IT: Where assessee, a trust registered under section 12A, was publishing a newspaper on commercial lines with an object to establish a large publishing house, said activity not being charitable in nature, assessee's claim for exemption of income under section 11 was to be rejected
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[2013] 38 taxmann.com 125 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'C'
Prabodhan Prakashan
v.
Income-tax Officer (Exemptions), Range -II(1), Mumbai*
SANJAY ARORA, ACCOUNTANT MEMBER
AND VIJAY PAL RAO, JUDICIAL MEMBER
AND VIJAY PAL RAO, JUDICIAL MEMBER
IT APPEAL NOS.5179 & 8490 (MUM.) OF 2010, 7477 (MUM.) OF 2011 & 1879 AND 1880 (MUM.) OF 2012
[ASSESSMENT YEARS 1998-99, 2000-01, 2003-04, 2007-08 & 2008-09]
[ASSESSMENT YEARS 1998-99, 2000-01, 2003-04, 2007-08 & 2008-09]
AUGUST 21, 2013
Section 2(15), read with sections 11 and 12A, of the Income-tax Act, 1961 - Charitable purpose [Publishing activity] - Assessment years 1998-99, 2000-01, 2003-04, 2007-08 and 2008-09 - Assessee-trust was registered with Director (Exemption) under section 12A - Activity being carried out by trust was publishing of a daily newspaper - Assessee claimed that its publishing activity was in national interest and, therefore, must be considered as towards a charitable object - Revenue authorities, however, opined that assessee was engaged only in publication activity, undertaken on commercial lines in an organized and systematic manner, so that it constituted a business activity - Accordingly, assessee's claim for exemption of income under section 11 was rejected - Whether in view of fact that assessee was running its business on commercial lines with an object to establish a large publishing house, impugned order denying exemption of income to assessee-trust was to be upheld - Held, yes [Para 6] [In favour of revenue]
FACTS
| ■ | The assessee was registered as a public charitable trust under the Bombay Public Trust Act, 1950. It was also registered with the Director (Exemptions) under section 12A. | |
| ■ | The activity being carried out by the trust was publishing of a daily newspaper. | |
| ■ | The assessee claimed that its publishing activity was in national interest and, therefore, it must be considered as towards a charitable object. | |
| ■ | The revenue authorities, however, opined that the assessee was engaged only in publication activity, undertaken on commercial lines in an organized and systematic manner, so that it was only a business activity. There was, accordingly, no question of allowing exemption on the surplus under section 11. | |
| ■ | On appeal: |
HELD
| ■ | The income of any charitable trust (or institution) derived from property held wholly for such purpose, shall not form part of the total income under the Act where and to the extent applied for such purposes in India. The exemption is not automatic but subject to the conditions of the application of the income during the relevant previous year upto at least 75 per cent (85 per cent with effect from assessment year 2003-04) of such income. | |
| ■ | There is provision with respect to deemed application per Explanation 2 to section 11(1)(a), but the same is only upon exercise of the option in writing by the assessee. Two, the same is available on the condition of non-receipt of income, or, at best defers the application of income to the immediately following year. The same, thus, is year as well as fact specific and, as such, neither applicable nor relevant in the facts of the case, given the general proposition being sought to be advanced. | |
| ■ | It is, therefore, only upon application of income to the specified extent (75 per cent or 85 per cent, as the case may be), at the minimum, that the exemption of income extends to the whole of such income. Without doubt, though, the balance unapplied income is to be necessarily applied for charitable (or religious) purposes of the trust/institution, albeit subsequently. | |
| ■ | The assessee's argument of being entitled to exemption for the balance (25 per cent or 15 per cent) without having applied any part of its income toward such purposes, much less to the specified extent, is, thus, de hors the provision/s as well as the scheme of the Act and, therefore, misconceived. [Para 5] | |
| ■ | Two, the income to be applied for charitable purposes is that derived from property held under trust. The property held under trust being not specifically defined would, therefore, have to be read as without limitation. The only limitation stipulated is per sub-sections (4) and (4A) of section 11, and is in respect of a business undertaking. The same stipulates that only where the business is incidental to the attainment of the objective/s of the trust, that, separate books of account being maintained in its respect, could a business undertaking be considered as a property held under trust. | |
| ■ | Section 11(1) is to be read in conjunction and harmony with sections 11(4) and 11(4A). It is, thus, only the business undertaking which qualifies as a property held under trust whose income would be eligible for exemption under section 11(1). | |
| ■ | The business of publication had thus not been considered as a separate object, or at least as a charitable object, in itself. This, it may be noted, is precisely what the Tribunal has said in its order for earlier years. Further, the contention that dissemination of information through publication would fall within the ambit 'education', inasmuch as there is thereby building of public opinion and education of masses, has been since disapproved by the Apex Court in Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/115 Taxman 126, and which rather one finds not to be the assessee's stand/claim as well. | |
