PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHIversusSERVANTS OF PEOPLE SOCIETY

                          [2023] 1 S.C.R. 865                            865


   PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS)                           A
                      DELHI
                                  v.
                 SERVANTS OF PEOPLE SOCIETY
                   (Civil Appeal No(S). 614 of 2023)                     B
                         JANUARY 31, 2023
    [S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]
Income Tax Act, 1961: ss. 2(15) and 11(1) – Charitable trust – Benefit
of exemption – Entitlement to – On facts, assessee-registered society    C
founded in 1921 for nation building, general awareness and welfare
of the people – Assessee society also managing and running a
printing press and a newspaper – Claim of benefit of exemption –
Denial by the assessing officer invoking the proviso to s. 2(15) on
the ground that the assessee is involved in trade, commerce or           D
business – However, the Appellate Commissioner allowed the plea
of the assessee – Said order upheld by the tribunal and the High
Court – On appeal, held: Appellate Commissioner, the ITAT and the
High Court merely followed the judgment of the High Court in India
Trade Promotion Organisation case – However, the law with regard         E
to interpretation of s. 2 (15) has undergone a change, due to the
decision in Ahmedabad Urban Development Authority Case – Matter
to be re-examined, and the question as to whether the amounts
received by the assessee qualify for exemption, u/s. 2 (15) or s. 11
to be gone into afresh – Assessing Officer to examine the documents      F
and relevant papers and render fresh findings on the issue.
        India Trade Promotion Organisation v. Director General
        of Income Tax (Exemption) 371 ITR (Del) 333 –
        referred to.                                                     G
        CIT v. Ahmedabad Urban Development Authority 2022
        SCC Online SC 1461 – relied on.
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.614 of
2023.                                                                    H
                                 865
866                SUPREME COURT REPORTS                       [2023] 1 S.C.R.


A           From the Judgment and Order dated 16.11.2021 of the High Court
      of Delhi at New Delhi in ITA No.161 of 2021.

            Balbir Singh, A.S.G., J. K. Mishra, Sr. Adv., Jogy Scaria, Pradeep
      Kumar Gupta, Ms. Beena Victor, Ms. Priya M., Ravi Lamod, Raj
B     Bahadur Yadav, Ashok Panigrahi, Chinmayee Chandra, Prashant Singh,
      Mrs. Monica Benjamin, Ms. Meena Devi, Prasenjit Sarkar, D. Mahesh
      Babu, Ganesan Subbian, Shishir Pinaki, Dhanaeswar Gudapalli, Kasoju
      Mahesh Chary, Ms. Mallika Das, Advs. for the appearing parties.

               The Judgment of the Court was delivered by
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               S. RAVINDRA BHAT, J.

            1. Special leave granted. Mr. D. Mahesh Babu waives notice of
      appeal on behalf of the sole respondent [hereafter called “the assessee”].
D     The appeal is heard finally.

             2. The Commissioner of Income Tax (hereafter referred to
      “revenue”) is aggrieved by the impugned judgment and order of the
      Delhi High court1. The impugned judgment upheld the decision of the
      Income Tax Appellate Tribunal (“ITAT”) which affirmed the views
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      expressed by the Commissioner of Income Tax (Appeals) (hereafter
      called “Appellate Commissioner”). The Appellate Commissioner and
      the ITAT were of the Opinion that the respondent organisation (a
      registered society, hereafter also called “the assessee”) was a charitable
F     trust entitled to the benefit of exemption and that it is registered under
      Section 12AA and 80G of the Income Tax Act (hereafter called the
      “Act”) were valid.

             3. The facts are that the assessee society was founded in the
      year 1921 by the legendary freedom fighter Lala Lajpat Rai during the
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      freedom struggle for the nation building, general awareness and welfare
      of the people. In 1928 the famous freedom fighter of Odhisha Shri Pt.
      Gopa Bandhu Dass made a Will of his property and his printing press
      which is managing the Oriya newspaper “Samaj”- for people’s welfare.
      1
H         dated 16.11.2021 in ITA No. 161/2021
    PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHI V.                         867
      SERVANTS OF PEOPLE SOCIETY [S. RAVINDRA BHAT, J.]

The assessee was enjoying exemption under Section 11 of the Act but              A
the same was denied during the A.Y. 1973-74 and later allowed by the
ITAT and affirmed by the High Court. The assessee was also earlier
allowed exemption for three years i.e. 1990-91 to 1992-93 under Section
10(23C)(iv) of the Act. The assessee has established and is running
schools in the name of Balwant Rai Mehta Vidya Bhawan in Lajpat                  B
Nagar and in Greater Kailash in New Delhi and one Medical Centre in
Lajpat Nagar and old age home in Dwarka in Delhi. The assessee is
also building a hospital in the name of Gopa Bandhu Medical Research
Centre in Odisha. The assessee was also allowed exemption under
                                                                                 C
Section 11(1) but the same has been denied during the A.Y. 2010-11 and
2011-12. The Assessee Officer denied the exemption invoking the proviso
to Section 2(15) on the ground that the assessee is involved in trade,
commerce or business as it manages and runs a printing press and a
newspaper. The assessee argued that it was primarily a non-profit
                                                                                 D
institution involved in charitable activities and did not engage in any trade,
commerce or business or any such activity.

