ORDER
K. PT. T. Thangal, Judicial Member
1. These two appeals by the assesses are for the assessment years 1989-90 and 1990-91. Since the appeals arise from the consolidated order of the CIT(A) and the issues are also being common, for the sake of convenience, the appeals are disposed of by this common order. The appeals arc directed against the consolidated order of the learned CIT(A) in holding that the assessee had utilised the income of the trust in accordance with the objects of the trust and, therefore, the assessee cannot be treated as a charitable trust for income-tax purposes. The facts are briefly as under.
2. In this case, the original assessment for the assessment year 1989-90 was completed on 23-3-1992 under section 143(3) which was set aside by the Dy. CIT ( A) by his order dated 10-3-1993. Subsequently the assessment was
redone under section 143(3), road with section 250 of the Income-tax Act, 1961 in the status of A.O.P. as against public charitable trust claimed by the assessee. For the assessment year 1990-91 the assessment was completed under section 143(3) on 11-3-1993 in the status of trust. The Assessing Officer noticed as a result of enquiries conducted that the assessee-trust was created by a deed of trust by a Muslim Religious Organisation called ‘Jamaithe Islam’ which is a prohibited organisation by the Government of India during the year 1993. He further noted that the trust was created, nourished and maintained by this organisation for achieving its goals.
3. The assessee formed a charitable trust and got registered under the Income-tax Act, 1961. On a perusal of the deed of trust, the Assessing Officer noted that the assessee was to be engaged in the following activities of charitable nature :
(1) Educational – giving facilities of education for the members of the general public;
(2) To set up educational institutions – colleges, schools and such other institutions;
(3) To publish educational magazines, periodicals etc.;
(4) To set up and run publishing and printing press and other activities;
(5) To establish and run libraries, reading rooms, lecture hall;
(6) To construct hostels, boarding houses for the benefit of students and teachers;
(7) Medical relief such as, to set up hospitals, health centres, and other medical facilities – relief to the sick, affected and infirm;
(8) To establish and make orphanages, boarding house etc., for orphans, destitutes and afflicted;
(9) To assist poor and needy, to set up and run vocation; and
(10) To set up and run industrial or any other project for the benefit of poor without any motive of profit.
The Assessing Officer also noticed that though the objects of the assessee trust are of charitable in nature, the assessee has not acted strictly in accordance with the activities mentioned in the trust deed. Pie further noticed that the assessee had formed the trust as a result of the deed dated 19-9-1985 and between the period 19-9-1985 and 1994 the assessee has not carried on any charitable activities during the above period, instead the assessee was engaged in the activities of running a business of printing and publishing a newspaper called ‘Madhyamam’. The assessee derived income from the business of printing and publishing the newspaper. As per the profit and loss account for the years 1991-92 and 1992-93, it was noticed that the assessee had received income from the above business but such income was not utilised for charitable purposes up to the date of the order. Therefore, the Assessing Officer held that roughly for nine years, the assessee was not engaged in any charitable activities. The
Assessing Officer also noted that the assessee like any other public charitable-trust has not invested its money received from various persons and organisations for the construction of properties so that the income derived from such properties could be easily applied for charitable purposes. Instead, the assessee confined its activities in the production of a newspaper called ‘Madhyamam’ only. He further held that the newspaper was the sole and whole creation of the trust and ihc trust was engaged in the business activity of printing and publishing a newspaper during the last nine years and generated income from that source. He noted the actual activities of the trust as follows :
(a) Running of newspaper called ‘Madhyamam’;
(b) Income is used for business purposes only;
(c) The paper Madhyamam is used for voicing the policies of the trust authorities as it can be seen from its news items appearing in the daily; and
(d) The paper is found criticising the various State/Central Government policies, political parties, social and religious organisations, individuals etc. due to the policy of the paper following free press journalism.
The Assessing Officer held that that the decision of the Hon’ble Supreme Court in the case of Sole Trustee Lok Shikshana Trust v. CIT [1975] 101 ITR 234 is squarely applicable to the facts of the case. In this case, their Lordships held that the activity of printing and publishing of a newspaper is not charitable in nature.
4. The Assessing Officer further held that even if the assessee is to be treated as a charitable trust, the income of the trust will not be exempt under sections 11, 12 and 13 of the Income-tax Act, on the following grounds:
“A. It is relevant to note here that the assessee has been printing and publishing the aforesaid newspaper in liaison with other sister concern Ideal Publication Trust since its inception and had never engaged in other activities as mentioned above. Donations were collected by the trust from time to time and the same were utilised directly by the trust for the purpose of running business as it can be seen from the post mortem of the activities done by the trust between the period 1985 and 1994. Donations collected from general public either in the nature of corpus or otherwise should not be used for the purpose of carrying out business activities of any charitable trust since this has been void under section 80G(5)(b) of the Act. In view of this position there is violation of the charitable nature of the trust and by applying specific provisions of section 80G(5)(b), the trust can be held to be not charitable in nature since donations received were directly utilised for business purposes. On this account the trust is to have violated the specific provision. Even when the trust had received income
from business activities the same was not diverted for charitable purposes but the same was accumulated for the purpose of running the business of newspaper only.
