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Income Tax Appellate Tribunal, JAIPUR BENCHES, ‘’B” JAIPUR
ORDER PER: SHRI RATHOD KAMLESH JAYANTBHAI, AM This is an appeal filed by the assessee against the order of ld. CIT(A)-1, Jodhpur (Camp at Jaipur) dated 16-01-2019 for the assessment year 2010-11 wherein the solitary ground raised by the assessee is as under:- ‘’The ld. CIT(A) has erred on facts and in law in dismissing the appeal of the appellant against the order of the AO denying exemption u/s 11 of the I.T. Act, 1961 and determining the income of the appellant trust at Rs.18,41,310/-‘’
2 M/S PATHEYA KAN SANSTHAN VS ACIT, CIRCLE-1, JAIPUR 2.1 Brief facts of the case are that the appellantSansthan is registered as a society and also registered u/s 12A(a) of the Act. The appellant society is engaged in publication of a magazine named "Pathey Kan". The Return of Income for A.Y. 2010-11 was filed on 05.08.2010 declaring total income at Rs. Nil. The case of the assessee sansthan was selected for scrutiny under CASS and notice u/s 143(2) of the Act was issued on 20.09.2011. After hearing the case of the assessee, the AO completed the assessment u/s 143(3) of the Act on 31.12.2012determining the total income at Rs. 18,41,310/-. 2.2 In first appeal, the ld. CIT(A) has confirmed the action of the AO by observing as under:- ‘’4.2. I have considered the assessment order, appellant's submissions and documents on record. I find that the appellant society engaged in publication of a magazine named 'Pathey Kan. The AO denied the exemption to the appellant u/s 11 by applying the proviso to sec. 2(15) and holding that the receipt was in the nature of trade / commerce. During the course of appellate proceedings the AR contended this action of AO and submitted that the activities of the appellant were purely on no profit no loss basis and the subscription were charged only to the extent to meet with the cost or when the trust reaches the breakeven point. However, I find no merit in his contention. I find that the meaning of the word "education" and the context in which it is used under the Income Tax Act. 1961 has been explained by the Hon'ble Apex Court in the case of Sole Trustee. Loka Shikshana Trust v CIT [1975] 101 ITR 234 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 artgalleries, museums and zoos, you thereby add to your knowledge. Again, when you grow up and have dealings with other people, some of whom are not straight, you learn by experience and thus 3 M/S PATHEYA KAN SANSTHAN VS ACIT, CIRCLE-1, JAIPUR add to your knowledge of the ways of the world. 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 What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling. Thus the object of the trust of spreading education is ruled out. Further, the appellant relied upon the decision of Hon'ble High Court of Andhra Pradesh in the case of CIT vs. Vijya Vani Education Trust [2013] 33 taxmann.com 267 (Andhra Pradesh), however the facts of this case are: different from that of the instant case. In that case, the appellant trust was running educational institutions and to aid spreading of the education and update the syllabus and other related educational aspects, two magazines were started by the assessee or their sister concern. They were incidental and ancillary to the main activities of the trust and, promoting education within meaning of section 2(15) of the Act. Although, the Honb'ble ITAT, Mumbai in the case of Janata Trust vs. ITO [1986] 16 ITD 147 (BOM), has held the activities of publishing journal and magazine in the nature of charitable activities wherein the Hon'ble ITAT found that the only a few educated people, who were interested in knowing the views on current issues of the democratic socialist thinkers expressing themselves through that weakly would purchase it and most of them were already life members of the magazine. The weakly was not run wholly on commercial lines by was working on a shoestring budget to be able to keep the magazine alive as was the wish of the founding father, the well known socialist leaders of India. Whereas in the instant case the appellant had not charged only the cost of the magazine. The total receipts of the appellant in the year under consideration was to the tune of Rs. 1,18,33,009/- and the profit was to the extent of approx 18 lakhs which clearly shows the activities in the nature of trade and commerce. Thus, in view of the facts and judicial pronouncements as discussed above, the activities viz. publication, sale and subscription fees was nothing but a commercial activity. and hence the AO's action of holding the activities of the appellant within the meaning of first and second proviso to section 2(15) of the act found justifiable. The appellant fails on these grounds which are thus treated as dismissed.
