TaxTMI 
TaxTMI 
2017 (1) TMI 53
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....asting facts in both appeals, which have led to different results, illustrate the working of the provisions of the Act. 2. We will first deal with ITA No.62 of 2015 which was heard first. 3. This is an appeal against the order of the Income Tax Appellate Tribunal dated 26.11.2014 setting aside the order of the Commissioner of Income Tax (Appeals) and restoring that of the Assessing Officer. The matter pertains to the Assessment Year 2009-10. 4. According to the appellant, the following substantial questions of law arise in this case:- "i) Whether in fact and circumstances of the case the purpose/objects of the appellant are charitable in nature despite the 2008 Amendment particularly when there is no change in the functions/nature of operation of the Trust? ii) Whether the reliance placed by the Ld Tribunal on the judgment in the case of Sole Trustee Loka Shikshana Trust v/s CIT (1975) 101 ITR 234 is good in law? iii) Whether in fact and circumstances of the case the respondents could dispute the nature of the appellant trust despite the same having been settled by the Privy Council and the exemptions granted by the CBDT continuously since 1984-85 till date? iv....
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....ii) "(15) "charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility;" From 2009 to 2014 iii) "(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;" 6. On 23.09.2009, the appellant filed its return of income declaring a loss of about Rs. 38.75 crores after claiming an exemption under section 10(23C)(iv) of the Act amounting to about Rs. 198 crores. The return was processed under section 143(1). The appellant filed a revised return on 10.09.2010 declaring the same loss. The case was selected for scrutiny. A notice under Section 143(2) was issued, as was a....
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....sting in them and to reimburse themselves for any costs they may have incurred in or in relation thereto out of the said estates." Litigation ensued in respect of the Trust which was settled by a Deed of Compromise dated 01.12.1906 which provided that "in case the Tribune newspaper should cease to exist or be impossible to exist" the property belonging to the Tribune Press should become the property of the Arts College trust. We will be referring in some detail to the judgment of the Privy Council in the assessee's case-Trustees of Tribune Press vs. Commissioner of Income Tax, Punjab Lahore dated 13.06.1939, (1938-39) Vol.LXVI Indian Appeals 241 (PC). The relevant facts as stated in the judgment are as follows: Sardar Dyal Singh died in 1898. The Trust in respect of the Tribune Press has been carried out and the newspaper by the name 'The Tribune' continued to be published and continues to be published. The profits of the press and the newspaper have been assessed to income tax since 1918. The claim for exemption was first made by the appellant in the year 1932-33. On 31.01.1933, the Income Tax Officer, Lahore, for the Assessment Year 1932-33 assessed the appellant's incom....
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....een a school founded by a testator, but charging fees to its pupils, and a paper founded by a testator and sold to its readers. The purpose of providing the poor or the community in general with some useful thing without price, or at a low price, may doubtless be in itself a purpose of general public utility. But, if another object be independently in itself of general public utility, the circumstance that the testator's bounty was only in respect of the initial capital assets, or had only to meet a working loss temporarily and not permanently, will not, necessarily at least, alter the character of the object." (at page 255) "..... .... In the original letter of reference it was not suggested by the Commissioner that the newspaper was intended by its founder to be a mere vehicle of political propaganda, and in the case of Sardar Dayal Singh it seems unreasonable to doubt that his object was to benefit the people of Upper India by providing them with an English newspaper-the dissemination of news and the ventilation of opinion upon all matters of public interest." (at page 256) "They think that the object of the paper may fairly be described as "the object of supplying t....
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....8 dated 19.12.2008 issued by the CBDT. It was observed that the amendment to the section created a distinction between charitable object and noncharitable object and in view thereof and in view of the appellant having revised its return without claiming an exemption under section 10(23C)(iv), it cannot be treated as a Trust carrying on activities covered under section 2(15). The income was assessed under the head "Income from business and profession" treating the appellant as a normal business entity. Intimation was sent to the CBDT for final decision regarding eligibility for exemption under section 10(23C)(iv). 10. Before dealing with the main issue, it is necessary at this stage to consider the Assessing Officer's rejection of the appellant's case in view of its revised return. Mr. Goyal, the learned counsel appearing on behalf of the respondent/Revenue, also contended that in view of the revised return and in view of the computation furnished by the appellant itself, the appellant ought to be deemed to have admitted that it does not fall within the ambit of section 2(15). 11. The contention is not well founded. The appellant had revised its return on 10.09.2010 for the as....