B. Section 11(4A) of the Act is also applicable in this case since the assessee has been carrying on the business of printing and publishing of newspaper and the business activities carried on by the trust is not for charitable purposes and the work in connection with the business is not mainly carried on by the beneficiaries of the trust and on this account the income generated by the assessee will not be exempt since it is expressly provided therein that the income will not be eligible for exemption since sub-sections (1), (2), (3) and (3A) shall not be applicable in the case of trust indulging in business activities.
C. The assessee has not invested the fund of the trust as provided in the section 11(5) of the Income-tax Act. In other words major portion of the fund was invested in the form of ‘Plant £ Machinery’ and thus the trust had violated the specific provision of sub-clause (x) of section 11(5) of the Income-tax Act. It is mentioned vide section 1 l(5)(a) of the Act that the trust should not invest its fund in the acquisition of ‘Plant and Machinery’ which will accordingly violate section 13(l)(d) of the Income-tax Act.
D. Vide section 11(4A) donation received towards (he corpus of the trust will not be exempt vide section 11(1)(d) not being applicable.”
The Assessing Officer held that during the years under consideration the assessee has carried on business activities and the income generated out of the business activities should be assessed along with voluntary contributions received by the assessee. He further held that the voluntary contributions received by a non-charitable institution, like the assessee, is to be treated as casual income and, therefore, the same cannot be exempted for the purpose of applying sections 2(15), 2(25)(?), 2(24)(iiia), 10(3), 11 and 12 of the Income-tax Act, 1961. The voluntary contributions received from the general public by a trust will not form part of the income of the trust unless it is exempted under section 11 of the Act. The Assessing Officer held that sections 11 and 12of the Act are not applicable in the case of the assessee since it is not a charitable trust and, therefore, any voluntary contribution received during the course of carrying on of the business activity will have to be treated as the income of the assessee trust. In the light of the decision of the Hon’ble Supreme Court in the case of Dr. K. George Thomas v. CIT [1985] 156 ITR 412′ and Dr. K. George Thomas v. CIT [1986] 159 ITR 851, the Assessing Officer held that the contributions received towards the corpus of the trust are to be treated as casual and non-recurring and, therefore, liable to be taxed. Accordingly, the Assessing Officer held that the assessee was liable to tax for both the years in respect of the voluntary contributions of Rs. 3,43,465 for the
assessment year 1989-90 and Rs. 4,64,122 for the assessment year 1990-91 instead of the loss as per account shown by the assessee at Rs. 46,152 and Rs. 35,700 for the two years 1989-90 and 1990-91 respectively.
5. Aggrieved by the above orders, the assessee approached the learned first appellate authority. It was the case of the assessee that most of the contribution’s received by it were towards the corpus of the trust and the assessee was only engaged in the job work of printing mainly on regular basis. In addition to this, the assessee had also accepted job work of printing from other parties subject to idle capacity and orders available. The assessee also assailed the finding of the Assessing Officer that the trust had not applied any of its income for charitable purposes, though, in fact, there was no income available with the assessee to apply for charitable purposes. The contributions towards the corpus being capital receipts, it was contended, could not be taxed. It was further submitted that the Assessing Officer has not allowed the deductions under sections 28 to 43 of the Act as per law and depreciation.
6. The learned CIT (Appeals) noted that the nature of the objects of the trust are charitable. However, he held that the registration of the trust by itself does not lead to the conclusion that its income is exempt from tax because the provisions of sections 11, 12, 12(a) and 13 have to be applied along with other relevant sections of the act to find out whether there is any taxable income for a particular assessment year. For the years under consideration, i.e., during the relevant accounting years for both the assessment years, it is the case of the Revenue, the learned CIT (Appeals) noted that the assessee has not been carrying on any charitable activities mentioned in the trust deed, but was only engaged in the printing and publishing of a newspaper called ‘Madhyamam’. It was the case of the assessee that the trust was engaged during the relevant accounting periods only in undertaking job works of printing and publishing of Madhyamam and has also undertaken other job works of printing from other sundry parties. The assessee admitted that none of the activities of charitable nature as mentioned above, was carried on by the assessee trust as there was no income to be applied for charitable purposes. However, the learned CIT (Appeals) noticed the following items credited in the profit and loss account:
S.No.
Accounting Year
Period
No. of days
Amt. (Rs.)
!.
1995-96
30-8-1995 to 31-3-1996
215
21.03,192.40
2.
1996-97
1-4-1996 to 31-3-1997
365
35,70.535.93
3.
