TMI Blog1994 (2) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... s of national interest, as per a resolution passed on 20-10-1988 at the meeting of the Board of Trustees, an extract from which is reproduced below : "RESOLVED that in order to achieve the objects of the Trust, 'Prabodhan Prakashan' which are to promote and propagate ideologies and opinions of national interest, a daily should be started in Mumbai. The name of such daily should be 'SAAMANA'. If the name 'Saamana' is not available, the names 'Jay Jaykar' or 'Onkar' should be registered with the Registrar of Newspapers of India. Mr. Subhash Desai is hereby authorised to make all applications, sign documents and do all incidental things in this regard." 4. A further resolution was passed in the meeting held on 20-10-1988 that the activity of publishing of Saamana shall always be carried on 'no profit no loss basis'. The relevant resolution is reproduced below : "Resolved that as per Clause 4 of the Trust Deed, the activity of publishing of Dainik Saamana shall be for the purpose of Promotion and Propagation of National Interest and hence, shall always be carried on No Profit No Loss "Basis." 5. Thereafter, the Trustees passed another resolution on 31-12-1989 laying down guide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resulted in substantial excess of expenditure over income to the extent of Rs. 15,82,545 which indicated that it was not a business activity but only an activity which was incidental or subsequent to the achievement of the main object of the Trust. However, the Assessing Officer observed that the profit-making activity was the appointed means of achieving a charitable object of general public utility and, therefore, the profit would be taxable. Reliance was placed on the decision of the Madras High Court in the case of CIT v. Madras Stock Exchange Ltd. [1976] 105 ITR 546 which had been subsequently approved by the Supreme Court in CIT v. Andhra Chamber of Commerce [1981] 130 ITR 184. The Assessing Officer observed that all the elements of business activity were present and the activity was not of the nature mentioned in section 11(4A) of the Act. She, therefore, held that the activity of printing Dainik Saamana was not an activity of general public utility and, therefore, the surplus of income was taxable. 10. Regarding the donations as a result of the appeal mentioned above, the Assessing Officer observed that this amounted to Rs. 13,77,465. The assessee was asked to furnish spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) referred to the Budget Speech of the Hon'ble Finance Minister on 28-2-1983, stating the intention to bring to tax business income of all charitable and religious trusts. He also referred to the Memorandum explaining the provisions of Finance Bill published in 140 ITR 162 where it was proposed that exemption from income-tax would not be available to any religious or charitable trust or institution in respect of profits or gains of business. The CIT(A) justified reference to the speech of the Finance Minister in the light of the decision of the Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597 as well as in CIT v. Birla Education Trust [1985] 153 ITR 579 (Cal.). He relied on the above, for the purpose of interpreting the provisions of section 11(4A) of the Income-tax Act, 1961. 14. The CIT(A) did not find much weight in the contention of the assessee that publication on no profit no loss basis was an indicator that the objects were charitable. For this, he relied on the decision of the Tribunal in the case of Saurashtra Trust [IT Appeal Nos. 647 to 650 (Bom.) of 1983] for assessment years 1975-76 to 1978-79, wherein it was held that low pricing itself could not be an ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82,545 against the corpus donations of Rs. 9,86,188. According to him, the voluntary contributions were income derived from property held under trust and the activities of Dainik Saamana were in the nature of business activities and, therefore, the voluntary contributions could not be adjusted against the loss. 18. The assessee is aggrieved by the above findings and is now in appeal before us. 19. The learned counsel for the assessee referred to the grounds of appeal before the Tribunal running into almost four pages and submitted before us that he would condense the grounds as below and press only these grounds : (i) The Trust did not have any taxable income at all. The donations were made with the specific directions for the corpus of the trust and were, therefore, exempt under section 11(1)(d) of the Income-tax Act, 1961. The activity of publication of Dainik Saamana had resulted into a loss. Thus, it was claimed that there was no taxable income; (ii) Alternatively and without prejudice, if the donations were held to be not to the corpus of the Trust and, therefore, not exempt, then the income from donations was applied fully to the objects of the Trust, i.e., the runn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Saurashtra Trust v. Seventh ITO [1987] 21 ITD 62 (Bom.), relied upon by the CIT(A), was not really applicable since the decision related to assessment years 1981-82 and 1982-83 whereas the Act had been amended materially with effect from 1-4-1984 by the amendment of section 2(15) and the introduction of section 11(4A). Further, taking of advertisements and publication of other news did not detract from the charitable nature of the object, as was held in the above decisions. 23. The learned counsel for the assessee further submitted that the object was to run the newspaper on no profit no loss basis and it had been held in connection with Sales-tax in 15 STC 644 at 647 that profit motive was relevant to decide whether it was a business. 24. The learned counsel then submitted that the donations would be exempt under section 12, r.w. section 11, if they were applied for charitable purposes and the running of Dainik Saamana amounted to such an application of income. 