Income Tax Appellate Tribunal - Mumbai
Janata Trust vs Fifth Income-Tax Officer on 18 November, 1985
Equivalent citations: [1986]16ITD147A(MUM)
ORDER
B.S. Ahuja, Judicial Member
1. These two appeals the first by the assessee and the other by the department -pertain to the assessment year 1980-81 and arise out of the common order of the AAC. They are disposed of by this common order.
2. The assessee is a trust. A copy of the trust deed has been filed before us and it shows that the trust was created on 17-10-1977 by well known socialists of this country, like Shri N.G. Goray, Shri Rohit Dave, Shri Prem Bhasin, Shri Surendra Mohan and others. The trust deed recites in the preamble as follows :
(1) The Janata, an English Socialist Weekly, was founded in January, 1946, by a group of socialist intellectuals, political workers and trade unionists with the purpose of disseminating democratic socialist thought, stimulating discussion of" national and international problems from a democratic socialist perspective, and promoting struggles of the down-trodden for radical social transformation.
(2) Under the able stewardship of such national leaders and dedicated socialists as Acharya Narendra Deva, Achyut Patwardhan, Ram Manohar Lohia, Yusuf Meharally and Asoka Mehta and editorship of such eminent socialists and journalists as E. Narayanan, Aruna Asaf Ali, Purshottam Tricumdas, Rohit Dave, S. Natarajan and N.G. Goray the weekly has pursued these purposes with perseverance and without fear.
(3) During all these years since its inception as the official organ of the Socialist Party and later of Praja Socialist Party or as an independent pro-socialist journal, the Janata has raised its challenging voice of principled dissent against all conduct and practice -- detrimental to the cherished values of nationalism, democracy, secularism and socialism, while upholding the integrity and the ethical norms of healthy journalism, (4) At the last meeting of the Executive Committee of the Praja Socialist Party in August 1971, it was resolved that the said C.G. Parikh should continue the running of the Janata weekly and was authorised to determine its form of management, and to form a trust if considered necessary.
(4) Trustees declare that the said Janata weekly described in the schedule here under written is held by them for the purpose of creating a charitable trust to be called 'Janata Trust' and have also collected Rs. 500 for the purpose of the said trust.
(5) The trustees are desirous of declaring the said trust in the manner hereinafter appearing.
3. Accordingly, this trust was created and the objects of the trust were as follows :
2. The trustees shall irrespective of considerations of sex, caste, creed, religion, race, or nationality apply the trust fund or such portion or portions thereof or the income thereof or such portion of the income thereof as they in their discretion think fit and proper for any one or more of the objects hereinafter specified that is to any : --
(a) To publish or aid the publication or sale of newspapers, magazines, journals, books, brouchers, pamphlets and research papers.
(b) To promote the study and advancement of knowledge of humanities, economics, political science, sociology, urbanisation, pollution and/or other social sciences, rural development or the natural sciences and the encouragement of literature and fine arts.
(c) To establish, help to conduct, institutions carrying on or facilitating, teaching, study or research, libraries, laboratories, colleges, schools, book clubs, book shops or institutions conducting socio-economic surveys.
(d) To invite scholars, research workers or experts -- Indian or foreign -- to arrange for lecturers, seminars and conferences in India or to give research assignments to individuals or institutions in India.
(e) To establish and maintain research fellowships, professorships, readerships or lecturerships, or to award scholarships, studentships, stipends, prizes, travelling grants in India available in India, either as a loan or scholarships.
(f) To organise and hold exhibitions or works of art and applied sciences and hold competitions on subjects of general and educational interest including essay competitions and to award prizes for the same.
(g) To help institutions which have similar objectives as aforesaid by way of loans or grants or donations.
(h) To give financial assistance from the income of the trust and permit the use of the trust properties or any part thereof either free of charge or for a nominal fee to the charitable institutions for the educational, economic, medical, social or cultural benefit and advancement and for rural development.
(i) To assist social workers, victims of natural calamities and the needy.
