2015 (6) TMI 254 - AT - Income Tax

Entitlement to exemption under section 10(23C)(iv) - AO as per the section 2(15) treated the assessee as business entity - printing and publication of newspaper. - CIT(A) allowed the exemption - Held that - assessee has definitely earned profits - even if the approval has been granted, income can still be assessed if it is found that the proviso to the first provision of clause (15) of section 2 is applicable. Further, the assessee itself has entertained doubts about its exemption and filed a revised return, which itself shows that the assessee was not eligible for exemption. If a person is eligible for exemption under clause (23C)(iv) of section 10 or is registered under section 12AA or is a charitable organisation then such persons could not be called employer. If the assessee was clear in its mind that it is entitled for exemption under clause (23C)(iv) of section 10, then there was no need for assessee to treat itself as employer and file return under the fringe benefits tax provisions. In regard to these facts, learned counsel gave only evasive reply and we are not satisfied with the same as assessee trust is a large organisation employing lot of qualified people including chartered accountants and is being advised by the best of advocates, then how can it make such a slip of filing the return under fringe benefits tax on the one hand and claiming exemption under section 10(23C) on the other hand ? This order has been passed though the Assessing Officer himself was in doubt about the exemption. It seems that the Assessing Officer was not aware of the last proviso to section 10(23C) that notification itself will not grant exemption. Therefore, it is a not factual position. It is a legal issue as we have seen in the abovenoted paras, the law is very clear and the assessee is not entitled for exemption, therefore, the principle of consistency cannot be followed. - Decided in favour of revenue.

Issues Involved:
1. Whether the Commissioner of Income-tax (Appeals) erred in allowing the appeal of the assessee without appreciating the facts of the case.
2. Whether the Commissioner of Income-tax (Appeals) erred in reversing the action of the Assessing Officer who treated the assessee as a business entity and assessed its income accordingly.

Issue-wise Detailed Analysis:

1. Error in Allowing the Appeal:
The Revenue contended that the Commissioner of Income-tax (Appeals) allowed the appeal without proper appreciation of the facts. The assessee filed a return declaring a loss after claiming exemption under section 10(23C)(iv) of the Income-tax Act, 1961, which was denied by the Assessing Officer based on the amendment in section 2(15) of the Act. The Commissioner of Income-tax (Appeals) found merit in the assessee's submissions and allowed the exemption based on the notification issued by the Central Board of Direct Taxes (CBDT) approving the assessee for exemption under section 10(23C)(iv).

2. Reversal of Assessing Officer's Action:
The Assessing Officer denied the exemption under section 10(23C)(iv) on the grounds that the assessee was engaged in activities in the nature of trade, commerce, or business, which cannot be termed as charitable due to the amendment in section 2(15). The Commissioner of Income-tax (Appeals) reversed this decision, stating that the definition of charitable purpose in section 2(15) has no reference to the exemption provided under section 10, and the exemption was not subject to any restriction.

Detailed Analysis:

Background and Facts:
The assessee, a trust, filed a return declaring a loss after claiming exemption under section 10(23C)(iv) of the Income-tax Act, 1961. The exemption had been periodically renewed by the CBDT based on a decision by the Privy Council in the assessee's case. However, due to the amendment in section 2(15), the assessee revised its return without claiming the exemption, although it believed it was still eligible.

Assessing Officer's Findings:
The Assessing Officer observed that due to the amendment in section 2(15), the assessee could not be treated as a trust carrying on activities covered under the definition of charitable purposes. The income was computed based on the revised return, which did not claim the exemption.

Commissioner of Income-tax (Appeals) Findings:
The Commissioner of Income-tax (Appeals) found that the assessee was approved for exemption under section 10(23C)(iv) and that the definition of charitable purpose in section 2(15) did not restrict this exemption. Therefore, the exemption was allowed based on the notification issued by the CBDT.

Arguments by the Departmental Representative:
The Departmental representative argued that the assessee itself revised its return in view of the amendment in section 2(15) and admitted that it was no longer entitled to the exemption. The main business of the assessee was printing and publication of newspapers, which involved significant revenue from advertisements and other business activities. The representative also cited the decision of the Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT, which held that printing and publication of newspapers is not a charitable activity.

Arguments by the Assessee's Counsel:
The assessee's counsel argued that despite revising the return, the exemption under section 10(23C)(iv) was still claimed. The counsel contended that the assessee was not making any profit from the publication of newspapers and referred to various case laws to support the argument that the activities were charitable. The counsel also pointed out that the Revenue granted exemption in the subsequent assessment year, and therefore, the principle of consistency should be applied.

Tribunal's Findings:
The Tribunal noted that the assessee was engaged in the business of printing and publishing newspapers, which involved significant revenue from advertisements. The decision of the Privy Council in Trustees of the Tribune, In re, was no longer applicable due to the amendment in section 2(15). The Tribunal relied on the Supreme Court's decision in Sole Trustee, Loka Shikshana Trust v. CIT, which held that the purpose of the trust should not involve carrying on any activity for profit. The Tribunal also observed that the assessee had filed a return under fringe benefits tax, indicating that it was not eligible for exemption under section 10(23C)(iv).

Conclusion:
The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and restored the order of the Assessing Officer, denying the exemption under section 10(23C)(iv) and treating the assessee as a business entity. The appeal of the Revenue was allowed.

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