ST. SOLDIER EDUCATIONAL SOCIETY,NEW DELHI vs. JCIT(E), RANGE- 2 , NEW DELHI

O R D E R PER KUL BHARAT, JM:

This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals)-40, Delhi dated 08.03.2019, pertaining to the assessment year 2014-15. The assessee has raised following grounds of appeal:

“1. That the order passed by the Hon’ble CIT(A) dated 08.03.2019 is against the law and facts of the case.

2. That having regard to the facts and circumstances of the case, Hon'ble CIT(A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction and framing the impugned assessment order u/s 143(3) of the Act is bad in law and against the facts and circumstances of the case and is not sustainable on various legal and factual grounds.

St. Soldier Educational Society Vs. JCIT(E) 3.A. That having regard to the facts and circumstances of the case, Hon’ble C1T(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs. 36,35,531/- by wrongly treating the voluntary donation received as business income of assessee society.

B. That having regard to the facts and circumstances of the case, Hon'ble C1T(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs. 36,35,531/-. ignoring the fact that amount so received has been utilized towards the object of the society. 4. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”

St. Soldier Educational Society Vs. JCIT(E) the Assessing Officer taxed the amount of Rs. 36,35,531/- as income from business and profession as per provisions of section 11(4A) of the Act. Aggrieved against this the assessee preferred appeal before the learned CIT(Appeals) who after considering the submissions dismissed the appeal. Now the assessee is in appeal before this Tribunal.

“4.2.1 I have considered the assessment order and the submissions of the appellant. It is seen from the assessment order that the Assessing Officer has invoked the provisions of section 11 (4A) with respect to donations received from publishers by holding that these receipts were commission paid to the assessee in lieu of the promotion of books of the publishers which was in the nature of trade, commerce or business. Further, the Assessing Officer has examined the transactions of the assessee pertaining to receipt of commission in the form of donation from the publishers of books on the basis of the tests laid down by the Hon'ble Delhi High Court in the case of GS1 India (supra) wherein the Hon'ble Court observed that quantum of fee charged, economic status of the beneficiaries who pay, commercial value of St. Soldier Educational Society Vs. JCIT(E) benefits in comparison to the fee, purpose and object behind the fee etc. are the factors which decide whether the activity is business or not. The Assessing Officer has examined the economic status of the publishers who provided the books, the commercial value of the benefit of the sale of books to the assessee, etc. The Assessing Officer has very categorically brought out the aspects regarding the money received from various publishers in Paras 4.1.1 to 4.1.6 of the assessment order in the form of enquiries made by way of issue of notice under section 133(6) and the replies received in response to the queries from the publishers. The Assessing Officer has also very categorically analysed the year to year trend of donations received by the assessee which is as per para 4.5.8 of the assessment order which makes it clear that the assessee had received donations from the same publishers year after year. From the analysis made it was apparent that there was no basis of working of the amounts received as donation is and that the said amounts were nothing but commission for the promotion of books. On analysis it was also concluded that the assessee had received donations from only publishers. 4.2.2 Exemption to business income is available under section 11(4A) where it has been provided that such income would be exempt under section 11 if the business is incidental to the attainment of the objectives of the organisation and separate books of account for such business are maintained. In the case of the appellant, the receipt of commission in the form of donation from various publishers for promotion of the books published by them has been held to be ip the nature of trade, commerce or business. It is seen from the material gathered by the Assessing Officer that the amounts shown as donations by the assessee were treated as business promotion expenses by Srijan Publishers and in case of MacMillan Publishers, the amount had been received on a specific request made by the assessee for sponsorship fees and the amount had been approved based on the future business prospects. Further, service tax was also charged on the amount so paid by MacMillan Publishers. In case of Dhanpat Rai Publishers, it was noted from the letter submitted that total donations given during year were Rs. 5,55,700/- out of which an amount of Rs. 5,26,500/- had been given to the assessee. It was also noted from the details furnished that Dhanpat Rai Publishing Co. Ltd. had not claimed deduction under section 80G on the donation paid to the assessee. Reference was also given of point No. 6 of the reply wherein it was noted that their salesperson visits various schools and educational institutions and gave specimen of the books and based on that the books were recommended.

