Thursday, November 22, 2012

Performing regulatory function by BIS isn’t a business activity even if it earned profit from such functions

The BIS (“the assessee”), a statutory body, was established under the Bureau of Indian Standards Act, 1986 ("the BIS Act"). The exemption granted to assessee under section 10(23C)(iv) was withdrawn by DIT(E) on the contention that the nature of activities carried on by the assessee was hit by proviso to section 2(15), as the activities carried on by assessee were in the nature of business. The DIT(E) further noted that the assessee had earned substantial amount of income. The assessee, thus, filed instant writ against the order of DIT(E).

The High Court held in favour of assessee as under:

1) Assessee is a statutory body established under the BIS Act and brought into existence "for the harmonious development of the activities of standardization, marking and quality certification of goods". This has been its primary and pre-dominant object, and the profit/revenue earned on discharging its functions is purely incidental;

2) The assessee performs sovereign and regulatory function, in its capacity of an instrumentality of the state. Therefore, it could not be said that it was carrying on an activity of trade, commerce or business;

3) "Rendering any service in relation to trade, commerce or business" couldn’t cover within its fold the regulatory and sovereign authorities, set up to act as agencies of the State in public duties;

4) The primary object for setting up such regulatory bodies is to ensure general public utility. Further, it couldn’t be said that the public utility activity of evolving, prescribing and enforcing standards, "involves" the carrying on of trade or commercial activity.

Therefore, the impugned order of DIT was quashed by High Court - Bureau of Indian Standards v. DGIT(E) [2012] 27 127 (Delhi)

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