      4. The assessee approached the Appellate Commissioner who
allowed its plea and directed that the income earned by it ought to enjoy
the benefit of exemption. The revenue carried the matter in appeal to            E
the ITAT and the High Court, both unsuccessfully. As a consequence, it
has approached this Court in appeal by the special leave.

       5. It is urged on behalf of the revenue that the Appellate
Commissioner and the Tribunal fell into error in granting the exemption          F
to the assessee. The Learned Additional Solicitor General Mr. Balbir
Singh, points out that the ITAT followed the decision of the Delhi High
Court in India Trade Promotion Organisation v. Director General of
Income Tax (Exemption)2 and other decisions. It was urged that those
decisions are no longer good law in view of the judgment of this Court in        G
CIT v. Ahmedabad Urban Development Authority3, whereby the Court
has held that activities which are in the nature of trade, and carry on by
2
    371 ITR (Del) 333
3
    2022 SCC Online SC 1461
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868             SUPREME COURT REPORTS                             [2023] 1 S.C.R.


A     a trust established for general public utility, have to specify certain
      parameters.

            6. Learned counsel highlighted that the assessee in this case is
      not merely earning revenue from sale of newspaper but also earned
B     substantial advertisement revenue.

             7. Learned counsel for the assessee urges that this court should
      not intervene given that the Appellate Commissioner as well as the ITAT
      and the High Court have concurrently upheld its claim for exemption on
      the ground that it is a charitable trust entitled to be treated as such thereby
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      eligible for exemption. It was submitted that the activity of generating
      income through advertisement is only incidental and income from
      advertisement cannot be called part of the main object of the trust but
      rather necessary for it to attain its charitable objectives.
D            Analysis and Findings

            8. During the relevant assessment year, the assessee society
      claimed exemption, inter alia, in respect of income from newspapers,
      which included advertisement revenue, to the extent of ` 9,52,57,869/-
E     and surplus of ` 2,16,50,901 from its activities in Delhi.

             9. The judgment of this court, in Ahmedabad Urban Development
      Authority had examined various kinds of activities to determine whether
      they are charitable in nature, relatable to trusts or societies with general
F     public utility objectives. The court then recorded its findings, regarding
      the true interpretation of “charitable objects” under Section 2 (15) and
      summarized the findings as follows:

             “IV. Summation of conclusions

G            267. In view of the foregoing discussion and analysis, the
             following conclusions are recorded regarding the
             interpretation of the changed definition of “charitable
             purpose” (w.e.f. 01.04.2009), as well as the later amendments,
             and other related provisions of the IT Act.
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PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHI V.                     869
  SERVANTS OF PEOPLE SOCIETY [S. RAVINDRA BHAT, J.]

    A. General test under Section 2(15)                                  A

    A.1. It is clarified that an assessee advancing general public
    utility cannot engage itself in any trade, commerce or business,
    or provide service in relation thereto for any consideration
    (“cess, or fee, or any other consideration”);                        B
    A.2. However, in the course of achieving the object of general
    public utility, the concerned trust, society, or other such
    organization, can carry on trade, commerce or business or
    provide services in relation thereto for consideration, provided
                                                                         C
    that (i) the activities of trade, commerce or business are
    connected (“actual carrying out…” inserted w.e.f.
    01.04.2016) to the achievement of its objects of GPU; and
    (ii) the receipt from such business or commercial activity or
    service in relation thereto, does not exceed the quantified limit,   D
    as amended over the years (Rs. 10 lakhs w.e.f. 01.04.2009;
    then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of total
    receipts of the previous year, w.e.f. 01.04.2016);

    A.3. Generally, the charging of any amount towards
                                                                         E
    consideration for such an activity (advancing general public
    utility), which is on cost-basis or nominally above cost, cannot
    be considered to be “trade, commerce, or business” or any
    services in relation thereto. It is only when the charges are
    markedly or significantly above the cost incurred by the
                                                                         F
    assessee in question, that they would fall within the mischief
    of “cess, or fee, or any other consideration” towards “trade,
    commerce or business”. In this regard, the Court has clarified
    through illustrations what kind of services or goods provided
    on cost or nominal basis would normally be excluded from             G
    the mischief of trade, commerce, or business, in the body of
    the judgment.