St. Soldier Educational Society Vs. JCIT(E) 4.2.3 In the case under consideration the Assessing Officer has brought enough material on record to show that the donations received were nothing but commission for promoting the books of the publishers since donations had been received only from publishers as was evident from the analysis of donations received in the present and past years. It has been submitted that the four tests relied upon by the Assessing Officer have no relevance in the case of the assessee is not correct. These tests have been laid down by the Hon'ble Delhi High Court in the case of GS1 India and the Assessing Officer has effectively demonstrated that it is not a case of receiving donation but a case of receiving commission for prescribing books of the publishers in the course curriculum which benefited the publishers and had nothing to do with the charitable activities of the assessee society. 4.2.4 In view of the discussion above and on the basis of the facts brought on record by the Assessing Officer, I find no infirmity in the finding of the Assessing Officer that the assessee was receiving commission in lieu of prescribing books of publishers which was a commercial activity. 4.2.5 The other issue is whether this activity which has been held to be in the nature of trade, commerce or business is incidental to the activities of the trust. For this, the Assessing Officer has relied upon the decision of the Hon'ble Delhi High Court in the case of Mehta Charitable Prajnalaya Trust (supra) wherein the Hon'ble Court have held that the mere fact that proceeds of a business activity have been utilised for charitable purpose do not make the business activity incidental. The Assessing Officer has also examined whether this activity is incidental to the activity of the trust. It has been noted that those activities are incidental which are offshoot of the main activities or are an inherent by-product of the principal activities. 4.2.6 The expression 'incidental to the attainment of the objectives' is significant in deciding the operation of section 11(4A). The word ‘incidental’ is not defined in the Income Tax Act, 1961. In common parlance, this expression is used to denote ancillary or supportive which in turn indicates that there is one or more above it which is dominant or predominant. The general meaning conveyed by the word incidental is something that is subordinate, incidental. For the purpose of charitable institutions, the subordinate objects signify that there is a predominant object where the former would support the latter. For instance, in the case of a charitable institution setup with the object of education, during the course of implementation of this object, it becomes unavoidable for the trust to prepare background material, curriculum notes, commentaries etc. which St. Soldier Educational Society Vs. JCIT(E) is printed and provided to students at a nominal price. Therefore, in fulfilling these objectives, it is necessary to print and distribute the material to the students and merely selling of books cannot be construed as a separate business and it is only incidental in nature. 4.2.7 For applicability of section 11(4A) it is not necessary that the business has to be held under trust. The primary requirement is that profits and gains of business should be incidental to the attainment of the main objectives of the trust and separate books of accounts are maintained. As has been held by the Hon'ble Delhi High Court in the case of Mehta Charitable Prajnalaya Trust, there is a difference between a property or business held in trust and business carried on by or on behalf of the trust, the latter being the case of the appellant in which case the provisions of section 11 (4A) will apply. Hence, based on the discussion above and on the facts as brought out by the Assessing Officer in the assessment order, it is held that the activity of receiving commission for prescribing the books of the publishers can in no way be stated to be an incidental activity. 4.2.8 The appellant has relied on various case laws which are distinguishable on facts inasmuch as that the Assessing Officer has not doubted the charitable activities of the assessee. From the computation of income it is seen that receipts from publishers which have been shown as donation have been held to be commission for prescribing books of the publishers and it is in respect of these receipts that exemption has been denied by invoking the provisions of section 11(4A). It is also not the case of the Assessing Officer that donations are not income derived from property held under trust but the Assessing Officer has clearly established that commission was being received for prescribing the books of the publishers which was being shown as donations. It is such receipts which have been considered as business income. 4.2.9 In view of the discussion above and since receipt of commission from publishers has been held to be a commercial activity which is not incidental to the attainment of the objectives of the appellant society, it is held that there is no infirmity in the order of the Assessing Officer in treating the income from commission from publishers amounting to Rs. 36,35,531/- as income from business by invoking the provisions of section 11(4A). Grounds of appeal Nos. 2 and 3 are dismissed.”

St. Soldier Educational Society Vs. JCIT(E) 7. The assessee has not brought any material to rebut the finding of the learned CIT(Appeals). Therefore, I do not see any reason to interfere in the finding of learned CIT(Appeals). The same is affirmed. Grounds raised in appeal are rejected.

Order pronounced in open court on 9th September, 2022.