4. The ITO treated the objects (a), (b) and (c) above as predominant objects of the trust and observed that the assessee had pursued only one object, i.e., printing and publishing and selling the weekly known as 'Janata' at the rate of 50 paise per copy. This magazine contains 17 pages and is printed only on third class paper. The ITO held that the objects of the trust were not charitable because printing and publishing 'Janata' was commercial in nature. Even commercial publications cost less than the price of the assessee's magazine. He, therefore, held that the assessee was not entitled to exemption under Section 11 of the Income-tax Act, 1961 ('the Act').
5. The assessee had filed an income and expenditure account showing a deficit of Rs. 415. It had received life subscription for the magazine amounting to Rs. 28,110 which was claimed as exempt, but the ITO held that it was not exempt and added it to the income of the assessee. The assessee had spent a sum of Rs. 1,80,259 on the objects of the trust, i.e., printing and publishing of the magazine. The ITO held on an estimate that a sum of Rs. 12,000 out of this expenditure was charitable in nature. Accordingly, it was disallowed in earning the income from the publishing of the magazine. The amount was, accordingly, added to the income and brought to tax.
6. The assessee challenged this order before the AAC who, after a more detailed discussion than made by the ITO, came to a similar conclusion that the assessee-trust was not entitled to exemption as a charitable trust. He further held that life subscription was a revenue receipt and for this, he followed the Bombay High Court decision in the case CIT v. W.I.A.A. Club Ltd. [1982] 136 ITR 569. However, the AAC reversed the order of the ITO holding that Rs. 12,000 had been spent for charitable purposes and deleted the addition. He further held that the income was taxable at the normal rates as there were no beneficiaries under the trust whose shares were not known or indeterminate. Both the assessee and the department have come up in appeal.
7. We have heard the learned counsel for the assessee as well as the learned departmental representative. We have perused the trust deed and have also gone through the two copies of the weekly magazine 'Janata' which have been placed before us. The point at issue is whether or not the income of the assessee-trust is exempt from taxation. As the preamble to the trust deed clearly shows that the trust was created so that the 'Janata' magazine, which was being printed and published by the socialist intellectuals of this country since 1946, should continue to be published even after the founders were no longer on the scene. Therefore, printing and publishing of the 'Janata' weekly was placed in trust under the trust deed and the purpose of the trust was that 'Janata' weekly may continue to disseminate democratic, socialist thoughts and stimulate discussion on the national and international problems from a democratic, socialistic perspective. The findings of the authorities below that printing and publishing 'Janata' does not fall under the head 'Education' in view of the decision of the Supreme Court in the case of Sole Trustee, Lok Shikshana Trust v. CIT [1975] 101 ITR 234 is correct. However, the question for consideration is whether the 'Janata' weekly is run with predominant profit-motive in the light of the decision of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Mfr.' Assosiation [1980] 121 ITR 1, and whether the publication of this weekly amounts to an object of the general public utility. When a weekly journal is held under a trust, the natural corollary is that it would be printed and published and sold.
The Supreme Court has held in the case of Surat Art Silk Cloth Mfrs.' Association (supra) that the mere fact that a profit may result is not fatal to the claim of exemption under Section 11, but what is important is that an activity should not be pervaded by profit-motive but should be carried on primarily for serving the charitable purpose. It would then be qualified for exemption. The test which is to be applied is whether the predominant object of the activity involved in carrying out the object of the general public utility is to subserve the charitable purpose or to earn the profit. Where profit-making is the predominant object of the activity, then an object of general public utility will cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. In short, profit-making should not be the real object. In the light of this dicta of the Supreme Court, we find that what the assessee-trust is doing is merely to keep alive the journal which has been going on since 1946 to disseminate the socialist thought and not really to earn profit. The ITO says that a 17 page weekly issue printed on third class paper is priced at 50 paise and that, indeed, is so, but the question arises why is it so ? The reason is that even by printing it on third class paper, the assessee is running into a loss, and not because profit is the motive. The total sales of this 'Janata' journal during the year were to the tune of Rs. 6,289 and the remaining sales were to life members. The issue is not sold on the book stalls becacse, obviously nobody will purchase it compared to the other glossy magazines available on the booksellers' shelves. Only a few educated people, who are interested in knowing the views on current issues of the democratic socialist, thinkers expressing themselves through this magazine would purchase it and most of them are already life members of the magazine. When from year to year a magazine does not earn any money, the conclusion is irresistible that it is not being run with a profit-motive. The excess of expenditure over income in the year ending 30-6-1980 was Rs. 52,420 and, in the year ending 30-6-1981, the excess of expenditure was Rs. 44,778. Unlike in other magazines of this size, there are only two advertisements in the issue dated 8-4-1984 and four in the issue dated 26-2-1984. The magazine can, therefore, not run on profit, firstly, because it has a very low circulation and, secondly, because it has very few advertisements which are the main source of revenue of all profit-making magazines.
