TMI Blog2017 (1) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... scriptions of the dailies. Moreover the balance in the corpus account was Rs. 121 crores. The respondents have not suggested that these profits have been used for any purpose contrary to the trust created in the Will. Nor is it suggested that the appellants will do so. It did occur to us at one stage that this fact would save the assessee from being excluded from the provisions of section 2(15) but on further reflection it does not. A person does not make profit for the sake of making profits. He does so with a purpose. The purpose is obviously within his special knowledge. He must, therefore, disclose it and the Assessing Officer must then test the case and analyse it. If that were not so it would enable an assessee to circumvent the provisions of the Act meant for the benefit of the persons engaged in activities for charitable purposes. They would accumulate huge profits for several years. The assessment in respect of these years would attain finality after about 8 years and cannot, thereafter, be reopened. After this period the assessee could utilize the profits for any purpose- charitable or otherwise. We hasten to add that the assessee before us has not done so and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 10(20A) of the Act. Upon the omission of Section 10(20A), the provisions of the other sections were not affected. They remained intact. An assessee could have been entitled to the provisions of Section 10(20A) and the other provisions simultaneously. The omission of one, however, does not affect the validity or the existence of the others. The two provisions are distinct and independent of each other. Thus the omission of Section 10(20A) did not affect the rights of the parties claiming the benefit of Sections 2(15), 11, 12, 12A and 12AA of the Act. - Decided in favour of assessee - Income Tax Appeal No.62 of 2015 (O&M), Income Tax Appeal No.147 of 2016 (O&M) - - - Dated:- 23-12-2016 - MR. S.J. VAZIFDAR AND MR. DEEPAK SIBAL, JJ. For The Appellant : Mr. Akshay Bhan, Senior Advocate with Mr. Alok Mittal, Advocate For The Respondent : Mr. Denesh Goyal, Advocate, Mrs. Radhika Suri, Senior Advocate with Ms. Rinku Dahiya, Advocate S.J. VAZIFDAR, CHIEF JUSTICE : After we reserved judgment in ITA No.62 of 2015, Mrs. Radhika Suri, the learned senior counsel requested us to hear ITA No.147 of 2016 stating that similar questions arise therein. We acceded to the req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proviso thereto. It will, however, be necessary to set out the section as it was amended from time to time for the nature of the amendment has a bearing upon the interpretation of the section as it stood at the relevant time. The corresponding provision in the Income Tax Act, 1922, was section 4(3). Section 4(3) of the 1922 Act in so far as it is relevant and the corresponding section 2(15) of the 1961 Act, as amended from time to time, read as under:- (A) Section 4(3) of the 1922 Act 4. Application of Act .- .. .. . (3) This Act shall not apply to the following classes of income:- (i) Any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto. (ii) to (viii) In this sub-section charitable purposes includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. (B) Section 2(15) of the 1961 Act i) (15) Charitable purpose includes relief of the poor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition, keeping up the liberal policy of the said newspaper and devoting the surplus income of the said Press and newspaper, after defraying all current expenses, in improving the said newspaper and placing it on a footing of permanency. XXII. -- That in the event of any of the Trustee or Trustees of any of the aforesaid Committees of Trustees dying or resigning or declining or becoming incapable to act in the respective Trusts aforesaid, the remaining Trustees shall forthwith appoint new Trustee or Trustees to fill up the vacancy or vacancies so caused, bearing in mind, first, that the appointment made may be fully conducive to the attainment of the objects of the respective trusts, and secondly that on the College Committee of Trustees none may be appointed who are members of the Arya Samaj or persons interested in a rival institution or who hold views and opinions antagonistic to the Brahmo faith. XXIII. That the members of the aforesaid Committee of Trustees shall be answerable only for their own respective wilful defaults and not for those of other or others of them shall be protected for everything done by them in furtherance of the objects of the respective Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cil held that the Will created three separate Trusts administered by three separate committees. The Privy Council held that the property was not held for the purpose of education. It was, however, held that the property was held under Trust wholly for the advancement of an object of general public utility. The Privy Council held:- (at page 252) In the High Court stress was laid by the learned Chief Justice and by Addison J. on the fact that the Tribune newspaper charges its readers and advertisers at ordinary commercial rates for the advantages which it affords. As against this the evidence or findings do not disclose that any profit was made by the newspaper or Press before 1918, and it is at least certain that neither was founded for private profit, whether to the testator or any other person. By the terms of the trust it is not to be carried on for profit to any individual. It cannot, in their Lordships opinion, be regarded as an element necessarily present in any purpose of general public utility that it should provide something for nothing, or for less than it costs, or for less than the ordinary price. An eleemosynary element is not essential even in the strict English ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the second of the two questions referred to the Court by the Commissioner s letter of reference, dated January 26, 1934, should be answered in the affirmative. . . .. 