    A.4. Section 11(4A) must be interpreted harmoniously with
    Section 2(15), with which there is no conflict. Carrying out
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870            SUPREME COURT REPORTS                        [2023] 1 S.C.R.


A           activity in the nature of trade, commerce or business, or
            service in relation to such activities, should be conducted in
            the course of achieving the GPU object, and the income, profit
            or surplus or gains must, therefore, be incidental. The
            requirement in Section 11(4A) of maintaining separate books
B           of account is also in line with the necessity of demonstrating
            that the quantitative limit prescribed in the proviso to Section
            2(15), has not been breached. Similarly, the insertion of
            Section 13(8), seventeenth proviso to Section 10(23C) and
            third proviso to Section 143(3) (all w.r.e.f. 01.04.2009),
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            reaffirm this interpretation and bring uniformity across the
            statutory provisions.

             10. This court had also considered the nature of income derived
      by a trust, which was managing a newspaper. The observations pertaining
D     to that assessee, i.e. the Tribune Trust, are relevant:

            “257. It is noticed from the impugned judgment that the High
            Court concedes to the fact that the trust’s activities were held
            by the Privy Council to constitute financing of objects of
E           ‘general public utility’; further that merely because thousands
            of newspapers were being published made no difference. It
            still continues to be a GPU charity.

            258. The question then is whether the nature of receipts and
            income garnered by the Trust, in the course of actually
F
            carrying out its activity of publishing newspaper, can be
            characterized as “in the nature of trade, commerce or
            business” or “service in relation to trade, commerce or
            business”, for any consideration. During the course of
G           submissions, it was urged that advertisement revenue should
            not be treated as business or commercial receipts since that
            virtually is the lifeblood which sustains the activity of
            publication of newspapers. It was highlighted that the object
            of maintaining the activity of publishing and distribution of
H           newspaper remains the advancement of general public utility,
PR. COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHI V.                       871
  SERVANTS OF PEOPLE SOCIETY [S. RAVINDRA BHAT, J.]

      as it has the effect of both notifying and educating the general     A
      public about the current affairs and developments. The
      inclusion of advertisements also serves as information to the
      general public, especially in areas of employment, availability
      of resources, etc. Therefore, publication of advertisement is
      intrinsically connected with the activity of printing and            B
      publishing of newspapers.

      259. The publication of advertisements for consideration, in
      the opinion of the court, by the newspaper, cannot but be
      termed as an activity in the nature of carrying on business,         C
      trade or commerce for a fee or consideration. That the
      newspaper published by the trust (“the Tribune”) in this case
      is funded mainly through advertisement is no basis for holding
      that publishing such advertisements by the Trust does not
      constitute business. The object of the trust to involve or engage    D
      in publication of newspapers. Publishing advertisements is
      obviously to garner receipts which are in the nature of profit.
      Now, by virtue of the amended definition of Section 2(15),
      GPU charities can engage themselves in business or
      commercial activity or profit, only if the receipts from such        E
      activities do not exceed the quantitative limit of the overall
      receipts earned in a given year. While the assessee’s contention
      that publication of advertisement is intrinsically linked with
      newspaper activity (thereby fulfilling sub-clause (i) of the
                                                                           F
      proviso to Section 2(15), i.e. an activity in the course of actual
      carrying on of the activity towards advancement of the object)
      is acceptable, nevertheless, the condition imposed by sub-
      clause (ii) of the proviso to Section 2(15) has to also be
      fulfilled. In the present case, that percentage had been
                                                                           G
      exceeded, as evident from the record.”

      11. In the present case, the Appellate Commissioner, the ITAT
and the High Court merely followed the judgment of the Delhi High
Court in India Trade Promotion Organisation. However, the law with
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872              SUPREME COURT REPORTS                           [2023] 1 S.C.R.


A     regard to interpretation of Section 2 (15) has undergone a change, due
      to the decision in Ahmedabad Urban Development Authority (supra).
      As a result, this court is of the opinion, that matter should be remitted for
      fresh consideration of the nature of receipts in the hands of the assessee,
      in the present case. As a result, the matter requires to be re-examined,
B     and the question as to whether the amounts received by the assessee
      qualify for exemption, under Section 2 (15) or Section 11 needs to be
      gone into afresh.

             12. In view of the foregoing discussion, the revenue’s appeal
C     succeeds in part. The AO shall examine the documents and relevant
      papers and render fresh findings on the issue whether respondent is a
      charitable trust, entitled to exemption of its income. The AO shall
      complete the hearing and pass orders within four months. The appeal is
      allowed to the above extent.
D

      Nidhi Jain                                               Appeal partly allowed.
      (Assisted by : Shashwat Jain, LCRA)



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