Pr. Commissioner of Income Tax (exemptions) Delhi v. Servants of People Society

S. RAVINDRA BHAT, J. 1. Special leave granted. Mr. D. Mahesh Babu waives notice of appeal on behalf of the sole respondent [hereafter called “the assessee”]. The appeal is heard finally. 2. The Commissioner of Income Tax (hereafter referr ed to “revenue”) is aggrieved by the impugned judgment and order of the Delhi High court 1. The impugned judgment upheld the decision of the Income Tax Appellate Tribunal (“ITAT”) which affirmed the views expressed by the Commissioner of Income Tax (Appeals) (herea fter called “Appellate Commissioner”). The Appellate Commissioner and the ITAT were of the Opinion that the respondent or ganisation (a registered society, hereafter also called “the assessee”) was a charitable trust entitled to the benefit of exemption and that it is registered under Section 12AA and 80G of the Income Tax Act (hereafter calle d the “Act”) were valid. 3. The facts are that the assessee society was founded in the year 1921 by the legendary freedom fighter Lala Lajpat Rai during the freedom struggle for the nation building, general awareness and welfare of the people. In 1928 the famous freedom fighter of Odhisha Shri Pt. Gopa Bandhu Dass made a Will of his property and his printing press which is managing the Oriya newspaper “Samaj”- for people’s welfare. 1 dated 16.11.2021 in ITA No. 161/2021 867 The assessee was enjoying exemption under Section 11 of the Act but the same was denied during the A.Y. 1973-74 and later allowed by the ITAT and affirmed by the High Court. The assessee was also ear lier allowed exemption for three years i.e. 1990-91 to 1992-93 under Section 10(23C)(iv) of the Act. The assessee has established and i s running schools in the name of Balwant Rai Mehta Vidya Bhawan in Lajp at Nagar and in Greater Kailash in New Delhi and one Medical Centre in Lajpat Nagar and old age home in Dwarka in Delhi. The assesse e is also building a hospital in the name of Gopa Bandhu Medical Research Centre in Odisha. The assessee was also allowed exempti on under Section 11(1) but the same has been denied during the A.Y. 2010-11 and 2011-12. The Assessee Officer denied the exemption invoking the proviso to Section 2(15) on the ground that the assessee is involved in t rade, commerce or business as it manages and runs a printing p ress and a newspaper. The assessee argued that it was primarily a non-profit institution involved in charitable activities and did not engage in any trade, commerce or business or any such activity. 4. The assessee approached the Appellate Commissioner who allowed its plea and directed that the income earned by it ought to enjoy the benefit of exemption. The revenue carried the matter in appeal to the ITAT and the High Court, both unsuccessfully. As a consequence, it has approached this Court in appeal by the special leave. 5. It is urged on behalf of the revenue that the Ap pellate Commissioner and the Tribunal fell into error in granting the exemption to the assessee. The Learned Additional Solicitor General Mr. Balbir Singh, points out that the ITAT followed the decision of the Delhi High Court in India Trade Promotion Organisation v. Director General of Income Tax (Exemption) 2 and other decisions. It was urged that those decisions are no longer good law in view of the judgment of this Court in CIT v. Ahmedabad Urban Development Authority 3,whereby the Court has held that activities which are in the nature oftrade, and carry on by PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHI V. SERVANTS OF PEOPLE SOCIETY [ S. RAVINDRA BHAT, J.] 2 371 ITR (Del) 333 3 2022 SCC Online SC 1461 a trust established for general public utility, have t o specify certain parameters. 6. Learned counsel highlighted that the assessee in this ca se is not merely earning revenue from sale of newspaper but al so earned substantial advertisement revenue. 7. Learned counsel for the assessee urges that this court should not intervene given that the Appellate Commissioner as well as the ITAT and the High Court have concurrently upheld its claim for exemption on the ground that it is a charitable trust entitled to be treated as such thereby eligible for exemption. It was submitted that the activity of generating income through advertisement is only incidental and inco me from advertisement cannot be called part of the main object of the trust but rather necessary for it to attain its charitable objectives. Analysis and Findings 8. During the relevant assessment year, the assessee soc iety claimed exemption, inter alia, in respect of income from newspapers, which included advertisement revenue, to the extent of ` 9,52,57,869/- and surplus of ` 2,16,50,901 from its activities in Delhi. 9. The judgment of this court, in Ahmedabad Urban Development Authority had examined various kinds of activities to determine whether they are charitable in nature, relatable to trusts or societies with general public utility objectives. The court then recorded its findings, regarding the true interpretation of “charitable objects” under Section 2 (15) and summarized the findings as follows: “IV. Summation of conclusions 267. In view of the foregoing discussion and analys is, the following conclusions are recorded regarding the interpretation of the changed definition of “charit able purpose” (w.e.f. 01.04.2009), as well as the later amendments, and other related provisions of the IT Act. 869 A. General test under Section 2(15) A.1. It is clarified that an assessee advancing general publi c utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consid eration (“cess, or fee, or any other consideration”); A.2. However, in the course of achieving the object of genera l public utility, the concerned trust, society, or ot her such organization, can carry on trade, commerce or busine ss or provide services in relation thereto for consideration, p rovided that (i) the activities of trade, commerce or busin ess are connected (“actual carrying out…” inserted w.e.f. 01.04.2016) to the achievement of its objects of GP U; and (ii) the receipt from such business or commercial acti vity or service in relation thereto, does not exceed the quantified limit, as amended over the years (Rs. 10 lakhs w.e.f. 01.04. 