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....wance for another point of view. There are innumerable instances of judgments being overruled including of the Supreme Court itself by larger Benches of that Court. An illustration preceded this observation. We referred earlier to the judgment of the Constitution Bench of the Supreme Court in CIT (Addl.) v. Surat Art Silk Cloth Mfrs Assn, (1980) 2 SCC 31, overruled its earlier decision in The Sole Trustee, Loka Shikshana Trust vs. CIT (1976) 1 SCC 254. 14. The contention that the assessee is not entitled to support its case as falling within the ambit of section 2(15) in view of the revised return is, therefore, rejected. 15. The CIT (Appeals) allowed the appellant's appeal partly. He held that the appellant having been granted approval for exemption under section 10(23C)(iv) was entitled to continue to enjoy the exemption till it was withdrawn and irrespective of the amendment to section 2(15). 16. This brings us to the impugned order passed by the Tribunal. The Tribunal noted that the appellant was engaged in only one activity, namely, printing and publishing the newspaper. It was not necessary for the Tribunal to have dealt with the issue as to why the assessee cannot b....
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....of the phrase "advancement of any other object of general public utility", it is proposed to amend section 2(15) so as to provide that "the advancement of any other object of general public utility" shall not be a charitable purpose if it involves the carrying on of:- a) any activity in the nature of trade, commerce or business, or b) any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. This amendment will take effect from the Ist day of April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years." The CBDT issued a circular dated 19.12.2008, paragraph-3 whereof reads as under:- "3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is "advancement of any other object of general public utility" i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under sect....
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....he definition of a charitable trust on account of the proviso introduced by the amendment of 2008. The predominant motive of the appellant ought to be seen. Where the primary and dominant purpose of the trust is charitable, another object which by itself may not be charitable but which is ancillary or incidental to the primary or dominant purpose, cannot disentitle the trust or the institution from being considered as existing for charitable purpose. In support of these submissions, Mr. Bhan also relied upon other judgments which we will refer to. 20. Mr. Goel, the learned counsel appearing on behalf of the respondents on the other hand emphasized that the words in the proviso are "carrying on of any activity in the nature of trade, commerce or business" and not "carrying on of trade, commerce or business". Therefore, according to him the nature of the activity is to be determined. According to him, the activities need be only akin to trade, commerce or business. The performance of an act or steps taken towards the object in physical form are to be identified and when such steps or acts are in an organized manner, akin to any trade, commerce, business etc., then that activity sh....
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....oyal reiterated the following observations in paragraph 23 of the order of the Tribunal reads as under:- "23. The decision by the Privi (sic) Council was rendered in 1939 and lot of water has flown in the Ganges thereafter may be at that time publication of newspaper could be construed as advancement of general public utility. However, in the present days a great competition is there in media and thousands of newspapers are being published and each one of them is competing with the others to increase circulation. In fact, the main purposes of these newspapers and magazines is to sell advertisements and to earn profits and for that they are subsidizing the cost of newspapers. For example a paper X may be costing after publication at Rs. 10 but it is sold at Rs. 2 just to increase the circulation and such subsidized cost is recovered through revenue collected from advertisements which is generally much more than the sale price of the particular daily newspaper or magazine or weekly or monthly magazine. Such newspaper in today's world had to face further competition from television where again hundreds of news channels have been launched, both this media are facing further competit....
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....the exclusionary words in Section 2(15) "not involving the carrying on of any activity for profit" apply to the assessee's case. 30. This brings us to the second question which involves the interpretation of section 2(15) of the Act as amended with effect from 01.04.2009. The answer to this question, however, lies in the interpretation of section 2(15) as it stood on the commencement of the 1961 Act and the applicability of this interpretation to the section as amended in 2009. 31. The Supreme Court in Additional Commissioner of Income Tax, Gujarat, Ahmedabad v. Surat Art Silk Cloth Manufacturers' Association, Surat (1980) 2 Supreme Court Cases 31, dealt with Section 2(15) which at the commencement of the 1961 Act read as under:- "(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit." 32. It is important firstly to interpret Section 2(15) as it originally stood when the 1961 Act was enacted. We need go no further than the judgment in Surat Art Silk's case (supra), where the Supreme Court held:- "10. With these prefato....
