2023 (2) TMI 535 - SC - Income Tax

Exemption u/s 11 - income from newspapers, which included advertisement revenue and surplus from its activities in Delhi - interpretation of charitable objects under Section 2 (15) - As submitted 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 - HELD THAT - Appellate Commissioner, the ITAT and the High Court merely followed the judgment of the Delhi High Court in India Trade Promotion Organisation 2015 (1) TMI 928 - DELHI HIGH COURT However, the law with regard to interpretation of Section 2 (15) has undergone a change, due to the decision in Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT 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. The revenue s appeal succeeds in part. 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.

Summary

Issues:
Interpretation of Section 2(15) of the Income Tax Act for charitable trusts regarding exemption eligibility based on revenue sources, specifically advertisement revenue.

Detailed Analysis:

Issue 1: Interpretation of Section 2(15) - Charitable Trust Exemption Eligibility
The primary issue in this case revolves around the interpretation of Section 2(15) of the Income Tax Act concerning the eligibility of charitable trusts for exemption based on their revenue sources, particularly advertisement revenue. The Appellate Commissioner, ITAT, and High Court had previously upheld the exemption claim of the assessee, considering it a charitable trust entitled to exemption. However, the revenue contended that the Tribunal and the Commissioner erred in granting exemption to the assessee, citing the need to follow specific parameters outlined in recent judgments like Ahmedabad Urban Development Authority. The court highlighted the importance of distinguishing between activities of general public utility and engaging in trade, commerce, or business for consideration, emphasizing the need for a fresh examination of the nature of receipts by the assessee to determine exemption eligibility under Section 2(15) and Section 11.

Issue 2: Impact of Advertisement Revenue on Charitable Trust Status
A significant aspect of the case involved the impact of advertisement revenue on the charitable trust status of the assessee. The court referred to the judgment in Ahmedabad Urban Development Authority, which emphasized that while activities advancing general public utility may involve trade, commerce, or business, such activities must be connected to achieving the trust's charitable objectives within specified limits. The court analyzed the nature of income derived by a trust managing a newspaper in a previous case, emphasizing that revenue from advertisements, although crucial for sustaining newspaper activities, could still be classified as business income. The court concluded that the matter required re-examination to determine whether the amounts received by the assessee qualified for exemption under Section 2(15) or Section 11, underscoring the need for a fresh assessment of the revenue sources to ascertain exemption eligibility.

Conclusion:
In conclusion, the Supreme Court's judgment highlighted the evolving interpretation of Section 2(15) of the Income Tax Act concerning the exemption eligibility of charitable trusts, particularly in cases involving revenue from activities like advertisement. The court directed a fresh examination of the nature of receipts by the assessee to determine its charitable trust status and exemption eligibility, emphasizing the need to adhere to recent legal precedents and specific parameters outlined in relevant judgments. The revenue's appeal partially succeeded, with the Assessing Officer instructed to reevaluate the documents and relevant papers to render fresh findings on the assessee's charitable trust status and exemption entitlement within a specified timeline.