1997-98
1-4-1997 to 29.8-1997
125
12,22,786.28
Total
68,96.514.61
The learned CIT (Appeals) noticed that there were expenses like printing expenses, salary and wages, travelling and conveyance, postage, telegram, telephones, rent, taxes, repairs, maintenance, bank charges, advertisement, audit fee and depreciation which were also debited to the account. The net result of the profit and loss account was a loss of Rs. 46,152 for the assessment year 1989-90 and a net profit of Rs. 74,203.77 for the assessment year 1990-91. On further consideration of the balance-sheets, the learned CIT (Appeals) also noted that the contributions received towards the corpus have been utilised by the assessee by way of investment in plant and machinery, furniture, and fittings and also for making advances to various parties. The above items were connected with the printing and publishing of the newspaper. Advances to sundry parties included a sizeable amount transferred to Madhyamam newspaper, mentioned earlier. Addition to plant and machinery for the year ended 31-3-1989 was Rs. 1,66,680.70 and for the year ended 31-3-1990 Rs. 29,990.55. Advances transferred to Madhyamam under the head ‘Advance and Deposits’ stood at Rs. 22,50,785.30 as on31-3-1989 and at Rs. 33,85,205.25 as on 31-3-1990. The learned CIT (Appeals) came to the conclusion that the assessee has not complied with all the conditions that are necessary to make a charitable trust eligible for exemption under section 11 of the Income-tax Act, 1961. The assessee has not carried on any of the charitable objects mentioned in the trust deed. Printing and publishing of a newspaper and doing odd work cannot be construed as charitable activity because, first of all, the assessee has collected printing charges and fees for services on regular basis. All the expenses debited to the profit and loss account were related to the business of printing jobs. There was no proof that this activity was incidental to the attainment of the objects of the trust because the object of the trust was charitable in nature, but remained only in printing paper and has not been translated into practice. The contributions received towards the corpus were also diverted for acquisition of assets connected with the printing of the newspaper Madhyamam. Therefore, the learned CIT (Appeals) held that neither the income of the trust nor the corpus donations have been utilised for charitable activities as envisaged in the trust deed. Therefore, the learned CIT (Appeals) held that the Assessing Officer was justified in reaching the conclusion by relying on sub-section (4A) of section 11. The learned CIT(Appeals) further held that, if that is so, the question to be considered is whether the voluntary contributions received in the instant case can be treated as income or not. He held that according to section 11 (1)(d), income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or the institution, are to be excluded from the total income of the trust. However, after the amendment brought into section 11(1)(d) with effect from 1 -4-1989, the law has been substantially changed. The assessment years under consideration are the assessment years 1989-90 and 1990-91 and the amended provisions are, therefore, applicable. Hence the amended provisions of section 11(1)(d), read with section 11(4A) and section 2(24)(iia) are applicable. Accordingly, the CIT (Appeals)
held that the assessee cannot be treated as a charitable trust for income-tax purposes, specially in view of the following facts : The conclusion reached by the learned CIT (Appeals) vide para 8 of his appellate order is reproduced below:
“8. In this context, it would be worthwhile to reiterate the conclusion reached by the Assessing Officer in the assessment order for the assessment year 1990-91”.
“7. The point that come to surface from the foregoing are :
(a) that the assessee is a charitable trust in nature as per the deed of trust executed by it but it has not done any activities that can be characterised as activities which are charitable in nature;
(b) the assessee is engaged in the business of printing and publication of newspaper called ‘Madhyamam’ and that apart the assessee has not engaged in any other activities which can be characterised as public charitable purposes in nature;
(c) since the assessee trust has not engaged in the activities of public charitable purposes, in nature vide section 11 (4A) of the IT Act, income derived from business directly or indirectly including donations in whatever nature received by the trust is liable to be taxed since section 11(4A) of the Act sub-section (1) or (2) or (3) or (3A) of section 11 are not applicable in the case of the assessee trust;
(d) voluntary contributions received by the trust in whatever nature is not exempt since section 11(1)(d) is not operative by virtue of section i 1(4A) of the Income-tax Act; and
(e) with effect from 1-4-1989, voluntary contributions received towards the corpus of the trust is exempt only if the same can be exempt under section 11(1)(d) of the IT Act and as has been mentioned earlier, sub-section (1) or (2) or (3) or (3A) of section 11 are not applicable in the case of the assessee since it is purely engaged in the business activities”.
The assessee also made an alternative plea that was taken before the Assessing Officer that the voluntary contributions are to be treated as gift or capital receipts and therefore they are not taxable, whether casual or recurring and whether the trust is charitable or not. This pica was rejected by the learned CIT(Appeals) on the ground that “once the appellant is established to be a trust for charitable purposes, all voluntary contributions received by it are treated as its income and in order to enjoy the benefit of exemption under section 11, the trust has to fulfil all the conditions mentioned in that section read with all other relevant sections of the Act, such as sections 12A and 13. In this view of the matter, the appellant’s claim for basic exemption of Rs. 5,000 under section 10(3) in respect of casual and non-recurring receipts also docs not merit consideration because such exemption is not applicable in the case of voluntary contributions received by a trust established for charitable purposes”. The
assessee’s plea for depreciation was also rejected by the learned CIT (Appeals) on the ground that it was granted by the Assessing Officer himself. Coming to depreciation, the Assessing Officer was directed to look into the matter. It is against this order, the assessee is in appeal before the Tribunal.
