TMI Blog2014 (2) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... ward 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. - IT Appeal Nos.5179 & 8490 (Mum.) of 2010, 7477 (Mum.) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, on the other hand, is that the assessee is engaged only in publication activity, undertaken on commercial lines in an organized and systematic manner, so that it is only a business activity. There is, accordingly, no question of exemption on the surplus u/s.11. That is, no exemption either u/s.11(1) or section 11(2) is exigible in the absence of any charitable activity being undertaken. The acquisition of the assets is only toward expansion of the publication business. A business could be regarded as a property held under trust, and its income, accordingly, considered for exemption u/s.11 on application for charitable purposes only where the business is incidental to the attainment of the objectives of the trust, while no such objective is being pursued in the instant case. Reliance for the purpose is placed on the decisions in the case of Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785 and Ideal Publications Trust v. CIT [2008] 305 ITR 143. Aggrieved, the assessee is in second appeal. The state of adjudication 3.1 The principal grounds of appeal raised by the assessee for all the years under reference are as under: (a) The learned Commissioner of Income Tax (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he application of income for charitable purpose as under: "We have already held that the donations received by the Trust were not exempt under section 11(1)(d) of the Act. However, even other voluntary contributions received by a trust created wholly for charitable purposes shall, for the purpose of s.11 be deemed to be income derived from property held under trust wholly for charitable purposes. This is laid down in s.12 of the Act. Further, according to s.11(1)(a) of the Act, in come derived from property held under trust wholly for charitable purposes shall not be included in the total income to the extent to which such income is applied to such purposes in India. The learned Counsel for the assessee has sought exemption under s.11(1)(a) for the contributions on the ground that the contributions have been applied wholly for charitable purpose by utilizing them in running Dainik Saamana. Though the argument looks attractive in the first instance, a little reflection shows that running Dainik Saamana does not amount to application of income at all but amounts to earning of income which includes loss. Earning of income and application of income are opposites. The expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n u/s.11 in light of the decision by the apex court in the case of Thanthi Trust (supra). It, accordingly, remitted the matter back to the file of the A.O. with like directions. Even though the tribunal per its subsequent order dated 30.03.2009 for A.Y. 1996-97 (in ITA No.291/Mum/2007, rendered along with that for A.Ys. 1998-99 and 2003-04/PB pgs.58-61), had also considered its earlier order for the said year dated 25.05.2004 (supra), the findings thereby are also relevant and telling, which we reproduce as under: "9. We have heard both the sides and considered the facts and materials on record including the case laws relied upon by the parties. May be it is true that the Tribunal in its earlier order cited supra has given a finding that the running of newpaper Dainik Samna was for charitable purpose within the meaning of section 2(15) as it stood from 01.04.1984. However, in view of the latest decision of the Honorable Supreme Court reported in 247 ITR 785 (SC), what is to be seen is, whether the income of the newspaper has been utilized for the purpose of the trust, even though, the objects may be charitable and this aspect of the matter, as rightly been contended by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to deduction of depreciation u/s.32, i.e., as exigible in computation of business income u/s.28; and (c) whether the assessee would be entitled to exemption u/s.11 would depend on the satisfaction of the parameters of section 11(4) r.w.s. 11(4A), for which reference is made to the decision by the apex court in the case of Thanthi Trust (supra). In fact, these findings have also been culled out in some of the assessment orders, as for A.Ys. 1989-99 2003-04, and much in the same form. We are under the circumstance unable to see as to how the assessee's grounds are maintainable before us. This is as the only issue that survives, post a series of the orders by the tribunal, is the allowance of exemption u/s.11, i.e., where and to the extent the requirement of law stands met. Rather, it was incumbent on the part of ld. AR, if also not the ld. DR, to bring to our notice as to how the income for the AYs. 1992-93, 1995-96 1996-97 has been finally determined, i.e., subsequent to the directions by the tribunal for these years per its order dated 25.05.2004 (supra) and 30.03.2009 (supra). In fact, the assessee itself admits to the publication activity as constituting busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a charitable purpose but at para 41, it is outlined that voluntary contribution received by the trust that are utilised in running Dainik Saamana does not amount to application of income but it is an expenditure for the purpose of earning the income. It is also noticed that the appellant is only engaged in publication activity and the appellant has used the income or acquisition of assets used for the publication business which cannot be regarded as application