5. In the result, the appeal is dismissed.’’ 2.3 During the course of hearing, the ld. AR of the assessee prayed that the ld. CIT(A) has erred in confirming the action of the AO for which ld. AR has filed the following written submissioncontroverting the findings of the lower authorities.
‘’1.The Appellant Trust is a registered society under the provisions of Rajasthan Societies Registration Act, 1958. It came into existence on 4thApril, 1997. Its objects are reproduced at page 2 of AO Order. The main object is publishing of Pathey Kan a fortnightly news magazine.
Ld. AO taxed the surplus amounting to Rs.18,41,307/- for the following two reasons:
(a)Publishing news magazine is not education. (b)Since the objects fall under any other object of General Public Utility (GPU). The proviso to section 2(15) is attracted.
Ld. CIT(A) confirmed the order of Ld. AO.
This is in continuation to our earlier Gist of Submissions dated 20/09/2021.
Recently following two judgments have been delivered by the Hon’ble Supreme Court:
(i) New Noble Educational Society v. CIT [2022] 448 ITR 594 (SC) in respect of charitable activities in the nature of education (ii) ACIT v. Ahmedabad Urban Development Authority [2022] 449 ITR 1 (SC) (Copy Enclosed) in respect of charitable activities in the nature of Any Other Object of General Public Utility (GPU)
In terms of decision of the Hon’ble Supreme Court in the case of New Noble Educational Society (supra) particularly para 33 of the said judgment publishing news magazine is not an educational activity. Therefore, the said activity of publishing news magazine would fall in the residual category of the charitable activity defined in section 2(15) of the Income Tax Act, 1961 i.e. Any Other Object of General Public Utility (GPU). Accordingly, the activities carried on by the appellant society would fall in GPU category.
5 M/S PATHEYA KAN SANSTHAN VS ACIT, CIRCLE-1, JAIPUR 7. The assessee society during the year generated a surplus of Rs. 8,40,020/- [PB 9] from its activity of publishing news magazine (total surplus was Rs. 18,41,307/-) after considering interest incomes [PB 10].
Ld. AO invoked the proviso to section 2(15) which has been confirmed by ld. CIT(A).
It is submitted that the surplus of Rs. 8,40,020/- on receipt of Rs. 1,18,33,009/- results into net profit of 7.09%:
NP= 8,40,020 x 100= 7.09% 1,18,33,009 10. Even if net profit at society level (including interest income) is considered that works out to 14.34%:
18,41,307 x 100 = 14.34% 1,18,33,009 + 10,01,287
A surplus of 7.09% from publishing activity or a surplus of 14.34% at society level is most reasonable and cannot be termed to be in the nature of trade, commerce or business. Attention is drawn towards para nos 171, 172 and 173 (reproduced below) of the judgment of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (Supra): “171. Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under the Act. If one keeps this in mind, what section 2(15) emphasizes is that so long as a GPU's charity's object involves activities which also generates profits (incidental, or in other words, while actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the quantitative limit (of not exceeding 20%) under second proviso to section 2(15) for receipts from such profits, is adhered to.” 172. Yet another manner of looking at the definition together with sections 10(23) and 11 is that for achieving a general public utility object, if the charity involves itself in activities, that entail charging amounts only at cost or marginal mark up over cost, and also derive some profit, the prohibition against carrying on business or service relating to business is not attracted - if the quantum of such profits do not exceed 20% of its overall receipts.
6 M/S PATHEYA KAN SANSTHAN VS ACIT, CIRCLE-1, JAIPUR 173. It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi Peace Foundation disseminating Mahatma Gandhi's philosophy (in Surat Art Silk) through museums and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the costs (including administrative expenditure) plus nominal mark up; or renting marriage halls for low amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amounts- over and above the cost it incurs for doing the same work, or work which is part of its object (i.e., publishing an expensive coffee table book on Gandhi, or in the case of the marriage hall, charging significant amounts from those who can afford to pay, by providing extra services, far above the cost-plus nominal markup) such activities are in the nature of trade, commerce, business or service in relation to them. In such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to section 2(15).”
