Facts of the Case

The Bureau of Indian Standards (BIS), a statutory body under the BIS Act, 1986, was granted income tax exemption under Section 10(23C)(iv) of the Income Tax Act, 1961. The Director General of Income Tax (Exemptions) withdrew this exemption on 24.02.2012, claiming that BIS engaged in commercial activities by collecting fees for product certification and licensing, which falls under the proviso to Section 2(15) of the Act, post the 2010 amendment.

Issues Involved

  1. Whether BIS, by charging license fees for certification, engaged in “trade, commerce or business” that would exclude it from charitable exemption.
  2. Interpretation of Section 2(15) after the 2010 amendment regarding the definition of “charitable purpose” and its exceptions.
  3. Determination of whether BIS’s primary object is regulatory and sovereign or commercial in nature.

Petitioner’s Arguments (BIS)

  • BIS argued that it is an instrumentality of the State under Article 12 of the Constitution.
  • Functions such as standardization, product certification, and licensing are sovereign and regulatory, not commercial.
  • License fees are statutory and mandatory for businesses using the ISI mark; mere receipt of fees does not indicate commercial intent.
  • Relied on Sections 22, 23, and 26 of the BIS Act to demonstrate the regulatory nature of BIS functions.
  • Cited precedents: Commissioner of Income Tax v. APSRTC, ICAI Case (W.P.(C) 1927/2010).

Respondent’s Arguments (Income Tax Department)

  • BIS engaged in commercial activities by charging fees for licensing, product certification, and accreditation.
  • Activities fall under the proviso to Section 2(15), post-2010 amendment, disqualifying BIS from exemption.
  • Claimed that the benefits were not primarily for the public but had commercial implications.

Court’s Findings / Order

  • The Court held that BIS’s primary object is advancement of general public utility through standardization and quality certification.
  • Charging fees for certification does not convert a regulatory and sovereign function into commercial activity.
  • The Court referred to Supreme Court and High Court precedents:
    • Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC)
    • CIT v. Ahmedabad Rana Caste Association [1983] 140 ITR 1 (SC)
    • CIT v. APSRTC [1986] 159 ITR 1 (SC)
    • Commr. of Income Tax v. Gujarat Maritime Board [2007] 295 ITR 561 (SC)
    • ICAI Case, W.P.(C) 1927/2010
  • The impugned order dated 24.02.2012 withdrawing exemption was quashed.
  • Respondents were directed to restore BIS’s exemption under Section 10(23C)(iv) within 10 weeks.

Important Clarifications

  • “Carrying on trade, commerce, or business” under Section 2(15) does not include regulatory and sovereign functions performed under statutory mandate.
  • Receipt of statutory fees for regulatory services does not constitute commercial activity.
  • The predominant purpose must be charitable or of general public utility, even if incidental income is generated.

Sections Involved

  • Section 10(23C)(iv) – Income Tax Exemption for Charitable Institutions
  • Section 2(15) – Definition of Charitable Purpose (post Finance Act 2010 amendment)
  • BIS Act, 1986 – Sections 10, 22, 23, 26

Link to download the order -  https://delhihighcourt.nic.in/app/case_number_pdf/2012:DHC:6053-DB/SRB27092012CW17552012.pdf

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