| ■ | As such, what is required to be shown in the facts and circumstances of the case, is that the said publication business serves as a vehicle for the attainment of the other objects of the assessee-trust. The assessee has failed in demonstrating so. How could, then its publication business be taken as incidental to the attainment of its objects, for it to be considered as a property held under trust? | |
| ■ | Rather, no other activity having been undertaken, much less in a regular, systematic manner, the assessee was specifically questioned by the Bench during hearing as to the publication business being incidental to what, to no answer by him. It is this that leads him to state of lack of profit, and of being allowed, in any case, exemption at the rate of 25 per cent (15 per cent) of income under section 11(1)(a), i.e., the very question which forms the subject matter of this segment of this order. [Para 5] | |
| ■ | Given the orders by the Tribunal in the assessee's own case for some of the years under appeal, which have become final, as well as reliance thereon for other years, all that the assessee was required to exhibit in the set aside (or otherwise) assessment proceedings was of the publication business as being incidental to the attainment of its other objects, i.e., as a fact, toward satisfaction of the requirement of the law under sections 11(4) and 11(4A), for the said business to be considered as property held under trust. | |
| ■ | That the said business does not by itself constitute a charitable object or purpose is no longer res integra in view of the findings by the Tribunal in its own case as well as the law as explained in Ideal Publications Trust v. CIT [2008] 305 ITR 143/172 Taxman 199 (Ker.). | |
| ■ | The same, in fact, is the admitted position; the assessee not pressing its ground challenging the computation of income of the said business under Chapter IV-D; rather, having claimed and been allowed depreciation under section 32 and set off under section 71. The question of the said business being incidental to the other objective/s of the assessee, as would be evident, is a pure matter of fact. | |
| ■ | There is no basis, nor any material on record, to justify the same, which also forms the basis of the orders by the revenue. An elocution contest, even the subject of which is not known, as also the total expenditure involved, appears to be the only activity sponsored by the trust over the years, which again does not imply undertaking any activity per se. That is, there is no charitable activity being undertaken, much less a regular activity towards charitable purposes, for the said business to be considered as an adjunct or incidental to the attainment thereof or any specific objective. | |
| ■ | Rather, if at all, the claim of business expenses as or toward application of income would suggest non-maintenance of separate books of account, another qualifying condition under sections 11(4) and 11(4A). Here it is also pertinent to state that even if the assessee's undertaking of publishing business was found as meeting the requirement of law and, as such, a property held under the trust, only its income to the extent applied for its charitable purposes would qualify for exemption under section 11, which again is conspicuous by its absence. | |
| ■ | In sum, the assessee's case is wholly un-maintainable. As regards the assessee's plea for a composite and holistic view of the matter being taken; the business activity not generating any surplus, the same is found as selfdefeating and, thus, a contention which only needs to be stated to be rejected. If there is no surplus, there is no question of the business feeding or as being able to sustain any charitable activity. The plea of no surplus is also inconsistent with the record. The assessee acquires land at a cost of Rs.2.95 crores during the previous year relevant to the assessment year 1999-2000. | |
| ■ | Again, the same would only be a part of the project, which is also apparent from the fact that huge claims qua depreciation on, among others, building, have been made and allowed from year to year, indicating continuing expansion. Surely, the assessee does not require that much capital to commence charitable objects. And, if it does, then again it is for it to generate adequate corpus to be able to commence the same. | |
| ■ | Certainly, there would be no surplus from the business as the profits generated would be required to meet the funding requirements of its capital expenditure as well as concomitant financial obligations, including servicing of debt. The focus of the management is clear, i.e., to set up a large, if not a grandiose publishing house. No wonder the assessee has not been able to generate a 'surplus' (for charitable purposes) in the two decades of its functioning, and despite being run on commercial lines. The plea of no surplus, which is even otherwise not maintainable, is false.[Para 6] | |
| ■ | In the result, the assessee's appeals for all the years are dismissed. [Para7] |
CASES REFERRED TO
Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/115 Taxman 126 (SC) (para 2.2), Ideal Publications Trust v. CIT [2008] 305 ITR 143/172 Taxman 199 (Ker.) (para 2.2) and Prabodhan Prakashan v. Asstt. DCIT [1994] 50 ITD 135 (Bom.) (para 3.2).