8. Till 1961-62, there had been no assessment on the Trust. The appellant intervened in the case of The Sole Trustee, Loka Shikshana Trust vs. CIT (1976) 1 SCC 254, which was decided in favour of the Revenue. However, this judgment was overruled by the judgment of the Supreme Court in CIT (Addl) vs. Surat Art Silk Cloth Mfrs Assn , (1980) 2 SCC 31. The appellant was exempted from tax on the basis of assessment under section 11 from the years 1979-80 to 1983-84. With effect from 01.04.1984, the appellant was exempted by the CBDT under section 10(23C)(iv). The exemption was renewed from time to time, the last of which was granted on 28.02.2007, applicable for the Assessment Year 2007-08 onwards. The appellant accordingly has been claiming exemption from paying income-tax. 9. The Assessing Officer construed section 2(15) as it stood at the relevant time. He observed that under section 2(15), if any Trust advances any other object of general public utility which involves carrying on of any activities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3C)(iv) of the Act, which reads as under: 10(23C) any income received by any person on behalf of iv any other fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States. 12. The appellant understandably filed the revised return out of abundant caution. It did so subject to the note which we quoted earlier. The note itself expressly states that the revised return was filed only to err on the side of caution . It is understandable for an assessee to protect itself by erring on the side of caution for if the contention is ultimately not accepted, it is liable to pay the arrears with interest at 18% per annum and penalty. On the other hand, a refund carries only 6 per cent interest. It is understandable for an assessee to opt to receive a lower rate of interest by protecting itself against the possible claim for a higher rate of interest and penalty. 13. The observation that if the assessee was clear in its mind that it is entitled for exemption under section 10(23C)(iv), there was no need for it t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This, the Tribunal held, showed that the assessee was earning profits. The balance in the corpus account is also about ₹ 121 crores. The assessee had received interest of more than ₹ 11.38 crores on its fixed deposits which was held by the Tribunal to indicate the appellant having earned profits. 18. As we noted earlier, the proviso to section 2(15) took effect from 01.04.2009 and accordingly applies in relation to the assessment years 2009-10 onwards till the subsequent amendments. The Note on Clauses-Memorandum explaining the clause read as under:- RATIONALISATION AND SIMPLIFICATION MEASURES Streamlining the definition of charitable purpose Section 2(15) of the Act defines charitable purpose to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or Section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the advancement of an object of general public utility as is inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity not involving any activity for profit. He further contended as follows: The proviso to section 2(15) introduced by the amendment must be interpreted on the same lines as the section stood in the 1961 Act, the concluding words whereof were: not involving the carrying on of any activity for profit . In view thereof, the case stands covered in favour of the appellant in view of the judgment of the Supreme Court in Additional Commissioner of Income Tax Gujarat v. Surat Arts Silk Cloth Manufacturers Association 1980(2) SCC 31. The Supreme Court had held that the words not involving the carrying on of any activity for profit do not imply that the charitable trust or institution whose purpose is promotion of an object of general public utility cannot carry on any activity for profit at all. The object of general public utility must not involve the carrying on of any activity for profit and not its advancement or attainment. In view of this judgment, the appellant was granted exemption from 1979 to 1984. This indicated that the department was satisfied that the object of general public utility being advanced by the appellant did not involve any activity for profit. The ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We quoted the relevant observations earlier. Section 4(3) of the 1922 Act, which was applicable at that time, in so far as it is relevant, read as under:- Section 4. Application of Act - (3) This Act shall not apply to the following classes of income:- ..In this sub-section charitable purposes includes relief of the poor, education, medical relief and the advancement of any other object of general public utility . It is sufficient to quote again only the following observations:- (at page 256) They think that the object of the paper may fairly be described as the object of supplying the Province with an organ of educated public opinion and that it should prima facie be held to be an object of general public utility. . .. The Privy Council while holding that the property was held under trust wholly for the advancement of an object of general public utility also observed in the passage we quoted earlier that it cannot be regarded as an element necessarily present in any purpose of general public utility that it should provide something for nothing or for less than it costs or for less than the ordinary price . It was also observed that an eleemos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is none is activity for the advancement of an object of general public utility. The introduction of a newspaper where there already are newspapers can equally be so for it exposes the public to a variety of views, perceptions and perspectives to the same news. Newspapers do not necessarily report dry facts. They project views on the same incidents and topics differently. The content may also vary each newspaper emphasizing an item or issues differently. A choice of an additional newspaper possibly sub serves an object of general public utility better than a single newspaper. 