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TMI Blog2015 (6) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 dated December 19, 2008, ([2009] 308 ITR (St.) 5 ) and the provisions of section 2(15) treated the assessee as business entity and thereby assessed the income of the assessee at Rs. 26,81,557 against returned loss of Rs. 38,74,62,223. 3. After hearing both parties we find that the assessee filed a return declaring loss of Rs. 38,74,62,223 after claiming exemption under section 10(23C)(iv) of the Income-tax Act, 1961 amounting to Rs. 1,97,95,36,211. It was noted by the Assessing Officer that the assessee has been notified by the Central Board of Direct Taxes as eligible for exemption under section 10(23C)(iv) of the Act vide Notification No. 60 of 2007 in File No. 197/67/2006-ITA-I vide order dated February 28, 2007 for the assessment year 2007-08 onwards. It was further noted that exemption was renewed by the Central Board of Direct Taxes since 1984-85 periodically on the basis of the decision of the Privy Council in the assessee's case reported at Trustees of the Tribune, In re [1939] 7 ITR 415 (PC) wherein it was held that (page 426) "object of the paper may fairly be described as 'the object of supplying the province with an organ of educated public opinion' and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be as trust, carrying on the activities which were covered under the definition of charitable purposes. In this background the assessee was denied exemption under section 10(23C)(iv) of the Act and income was computed as under : Rs. Rs. Gross receipts as per income and expenditure account 1,59,20,73,988 Add : Provision for credit notes to be issued Wrongly reduced 1,85,75,596 Total gross receipts 1,61,06,49,584 Less: Amount applied on revenue expenses as per income and expenditure account 1,61,07,42,671 Less : Provision for bad and doubtful debts 27,74,644 1,60,79,68,027 Taxable Income 26,81,557 4. On appeal, detailed written submissions were filed and the relevant portion has been extracted by the learned Commissioner of Income-tax (Appeals) vide para 4.2 which is as under : "4.2 The Assessing Officer, it is respectfully submitted, failed to appreciate that the Notification issued by the Central Board of Direct Taxes granting approval for exemption under section 10(23C)(vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and separate books of account are maintained in respect of such business." The above clearly shows that notification regarding exemption is not applicable because the assessee has business income. The main business of the assessee is printing and publication of newspaper. In this regard she referred to the income and expenditure account which is filed at page 44 of the paper book which clearly shows that out of the total revenue of about 161 crores a sum of Rs. 124.87 crores is received from advertisements, Rs. 17.49 crores from sale of newspaper, Rs. 3.07 crores from subscription of the dailies and Rs. 11.38 crores from the interest on fixed deposit receipts, Rs. 2.39 crores from sale of clippings. All these items were pertaining to the business activities of the assessee. She also submitted that the assessee has itself filed return under fringe benefits tax under section 115WA which also shows that the assessee was clear that the assessee is not eligible for exemption under section 10(23C)(iv) of the Act because the proviso to section 115W which gives the definition of the employer clearly provides that provision of fringe benefits tax are not applicable because such persons whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 2(15) has been explained in detail by the hon'ble Delhi High Court in Institute of Chartered Accountants of India v. DIT (Exemptions) [2012] 347 ITR 99 (Delhi). He particularly referred to paragraphs 14, 21, 25 and 32 of this decision. He contended that there has to be a profit motive for holding that a particular activity falls in the nature of trade and business as defined in section 2(15) and in the absence of such profits, the activity cannot be treated as trade business or commerce. He also relied on the following case law : (a) DIT (Exemptions) v. Vallal M. D. Seshadri Trust (Tax Case Appeal Nos. 554 and 555 of 2011). (b) Himachal Pradesh Environment Protection and Pollution Control Board v. CIT [2011] 9 ITR (Trib) 604 (Chandigarh). (c) Sevagram Ashram Pratisthan v. CIT [2010] 129 TTJ (Nagpur) 506 (d) PHD Chamber of Commerce and Industry v. DIT (Exemptions) [2013] 357 ITR 296 (Delhi). He read out various portions of these judgments to enlighten us that which activities were charitable and which activity cannot be construed as charitable. While concluding his arguments he submitted that in any case the Revenue has itself granted exemption to the assessee in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education, because as a result of travelling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. Again, when you grow up and have dealings with other people, some of whom are not straight, you learn by experience and thus add to your knowledge of the ways of the world. If you are not careful, your wallet is liable to be stolen or you are liable to be cheated by some unscrupulous person. The thief who removes your wallet and the swindler who cheats you teach you a lesson and in the process make you wiser though poorer. If you visit a night club, you get acquainted with and add to your knowledge about some of the not much revealed realities and mysteries of life. All this in a way is education in the great school of life. But that is not the sense in which the word 'education' is used in clause (15) of section 2. What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2(15) which put a rider on other objects of general public utility have been analysed and it has been held that unless and until such activity leads to generation of profit, the exemption cannot be denied. However, at this stage we would like to recall the caution given by the hon'ble Supreme Court in respect of treating a particular case law as a precedent or authority in the case of Padmasundra Rao (Decd.) v. State of Tamil Nadu [2002] 255 ITR 147 (SC). The Constitution Bench consisting of five learned judges gave the following observation at page 153 of the report. "Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Herrington v. British Railways Board [1972] 2 WLR 537 (HL). Circumstantial flexibility, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause in this case also the following question was raised : "Whether, on the facts and in the circumstances of the case, the income of the Loka Shikshana Trust was entitled to exemption under section 11 of the Income-tax Act, 1961, read with section 2(15) of the same Act, for the assessment year 1962-63 ?" 