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....d from other sources would lose the exemption. This would indeed be a far reaching consequence but we do not think that such a consequence was intended to be brought about by the legislature when it introduced the words "not involving the carrying on of any activity for profit" in Section 2 clause (15). Our reasons for saying so are as follows: 10a. It is clear on a plain natural construction of the language used by the legislature that the ten crucial words "not involving the carrying on of any activity for profit" go with "object of general pubic utility" and not with "advancement". It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by these last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. That is not the mandate of the newly added words. What these words require is that the object should not involve the carry....
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....were to prohibit a trust or institution established for promotion of an object of general public utility from carrying on any activity for profit, it would have provided in the clearest terms that no such trust or institution shall carry on any activity for profit, instead of using involved and obscure language giving rise to linguistic problems and promoting interpretative litigation. The legislature would have used language leaving no doubt as to what was intended and not left its intention to be gathered by doubtful implication from an amendment made in the definition clause and that too in language far from clear." (emphasis supplied) Thus the concluding words "not involving the carrying on of any activity for profit" go with the "object of general public utility" and not with the "advancement". 33. The Supreme Court then dealt with the meaning of the expression "activity for profit". In construing Section 2(15), the Supreme Court referred to the provision as it stood under the 1922 Act [Section 4(3)], the speech made by the Finance Minister while introducing the amended provisions and the Tribune case. The Supreme Court held:- "17. The next question that arises is ....
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....ce Minister explained the reason for introducing this exclusionary clause in the following words: "The definition of 'charitable purpose' in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving a public purpose, get fully paid for the benefits provided by them namely, the newspaper industry which while running its concern on commercial lines can claim that by circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that the words 'not involving the carrying on of any activity for profit' should be added to the definition." It is obvious that the exclusionary clause was added with a view to overcoming the decision of the Privy Council in the Tribune case [AIR 1939 PC 208 : In Re the Trustees of the Tribune, (1939) 7 ITR 415] where it was held that the object of supplying the community with an organ of educated public opinion by publication of a newspaper was an object of general public utility and hence charitable in character, even though the activity of publication of the newspaper w....
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....plied). We wholly endorse these observations." 34. The Supreme Court held that the concluding words "not involving the carrying on of any activity for profit" go with the "object of general public utility" and not with the "advancement". However, this ratio must be read with the findings regarding the assessee's activities in paragraph-17 of the judgment. The Supreme Court held that the publication of the newspaper was carried on on commercial lines "with the object of earning profit" and that the publication of the newspaper was an activity which had profit making as its predominant object. 35. It must be remembered that section 4(3) did not have the concluding words in section 2(15) of the 1961 Act "not involving the carrying on of any activity for profit". It is important to note two things from paragraph-17 of the judgment. Firstly, although the appellant was carrying out a charitable purpose, its activity had profit making "as its predominant object". The Privy Council, however, held it to be a charitable purpose obviously because the words "not involving the carrying on of any activity for profit" were absent in Section 4(3) of the 1922 Act which fell for its considerat....
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....e a charitable purpose, if it involves the carrying of any activity in the nature of trade, commerce or business......etc." replaced the words in the original Section 2(15) "not involving the carrying on of any activity for profit". On a parity of the reasoning in Surat Art Silk case, the words in the proviso that follow the opening words "Provided that the advancement of any other object of general public utility" equally apply to the "object of general public utility" and not to the word "advancement". The plain language of the proviso does not convey an intention to the contrary. Infact, the legislature could have continued the opening part of the amended section 2(15) with the words "not involving" instead of the words " provided that the advancement of any other object of general public utility shall not be a charitable purpose if it involves" in the proviso. Either way the amendment would have been the same. In that event there could have been no doubt whatsoever that the legislature did not seek to set at naught the effect of the judgment of the Supreme Court in this regard in Surat Art Silk's case (supra). The introduction of the proviso does not indicate such an intenti....