26. If we may be permitted to take judicial notice, The Tribune has been for several decades one of the most respected and highly regarded publications. It is a household name in this region. It is considered by many to be an institution. Such a newspaper is bound to be a value addition to the several other publications in the nature of its contents and the projection of its views. 27. The findings of the Privy Council in 1938 that the assessee s activities constitute the advancement of an object of general public utility assume greater force today-almost a century later. 28. The appellants activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans to achieve or carry out the object of general public utility involve the carrying on of any activity for profit, the purpose of the trust or institution, though falling within the description any other object of general public utility would not be a charitable purpose and the income from business would not be exempt from tax. Now, if this argument is right it would not be possible for a charitable trust or institution whose purpose is promotion of an object of general public utility to carry on any activity for profit at all. Not only would it be precluded from carrying on a business in the course of the actual carrying out of the primary purpose of the trust or institution, but it would also be unable to carry on any business even though the business is held under trust or legal obligation to apply its income wholly to the charitable purpose or is carried on by the trust or institution by way of investment of its monies for the purpose of earning profit which, under the terms of its constitution, is applicable solely for feeding the charitable purpose. The consequence would be that even if a business is carried on by a trust or institution for the purpose of accomplishing or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y provision where such meaning is plain and unambiguous, but they can certainly help to fix its meaning in case of doubt or ambiguity. Let us examine what would be the consequence of the construction contended for on behalf of the Revenue. If the construction put forward on behalf of the Revenue were accepted, then, as already pointed out above, no trust or institution whose purpose is promotion of an object of general public utility, would be able to carry on any business, even though such business is held under trust or legal obligation to apply its income wholly to the charitable purpose or is carried on by the trust or institution for the purpose of earning profit to be utilised exclusively for feeding the charitable purpose. If any such business is carried on, the purpose of the trust or institution would cease to be charitable and not only the income from such business but the entire income of the trust or institution from whatever source derived, would lose the tax exemption. The result would be that no trust or institution established for promotion of an object of general public utility would be able to engage in business for fear that it might lose the tax exemption altoge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject of the activity must be making a profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit making motive; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak, J.) in Dharmadeepti v. CIT [(1978) 3 SCC 499 : 1978 SCC (Tax) 193] must be essentially charitable in nature and it must not be a cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. We, therefore, agree with Beg, J., when he said in Sole Trustee, Loka Shikshana Trust case [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] that if the profits must necessary feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t . The Section between 1984 to 2009 read as follows:- (15) charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility ; Thus between 1984 to 2009, the definition of charitable purpose in Section 2(15) was identical to the concluding words of Section 4(3) of the 1922 Act. During this period, therefore, the appellant would have had the benefit of the judgment of the Privy Council in its own case. 38. The question in this appeal which pertains to the assessment year 2009-10 is the effect of the amendment to section 2(15) introduced on 19.12.2008 which came into force with effect from the financial year 01.04.2009. 39. It is necessary to compare section 2(15) as it stood under the 1961 Act and as interpreted by the Supreme Court in Surat Art Silk s case (supra), on the one hand and Section 2(15) as it was amended with effect from 01.04.2009 on the other. As we observed earlier the Supreme Court held that the concluding ten crucial words not involving the carrying on of any activity for profit go with the words object of public utility and not with advancement . In our view the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come the decision of the Privy Council in the Tribune s case. While the legislature in the 1984 amendment which continued upto the year 2009 altered this position by deleting the words not involving the carrying on of any activity for profit , it reintroduced an exclusionary clause albeit in different and wider terms in the 2009 amendment. The exclusionary clause related to the object of general public utility and not the advancement thereof. 