TMI Blog2001 (1) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... (22) in case it is imparting education in India or has some educational activity in India. It is not the case of the assessee nor is there any such finding that the assessee is imparting any education or has any educational activity in India. In this view the assessee is not entitled to claim exemption. Any other interpretation would be absurd and manifestly unjust. The absence of the word "India" in this provision is inconsequential. It has to be read into section 10(22). The literal construction would lead to manifestly unreasonable and absurd consequences as indicated above. Thus the assessee is not entitled to exemption as held by the High Court. The appeals deserve to be dismissed. - C.A. 533 OF 1997 - - - Dated:- 24-1-2001 - Judge(s) : S. P. BHARUCHA., D. P. MOHAPATRA., Y. K. SABHARWAL JUDGMENT The judgment of the court was delivered by 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n "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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cational 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961 (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 (Bom)): "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. 1994 lakhs. It claimed exemption from payment of tax under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 other words places the onus of proving the contrary in a claim for exemption by the assessee. There is no consideration in the order of the Tribunal on the question whether the income earned by the assessee is a part of the funds of the Oxford University. The approach of the Tribunal in this regard is clearly erroneous and the finding recorded by it vitiated. The contention raised by Shri Dastur that the real assessee in the case is the Oxford University, cannot be accepted. From the case of the parties and the contentions raised on their behalf the question that arises for determination is whether in the facts and circumstances of the case the claim for exemption from tax under section 10(22) of the Act by the assessee on the ground that the Oxford University Press is a part of the Oxford University ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both. Section 10(21) provides for exemption of income of an approved scientific research association, the income of which is applied wholly or exclusively to the objects for which it is established. Under section 10(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 is exempted. Section 10(22B) provides for exemption of any income of such news agency set up in India solely for collection and distribution of news as the Central Government may, by notification in the Official Gazette, specify in that behalf provided that the news agency applies its income or accumulates it for application solely for collection and distribution of news and does not dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 597 (SC) and Luke v. Inland Revenue Commissioners [1964] 54 ITR 692 (HL), observed (page 280 of 62 STC and page 100 of SCC): "The courts must always seek to find out the intention of the Legislature. Though the courts must find out the intention of the statute from the language used, but language more often than not is an imperfect instrument of expression of human thought. As Lord Denning said it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity. As judge Learned Hand said, we must not make a fortress out of dictionary but remember that statutes must have some purpose or object, whose imaginative discovery is judicial craftsmanship. We need not always cling to literalness and should seek to endeavour to avoid an unjust or absurd result. We should not make a mockery of legislation. To make sense out of an unhappily worded provision, where the purpose is apparent to the judicial eye 'some' violence to language is permissible." In Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1, this court held that in a taxation statute where literal interpretation leads to a result not intended to subserve the object of the legislatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision it will be reasonable to hold that in order to be eligible to claim exemption from tax under section 10(22) of the Act, the assessee has to establish that it is engaged in some educational activity in India and its existence in this country is not for profit only.. This interpretation of section 10(22) neither causes violence to the language of the provision nor does it amount to rewriting the same. On the other hand, it only gives a harmonious construction to the provision which subserves the object and purpose for which the provision is intended to serve. For the reasons stated in the preceding paragraphs, I am persuaded to take the view that in the facts and circumstances of the case, the High Court rightly held that the assessee, Oxford University Press, was not entitled to the exemption from tax under section 10(22) of the Act. The appeals are accordingly dismissed. There will, however, be no order for costs. Y. K. SABHARWAL J.---The main question for consideration in this matter is about the interpretation of clause (22) of section 10 of the Income-tax Act, 1961 (for short "the Act"). I have gone through the judgments proposed by justice S. P. Bharucha and justice D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered are : (1) Whether the words "existing solely for educational purposes and not for purposes of profit" qualify the words "other educational institution" and not the words "a university" ? (2) Whether section 10(22) of the Act applies only to an Indian university? (3) Whether imparting of education in India is a sine qua non for claiming exemption under section 10(22), by a university or other educational institution ? Point No. 1 : The plain language of clause (22) does not suggest that the words mentioned above qualify only other educational institution and not universities. Mr. Dastur though faintly suggested that it can be argued that these words do not qualify universities and qualify other educational institutions but learned counsel did not argue on that basis. Learned counsel assumed that the requirement of sole existence for educational purposes and not for purposes of profit applies to universities as well as to other educational institutions. Unfortunately, the existence of the so-called universities ostensibly for sole educational purposes and in reality for purposes of profit is not unknown in this country. Words to similar effect have also been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of Mr. Verma from another angle. The acceptance of the contention of learned counsel would mean that "a university" to claim the benefit of exemption under section 10(22) ought to be established, constituted or set up in India. The words "constituted in India", "set up in India" and "established in India" have been used in clauses (20A), (22B) and (23) of section 10. The relevant portions of these provisions read as under : "10. (20A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both ; 10. (22B) any income of such news agency set up in India solely for collection and distribution of news as the Central Government may, by notification in the Official Gazette, specify in this behalf : Provided that the news agency applies its income or accumulates it for application solely for collection and distribution of news and does not distribute its income in any manner to its members : Provided further that any notification issued by the Central Government under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a conclusion that "a university or other educational institution" need not be constituted, set up or established in India to claim the benefit of exemption. It is not possible to infer anything more than this. While dealing with point No. 2, I have already said that section 10(22) of the Act applies not only to Indian universities but to other universities as well. Therefore, the constitution, setting up or establishment of a university in India to claim benefit of exemption under section 10(22) is not necessary but that does not lead to the conclusion that imparting of education or providing any educational facilities in India is also not necessary for such a university to claim