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....dinarily, profit motive is a normal incident of business activity and if the activity of a trust results in yielding profit, it could be concluded that the object of the trust involves the carrying on of an activity for profit. Wherever predominant object of the trust is charitable purpose and ancillary business activity results in profit, the profit earned is required to be utilized for the purposes of charity and if it is shown that the 'profits of the business' as per term of the trust are utilized for the purposes of the trust, the factum of activities yielding profit would not alter the charitable character of the trust." 44. The second sentence is important while considering the meaning of the words "trade, commerce or business" used in the proviso to Section 2(15) as amended in 2009. The second sentence states that ordinarily, profit motive is a normal incident of business activity and if the activity of a trust results in yielding profit, it could be concluded that the object of the trust involves the carrying on of an activity for profit. We will restrict our reliance upon paragraph-21 insofar as it is observed that ordinarily, profit motive is a normal incidenc....
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....C)Commissioner of Sales Tax v. Sai Publication Fund, (2002) 4 SCC 57]. Here, the expressions in the proviso are "trade, business or commerce". The activities that are undertaken by the assessee/entity should be in the nature of trade, commerce or business or an activity of rendering any service in relation to any trade, commerce or business. The three terms "trade", "commerce" or "business" have been interpreted by the Supreme Court and other courts in various decisions. The expression "trade" was discussed in Khoday Distilleries Ltd. v. State of Karnataka(1995) 1 SCC 574 where the Supreme Court held that: "68. There is no doubt that the word business is more comprehensive than the word trade since it will include manufacture which the word trade may not ordinarily include. The primary meaning of the word trade is the exchange of goods for goods or goods for money." 11. In State of Andhra Pradesh v. H. Abdul Bakhi and Bros.(1964) 15 STC 664, the Supreme Court dealt with the expression "business" and stated that it is an expression of indefinite import. In the taxing statutes it is used in the sense of an occupation or profession which occupies time, attention or labour ....
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....se, I agree that is entirely right and the same goes for "business" in the context of these three Statutes." The reference to the judgments by the Delhi High Court is apposite. They apply equally to the meaning of the words "trade", "business" and "commerce" to Section 2(15). 48. This issue among others was dealt with in considerable detail by the Delhi High Court in The Institute of Chartered Accountants of India and another v. The Director General of Income Tax (Exemptions), Delhi and others, [2013] 358 ITR 91. The petitioner in that case challenged the orders of the respondents refusing to grant exemption under section 10(23C)(iv) of the 1961 Act. The petitioner was incorporated under section 3 of the Institute of Chartered Accountants Act, 1949 as a body corporate which is constituted by all members whose names are entered in the register of members. The exemption was denied on the ground that the petitioner was holding coaching classes at a fee for preparing students for the examinations conducted by it. The Assessing Officer considered the petitioner to be carrying on business and held that the income from the same was business income. The petitioner did not maintain separ....
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....ese three Statutes." 57. After discussing various decisions with regard to the scope of the words trade, commerce & business, this court in The Institute of Chartered Accountant of India v. Director General of Income-tax (Exemption) (supra)[(2012) 347 ITR 86 (Delhi)] held that while construing the term business for the purpose of Section 2(15) of the Act the object and purpose of the Section must be kept in mind and a broad and extended definition of business would not be applicable for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act. The relevant extract of the said judgment is as under:- "Section 2(15) defines the term "charitable purpose". Therefore, while construing the term "business" for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term "business" is intended for the purpose of interpreting and applying the first proviso to section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. N....
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....ner institute was carrying on any business, trade or commerce. The DGIT(E) has completely ignored the said observations of this court and has proceeded to mechanically hold that the activities of the petitioner institute amounted to carrying on business. This, in our view, is completely erroneous. 60. The petitioner institute has been constituted under the ICAI Act with the object to regulate the profession of Chartered Accountants in India and to ensure that the standards of professional knowledge and skill are met and maintained. The activities being undertaken by the petitioner substantially involve imparting education in the field of accountancy in order to ensure that the standards or profession of accountancy are maintained. The petitioner institute is the sole body empowered to conduct or approve a course in the field of accountancy. No other person can conduct any course or award any degree or certificate which indicates a level of proficiency or competence in the field of accountancy similar to that as of a chartered accountant. The activity of petitioner in conducting coaching classes is integral to the activity of the petitioner institute in conducting the courses in ....