42. It is necessary now to determine the meaning of the following words in the proviso to Section 2(15) as amended in 2009:- any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business . This essentially requires a determination of the terms trade , commerce and business as used therein. 43. Mr. Bhan, relied upon the judgment of this Court in The Commissioner of Income Tax, Jalandhar-II v. M/s Sadhu Singh Hamdard Trust, ITA No. 75 of 2004 decided on 26.07.2012. In that case the assessee had shown the income from printing and publishing the newspapers and from other sources. The Division Bench dealt with the issue as to whether the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deal with the same in the Income Tax Act. The relief from taxation partly or fully predicates taxability and taxability predicates income and income predicates profit. This is the normal sense of these terms. There is nothing in the Act which persuades us that the words are used in Section 2(15) with a different intention. There is nothing in the Act and in particular section 2(15) thereof that indicates that the legislature contemplated a trade or a business or a commercial activity other than for profit. It is obviously for this reason that the legislature did not add to the words trade, commerce or business (used twice in the proviso) the words carried on for profit . 46. Our view is supported by several judgments of the Delhi High Court which have dealt with this issue exhaustively. The extensive references in the judgments are sufficient to support this view and we do not find it necessary to add to the same. 47. This view is supported firstly by the judgment of the Delhi High Court in Bureau of Indian Standards v. Director General of Income Tax (Exemptions) [2013] 358 ITR 78 (Delhi). In that case the petitioner challenged the withdrawal of the exemption gran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitute of Chartered Accountants in England and Wales v. Customs and Excise Commissioners(1999) 1 W.L.R. 701, the House of Lords examined the question whether the institute was liable to pay value added tax for supply of goods and services as it was issuing licenses and certificates under three enactments for a fee. The issue which arose was whether the Institute was carrying on economic activity for the purposes of Value Added Tax Act, 1994. The definition of economic activity was wide. The expression business was examined with reference to the statutory mandate imposed on the institute and whether the statutory activities can be classified as a business, and the judgment observed as under: Although differences between them may arise, it seems to me that the Appellants were right in their case to accept that The expression business, it is accepted, represents economic activity . It is not necessarily sufficient (though it may often be sufficient in different contexts) that money is paid and a benefit obtained, performing on behalf of the state this licensing function is not the carrying on of a business. In relation to the Directive, the tribunal said: Any regulator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h noted in considerable detail the nature of the petitioners activities and referred to certain judgments already noted in Bureau of Indian Standards vs. DGIT (supra) . The Division Bench held as follows:- 56. In the case of Institute of Chartered Accountants in England Wales v. Customs and Excise Commissioners: (1999) 1 W.L.R. 701, the House of Lords also examined the expression business with reference to the question whether the Institute of Chartered Accountants in England Wales was carrying on economic activity for the purpose of the Value Added Tax, 1994 and held as under:- Although differences between them may arise, it seems to me that the Appellants were right in their case to accept that The expression business, it is accepted, represents economic activity . It is not necessarily sufficient (though it may often be sufficient in different contexts) that money is paid and a benefit obtained, performing on behalf of the state this licensing function is not the carrying on of a business. In relation to the Directive, the tribunal said: Any regulatory activity carried out under a statutory power for the purpose of protecting the public by supervising and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Section 2(5A) of the Bombay Sales Tax Act, 1959 held that the inclusion of incidental or ancillary activity in the definition of business presupposes the existence of trade, commerce and business. Thus, if the dominant activity of the assessee was not business then any incidental or ancillary activity would also not fall within the definition of business. In that case, the Supreme Court was examining the issue whether the activity of the trust in bringing out and selling a publication to spread the message of Sai Baba would make the assessee trust a dealer. The Supreme Court also referred to various other decisions wherein it was held that if the principal object or purpose of an assessee was not business then an incidental activity would also not be exigible to sales tax and constitute the assessee as a dealer. In the case of State of Gujarat v. Raipur Manufacturing Co. Ltd.: (1967) 19 STC 1 (SC), the Supreme Court held that in order for any activity to be considered as business, there must be a course of dealings either actually continued or contemplated to be continued with the motive to earn profit and not for sport or pleasure. 