2008 (2) TMI 297 - HC - Income Tax

Appellant, a trust engaged in the publication of a newspaper - exemption claimed by the appellant as a charitable trust u/s 11 - Since the appellant has no other activity other than the business of printing and publication of newspaper on commercial lines, we are of the view that the business itself cannot be said to be an object of general public utility entitling the appellant for the exemption as a charitable institution exemption not entitled

Summary

Issues:
1. Challenge to the order of the Income-tax Appellate Tribunal confirming disallowance of income-tax exemption claimed by the trust as a charitable trust under section 11 of the Income-tax Act, 1961.
2. Interpretation of the objects of the trust and their alignment with the definition of charitable purpose under section 2(15) of the Act.
3. Application of section 11(1)(a) of the Act regarding exemption for income applied for charitable purposes.
4. Analysis of sub-section (4A) of section 11 pre and post the amendment by the Finance (No. 2) Act, 1991, and its impact on the trust's eligibility for exemption.

Analysis:

1. The appellant trust challenged the order of the Income-tax Appellate Tribunal regarding the disallowance of income-tax exemption claimed under section 11 of the Income-tax Act, 1961. The trust, engaged in the publication of a Malayalam newspaper, argued that its activities aligned with charitable purposes as per its trust deed. The court examined the objects of the trust, which included educational, medical relief, and general public welfare activities. However, it was noted that the trust had not spent any income towards these charitable purposes, primarily utilizing profits for setting up new newspaper editions. The court considered previous decisions and emphasized the requirement under section 11(1)(a) for income to be applied for charitable purposes to qualify for exemption.

2. The court analyzed the impact of sub-section (4A) of section 11 on the trust's eligibility for exemption. Before the amendment, the provision required the business to be carried out wholly for religious or charitable purposes. As the trust's beneficiaries were not directly involved in the business, the court concluded that the trust did not qualify for exemption under this provision. Post-amendment, the business needed to be incidental to the trust's objectives. The court found that the trust, primarily engaged in newspaper publication for commercial purposes, did not align its income with the charitable purposes outlined in its trust deed. The court emphasized that the business itself should not be the object of the trust to qualify for exemption.

3. Despite the appellant's argument that newspaper publication advanced the object of general public utility, the court held that the business should be carried out as an incidental activity to the trust's objectives, not as an object in itself. The court highlighted that the trust's sole activity of newspaper publication on commercial lines did not qualify as an object of general public utility entitling it to exemption as a charitable institution. Referring to previous judgments, the court emphasized that publication of newspapers did not fall under educational purposes unless meeting specific criteria under the Act. Consequently, the court dismissed the appeal, upholding the decision to deny the trust exemption under section 11 of the Act.