TMI Blog2009 (8) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... oundation under Section 10(23C)(iv) - 3032 of 2008 - - - Dated:- 28-8-2009 - A.K. SIKRI and VALMIKI J. MEHTA, JJ. Mr. N.K. Poddar, with Mr. Pramod Dayal, Advocate, for the Petitioner Ms. Prem Lata Bansal, Ms. Sonia Mathur with Mr. Sumit Kumar Singh. JUDGMENT A.K. SIKRI, J. - The Chartered Accountants Act, 1949 was enacted by the Parliament with the purpose of regulating the profession of Chartered Accountants. Under this Act, Institute of Chartered Accountants of India (ICAI) has been set up and, thus, it is a statutory body. It is given the prime function of regulating the profession of Chartered Accountants. It also lays down accounting and auditing standards which are to be followed by all enterprises. The ICAI has set up the Petitioner No.1, namely, ICAI Accounting Research Foundation (hereinafter referred to as the "Petitioner Foundation"). The main objective of this Foundation is to make it an academy for imparting, spreading and promoting knowledge, learning education and understanding in the various fields relating to the profession of Accountancy, like accounting, auditing, fiscal laws and policy, corporate and economic laws and policies, economics, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of its objectives and no portion thereof shall be paid, directly or indirectly, by way of dividend, bonus or otherwise by way of profit to the members. Even remuneration or other benefit in monies is not to be given by the company to any of its members, whether officers or servants of the company or not, without the previous approval of the Central Government. Likewise, members are not to be appointed to any office under the company which is remunerated by salary, fees or in any other manner, without the previous approval of the Central Government. Even the alteration in the Memorandum of Association or Articles of Association of the company is not permitted without submitting the same to the Central Government and obtaining its prior approval. 4. The Petitioner Foundation is also registered under Section 12-A read with Section 12-AA(i) of the Income Tax Act, 1961 (for short, the "Act") with effect from 14.1.1999, i.e. from the very first day of its incorporation/registration under Section 25 of the Companies Act. It is also recognized as a Scientific and Industrial Organization by the Government of India, Ministry of Science and Technology, Department of Science and Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects to be undertaken by it :- Investment Decision Models of Retail and Institutional Investors - Use of Accounting Information. Effect of Accounting Information in Published Annual Reports on Movement in Share Prices. Considerations in Deciding Accounting Policies by Listed Companies. Current Accounting Practices of Local Bodies and Panchayats. Current Risk Management Practices by Indian Companies. Current Risk Management Practices by Banking Companies and Financial Institutions. Fiscal Law Administration - Concept of Accountability. Taxation of E-commerce Business. The Structure of Accounting Profession in India - Its Future in WTO Regime. Accounting Standards - Expectation Gap. Ethical Standards for Professional Accountants/Auditors - A Study of Global Standards including Indian Standards. 8. The Petitioner Foundation also sought affiliation from Guru Gobind Singh Indraprastha University for offering Ph.D. programmes, which was granted. As a result, it enrolls Research Fellows and on successful completion of research study, a Doctoral Degree is granted by the University to those Research Fellows. During the past few years, the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertisement companies: A group of Recognition, Measurement and Disclosure issues in Bio-Technology and other life science companies, Information Technology (IT) Companies and Advertisement Companies was set up with the representatives from the office of Comptroller Auditor General of India, The Institute of Chartered Accountants of India, Technology Development Board, Technology Networking and Business Development Division (CSIR), Consultants Development Council, and the Industry. Based on the presentation made by the leading companies in the areas, the Study Group circulated a questionnaire covering accounting and disclosure issues to large number of companies. The response received is being collated, analyzed and examined together with accounting policies and practices being followed in other countries. (g) Developing a code of Governance for Non-Profit Organisations (NPOs): The study on Code of Governance for Non Profit Organisation (NPOs) Sector is underway. The draft of the study prepared by Investment Information and Credit Rating Agency of India Ltd. (ICRA) on the above subject is considered by the Expert Group of the Petitioner Foundation. The study proposes to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otential researcher throughout the country on the other. 10. On the basis of the aforesaid activities, there is not even an iota of doubt that the Petitioner Foundation is involved in education and, thus, meets the description of charitable institution. 11. These aspects are not even disputed by the respondent No.1. Notwithstanding the same, the Respondent No.1 has denied the exemption. What is the reason then? For this, we shall have to advert to the impugned order. 