1998 (9) TMI 30 - HC - Income Tax

Summary

Issues:
1. Whether the activity of the assessee related to the exploitation of film distribution rights and income realization qualifies as 'business activity'?
2. Whether the income derived from film distribution rights exploitation by the trust is a business carried on by the trust in the course of its primary purpose?
3. Whether the income realized by the trust from film distribution rights exploitation is considered 'income' under section 2(24) of the Income-tax Act, 1961?

Issue 1:
The case involved a trust named Nagi Reddi Charities receiving donations through assignment of film copyrights. The Income-tax Officer sought to tax the amounts received, arguing that the trust was engaged in film distribution business not directly connected to its charitable objects. The Tribunal held that the trust did not carry on any business and that any business conducted was in line with its primary purpose. The trust received amounts from distributors as part of the corpus, not taxable income, as per section 13(1)(bb) of the Act.

Issue 2:
The Revenue contended that only the copyright assigned to the trust should form part of the corpus, while income from distribution rights exploitation should not. The trust's counsel argued that the donors' intention, as per section 12 of the Act, was crucial, and the donations were meant for the corpus. The trust did not engage in new agreements with distributors, and the amounts received were for the specific purpose of fulfilling its charitable objects.

Issue 3:
The copyrights assigned to the trust were subject to conditions that the amounts realized would be used for hospital construction or medical relief. The trust was directed to receive amounts from distributors directly, treating them as contributions to the corpus. The trust did not enter into the business of distribution, and the amounts received were for fulfilling its charitable objectives. The court held that the trust did not derive income from a business and answered all questions in favor of the assessee, ruling against the Revenue.

In conclusion, the court found that the trust's activities related to film distribution rights exploitation were not considered 'business activity,' the income derived was part of the trust's corpus, and the trust was not engaged in a business of film distribution. The judgment favored the assessee, ruling against the Revenue on all issues raised.