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....ely and where the dominant object of an organisation is charitable any incidental activity for furtherance of the object would not fall within the expressions "business", "trade" or "commerce". 71. Although, it is not essential that an activity be carried on for profit motive in order to be considered as business, but existence of profit motive would be a vital indicator in determining whether an organisation is carrying on business or not. In the present case, the petitioner has submitted figures to indicate that expenditure on salaries and depreciation exceeds the surplus as generated from holding coaching classes. In addition, the petitioner institute provides study material and other academic support such as facilities of a library without any material additional costs. The Supreme Court in the case of State of Andhra Pradesh v. H. Abdul Bakhi and Bros. (supra) held as under: "The expression "business" though extensively used a word of indefinite import, in taxing statutes it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business ther....
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....n determining the nature of the activity carried on by the petitioner. But, we feel that in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important. 46. At this juncture, we may point out that we are in agreement with the argument advanced by Mr Syali that the proviso to Section 2(15) does not make any distinction between entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business on the one hand and genuine charitable organizations on the other. It must be remembered that we are construing the expression "charitable purpose" not in a vacuum, but in the specific context of Section 10(23C)(iv) of the said Act. As pointed out above, Section 10 deals with the incomes not included in total income. And, Section 10(23C)(iv) specifically deals with the income received by any person on behalf of, inter alia, an institution established for charitab....
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....ould be no necessity to take recourse to Section 10(23C)(iv) for the benefit of an exemption. To put it plainly, if an institution established for charitable purposes did not receive an income at all, then what would be the need for taking any benefit under Section 10(23C)(iv) of the said Act. Therefore, if a meaning is given to the expression ―charitable purpose so as to suggest that in case an institution, having an objective of advancement of general public utility, derives an income, it would be falling within the exception carved out in the first proviso to Section 2(15) of the said Act, then there would be no institution whatsoever which would qualify for the exemption under Section 10(23C)(iv) of the said Act. And, the said provision would be rendered redundant. This is so, because, if the institution had no income, recourse to Section 10(23C)(iv) would not be necessary. And, if such an institution had an income, it would not, on the interpretation sought to be given by the revenue, be qualified for being considered as an institution established for charitable purposes. So, either way, the provisions of Section 10(23C)(iv) would not be available, either because it is n....
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....the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit....
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.... The word "business" is a word of large and indefinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the Legislature is to make the definition extensive as the term "inclusive" has been used. The Legislature has deliberately departed from giving a definite import to the term "business" but made reference to several other general terms like "trade", "commerce", "manufacture" and "adventure or concern in the nature of trade, commerce and manufacture". In Black's Law Dictionary, Sixth Edition, the word "business" has been defined as under: "Employment, occupation, profession or commercial activity engaged in for gain or livelihood. Activity or enterprise for gain, benefit, advantage or livelihood. Union League Club v. Johnson 18 Cal 2d 275. Enterprise in which person engaged shows willingness to invest time and capital on future outcome. Doggett v. Burnet 62 App DC 103; 65 F. 2D 191. That which habitually busies or occupies or engages the time, attention, labour and effort of persons as a principal serious concern or interest or fo....
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....he context in which they are found. Five tests propounded in Customs and Excise Commissioner v. Lord Fisher (1981) S.T.C. 238 and decision in Commissioner Of Sales Tax v. Sai Publication Fund, (2002) 4 SCC 57 was quoted. 19. The final and determining factors, it was observed was consequential profit motive or purpose behind the activity and when an activity is trade, commerce or business was elucidated in Institute of Chartered Accountants of India v. Director General of Income Tax (Exemptions) Delhi (supra) in the following words: "33. Section 2(15) defines the term charitable purpose. Therefore, while construing the term business for the said Section, the object and purpose of the Section has to be kept in mind. We do not think that a very broad and extended definition of the term business is intended for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally the profit motive test should be satisfied but in a given case activity may be regarded as b....
