TaxTMI 
TaxTMI 
TaxTMI 
2017 (1) TMI 53
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....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) Whether in fact and circumstances of the case, the ac....
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....r 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 questionnaire. We will return to the assessment order after setting out a few facts. 7. One Sirdar Dyal Singh Majithia died leaving ....
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....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 income tax upon an income of Rs. 61,629/-. The proceedings in respect thereof ended with the judgment of the Privy Council. The claim was made before the Assista....
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....r 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 the Province with an "organ of educated public opinion" and that it should prima facie be held to be an object of general public utility. Having regard to the particular ....
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....reof 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 assessment year 2009-10. However, the same was subject to the following note:- "The Tribune Trust had been granted exemption under section 10(23C)(iv) of the Income Tax Act, 1961 ("t....
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....his 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 be held to be engaged in the activity of education for that is not even the appellant's case. The Tribunal placed strong reliance upon the judgment of the Supreme Court in The Sole Trustee, Loka Sh....
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.... 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 section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based ....
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....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 should be considered as falling within the proviso. It is important to note that in the written submission he contended that the concept of profit motive is required when the institution is engaged in trade or commerce. 21. The ambit o....
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.... 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 competition from the internet and social media. So every organization is trying to sell its media reports by various means adopting various techniques i.e. in case of internet all the search engines including Google or Yahoo and social media like face book are free....
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.....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 prefatory observations, we may now turn to examine the crucial words "not involving the carrying on of any activity for profit". One question of semantics that was posed before us was - and that is a question which we must first resolve before we can arrive at the true meaning and ef....
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...." 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 carrying on of any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. The decisions of the Kerala and Andhra Pradesh High Courts in CIT v. Cochin Chamber of Commerce and Industry[(1973) 87 ITR 83 : (Ker) [Ed : Thi....
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....g 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 as to what is the meaning of the expression "activity for profit". Every trust or institution must have a purpose for which it is established and every purpose must for its accomplishment involve the carrying on of an activity. The activity must, however, be for profit in order to attrac....
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....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 was carried on commercial lines with the object of earning profit. The publication of the newspaper was an activity engaged in by the trust for the purpose of carrying out its charitable purpose and on the facts it was clearly an activity which had profit making as its predominant object, but....
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....garding 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 consideration. Secondly the Supreme Court held that it was with a view to setting at naught the decision of the Privy Council in the Tribune case that the exclusionary clause was added in the definition of 'charitable purpose' in Section 2(15) introduced in the 1961 Act. It was not the appellant's case th....
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....so 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 intention either. 40. If the legislature intended the latter part of the proviso to apply to the word "advancement" as well and not merely to the words "object of general public utility", it would have worded the amendment entirely differently. The proviso would have expressly been made applicable to the advancemen....
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....esults 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 incidence of business activity. We see no reason to take a different view as regards the words "trade" and "commerce". 45. The normal incidence of trade and commerce is also profit. Considering the nature of the legislation, we are inclined to accept Mr. Bhan's contention that each of these three words indicates the element of prof....
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.... 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 of a person and normally associated with the object of making profit. It was held as under: "4. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. But to be a dealer a person need not follow the activity of buy....
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....he 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 separate books of accounts with respect to the activity of coaching students and was, therefore, denied the benefit of section 11. It was also held that the petitioner had violated the provisions of Section 13(1)(d) of the Act. The Division Bench held that the central issue was whether the petitioner is an institution established for charitable purpose having regard to its obj....
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....ust 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. Normally, the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and s....
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....n 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 accountancy. 61. The coaching classes being conducted by the petitioner cannot be equated with private coaching classes being conducted by organisations on commercial basis for preparing students to undertake entrance or other examinations in various professional courses. The coaching carried on by private organisations are not integral to the courses being conducted by them but for preparing students for ex....
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....usiness 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 there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure." (Underlining added)" 49. Our view is also supported by the judgment of the Delhi High Court in India Trade Promotion Organization v. Director General of Income Tax (Exemptions) and others [2015] 371 ITR 333 (Delhi) cited by Mrs. Suri, the learned senior counsel appearing on behalf of the asses....