Thus, the Hon’ble Supreme Court has held that performance of any activity without any consideration is not envisioned under the Act. The Hon’ble Supreme Court has also held that charging amounts only at cost or marginal markup over cost will ipso facto not tantamount to business and no limit of 20% would be applicable. However, if instead of cost or marginal markup over cost the amount is charged at substantial markup that will tantamount to carrying out the GPU activity in the nature of trade, commerce or business and proviso to section 2(15) would be attracted if such substantial markup activity exceeds 20% of the overall receipts.
Hon’ble Supreme Court has not laid down any mathematical parameter for deciding marginal markup versus substantial markup.
It is submitted that provisions of section 11 of the Income Tax Act, 1961 allow 15% surplus to remain unutilized for allowing complete exemption under section 11. This gives a guidance that 15% markup is not substantial markup.
15 Attention is also drawn towards the fact that appellant society over the years consistently incurred losses from AY 2003-04 to AY 2009-10. The position of last twelve years up to AY 2012-13 would reflect accumulated loss of Rs. -5226947.91/- [PB 3]. It means that in these years even cost was not recovered leave alone any markup.Thus, looked at this angle also no allegation of substantial markup can be levelled against the assessee society in terms of the judgment of the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (Supra).
The claim under section 11 of the Assessee Appellant has been accepted by the Department in scrutiny assessments under section 143(3) for assessment years 2012-
7 M/S PATHEYA KAN SANSTHAN VS ACIT, CIRCLE-1, JAIPUR 13 and 2013-14. Copies of the AO Orders are placed in Paper Book [PB 237-241] & [PB 242-246]. The AO for the A.Y. 2012-13 has observed the activities thus: “Theassessee is mainly involving to publish magazine which is for the purpose of awareness of Indian Culture for the society development, integration of national spirit through its efforts. Its motive is to increase national consciousness and strive for welfare and development in the whole society.”
2.4 On the other hand, the ld. DR supported the order of the ld.CIT(A) and relied on following case laws to support the contentions so recorded in the orders of the lower authority:
CIT (Exemptions) vs Batanagar Education and Research Trust, [2021] 129 taxmann. Com 30 (SC)/ 436 ITR 501(02-08-2021) 2. CIT vs SorabjiNusserwanji Pareek (1993) 66 Taxman 411 (Guj) 3. Trustee of the ‘Tribune’ in re – Lord Thankerton, Sir George Banking and Mr. M.E. Jayakar [1939] 7 ITR 415 (PC)
2.5 We have heard both the parties and perused the materials available on record. In this case, it is noted that the AO had disallowed the claim of the assessee trust u/s 11 of the Act which has been confirmed by the ld. CIT(A). Both the lower authorities had held that the assessee trust is not engaged in ‘’Education’’ and also the proviso to Section 2(15) of the Act is applicable for the reasons of profit generated by the assessee trust. During the course of hearing, the ld. AR contended that the word ‘’Education” is not defined in the I.T. Act and the concept of education is ever evolving which changes from time to time depending upon the prevailing circumstances in the society. The ld. AR submitted that the judgement
8 M/S PATHEYA KAN SANSTHAN VS ACIT, CIRCLE-1, JAIPUR relied upon by the AO in the case of Sole Trustee, Loka Shikshana Trust vs CIT (supra) was delivered as back as in the year 1975 and much water has flown thereafter. It is further contended by the ld. AR that the AO has grossly misplaced his reliance on the Sole Trustee, Loka Shikshana Trust vs CIT (supra) by misreading the same. We also find from the submissions of the ld. AR of the assessee wherein two following citations of Hon’ble Supreme Court have been placed on record to adjudicate upon the issue as to denying of Exemption u/s 11 of the Act and determining the income of the assessee trust at Rs. 18,41,310/- by the AO and subsequently confirmed by the ld. CIT(A). (i) New Noble Educational Society v. CIT [2022] 448 ITR 594 (SC) in respect of charitable activities in the nature of education (ii) ACIT v. Ahmedabad Urban Development Authority [2022] 449 ITR 1 (SC) in respect of charitable activities in the nature of Any Other Object of General Public Utility (GPU)