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....it was an agency whose activities are for "charitable purpose" and therefore entitled to the benefit of section 10(23C)(iv). The Division Bench rejected this contention holding that if accepted it would render the words "any activity of rendering any service in relation to any trade, commerce of business" redundant. The judgment is of no assistance in the case before us. The issue as to whether the assessee's clients derived any benefit from the assessees activities was not raised before the authorities. 55. Thus the appellant's activity falls within the ambit of the words "advancement of any other object of general public utility". The decision of the Privy Council in the Tribune's case in this regard still holds good. Further the words trade, commerce or business in the proviso to Section 2(15) refers to those activities carried on for profit. So long as it is carried on for profit, it is irrelevant whether the profit is actually made or not. In view of the judgment of the Supreme Court in Surat Art Silk's case (supra), it must be held that the activities of the assessee are carried on with the predominant motive of making a profit. 56. Even otherwise on facts we agree w....
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....table purpose'. There is nothing in this case to show that the surplus accumulated over the years has been ploughed back for the charitable purposes. 58. This now leaves for consideration the question as to when can it be said that the predominant purpose of the trust or institution is for profit and when can it be said that it is for the charitable purpose. In Assistant Commissioner of Income Tax, Madras and others v. Thanthi Trust and others 2001(2) SCC 707, one S.K.Adityan founded a daily newspaper called 'Dina Thanthi' in 1942 and on 1.3.1954 he created a trust called "Thanthi Trust'. He settled upon the trust the business of the said newspaper as a going concern. The objects of the trust were to establish a newspaper as an organ of educated public opinion for the Tamil-reading public and to disseminate news. The trust was subsequently declared to be irrevocable. A supplementary deed of trust was also executed directing that the surplus income should be devoted to certain persons such as establishing and running a school or college for the teaching of journalism, arts and science; establishing and/or running or helping to run hostels for students and orphanages. Paragraph....
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.... utilized by the trust for the purposes of achieving the objects of the trust, the business would be incidental to the attainment of the objective of the trust. 60. As we have already observed, in Surat Art Silk's case (supra), the Supreme Court held that the activity of publication of the newspaper in the Tribune's case was carried on on commercial lines with the object of the earning profit. That was its predominant activity. The Supreme Court further held that that activity had profit making as its predominant object. The above observation of the Supreme Court in Thanthi Trust's case would, therefore, be against the appellant. 61. Mr. Goel, relied upon a judgment of the Kerala High Court in Ideal Publications Trust v. Commissioner of Income Tax [2008] 305 ITR 143 (Kerala). Paragraph-8 of the judgment reads as under:- "8. So far as the position after the amendment of sub-section 4A of Section 11 is concerned also, we are of the view that the appellant is not entitled to exemption, because exemption is available in respect of the income only if the business carried on by the Trust is incidental to the attainment of the objects of the Trust. Admittedly, the appellant Trust....
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....lant before us was only engaged in the publication of newspapers which was running on commercial lines as held in Surat Art Silk case (supra). The last but one sentence of paragraph-9 "since the appellant has no other activity other than the business ..........................." must be read in context. It is not held that where a trust carries on only one activity, it cannot fall within the ambit of Section 2(15). This observation was made in the context of the facts of that case. Although there were several other objects, the appellant's only activity was the business of printing and that activity was found to have been carried on on commercial lines. If, therefore, the predominant activity of the trust is charitable purpose and the profit resulting from its ancillary or incidental business activity, is for the charitable purpose only of the advancement of an object of general public utility, it is sufficient. It is not necessary that such income must also be for the advancement or the purpose of another charitable purpose as well. 62. The question of law in ITA No. 62 of 2015 are, therefore, answered in favour of the Revenue. 63. This brings us to ITA No. 147 of 2016 The C....
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....4. 66. The appeal is filed by the revenue against the order of the Income Tax Appellate Tribunal reversing the order of the CIT(Appeals) which dismissed the respondent's/assessee's appeal against the order of the Assessment Officer. The matter pertains to the assessment year 2011-12. Section 2(15), as it stood in respect of the earlier appeal, applies to this case as well. The assessee filed its return declaring the net income 'nil'. The return was processed under section 143(1) but was selected for scrutiny. Notices under sections 142(1) and 143(2) alongwith a questionnaire were issued. 67. Before referring to the orders of the authorities it is necessary to notice a few facts regarding the assessee. The assessee is a body corporate incorporated under section 3 of the Punjab Town Improvement Act, 1922. It is a body corporate liable to sue and be sued in its name. The assessee and similarly incorporated trusts are referred to in the Act as 'the trust'. Section 4 provides for the constitution of the trust. It consists of a Chairman and nine other trustees. Six of them are the officers of the State Government and statutory authorities such as the Municipal Committees or the Cor....