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....cture, 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 charitable purposes. We have to, therefore, examine the meaning of the expression "charitable purposes" in the context of Section 10(23C)(iv). Looking at the said expression from this stand point, it becomes clear that it has a reference to income. Because, it is only when such an institution has an income that the question of not including that income in its total income would arise. Therefore, merely because an institution, which otherwise is establ....
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....ent 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 not necessary or because it is blocked. The intention behind introducing the proviso to Section 2(15) of the said Act could certainly not have been to render the provisions of Section 10(23C)(iv) redundant. 48. With this in mind, it is to be seen as to what is meant by the expressions "trade", "commerce" or "business". The word "trade" was considered by the Supreme Court in its decision in the case of Khoday Distilleries Ltd and Others v. State ....
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....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 making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it c....
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....nufacture" 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 for livelihood or profit." According to Sampath Iyengar's Law of Income Tax (9th edition), a business activity has four essential characteristics. Firstly, a business must be a continuous and systematic exercise of activity. Business is defined as an active occupation continuously carried on. Business vocation connotes some real, substantive and systematic course of activity or conduct with a set purpose. The second essential characteristic is profit motive or capable of producing profit. To regard an act....
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....lowing 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 business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is infect in the nature of business. The test as prescribe in Raipur Manufacturing Company (supra) and Sai Publications Fund (supra) can be applied. The six indicia stipulated in Lord Fisher (supr....
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....vity 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 with Mr. Goel that profit is the predominant motive, purpose and object of the assessee. The assessee has over the years accumulated huge profits which today aggregate to several crores of rupees. 57. The Tribunal referred to the income and expenditure account which shows that out of the total revenue of about Rs. 161 crores, a sum of Rs. 124.87 crores was received from the advertisements and Rs. 11.38 crores from the interest of F.D.Rs. only. Thus about 85% of the revenue was from advertisements and interest only. Rs. &nbs....
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....954 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-25 of the judgment was relied upon by Mr. Goel which reads as under:- "25. The substituted sub-section (4-A) states that the income derived from a business held under trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the trust or institution if "the business is incidental to the attainment of the objective of the trust or, as the case may be, institution" and separate books of accounts are maintained in respect of such business. Clearly, the scope of sub-section (4-A) is more benefi....
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....preme 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 has not utilised or set apart any part of the income for any of the charitable purposes referred to in the objects clause, viz. education, medical relief or relief of the poor. The appellant is only engaged in publication of the newspaper which is run on commercial lines including charging of commercial tariff for advertisements and charging of price for the newspaper at rates comparable to other newspapers run for profit. However, the appellant's case is that the business of printing and publication of newspaper itself is an object of general public uti....
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.... 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 Commissioner of Income Tax (Exemption), Chandigarh v. M/s Improvement Trust, Moga which pertains to the assessment year 2011-12. The appeal is admitted on the following substantial questions of law:- i) Whether benefit of Section 11 should be granted to the assessee in view of the proviso to Section 2(15) of the Income Tax Act, 1961? 64. Mrs. Suri, learned Senior counsel appearing for the assessee in ITA No.147 of 2016 relied upon a judgment of the Income Tax Appellate Tribunal dated 16.09.2015 in case The Improvement Trust, Moga Opp. Geeta Theatre, G.T. Road, Mog....
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....naire 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 Corporations and of statutory organisations such as public works and the Buildings and Roads Branch. Of the three others not more than one shall be a Servant of the Government. They are appointed by the State Government by a notification or are members of the Municipal Committee or the Corporation as the case may be. The provisions that follow indicate not merely a deep and perverse but a total control of the trust by the State and/or its instrumentalities. The relevant provisions of the Punjab Town Improvement Act, 1922 (hereinafter referred to as 'the PTI Act') and the Punjab....
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....se 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 Trust may deem fit. (2) Whenever it appears to such Trust that for any of the purposes mentioned in sub-section (1) within its local areas or part thereof it is expedient to provide for the ultimate widening of any existing street by altering the existing alignments to improved alignments to be prescribed by the Trust, but that it is not expedient immediately to acquire all or any of the properties lying within the proposed improved alignments, the Trust, if satisfied of the sufficiency of its resources, may pass a resolution to that effect, and forthwith proceed to frame a "deferred street scheme" prescribin....
