2021 (4) TMI 447 - AT - Income Tax

Exemption u/s 11 - as per AO assessee is on the activity of publishing of books which account for 59.44% of its total income and 94.30% of its total expenditure under the head 'educational' and accordingly concluded that the activities of the trust falls in the category of 'advancement of any other object of general public utility' u/s. 2(15) - whether the activities of the assessee trust are charitable in nature within the meaning of section 2(15)? - whether the assessee's activities are hit by the amended proviso to section 2(15) ? - HELD THAT - We find that over the years, the assessee trust had published over 240 magazines and 120 books thereby making them a veritable encyclopedia of art and culture. The profile of Marg Publications reveal that their publications enjoy a loyal readership and a very high reputation nationally and internationally, being read not only in the major cities, but also in remote towns in India and across 30 countries abroad. Their readers include Indophiles, connoisseurs and art dealers, executives, scholars, architects, designers, and students all over the world. We find that for some of the publications of assessee trust, grants are received from Ministry of Culture, Government of India. We find that the entire grants received for publications are also reflected as 'Sales' in the Income and Expenditure Account of the assessee. Now whether the publication and sale of books and magazines/journals could be construed as charitable in nature need to be ascertained. We find that this issue has been squarely addressed in the case of Delhi Bureau of Text Books vs. Director of Income Tax (Exemptions) 2017 (5) TMI 430 - DELHI HIGH COURT wherein it was held that the assessee society engaged in printing, publication and distribution of school text books at subsidized rates or even free and generated profits out of these activities, it could not be concluded that assessee ceased carrying on charitable activity of education. Respectfully following the aforesaid decision we hold that the activities of the assessee trust to be charitable in nature falling under the ambit of 'Education' and not 'advancement of any other object of general public utility' and hence proviso to section 2(15) of the Act does not apply to the assessee. Consequentially the assessee would be eligible for exemption u/s. 11 of the Act. Accordingly, the grounds raised by the assessee are allowed.

Issues Involved:
1. Whether the activities of the assessee trust are charitable in nature within the meaning of section 2(15) of the Act.
2. Whether the assessee's activities are hit by the amended proviso to section 2(15) of the Act.
3. Whether the assessee is entitled to exemption u/s. 11 of the Act.

Issue-Wise Detailed Analysis:

1. Charitable Nature of Activities (Section 2(15) of the Act):
The assessee trust, registered with the Director of Income Tax (Exemptions) and the Charity Commissioner, Mumbai, filed its return of income for the Assessment Year (AY) 2011-12, declaring total income of Rs. Nil after claiming exemption u/s. 11 of the Act. The Assessing Officer (AO) concluded that the trust's activities fell under 'advancement of any other object of general public utility' and were thus hit by the proviso to section 2(15) of the Act. The AO observed that the trust was primarily engaged in publishing and selling books and CDs, which he deemed commercial activities with a profit motive.

The assessee argued that its main object was the promotion of education in art, culture, and literature, which falls within the meaning of 'education' under section 2(15). The trust's activities, such as publishing educational books and magazines, were claimed to be part of its educational objectives. The books published by the trust were used as reference material in college libraries and universities, supporting the claim that the activities were educational in nature.

2. Applicability of the Amended Proviso to Section 2(15):
The AO's conclusion that the trust's activities were commercial and not educational led to the application of the amended proviso to section 2(15). The assessee contended that the proviso did not apply as its activities were not in the nature of trade, commerce, or business. The trust's publications were claimed to be educational tools widely used by students and scholars, and any surplus generated was incidental and used towards the trust's objectives.

The Tribunal found that the trust's activities, such as publishing books on art, culture, and literature, fell within the ambit of 'Classical Education,' which is considered 'education' under section 2(15). Consequently, the proviso to section 2(15) did not apply, as it is relevant only for objects of 'advancement of any other object of general public utility.'

3. Entitlement to Exemption u/s. 11:
The Tribunal referred to the case of Delhi Bureau of Text Books vs. Director of Income Tax (Exemptions) (394 ITR 387), where it was held that generating profits from publishing and selling educational materials did not disqualify an entity from being considered as carrying out charitable activities. The Tribunal also considered the decision in Assam State Text Book Production & Publication Corpn Ltd. vs. CIT (319 ITR 317), which supported the view that the preparation and distribution of educational materials constituted educational activities.

The Tribunal concluded that the assessee trust's activities were charitable in nature, falling under 'education' and not 'advancement of any other object of general public utility.' Therefore, the trust was entitled to exemption u/s. 11 of the Act. The appeals were allowed, and the Tribunal held that the trust's activities were educational and eligible for the claimed exemptions.

Conclusion:
The Tribunal determined that the assessee trust's activities were educational and charitable under section 2(15) of the Act. The proviso to section 2(15) did not apply, and the trust was entitled to exemption u/s. 11. The appeals were allowed, affirming the charitable nature of the trust's activities.

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