PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHI versus SERVANTS OF PEOPLE SOCIETY on 31 January 2023

1. Special leave granted. Mr. D. Mahesh Babu waives notice ofappeal on behalf of the sole respondent [hereafter called “the assessee”].DThe appeal is heard finally.

2. The Commissioner of Income Tax (hereafter referred to“revenue”) is aggrieved by the impugned judgment and order of theDelhi High court[1]. The impugned judgment upheld the decision of theIncome Tax Appellate Tribunal (“ITAT”) which affirmed the viewsEexpressed by the Commissioner of Income Tax (Appeals) (hereaftercalled “Appellate Commissioner”). The Appellate Commissioner andthe ITAT were of the Opinion that the respondent organisation (aregistered society, hereafter also called “the assessee”) was a charitableFtrust entitled to the benefit of exemption and that it is registered underSection 12AA and 80G of the Income Tax Act (hereafter called the“Act”) were valid.

3. The facts are that the assessee society was founded in theyear 1921 by the legendary freedom fighter Lala Lajpat Rai during theGfreedom struggle for the nation building, general awareness and welfareof the people. In 1928 the famous freedom fighter of Odhisha Shri Pt.Gopa Bandhu Dass made a Will of his property and his printing presswhich is managing the Oriya newspaper “Samaj”- for people’s welfare.

H1 dated 16.11.2021 in ITA No. 161/2021

The assessee was enjoying exemption under Section 11 of the Act butthe same was denied during the A.Y. 1973-74 and later allowed by theITAT and affirmed by the High Court. The assessee was also earlierallowed exemption for three years i.e. 1990-91 to 1992-93 under Section10(23C)(iv) of the Act. The assessee has established and is runningschools in the name of Balwant Rai Mehta Vidya Bhawan in LajpatNagar and in Greater Kailash in New Delhi and one Medical Centre inLajpat Nagar and old age home in Dwarka in Delhi. The assessee isalso building a hospital in the name of Gopa Bandhu Medical ResearchCentre in Odisha. The assessee was also allowed exemption underSection 11(1) but the same has been denied during the A.Y. 2010-11 and2011-12. The Assessee Officer denied the exemption invoking the provisoto Section 2(15) on the ground that the assessee is involved in trade,commerce or business as it manages and runs a printing press and anewspaper. The assessee argued that it was primarily a non-profitinstitution involved in charitable activities and did not engage in any trade,commerce or business or any such activity.

4. The assessee approached the Appellate Commissioner whoallowed its plea and directed that the income earned by it ought to enjoythe benefit of exemption. The revenue carried the matter in appeal tothe ITAT and the High Court, both unsuccessfully. As a consequence, ithas approached this Court in appeal by the special leave.

5. It is urged on behalf of the revenue that the AppellateCommissioner and the Tribunal fell into error in granting the exemptionto the assessee. The Learned Additional Solicitor General Mr. BalbirSingh, points out that the ITAT followed the decision of the Delhi HighCourt in India Trade Promotion Organisation v. Director General ofIncome Tax (Exemption)[2]and other decisions. It was urged that thosedecisions are no longer good law in view of the judgment of this Court inCIT v. Ahmedabad Urban Development Authority[3], whereby the Courthas held that activities which are in the nature of trade, and carry on by 2 371 ITR (Del) 333

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a trust established for general public utility, have to specify certainparameters.

6. Learned counsel highlighted that the assessee in this case isnot merely earning revenue from sale of newspaper but also earnedBsubstantial advertisement revenue.

7. Learned counsel for the assessee urges that this court shouldnot intervene given that the Appellate Commissioner as well as the ITATand the High Court have concurrently upheld its claim for exemption onthe ground that it is a charitable trust entitled to be treated as such therebyCeligible for exemption. It was submitted that the activity of generatingincome through advertisement is only incidental and income fromadvertisement cannot be called part of the main object of the trust butrather necessary for it to attain its charitable objectives.

DAnalysis and Findings

8. During the relevant assessment year, the assessee societyclaimed exemption, inter alia, in respect of income from newspapers,which included advertisement revenue, to the extent of ` 9,52,57,869/-Eand surplus of ` 2,16,50,901 from its activities in Delhi.

9. The judgment of this court, in Ahmedabad Urban DevelopmentAuthority had examined various kinds of activities to determine whetherthey are charitable in nature, relatable to trusts or societies with generalFpublic utility objectives. The court then recorded its findings, regardingthe true interpretation of “charitable objects” under Section 2 (15) andsummarized the findings as follows:

“IV. Summation of conclusions

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267. In view of the foregoing discussion and analysis, thefollowing conclusions are recorded regarding theinterpretation of the changed definition of “charitablepurpose” (w.e.f. 01.04.2009), as well as the later amendments,and other related provisions of the IT Act.

