Publishing of newspaper is a commercial line which cannot be considered as charitable activity, so as to grant exemption u/s.11 of the Act. Accordingly, we are in agreement with the lower authorities and we deny the exemption u/s.11 of the Act.
IN THE ITAT CHENNAI BENCH ‘A’
Assistant Director of Income-tax (Exemptions IV), Chennai
AND CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
IT APPEAL NOS. 210 & 211 (MDS.) OF 2014
[ASSESSMENT YEARS 2009-10 AND 2010-11]
NOVEMBER 6, 2015
A. Kanakaraj, CA for the Appellant. M. Srinivasa Rao, CIT for the Respondent.
Chandra Poojari, Accountant Member – These appeals by the assessee are directed against the common order of the Commissioner of Income-tax(Appeals) dated 22.11.2013 for the assessment years 2009-10 and 2010-11. Since, common issues are involved in these appeals, these are clubbed together, heard together and disposed of by this common order for the sake of convenience.
2. The first common grievance of the assessee in these appeals is with regard to non-granting of exemption u/s.11 of the I.T. Act, 1961.
3. The facts of the case are that the trust filed its return of income for the assessment years 2009-10 and 2010-11 on 30.9.2009 and 30.0.2010 respectively admitting Nil income. The returns were processed u/s. 143(1) of the Act. The case was taken up for scrutiny and notice u/s. 143(2) was issued to the assessee. The assessments were completed u/s. 143(3) determining total income of Rs. 9,79,71,460/- and Rs. 10,57,29,890/- for the assessment years 2009-10 and 2010-11 respectively. At the time of scrutiny proceedings, the AO found that the assessee expended Rs. 15,67,818/- and Rs. 13,33,979/- towards charitable purpose out of the gross receipts of Rs. 16.04 crores and Rs. 16.05 crores, for the assessment years 2009-10 and 2010-11 respectively. Further, the AO found that by running the newspaper ‘murasoli’ the trust earned a net surplus of Rs. 9,79,71,460/- in the assessment year 2009-10. According to the AO, the activity squarely falls within the ambit of amended provisions of sec.2(15) of the Act, as the assessee’s object is of general public utility and the activities of the assessee are in the nature of trade, commerce or business. Therefore, the AO brought to tax the surplus of Rs. 9,79,71,460/- in the AY 2009-10 and Rs. 10,57,29,890/- in the AY 2010-11 and completed the assessments. While completing the assessment, the AO added the sum of Rs. 1,00,000/- (corpus donation) as income and disallowed the depreciation of Rs. 20,61,256/- on the assets purchased in earlier years. Accordingly, the AO denied the exemption u/s.11 of the Act. Aggrieved, the assessee went in appeal before the CIT(Appeals). However, the CIT(Appeals) observed that the activity carried on by the assessee cannot be considered as charitable and denied the exemption u/s.11 of the Act. Against this, the assessee is in appeal before us.
4. The ld. AR submitted that the lower authorities are wrong in observing that printing and publishing of ‘murasoli’ newspaper amount to advancement of any other object of general public utility involving the carrying of an activity in the nature of trade, commerce or business and taxing the entire income without granting exemption u/s.11 of the Act. According to the ld. AR, the assessee is engaged in various activities, which are given below :
|(i)||to improve and spread tamil language, literature and culture and also to take steps to make tamil as effective medium of communication for the modern age and to create and enhance public awareness among the common man so as to make them as good and effective citizens of an enlightened democratic society by inculcating general knowledge.|
|(ii)||To utilize modern equipments, innovations and technologies like television, audio, video and radio and other electronic media for effectively achieving the above object.|
|(iii)||To publish and run newspapers, magazines and other communication media like books, pamphlets and the like for the above said objects with which the trust is founded.|
|(iv)||To run and administer educational institutions for the benefit of all people; such educational institution may also be in regard to arts, engineering, medical and other professional subjects.|
|(v)||To run dispensaries and hospitals for the benefit of the poor.|
|(vi)||To assist generally everyone in regard to providing scholarship for education and also financial assistance for the needy and indigent towards medical aid.|
The trust achieves the objects clause (i), in the following two ways:
(a)The Trust is authorized to run newspaper as per clause (iii) of the above objects. Hence the trust is running “Murasoli” and this is used as a tool to achieve the main object of improving and spreading tamil language by inculcating general knowledge among the common man. Running of “Murasoli” is not the main object but it is used as a tool to improve and spread tamil language as it shows how the language is to be used and it coaches the reads how the language is to be handled.”