59. This court while remanding the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he dominant object for which an institution carries on its activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of charitable purpose . The purpose of introducing the proviso to Section 2(15) of the Act can be understood from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008. The relevant extract to the Speech is as under:- . Charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under charitable purpose . Obviously, this was not the intention of Parliament and, hence, I pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said proviso has two parts. The first part has reference to the carrying on of any activity in the nature of trade, commerce or business. The second part has reference to any activity of rendering any service in relation to‖ any trade, commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. In other words, if, by virtue of a cess or fee or any other consideration, income is generated by any of the two sets of activities referred to above, the nature of use of such income or application or retention of such income is irrelevant for the purposes of construing the activities as charitable or not. 45. To be clear, if an activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. We have seen that by virtue of Section 25 of the Companies Act, the petitioner i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of advancement of promotion of trade and commerce, the petitioner would be entitled to be regarded as an institution which would qualify for that exemption. The only thing that we have to examine is - whether the petitioner had been established for charitable purposes? The fact that it derives income does not, in any way, detract from the position that it is an institution established for charitable purposes. Therefore, in our view, merely because the petitioner derives rental income, income out of sale of tickets and sale of publications or income out of leasing out food and beverages outlets in the exhibition grounds, does not, in any way, affect the nature of the petitioner as a charitable institution if it otherwise qualifies for such a character. 47. We have already noted that prior to the amendment being introduced with effect from 01.04.2009, the petitioner had been recognized as an institution established for charitable purpose and this had been done having regard to the objects of the institution and its importance throughout India. It is only because of this that the petitioner had been granted the exemption by the respondent for the period prior to assessment year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with the object of making profit . This court, in ICAI (I) (supra) held that, while construing the term business as appearing in the proviso to Section 2(15), the object and purpose of the Section has to be kept in mind. It was observed therein that a very broad and extended definition of the term business was not intended for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act so as to include any transaction for a cess, fee or consideration. The Court specifically held that:- -An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case activity may be regarded as a business even when profit motive cannot be established / proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. 58. In conclusion, we may say that the expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Chartered Accountants of India v. Director General of Income Tax (Exemptions) Delhi [2012]347 ITR 99 (Delhi) as under:- Trade, as per the Webster's New Twentieth Century Dictionary (2nd edition), means, amongst others, a means of earning one's living, occupation or work. In Black's Law Dictionary, trade means a business which a person has learnt or he carries on for procuring subsistence or profit; occupation or employment, etc. The meaning of commerce as given by the Concise Oxford Dictionary is exchange of merchandise, specially on large scale . In ordinary parlance, trade, and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is called commerce. Nobody can define the volume, which would convert a trade into commerce. For the purpose of the first proviso to section 2(15), trade is sufficient, therefore, this aspect is not required to be examined in detail. The word business is the broadest term and is encompasses trade, commerce and other activities. Section 2(13) of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity. There is usually an element of reciprocity involved in a business transaction. 17. In the said case reliance and reference was made to State of Punjab v. Bajaj Electricals Ltd. (1968) 2 SCR 536, Khoday Distilleries Ltd. v. State of Karnataka (1995) 1 SCC 574, Bharat Development (P) Ltd. v. CIT (1982) 133 ITR 470(Del), Barendra Prasad Ray v. Income Tax Officer (1981) 129 ITR 295 (SC), State of Andhra Pradesh v. H. Abdul Bakhi and Bros. (1964) 15 STC 664, State of Gujarat v. Raipur Manufacturing Company (1967) 19 STC 1(SC), Director of Supplies and Disposal v. Member, Board of Revenue (1967) 20 STC 398(SC) and Sarojini Rajah v. CIT (1969) 71 ITR 504 (Mad) to explain the terms trade, commerce or business . 18. Referring to the concept and principle of economic activity that has gained some acceptability in European Union and England it was explained that the said principle is applicable to Sales Tax, Value added tax, Excise duty etc. because these are not taxes on income but the taxable event occurs because of the economic activity involved. Even if a person/organization is carrying on trading/business on no loss no profit principle, it may be liable to pay taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f profit but to provide training to the needy women in order to equip or train them in these fields and make them self reliant. Thus the Bombay High Court has also proceeded on the basis that the trade, commerce or business referred to in the proviso are those carried on with a view to make profit. 53. The judgments relied upon by Mr. Goel do not suggest the contrary. 