ORDER
Shri M. V. R. Prasad, Accountant Member
1. These appeals were heard together and they are disposed of this common order. These appeals are directed against the orders of the CIT (Appeals) wherein he confirmed the orders of the Assessing Officer in which it was held that the assessee is not a Charitable Organisation within the meaning of section 2(15) of the Income-tax Act and so is not entitled for the benefit of exemption of income from tax under section 11 of the Income-tax Act.
2. Various objections are taken for these three years but the gist of the objection is that the CIT (Appeals) erred in holding that the assessee is not entitled for the exemption of income under section 11. For one of the year, i.e. assessment year 1994-95 the assessee has also claimed exemption of its income under the provisions of section 10(22) of the Income-tax Act. This ground is not taken for the assessment years 1991-92 and 1993-94. Before considering the stand taken by the Revenue authorities it will be useful to consider the objects of the appellant institute.
3. The appellant is a Society registered under the Societies Registration Act, 1860 and it was registered on 1st March, 1984. Clauses I to III of the Memorandum gives the objects of the Society and these clauses read as follows :
I. The name of the Society shall be ‘Institute of Banking Personnel Selection (IBPS)’.
II. The Registered Office of the Society shall be situated in the State of Maharashtra at present at Paper Box Estate, Mahakali Caves Road, Andheri (East), Bombay-400 093.
III. The objects for which the Society is established are :
(1) to establish and to carry on the administration and management of the Institute of Banking Personnel Selection.
(2) to plan, promote and produce for competent, well-qualified and efficient cadres of personnel at various levels to the banks and financial institutions in the country on a scientific basis.
(3) to render assistance to organisations in the areas of personnel such as recruitment, selection, placement, by designing, developing and printing suitable measurement tests/tools, assessment of answer papers and processing results of examinations and conduct such examination related services, on request.
(4) to carry out theoretical and applied research in the subjects of psychology and education.
To carry out the aforesaid objects, the society shall have, inter alia, the powers and may carry out the functions mentioned as under :-
(1) Promote and conduct research in matters pertaining to –
(a) types of selection tests/tools required for effectively testing various abilities, aptitudes, knowledge, skills involved in different types of jobs and for various groups of persons with different academic background and/or experience.
(b) types of selection tests/tools/strategies that are effective for recruitment/promotion for different types.
(c) development of a large pool (Item Bank) of items with known psychometric properties to be used in selection tests for recruitment or promotion with the help of its faculty and/or outside experts.
(d) designing a suitable battery of tests/tools for selection of personnel for recruitment or promotion in a bank/group of banks or financial institutions.
(e) operational strategies for fair, objective and impartial conduct of examinations for recruitment and promotion.
(f) relationship between candidates’ performance in selection tests/tools and various biographies variables and/or their subsequent performance during training period and later on-the-job.
(g) areas related to recruitment and promotion such as job-analysis, manpower forecasting, placement, performance appraisal, motivation of recruits/employees, etc.
(h) effective deployment of personnel in a bank or financial institution.
(2) Assist or to undertake for banks and financial institutions as well as other organisations designing and developing suitable measurement tests tools for employee selection, placement, appraisal of performance, appraisal of potential for higher levels of management, etc.
(3) Provide services directly to banks and financial institutions or through their departments/agencies like Banking Service Recruitment Boards in regard to designing, developing and printing of tests/tools, assessment of answer papers and processing results of examinations for recruitment or promotion at various levels.
(4) Undertake to conduct on behalf of banks or financial institutions or other organisations a total partial selection project for recruitment or promotion involving all stages like designing and release of advertisement, receipt and screening of applications, conduct of examination, processing of results, etc.
(5) Train persons for (i) developing suitable selection tests/tools through workshops, seminars, etc., and (ii) for conducting examinations comprising objective tests or simulation exercises.
(6) Provide consultancy services under its auspices or through its faculty to banks and financial institutions as well as other organisations on matters having a bearing on selection, placement, performance appraisal, promotion, motivation, etc., in order to improve productivity of the services rendered by the banks and financial institutions.
(7) Maintain liaison with banking and financial directly or through the personnel department, Recruitment Boards, training institutions and educational bodies for purposes of promoting selection, placement, appraisal and promotion system.
(8) Maintain close contact with other institutions and individuals having similar objectives, either wholly or partially by the way of payment of subscription, enrolment as a member thereof, fiscal or other sorts of assistance, amalgamation, collaboration, co-operation and in any other way as the institute may deem necessary.
