The Tribune Trust vs. CIT (P&H High Court)

The High Court had to consider whether the purpose/objects of the appellant are charitable in nature despite the 2008 Amendment and whether the reliance placed by the Tribunal on the judgment in the case of Sole Trustee Loka Shikshana Trust v/s CIT (1975) 101 ITR 234 is good in law. HELD by the High Court:

(i) On the terms of the judgment of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association[1980]
121 ITR 1, the activities of the appellants could not be held to be a charitable purpose within the meaning of Section 2(15) even as it stood between 1961 and 1984. As we will now demonstrate this situation has not improved for the appellant with the amendment of 2009.

(ii) The legislature amended Section 2(15) in 1984 by excluding the concluding exclusionary words “not involving the carrying on of any activity for profit”. The Section between 1984 to 2009 read as follows:-

“(15) “charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility”;

Thus between 1984 to 2009, the definition of charitable purpose in Section 2(15) was identical to the concluding words of Section 4(3) of the 1922 Act. During this period, therefore, the appellant would have had the benefit of the judgment of the Privy Council in its own case.

(iii) The question in this appeal which pertains to the assessment year 2009-10 is the effect of the amendment to section 2(15) introduced on 19.12.2008 which came into force with effect from the financial year 01.04.2009.

(iv) It is necessary to compare section 2(15) as it stood under the 1961 Act and as interpreted by the Supreme Court in Surat Art Silk’s case (supra), on the one hand and Section 2(15) as it was amended with effect from 01.04.2009 on the other. As we observed earlier the Supreme Court held that the concluding ten crucial words “not involving the carrying on of any activity for profit” go with the words “object of public utility” and not with “advancement”. In our view the proviso introduced by the 2009 amendment does not change this position. The opening words of the proviso “Provided that the advancement of any other object of general public utility” were also a part of section 2(15) as it originally stood. The words that follow in the proviso “shall not be a charitable purpose, if it involves the carrying of any activity in the nature of trade, commerce or business……etc.” replaced the words in the original Section 2(15) “not involving the carrying on of any activity for profit”. On a parity of the reasoning in Surat Art Silk case, the words in the proviso that follow the opening words “Provided that the advancement of any other object of general public utility” equally apply to the “object of general public utility” and not to the word “advancement”. The plain language of the proviso does not convey an intention to the contrary. In fact, the legislature could have continued the opening part of the amended section 2(15) with the words “not involving” instead of the words “ provided that the advancement of any other object of general public utility shall not be a charitable purpose if it involves” in the proviso. Either way the amendment would have been the same. In that event there could have been no doubt whatsoever that the legislature did not seek to set at naught the effect of the judgment of the Supreme Court in this regard in Surat Art Silk’s case (supra). The introduction of the proviso does not indicate such an intention either.

(v) If the legislature intended the latter part of the proviso to apply to the word “advancement” as well and not merely to the words “object of general public utility”, it would have worded the amendment entirely differently. The proviso would have expressly been made applicable to the advancement as well as to the object of general public utility. That the legislature did not do so is an indication that it accepted the interpretation of the Supreme Court of Section 2(15) as it originally stood and retained the effect of the section in that regard in the 2009 amendment. The ratio of the judgment in Surat Art Silk’s case (supra), in this regard, therefore, remains the same.

(vi) Further, the amendment also indicates that the legislature accepted the observations in Surat Art Silk’s case (supra), to the effect that the purpose of the enacting section 2(15) in 1961 was to overcome the decision of the Privy Council in the Tribune’s case. While the legislature in the 1984 amendment which continued upto the year 2009 altered this position by deleting the words “not involving the carrying on of any activity for profit”, it reintroduced an exclusionary clause albeit in different and wider terms in the 2009 amendment. The exclusionary clause related to the object of general public utility and not the advancement thereof.

(vii) The normal incidence of trade and commerce is also profit. Considering the nature of the legislation, we are inclined to accept Mr. Bhan’s contention that each of these three words indicates the element of profit. A wider meaning ought not to be given to these words especially in a taxing statute. Section 2(15) defines charitable purpose. As in the case of any other definition, it is to assist the construction of the main provisions in which the terms defined are used. The main provisions such as Sections 11, 12 and 13 use the words “charitable purpose” in the context of granting the assessee’s the relief against taxation partly or fully often subject to certain conditions. If a trade or business or commercial activity does not result in profit, it would not be necessary to deal with the same in the Income Tax Act. The relief from taxation partly or fully predicates taxability and taxability predicates income and income predicates profit. This is the normal sense of these terms. There is nothing in the Act which persuades us that the words are used in Section 2(15) with a different intention. There is nothing in the Act and in particular section 2(15) thereof that indicates that the legislature contemplated a trade or a business or a commercial activity other than for profit. It is obviously for this reason that the legislature did not add to the words “trade, commerce or business” (used twice in the proviso) the words “carried on for profit”.

(vii) Our view is supported by several judgments of the Delhi High Court which have dealt with this issue exhaustively. The extensive references in the judgments are sufficient to support this view and we do not find it necessary to add to the same. GS1 India v. Director General of Income Tax (Exemption) and another [2014] 360 ITR 138 (Delhi), India Trade Promotion Organization v. Director General of Income Tax (Exemptions) and others [2015] 371 ITR 333 (Delhi), The Institute of Chartered Accountants of India and another v. The Director General of Income Tax (Exemptions), Delhi and others, [2013], Bureau of Indian Standards v. Director General of Income Tax (Exemptions) [2013] 358 ITR 78 (Delhi) referred.