54. Mr. Goel relied upon the judgment of the Andhra Pradesh High Court in Andhra Pradesh State Seed Certification Agency v. Chief Commissioner of Income Tax and others [2013] 356 ITR 360 (AP). The Division Bench held that the petitioner s activities fell within advancement of any other object of general public utility . The Division Bench observed that the petitioner collected fees for providing certification which involves technical and scientific evaluation of the seeds although the fee collected by it would be enough to enable it to sustain its activities and may not result in much profit. Despite that the Division Bench held that in view of the fact that the certification of the seeds by the petitioner facilitate trade, commerce or business in the certified seeds by the client of the petitioner, the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2(15) but on further reflection it does not. A person does not make profit for the sake of making profits. He does so with a purpose. The purpose is obviously within his special knowledge. He must, therefore, disclose it and the Assessing Officer must then test the case and analyse it. If that were not so it would enable an assessee to circumvent the provisions of the Act meant for the benefit of the persons engaged in activities for charitable purposes. They would accumulate huge profits for several years. The assessment in respect of these years would attain finality after about 8 years and cannot, thereafter, be reopened. After this period the assessee could utilize the profits for any purpose- charitable or otherwise. We hasten to add that the assessee before us has not done so and there is nothing to indicate that it will do so. It is, as we mentioned earlier, a highly reputed and respectable publication and is not likely to adopt such a course. That, however, is not the point. What is relevant is that in such a case any assessee would by this simple expedient circumvent the provisions of the Act. Thus the accumulation of a huge profit without any explanation for the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilised by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The Trust, therefore, is entitled to the benefit of Section 11 for Assessment Year 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business has been employed to achieve its objectives of education and relief to the poor and that it has maintained separate books of accounts in respect thereof. 59. The question, therefore, in each case is whether the business income of the trust or the institution is ancillary or incidental to the attainment of the objects of the trust or the institution or whether it is the predominant motive or activity of the trust. The test laid down in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not be the object of the trust, even though the business may advance the object of general public utility. In fact, if a contrary meaning is assigned to the section, any business income involving advancement of object of general public utility will be exempt from tax. In fact, every business to some extent advances object of general public utility. However, what is intended in sub-section (4 A) of Section 11 is that the object of the Trust should be for charitable purpose which includes advancement of object of general public utility and income from any business carried should be incidental to the objectives of the Trust Since the appellant has no other activity other than the business of printing and publication of newspaper on commercial line, we are of the view that the business itself cannot be said to be an object of general public utility entitling the appellant for exemption as a charitable institution. The Supreme Court in the Thanthi Trust's case [2001] 247 ITR 785 referred to above held that publication of newspaper is not education and therefore unless the business of publication of newspaper falls under Clause (4A), exemption cannot be granted. The High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for default but was later restored to file and by an order dated 16.09.2015 was decided in the assessee s favour. The registration of the certificate under section 12AA was thus restored. 65. Other similar trusts constituted under the PTI Act had earlier filed appeals one of which was M/s Amritsar Improvement Trust v. Commissioner of Income Tax-II, Amrisar, ITA No. 100 of 2014, which were disposed of by a judgment dated 06.08.2014 . The Division Bench observed that two questions arose, namely, whether the trust is an institution which carries on charitable activities within the meaning of Section 2(15) and secondly in case the trust is engaged in the activity of advancement of any other object of general public utility; whether it falls within the exclusion in the proviso to Section 2(15) of the Act. The Division Bench observed that the matter was required to be remitted to the Tribunal to adjudicate the issue regarding the nature of the activities of the trust in respect of the assessment years in question and to pass fresh orders. The assessee before us Moga Improvement Trust was not one of the appellants and its appeal was pending before the Tribunal. The Tribunal by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d every such board shall be a body corporate and have perpetual succession and a common seal, and shall by the said name sue and be sued. 22 . Matters to be provided for by general improvement scheme or rebuilding scheme: - (1) Whenever it appears to the trust that- (a) any buildings which are used or are intended or likely to be used as dwelling places within its local area are unfit for human habitation, or (b) danger is caused or likely to be caused to the health of the inhabitants of such local area or part thereof by reason of- (i) the congested condition of streets or buildings or groups of buildings in such local area or