Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 614 OF 2023
[@ SPECIAL LEAVE PETITION (CIVIL) NO(S). 11017 OF 2022]
PR. COMMISSIONER OF INCOME TAX
(EXEMPTIONS) DELHI …APPELLANT(S)
VERSUS
SERVANTS OF PEOPLE SOCIETY …RESPONDENT(S)
J U D G M E N T
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 referred to
“revenue”) is aggrieved by the impugned judgment and order of the Delhi High
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court . 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) (hereafter called “Appellate
Commissioner”). The Appellate Commissioner and the ITAT were of the
Signature Not Verified
opinion that the respondent organisation (a registered society, hereafter also
Digitally signed by
NEETA SAPRA
Date: 2023.02.03
17:52:05 IST
Reason:
called “the assessee”) was a charitable trust entitled to the benefit of exemption
1 dated 16.11.2021 in ITA No. 161/2021
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and that it is registered under Section 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 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. 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 earlier 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 is running
schools in the name of Balwant Rai Mehta Vidya Bhawan in Lajpat Nagar and
in Greater Kailash in New Delhi and one Medical Centre in Lajpat Nagar and
old age home in Dwarka in Delhi. The assessee is also building a hospital in the
name of Gopa Bandhu Medical Research Centre in Odisha. The assessee was
also allowed exemption 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 trade, commerce or business as it manages and runs a printing
press 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.
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5. It is urged on behalf of the revenue that the Appellate 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
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Organisation v. Director General of Income Tax (Exemption) 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
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Authority , whereby the Court has held that activities which are in the nature of
trade, and carry on by a trust established for general public utility, have to
specify certain parameters.
6. Learned counsel highlighted that the assessee in this case is not merely
earning revenue from sale of newspaper but also 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 income 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 society 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.
2 371 ITR (Del) 333
3 2022 SCC Online SC 1461
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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 analysis, the following
conclusions are recorded regarding the interpretation of the changed
definition of “charitable purpose” (w.e.f. 01.04.2009), as well as the later
amendments, and other related provisions of the IT Act.
A. General test under Section 2(15)
A.1. It is clarified that an assessee advancing general public utility 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 general public utility,
the concerned trust, society, or other such organization, can carry on trade,
commerce or business or provide services in relation thereto for
consideration, provided that (i) the activities of trade, commerce or business
are connected (“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 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 public 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 charges are markedly or
significantly above the cost incurred by the assessee in question, that they
would fall within the mischief of “cess, or fee, or any other consideration”
towards “trade, commerce or business”. In this regard, the Court has
clarified through illustrations what kind of services or goods provided on cost
or nominal basis would normally be excluded from the mischief of trade,
commerce, or business, in the body of the judgment.
A.4. Section 11(4A) must be interpreted harmoniously with Section 2(15), with
which there is no conflict. Carrying out activity in the nature of trade,
commerce or business, or service in relation to such activities, should be
conducted in the course of achieving the GPU object, and the income, profit
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
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necessity of demonstrating that the quantitative limit prescribed in the proviso
to Section 2(15), has not been breached. Similarly, the insertion of Section
13(8), seventeenth proviso to Section 10(23C) and third proviso to Section
143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring
uniformity across 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 objects of ‘general public utility’; further that merely
because thousands of newspapers were being published made no difference. 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 actually 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, commerce or business”, for any
consideration. During the course of submissions, it was urged that
advertisement revenue should not be treated as business or commercial
receipts since that virtually is the lifeblood which sustains the activity of
publication of newspapers. It was highlighted that the object of maintaining
the activity of publishing and distribution of newspaper remains the
advancement of general public utility, as it has the effect of both notifying and
educating the general public about the current affairs and developments. The
inclusion of advertisements also serves as information to the general public,
especially in areas of employment, availability of resources, etc. Therefore,
publication of advertisement is intrinsically connected with the activity of
printing and publishing of newspapers.
259. The publication of advertisements for consideration, in the opinion of the
court, by the newspaper, cannot but be termed as an activity in the nature of
carrying on business, trade or commerce for a fee or consideration. That the
newspaper published by the trust (“the Tribune”) in this case is funded mainly
through advertisement is no basis for holding that publishing such
advertisements by the Trust does not constitute business. The object of the
trust to involve or engage in publication of newspapers. Publishing
advertisements is obviously to garner receipts which are in the nature of
profit. 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 the overall receipts earned in a given year. While the assessee's
contention that publication of advertisement is intrinsically linked with
newspaper activity (thereby fulfilling sub-clause (i) of the proviso to Section
2(15), i.e. an activity in the course of actual carrying on of the activity
towards advancement of the object) is acceptable, nevertheless, the condition
imposed by sub-clause (ii) of the proviso to Section 2(15) has to also be
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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 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
be re-examined, and the question as to whether the amounts received by the
assessee 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 relevant papers and render fresh
findings on the issue whether respondent is a charitable trust, entitled to
exemption of its income. The AO shall complete the hearing and pass orders
within four months. The appeal is allowed to the above extent.
...............................................J.
[S. RAVINDRA BHAT]
..............................................J.
[DIPANKAR DATTA]
NEW DELHI,
JANUARY 31, 2023
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