the benefit of exemption. I have no difficulty in accepting the contention of Mr. Dastur, learned counsel for the appellant, that for the purposes of claiming exemption under clause (22) of section 10, the source of income is not relevant and, therefore, the question whether the income of the press is from sale and printing of books, is of no consequence and on that ground exemption cannot be denied to the appellant. Mr. Dastur has also relied upon the decision of this court in Orissa State Warehousi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retation of, the fiscal statutes, it was said : "In fine thus, a fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. No words ought to be added and only the language used ought to be considered so as to ascertain the proper meaning and intent of the legislation. The court is to ascribe the natural and ordinary meaning to the words used by the Legislature and the court ought not, under any circumstances, to substitute its own impression and ideas in place of the legislative intent as is available from a plain reading of the statutory provisions." Mr. Dastur also brought to our notice the decision in CIT v. Gujarat State Warehousing Corporation Ltd. [2000] 245 ITR 1 (SC), referring the case of Orissa State Warehousing Corporation [1999] 237 ITR 589 (SC), to a larger Bench. For the present purposes, however, the decisions relevant to be considered are those which examined, in particular, the fiscal provisions from the angle of ambiguity and the absurd results that may follow, if literal interpretation is adopted. The case of Orissa State Warehousing Corporation [1990] 237 ITR 589 (SC) does not fall in that category. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e [1973] 91 ITR 49 (Ker)) by a majority decision did not accept the contention of the assessee that the understatement of consideration in respect of the transfer was a necessary condition for attracting the applicability of section 52(2). The case proceeded on the basis that admittedly there was no understatement of consideration and it was a perfectly bona fide transaction. The contention of the Revenue was not that the consideration paid was more than the stated consideration of Rs. 16,500. The contention was that the payment of consideration was not a relevant consideration for attracting section 52(2) and what was relevant was only the fair market value of a capital asset at the time of the transfer which was found as Rs. 65,000 and, therefore, as on the date of the transfer, it exceeded the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than 15 per cent. On the aspect of interpretation of section 52(2) the contention of the Revenue which found favour with the Full Bench of the Kerala High Court was that on a plain and natural construction the only condition for attracting the applicability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is said that 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. In such a case the court may read into the statutory provision a condition which though not expressed, is implicit in constituting the basic assumption underlying the statutory provision. Bearing in view these principles the court held that on a fair and reasonable construction of section 52(2) the court would read into it a condition that it would apply only where the consideration for the transfer is understated or, in other words, the assessee has actually received a larger consideration for the transfer than what is declared in the instrument of transfer and it would have no application in the case of a bona fide transaction where the full value of the consideration of transaction is correctly declared by the assessee. Thus, a condition though not expressed, was rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm did carry on the same business as was hitherto carried on by the assessee but there was no connection between the assessee and the business carried on by the firm and they were two different entities and, as such, the assessee could not be said to be carrying on the business out of which the share income of the wife and minor children arose. Accordingly, the Tribunal held that the assessee was not entitled under section 24(2) of the Act to claim set off of his losses against the income of his wife and minor children. The High Court on a reference held that the share income of the assessee's wife and minor children included in the assessee's total income under section 16(3) of the Act should be regarded as business income derived from the business carried on by the assessee and in that view of, the matter, the assessee was entitled to set off his loss carried forward from the previous year. The question was thus answered by the High Court in the affirmative and in favour of the assessee. The Revenue came up with the appeal before this court, The main question for consideration was the interpretation of section 16(3). The said provision as noticed in J. H. Gotla's case [1985] 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loss was originally sustained continued to be carried on by him in that year ; and (iii) if the loss in either case cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year and so on but no loss shall be so carried forward for more than eight years." Interpreting the aforesaid provisions, it was said : "We have noted the object of section 16(3) of the Act, which has to be read in conjunction with section 24(2) in this case for the present purpose. If the purpose of a particular provision is easily discernible from the whole scheme of the Act, which in this case is to counteract the effect of the transfer of assets so far as computation of income of the assessee is concerned then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result, i.e., a result not intended to be subserved by the object of the legislation found in the manner indicated before, then if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by judge Learned Hand that one should not make a fortress out of dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning." In State of Tamil Nadu v. Kodaikanal Motor Union (P) Ltd. [1986] 62 STC 272 ; [1986] 3 SCC 9 1, it was again said (page 281 of 62 STC and page 102 of [1986] 3 SCC) : "As Lord Denning has said, the judge has to perform the constructive task of finding the intention of Parliament, and he must supplement the written word so as to give 'force and life' to the intention of the Legislature. Primarily, it is always the duty to find out the intention of the Legislature and if it can be done without doing much violence to the language as we find it can be done in this case, though, as we have noted that when the purpose was writ large in the scheme of the section 'some violence' is permissible, here we are of the opinion that the construction put by the assessee cannot be accepted and the contention urged on behalf of the revenue in this case should be preferred." The imparting of education is service to the society. From the language of section 10(22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of service of society in India is implicit in clauses (22) and (22A) of section 10 of the Act. Further, under clause (29) though the words "Indian law" are not used, but to claim-exemption the authority therein has to be constituted under any law for the time being in force in "India". The word "India" in relation to law is implicit. It would be absurd if a person is allowed to claim exemption by saying that it is constituted under law in force in some other country and there is no requirement under section 10(29) that it should be constituted under any law for the time being in force in India. Clause (29) of section 10 reads as under : "(29) in the case of an authority constituted under any law for the time being in force for the marketing of commodities, any income derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities." Thus, it is evident that for the purposes of granting exemption the Legislature assumed the existence of educational activity in India by a University or other educational institution but did not want to restrict the exemption only to such university or educational institution which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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