) ultimate test is whether on overall view of matter in concerned assessment year object is to make profit as opposed to educating persons. 7. To above principles, one further test as laid down in CIT vs. Surat Art Silk Cloth Manufacturers' Assn. (1980) 2 SCC 31)and culled out in American Hotel and Lodging Association Educational Institute vs. Central Board of Direct Taxes and Others (2008 (10) SCC 509)may be added which is as follows: In order to ascertain whether institute is carried on with object of making profit or not it is duty of prescribed authority to ascertain whether balance of income is applied wholly and exclusively to objects for which applicant is established. (Paragraph 37) 8. above principle has been specifically reiterated in paragraph 19 of decision in Queen's Educational Society (supra) in following terms: Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 9/16 final conclusion that if surplus is made by educational society and ploughed back to construct its own premises would fall out of Section 10(23-C) is to ignore language of section and to ignore tests laid down in Surat Art Silk Cloth case [CIT v. Surat Art Silk Cloth Manufacturers' Assn.(1980) 2 SCC 31], Aditanar case [Aditanar Educational Institution v. CIT [(1997) 3 SCC 346] and American Hotel & Lodging case [American Hotel & Lodging Assn. Educational Institute v. CBDT [(2008) 10 SCC 509]. It is clear that when surplus is ploughed back for educational purposes, educational institution exists solely for educational purposes and not for purposes of profit. 9. In present case, we find that during short period of decade i.e. from year 1999 to 2010 appellant University had generated surplus of about Rs.500 crores. There is no doubt that huge surplus has been collected/accumulated by realizing fees under different heads in consonance with powers vested in University under Section 23 of VTU Act. difference between fees collected and actual expenditure incurred for purposes for which fees were collected is significant. In fact expenditure incurred represents only minuscule part of fees collected. No remission, rebate or concession in amount of fees charged under different heads for next Academic Year(s) had been Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 10/16 granted to students. surplus generated is far in excess of what has been held by this Court to be permissible (6 to 15%) in Islamic Academy of Education and another vs. State of Karnataka though percentage of surplus in Islamic Academy of Education (supra) was in context of determination of reasonable fees to be charged by private educational bodies. It is not in dispute that petitioner stands established for educational purpose. It is also not in dispute that it is wholly and substantially financed by Government. Applying ratio laid down in Queen s Educational Society (supra), it also cannot be said that purpose and object of petitioner is not to carry on activity of education; established primarily for educational purpose; and that, purpose and object is not profit making. Judicial notice can be taken on fact that in State of Bihar, petitioner Corporation is distributing books free of cost to children studying in various Government schools. This Court, in Bihar State Text Book Publishing Corporation (supra), with respect to very same petitioner, under identical circumstances, quashed and set aside order passed by Revenue, as confirmed by Tribunal. We fail to understand as to why Assessing Officer ignored such fact, by Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 11/16 not taking cognizance thereof, particularly when attention whereof was invited. Equally we fail to understand as to why Revenue persisted in opposing instant petition and not withdraw its action, particularly when said view of this Court was to their knowledge; never assailed; and attained finality. In said decision, this Court also examined legislative development, i.e., repealing of existing Sections 10(22) and introducing new provision, i.e., Section 10(23C(iiiab)). It held that instant petitioner was carrying on activity which squarely fell within definition of Section 10(15) of Act (charitable purpose) and was dependent upon finance of State. Court was concerned with factual matrix where gross receipts from different sources received by petitioner exceeded more than crore but since organization was carrying out such activity, which fell wholly and squarely within ambit and scope, fulfilling all essential ingredients stipulated under Section 22 of Act, action of Revenue in initiating proceedings for assessment of Income untenable in law. In fact, Court answered following four questions in favour of petitioner: (i) Whether Tribunal was correct in law in holding that amount of Rs.8,23,15,167/- Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 12/16 being amount of subsidy receivable on sale of text books though not received either by end of final year or till date, could be brought to tax as Income under scheme of Act? (ii) Whether Tribunal was in error in applying ratio of judgment of Hon ble Supreme Court in Sahni Steel Case (supra) which is distinguishable on facts? (iii) Whether Tribunal was in error in holding that subsidy receivable from State Government of Bihar on sale of text books was taxable on mercantile system of accounting without