(9) Disseminate information on various aspects of selection of personnel for recruitment, placement promotion and providing for the publication of journals, reports, pamphlets and other literature and research papers and books in furtherance of the objectives of the institute.
(10) Establish and maintain libraries and information services.
(11) Establish and maintain in India regional centres to promote the objects of the Society.
(12) Institute and award fellowships, scholarships, prizes and medals in accordance with the rules.
(13) Establish, maintain and manage halls and hostels for accommodation of the trainees, participants in workshops, seminars, etc.
(14) Establish and maintain a fund with the contributions of Reserve Bank of India, Banking and Financial Institutions and with all other monies acquired by the Society in any other way.
(15) Do all such lawful things as the Society may deem fit for attainment of all or any of the objects.
The first governing body of the society had 12 members representing the various public sector banks and the Ministry of Finance, Government of India and the Board was headed by the then Governor, Reserve Bank of India Dr. Manmohan Singh. Rule 26 of the Rules and Regulation of the Institute relates to the dissolution of the Society and it reads as follows :
“The dissolution of the Society and adjustment of its affairs shall be in accordance with sections 13 and 14 of the Societies Registration Act (Act XXI of 1860) as amended from time to time, or in accordance with the provisions of any other law relating thereto. We, the several persons whose names and addresses are subscribed hereto, being members of the Governing Board of the Institute of Banking Personnel Selection, certify the above to be a correct copy of the Rules of the said Institute”
The assessee filed its return along with its audited accounts and the income and expenditure accounts for the respective years showed that the main receipts were :
(i) Material fees, (ii) testing fees, (iii) fees from consultancy projects.
Substantial expenditure was incurred both on establishment of the assessee society and also in carrying out the objects of the Institute. The following results are culled out from the income and expenditure accounts of the assessee for the respective years :-
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YEAR ENDED
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31-3-1990 31-3-1991 31-3-1992 31-3-1993 31-3-1994
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(1) Material
fees 1,85,83,480 2,15,85,479 2,10,27,000 2,40,04,219 3,21,67,715
(2) Testing
fees 81,62,098 75,08,213 73,20,655 75,22,496 88,58,384
(3) Fees
from
consultancy
project 9,46,721 2,74,805 8,30,162 15,86,314 20,03,580
(4) Surplus (+)
(+) 33,81,128 (+)16,32,021 (+)76,86,111
Deficit (-) -15,13,384 -33,71,968
Transfer to
General Reserve 5,44,007 25,62,037
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It was explained before the Revenue authorities that the appellant institute was conducting examination for recruitment to various public sector Banks and other public sector institutions and even for some Universities. It prepares test materials which are sold to the candidates for fees and it also charges fees for conducting the tests. The fees collected from public sector undertakings other than public sector banks who are members of the appellant institute are termed as fees from consultancy projects in the table we have given above. In other words, it was explained that the receipts shown here in above were derived from activities carried on in pursuit of the objects of the appellant institute. The Assessing Officer in his order for assessment year 1991-92 held that the assessee was not a charitable organisation because the assessee made substantial income in some of the years and as such it is like any other commercial organisation. His findings are summarised in page 9 of his order and they are as under :
(1) This Institution is not for the charitable object, may be object of the Institution are charitable but activities conducted in the pursuance of the objects are not charitable.
(2) The activities conducted by the Institution is not for the charitable within the meaning of provision of section 2(15) of the I.T. Act.
(3) The activities carried on by the Institution is in the form of rendering specified services to the banking and other financial sector and in return the Institution is receiving specified amount of fees. If this activity is taken out of the purview of Institutes activity then there is no other charitable activity being carried on.
(4) The income received for rendering specific services is correctly includable under the provision of Income-tax Act.
(5) Since the trust is conducting the activities they are not charitable and, therefore, the Institution is not eligible for the benefit of exemption under section 11 of the I.T. Act.
The Assessing Officer negatived the contention of the assessee that it is an educational institution relying upon the decision of the Apex Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 in which the Apex Court observed as under :
“Education connotes the process of training & developing the knowledge, skill, mind and character of student by normal schooling and use of the said word in section 2(15) is not in wide and extensive sense to consider every acquisition of further knowledge as Education.”