16. In this case also the assessee was mainly engaged in printing and publication of newspapers in Kannada language. Therefore, the issue raised before hon'ble apex court was exactly the same which has been raised before us. The hon'ble Supreme Court discussed in detail the various clauses of the trust as well as meaning of "charitable purposes". It was noted as to why this trust cannot be held to be for educational purposes and the relevant paragraph have already been extracted by us above. Thereafter, it was noted that there was an amendment in the definition of "charitable purposes" and the words of "any activity for profit" have been added at the end of the definition as was given in section 4(3) of the Indian Income-tax Act, 1922. The court observed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinting and publication of newspaper and journals and the further fact that the aforesaid activity yields or is one likely to yield profit and there are no restrictions on the appellant-trust earning profits in the course of its business would go to show that the purpose of the appellant-trust does not satisfy the requirement that it should be one 'not involving the carrying on of any activity for profit'." Then court further went into the discussion about the meaning of profit in the following paras (page 243) : "It is true that there are some business activities like mutual insurance and co-operative stores of which profit making is not an essential ingredient, but that is so because of a self-imposed and innate restriction on making profit in the carrying on of that particular type of business. Ordinarily profit motive is a normal incident of business activity and if the activity of a trust consists of carrying on of a business and there are no restrictions on its making profit, the court would be well justified in assuming in the absence of some ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic utility' contained in the definition of charitable purpose are very wide. These words, as held by the judicial committee in the case of All India Spinners' Association v. CIT [1944] 12 ITR 482 (PC), exclude objects of private gain. It is also difficult to subscribe to the view that the newly added words 'not involving the carrying on of any activity for profit' merely qualify and affirm what was the position as it obtained under the definition given in the Act of 1922. If the Legislature intended that the concept of charitable purpose should be the same under the Act of 1961, as it was in the Act of 1922, there was no necessity for it to add the new words in the definition. The earlier definition did not involve any ambiguity and the position in law was clear and admitted of no doubt after the pronouncement of the judicial committee in the cases of Trustees of the Tribune, In re [1939] 7 ITR 415 (PC) and All India Spinners' Association v. CIT [1944] 12 ITR 482 (PC). If despite that fact, the Legislature added new words in the definition of charitable purpose, it would be contrary to all rules of construction to ignore the impact of the newly added words and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rickland v. Camelo Mifsud Bonnici AIR 1935 PC 34. (b) Englishman Ltd. v Lajpat Rai [1910] ILR 37 Cal 760. (c) Anandji Haridas and Co. Pvt. Ltd. v. Engineering Mazdoor Sangh [1975] 99 ITR 592 (SC). The court ultimately relied on the speech of the Finance Minister as well as recommendation of the select committee and observed that similar meaning has to been attached to the expression "not involving the carrying of any activity of profit" and at that stage the court noted the contention of learned counsel on behalf of the assessee on the merits of the decision in the case of the Trustees of the Tribune, In re [1939] 7 ITR 415 (PC). 19. On the above contention the hon'ble court observed as under (page 254) : "It seems clear to us that the amended provision, section 2(15) in the Act of 1961, was directed at a change of law as it was declared by the Privy Council in the Tribune case [1939] 7 ITR 415 (PC). The amended provision reads as follows : '2(15) "charitable purpose" includes relief of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dopted as is clear from the speech of the Finance Minister who introduced the amendment in Parliament." The above clearly shows that according to the hon'ble Supreme Court the decision of Privy Council in the Trustees of the Tribune, In re [1939] 7 ITR 415 (PC) is not more a good law because of the amendment made in the Act itself. Ultimately, some other observations were made and it was held that the assessee-trust is not entitled for exemption. 20. From the above it becomes absolutely clear that after insertion of expression not involving the carrying of any activity for profit the decision of Privy Council in the case of Trustees of the Tribune, In re [1939] 7 ITR 415 (PC) cannot be followed. 21. The words "not involving the carrying of any activity of profit" were omitted by the Finance Act, 1983 from April 1, 1984 this amendment was in fact consequential to the amendment made in section 11 of the Income- tax Act by section 6(b) of the Finance Act, which made the profits and gains of business in the case of charitable or religions trust and institution taxable under that section, if they were carrying on any business. A more elaborated proviso has been again added under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are very sure that at the time of establishment of trust, the value of corpus must have been only in lakhs of rupees, therefore, it makes it absolutely clear that as observed by the hon'ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) the assessee has definitely earned profits. This fact further get fortified from the fact that the assessee has received interest of more than Rs. 11.38 crores on its fixed assets. This fact again shows that the assessee is earning profits. One more question arises whether the exemption is to be granted automatically once the assessee-trust has been notified by the Central Board of Direct Taxes for the purpose of section 10(23C)(iv). The answer is available in the same provision and the last proviso to section 10(23C) reads as under : "Provided also that the income of a trust or institution referred to in sub-clause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads as under : "(a) 'employer' means,- (i) a company ; (ii) a firm ; (iii) an association of persons or a body of individuals, whether incorporated or not, but excluding any fund or trust or institution eligible for exemption under clause (23C) of section 10 or registered under section 12AA ; (iv) a local authority ; and (v) every artificial juridical person, not falling within any of the preceding sub-clauses ; Provided that any person eligible for exemption under clause (23C) of section 10 or registered under section 12AA or a political party registered under section 29A of the Representation of the People Act, 1951 (43 of 1952) shall not be deemed to be an employer for the purposes of this Chapter." The proviso to the above provision clearly shows that if a person is eligible for exemption under clause (23C)(iv) of section 10 or is registered under section 12AA or is a charitable organisation then such persons could not be called employer. If the assessee was clear in its mind that it is entitled for exemption under clause (23C)(iv) of section 10, then there was no need for assessee to treat itself as employer and file return under the fringe benefits tax provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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