8. In our opinion, the answer to the question at issue would be clear from the Supreme Court's decision of their ruling in the case of Surat Art Silk Cloth Mfrs.' Association (supra) and we reproduce those observations for the sake of clarity :
The application of this test may be illustrated by taking a simple example. Suppose the Gandhi Peace Foundation which has been established for propagation of Gandhian thought and philosophy which would admittedly be an object of general public utility, undertakes publication of a monthly journal for the purpose of carrying out this charitable object and charges a small price which is more than the cost of the publication and leaves a little profit, would it deprive the Gandhi Peace Foundation of its charitable character ? The pricing of the monthly journal would undoubtedly be made in such a manner that it leaves some profit for the Gandhi Peace Foundation, as, indeed, would be done by any prudent and wise management, but that cannot have the effect of polluting the charitable character of the purpose, because the predominant object of the activity of publication of the monthly journal would be to carry out the charitable purpose by propagating Gandhian thought and philosophy and not to make profit or, in other words, profit-making would not be the driving force behind this activity. But it is possible that in a given case the degree or extent of profit-making may be of such a nature as to reasonably lead to the inference that the real object of the activity is profit-making and not serving the charitable purpose. If, for example, in the illustration given by us, it is found that the publication of the monthly journal is carried on wholly on commercial lines and the pricing of the monthly journal is made on the same basis on which it would be made by a commercial organisation leaving a large margin of profit, it might be difficult to resist the inference that the activity of publication of the journal is carried on for profit and the purpose is non-charitable. We may take by way of illustration another example given by Krishna Iyer, J. in the Indian Chamber of Commerce [1975] 101 ITR 796 (SC) where a blood bank collects blood on payment and supplies blood for a higher price on a commercial basis. Undoubtedly, in such a case, the blood bank would be serving an object of general public utility but since it advances the charitable object by sale of blood as an activity carried on with the object of making profit, it would be difficult to call its purpose charitable. Ordinarily, there should be no difficulty in determining whether the predominant object of an activity is advancement of a charitable purpose or profit-making. But cases are bound to arise in practice which may be on the border line and in such cases, the solution of the problem whether the purpose is charitable or not may involve much refinement and present real difficulty."(p.26)
9. If we substitute the words'Gandhi Peace Foundation' and 'Gandhian thought' with the words 'The socialist democratic intellectuals' and 'democratic socialist thought', it would be clear that the case in hand will fall directly within the ratio of the said decision of the Supreme Court. The assessee is publishing a weekly journal and it is priced, in fact, below the cost of production. The 'Janata' weekly is not run wholly on commercial lines, but is working on shoestring budget to be able to keep the magazine alive as was the wish of the founding fathers, the well known socialist leaders of this country. Therefore, according to the decision of the Supreme Court, looking to the manner in which 'Janata' weekly is being printed, published and sold from year to year, it is clear that it is not run on cammercial lines and is losing money every year. It cannot, therefore, be said that it is carrying on an activity of profit for the advancement of any object of general public utility within the meaning of Section 2(16) of the Act. That apart, even in the light of the Supreme Court decision in CIT v. Dharmodayam Co. [1977] 109 ITR 527, since the business of publishing of the 'Janata' weekly itself is held in trust for charitable purpose, the business of publishing was not undertaken by the assessee in order to advance any object of general public utility. Therefore, also, the assessee would be entitled to exemption of its income from taxation and we hold accordingly. The assessee's appeal in this regard is, accordingly, allowed. In the light of this decision, the income world not be taxable at all and it would be unnecessary to decide the other matters regarding the rate of tax or asses sability of the life subscription. We, accordingly, allow the assessee's appeal and hold that income of the assessee is not taxable. The department's appeal is, accordingly, dismissed as infructuous.