Case: Oxford University Press Vs. Commr. Of Income Tax

2. 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 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.3. 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 t 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 equational 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 solve 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 ofOxford. 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 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 had 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.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. 19.94 lacs. It claimed exemption from payment of tax under section 10(22) of the Act mainly on the basis that it is a part of the Oxford University incorporated in the United Kingdom. The assessing officer did not accept the claim of exemption and passed the order of assessment under Section 144-B of the Act. On appeal the Commissioner of Income-tax (Appeals) accepted the assessees contention that being a part and parcel of the University of Oxford of U.K. it is entitled to the exemption under Section 10(22) of the Act. On the said finding the appeal was allowed and the assessment order was set aside. A further appeal filed by the Revenue before the I.T.A.T. proved futile. thereafter the Tribunal referred the question as noted earlier to the High Court under Section 256(1) of the Act. The High Court accepted the contention raised on behalf of the Revenue that the assessee, in the facts and circumstances of the case, did not qualify for the exemption provided under Section 10(22) of the Act.17. From the discussions in the judgment of the High court it appears that the main thrust of the contentions raised on behalf of the assessee was that the Oxford University Press being a part of the Oxford University of U.K. the income earned by it is the income of the University and as such entitled to exemption from the tax. It was also urged on behalf of the assessee that in order to qualify for the exemption it is not necessary that the University should be incorporated in India or should be engaged in any activity relating to education or concerning the field of education in India. The High Court held that even assuming that the oxford University Press is a part of the Oxford University, what is existing in India is only the `Oxford University Press which is the assessee and in such a situation the assessee cannot be regarded as a University or an educational institution existing solely for educational purposes and not for the purpose of profit; therefore, the assessee is not entitled to the exemption provided under Section 10(22) of the Act.

Reasoning: 30. I am of the view that the expression `existing solely for the educational purpose and not for the purpose of profit qualifies a `university or other educational institution. In a case where a dispute is raised whether the claim of exemption from the tax by the assessee is admissible or not it is necessary for the assessee to establish that it is a part of a university which is engaged solely or at least primarily for educational purposes and not for purposes of profit and the income in respect of which the exemption is claimed is a part of the income of the university. This question assumes importance in a case like the one in hand where the assessee is nothing more than a commercial establishment/business enterprise engaged in the business of printing, publishing and selling of books in this country. The label "university press" is not sufficient to establish that it is engaged in any educational activity. The purpose of the existence of the assessee in this country as appears from the material on record, is possibly to earn profit. If the interpretation of the provision in section 10(22) of the Act as urged on behalf of the assessee is accepted the provision will be exposed to challenge on the ground of being irrational and therefore arbitrary. Then the question will arise for what purpose is this exemption from tax extended to the assessee? How is it different from the large number of such establishment engaged in the business of printing, publishing and selling of books.31. In State ofNadu v. Kodaikanal Motor Union (P) Ltd., 1986(3) SCC91 this Court referring to K.P. Varghese v. I.T.O., 1981(4) SCC 173 and Luke v. Inland Revenue Commissioners, 1964(54) ITR 692 (IIL)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 that 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 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.vij and co. and others v. Commissioner of Income Tax, 1990(2) SCC 231 this Court held that in a taxation statute where literal interpretation leads to a result not intended to subserve the object of the legislation another construction in consonance with the object should be adopted. Therein referring to the words of Thomas M. Cooley in Law of Taxation Vol.2, this Court observed: (at p.243)"Artificial and unduly latitudinarian rules of construction which, with their general tendency to "give the tax payer the breaks", are out of place where the legislation has a fiscal mission. Indeed, taxation has ceased to be regarded as an "impertinent intrusion into the sacred right of private property" and it is now increasingly regarded as a potent fiscal took of State policy to strike the required balance required in a context of the felt needs of the times-between citizens claim to enjoyment of his property on the one hand and the need for an equitable distribution of the burdens of the community to sustain social services and purposes on the other. these words of Thomas M. Cooley in Law of taxation vol.2 are worth mentioningrules of construction has probably found more favour with the courts than they have ever deserved. their application in legal controversies has oftentimes been pushed to an extreme which has defeated the plain and manifest purpose in enacting the laws. Penal laws have sometimes had all their meaning constructed away and in remedial laws, remedies have been found which the legislature never intended to give. Something akin to this has befallen the revenue laws....Income of the public exchequer and expenditure from it is a matter of considerable public importance. Citizens of this country, particularly the tax payers, are entitled to know the rational basis for granting exemption from income-tax to an assessee. In extending the exemption to Universities which exist solely for educational purposes and not for the purposes of profit, there is a rational basis and a valid reason. If establishment/institutions which are engaged solely in commercial activities are included in the expression `University and are treated at par for the purpose of granting exemption from the tax then it will amount to treating unequals as equals and, therefore, discriminatory. A provision of exemption from tax in a fiscal statute is to be strictly construed. Interpretation of such a statutory provision which does not stand the lest of rationality and will lead to absurd results cannot be accepted.34. Giving a purposeful interpretation of the provision 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 re-writing the same. On the other hand it only gives a harmonious construction of the provision which subserves the object and purpose for which the provision is intended to serve.