2014 (2) TMI 601 - AT - Income Tax

Application of income for Charitable purpose - Business activity eligible for exemption u/s 11 of the Act Held that - The assessee was required to exhibit in the set aside the assessment proceedings was of the publication business as being incidental to the attainment of its other objects, i.e., as a fact, toward satisfaction of the requirement of the law u/ss. 11(4) and 11(4A), for the said business to be considered as property held under trust the business does not by itself constitute a charitable object or purpose The decision in IDEAL PUBLICATIONS TRUST Versus COMMISSIONER OF INCOME-TAX 2008 (2) TMI 297 - KERALA HIGH COURT followed there was no basis, nor any material on record, to justify the same, which also forms the basis of the orders by the Revenue. An elocution contest, even the subject of which is not known, as also the total expenditure involved, appears to be the only activity sponsored by the trust over the years, which again does not imply undertaking any activity per se - there is no charitable activity being undertaken, much less a regular activity toward charitable purposes, for the said business to be considered as an adjunct or incidental to the attainment or any specific objective - the claim of business expenses as or toward application of income would suggest non-maintenance of separate books of account, another qualifying condition u/ss. 11(4) & 11(4A) - even if the assessee s undertaking of publishing business was found as meeting the requirement of law and, as such, a property held under the trust, only its income to the extent applied for its charitable purposes would qualify for exemption u/s.11, which again is conspicuous by its absence Decided against Assessee. There would be no surplus from the business as the profits generated would be required to meet the funding requirements of its capital expenditure as well as concomitant financial obligations, including servicing of debt - No wonder the assessee has not been able to generate a surplus (for charitable purposes) in the two decades of its functioning, and despite being run on commercial lines - The plea of no surplus, which is even otherwise not maintainable, is false Decided against Assessee.

Issues Involved:
1. Whether the publication of 'Dainik Saamana' qualifies as a business activity or a charitable activity eligible for exemption under Section 11 of the Income Tax Act.
2. Whether the acquisition of fixed assets for the publication business can be considered as the application of income for charitable purposes.
3. Whether the assessee is entitled to exemption under Section 11(1) and Section 11(2) for the surplus income.
4. Whether the deficits of earlier years should be considered while determining the application of income.

Detailed Analysis:

1. Publication Activity as Business or Charitable Activity:
The Tribunal concluded that the publication of 'Dainik Saamana' and other periodicals by the assessee is a business activity. The income or loss from this activity is to be assessed as 'business income' under Chapter IV-D of the Income Tax Act. This conclusion is based on the fact that the activity is carried out in an organized and systematic manner, akin to a commercial enterprise. The Tribunal referenced its earlier decisions and the Supreme Court's ruling in the case of Thanthi Trust to support this conclusion.

2. Acquisition of Fixed Assets:
The Tribunal held that the acquisition of fixed assets for the publication business cannot be considered as the application of income for charitable purposes. This is because such expenditures are incurred for earning business income and are deductible under Section 32 of the Income Tax Act as depreciation. Only expenditures that are not deductible for the purpose of computing income can be considered as the application of income for charitable purposes. This principle was reiterated from the Tribunal's earlier orders and the Supreme Court's decision in the case of Thanthi Trust.

3. Entitlement to Exemption under Section 11(1) and Section 11(2):
The Tribunal found that the assessee did not demonstrate that the income from the publication business was applied for charitable purposes. For the assessment years in question, the assessee failed to provide evidence of such application. The Tribunal noted that the only claims made were minor donations and expenses related to elocution competitions, which were insufficient to establish the application of income for charitable purposes. Furthermore, the Tribunal emphasized that the business of publication must be incidental to the attainment of the trust's objectives to qualify for exemption under Section 11(4) and 11(4A). The assessee did not meet this requirement.

4. Consideration of Deficits of Earlier Years:
The Tribunal did not find merit in the assessee's claim that deficits from earlier years should be considered while determining the application of income for the current years. The Tribunal emphasized that the application of income must be demonstrated for each relevant assessment year independently. The Tribunal also rejected the argument that the assessee was entitled to carry over surplus income for future application without having applied any part of its income for charitable purposes in the relevant years.

Conclusion:
The Tribunal dismissed the appeals for all the assessment years, concluding that the publication activity is a business activity and not eligible for exemption under Section 11. The acquisition of fixed assets for the publication business cannot be considered as the application of income for charitable purposes. The assessee failed to demonstrate the application of income for charitable purposes for the relevant years, and the deficits of earlier years were not considered relevant for determining the application of income. The Tribunal's findings were consistent with its earlier decisions and the Supreme Court's rulings.

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