Pr. Commissioner Of Income Tax (Exemptions) Delhi v. Servants Of People Society

PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS)DELHI SERVANTS OF PEOPLE SOCIETY (Civil Appeal No(S). 614 of 2023) JANUARY 31, 2023 [S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.] Income Tax Act, 1961: ss. 2(15) and 11(1) – Charitable trust – Benefitof exemption – Entitlement to – On facts, assessee-registered societyfounded in 1921 for nation building, general awareness and welfareof the people – Assessee society also managing and running aprinting press and a newspaper – Claim of benefit of exemption –Denial by the assessing officer invoking the proviso to s. 2(15) onthe ground that the assessee is involved in trade, commerce orbusiness – However, the Appellate Commissioner allowed the pleaof the assessee – Said order upheld by the tribunal and the HighCourt – On appeal, held: Appellate Commissioner, the ITAT and theHigh Court merely followed the judgment of the High Court in IndiaTrade Promotion Organisation case – However, the law with regardto interpretation of s. 2 (15) has undergone a change, due to thedecision in Ahmedabad Urban Development Authority Case – Matterto be re-examined, and the question as to whether the amountsreceived by the assessee qualify for exemption, u/s. 2 (15) or s. 11to be gone into afresh – Assessing Officer to examine the documentsand relevant papers and render fresh findings on the issue. India Trade Promotion Organisation v. Director Generalof Income Tax (Exemption) 371 ITR (Del) 333 –referred to. CIT v. Ahmedabad Urban Development Authority 2022 SCC Online SC 1461 – relied on. CIVIL APPELLATE JURISDICTION : Civil Appeal No.614 of2023. 865 AFrom the Judgment and Order dated 16.11.2021 of the High Courtof Delhi at New Delhi in ITA No.161 of 2021. Balbir Singh, A.S.G., J. K. Mishra, Sr. Adv., Jogy Scaria, PradeepKumar Gupta, Ms. Beena Victor, Ms. Priya M., Ravi Lamod, RajBBahadur Yadav, Ashok Panigrahi, Chinmayee Chandra, Prashant Singh,Mrs. Monica Benjamin, Ms. Meena Devi, Prasenjit Sarkar, D. MaheshBabu, Ganesan Subbian, Shishir Pinaki, Dhanaeswar Gudapalli, KasojuMahesh Chary, Ms. Mallika Das, Advs. for the appearing parties. The Judgment of the Court was delivered byCS. RAVINDRA BHAT, J. 1. Special leave granted. Mr. D. Mahesh Babu waives notice ofappeal on behalf of the sole respondent [hereafter called “the assessee”].DThe appeal is heard finally. 2. The Commissioner of Income Tax (hereafter referred to“revenue”) is aggrieved by the impugned judgment and order of theDelhi High court[1]. The impugned judgment upheld the decision of theIncome Tax Appellate Tribunal (“ITAT”) which affirmed the viewsEexpressed by the Commissioner of Income Tax (Appeals) (hereaftercalled “Appellate Commissioner”). The Appellate Commissioner andthe ITAT were of the Opinion that the respondent organisation (aregistered society, hereafter also called “the assessee”) was a charitableFtrust entitled to the benefit of exemption and that it is registered underSection 12AA and 80G of the Income Tax Act (hereafter called the“Act”) were valid. 3. The facts are that the assessee society was founded in theyear 1921 by the legendary freedom fighter Lala Lajpat Rai during theGfreedom struggle for the nation building, general awareness and welfareof the people. In 1928 the famous freedom fighter of Odhisha Shri Pt.Gopa Bandhu Dass made a Will of his property and his printing presswhich is managing the Oriya newspaper “Samaj”- for people’s welfare. H1 dated 16.11.2021 in ITA No. 161/2021 PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHI V.SERVANTS OF PEOPLE SOCIETY [S. RAVINDRA BHAT, J.] 2023. 865 866 867 The assessee was enjoying exemption under Section 11 of the Act butthe same was denied during the A.Y. 1973-74 and later allowed by theITAT and affirmed by the High Court. The assessee was also earlierallowed exemption for three years i.e. 1990-91 to 1992-93 under Section10(23C)(iv) of the Act. The assessee has established and is runningschools in the name of Balwant Rai Mehta Vidya Bhawan in LajpatNagar and in Greater Kailash in New Delhi and one Medical Centre inLajpat Nagar and old age home in Dwarka in Delhi. The assessee isalso building a hospital in the name of Gopa Bandhu Medical ResearchCentre in Odisha. The assessee was also allowed exemption underSection 11(1) but the same has been denied during the A.Y. 2010-11 and2011-12. The Assessee Officer denied the exemption invoking the provisoto Section 2(15) on the ground that the assessee is involved in trade,commerce or business as it manages and runs a printing press and anewspaper. The assessee argued that it was primarily a non-profitinstitution 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 whoallowed its plea and directed that the income earned by it ought to enjoythe benefit of exemption. The revenue carried the matter in appeal tothe ITAT and the High Court, both unsuccessfully. As a consequence, ithas approached this Court in appeal by the special leave. 