7. The learned counsel for the assessee objecting to the observations of the Revenue authorities, first submitted that the assessee is not a publisher of the daily called Madhyamam. Madhyamam is published by a trust, viz., Ideal Publication Trust, Silver Hills, Calicut. Ideal Publication Trust has been already held as a charitable trust by the Tribunal vide its order dated 14-8-1998 in ITA No. 570 (Coch.)/1993 relating to the assessment year 1990-91. In view of the above, the learned counsel submitted, the observations of the CIT(Appeals) concurring with the findings of the Assessing Officer in para 8 of his appellate order, which is reproduced above, that the assessee is engaged in the business of printing and publishing Madhyamam is incorrect. The learned counsel submitted that the assessee has not done any charitable nature of services is true, but for the assessee having no income to apply for that. The assessee has undertaken job works including printing work for a third party so as to generate income and the establishment of a printing press is one of the objectives mentioned in the trust deed. The learned counsel specifically brought to our attention three important aims, among others, viz., ‘to set up and run publishing houses, printing press and other facilities for imparting knowledge’. The counsel further submitted that section 11(1) is applicable in the case of the assessee and, therefore, the donations cannot be treated as the assessee’s income to be applied for. The counsel objected to the observations of the Assessing Officer reproduced hereinabove in para 6 above, viz., point (a) that the assessee is a charitable trust in nature as per the deed of trust executed by it, but it has not done any activities that can be characterised as activities which are charitable in nature. The counsel submitted that in fact there was no fund with the assessee and hence there was no obligation on the part of the assessee to apply any fund and this cannot be held against the assessee. According to the learned counsel this does not change the character of the assessee trust. The observations at (b) in the above para was objected to by the assessee’s counsel on the ground that the assessee was not publishing the daily, Madhyamam but has undertaken the printing work which is, in fact, one of the objectives by which the assessee intend to earn income for utilising the same for charitable purposes. The assessee as not engaged in any business activity and no income was derived from such activity. Undertaking by the assessee to print the newspaper and other odd jobs was only a means to generate income and, therefore, it cannot be treated as assessee’s business. It is an activity done in trust and not a business done by the trust. The learned counsel objected to the observations of the Assessing Officer contained in para 8(d) on the ground that in so far as the assessee is concerned, section 11 (4A) is not applicable to its case. It is a business
incidental to the attainment of the objects of the trust and it was not a business independent of the objects of the trust. As far as the assessee is concerned, “the counsel submitted, the section relevant was as it was in force upto 31-3-1992.
8. The learned counsel further submitted that in the instant case of the assessee for both the years there was a negative income. When the matter was sent back to the Assessing Officer for fresh consideration, for the first time, the officer was influenced by the subsequent facts that came into the picture as a result of the prohibition of the organisation which published the daily. The learned counsel submitted that it is not at all relevant factor. As a matter of fact, the assessee was running a press doing job works in the process of generating income and the business done by the assessee was the business held in trust. The-assessee, in fact, when the matter was remitted back to the Assessing Officer, satisfied the Assessing Officer by furnishing confirmation letters from the persons who had donated more Rs. 6,000 and all of them categorically stated in their confirmation letters that it was towards the corpus that they were donating and this, the counsel submitted, cannot be treated as the income of the assessee-trust. The counsel invited our attention to page 21 of the paper book, which is a letter from the Assessing Officer to the assessee calling for certain details regarding the new loan creditors. He also specifically strees the matter that it was getting time-barred and therefore the department was in a hurry to finalise the matter. The learned counsel for the assessee further invited our attention to the assessee’s letter dated 3-2-1993, page 24 of the paper book, by which the assessee states that the assessee is giving training to industrial trainees in its institution and for the implementation of the objects of the trust the assessee was trying to earn income through printing work jobs. The letter further says that even if there is a violation in complying with the provisions of sections 11 and 12, the institution cannot lose its character and nature and at the most the assessee will be liable to pay tax on the income earned without compliance/in violation of provisions/conditions laid down under sections 11 and 12 of the Income-tax Act, 1961. The counsel brought to our attention page 2 of the letter which specifically states that the contributions received by the assessee were towards the corpus which is excluded by virtue of section 12 of the Act. Relying on the decision of the Hon’ble Madras High Court in the case of CIT v. Kannika Parameswari Devasthanam & Charities [1982] 133 ITR 779 the counsel Submitted that at the most the application of the income resulted in the maintenance or improvement of the properly held under trust for charitable purposes and this will not make the assessee entitled to gel its income exempted under section 11, but that does not mean that the character of the trust itself will be lost. Relying on the decision of the Kcrala High Court in CIT v. Dharmadeepti [1999] 236 ITR 397, the learned counsel submitted that the income of the assessee from the printing press is income from property held under trust for charitable purposes and therefore entitled to exemption under section 11A. The counsel also
placed reliance on the decision of the Kerala High Court in CIT v. Dharmodayam Co. [1997] 225 ITR 686 wherein the Hon’ble High Court of Kerala held that if the business is held in trust, the income therefrom would not be governed by sub-section (4A) of section 11.