He observed that the assessee perused profit making activities and so it cannot be held as a charitable organisation. In this context he relied upon the decision of the Apex Court in the case of Dharmaposhanam Co. v. CIT [1978] 114 ITR 463/1 Taxman 61 and also the decision in Yogiraj Charity Trust v. CIT [1976] 103 ITR 777. He also observed that under the provisions of section 28(iii) of the Income-tax Act income derived from rendering specific services to members has to be construed as income and as the fees received by the appellant institute are substantially from rendering services to its own members which are public sector banks, he held that the income of the appellant is assessable under the head “Business”. Accordingly he gave deduction only for expenses incurred on establishment and ignored the expenditure incurred in the carrying out of the objects of the appellant and determined the income at Rs. 2,07,90,235 for the assessment year 1991-92. However, for the subsequent two assessment years, i.e., 1993-94 and 1994-95 the Assessing Officer gave deduction for the expenditure incurred in carrying out the objects also and determined the income for the assessment year 1993-94 at Rs. 51,59,726 and for the assessment year 1994-95 at Rs. 1,28,04,281.
4. The CIT (Appeals) for the assessment year 1991-92 gave an elaborate order and held that the objects of the appellant are not charitable within the meaning of section 2(15) of the Income-tax Act and he also observed in para 5 of his order that the assessee carried on a commercial activity and the expenses incurred on staff salaries, travelling, paper and printing are like the expenses of any other business undertaking and so the assessee is at least hit by the provisions of section 11(4A) of the Income-tax Act. He observed that what is to be seen is not the motive of an assessee but the legal effect of the activities carried on by him and judging by this criterion he held that the assessee was carrying on only a commercial activity and in this context he relied upon the following decisions :-
(i) Krishna Menon v. CIT [1959] 35 ITR 48 (SC)
(ii) Dr. K. George Thomas v. CIT [1985] 156 ITR 412/23 Taxman 46 (SC)
(iii) Dr. K. George Thomas v. CIT [1986] 159 ITR 851/26 Taxman 136 (SC)
(iv) C. Rajgopalachariar v. CIT [1963] 50 ITR 196, 199 (Mad.)
(v) Commissioner of Expenditure-tax v. Mrs. Manorama Sarabhai [1966] 59 ITR 262 (Guj.)
(vi) CIT v. Ambalal Sarabhai [1969] 73 ITR 78 (Guj.).
While bolding that the assessee is not entitled for exemption under section 11, he, however, gave a direction for the assessment year 1991-92 that the assessee should be allowed deduction for the expenditure incurred while carrying out the objects of the assessee.
5. Before us the learned counsel for the assessee reiterated the contentions made out before the Revenue authorities. It is mentioned that the appellant-society was registered with the Charity Commissioner as a charitable organisation. It was also registered with the Commissioner of Income-tax under section 12A of the I.T. Act. It was also notified under section 35(1)(iii) of the I.T. Act, 1961 as a Scientific Research Body vide Notification dated 29-7-1994 for the period 1-4-1992 to 31-3-1995. He has invited our attention to the objects of the assessee and contended firstly that the Institute is entitled for exemption under section 10(22) as it is an educational institution. In this context the assessee invited our attention to a letter dated 13th November, 1996 of Bombay University which may be seen at page 43 of the appellant’s paper book and vide this letter the said University has continued the recognisation enjoyed by the appellant institute for guiding students for the Ph.D. (Arts Degree) in the subjects of Psychology & Education. In support of the proposition that the assessee is an educational institute within the meaning of section 10(22), the assessee has relied upon the decision of the Hon’ble Gujarat High Court in the case of Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279. He has also pleaded that the appellant society conducted tests for candidates whose number runs into lakhs and so the surplus derived in any particular year does not prove that the assessee had indulged in profit making activities. He has explained that the assessee charges fees at pre-determined rates and in this context he has invited our attention to the minutes of the 17th meeting of the Governing Board of the Institute held on 12-5-1992 a copy of which is annexed to this order as Annexure 1. From this Minutes it is claimed that the appellant charges fees at very reasonable and at pre-determined rates and when the candidates are about 20 to 30 lakhs in an year, any small variation in the cost of materials would result in either surplus or deficit and because of the number of candidates involved, the result appears to be substantial. It is pleaded that considering the nature of the activity, such surplus or deficit is unavoidable and the nature of the appellant society cannot be determined solely with reference to the surplus that might have materialised in one or two assessment years. In this context the learned counsel of the assessee has relied upon the following observations of the Apex Court in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1/[1979] 2 Taxman 501 :
“The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. We, therefore, agree with Beg’ J. when he said in Sole Trustee, Loka Shikshana Trust’s case [1975] 101 ITR 234, 256 (SC) that :
‘If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly that in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity’.”
