Exemption Of Newspaper’s Income Utilised For Charity: Supreme Court Remands The Matter To AO

The Supreme Court has remanded the appeal in respect of the exemption of newspaper income used for charity.

The division bench of Justice S. Ravindra Bhat and Justice Dipankar Datta has relied on the decision of CIT vs. Ahmedabad Urban Development Authority and remitted the matter to the AO for fresh consideration of the nature of receipts in the hands of the assessee, which is engaged, inter alia, in publishing a newspaper, and to render fresh findings on the issue of whether the assessee is a charitable trust, entitled to exemption of its income under Section 11.

The respondent/assessee society stated that it was founded in 1921 by the legendary freedom fighter Lala Lajpat Rai during the freedom struggle for nation-building, general awareness, and the welfare of the people. In 1928, the famous freedom fighter of Odisha, Shri Pt. Gopa Bandhu Dass, made a will of his property and his printing press, which is now managing the Oriya newspaper "Samaj" for the people’s welfare.

The assessee was enjoying an exemption under Section 11, but it 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 an exemption for three years under Section 10(23C)(iv). The assessee has established and is running schools in the name of Balwant Rai Mehta Vidya Bhawan in Lajpat Nagar and Greater Kailash in New Delhi, one medical center in Lajpat Nagar, and an old-age home in Dwarka in Delhi.

The assessee was also building a hospital in the name of Gopa Bandhu Medical Research Centre in Odisha. The assessee was also allowed an exemption under Section 11(1), but the same has been denied during the years 2010–11 and

The assessee officer denied the exemption by 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 institution involved in charitable activities and did not engage in any trade, commerce, business, or any other activity.

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 appealed the case to the ITAT and the High Court, both of which were unsuccessful.

The department contended that the Appellate Commissioner and the Tribunal fell into error in granting the exemption to the assessee. The assessee is not merely earning revenue from the sale of newspapers but has also earned substantial advertisement revenue.

The assessee urged that the 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 and therefore eligible for exemption. 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.

The court ordered that the AO review the documents and relevant papers and make new findings on whether the respondent is a charitable trust eligible for income tax exemption. The AO shall complete the hearing and pass orders within four months.

Case Title: PCIT Versus Servant of People Society

Citation: CIVIL APPEAL NO(S). 614 OF 2023

Date: 31.01.2023

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