8.1 Opposing the above contentions, the learned departmental representative supported the order of the Assessing Officer and submitted that the reliance placed by the asscssee’s counsel that the Tribunal has already held M/s Ideal Publications Trust, as a charitable trust, is not at all relevant as far as the assessee is concerned. The assessee has earned income but has not applied the income for any charitable purpose. The assessee was, in fact, doing business by way of printing the newspaper and doing job works and generating therefrom. The learned departmental representative specifically placed reliance on para 7 of the order of the learned CIT (Appeals) which reads as under :
“7. On careful consideration of the evidence on record and the submissions made by the learned representative of the appellant, I find that the appellant has not conclusively proved its claim to be a charitable trust eligible for exemption under the provisions of section 11 of the Income-tax Act, 1961 since all the conditions specified in that section have not been complied with. It is an admitted position that none of the charitable activities as mentioned in the Trust Deed was carried out by the trust during the relevant period on the ground that there was no income to be applied. However, undertaking job works for printing newspaper and other printing jobs cannot be construed as carrying out charitable activities because of the fact that the appellant has collected printing charges and fee for other services on a regular basis. As mentioned earlier, the entries in the P & L account clearly indicate the fact that the appellant was only doing the business of printing jobs. All the expenses debited in the P & L account relate to this business. It is not proved to be incidental to the attainment of the objectives of the trust which are charitable in nature have remained only on paper (ie., on the Trust Deed) and have not been translated into actual practice. The same conclusion is reached by a clear look at the entries in the balance-sheet and the statements attached thereto. It is obvious that the voluntary contributions stated to be received towards the corpus of the trust have been diverted for acquisition of assets connected with the printing of a newspaper and also for advances to the concern publishing the newspaper. Thus, neither the income of the trust nor the corpus donations have been used for charitable activities as envisaged in the Trust Deed. In the circumstances mentioned in the previous paras, the Assessing Officer is justified in reaching the conclusion by relying on sub-section (4A) of section 11. If that is so, the question to be considered is whether the voluntary contributions received in the instant case can be treated as income or not. According to section 11(1)(a), income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution are to be excluded from the total income of the trust. The definition of
income given in section 2(24) refers to voluntary contributions received by a trust created wholly or partly for religious purposes or by an institution established wholly or partly for such purposes. The words ‘not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution’ have been removed from clause (iia) of sub-section (24) of section 2 with effect from 1-4-1989. On the other hand, these words appear in clause (d) of subsection (1) of section II as per the amendment with effect from 1-4-1989. Here we are concerned with the assessment years 1989-90 and 1990-91. Therefore, the provisions of the amended section 11(1)(d) read with section 11(4A) and section 2(24)(iia) are applicable to the facts of the present case.”
There were other receipts other than the corpus contributions which have not been spent by the assessee for achieving the objectives said to have been contemplated by the assessee for which it was registered under section 80G. The job works said to have been undertaken by the assessee are nothing but business and since the assessee is not a charitable trust the income generated from the business carried on by the assessee cannot be said to be an income generated from a business held under trust. It is not correct to say that the Assessing Officer and the CIT (Appeals) were prejudiced as pointed out by the learned counsel because of some later developments. The decision of the learned CIT (Appeals) was after taking into consideration all the facts upto date and, therefore, the learned departmental representative submitted, the decision of the Revenue authorities may be upheld.
9. We have heard rival submissions and gone through the orders of the Revenue authorities. A perusal of the assessment order and the CIT (Appeal)’s order leads to the conclusion that between the period 1985 and 1994, the year in which the assessment order, the assessee has not carried on any activity of charitable nature as contemplated under the trust deed except running the business of printing a newspaper called Madhyamam. It is the case of the assessee that ‘Madhyamam’ is published by another trust viz., Ideal Publications Trust, Calicut. The assessee was undertaking the work of printing the newspaper along with other odd printing works. This activity is meant for generating income to be applied for the purpose of the activities of the trust. There is nothing on record to show that the assessee had done any work other than running a printing press. We have noted hereinabove that one of the aims of the assessee trust is ‘to set up and run publishing houses, printing presses and other facilities for imparting knowledge’. Vide its order dated 27-2-1998, the Tribunal, Cochin Bench in the case of Ideal Publication Trust [IT Appeal No. 570 (Coch.)/ 1993] Calicut, held, that that assessee is a charitable trust in the light of the decision of the Hon’ble Kerala High Court in Dharmodayam Co.,s case (supra). In that case, the Court held that if the business itself is held in trust for charitable purposes, the income derived from the business is exempt from tax.
9.1 In the instant case of the assessee, the question is whether the job of printing done by the assessee for M/s Ideal Publication Trust, Calicut, helping the latter to publish their newspaper Madhyamarn is a charitable object or not. The Revenue authorities held it is not. However, we are of the view that in the instant case the contention of the learned counsel for the assessee that the assessee was doing the work of printing to generate income is to be accepted. It is borne out of record that the assessee is not publishing the newspaper as held by the Revenue authorities. We have also noted that one of the objects of the trust is to establish printing press etc. etc. Therefore, in the light of the decision of the Hon’ble Kerala High Court in Dharmodayam Co. ‘s case (supra), we hold that the business of printing the newspaper itself was held in trust and, therefore, it is held to be a charitable activity. In the decision relied on by the learned departmental representative in Sole Trustee, Loka Shikshana Trust’s case (supra), the question was whether the publication of the newspaper was entitled to exemption under section 11 of the Income-tax Act, read with section 2(15). The question referred was as follows :
“Whether, on the facts and circumstances of the case, the income of the Loka Shikshana Trust was entitled to exemption under section 11 of the Income-tax Act, 1961, read with section 2(15) for the assessment year 1962-63 ?”
Their Lordships of the Apex Court held that the publication of the newspaper is not a charitable activity and the profits generated therefrom are taxable.
10. The case of the assessee before us is that one of the objectives is to set up and run printing presses, publishing houses and imparting knowledge. In the case relied on by the learned counsel for the assessee in Dharmodayam Co. ‘s case (supra) the jurisdictional High Court held that if the business is held in trust, the income therefrom would not be governed by sub-section (4A) of section 11 of the Income-tax Act.