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....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 scheme shall be put into execution until a rehousing scheme as provided for in section 26 for the re-housing of such resident house owners as may apply under this section has been completed. Explanation- The demolition of a portion of a dwelling house which renders the remaining portion uninhabitable shall be deemed to be a displacement of the person or persons residing in the said dwelling house. 28. Combination of schemes and matters which may be provided for in scheme.- (1) A scheme under this Act may combine one or more types of schemes or any special features thereof. (2) A scheme under this Act may provide for al....
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....(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 levelled, paved, metalled, flagged, channelled, sewered and drained in the manner provided in the plans sanctioned by the Government under this Act, and (b) that such lamps, lamp-posts, and other apparatus as the municipal committee deem necessary for the lighting of such street and as ought to be provided by the Trust have been so provided, and (c) that water and other sanitary conveniences ordinarily provided in a municipality have been duly provided in such street, the municipal committee after obtaining the assent of the Trust, or failing such assent, the assent of the Government under subsection (3), shall by notice affix in some conspicuous position i....
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.... 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 provisions of sections 11 and 12 shall not apply in relation to the income of a trust unless the conditions stipulated therein are fulfilled and that, therefore, granting of registration under section 12AA denotes that the conditions in Section 12A stand fulfilled. There was no material brought on record by the revenue which suggests that it was conducting its affairs on commercial lines with the motive to earn profit or that the assessee has deviated from its object. It was not engaged in any activities in the nature of trade, commerce or business; that it was engaged in providing services for improvement and expansion of civic facilities and enhancement of quality of life and profit....
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....g 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. 3.07 crores. The net profit was, therefore, about 47.49%. The assessee's main object was, therefore, only to earn more profit. The Assessing Officer found that the profits in the assessment years 2008-09, 2009-10 and 2011-12 were about 49%, 52% and 48% respectively and the profit for the assessment year 2010-11 was about 87%. He, therefore, inferred that the objects/activities of the assessee were commercial in nature and not charitable. The income of Rs. 1.46 crores treated by the appellant as exempt income was added to the assessee's income for the assessment year 2011-12. The penalty notice under section 271(1)(c) was issued separately. 70. It is important to note the....
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....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 object of general public utility" the trust must necessarily be involved only in implementing poverty alleviation programs or doing other acts of charity. It is sufficient if it does precisely what the last category in Section 2(15) states namely being involved in activities for the advancement of an object of general public utility. They include a proper systematic development of certain areas. These activities are by virtue of the PTI Act undertaken by this assessee. 73. The Tribunal also rightly held that an object of general public utility does not necessarily require the activities to be funded or subsidized by the State. So long as the objects fall within the ambit of the words "object of gene....
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....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 buildings or want of light, air, ventilation or proper conveniences in an area and sanitary defects. The trust is required to frame the street schemes to lay out new streets, thoroughfares and open spaces or alter existing streets whenever it appears to the trust that it is necessary to do so for the purpose of providing building sites or remedying defective ventilation or creating new or improving existing means of communication and facilities for traffic. 79. The trust must also prepare development schemes. This duty contained in Section 24 is not akin to that of a private developer or a colonizer as wrongly suggested by the Assessing Officer and confirmed by the CIT(A). The development scheme under section 24 is p....
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....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 nature of the Act, selling of plots and premises by the trust is only incidental and ancillary to its main purpose which at the cost of repetition is "town improvement" in almost every respect. Even where the plots are developed and premises are constructed and sold at the market price, the activity is not commercial or business venture per se but one necessitated on account of the implementation of the provisions of the trust through statutory schemes. The main purpose of such schemes is driven by public requirements and not as a commercial venture per se. They are incidental to the main object of the trust. 83. In the present case, the Assessing Officer has not indicated any facts which indicate that the assessee deviated ....
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....his 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. 85. Mr. Goel then relied upon section 10(20A) of the Income Tax Act, 1961 which was omitted by the Finance Act, 2002 with effect from 01.04.2003. Prior to its omission Section 10(20A) of the Act read as under:- "Incomes not included in total income. 10. 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- ....................................." (20A) : any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development of improvement of cities, town and villages, or for both," 86. The assessee, namely....