part, or (ii) the want of light, air, ventilation or proper conveniences in such local area, or part, or (iii) any other sanitary defects in such local area or part, the Trust may pass a resolution to the effect that such local area or part is in an in sanitary locality and that a general improvement scheme ought to be framed in respect of such locality and may then proceed to frame such a scheme. (2) Whenever the Trust declares any local area or part thereof to be an in sanitary locality within the meaning of this section, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide for the expansion of a municipality in any locality adjacent thereto, within the local area of such Trust prepare an expansion scheme . (3) A development scheme or an expansion scheme may provide for the lay-out of the locality to be developed, the purposes for which particular portions of such locality are to be utilised, the prescribed street alignment and the building line on each side of the streets proposed in such locality, the drainage of in sanitary localities and such other details as may appear desirable. 25. Housing accommodation scheme .- If the Trust is of opinion that it is expedient and for the public advantage to provide housing accommodation for any class of the inhabitants within its local area such Trust may frame a housing accommodation scheme for the purpose aforesaid: Provided that if the Government are satisfied that within the Trust area it is necessary to provide housing accommodation for industrial labour, the [Government] may by order require the Trust to frame a scheme under this section and to do all things necessary under the Act for executing the scheme so made; and if the Trust fail within such time as may be prescribed to frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or formed under the scheme; (ii) the acquisition by purchase, lease, exchange or otherwise of such land or interest in land; (iii) the retention, letting on hire, lease, sale, exchange or disposal otherwise of any land vested in or acquired by the Trust; (iv) the demolition of buildings or portions of buildings that are unfit for the purpose for which they are intended and that obstruct light or air or project beyond the building line; (v) the relaying out of any land comprised in the scheme and the redistribution of sites belonging to owners of property comprised in the scheme; (vi) the laying out and alteration of streets; (vii) the provision of open spaces in the interests of the residents of any locality comprised in the scheme or any adjoining locality and the enlargement or alteration of existing open spaces; (viii) the raising, lowering or reclamation of any land vested in or to be acquired by the Trust for the purposes of the scheme and the reclamation or reservation of land for the production of fruit, vegetables, fuel, fodder and the like for the residents of the local area; (ix) the draining, water-supply and lighting of streets altered or cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me under this Act, it shall, on completion, be transferred to the municipal committee by resolution of the Trust and shall thereupon, vest in and shall thenceforth be maintained, kept in repair, lighted and cleaned by the municipal committee: Provided that the municipal committee may require the Trust, before any such open space is so transferred, to enclose, level, turf, drain and lay out such space and provide footpaths therein and, if necessary, to provide lamps and other apparatus for lighting it. (3) If any difference of opinion arises between the Trust and the municipal committee in respect of any matter referred to in the foregoing provisions of this section, the matter shall be referred to the Government, whose decision shall be final. PUNJAB TOWN IMPROVEMENT TRUST RULES, 1939 3 . Moneys pertaining to the Trust fund, with exception of authorized advances, shall not be kept apart from the general balance at the credit of the Trust but shall at once be credited to the appropriate head of account. 4 . All sums paid into the treasury on account of the Trust, and all payments made on cheques shall be entered in a passbook, which shall be periodically sent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, rejected the assessee s contention on the basis of the following facts: The assessee derives its income from constructing and selling residential apartments, commercial flats and booths etc. It received amounts during the relevant assessment years towards rent, interest, fees, sale of premises etc. The Audit report indicates that the assessee inter-alia purchases the land at nominal cost, develops it, cuts it into small plots and sell them at much higher prices earning huge profits. Auction notices were issued by the assessee inviting bids in the usual manner with a view to obtain the maximum price. The properties would thus be sold to the highest bidder. The Assessing Officer held that the auction and the conditions imposed on the bidder clearly indicate that the activities of the assessee were more in the nature of a big private builder/colonizer rather than the institution constituted for charitable purpose of the advancement of any other object of general public utility. By an advertisement the Executive Officer of the assessee admitted that to earn the profit the assessee auctioned the parking space of the commercial complex which indicated that the activities of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Privy Council in the Tribunal Case at page 252 which we set out earlier. 