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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.