INCOME TAX ACT, 1961

--Exemption under section 10(23C)(iv)--Institution of Standards Trade commerce or business--Assessee was a statutory body established under Bureau of Indian Standards Act, 1986. The question to be decided is whether withdrawal of exemption under section 10(23C)(iv) was justified. The reasons given by the DCIT (Exemption) in withdrawing exemption was that assessee was carrying on trade, commerce or business and as such it was hit by proviso to section 2(15). Held: Prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection, etc., cannot be considered as trade, business or commercial activity, merely because the testing procedure or accreditation involves charging of certain fees.

It cannot be said that the BIS is involved in any carrying on trade, commerce or business. BIS is a statutory body established under the BIS Act and was brought into existence âہ“for the harmonious development of the activities of standardisation, marking and quality certification of goodsâ€Â. This was, and has been, its primary and predominant object. Even though it does take license fee for granting marks/certification, the same cannot be said to be done for the purpose of profit. If any profit/revenue is earned, it is purely incidental. The BIS performs sovereign and regulatory function, in its capacity of an instrumentality of the state. Therefore, this Court has no doubt in holding that it is not involved in carrying on any activity in the nature of trade, commerce or business. [Para 13] What survives to be determined is whether any of BIS's activities fall within the latter and larger category of âہ“involved in the carrying on of any activity of rendering any service in relation to any trade, commerce or businessâ€Â. The expressions âہ“any activity,â€Â âہ“rendering any serviceâ€Â and âہ“in relation to any trade, commerce or businessâ€Â imply that the intention of the legislature was to make the latter part of the exception broad and inclusive. It seems that the exception (the first proviso) is intended to catch with its ambit any and all commercial activity, except what falls within the second proviso (which bars application of the exception in cases where the aggregate value of the receipts from the activities mentioned therein is less than ten lakh rupees in the relevant previous year). The Bureau, it would appear at the first blush, renders service in relation to trade, commerce or business by granting certification/quality marks in return of license fee. Apparently, Parliament intended to clarify that not all activities of State agencies (some of which might be set up to carry on trading and commercial activities) can be considered charitable. [Para 16] In these circumstances, âہ“rendering any service in relation to trade, commerce or businessâ€Â cannot, in the opinion of the Court, receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the State in public duties which cannot be discharged by private bodies. Often, apart from the controlling or parent statutes, like the BIS Act, these statutory bodies (including BIS) are empowered to frame rules or regulations, exercise co-ercive powers, including inspection, raids; they possess search and seizure powers and are invariably subjected to Parliamentary or legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility. The prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection, etc., cannot be considered as trade, business or commercial activity, merely because the testing procedures, or accreditation involves charging of such fees. It cannot be said that the public utility activity of evolving, prescribing and enforcing standards, âہ“involvesâ€Â the carrying on of trade or commercial activity. [Para 16] The impugned order of the Director of IT is contrary to law. It is hereby quashed. The respondents are directed to process the case of BIS and issue the exemption hitherto enjoyed by it, under section 10 (23). [Para 17]