TMI Blog2009 (6) TMI 692X X X X Extracts X X X X X X X X Extracts X X X X ..... 08. Certain details were called for, seeking compliance by 4-3-2008. In response, the assessee filed the details vide letter dated 21-4-2008. On verification of the details and the accounts filed, clarification was sought with regard to royalty, honorarium and professional charges paid, along with other details and reply was to be furnished by 16-7-2008. Assessee in reply stated that royalty payment was made to Sri Swami Sukhbodhananda, the Founder Chairman and the trustee of the trust, which is as under: A.Y. Royalty paid 2005-06 Rs. 14,98,600 2006-07 Rs. 14,03,750 2007-08 Rs. 21,06,250 3.2 It was submitted that the royalty payments were made to Sri Swami Sukhbodhananda in consideration of his transferring and assigning of his rights on certain books published by the trust, as per the agreements entered into by the two parties. The Director of Income-tax (Exemptions) held, if it is treated the above activities of the trust are charitable in nature, the process of paying royalty, publishing and then selling such books would amount to a commercial activity, within the purview of section 2(15) as amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that trust is recognized as a charitable institution qualifying for exemption under section 11 that has been registered under section 12A of the Act in the past. The activities of the trust consists of social service to socially and economically weaker section of the society and conducting various transformation educational programmes. The trust has a home for homeless exclusively for girls consisting of orphans and destitutes uncared for by anyone. The home provides clothing, food, education, shelter and above all love and affection that a child is denied from own kith and kin. Education consists of studies in English medium schools, dance, music, Karate, art of public speaking, making them ready to settle well in decent jobs. The trust has also been extending financial support to enable the needy children to pursue their studies in the form of admission fee, monthly tuition fee, supply of uniforms, shoes, books and other fees for computer, lab, etc. Yoga, yoga therapy area also taught to all. Blood donation camp is also organized and blood collected is donated to institution like NIMHANS. The trust has also been training individuals to shape them Pracharak/teacher to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and discussions, the foundation and maintenance of conference centres and reading rooms and publications of journals and books for general use among the members and others are not beyond the scope of education. Assessee s counsel reiterated that assessee s object is worth in claiming the benefit under section 10( 22 ). 3.7 For the same proposition, he relied on the decision of the Hon ble Supreme Court in Sole Trustee, Loka Shikshana Trust s case ( supra ) and submitted - The terms search for truth appears in conjunction with other terms such as diffusion of useful knowledge, promotion of conferences and discussions, publications of journals and books for general use and has purely Educational connotation. The learned counsel submitted although the term education used in section 2( 15 ) of the Income-tax Act, seems wider and more comprehensive than education through educational institutions, such as universities, whose income is given exemption from income-tax separately under section 10( 22 ) provided the educational institution concerned does not exist for the purposes of profit , yet it seems educational effects of a newspaper or publishing business are only in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee s counsel further submitted even if incidentally a surplus funds are generated but the funds are used for the object of the trust, then, the renewal of recognition under section 80G cannot be denied. 3.9 Coming to the other issue, i.e., trust paid royalty to the author Sri Swami Sukhbodhananda, the founder chairman and trustee of the trust in respect of the books published by the assessee-trust, assessee s counsel submitted that it does not contravene section 13(1)( c ) of the Income-tax Act, 1961. The assessee s representative submitted in order to invoke the provisions of section 13(1)( c ), one of the necessary condition is that it should be unreasonable, as per section 13(2)( c ). In this connection, the assessee brought to the notice of Director of Income-tax (Exemptions) that for certain books, which were published by the Jaico Publishing House, Mumbai, they have paid 17.5 per cent as royalty to the Founder Trust. The assessee s counsel submitted that relying upon the decision of Hon ble Delhi High Court in the case of CIT v. Raghubir Saran Charitable Trust [1990] 183 ITR 297, the trustees using property and paying rent more than the standard rent, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act not involving the carrying on of any activity for profit do not qualify the first three categories of object, i.e., relief of the poor, education or medical relief but qualify only the fourth category, i.e., advancement of any other general public utility . In that case, it was further contended by the learned counsel that once object of the appellant-trust is held to be education, the trust should be held to be for a public purpose as defined in section 2( 15 ) of the Income-tax Act. It was further contended that in such an event, it would be immaterial whether the object of the trust involves or does not involve the carrying on of any activity for profit. Though the counsel advanced the above argument Their Lordships did not express any opinion on the point of the argument in that case holding as under: It is, in our opinion, not necessary to express an opinion in this case on the question as to whether the word not involving the carrying on of any activity for profit qualify the fourth object. The definition of any other object of general public utility , or whether they also qualify the other three objects of relief of the poor, education, and medical relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem. 5.4 Their Lordships held education in that case in the widest sense includes travelling, reading of news paper and magazines, see pictures, visit of art galleries, museums and zoos and if not careful, wallet is liable to be stolen or liable to be cheated by some unscrupulous person is also a part of education. Their Lordships, further held that visit to night club also get acquainted with knowledge about some not much revealed realities and mysteries of life. But that is not the sense in which word education is used in section 2( 15 ). It will be reiterated to say that the job of mere giving formal education in institution alone will not constitute education for the registration. 5.5 Their Lordships further observed at page 242 as under: It has been pointed out in the earlier part of the judgment that in the definition of charitable purpose as given in section 2( 15 ) of the Act the words not involving the carrying on of any activity for profit have been added at the end of the definition as it was given in section 4( 3 ) of the Indian Income-tax Act, 1922. The position as it existed under the Act of 1922 was that once the purpose of the trust was relief of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not necessary for Their Lordships to go into that question, as Their Lordships held that the object of that assessee in that case was not education as such. In this Circular vide paras 2 and 3, Board explained the implication arise from the present amendment. It reads as under : The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2( 15 ), i.e. , relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities. Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section ( 3 ). ( a )....... ( b )....... ( c )if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; ( d )........ ( e )........ ( f )........ 7.1 Sri Swami Sukhbodhananda falls within the persons referred to in section 13 clause ( c ) of sub-section (1) and section 2, as he is the author of the books or the founder of the institution. However, we are afraid the reasoning of the Director of Income-tax (Exemptions) is not applicable. First of all he is getting 17.5 per cent royalty not from the trust, it is from agreement between Jaico Publishing House, it is entirely 3rd party, nothing to do with the trust. First of all the agreement is not between the trust and Sri Swami Sukhbodhananda, therefore, we do not find any nexus between the receipt of 17.5 per cent royalty from t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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