He has also mentioned that the above observations have been reiterated by the Apex Court and approved in the case of Thiagarajar Charities v. Addl. CIT [1997] 225 ITR 1010/92 Taxman 152. In support of his contention that the objects of the appellant society are charitable inasmuch as they involved the advancement of an object of general public utility within the meaning of section 2(15) of the Income-tax Act, the assessee relied upon a number of decisions amongst which the following may be mentioned :
Surat Art Silk Cloth Mfrs. Association’s case (supra)
Incorporated Council of Law Reporting v. Attorney General 47 TC 321 (CA)
Hyderabad Stock Exchange Ltd. v. CIT [1967] 66 ITR 195 (AP)
Addl. CIT v. Automobile Association of Southern India [1981] 127 ITR 730/5 Taxman 77 (Mad.)
Addl. CIT v. Delhi Brick Kiln Owners Association [1981] 130 ITR 55/[1980] 4 Taxman 420 (Delhi)
Girijan Co-operative Corpn. Ltd. v. CIT [1989] 178 ITR 359/44 Taxman 60 (AP)
CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1/25 Taxman 63A (SC)
CIT v. Bar Council of Maharashtra [1981] 130 ITR 28/6 Taxman 1 (SC).
6. The learned Departmental Representative, on the other hand, contended that the activities of the appellant society serve to improve only efficiency of the member banks and no benefit accrues from such activities to the general public. Where the benefit does not extend to the general public or to a cross section of the public but only to the members of the appellant society it is pleaded that the organisation cannot be regarded as charitable within the meaning of section 2(15) of the Income-tax Act and in this context he relied upon the decision of the Hon’ble Gujarat High Court in the case of Addl. CIT v. Ahmedabad Millowners’ Association [1977] 106 ITR 725. He has also mentioned that where only employees of an organisation are to be benefited, the organisation cannot be regarded as charitable and in this context he relied upon the decision of the Hon’ble Patna High Court in the case of CIT v. Tata Steel Charitable Trust [1993] 203 ITR 764. It is also pleaded that the assessee cannot be regarded as an educational institution and so it cannot be extended the benefit of section 10(22) and for this proposition the Departmental Representative has relied upon the decision of the Apex Court in the case of Lok Shikshana Trust relied upon by the Assessing Officer and cited supra. The memorandum of the appellant society does not contain any prohibition against the distribution of profit and so it is pleaded that the assessee cannot be regarded as non-profit making organisation existing only for charitable purposes. The learned Departmental Representative also relied upon the provisions of section 28(iii) of the I.T. Act and pleaded that as specific services are rendered to the members by way of conducting tests, etc., the income derived from specific services to members has to be regarded as business income of the assessee.
7. Having regard to the rival submissions we are of the view that the objects of the appellant society have to be regarded as charitable under section 2(15) of the I.T. Act. The object of the appellant society advance objects of general public utility within the meaning of section 2(15) of the I.T. Act inasmuch as they promote the performance and efficiency of not only the banking sector but even other public sector undertakings. The main objects are only four as can be seen from clause III of the memorandum reproduced hereinabove. There are ancillary functions which are undertaken to carry out the main four objects. The appellant has charged fees at pre-determined rates and when the number of candidates involved are in the region of 20 to 30 lakhs as explained by the learned counsel for the assessee, there is bound to be surplus or deficit and the existence of a surplus in a few years does not prove that the objects of the society do not advance a general public utility or that the organisation is necessarily a profit seeking commercial organisation. It is true that there is no specific provision in the memorandum prohibiting the appellant society to distribute profits but the dissolution has to be done in accordance with sections 13 and 14 of the Societies Registration Act and underthese sections on the dissolution of the society, any surplus remaining shall be given to some other society and no member is to receive profit on dissolution. Further so far the appellant society has not distributed any profits in its decade long existence and the constitution of the governing board headed by the Governor, Reserve Bank of India, to our mind, indicates that this is not a commercial organisation but a semi-Government organisation that has come into existence only to improve the performance and efficiency of the financial sector in the country. The case law cited by the learned counsel for the assessee amply proves that such objects as that of the appellant society have been regarded as charitable inasmuch as they advanced objects of general public utility. We may, however, clarify that the assessee cannot be given the benefit of section 10(22) of the I.T. Act. This section exempts the income of an University or other educational institution, existing solely for educational purposes and not for purposes of profits. The appellant society cannot be equated to a University even though it is recognised