2013 (2) TMI 380 - HC - Income Tax

Charitable Trust - Income from printing and publishing of newspapers - Whether the object of the assessee trust is encompassed under the expression charitable purpose falling within the ambit of Section 2(15) - Property held under Trust Held that - Following the decision in case of Thanthi Trust (2001 (1) TMI 80 - SUPREME COURT) that the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The Trust, therefore, is entitled to the benefit of Section 11 for the A.Y. 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business has been employed to achieve its objectives of education and relief to the poor and that it has maintained separate books of account in respect thereof - In favour of assessee Violation of the provisions of Section 13(3) - Any part of income or any property of the trust or the institution is applied directly or indirectly for the benefit of any person referred to in sub-section (3) of Section 13 Certain payment were made to persons as defined in Section 13(3) - Held that - Tribunal while reversing these findings had not recorded any definite and clear finding relating to violation of the provisions of Section 13(3). The matter, thus, requires to be remanded to the Tribunal to re-adjudicate the claim of the assessee for exemption of income u/s 11 - Remand back to AO

Issues Involved:

1. Whether the object of the assessee trust falls under the expression 'charitable purpose' within the ambit of Section 2(15) of the Income Tax Act, 1961.
2. Whether the Tribunal was correct in reversing the findings of the Assessing Officer and the CIT(A) regarding compliance with the provisions of Section 11(1)(a) and 11(4A) of the Act and the violation of the provisions of Section 13(1)(c) and 13(3) of the Act.

Issue-wise Detailed Analysis:

Issue 1: Whether the object of the assessee trust falls under the expression 'charitable purpose' within the ambit of Section 2(15) of the Income Tax Act, 1961.

Section 2(15) of the Income Tax Act defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. The court noted that the meaning assigned to "charitable purpose" is inclusive and not exhaustive, encompassing purposes that promote the welfare of the general public. The primary object of the trust, which was running a newspaper to promote Punjab, Punjabi, and Punjabiat, was considered an object of general public utility. The court referenced various judgments, including the Privy Council in Re The Trustees of 'The Tribune' and the Supreme Court in Gujarat Maritime Board's case, to support the view that the trust's activities fell within the scope of "charitable purpose."

The court also emphasized that the predominant object of the trust should be charitable, and any ancillary business activity resulting in profit should be utilized for charitable purposes. The trust was registered as a Public Charitable Trust and had been granted exemption under Section 12A(a) of the Act. The court concluded that the Tribunal was correct in holding that the assessee trust's object was charitable and fell within the ambit of Section 2(15) of the Act.

Issue 2: Whether the Tribunal was correct in reversing the findings of the Assessing Officer and the CIT(A) regarding compliance with the provisions of Section 11(1)(a) and 11(4A) of the Act and the violation of the provisions of Section 13(1)(c) and 13(3) of the Act.

Section 11(1)(a) of the Act provides that income derived from property held under trust for charitable purposes is exempt to the extent it is applied for such purposes. Section 11(4A) requires that the business income of a trust must be incidental to the attainment of the objectives of the trust and that separate books of account must be maintained. The Tribunal found that the trust's activity of running a newspaper was incidental to its main objective of promoting Punjab, Punjabi, and Punjabiat, thereby satisfying the conditions of Section 11(4A).

However, the court noted that the CIT(A) had recorded that there was no evidence that the income from the publication of the newspaper had been utilized for charitable purposes. The Tribunal had not addressed this aspect with reference to any material on record.

Regarding the violation of Section 13(1)(c) read with Section 13(3), which pertains to the use of trust income for the benefit of specified persons, the Assessing Officer had found that certain payments were made to persons defined under Section 13(3), making the income ineligible for exemption. The Tribunal reversed these findings without recording a clear and definite finding on the violation of Section 13(3).

The court concluded that the matter required remand to the Tribunal to re-adjudicate the issue of exemption under Section 11 with reference to the provisions of Section 13(3) and to examine the question of admissibility of deduction in respect of payments made to certain persons.

Conclusion:

The court remanded the case to the Tribunal to re-adjudicate the issue of exemption claimed under Section 11 of the Act, with specific reference to the provisions of Section 11(1)(a) and Section 13(3). The appeals were disposed of accordingly.

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