Anil Sathe for the Appellant. Rajarshi Dwivedy for the Respondent.
ORDER
Per Bench: These are the Appeals by the Assessee for five years, being assessment years (A.Y.) 1998-99, 2000-01, 2003-04, 2007-08 and 2008-09, being consecutive to the disposal of its appeal by the Order by the Commissioner of Income Tax (Appeals)-1, Mumbai ('CIT(A)' for short), contesting the assessments u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter). The appeals raising common issue/s were heard together and are, therefore, being disposed of vide a common, consolidated order.
The respective cases
2.1 The assessee, registered as a public charitable trust under the Bombay Public Trust Act, 1950 since some time in 1988, is carrying on its activities since January, 1989. It is also registered with the Director of the Income Tax (Exemptions) u/s.12A of the Act. The activity being carried out by the Trust is the publishing of a Daily by the name 'Dainik Saamana'. Over time though, other than this publication, a daily by the name 'Dopahar ka Saamana' and weekly 'Marmik', were also added. The assessee claims that its publishing activity is in national interest and, therefore, must be considered as toward a charitable object inasmuch as the entire activity of publication is an activity intended for the objects of the trust (listed as under) which are charitable in nature:
| i. | To arrange and to sponsor the various programmes and activities for promoting the national interest; | |
| ii. | To open, found and to establish the libraries and reading rooms and to run the same; | |
| iii. | To carry on the charitable activities in literacy, cultural, scientific and social fields; | |
| iv. | Promotion and propagation of ideologies, opinions and ideas for furtherance of national interest and for this publishing of books, annuals magazines, weeklies, dailies, and other periodicals as also establishing and running printing presses for the same. |
The assessee's alternate contention is that even if publication is regarded as a business, separate books of account for the same having been maintained, the acquisition of the fixed assets of its business be considered as toward the application of the trust's income for charitable purposes.
2.2 The Revenue's case, on the other hand, is that the assessee is engaged only in publication activity, undertaken on commercial lines in an organized and systematic manner, so that it is only a business activity. There is, accordingly, no question of exemption on the surplus u/s.11. That is, no exemption either u/s.11(1) or section 11(2) is exigible in the absence of any charitable activity being undertaken. The acquisition of the assets is only toward expansion of the publication business. A business could be regarded as a property held under trust, and its income, accordingly, considered for exemption u/s.11 on application for charitable purposes only where the business is incidental to the attainment of the objectives of the trust, while no such objective is being pursued in the instant case. Reliance for the purpose is placed on the decisions in the case of Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/115 Taxman 126 (SC) and Ideal Publications Trust v. CIT [2008] 305 ITR 143/172 Taxman 199 (Ker.). Aggrieved, the assessee is in second appeal.
The state of adjudication
3.1 The principal grounds of appeal raised by the assessee for all the years under reference are as under:
| '(a) | The learned Commissioner of Income Tax (Appeals) erred in confirming the treatment of publication of Dainik Samana as a business activity not eligible for exemption u/s.11 of the I.T. Act. | |
| (b) | The learned Commissioner of Income Tax (Appeals) failed to appreciate that Rs. xxxx incurred towards purchase of fixed assets was in the nature of application of income for objects of the trust and not for expansion of business as treated by the Assessing Officer. | |
| (c) | The learned Commissioner of Income Tax (Appeals) erred in not appreciating that while considering application of income, deficits of the earlier years had to be considered and a holistic view had to be taken.' |
This being the second round before the Tribunal for some years, while it's orders being relied upon for others, it would be relevant to extract the relevant directions by it or otherwise state the gist thereof.
