1985 (11) TMI 77 - AT - Income Tax

Summary

Issues Involved:
1. Whether the income of the assessee-trust is exempt from taxation under section 11 of the Income-tax Act, 1961.
2. Whether the life subscription received by the assessee-trust is a revenue receipt.
3. Whether the expenditure incurred by the assessee-trust on printing and publishing the magazine can be considered charitable.

Detailed Analysis:

1. Exemption from Taxation under Section 11:
The primary issue was whether the income of the assessee-trust was exempt from taxation. The trust, created on 17-10-1977 by prominent socialists, aimed to continue publishing the 'Janata' weekly, a socialist journal. The Income Tax Officer (ITO) observed that the trust's main object was printing and publishing the 'Janata' weekly, which he considered commercial rather than charitable. However, the Appellate Tribunal referred to the Supreme Court's decision in Addl. CIT v. Surat Art Silk Cloth Mfrs.' Association, which stated that the mere fact that a profit may result is not fatal to the claim of exemption under section 11 if the activity is primarily for serving a charitable purpose and not pervaded by profit-motive. The Tribunal concluded that the 'Janata' weekly was not run with a profit-motive, as evidenced by its consistent financial losses and minimal advertisements. Therefore, the trust's activity of publishing the 'Janata' weekly was deemed charitable, qualifying for exemption under section 11.

2. Life Subscription as Revenue Receipt:
The AAC upheld the ITO's decision that the life subscription amounting to Rs. 28,110 received by the assessee-trust was a revenue receipt, following the Bombay High Court decision in CIT v. W.I.A.A. Club Ltd. However, since the Tribunal held that the trust's income was exempt from taxation, it became unnecessary to separately address the assessability of the life subscription.

3. Charitable Nature of Expenditure:
The ITO had estimated that Rs. 12,000 of the Rs. 1,80,259 spent on printing and publishing the magazine was charitable and disallowed this amount in earning the income from the magazine. The AAC reversed this, holding that the entire expenditure was for charitable purposes. The Tribunal, agreeing with the AAC, found that the expenditure was indeed charitable, as the primary purpose of the trust was to disseminate democratic socialist thought, not to earn profit. The Tribunal emphasized that the 'Janata' weekly was priced below the cost of production and was not run on commercial lines, further supporting the charitable nature of the expenditure.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the income of the assessee-trust was not taxable as it was engaged in a charitable activity. Consequently, the department's appeal was dismissed as infructuous.