SC to take call on ICAIs status for tax exemptions

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Jul 25 2012, 06:14am hrs
The Supreme Court has decided to examine whether the Institute of Chartered Accountants of Indias coaching activities, which come for a fee for students, are a business or a charitable activity entitled to tax exemptions under the income-tax law.

A bench headed by chief justice SH Kapadia, while admitting the cross-appeals filed by the I-T department and the ICAI against the Delhi High Court order of September 9 last year, had issued notice on both the appeals.

While seeking to levy Rs 5.68 crore as tax for assessment year 2005-06, the department said coaching activities undertaken by the institute is a 'business' and not a charitable activity, thus the institute is required to maintain separate books of accounts.

It further said that since ICAI had failed to maintain such books, there is a violation of Section 11(4A) of the Income-Tax Act,1961.

Additional solicitor general Gourab Banerji also argued that the assessee had incurred expenses of R1.64 crore on overseas activities including travelling, membership of foreign professional bodies, etc, without any permission from the Central Board of Direct Taxes, as required under the Act, and hence income of the institute was not entitled to exemption as a charitable institution.

On the other hand, ICAI challenged that part of the HC judgement which observed that the institute cannot be regarded as an educational body merely because one of its main and predominant objective is to control and regulate the conduct of business and profession of CAs.

The institute argued that the HC should have held that the activity of controlling and regulating the conduct and profession of CAs carried was wholly ancillary and incidental to its main and primary object of providing formal education and training to the students undergoing chartered accountancy and other post-qualification courses like corporate management, tax management, information system audit, etc, and also holding examinations and awarding degrees under the Act.

The DIT (Exemption) in March 2010 had refused ICAI's arguments by saying that the assessee was earning income and incurring expenditure on coaching classes and the Chartered Accountants Act 1949 nowhere provides for such coaching classes. Running of coaching classes is a business and not a charitable activity and as the assessee has failed to maintain separate books, the profit and gains of the institute can not be exempted.

The Income Tax Appellate Tribunal in October 2010 had favoured the assessee, which was later endorsed by the HC, by holding that ICAI is an educational institute.