3.2 For AYs. 1998-99 and 2003-04 (in ITA Nos.292 & 293/Mum/2007 dated 30.03.2009/PB pgs.58-61), the tribunal, after hearing the parties, formulated the issue arising for its consideration as being as to whether the surplus funds utilized for acquiring of assets for business purposes would amount to application of income for charitable purpose/s or not(refer para 6). After reproducing paras 40 and 41 of the tribunal's order for A.Y. 1989-1990 (Prabodhan Prakashan v. Asstt. DIT [1994] 50 ITD 135 (Bom.)), it held as under:
'6. We have considered the rival submissions and perused the record of the case. The short point for consideration is whether the surplus funds utilized for acquisition of assets for business purposes would amount to application of income or not for charitable purpose. There is no dispute over the fact that running of Dainik Saamana was a charitable purpose as held by the Tribunal vide order dated 10th February, 1994 for A.Y. 1989-90 in assessee's own case in para 40 of its order which is reproduced here-under:
"40. For the above reasons, we hold that the object of running Dainik Saamana was a charitable purpose. The Department has not brought out any objection to any other objects of the trust, though they have been referred to and, therefore, we hold that the objects of the trust, as a whole, were for charitable purpose within the meaning of s.2(15) of the Act."
In order to decide the issue, we refer to para 41 of the Tribunal's order, which has laid down the test for determining the application of income for charitable purpose as under:
"We have already held that the donations received by the Trust were not exempt under section 11(1)(d) of the Act. However, even other voluntary contributions received by a trust created wholly for charitable purposes shall, for the purpose of s.11 be deemed to be income derived from property held under trust wholly for charitable purposes. This is laid down in s.12 of the Act. Further, according to s.11(1)(a) of the Act, in come derived from property held under trust wholly for charitable purposes shall not be included in the total income to the extent to which such income is applied to such purposes in India. The learned Counsel for the assessee has sought exemption under s.11(1)(a) for the contributions on the ground that the contributions have been applied wholly for charitable purpose by utilizing them in running Dainik Saamana. Though the argument looks attractive in the first instance, a little reflection shows that running Dainik Saamana does not amount to application of income at all but amounts to earning of income which includes loss. Earning of income and application of income are opposites. The expenditure incurred in the course of running of Dainik Saamana is not expenditure incurred out of income earned but, on the other hand, is expenditure for the purpose of earning the receipts and is, therefore, a deduction for the very computation of income. Only that expenditure can be described as application of income which is no deductible for the purpose of computation of income. When this test is applied, the contention of the Learned Counsel for the assessee is found unacceptable. We, accordingly, reject the same."
From the findings of the Tribunal, it is evident that only that expenditure which is utilized for earning income cannot be treated as application of income towards the charitable objectives. The Tribunal has specifically held that only that expenditure can be described as application of income which is not deductible for the purpose of computation of income. Therefore, in the light of these observations, we have to examine whether the acquisition of fixed asset has been claimed as expenditure against the computation of income or not. Admittedly, the amount spent for acquisition of fixed assets is not deductible from the computation of income but only depreciation is allowable in respect of building etc. but not land. Therefore, expenditure in respect of those fixed assets is respect of which depreciation has been claimed and allowed to the assessee, cannot be treated as application of income. However, the balance amount spent for acquisition for fixed assets, on which no depreciation has been allowed, is to be treated as application of income as per the test laid down by the Tribunal in assessee's own case for A.Y. 1989-90 (supra). We, accordingly, restore the issue to the file of the Assessing Officer to decide the same in the light of our above observations in the light of the decision of the Tribunal for A.Y. 1989-90 (supra) and to determine the application of income accordingly.'