11. The finding of the Assessing Officer that the voluntary contributions towards the corpus of the trust have been diverted for acquisition of the assets connected with the printing of newspaper and for advances to the concern publishing the newspaper has not been successfully met with. In other words, the finding of the Revenue authorities that not only the assessee, as claimed, utilised the donations received towards the corpus to establish or to improve the printing press, but has also diverted a portion of it for the publication of the newspaper by the sister concern controverted.
12. In the light of the above finding, if we look at section 11 (4A) which read as under:
"ll(1) ** ** ** (1A) ** ** ** (2) ** ** ** (3) ** ** ** (3a) ** ** ** (4) ** ** **
(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution and separate books of account are maintained by such trust or institution, in respect of such business.”
It cannot be said that diversion of the donations received towards the corpus to the sister concern. M/s Ideal Publication Trust, Calicut, for publishing the newspaper itself is also an objective of the trust or the institution.
13. The voluntary contributions received by a charitable trust with a specific direction that they shall form part of the trust or institution, is not to be included in the total income of the assessee. The relevant section reads as under :
“11(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in respect of the income —
(a) ”
(b) ”
(c) ”
(d) Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.”
Section \\(1)(d) is qualified to the conditions laid down in sub-section (4A) of section 11. We have seen that sub-seclion (4A) says that the section shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the ease may be…..”.
14. From the above section it is clear that even to gel the exemption by treating the donations towards the corpus as coming from the donors, the business should be incidental to the attainment of the objectives of the trust. The case of the assessee is that setting up and running the printing presses, publishing houses and other facilities for imparting knowledge is one of the objectives of the trust. In the instant case, there is no case for the assessee that it was engaged in any charitable activity except printing the newspaper, Madhyarnam for M/s Ideal Publication Trust, Calicut. Setting up of the printing press and publishing house, if meant for generating income so as to achieve the objects of the trust, then it should be treated as a business held in trust. The printing work done also should be held in trust. From the records before us, it is difficult to accept the
claim of the assessee that it was not publishing the daily, Madhyamam, but was only doing printing work for payment. The reason is the voluntary contributions received towards the corpus was used by the asscssee not only for improving the printing press but for making advances to M/s Ideal Publication Trust. This finding of the Revenue authorities has not been controverted. Therefore, it appears that the establishment of the printing press itself was an object for nothing else, but to run the newspaper. Otherwise, there is no reason why the assessee should have made advances from the corpus to M/s Ideal Publication Trust.
15. In the light of the above facts, if we apply the decision of the Hon’ble Supreme Court in Sole Trustee, Loka Shikshana Trust’s case (supra) wherein the Apex Court has held that the publication of newspaper itself does not constitute a charitable purpose, we have to hold that the assessee has not done any charitable work as contemplated under the provisions of Act, for exemption not only in respect of the income derived from the business of printing work done, but even in respect of the donations received towards the corpus. In this case, Justice Khanna, speaking for the Court held that “the word ‘education’ in section 2(15) of the Income-tax Act, 1961, connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling, and has not been used in the wide and extensive sense according to which every acquisition of further knowledge constitutes education.”
Thus it is clear from the fact that except undertaking the printing work for M/s Ideal Publication Trust, the assessee has not brought on record any thing to suggest that it was engaged in any charitable activity as contemplated in the objects of the trust. Assessee’s stand is that no income was generated from its business of printing work which is held in trust and that it has been always incurring loss only. This may be true, but even then in the light of the fact that the corpus was diverted to M/s Ideal Publication Trust for assisting them for the publication of the daily, Madhyamam leads to the inevitable conclusion that the assessee was, in fact, instrumental by setting up the printing press to publish the newspaper by M/s Ideal Publication Trust. Publication of a newspaper is not a charitable activity as has been held by the Hon’ble Supreme Court in Sole Trustee, Loka Shikshana Trust’s case (supra). The publication of the newspaper itself may become a charitable activity if that activity was carried on to generate income for the advancement of the other charitable objectives as contemplated under section 2(15) of the Income-tax Act, 1961 such as “relief of the poor, education, medical relief and advancement of any other general public utility”. The decision relied on by the learned counsel in Dharmodayam Co. s case (supra) is distinguishable on facts. In that case, their Lordships of Kerala High Court came to the conclusion that the business of conducting Kuries itself was held in trust for charitable purposes and for generating income. In the case before us, though the assessee claims the same, from the facts and circumstances, we are unable to hold so.
16. Looking from another angle, in the light of the decision of the Allahabad High Court in CIT v. J.K. Charitable Trust[1992] 196 ITR 31, we are unable to agree with the contention of the learned counsel. In this case, the Hon’ble Allahabad High Court held that “a charitable purpose may be served in more than one way. One is to directly contribute for the promotion of that cause; the other is to contribute money to another charitable organization which advances that cause. In the absence of allegations of device and/or mala fides, the amount contributed to other charitable institutions out of the income accumulated under sub-section (2) is outside the mischief of sub-section (3) of section 11 of the Income-tax Act, 1961. In other words, such contribution does not amount to application of the income for purposes other than charitable or religious ones.” We have already noted that the mere printing of the newspaper, if it is not for generating income will not constitute a charitable object in the light of the observations of the Supreme Court in the case in Sole Trustee Loka Shikshana Trust (supra).
