1990 (5) TMI 88 - AT - Income Tax

Summary

Issues:
1. Taxability of income from the sale of new year cards by a charitable trust under section 11(4A) of the IT Act.

Detailed Analysis:
The judgment involves the issue of whether the income from the sale of new year cards by a charitable trust is taxable under section 11(4A) of the IT Act. The assessing officer treated the income from the sale of cards as taxable, leading to the imposition of income tax, surcharge, and interest under sections 139(8) and 217. The first appellate authority upheld the taxability of the income from the sale of greeting cards under section 11(4A) of the IT Act.

The counsels for the assessee argued that the trust did not engage in business activities, emphasizing that the primary objective of the trust was to provide financial assistance to institutions caring for poor and destitute children. They presented the theme of the cards, highlighting the charitable purpose behind them, such as raising funds for abandoned children. The counsels contended that the trust's intention was not profit-making but purely fundraising to support its charitable objectives.

The counsels relied on legal precedents, including the case of Religious Tract & Book Society of Scotland v. Forbes, to support their argument that certain activities of a charitable institution, even if resembling business activities, may not be considered as trade for income tax purposes. They also cited the decision in Yennarkay Rajaratnam Charities v. ITO, emphasizing that the absence of a profit motive and the charitable nature of the activities should entitle the trust to exemption under section 11 of the IT Act.

On the other hand, the Departmental Representative contended that the trust's printing and sale of new year cards constituted a business activity aimed at earning a net profit. The representative highlighted the substantial expenditure incurred by the trust in purchasing and printing the cards, along with the significant revenue generated from their sale. It was argued that the trust's consistent and profitable transactions indicated a business motive behind the activity, rendering the income taxable under section 11(4A) of the IT Act.

After considering the submissions and examining the cards and trust deed, the tribunal concluded that the trust's primary objective was the welfare of poor and destitute children. The tribunal found that the sale of new year cards was a fund-raising activity aligned with the trust's charitable purpose, aiming to evoke feelings of benevolence and support for the cause. Therefore, the tribunal held that the income from the sale of cards was not taxable under section 11(4A) of the IT Act and directed the deletion of the addition made to the trust's income.

In the final decision, the tribunal allowed the appeal of the assessee, ruling in favor of the charitable trust and exempting the income from the sale of new year cards from taxation.