For A.Y. 2000-01 (in ITA No.8043/Mum/2003 dated 17.01.2007/PB pg.11-13), the tribunal agreed with the assessee that its appeal, raising the same grounds, was covered by the order by the tribunal for the earlier years, being for A.Ys. 1992-93, 1995-96 and 1996-97 (in ITA No.340/Mum/1998, 1492/Mum/2000 and 5722/Mum/1999 dated 25.05.2004/PB pgs.52-57), wherein the tribunal had set aside the matter back to the file of the A.O. for examining the issue of exemption u/s.11 in light of the decision by the apex court in the case of Thanthi Trust (supra). It, accordingly, remitted the matter back to the file of the A.O. with like directions. Even though the tribunal per its subsequent order dated 30.03.2009 for A.Y. 1996-97 (in ITA No.291/Mum/2007, rendered along with that for A.Ys. 1998-99 and 2003-04/PB pgs.58-61), had also considered its earlier order for the said year dated 25.05.2004 (supra), the findings thereby are also relevant and telling, which we reproduce as under:
"9. We have heard both the sides and considered the facts and materials on record including the case laws relied upon by the parties. May be it is true that the Tribunal in its earlier order cited supra has given a finding that the running of newpaper Dainik Samna was for charitable purpose within the meaning of section 2(15) as it stood from 01.04.1984. However, in view of the latest decision of the Honorable Supreme Court reported in 247 ITR 785 (SC), what is to be seen is, whether the income of the newspaper has been utilized for the purpose of the trust, even though, the objects may be charitable and this aspect of the matter, as rightly been contended by the learned Departmental Representative, were not put to test either by the assessing officer or by the Commissioner of Income Tax (appeals). In view of this, we are inclined to restore the matter back to the file of the assessing officer with a direction to record a finding as to whether the income from the newspaper has been utilized for the objects of the trust during the relevant assessment years and if so to follow the decision of Honorable Supreme Court (cited supra) if the income is so utilized and otherwise to decide according to law. Thus, these appeals of the assessee are allowed for statistical purpose only." [Emphasis supplied]
3.3 Each of the foregoing orders by the tribunal; this being the second round before it for some years, with the said orders also bearing cross reference to each other, have been carefully perused by us. This is, in fact, incumbent as these orders have attained finality inasmuch as they have not been challenged, or successfully so, by either party. Reading the same in conjunction, being also required to be read in harmony, we observe no inconsistency; rather, a consistency and conformity in all the four orders by the tribunal, referred to above, which have come to our notice. In other words, the findings are clear and binding. In fact, the same would apply even for the years before us not covered thereby, i.e., A.Ys. 2007-08 and 2008-09, unless of course the assessee is able to show as to how the same are not applicable for those years. In fact, no material has been brought on record to disturb and/or controvert the findings by the authorities below for all the years, which are also consistent with each other, pursuant to the orders by the tribunal.
Findings
4.1 We begin by enumerating the findings by the tribunal in the assessee's case if only for coherence and better comprehension, as under:
| (a) | The activity of publication of 'Dainik Saamana' (and others) is a business activity and, accordingly, the income or loss there-from is to be assessed as 'business income' under Chapter IV-D of the Act; | |
| (b) | consequently, all the expenses incurred in the course of the said business, including acquisition of fixed assets of the business, has to be necessarily considered as toward earning business income. The same cannot, therefore, be considered as toward application of income. The assessee accordingly would be entitled to deduction of depreciation u/s.32, i.e., as exigible in computation of business income u/s.28; and | |
| (c) | whether the assessee would be entitled to exemption u/s.11 would depend on the satisfaction of the parameters of section 11(4) r.w.s. 11(4A), for which reference is made to the decision by the apex court in the case of Thanthi Trust (supra). |
In fact, these findings have also been culled out in some of the assessment orders, as for A.Ys. 1989-99 & 2003-04, and much in the same form. We are under the circumstance unable to see as to how the assessee's grounds are maintainable before us. This is as the only issue that survives, post a series of the orders by the tribunal, is the allowance of exemption u/s.11, i.e., where and to the extent the requirement of law stands met. Rather, it was incumbent on the part of ld. AR, if also not the ld. DR, to bring to our notice as to how the income for the AYs. 1992-93, 1995-96 & 1996-97 has been finally determined, i.e., subsequent to the directions by the tribunal for these years per its order dated 25.05.2004 (supra) and 30.03.2009 (supra). In fact, the assessee itself admits to the publication activity as constituting business, claiming of the said business as being incidental to the attainment of its objects, i.e., promoting national interest, by creating public awareness, so that its income would be computed under Chapter IV-D. Accordingly, the ground assailing the computation of income or loss, as the case may be, for different years, u/c IV-D, though raised per the memo of appeal, stood not pressed before us during hearing.