4.1 Further, according to the ld. AR, the assessee has spent huge amount to improve the tamil language and conducted Bharathidasan poetry competition every year in which more than 5000 students from schools and colleges throughout the State of Tamil Nadu and Puducherry participated. He submitted that ‘murasoli’ newspaper is spreading tamil language around the world and publishing of ‘murasoli’ newspaper cannot be construed as commercial activity. Further, according to the ld. AR, it is not a activity involving commerce, trade or business and it is duly development of education. He submitted that ‘murasoli’ newspaper was in existence from 1942 and it has become the property of the trust. According to ld. AR, u/s.11(4A) of the Act, the income derived from business held under the trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the trust or institution, if the business is incidental to the attainment of the objects of the trust. Further, the ld. AR, submitted that issue of violation of sec.13(1)(c) of the Act was not raised by the AO but raised by the CIT(Appeals) without giving any opportunity to the assessee to give comments on it. Therefore, he submitted that the CIT(Appeals) is not justified in not considering the newspaper running expenses as charitable. Regarding interest on fixed deposits in the name of trust, the ld. AR submitted that the same cannot be brought to tax. Similarly, he submitted that depreciation on assets to be granted. For this purpose, the ld. AR relied on various decisions, which are kept on record.
5. On the other hand, the ld. DR submitted that activity of publishing of newspaper carried on by the assessee is a commercial one. Being so, the assessee cannot be granted exemption u/s.11 of the Act.
6. We have heard both the parties and perused the material on record and various case law cited by the parties. Sec. 11 of the Act stipulates that the income from property held for charitable or religious purpose shall not be included in the total income of the previous year of the person in receipt of the income to be given effect in the manner as specified therein. The term ‘charitable purpose’ has not been defined under the statute; but for the inclusive nature of the term as specified under s. 2(15) of the Act, which as existed before the amendment is as follows :
‘Sec. 2(15) : “Charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.’
As per s. 2 of the Finance Act, 2008, the said provision was amended adding a ‘proviso’ w.e.f. 1st April, 2009 as follows :
“Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity.”
The Department has taken a stand that by virtue of the amendment as above, the assessee is not entitled to exemption u/s.11 of the Act.
6.1 The ld. AR submitted that, the idea and understanding of the Department with regard to the scope of amendment to sec.2(15) is thoroughly wrong and misconceived. There is no trade or business in the activities pursued by the assessee in publishing of newspaper will not take it outside the purview of charity and hence, that the “proviso” added to sec. 2(15) of the Act, is not at attracted to the case in hand. He also submitted that the statute, as it stood earlier, had clarified the charitable purpose mentioned in sec.2(15) of the Act, had clarified the charitable purpose mentioned in s. 2(15) by the words “not involving the carrying on of any activity for profit”. By virtue of the existence of these clarifying words, if there was any element of profit it was enough liable to be reckoned as charitable purpose right from the inception of the Act in 1961 till 1st April, 1984, when the words “not involving the carrying on of any activity for profit” were deleted. Thus the contention is that after 1st April, 1984, there is no allergy to profit and if the profit feeds charity, it stands cleared for exemption under sec. 11 of the Act.
6.2 To analyse the scope and object of the amendment, the learned counsel placed reliance on the “Budget Speech” of the Minister for Finance, which stated as follows [298 ITR (St.) 33, 65] :
“‘Charitable purpose’ includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under ‘charitable purpose’. Obviously, this was not the intention of Parliament and hence I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected” (para 180).
6.3 The learned counsel pointed out that, the amendment was brought about as a measure of rationalization and simplification, streamlining the definition of charitable purpose and not as a measure of taxation. It is also stated that the concept of charity in India is wider, simultaneously adding that, by virtue of the amendment, the position that existed prior to 1st Feb., 1984 has been brought back and that is all. This however will not tilt the balance in any manner in the case of the assessee so as to take the activities outside the charitable purpose, particularly in view of the fact that in publishing of newspaper will not constitute any trade or business. According to the ld. AR, to perform charity, income is inevitable and contended that the activities being pursued by the assessee may constitute a trade or business, if it is not applied for the purposes of charity. Contrary to this, the ld. DR submitted that though the object of the assessee is to carry on charitable activities, but it does not carry those charitable activities, and it was only carrying on publishing of newspaper in a commercial manner, which cannot be construed as charitable activity. In other words, it was contended by the ld. DR that the assessee carried on activities in a business oriented manner, it will definitely come within the fourth limb of the amended sec.2(15) of the Act, where the prohibition of activity in the nature of trade, commerce or business for any activity of rendering service or any other consideration, irrespective of the nature of the use or application or retention of the income of such activity is specified and hence, not entitled to any exemption.