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....ent scheme and the most satisfactory method of dealing with the local area or any part thereof is "a rebuilding scheme," it may proceed to frame such a scheme, which may provide for the reservation of streets and the enlargement of existing streets; the relaying out of the sites of the local area or part thereof upon the streets so reserved or enlarged; the demolition of existing buildings and their appurtenances upon such sites; and the erection of buildings in accordance with the scheme. 23. Street schemes and deferred street schemes.- (1) Whenever it appears to the Trust that for the purpose of- (i) providing building sites, or (ii) remedying defective ventilation, or (iii)creating new or improving existing means of communication and facilities for traffic, or (iv) affording better facilities for conservancy, within its local area or part thereof it is expedient to lay out new streets, thoroughfares and open spaces, or alter existing streets, the Trust may pass a resolution to that effect, and shall then proceed to frame "a street scheme" which shall prescribe improved alignments for streets, thoroughfares and open spaces for such local area or part as the Trus....
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....ake such steps as are necessary to execute it. All expenses incurred by the Government or by the municipal committee in the exercise of the powers conferred upon them by this section shall in the first instance, be paid out of provincial revenues, but the amount so spent shall be recoverable from the Trust as if it were a Government, and the Government may attach the rents and other income of the Trust. The provisions of section 72 shall also apply to all moneys so paid. 26. Rehousing Scheme.- Whenever the Trust deems it necessary that accommodation should be provided for persons who are displaced by the execution of any scheme under this Act, or are likely to be displaced by the execution of any scheme, which it is intended to submit to the Government for sanction under this Act it may frame "a rehousing scheme" for the construction, maintenance and management of such and so many dwellings and shops as ought, in the opinion of the Trust, to be provided for such persons. 27. Rehousing of displaced resident house-owners.- Any resident house-owner who is likely to be displaced by the execution of any scheme under this Act, may apply to the Trust to be re-housed, and no such ....
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....mprised in the scheme, including the conservation and preservation from injury or pollution of rivers and other sources and means of water-supply; (xii) the demolition of existing buildings and the erection and re-erection of buildings by the Trust or by the owners or by the Trust in default of the owners; (xiii) the advance to the owners of land comprised within the scheme upon such terms and conditions as to interest and sinking fund and otherwise as may be prescribed under the scheme of the whole or part or the capital requisite for the erection of buildings in accordance with the scheme; (xiv) the provision of facilities for communication; (xv) all other matters which the Government may deem necessary to promote the general efficiency of a scheme or to improve the locality comprised in such scheme. [40][(3) While undertaking a scheme under this section a provision of plot for the construction of mosque shall be made where necessary]. 55. Vesting in committee of streets laid out or altered, and open spaces provided by the Trust under a scheme.- (1) Whenever the municipal committee is satisfied- (a) that any street laid out or altered by the Trust has been duly lev....
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....s be made in the pass book, except by the treasury clerk make any entries in the passbook, except. Payment of money 5. Sums for amounts fixed by the Trust which not exceed Rs. 20 in any single instance, shall be paid in cash from the permanent advance." 68. The assessee declared the income to be nil after claiming exemption under section 12A of the Act amounting to about Rs. 1.46 crores being surplus shown in income and expenditure account. The Assessing Officer noted the assessee's following contentions: Registration under section 12AA had been approved by the ITAT, Amritsar Branch, Amritsar in ITA Nos. 194 and 195 (Asr) 2006 and in ITA No. 489 of 2007 decided on 31.10.2008. Section 12AA lays down the procedure for registration in relation to the condition for applicability of section 11 and 12 as provided in Section 12A and that, therefore, once the procedure is complete, as provided in Section 12AA(1) and a certificate is issued granting registration to the trust or institution the same evidences satisfaction about the genuineness of the activities of the trust or institution and about the objects of the trust or institution. Section 12A stipulates that the provis....