A. General test under Section 2(15)

A.1. It is clarified that an assessee advancing general publicutility cannot engage itself in any trade, commerce or business,or provide service in relation thereto for any consideration(“cess, or fee, or any other consideration”); A.2. However, in the course of achieving the object of generalpublic utility, the concerned trust, society, or other suchorganization, can carry on trade, commerce or business orprovide services in relation thereto for consideration, providedthat (i) the activities of trade, commerce or business areconnected (“actual carrying out…” inserted w.e.f.01.04.2016) to the achievement of its objects of GPU; and(ii) the receipt from such business or commercial activity orservice in relation thereto, does not exceed the quantified limit,as amended over the years (Rs. 10 lakhs w.e.f. 01.04.2009;then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of totalreceipts of the previous year, w.e.f. 01.04.2016); A.3. Generally, the charging of any amount towardsconsideration for such an activity (advancing general publicutility), which is on cost-basis or nominally above cost, cannotbe considered to be “trade, commerce, or business” or anyservices in relation thereto. It is only when the charges aremarkedly or significantly above the cost incurred by theassessee in question, that they would fall within the mischiefof “cess, or fee, or any other consideration” towards “trade,commerce or business”. In this regard, the Court has clarifiedthrough illustrations what kind of services or goods providedon cost or nominal basis would normally be excluded fromthe mischief of trade, commerce, or business, in the body ofthe judgment.

A.4. Section 11(4A) must be interpreted harmoniously withSection 2(15), with which there is no conflict. Carrying out A

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activity in the nature of trade, commerce or business, orservice in relation to such activities, should be conducted inthe course of achieving the GPU object, and the income, profitor surplus or gains must, therefore, be incidental. Therequirement in Section 11(4A) of maintaining separate booksof account is also in line with the necessity of demonstratingthat the quantitative limit prescribed in the proviso to Section2(15), has not been breached. Similarly, the insertion ofSection 13(8), seventeenth proviso to Section 10(23C) andthird proviso to Section 143(3) (all w.r.e.f. 01.04.2009),reaffirm this interpretation and bring uniformity across thestatutory provisions.

10. This court had also considered the nature of income derivedby a trust, which was managing a newspaper. The observations pertainingto that assessee, i.e. the Tribune Trust, are relevant:

“257. It is noticed from the impugned judgment that the HighCourt concedes to the fact that the trust’s activities were heldby the Privy Council to constitute financing of objects of‘general public utility’; further that merely because thousandsof newspapers were being published made no difference. Itstill continues to be a GPU charity.

258. The question then is whether the nature of receipts andincome garnered by the Trust, in the course of actuallycarrying out its activity of publishing newspaper, can becharacterized as “in the nature of trade, commerce orbusiness” or “service in relation to trade, commerce orbusiness”, for any consideration. During the course ofsubmissions, it was urged that advertisement revenue shouldnot be treated as business or commercial receipts since thatvirtually is the lifeblood which sustains the activity ofpublication of newspapers. It was highlighted that the objectof maintaining the activity of publishing and distribution ofnewspaper remains the advancement of general public utility, as it has the effect of both notifying and educating the generalpublic about the current affairs and developments. Theinclusion of advertisements also serves as information to thegeneral public, especially in areas of employment, availabilityof resources, etc. Therefore, publication of advertisement isintrinsically connected with the activity of printing andpublishing of newspapers.

259. The publication of advertisements for consideration, inthe opinion of the court, by the newspaper, cannot but betermed as an activity in the nature of carrying on business,trade or commerce for a fee or consideration. That thenewspaper published by the trust (“the Tribune”) in this caseis funded mainly through advertisement is no basis for holdingthat publishing such advertisements by the Trust does notconstitute business. The object of the trust to involve or engagein publication of newspapers. Publishing advertisements isobviously to garner receipts which are in the nature of profit.Now, by virtue of the amended definition of Section 2(15),GPU charities can engage themselves in business orcommercial activity or profit, only if the receipts from suchactivities do not exceed the quantitative limit of the overallreceipts earned in a given year. While the assessee’s contentionthat publication of advertisement is intrinsically linked withnewspaper activity (thereby fulfilling sub-clause (i) of theproviso to Section 2(15), i.e. an activity in the course of actualcarrying on of the activity towards advancement of the object)is acceptable, nevertheless, the condition imposed by sub-clause (ii) of the proviso to Section 2(15) has to also befulfilled. In the present case, that percentage had beenexceeded, as evident from the record.”

11. In the present case, the Appellate Commissioner, the ITATand the High Court merely followed the judgment of the Delhi HighCourt in India Trade Promotion Organisation. However, the law with A

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Aregard to interpretation of Section 2 (15) has undergone a change, dueto the decision in Ahmedabad Urban Development Authority (supra).As a result, this court is of the opinion, that matter should be remitted forfresh 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,Band the question as to whether the amounts received by the assesseequalify for exemption, under Section 2 (15) or Section 11 needs to begone into afresh.

12. In view of the foregoing discussion, the revenue’s appealCsucceeds in part. The AO shall examine the documents and relevantpapers and render fresh findings on the issue whether respondent is acharitable trust, entitled to exemption of its income. The AO shallcomplete the hearing and pass orders within four months. The appeal isallowed to the above extent.

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Nidhi Jain(Assisted by : Shashwat Jain, LCRA)

Appeal partly allowed.

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