by the Bombay University for purposes of guiding Ph.D. students. Nor does it exist solely for educational purposes. Its main activity is not teaching or training but to conduct tests at the stage of recruitment and also at the stage of promotion of various cadres in Banks, Public Institutions and other public sector organisations. An educational institution cannot simply conduct a test. It has to be a teaching or a training institute and conducting the test can only be an incidental occupation. A substantial portion of the receipts of the assessee are from testing fees and it has not been the contention of the learned counsel for the assessee that the candidates running into lakhs for whom tests are administered by the appellant society are also registered with it for training and teaching. In this view of the matter, we do not regard the institution as an educational institution eligible for exemption under section 10(22). Further we are of the view that this is hit by the ratio of the Apex Court in the case of Sole Trustee, Loka Shikshana Trust (supra) relied upon by the Assessing Officer. The decision of the Hon’ble Gujarat High Court in the case of Gujarat State Co-operative Union (supra) relied on by the learned counsel for the assessee and cited supra is distinguishable because in that case the institute is predominantly occupied with the spread of education in the cooperative sector. In the present case imparting of education or training does not appear to be the predominant object. In view of the above we have to hold that the assessee is not entitled for exemption of its income under section 10(22) of the Act but is entitled to exemption under section 11 of the I.T. Act as an organisation whose objects advance objects of general public utility within the meaning of section 2(15). We may also mention that the expression “not involving the carrying on of any activity for profit” has been omitted from section 2(15) by the Finance Act, 1983 with effect from 1-4-1983 and the decisions on which the Revenue authorities have relied were interpreting the scope of this expression. As this expression has been deleted from section 2(15) what is to be seen is only whether the objects of the appellant advanced a general public utility or not. As already mentioned, we are of the view that the objects and also the constitution of the society go to indicate that they advance an object of general public utility being the promotion of efficiency in the financial sector of the country. The provisions of section 11(4A) have also been substituted by the Finance (No. 2) Act, 1991 with effect from 1-4-1992 and it is only the substituted provision which are relevant for the present assessment year and this section as it stands does not prohibit the carrying on of any business so long as it is incidental to the attaining of the objects of the trust or institution. In the present case, we find that the activities undertaken by the appellant trust are only incidental to the four main objects mentioned in clause (iii) of the memorandum which we have extracted hereinabove. So we find that the appellant trust is not hit by the provision of section 11(4A). Similarly we are of the view that the reliance placed upon section 28(iii) by the Revenue is misplaced. This section only includes income derived by a trade professional or similar association from specific services performed for its members in the scope of profits and gains of business or profession. To our mind, this issue is totally different from the issue raised in the present appeal which is whether the objects of the appellant society are charitable within the meaning of section 2(15) and so it is entitled for exemption under section 11. The provisions of section 28(iii) do not override the provisions of section 11. If the appellant society is charitable as we have held it is, entitled for exemption under section 11 notwithstanding the income of the nature mentioned in section 28(iii) derived by the assessee. For the above reasons, we hold that the appellant is entitled for exemption under section 11 as its objects are charitable within the meaning of section 2(15) of the I.T. Act. However, before it can be granted exemption it has to be seen whether other conditions as specified in section 11 relating to the extent of application of its income or accumulation thereof are satisfied or not. The revenue authorities did not go into these aspects at all, because they held that the appellant was not entitled for exemption at all as according to them it is a commercial organisation. As the other conditions specified in sections 11 to 13 have not been looked into at all, we are of the view that the matter deserves to be set aside so that the Revenue authorities get an opportunity of looking into this aspect of the matter. We accordingly set aside the orders of the Revenue authorities and restore the matter for all the three years to the file of the Assessing Officer who may examine whether the conditions as specified in sections 11 to 13 are satisfied or not. He has to proceed on the basis that the appellant society is a charitable organisation and so it is in principle entitled for the exemption under section 11 of the Income-tax Act. Subject to this remark, we set aside the matter for all the three years.
8. For statistical purposes, the appeals are allowed.