http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

     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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

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.