12. When we scan through the impugned order, we find that the main reason given by the Respondent No.1 is that during the financial year 2003-04, 2004-05, 2005-06 and 2006-07, the Petitioner Foundation has mainly done contract work, for which it has received certain payments. These activities are basically the jobs done for third parties, for consideration received. Therefore, the Petitioner Foundation is providing professional services on regular basis, which amounts to doing business of providing professional services. Since professional services is a commercial activity, it cannot be taken as a 'charitable activity'. Particulars of the various such jobs undertaken by the Petitioner Foundation and the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the foundation in affiliation with Guru Gobind Singh Indraprastha University, the Respondent No.1 was of the view that even from this it would be concluded that the Petitioner Foundation is not doing charitable activity because of the reasons stated in this manner :- "VII. Regarding the scheme of granting stipend and fellowship to students, it is noticed that funds for the same are being provided by Infosys Technologies Ltd. As per the agreement signed with Infosys Technologies Ltd., it is found that entire Endowment amount of Rs.9,00,000/- per fellow is to be provided by Infosys Technologies Ltd. if a fellow leaves in the middle of the programme, or finishes early with funds left in the account, Infosys will decide how the money is to be spent. This shows that this stipend and fellowship are being funded by Infosys Technologies Ltd. with the applicant playing only the role of a facilitator. Hence, the applicant cannot be said to be doing any charitable activity in this regard." The Respondent No.1 was also of the view that even if it is considered that the Petitioner Foundation was carrying on some other charitable activities, separate books of accounts were required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... System, the Petitioner Foundation also assisted MCD in introducing best practices which are being followed in leading Municipal Corporations world over. 14. Likewise, the Kolkata Municipal Corporation project was taken up by the Petitioner Foundation in July 2004 because it involved further study of some unique characteristics different from the above. This was successfully completed in September 2007. During this period, the Petitioner Foundation assisted Kolkata Municipal Corporation in the preparation of its financial accounts, carried out number of studies on business process re-engineering, and also conducted various management training programmes for capacity building etc. The Petitioner Foundation demonstrated to the Municipal Corporation the effects of what improved presentation of accounts can achieve, what improved financial analysis and management practices can provide and submitted its findings. The Petitioner Foundation also assisted the Municipal Corporation in preparing report on sustainability, containing specific recommendations of integrated capacity building exercise with organizational changes, and standardized formats of financial statements and established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows : "'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit." 16. Thus, the emphasis is on the fact that this charity is carrying on a business, namely, the Hamdard Dawakhana. In fact, the dedication is of a business because the dedicated property is neither any building, nor any trade mark, but the business of the Hamdard Dawakhana. It is, therefore, urged that this is not a charitable purpose at all and hence no exemption can be granted. It is pointed out that out of the business of this trust, the khandani income is being earned by the mutawallis themselves, so there is no scope for saying that this is a charitable purpose. 17. We find that on a proper construction of the Act, this is not the meaning to be given to the definition. In order to have a charity, you must have a source of income. The income may come from gifts, or it may come from running a business. In this case, the trust is of a portion of the income of the Hamdard Dawakhana. Although the source of the income is a business, the object of the trust is not to ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normally with the object of making profit. To regard an activity as business, there must be a course of dealings either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure." It is, therefore, clear that the two essential requirements for an activity to be considered as "business" are : (i) it must be a continuous course of activity; and (ii) it must be carried on with a profit motive " 20. The principles which are laid down in both the aforesaid cases provide complete answer to the issue at hand. It is to be noted that the aforesaid projects undertaken on behalf of these local bodies is not a regular activity of the Petitioner Foundation. Primary activity remains the same, namely, research in accounting related fields. Even these projects which were taken up on behalf of those local bodies fit in the description of research projects‟, which can be termed as ancillary activity only. The circumstances under which the projects were undertaken make it clear that it was at the instance of the Government of India or the State Government for improving the accounting and budgetary systems in these local bodies. The expertise o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose, advertisements are issued and applications invited from candidates interested in pursuing the research with the Petitioner Foundation under the said scheme. On that basis, the candidates are selected to conduct research, who are assigned research projects. For example, one candidate was awarded this fellowship on the research project "Legal Protection of Intellectual Property in Information Technology Industry". The completion of such research projects lead to award of doctoral degree by the Guru Gobind Singh Indraprastha University. Surprisingly, only on the figment of imagination that a fellow leaves in the middle of the programme or finishes early with funds left in the account, as Infosys is to decide as to how the money is to be spent, with the Petitioner Foundation playing the role of a facilitator, the respondent No.1 has concluded that the Petitioner Foundation could not be said to be doing any charitable activity in this regard. It is too presumptuous a reasoning. What is ignored is that even if such eventuality occurs money has to be spent for the purpose for which it is allocated, namely, fellowship. The essential character of this fellowship is that a student is g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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