any appropriate consideration of fact that such subsidy not having been received was not real Income and, therefore, not liable to tax? (iv) Whether Tribunal erred in considering fact that even otherwise sale of text book was educational activity exempt from tax? And while doing so it took note of earlier decision rendered by Hon ble Apex Court in Assam State Text Book (supra). We find favour with submission made by Sri Pathy, that following observations in Assam State Text Book (supra), more so on facts and law, as is evident from paragraphs 6, 9 and 10 of said report, to be squarely applicable to instant case. 6. On going through records, we find that High Court has not taken into account prior Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 13/16 history of case, particularly in context of incorporation of Corporation under Companies Act, 1956, as government company. Initially, as stated above, assessee was State- controlled Committee and Board, which were attached to office of Director of Public Instruction, State of Assam. It is only in year 1972, that government company got constituted under Section 617 of Companies Act, 1956. That, prior to 1972, entire funding for working of Committee/Board was done by State of Assam and that even ownership of assets remained vested in State of Assam and that even ownership of assets remained vested in State of Assam which stood transferred to Corporation in 1972, when it got incorporated under Companies Act, 1956. 9. operative part of Rajasthan High Court s judgment reads as under: (ITR p.669) It is not disputed before us that aims and objects of Tamil Nadu Textbook Society and those of respondent assessee are almost identical. It is also not shown to us that surplus amount, if any, of respondent assessee, is used for any other purpose or distributed to other members. Commissioner of Income Tax (Appeals) as well as Tribunal have noticed that even if some amount remains surplus, that is utilized only for purposes of education. Thus, having regard to concurrent findings of fact recorded by Commissioner of Income Tax (Appeals) and Tribunal and also taking note of letter of Central Board of Direct Taxes itself, it is not possible for us Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 14/16 to say that order of Tribunal is erroneous in any way. In this way, no question of law arises for consideration much less substantial question of law. 10. Following judgment of Rajasthan High Court, we are of view that, in this case, High Court, in its impugned judgment, has not considered historical background in which Corporation came to be constituted; secondly, High Court ought to have considered source of funding, shareholding pattern and aspects, such as return on investment; thirdly, it has not considered letters issued by CBDT which are referred to in judgment of Rajasthan High Court granting benefit of exemption to various boards/societies in country under Section 10(22) of Act; fourthly, it has failed to consider judgments mentioned hereinabove; and lastly, it has failed to consider letter of Central Government dated 9.7.1973, to effect that all State-controlled educational committee(s)/board(s) have been constituted to implement educational policy of State(s); consequently, they should be treated as educational institution. (emphasis supplied) Coming to decision on which Ms Archana Shahi vehemently relies upon, we notice that in Visvesvaraya case (supra) on facts Court found petitioner therein, not to be fulfilling essential ingredients mandatorily required entitling applicability of exemption clause. In fact, Court reiterated its earlier view in Queen s Education Society case Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 15/16 (supra). It found University established by Government of Karnataka to be financed neither wholly nor substantially by Government. Nor was it dependent upon it for finance. finance of University from Government was only to extent of 1% and profit from relevant year was surplus to extent of 500 crores, which also was not ploughed back for any activity for which University was set up; fulfilled its object; or fees of students reduced. Also, profits generated were far more than permissible limits (6 to 15%) as laid down by in Islamic Academy of Education Vs. State of Karnataka [(2003) 6 SCC 697]. It is under these circumstances; Court held that mandate of law of securing contributions from Government source and not fees collected under statute to be Income not generated from sources of finance of Government. For all reasons above, we agree with submission made by Sri Pathy that impugned action is not only misconceived but wholly unsustainable and untenable in law. As such we quash notice dated 28.1.2010 (Annexure-1) issued by Assistant Commissioner of Income Tax, Circle-2, Patna as also consequential order dated 23.12.2010 Patna High Court CWJC No.20296 of 2010 dt.04-09-2020 16/16 (Annexure-10) passed by Additional Commissioner of Income Tax, Range-2, Patna. writ petition stands allowed. No order as to costs. Interlocutory application, if any, stands disposed of. (Sanjay Karol, CJ) ( S. Kumar, J) sujit/- AFR/NAFR CAV DATE Uploading Date Transmission Date Bihar State Text Book Publishing Corporation v. Commissioner of Income-tax-I, Patna / Asst. Commissioner of Income-tax, Circle-2, Patna