25. Regarding the third proposition, the learned counsel for the assessee submitted alternatively and without prejudice that if the donations were not to the corpus of the Trust and if running of Dai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tipulation in the above section that the specific directions should be in wilting and, therefore, we agree that it should be possible to come to a conclusion from the facts and circumstances of a case whether a specific direction was there or not, even where there were no written directions accompanying the donations. However, at the same time, it has to be kept in view that the specific direction should be that of the donor and not of the donee. In other words, it will not be sufficient for the donee alone to declare that the voluntary contributions were being allocated to the corpus. There should be evidence to show that the direction came from the donor. We have gone through the four decisions relied upon by the learned counsel for the assessee and find that the facts were distinguishable from the facts of the present case. In the case of U.U. Charitable Trust, the facts were that there were confirmatory letters made by the donors subsequently where they had specifically stated that the donations made by them were towards the corpus of the trust, though three of such letters were not placed before the departmental authorities but were produced before the Tribunal. Further, claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the issue before us. 32. We have also gone through the decision of the Bombay High Court in the case of R.B. Shreeram Religious Charitable Trust, relied upon by the learned Departmental Representative and find that the facts are distinguishable there also. The dispute related to assessment year 1966-67 and the question under consideration was whether there was a specific directive for applying the donations to solely charitable or religious purposes in connection with the law as it stood at that time. It has been observed that it was nobody's case that there was any such specific directive when the donation was made. Thus, there was no such dispute in that case and, therefore, the ratio is not applicable. 33. Thus, in none of the cases has it been held that there were specific directions from the donors for use as corpus of the Trust only without at least some corroboration or confirmation from the donor, even if obtained subsequently. In our opinion, when there is no accompanying letter to that effect with the donation, at least such subsequent confirmation from the donor is a necessity. In the present case, such subsequent confirmation is also absent and all we have is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applicable. It is important to keep these distinctions in view when applying the case law so that only the relevant case law is considered. 37. Although the definition of the term "charitable purpose" with effect from 1-4-1984 is substantially the same as the definition under the 1922 Act, still there is an important difference in law regarding exemption of income, inasmuch as section 11(4A) has been introduced with effect from 1-4-1984 by the Finance Act, 1983. Thus, even though the trust continues to be a trust for charitable purpose, its income from profits and gains of business would be denied exemption under section 11 of the Act, subject to certain exceptions, even though applied or accumulated for application to charitable purposes. 38. In the case of Pratap Press, the aim of the newspaper was to encourage all that would lead to the progress of the nation and political matters were to accord with aims and objects of Indian National Congress. It was held that the object of the trust was that of supplying an organ of educated public opinion which was a charitable object within the meaning of section 4(3)(i) of the Indian Income-tax Act, 1922, the trust was a charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and application of income are opposites. The expenditure incurred in the course of running of Dainik Saamana is not expenditure incurred out of income earned but, on the other hand, is expenditure for the purpose of earning the receipts and is, therefore, a deduction for the very computation of income. Only that expenditure can be described as application of income which is not deductible for the purpose of computation of income. When this test is applied, the contention of the learned counsel for the assessee is found unacceptable. We accordingly reject the same. 42. Lastly, the learned counsel for the assessee has submitted, in the alternative and without prejudice that if voluntary contributions are not treated as made with the specific direction to form part of the corpus and if the running of Dainik Saamana is not an application of income consisting of voluntary contributions, then the loss in Dainik Saamana should be allowed to be set off against income from voluntary contributions under the provisions of section 71 of the Income-tax Act, 1961. For this purpose, it is necessary to look into the scheme of the Act in Chapter III from section 10 to section 13A, consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y contributions go outside the purview of exemption contained in sections 12 and 11(1) (a) of the Act, in Chapter III thereof and will have to be considered in Chapter IV, comprising of computation of total income. The voluntary contributions have been brought to tax in the assessment order and though the head is not mentioned therein, it can be classified only as "income from other sources". 45. All that now remains is to examine the nature of income or loss sustained by the publication of Dainik Saamana. The Assessing Officer has treated the same as a business loss and the CIT(A) has also confirmed the finding that it was a business in a reasoned manner. We find ourselves in agreement with him that it was business being a systematic and organised activity of purchase of paper, printing of newspaper, incurring of various expenses on processing, packing and transportation, etc. Further, in this alternate contention, we do not see how the assessee can dispute this finding when it is claimed that a set off should be given under section 71 of the Act. We hold accordingly that the loss incurred by Dainik Saamana should be classified as "profits and gains of business or profession" u ..... 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