71. The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer without adding anything thereto. The Tribunal by the impugned order held that the stand of the authorities was unsustainable as even assuming that all the allegations of the Assessing Officer with respect to the profit motive in the activities of the assessee are correct, the same were carried out with the larger and predominant objective of general public utility. Relying upon the CBDT circular the Tribunal observed that it is only when the Assessing Officer finds that the income is from any other business which is not incidental to the attainment of the objectives of the trust or institution , that such an income will not be exempt from tax . The Tribunal noted that there is no finding to that effect by any of the authorities and that it is not even the case of the revenue that the activities of the trusts do not serve the objects of the general public utility. The Tribunal held that the activities of the trust fall within the category objects of general public utility . It was also held that separate book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was not covered by the words advancement of any other object of general public utility in Section 2(15). The Tribunal, therefore, rightly directed the Assessing Officer to delete disallowance of exemption. 74. It cannot possibly be suggested that the Government of Punjab formed the trusts under the Punjab Town Improvement Act, 1922 because it wanted to carry on the business as colonizers or developers under the mask of the category objects of general public utility . 75. Section 28(2)(iii) of the Punjab Town Improvement Act, 1922 permits a scheme under this Act to provide interalia for the disposal of the land vested in or acquired by the trust including by lease, sale and exchange thereof. This, however, is not the predominant activity or responsibility of the trust. Nor for this assessee is making profits from this activity its predominant motive. 76. The power of the assessee to dispose of land conferred by Section 28(2)(iii) is not an absolute or independent power. It is conferred upon the assessee in the discharge of its statutory duties imposed on it by the PTI Act of framing schemes. Sub section (1) of Section 28 entitles the assessee to combine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of a municipality in any locality adjacent thereto within the local area of such trust prepare an expansion scheme . The development scheme, therefore, is for the public purpose of development of any locality and an expansion scheme is also prepared when it is expedient and for the public advantage as opposed to a mere personal advantage as in the case of private developers or the colonizers. The two cannot possibly be compared. These schemes do not contemplate mere development of the plots and the construction of the premises for sale. The Trust must under the Act adopt a holistic approach for the betterment and advantage of the entire area within its jurisdiction. 80. Section 25 which provides for a housing accommodation scheme to be framed is similar. The trust is required to frame such a scheme if it is of the opinion that it is expedient and for the public advantage to provide housing accommodation for any class of inhabitants within its local area. The trust is, therefore, to be motivated not by personal but by public benefit. Such activities clearly fall within the last category of cases in the proviso to Section 2(15) as it stood at the relevant time, namely, advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the High Court of Jammu Kashmir in Jammu Development Authority v. Union of India and another ITA No. 164 of 2012 . The Division Bench dismissed the appeal with the following order:- 1. The instant appeal under section 260-A of the Income Tax Act, 1961 (for brevity, the Act) is directed against order dated 14.06.2012 passed by the Income Tax Appellate Tribunal, Amritsar, upholding the order withdrawing the status of Charitable Institution given to the appellantassessee under Section 12AA(1)(b)(i) of the Act. The Tribunal has reached a categorical conclusion that the assessee-Jammu Development Authority cannot be regarded as an institution or trust which may have been set up to achieve the objects enumerated under Section 2 of the Act particularly in view of the addition of first and second proviso made by the Finance Act, 2008 w.e.f. 01.04.2009 to Section 12AA of the Act. There are findings of fact that the assessee-appellant has not been acting to advance any of the object concerning general public utility. Even otherwise the proviso which has been added by the Finance Act, 2008 w.e.f. 01.04.2009 stipulates that the advancement of any other object of the ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e need for housing accommodation. It is also constituted for the purpose of planning, development of improvement of cities, towns and villages or for both as is evident from Sections 22 to 28 of the PTI Act quoted above. The appellants, would, therefore, undoubtedly have been entitled to the benefit of Section 10(20A). The assessee would not have been entitled to the benefit of Section 10(20A) upon its omission by the Finance Act, 2002 with effect from 01.04.2003. Section 10(20A) of the Act did not contain any other requirement. It was wider than Section 2(15). However, Section 2(15) and the corresponding sections including Sections 11, 12, 12A and 12AA are independent of Section 10(20A) of the Act. Upon the omission of Section 10(20A), the provisions of the other sections were not affected. They remained intact. An assessee could have been entitled to the provisions of Section 10(20A) and the other provisions simultaneously. The omission of one, however, does not affect the validity or the existence of the others. The two provisions are distinct and independent of each other. Thus the omission of Section 10(20A) did not affect the rights of the parties claiming the benefit of S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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