In this case, it is noted that the assessee society during the year generated a surplus of Rs.8,40,020/- from its activity of publishing news (PBP -9) and surplus was amounting to Rs.18,41,307/- after considering the interest income (PBP 10). We find from the record that the AO invoked the provision to Section2(15) which has been confirmed by the ld. CIT(A). We find from the submissions of the ld. AR of the assesee that the surplus of Rs.8,40,000/- on receipt of Rs.1,18,33,099/- results into net profit of Rs.7.09%. NP= 8,40,020 x 100= 7.09%
9 M/S PATHEYA KAN SANSTHAN VS ACIT, CIRCLE-1, JAIPUR 1,18,33,009 It is also noted that even if net profit at society level (including interest income) is considered which works out to 14.34% 18,41,307 x 100 = 14.34% 1,18,33,009 + 10,01,287 We further noted the submissions of the ld. AR of the assessee that surplus of 7.09% from publishing activity or a surplus of 14.34% at society level is most reasonable and cannot be termed to be in the nature of trade, commerce or business drawing the attention of the Bench towards para nos 171, 172 and 173 (supra) of the judgment of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority, 449 ITR 1 in respect of charitable activities in the nature of any other object and General Public Utility (GPU). Thus, the Hon’ble Supreme Court has held that performance of any activity without any consideration is not envisioned under the Act. The Hon’ble Supreme Court has also held that charging amounts only at cost or marginal markup over cost will ipso facto not tantamount to business and no limit of 20% would be applicable. However, if instead of cost or marginal markup over cost the amount is charged at substantial markup that will tantamount to carrying out the GPU activity in the nature of trade, commerce or business and proviso to section 2(15) would be attracted if such substantial markup
10 M/S PATHEYA KAN SANSTHAN VS ACIT, CIRCLE-1, JAIPUR activity exceeds 20% of the overall receipts. It is worthwhile to mention that in the case of surplus of Rs.8,40,020/- on receipt of Rs.1,18,33,009/- the net result into net profit works out at 7.09% and even if net profit at society level (including interest income) is considered which works out to 14.34%. Hence, in both the cases, the substantial mark up activity does not exceed to 20% of the overall receipts. The bench also noted from the paper book filed by the assessee that though the assessee is engaged in the General Public Utility has earned mark up for the year under consideration only and that too is within the mark up observation of the Hon’ble apex court and in the earlier years the assessee loss for the F. Y. 2007- 08 to 2012-13 except in the F. Y. 2009-10. Taking into consideration the above facts and circumstances of the case and respectfully following the decisions of Hon’ble Supreme Court (supra), we do not concur with the findings of the ld.CIT(A) that the assessee is engaged in the commercial activity and receipt of the subscription fees which is considered as commercial activity. As discussed and observed by the bench that the assessee has earned the mark up which is reasonable as considered by the apex court and in the earlier year there is no profit from such general public utility we do not find any merits in the finding of the ld. CIT(A) after the final verdict of the apex court accepting the 20 % margin as fair and reasonable. Thus the appeal of the assessee is allowed.
Sd/- Sd/- ¼Mk0 ,l- lhrky{eh ½ ¼jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;dlnL;@Judicial Member ys[kklnL;@Accountant Member Tk;iqj@Jaipur Tk;iqj@Jaipur fnukad@Dated:- 13/02/2024 *Mishra आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- M/s. Pathey Kan Sansthan, Jaipur 2. izR;FkhZ@ The Respondent- ACIT. Circle-1, Jaipur 3. vk;djvk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZQkbZy@ Guard File (ITA No. 583/JP/2019) vkns'kkuqlkj@ By order,
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