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....ncome for a number of years. The same constituted the assessee's activities as a part of its business being regular. The Assessing Officer held that the income from these receipts cannot be considered to be in relation to activities in the nature of advancement of any other object of general public utility and is infact income similar to that derived from a private builder or colonizer. The Assessing Officer then dealt with the assessee's contention that it is engaged in providing civic facilities/services and the enhancement of the quality of life and therefore, no profit motive has ever been found in the activities of the assessee. With regard to this contention, the Assessing Officer observed as follows: The facilities originate out of a desire to earn more profit from the sale of premises for they constitute a 'value addition' to the properties sold by the assessee. Builders and colonizers also provided such facilities and if the assessee's contention is accepted even they would claim similar benefits. The expenses incurred on the said facilities were about Rs. 1.61 crores and the profit earned was about Rs. 1.46 crores out of the total receipt of about Rs. &n....
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....m 01.04.2016. The Tribunal then dealt with the main contention of the revenue that the assessee was involved in the activities of developing and selling the residential and commercial units with the sole aim of making profits. The conclusions of the Tribunal in this regard are as follows; the profit on sale does not necessarily imply profit motive in the activities of the assessee. What is important is the motive or the predominant object of the activities. The bids are invited by the assessee who allots the plots to the highest bidders. This, however, is because it is not desirable for the State to subsidise its businesses. A bidding process ensures transparency in the functioning of the trusts and therefore, it does not make the bidding process a commercial venture. Further the bids are invited only in the context of commercial units. Under the Rules there is a formula on the basis of which the price is worked out. The revenue did not deny the same but alleged that the profit motive is embedded in this formula as shown by the adjustments for various charges. 72. The Tribunal rightly rejected the contention that to fall within the ambit of the words "advancement of any other....
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...., in furtherance of, connected with and in relation to a scheme in Chapter-IV. It is not an absolute power independent of and unconnected with the assessee's statutory functions under the PTI Act. 77. The predominant activity of and the purpose for the establishment of the assessee is summed up in two words "town improvement" in the title "Punjab Town Improvement Act, 1922". The preamble is titled "An Act for the improvement of Certain Areas". The preamble states "whereas it is expedient to make provision for the improvement and expansion of towns in Punjab". The Act in general and Chapter-IV thereof in particular indicates the reason for and the basis of the establishment of the trust. Almost every section in the Chapter indicates clearly that the trust is established for the purpose of "advancement of the object of general public utility". This is the predominant purpose of the trust. 78. The language of the provisions of the Act are self explanatory in this regard. The trust must deal with the buildings unfit for human habitation, the danger caused or likely to be caused to the health of the inhabitants of the area on account of the congested conditions of streets or build....
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....cified in the PTI Act as a camouflage for its commercial, trade and business ventures. The creation and incorporation of the trust under section 3 is for a public purpose. We have no doubt whatsoever that the activities of the trust fall within the meaning of the words "charitable purpose" in Section 2(15). 82. Whether the mandate of the Act is followed by such a trust is a different matter. The facts in that regard are relevant in examining whether the activities of the trust of a given year entitled it to the benefit of the Income Tax Act. Mere profit making on account of certain incidental or ancillary activities of the trust do not disentitle it to the exemptions. The Trust constituted under the PTI Act is likely to make profit on account of its commercial or business activities such as when it acts pursuant to the power under section 28(2)(iii) by disposing off its lands. That, however, does not take it out of the definition of 'charitable purpose' in Section 2(15). As we held earlier, trade, commerce and business in Section 2(15) must be such as to involve an element of profit. Profit, however, is not the predominant motive of such trusts. In our view considering the natur....
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....ess or a cess or fee of any other consideration. 2. We find that no question of law much less a substantial question of law would emerge from the impugned order of the Income Tax Appellate Tribunal warranting admission of the appeal. The appeal is wholly without merit and is thus liable to be dismissed. 3. For the reasons aforementioned, this appeal fails and same is dismissed alongwith connected application(s)." The judgment is of no assistance to the appellant for the Division Bench observed that there were findings of fact that the assessee/appellant had in that case not been acting to advance any object concerning general public utility. The judgment was, therefore, based on the facts of this case. It is obviously for this reason that the Division Bench held that no question of law much less a substantial question of law emerged from the order of the Tribunal. It is difficult to understand how this order can possibly be relied upon as laying down any law when Court itself records that the order impugned therein is based on the facts of that case. The dismissal of the Special Leave Petition filed against that order is, therefore, of no assistance to the Revenue either. ....