Full Judgment Text
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CASE NO.:
Appeal (civil) 533 of 1997
Appeal (civil) 534 of 1997
Appeal (civil) 4406 of 1997
Appeal (civil) 7275 of 1999
PETITIONER:
M/S OXFORD UNIVERSITY PRESS
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX
DATE OF JUDGMENT: 24/01/2001
BENCH:
S.P.Bharucha
JUDGMENT:
L.....I.........T.......T.......T.......T.......T.......T..J
J U D G M E N T
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 21st December, 1995
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 & 1983-84. The question that arose for
consideration in references to the High Court under Section
256(1) of the Income Tax Act, 1961 read :
Whether on the facts and in the circumstances of the
case the Tribunal was justified in holding that Oxford
University Press, Bombay, which is part of 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
publishes 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
31st July, 1954 at its request from the Assessment Year
1952-53 onwards. For the Assessment Year 1976-77 the
assessee returned an income of Rs. 19.94 lakhs, but, in the
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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 filed by the
assessee, overturned the assessment by the 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 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 had 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, 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
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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 for profit.
An educational institution, while it may impart education,
may yet have a profit 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 purpose 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 assessment 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 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.
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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
coordination 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 Indian
Income Tax Act, 1922 by a notification dated 21st March,
1922 and that clause in the 1922 Act was in terms brought
into the 1962 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 1962.
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 forego 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 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 vs. Income Tax Officer, Ernakulam &
Anr., [1981(4) SCC 173] and Commissioner of Income Tax,
Bangalore vs. J.H. Gotla, Yadagiri, [1985(4) SCC 343] in
support of the contention.
In Vargheses case, 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 assessment for the year 1966-67 in
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the normal course in this manner, the I.T.O. issued a
notice to re-open the assessment on the basis that Section
52(2) of the 1962 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%. The I.T.O. 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 accepted as correct the ITOs view. This Court
reversed the Full Bench decision, and it said that if
sub-section (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 which from no view point can be
rationally construed as capital gains or any other type of
income. It is a well settled rule of construction that the
Court should as far as possible avoid that construction
which attributes irrationality to the legislature. It was
also found that, so construed, sub-section (2) was violative
of the Constitution and the Court 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, 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, the 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
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 Gotlas case, a strict and literal construction of
Section 16(3) read with Section 24(2) of the 1962 Act led to
the conclusion that where the wife or minor child were
carrying on a 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 assessees 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 counsels submission is that Parliament
could never have intended to forego tax revenue for the
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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 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 forego 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.