2009; then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of total receipts of the previous year, w.e.f. 01.04.2016); A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general publ ic utility), which is on cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto. It is only when the ch arges are markedly or significantly above the cost incurred b y the assessee in question, that they would fall within the mis chief of “cess, or fee, or any other consideration” towards “trade, commerce or business”. In this regard, the Court has clarifi ed through illustrations what kind of services or goods provid ed on cost or nominal basis would normally be excluded f rom the mischief of trade, commerce, or business, in th e body of the judgment. A.4. Section 11(4A) must be interpreted harmoniousl y with Section 2(15), with which there is no conflict. Carry ing out PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHI V. SERVANTS OF PEOPLE SOCIETY [ S. RAVINDRA BHAT, J. ] activity in the nature of trade, commerce or busine ss, or service in relation to such activities, should be conduc ted in the course of achieving the GPU object, and the income, pro fit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrati ng that the quantitative limit prescribed in the proviso to Se ction 2(15), has not been breached. Similarly, the insert ion of Section 13(8), seventeenth proviso to Section 10(23 C) and third proviso to Section 143(3) (all w.r.e.f. 01.04 .2009), reaffirm this interpretation and bring uniformity ac ross the statutory provisions. 10. This court had also considered the nature of income derived by a trust, which was managing a newspaper. The observations pertaining to that assessee, i.e. the Tribune Trust, are relevant: “257. It is noticed from the impugned judgment that the High Court concedes to the fact that the trust’s activities were held by the Privy Council to constitute financing of obj ects of ‘general public utility’; further that merely because thousand s of newspapers were being published made no differenc e. It still continues to be a GPU charity. 258. The question then is whether the nature of receipts and income garnered by the Trust, in the course of actu ally carrying out its activity of publishing newspaper, can be characterized as “in the nature of trade, commerce or business” or “service in relation to trade, commerc e or business”, for any consideration. During the course of submissions, it was urged that advertisement revenue sh ould not be treated as business or commercial receipts sin ce that virtually is the lifeblood which sustains the activ ity of publication of newspapers. It was highlighted that the ob ject of maintaining the activity of publishing and distri bution of newspaper remains the advancement of general public utility , 871 as it has the effect of both notifying and educating the gener al public about the current affairs and developments. The inclusion of advertisements also serves as information to t he general public, especially in areas of employment, availabil ity of resources, etc. Therefore, publication of advertisem ent is intrinsically connected with the activity of printi ng and publishing of newspapers. 259. The publication of advertisements for considerati on, in the opinion of the court, by the newspaper, cannot but be termed as an activity in the nature of carrying on b usiness, trade or commerce for a fee or consideration. That the newspaper published by the trust (“the Tribune”) in this ca se is funded mainly through advertisement is no basis for holding that publishing such advertisements by the Trust do es not constitute business. The object of the trust to involve or engage in publication of newspapers. Publishing advertisem ents is obviously to garner receipts which are in the nature of prof it. Now, by virtue of the amended definition of Section 2(15), GPU charities can engage themselves in business or commercial activity or profit, only if the receipts from such activities do not exceed the quantitative limit of th e overall receipts earned in a given year. While the assessee’s contention that publication of advertisement is intrinsically linke d with newspaper activity (thereby fulfilling sub-clause ( i) of the proviso to Section 2(15), i.e. an activity in the course of actu al carrying on of the activity towards advancement of the o bject) is acceptable, nevertheless, the condition imposed by sub- clause (ii) of the proviso to Section 2(15) has to also be fulfilled. In the present case, that percentage had been exceeded, as evident from the record.” 11. In the present case, the Appellate Commissioner, the ITAT and the High Court merely followed the judgment of the Delhi High Court in India Trade Promotion Organisation. However, the law with PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHI V. SERVANTS OF PEOPLE SOCIETY [ S. RAVINDRA BHAT, J. ] regard to interpretation of Section 2 (15) has undergone a change, due to the decision in Ahmedabad Urban Development Authority (supra). As a result, this court is of the opinion,that matter should be remitted for fresh consideration of the nature of receipts in the hands of the assessee, in the present case. As a result, the matter requires to b e re-examined, and the question as to whether the amounts received by the ass essee qualify for exemption, under Section 2 (15) or Section 11 needs to be gone into afresh. 12. In view of the foregoing discussion, the revenue’s appeal succeeds in part. The AO shall examine the documents and rel evant papers and render fresh findings on the issue whether respondent is a charitable trust, entitled to exemption of its income. T he AO shall complete the hearing and pass orders within four months. The appeal is allowed to the above extent. Nidhi Jain Appeal partly allowed. (Assisted by : Shashwat Jain, LCRA)