towards object of the trust. Thus, the A.O. has rightly denied the benefit u/s.11(2) and 11(1)(a) of the I.T. Act. Ground Nos.1 to 5 are dismissed.' [Emphasis supplied] 4.3 Whether the business being undertaken by the assessee is incidental to the attainment of the objectives or not is a question of fact. Similarly, whether any part of income of the said business has been applied for charitable purposes is a pure question of fact. No material to controvert the clear concurrent findings on fact by the Revenue authorities has been advanced at any stage of the proceedings, including before us. A donation for a sum of money or contribution for an elocution contest would not make the business incidental to the said activity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surplus for each year, i.e., at the rate of 15% thereof and, further, in terms of its application for accumulation u/s.11(2), where moved, as for A.Y. 2003-04. This aspect, though not raised specifically, would stand to be covered by the assessee's ground no.1. The said plea was taken by the ld. AR on being pointed out by the Bench during hearing that the assessee had through-out singularly failed to show of application of income over the years for charitable purposes. This led him to state that this has been due to deficiency of income, though nevertheless, as the assessee is obliged to apply only 75% (85%, w.e.f. A.Y. 2003-04) of its income for any year for charitable purposes, its claim for the balance 25% (15%) thereof could not be denied, i.e., toward future application for such purposes. Besides, the denial for specific accumulation u/s. 11(2), where moved, is again not valid in law. 5.2 In our considered view, while the plea qua standard allowance upto a maximum of 25% of the current income (15% w.e.f. A.Y. 2003-04) could be validly made before us, the specific disallowance of the application for accumulation could not be agitated without it being a subject matter of adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained by such trust or institution in respect of such business." Clearly, therefore, the income of any charitable trust (or institution) derived from property held wholly for such purpose, shall not form part of the total income under the Act where and to the extent applied for such purposes in India. The exemption is not automatic but subject to the condition of the application of the income during the relevant previous year upto at-least 75% (85% w.e.f. A.Y. 2003-04) of such income. There is provision with respect to deemed application per Explanation 2 to section 11(1)(a), but the same is only upon exercise of the option in writing by the assessee. Two, the same is available on the condition of non receipt of income, or, at best defers the application of income to the immediately following year. The same, thus, is year as well as fact specific and, as such, neither applicable nor relevant in the facts of the case, given the general proposition being sought to be advanced. It is, therefore, only upon application of income to the specified extent (75% or 85%, as the case may be), at the minimum, that the exemption of income extends to the whole of such income. Without doubt, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is required to be shown in the facts and circumstances of the case, is that the said publication business serves as a vehicle for the attainment of the other objects of the assessee-trust. The assessee has failed in demonstrating so. How could, then, we wonder, its publication business be taken as incidental to the attainment of its objects, for it to be considered as a property held under trust? Rather, no other activity having been undertaken, much less in a regular, systematic manner, the ld. AR was specifically questioned by the Bench during hearing as to the publication business being incidental to what, to no answer by him. It is this that led him to state of lack of profit, and of being allowed, in any case, exemption @ 25% (15%) of income u/s.11(1)(a), i.e., the very question which forms the subject matter of this segment of this order. Conclusion 6. Given the orders by the tribunal in the assessee's own case for some of the years under appeal, which have become final, as well as reliance thereon for other years, all that the assessee was required to exhibit in the set aside (or otherwise) assessment proceedings was of the publication business as being incidental to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no surplus, there is no question of the business feeding or as being able to sustain any charitable activity. The plea of no surplus is also inconsistent with the record. The assessee acquires land at a cost of Rs.2.95 crores during the previous year relevant to A.Y. 1999-2000 (refer Gd.3/SOF for AY 1998-99). Again, the same would only be a part of the project, which is also apparent from the fact that huge claims qua depreciation on, among others, building, have been made and allowed from year to year, indicating continuing expansion. Surely, the assessee does not require that much capital to commence charitable objects! And, if it does, then again it is for it to generate adequate corpus to be able to commence the same. Certainly, 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. The focus of the Management is clear, i.e., to set up a large, if not a grandiose publishing house. No wonder the assessee has not been able to generate a 'surplus' (for charitable purposes) in the two decades of its functioning, an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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