4.2 Next, we consider the assessee's claim of having applied its income for the relevant years to its objectives, which have been considered charitable, so that exemption u/s.11 ought to have been allowed. We firstly find that no claim whatsoever in the regard has been made for three of the five years under reference. For A.Y. 2000-01, the only claim, as reflected per the income and expenditure account, is by way of donation (at Rs.2,000/-) and elocution competition (at Rs.15,000/-). Considering the surplus of Rs.23 lacs for that year, the Revenue found itself unable to hold that the business of the publication was being, firstly, run incidental to the attainment of the objectives of the trust and, secondly, of having been actually utilized for those objects. For A.Y. 2007-08, the only other year for which some expenditure was claimed toward application of income, the claim, made at Rs.24.93 lacs (detailed at para 4 of the assessment order), was found to be in fact comprising expenses relating to publication of the newspaper and not toward the other objects of the trust, being in the nature of finance charges and sundry balances written off. The claim of application of income for another sum of Rs.17.39 lacs also did not pass muster as the same was toward acquisition of fixed assets of the said business and, consequently, for the expansion of the said business. The assessee having also raised a specific ground (Gd. No.2) in this regard for A.Y. 2008-09, we also reproduce the relevant findings by the first appellate authority, which are under challenge before us:
'4.3 I have carefully considered the facts of the case, submissions of the appellant and the assessment order. It is an admitted fact that the appellant is disclosing the income from publication activities as business income and in A.Y. 1989-90 also the Hon'ble ITAT endorsed that view and also allowed set off u/s.71. Hon'ble ITAT for AY 89-90 has also held that running Dainik Saamana is a charitable purpose but at para 41, it is outlined that voluntary contribution received by the trust that are utilised in running Dainik Saamana does not amount to application of income but it is an expenditure for the purpose of earning the income. It is also noticed that the appellant is only engaged in publication activity and the appellant has used the income or acquisition of assets used for the publication business which cannot be regarded as application towards object of the trust. Thus, the A.O. has rightly denied the benefit u/s.11(2) and 11(1)(a) of the I.T. Act. Ground Nos.1 to 5 are dismissed.' [Emphasis supplied]
4.3 Whether the business being undertaken by the assessee is incidental to the attainment of the objectives or not is a question of fact.Similarly, whether any part of income of the said business has been applied for charitable purposes is a pure question of fact. No material to controvert the clear concurrent findings on fact by the Revenue authorities has been advanced at any stage of the proceedings, including before us. A donation for a sum of money or contribution for an elocution contest would not make the business incidental to the said activity. In fact, we find such donations or contributions being made by business houses all the time. The Revenue has in this regard, and in our view correctly, relied on the decision in the case of Ideal Publications Trust (supra), rendered in application of the decision by the apex court, inter alia, in the case of Thanthi Trust (supra). Again, the clear and apparent distinction between the expenses incurred in the course of carrying on the publication business and application of surplus for its other objects, have been abundantly clarified by the tribunal time and again beginning with its order for A.Y. 1989-90 (per para 41), which finds reproduction/reference, both in its subsequent orders (as dated 30.03.2009, supra) as well as by the orders by the authorities below (refer para 3.2/pg.4 of the order). The distinction between the two is basic, conceptual and quintessential. The two expenses, as explained by the tribunal, are in contradistinction to each other, while one is for carrying of the business activity (of publication, in the instant case), for which separate books are to be maintained, to be adjusted in computing the business income, the other is toward the application of the income so determined. Accordingly, the tribunal also directed allowance of depreciation u/s.32 on the sums expended toward acquisition of fixed assets of the business, where depreciable, and which we find to have been allowed by the Revenue. The said assets, as also land, form part of the fixed assets/capital of the assessee's business undertaking. No claim qua these sums as towards the application of business, thus, survives, so that the assessee's relevant ground/s, apart from being without merit, is not maintainable at the threshold; the Revenue's action being only in conformity with the order/s by the tribunal, which have since attained finality. As would be noted, this is precisely the issue as discerned by the tribunal vide its order dated 30.03.2009 (supra) (vide para 6 of its order, reproduced above). The assessee's specific ground in this respect, as vide ground no. 3 (for A.Y. 1998-99), ground no.2 (for A.Y. 2007-08) and ground no.2 (for A.Y. 2008-09) are, accordingly, dismissed.
Deduction u/s. 11(1)(a): If exigible?