5. It is urged on behalf of the revenue that the AppellateCommissioner and the Tribunal fell into error in granting the exemptionto the assessee. The Learned Additional Solicitor General Mr. BalbirSingh, points out that the ITAT followed the decision of the Delhi HighCourt in India Trade Promotion Organisation v. Director General ofIncome Tax (Exemption)[2]and other decisions. It was urged that thosedecisions are no longer good law in view of the judgment of this Court inCIT v. Ahmedabad Urban Development Authority[3], whereby the Courthas held that activities which are in the nature of trade, and carry on by 2 371 ITR (Del) 333 3 2022 SCC Online SC 1461 a trust established for general public utility, have to specify certainparameters. 6. Learned counsel highlighted that the assessee in this case isnot merely earning revenue from sale of newspaper but also earnedBsubstantial advertisement revenue. 7. Learned counsel for the assessee urges that this court shouldnot intervene given that the Appellate Commissioner as well as the ITATand the High Court have concurrently upheld its claim for exemption onthe ground that it is a charitable trust entitled to be treated as such therebyCeligible for exemption. It was submitted that the activity of generatingincome through advertisement is only incidental and income fromadvertisement cannot be called part of the main object of the trust butrather necessary for it to attain its charitable objectives. DAnalysis and Findings 8. During the relevant assessment year, the assessee societyclaimed exemption, inter alia, in respect of income from newspapers,which included advertisement revenue, to the extent of ` 9,52,57,869/-Eand surplus of ` 2,16,50,901 from its activities in Delhi. 9. The judgment of this court, in Ahmedabad Urban DevelopmentAuthority had examined various kinds of activities to determine whetherthey are charitable in nature, relatable to trusts or societies with generalFpublic utility objectives. The court then recorded its findings, regardingthe true interpretation of “charitable objects” under Section 2 (15) andsummarized the findings as follows: “IV. Summation of conclusions 867 267. In view of the foregoing discussion and analysis, thefollowing conclusions are recorded regarding theinterpretation of the changed definition of “charitablepurpose” (w.e.f. 01.04.2009), as well as the later amendments,and other related provisions of the IT Act. PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHI V.SERVANTS OF PEOPLE SOCIETY [S. RAVINDRA BHAT, J.] A. General test under Section 2(15) A.1. It is clarified that an assessee advancing general publicutility cannot engage itself in any trade, commerce or business,or provide service in relation thereto for any consideration(“cess, or fee, or any other consideration”); A.2. However, in the course of achieving the object of generalpublic utility, the concerned trust, society, or other suchorganization, can carry on trade, commerce or business orprovide services in relation thereto for consideration, providedthat (i) the activities of trade, commerce or business areconnected (“actual carrying out…” inserted w.e.f.01.04.2016) to the achievement of its objects of GPU; and(ii) the receipt from such business or commercial activity orservice 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 totalreceipts of the previous year, w.e.f. 01.04.2016); A.3. Generally, the charging of any amount towardsconsideration for such an activity (advancing general publicutility), which is on cost-basis or nominally above cost, cannotbe considered to be “trade, commerce, or business” or anyservices in relation thereto. It is only when the charges aremarkedly or significantly above the cost incurred by theassessee in question, that they would fall within the mischiefof “cess, or fee, or any other consideration” towards “trade,commerce or business”. In this regard, the Court has clarifiedthrough illustrations what kind of services or goods providedon cost or nominal basis would normally be excluded fromthe mischief of trade, commerce, or business, in the body ofthe judgment. A.4. Section 11(4A) must be interpreted harmoniously withSection 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, orservice in relation to such activities, should be conducted inthe course of achieving the GPU object, and the income, profitor surplus or gains must, therefore, be incidental. Therequirement in Section 11(4A) of maintaining separate booksof account is also in line with the necessity of demonstratingthat the quantitative limit prescribed in the proviso to Section2(15), has not been breached. Similarly, the insertion ofSection 13(8), seventeenth proviso to Section 10(23C) andthird proviso to Section 143(3) (all w.r.e.f. 01.04.2009),reaffirm this interpretation and bring uniformity across thestatutory provisions. 10. This court had also considered the nature of income derivedby a trust, which was managing a newspaper. The observations pertainingto that assessee, i.e. the Tribune Trust, are relevant: “257. It is noticed from the impugned judgment that the HighCourt concedes to the fact that the trust’s activities were heldby the Privy Council to constitute financing of objects of‘general public utility’; further that merely because thousandsof newspapers were being published made no difference. Itstill continues to be a GPU charity. 869 10.