16.1 Coming to the decision relied on by the learned counsel for the assessee in the case of Thanthi Trust v. CBDT [1995] 213 ITR 639 (Mad.), we are of the view that this decision also does not further the case of the assessee. In this case, the fact was that Sri S.B. Aditanar, who was carrying on the business of printing and publishing the newspaper Thanthi since its inception in 1943, by way of a supplementary deed executed on 9-7-1957 declared that the trust created by the document dated 1-3-1954 was irrevocable. Again by a supplementary deed executed on 28-6-1991, the founder of the trust directed that the surplus income of the said trust, after defraying all the expenses, should be devoted by the trustees for charitable purposes. In the light of the above facts, the Hon’ble Madras High Court held that “inasmuch as the business carried on by the petitioner was itself held under trust for public charitable purposes and the business was carried on only for purposes of carrying out the charitable objects as found by the Division Bench of the High Court in the case of CIT v. Thanthi Trust [1982] 137 ITR 735, the provisions of subsection (4A) of section 11 could not have any application. The High Court further held that in the light of the above, the application of sub-section (4A) of section 11 to deny the exemption under section 11 was not correct. In the instant case of the assessee, we have already noted from the facts borne out of record that setting up the printing press in order to print the daily, Madhyamam for M/s Ideal Publication Trust was itself an object. Coming to the sub-clauses (c), (d) and (e) of clause 11 of the deed of trust dated 19-9-1985, on which the learned counsel for the assessee placed reliance, viz., the Board shall have power to acquire, accept or receive all endowments, gifts, grants or donations, movable or immovable made to this trust etc., the power to sell and purchase the movable and immovable properties for the benefit of the trust etc. and the power to set up any industry or business for and as part of the aforesaid charitable purposes,
we find that the establishment of the printing press was only a means to achieve the end of charitable purposes and though the above objects are meant for charitable purposes, as we have already held, the facts in the case of the assessee speaks otherwise. The assessee-trust has not undertaken any activity of charitable nature except setting up the printing press and doing publishing work for M/s Ideal Publication Trust which we have held in the light of the decision in Sole Trustee Loka Shikshana Trust’s case (supra) as not constituting a charitable activity. The assessee has not established that it has undertaken any charitable work other than setting up the printing press. It is the case of the assessee that by setting up the printing press the assessee is imparting technical knowledge to its staff. There is nothing on record to suggest that any of the trained personnel has gone out. The assessee has not brought on record any case to show that it has, in fact, taken in any person as trainee, trained and sent him out as one of its objectives.
17. We have noted in section 2(15) of the Income-tax Act, 1961, that charitable object includes relief of the poor, education, medical relief and advancement of any other object of general public utility, not involving the carrying on of an activity for profit. The last 10 words ‘not involving the carrying’ on of an activity for profit’ are no more in the statute. The Hon’ble Supreme Court in the case of Addl CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 observed that “the law has been development by analogy upon analogy and it is to be found in the large mass of case-law that has been built up by the courts over the years. The result is that the concept of charity in English law is as vague and undefined as it is wide and elastic and every time there has to be a search for analogy from the preamble to the State of Elizabeth or from decided cases. An early attempt to simplify this problem by a classification under main heads was made by Sir Samuel Romilly when he tried to subsume charitable purposes under four heads in the following summary submitted by him in the course of arguments in Morice v. Bishop of Durham [1805] 10 Ves. Jr. 522.
“Relief of the indigent, the advancement of learning, the advancement of religion and the advancement of object of general public utility.”
In the case of Sole Trustee, Loka Shikshana Trust (supra), explaining the sense in which the word ‘education’ has been used in section 2(15) of the Income-tax Act, 1961, his Lordship, Justice Khanna observed —
“The word ‘education’ has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education, because as a result of travelling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. Again, when you grow up and have dealing with other
people, some of whom are not straight, you learn by experience and thus add to your knowledge of the ways of the world. If you are not careful, your wallet is liable to be stolen or you are liable to be cheated by some unscrupulous person. The thief who removes your wallet and the swindler who cheates you, teach you a lesson and in the process make you, wiser though poorer. If you visit a night club, you get acquainted with and add to your knowledge about some of the not much revealed realities and mysteries of life. All this in a way is education in the great school of life. But that is not the sense in which the word ‘education’ is used in clause (15) of section 2”.
As far as Indian law is concerned, in view of the clear definition of ‘education’, the scope is narrower and limited especially in the ratio of the decision of the Hon’ble Supreme Court in Sole Trustee, Loka Shikshana Trust (supra). We have to hold that in the light of the clear observations of the Assessing Officer that some of the corpus or the income generated from the business carried on by the assessee, if at all, parted to with M/s Ideal Publication Trust, for the benefit of publication of the daily, Madhyamam, the same cannot be held as application of income for charitable purposes. Still the question remains whether the mere running of the printing press itself will constitute an object of charitable activity. Coining to the definition of ‘charitable purpose’ in section 2(15) the most important words arc “advancement of any other object of general public utility”. In the case of East India Industries (Madras) (P.) Ltd. v. C/T [1967] 65 ITR 611, the Supreme Court held that the mere carrying on of a business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations conducive to public health alone is not sufficient to constitute a charitable activity. In the case of Addl CIT Gangabai Charities [1983] 142 ITR 718, the Hon’ble Madras High Court held that “the proper way to understand the scope of the exemption is to find out what precisely are the objects, the income devoted to which are entitled to exemption. In this task it is essential to scrutinise the objects of the trust at least from the standpoint of the well-known heads of charity, such as relief of the poor, education, medical relief, and the like. Since the crux of the statutory exemption is not the income earned being derived from the property held under trust for a charitable object, but the actual application, or the accumulation or setting apart of the income for application, for a charitable purpose, the objects in any given trust deed will have to be construed not in an abstract sense but with reference to the capability or amenability of that charitable object to be put into operation for the purpose of enabling of the earning of the income to meet the object.” Therefore, it is very clear that not only the object, but the application of the income is an important factor that has to be gone into by the judicial authorities. In the instant case of the assessee, the assessee-trust has not applied any portion of the income generated from the business of printing the newspaper to any charitable purposes.