5.1 We, next, take up the final objection by the assessee, i.e., of it being entitled to, in any case, exemption u/s. 11(1)(a) by way of carry over of the surplus for each year, i.e., at the rate of 15% thereof and, further, in terms of its application for accumulation u/s.11(2), where moved, as for A.Y. 2003-04. This aspect, though not raised specifically, would stand to be covered by the assessee's ground no.1. The said plea was taken by the ld. AR on being pointed out by the Bench during hearing that the assessee had through-out singularly failed to show of application of income over the years for charitable purposes. This led him to state that this has been due to deficiency of income, though nevertheless, as the assessee is obliged to apply only 75% (85%, w.e.f. A.Y. 2003-04) of its income for any year for charitable purposes, its claim for the balance 25% (15%) thereof could not be denied, i.e., toward future application for such purposes. Besides, the denial for specific accumulation u/s. 11(2), where moved, is again not valid in law.
5.2 In our considered view, while the plea qua standard allowance upto a maximum of 25% of the current income (15% w.e.f. A.Y. 2003-04) could be validly made before us, the specific disallowance of the application for accumulation could not be agitated without it being a subject matter of adjudication by the authorities below, whose orders do not bear any such, with there being in fact even no ground toward the same, as is the case before us, before the first appellate authority. So however, as a deduction u/s.11(2) would arise only where the assessee is eligible for exemption u/s.11(1)(a), our adjudication to that extent may be construed as toward the claim u/s.11(2) as well.
5.3 We have given our careful consideration to the matter. The assessee's case is unmaintainable. This is for two reasons. Section 11 in its relevant part reads as under:
"11. Income from property held for charitable or religious purposes.—(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income—
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property;
| (1A)** | ** | **; |
(b) where a capital asset, being property held under trust in part only for such purposes, ….
Explanation.—In this sub-section,—
| (i) to (iii) and (2) & (3)** | ** | ** |
(4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes.
(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business."
Clearly, therefore, the income of any charitable trust (or institution) derived from property held wholly for such purpose, shall not form part of the total income under the Act where and to the extent applied for such purposes in India. The exemption is not automatic but subject to the condition of the application of the income during the relevant previous year upto at-least 75% (85% w.e.f. A.Y. 2003-04) of such income. There is provision with respect to deemed application per Explanation 2 to section 11(1)(a), but the same is only upon exercise of the option in writing by the assessee. Two, the same is available on the condition of non receipt of income, or, at best defers the application of income to the immediately following year. The same, thus, is year as well as fact specific and, as such, neither applicable nor relevant in the facts of the case, given the general proposition being sought to be advanced. It is, therefore, only upon application of income to the specified extent (75% or 85%, as the case may be), at the minimum, that the exemption of income extends to the whole of such income. Without doubt, though, the balance unapplied income is to be necessarily applied for charitable (or religious) purposes of the trust/institution, albeit subsequently. The assessee's argument of being entitled to exemption for the balance (25% or 15%) without having applied any part of its income toward such purposes, much less to the specified extent, is, thus, de hors the provision/s as well as the scheme of the Act and, therefore, misconceived.
Two, the income to be applied for charitable purposes is that derived from property held under trust. The property held under trust being not specifically defined would, therefore, have to be read as without limitation. The only limitation stipulated is per sub-sections (4) and (4A) of section 11, and is in respect of a business undertaking. The same stipulate that only where the business is incidental to the attainment of the objective/s of the Trust, that, separate books of accounts being maintained in its respect, could a business undertaking be considered as a property held under trust. Section 11(1) is to be read in conjunction and harmony with ss. 11(4) and 11(4A). It is, thus, only the business undertaking which qualifies as a property held under trust whose income would be eligible for exemption 11(1). In the instant case, the principal objects of the trust are as stated at para 2.1. Clause (iv) could only be considered as an extension of clause (i) inasmuch as there is no constraint on the amplitude of the word 'activities' in clause (i). Clause (iv) only states the modalities per which the objective of national interest can be furthered, i.e., by promoting ideologies, opinions and ideas, and toward the same undertake publication, including running of printing press. The business of publication has thus not been considered as a separate object, or at-least as a charitable object, in itself. This, it may be noted, is precisely what the tribunal has said in its orders for earlier years. This again what stands clarified by the hon'ble court in Ideal Publications Trust (supra). Further, the contention that dissemination of information through publication would fall within the ambit 'education', inasmuch as there is thereby building of public opinion and education of masses, has been since disapproved by the apex court in Thanthi Trust (supra), and which rather we find not to be the assessee's stand/claim as well. As such, what is required to be shown in the facts and circumstances of the case, is that the said publication business serves as a vehicle for the attainment of the other objects of the assessee-trust. The assessee has failed in demonstrating so. How could, then, we wonder, its publication business be taken as incidental to the attainment of its objects, for it to be considered as a property held under trust? Rather, no other activity having been undertaken, much less in a regular, systematic manner, the ld. AR was specifically questioned by the Bench during hearing as to the publication business being incidental to what, to no answer by him. It is this that led him to state of lack of profit, and of being allowed, in any case, exemption @ 25% (15%) of income u/s.11(1)(a), i.e., the very question which forms the subject matter of this segment of this order.