6.4. To analyse the activities carried on by the assessee, we have to go through the nature of activities pursued by the assessee as enumerated and perusal of that activities carried on by the assessee, cannot be oust the involvement of “trade, commerce or business” or “any service in connection with trade, commerce or business” as contemplated under the statute. Further, we note that there is substantial variation in the statutory position as it existed earlier to 1st April, 2009, where the assessee has been given exemption u/s.11 of the Act. and the position available after amendment to sec.2(15) brought into effect from 1st April, 2009. Yet another important aspect to be noted in this context is that, after the amendment by incorporating proviso to s. 2(15), the 4th limb as to the advancement of “any other object of general public utility” will no longer remain as charitable purpose, if it involves carrying on of :
|(a)||any activity in the nature of trade, commerce or business,|
|(b)||any activity of rendering any service in relation to any trade, commerce or business for a cess or a fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity.|
6.5 The first limb of exclusion from charitable purpose under cl. (a) will be attracted, if the activity pursued by the institution involves any trade, commerce or business. But the situation contemplated under the second limb [cl. (b)] stands entirely on a different pedestal, with regard to the service in relation to the trade, commerce or business mentioned therein. To put it more clear, when the matter comes to the service in relation to the trade, commerce or business, it has to be examined whether the words “any trade, commerce or business” as they appear in the second limb of cl. (b) are in connection with the service referred to the trade, commerce or business pursued by the institutions to which the service is given by the assessee. If the said words are actually in respect of the trade, commerce or business of the assessee itself, the said clause [second limb of the stipulation under cl. (b)] is rather otiose. Since the activity of the assessee involving any trade, commerce or business, is already excluded from the charitable purpose by virtue of the first limb [cl. (a)] itself, there is no necessity to stipulate further, by way of cl. (b), adding the words “or any activity of rendering any service in relation to any trade, commerce or business ………..”. As it stands so, giving a purposive interpretation to the statute, it may have to be read and understood that the second limb of exclusion under cl. (b) in relation to the service rendered by the assessee, the terms “any trade, commerce or business” refers to the trade, commerce or business pursued by the recipient to whom the service is rendered (as there may be a situation involving in publishing of newspaper.
6.6 Further, in similar circumstances, the co-ordinate Bench of the Tribunal in the case of Young Women’s Christian Association of Madras v. Jt. DIT  62 SOT 65 (Channai – Trib.) has held as under :
|•||“Generally speaking, the activities carried on by the assessee such as running orphanages, old age homes, rehabilitation centres, day care centres for elderly, vocational training to girls from slums, etc. cannot be considered as activities of medical relief or education or relief of the poor.|
|•||It is true that the activities carried on by the assessee take care of the poor people also. But those activities cannot be classified under any of the specific activities of relief of the poor; education or medical relief.|
|•||The correct way to express the nature of the activities carried on by the assessee is to say that the assessee is carrying on ‘advancement of any other object of general public utility’. When that is the case, the assessee is hit by the proviso given under section 2(15).|
|•||The proviso reads that ‘advancement of any other object of general public utility’ shall not be a charitable purpose, if it involves carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for consideration, irrespective of the application of the money.|
|•||Therefore, the case of the assessee is hit by proviso to section 2(15) and the assessee is not entitled for the benefit of section 11 for that part of income generated in the hands of the assessee from running its International Guest House and Working Women’s Hostel.|
|•||Alternatively, one has to look into section 11(4A). Sub-section (4A) provides that exemption shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the assessee and separate books of account are maintained by such trust or institution in respect of such business.|
|•||In the present case, there is no dispute on the fact that the assessee is carrying on the business of running an International Guest House (IGH) and Working Women’s Hostel (WWH). The assessee is maintaining separate accounts for the above business activities. But, the crucial question is whether running of IGH and WWH is a business incidental to the attainment of the objectives of the trust or not.|
|•||By any stretch of imagination, it is not possible to hold that the business of running IGH and WWH are incidental to the above stated objectives of the assessee-trust. “Incidental” means offshoot of the main activities; inherent by-product of principal activities.|
|•||Activities to compliment and support the main objectives are not in the nature of incidental to the business. They are supporting activities, at the maximum. The genesis of incidental activities must be from the principal activities themselves. There cannot be one source for the principal activities and another source for incidental activities.|
|•||In the present case, even if activities of the assessee were stated to be relief of poor, medical relief and education, it was not possible to conclude that running of business in the form of IGH and WWH were business incidental to the carrying on of main objective of the assessee-trust. Therefore, the assessee is not protected by the provision stated in section 11 (4A), either.”|
6.7 Thus, as observed earlier, publishing of newspaper is a commercial line which cannot be considered as charitable activity, so as to grant exemption u/s.11 of the Act. Accordingly, we are in agreement with the lower authorities and we deny the exemption u/s.11 of the Act.
6.8 Regarding depreciation, we have to make it clear that the claim of depreciation to be granted on written down value of the assets. In other words, if the assessee has already claimed capital expenditure on acquisition of assets as application of income in earlier years and the value of the assets on which depreciation claimed has been fully allowed as expenditure or application in the earlier years that cannot be any claim of depreciation once again. The present claim of depreciation cannot be a double deduction over and above the fully value of the assets, if it was granted as application of income in earlier years. With these observations, this ground is allowed for statistical purposes.
6.9 Regarding taxability of interest income, it is to be taxed under the head “income from other sources” and it is not an exempted income and there is no reason to exempt the same from taxation as the assessee is not entitled exemption u/s.11 of the Act, in view of the judgment of the Supreme Court in the case of Bangalore Club v. CIT  350 ITR 509
6.10 To sum up, the income of the assessee for these two assessment years is directed to compute by the Assessing Officer in accordance with law and it is needless to mention herein that when the income is computed in accordance with law as business income in the light of the above findings, usual deductions are allowable under the provisions of the Act while computing the income under the head “business”. More so, deduction under sections 30 to 38 of the Act, is to be allowed, if it is not already granted to the assessee.
7. In view of this, all other grounds raised by the assessee in these appeals are only academic and do not require any adjudication.
8. In the result, the appeals of the assessee are allowed for statistical purposes.