18. In view of section 11 (4A) which specifically states that so as to have the benefit of sub-section (1) or (2) or (3) or (3A) of section 11, the business
carried on by the assessee may be incidental to the attainment of the objectives of the trust. Establishment of the printing press for doing printing work for a third party and making advances to the same party without utilising the income for the objectives of the asscssce-trust, disentitles the assessee to the benefit of section 11. We have already noted that the assessee has not brought anything on record to show that it has undertaken any activity of charitable nature other than the running of the printing press.
19. Here we record the argument of the learned counsel for the assessee that the Revenue authorities were prejudiced by the fact that the organization which is said to have set up the trust, viz., ‘Jamaithe Islam’ is an organisation prohibited by the Government of India during the year 1993. The assessment years involved in these appeals are assessment years 1989-90 and 1990-91. The subsequent development has no relevance. We also note the contention of the learned counsel that the Assessing Officer was prejudiced against the assessee because of the fact mentioned above and he brought to our notice the observations of the Assessing Officer at page 3 of the order, which are reproduced below : ‘Actual activities of the trust are as follows :
(a) running of newspaper called ‘Madhyamam’;
(b) the income is used for business purposes only;
(c) the paper Madhyamam is used for voicing the policies of the trust authorities as it can be seen from its appearing in the daily; and
(d) the paper is found criticising the various State/Central Government policies, political parties, social and religious organizations, individuals etc. due to the policy of the paper following free press journalism.”
From the above it can be easily inferred that the nature of the work done by the assessee is not charitable. This view has been duly recognised by the Supreme Court in the case of Sole Trustee, Loka Shikshna Trust (supra), and the same squarely applies to the case of the assessee. We also note here the argument of the learned counsel for the assessee that the Revenue authorities were swayed away by the subsequent events which for income-tax purposes had no relevance at all. The Assessing Officer observed. “It is pertinent to note that trust was formed by a deed of trust executed on 19-9-1985andbetwecnthcpcriod 1985 and 1994 it is seen that the assessee has not carried out any of the charitable objectives, instead the assessee was engaged in the activity of running the business of printing and publishing the newspaper called Madhyamam’. Justice not only should be done but also be deemed to be done. We agree that these observations arc not at all relevant to come to the conclusion. Criticism or no criticism is not a relevant factor for the purpose of Income-tax Act. What is to be seen is whether the assessee has actually carried out any charitable activity as contemplated under the deed. Since the facts do not lead to the conclusion that the assessee has actually carried out any
activity of charitable nature, we uphold the orders of the Revenue authorities.
20. Coming to the alternative plea that the voluntary contributions should be treated as gifts or capital receipts and are not taxable, the same cannot be accepted in view of the decision of the Hon’ble Supreme Court in Dr. K. George Thomas case (supra). This was the case of an assessce who got educated in the USA and came to India. He started running a magazine ‘Viswa Decpam’ and for achieving this object collected money through the Indian Gospel Mission in the USA. Subsequently the assessee started publishing a newspaper called ‘Kerala Dwani’. The assessee received/ collected donations from abroad and returned a loss income under the head ‘business’. When the assessee was asked to explain the credits which were noticed on scrutiny, the assessee said that they were donations received from USA through an organisation known as Indian Christian Crusade, USA. The names of the persons who had donated were not available. It was contended that the receipts were purely personal gifts for the personal qualities of the assessee and that the payments were voluntary. When the matter was carried before the Tribunal, the Tribunal held that the receipts were casual and non-recurring in nature and did not arise in the course of exercise of any vocation. The High Court found that the receipts had arisen from the exercise of an occupation by the assessee and should have been included in the total income. The Hon’ble Supreme Court held that the assessee was carrying on a vocation of practising against atheism and the donations received by him from USA for the furtherance of the objects of his vocation were not casual and nonrecurring receipts. In the instant case of the assessee, the assessee has produced certificates from the donors who had donated more than Rs. 6,000 to establish that they are donations towards the corpus. Since we have held that the asscssee’s business is not incidental to the attainment of the objects of the trust, the benefit of section 11(1)(d) which reads as under–
“Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution”
is not available to the assessee in the light of section 11(4A) of the Act.
21. Section 80G is for the benefit of the donor; whereas sections 11, 12, 12A operate in a different direction.
22. We appreciate the assistance rendered by the learned counsel for the assessee and the learned departmental representative.
23. In the light of the above facts, we dismiss the appeals filed by the assessee.
