1. Charitable trust running educational and medical institutions and a newspaper — Denial of exemption under Section 11 of Income Tax Act — Invocation of proviso to Section 2(15). (Para 3 )
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2023 Supreme(SC) 746
SUPREME COURT OF INDIA
S. RAVINDRA BHAT, DIPANKAR DATTA, JJ.
Pr. Commissioner of Income Tax (Exemptions) Delhi - Appellant
Versus
Servants of People Society - Respondent
Civil Appeal No(s). 614 of 2023 [@ Special Leave Petition (Civil) No(s). 11017 of 2022]
Decided On : 31-01-2023
Important Points
Under Section 2(15) of the Income Tax Act, a GPU charity's engagement in trade or business (including advertisement revenue) is permissible only if the activity is connected to its objects and receipts do not exceed the prescribed quantitative limits, as established in CIT v. Ahmedabad Urban Development Authority.
Subject
Tax Law - INCOME TAX
Act Referred
Headnote
Income Tax Act, 1961 -- Ss. 2 (15) and 11 -- exemption of tax -- charitable trust -- cost basis or nominally above cost charges towards consideration for activities of trust cannot be considered to be trade, commerce or business -- only markedly or significantly above cost charges fall within mischief of cess or fee or any other consideration. 2022 SCC Online SC 1461 relied on. 371 ITR (Del.) 333 not good law. [Para 9]
Legal Category Hierarchy
Table of Contents
2. Revenue contends advertisement revenue constitutes trade or business — Assessee argues such income is incidental and necessary to achieve charitable objectives. (Para 5 , 6 , 7 )
3. Publication of advertisements for consideration constitutes business activity; such activities are permissible for general public utility trusts only if receipts remain within statutory quantitative limits. (Para 9 , 10 )
4. For trusts advancing general public utility, commercial activities must be connected to the object and receipts must not exceed the quantified limit under Section 2(15). (Para 9 , 10 )
5. Appeal partly allowed — Matter remitted to Assessing Officer for fresh determination of charitable status and exemption eligibility based on the nature of receipts. (Para 11 , 12 )
6. What is the general test for a trust advancing general public utility (GPU) to maintain its charitable status under Section 2(15)?
A GPU trust cannot engage in trade, commerce, or business for consideration. However, it may do so if the activities are connected to its GPU objects and the receipts do not exceed the prescribed quantitative limits. (Para 9 )
7. Does the publication of advertisements by a charitable trust managing a newspaper constitute a business activity?
Yes, publishing advertisements for consideration is termed an activity in the nature of carrying on business, trade, or commerce, regardless of whether it is the primary source of funding for the newspaper. (Para 10 )
8. How should the charging of fees or consideration for GPU activities be interpreted to determine if it constitutes trade, commerce, or business?
Charges on a cost-basis or nominally above cost are generally not considered trade, commerce, or business. Such activities fall under the mischief of business only when charges are markedly or significantly above the cost incurred. (Para 9 )
JUDGMENT :
S. Ravindra Bhat, J.
1. Special leave granted. Mr. D. Mahesh Babu waives notice of appeal on behalf of the sole respondent [hereafter called “the assessee”]. The appeal is heard finally.
2. The Commissioner of Income Tax (hereafter referred to “revenue”) is aggrieved by the impugned judgment and order of the Delhi High court,1[dated 16.11.2021 in ITA No. 161/2021]. The impugned judgment upheld the decision of the Income Tax Appellate Tribunal (“ITAT”) which affirmed the views expressed by the Commissioner of Income Tax (Appeals) (hereafter called “Appellate Commissioner”). The Appellate Commissioner and the ITAT were of the opinion that the respondent organisation (a registered society, hereafter also called “the assessee”) was a charitable trust entitled to the benefit of exemption and that it is registered under Section 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 the year 1921 by the legendary freedom fighter Lala Lajpat Rai during the freedom struggle for the nation building, general awareness and welfare of the people. In 1928 the famous freedom fighter of Odhisha Shri Pt. Gopa Bandhu Dass made a Will of his property and his printing press which is managing the Oriya newspaper “Samaj”-for people’s welfare. The assessee was enjoying exemption under Section 11 of the Act but the same was denied during the A.Y. 1973-74 and later allowed by the ITAT and affirmed by the High Court. The assessee was also earlier allowed exemption for three years i.e. 1990-91 to 1992-93 under Section 10(23C)(iv) of the Act. The assessee has established and is running schools in the name of Balwant Rai Mehta Vidya Bhawan in Lajpat Nagar and in Greater Kailash in New Delhi and one Medical Centre in Lajpat Nagar and old age home in Dwarka in Delhi. The assessee is also building a hospital in the name of Gopa Bandhu Medical Research Centre in Odisha. The assessee was also allowed exemption under Section 11(1) but the same has been denied during the A.Y. 2010-11 and 2011-12. The Assessee Officer denied the exemption invoking the proviso to 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 a newspaper. The assessee argued that it was primarily a non-profit institution 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 who allowed its plea and directed that the income earned by it ought to enjoy the benefit of exemption. The revenue carried the matter in appeal to the ITAT and the High Court, both unsuccessfully. As a consequence, it has approached this Court in appeal by the special leave.
5. It is urged on behalf of the revenue that the Appellate Commissioner and the Tribunal fell into error in granting the exemption to the assessee. The Learned Additional Solicitor General Mr. Balbir Singh, points out that the ITAT followed the decision of the Delhi High Court in India Trade Promotion Organisation v. Director General of Income Tax (Exemption), 371 ITR (Del) 333 and other decisions. It was urged that those decisions are no longer good law in view of the judgment of this Court in CIT v. Ahmedabad Urban Development Authority , 2022 SCC Online SC 1461, whereby the Court has held that activities which are in the nature of trade, and carry on by a trust established for general public utility, have to specify certain parameters.
6. Learned counsel highlighted that the assessee in this case is not merely earning revenue from sale of newspaper but also earned substantial advertisement revenue.
7. Learned counsel for the assessee urges that this court should not intervene given that the Appellate Commissioner as well as the ITAT and the High Court have concurrently upheld its claim for exemption on the ground that it is a charitable trust entitled to be treated as such thereb
