1990 (2) TMI 97 - AT - Income Tax

Summary

Issues:
1. Denial of exemption under s. 11 of the IT Act for the assessment year 1985-86.
2. Investment in flat at Chand Co-operative Housing Society and sale thereof.
3. Assignment of copyright in certain books.
4. Investment of sale proceeds in the purchase of a godown.
5. Whether exploitation of assigned copyrights in books constitutes a business activity.
6. Maintenance of separate books of account.
7. Observations regarding the business carried out by the trust.
8. Investment in immovable property post-November 30, 1983.

Analysis:
1. The appeal was against the denial of exemption under s. 11 of the IT Act for the assessment year 1985-86. The assessee-trust, registered under the Bombay Public Trust Act, had enjoyed exemption up to the preceding assessment year. The denial was based on various grounds, including the investment in a flat at Chand Co-operative Housing Society and the assignment of copyright in books. The CIT(A) added a ground related to the investment of sale proceeds in a godown.

2. The investment in the flat at Chand Co-operative Housing Society was made in the name of a devotee due to society by-laws prohibiting trust membership. The flat was declared to be purchased for the trust in 1983, and the trust's auditors noted it as immovable property. The investment was consistently treated as such by the department until the sale. Similarly, the investment of sale proceeds in a godown was deemed an investment in immovable property, a prescribed mode under s. 11(5).

3. The exploitation of assigned copyrights in books was contested as a business activity. While the dominant object was spreading teachings, the presence of surplus indicated a profit motive. The trust's publishing activity was considered a business, but the requirement for both printing and publication business was dismissed in favor of publication alone under s. 11(4A)(a).

4. The objection regarding maintenance of separate books of account was addressed. As the trust had no other business activities, separate books were not necessary. The profit motive was evident from the profit and loss account and balance sheet prepared from maintained books.

5. Observations on the business carried out by the trust were discussed, with the CIT(A) noting the business did not fall under s. 11(4A)(b). Lack of reasons for this observation raised doubts, and discrepancies in sale consideration were deemed insignificant.

6. The investment in immovable property post-November 30, 1983, was challenged. The date was relevant for shares, not immovable property investments as per s. 13(1)(d). The investment in immovable property was in line with prescribed modes under s. 11(5), and the objection was deemed unjustified.

7. The conclusion favored the assessee-trust, directing the ITO to grant the exemption. The departmental authorities were found unjustified in denying the exemption, and the appeal was allowed.