Conclusion
6. Given the orders by the tribunal in the assessee's own case for some of the years under appeal, which have become final, as well as reliance thereon for other years, all that the assessee was required to exhibit in the set aside (or otherwise) assessment proceedings was of the publication business as being incidental to the attainment of its other objects, i.e., as a fact, toward satisfaction of the requirement of the law u/ss. 11(4) and 11(4A), for the said business to be considered as property held under trust. That the said business does not by itself constitute a charitable object or purpose is no longer res integra in view of the findings by the tribunal in its own case as well as the law as explained in Ideal Publications Trust (supra). The same, in fact, is the admitted position; the assessee not pressing its ground challenging the computation of income of the said business under Chapter IV-D; rather, having claimed and been allowed depreciation u/s.32 and set off u/s.71. The question of the said business being incidental to the other objective/s of the assessee, as would be evident, is a pure matter of fact. We find no basis, nor any material on record, to justify the same, which also forms the basis of the orders by the Revenue. It's findings for AYs 1992-93, 1995-96 & 1996-97, which may also have attained finality, are also very relevant, though have not been brought on record. An elocution contest, even the subject of which is not known, as also the total expenditure involved, appears to be the only activity sponsored by the trust over the years, which again does not imply undertaking any activity per se. That is, there is no charitable activity being undertaken, much less a regular activity toward charitable purposes, for the said business to be considered as an adjunct or incidental to the attainment thereof or any specific objective. Rather, if at all, the claim of business expenses as or toward application of income would suggest non-maintenance of separate books of account, another qualifying condition u/ss. 11(4) & 11(4A). Here it is also pertinent to state that even if the assessee's undertaking of publishing business was found as meeting the requirement of law and, as such, a property held under the trust, only its income to the extent applied for its charitable purposes would qualify for exemption u/s.11, which again is conspicuous by its absence. In sum, the assessee's case is wholly un-maintainable.
As regards the assessee's plea for a composite and holistic view of the matter being taken; the business activity not generating any surplus, we find the same as self-defeating and, thus, a contention which only needs to be stated to be rejected. If there is no surplus, there is no question of the business feeding or as being able to sustain any charitable activity. The plea of no surplus is also inconsistent with the record. The assessee acquires land at a cost of Rs.2.95 crores during the previous year relevant to A.Y. 1999-2000 (refer Gd.3/SOF for AY 1998-99). Again, the same would only be a part of the project, which is also apparent from the fact that huge claims qua depreciation on, among others, building, have been made and allowed from year to year, indicating continuing expansion. Surely, the assessee does not require that much capital to commence charitable objects! And, if it does, then again it is for it to generate adequate corpus to be able to commence the same. Certainly, there would be no surplus from the business as the profits generated would be required to meet the funding requirements of its capital expenditure as well as concomitant financial obligations, including servicing of debt. The focus of the Management is clear, i.e., to set up a large, if not a grandiose publishing house. No wonder the assessee has not been able to generate a 'surplus' (for charitable purposes) in the two decades of its functioning, and despite being run on commercial lines. The plea of no surplus, which is even otherwise not maintainable, is false.
The grounds as adopted are under the facts and circumstances of the case not maintainable at the threshold and, in any case, fail on merits. We decide accordingly.
7. In the result, the assessee's appeals for all the years are dismissed.
Regards
Prarthana Jalan
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