Bombay High Court
Audit Bureau Of Circulations vs Assistant Director Of Income-Tax. on 28 April, 1995
Equivalent citations: [1995]55ITD408(MUM)
ORDER
Per M.K. Chaturvedi (JM) - These two appeals by the assessee are directed against the order of the Commissioner of Income-tax (Appeals)-XIII, Bombay, and pertain to the assessment years 1989-90 and 1990-91. Since the issues involved are identical, for the sake of convenience, these appeals are consolidated and disposed of by a common order.
2. Briefly the facts:
The assessee-company was incorporated on the 28th day of April, 1948 under the Indian Companies Act, 1913, in the name and style of "Audit Bureau of Circulation Limited". The name of the assessee-company was changed to "Audit Bureau of Circulation" as per approval of the Government vide letter No. Rd.(25)N/4/88/8191 dated 25-11-1988. The assessee was registered as a company under section 25 of the Companies Act, 1956. The objects of the assessee-company as listed in the Memorandum of Association includes, inter alia, the following:
(a) To secure accurate circulation figures and data relating to all periodicals and media that sell advertising space and in regard to such publications to obtain information as to area of distribution and fix standard forms and methods for ascertaining the net sales figures and generally all information that will be of assistance to advertisers in estimating the value of any publication for advertising purposes and to record such information and circulate it to members of this Association and generally to establish a bureau of information in regard to all publications and the circulation of them for the benefit of members of this Association such service to be known as the "A.B.C." service or by such other name or description as the Council of this Association may determine from time to time.
(b) To collect and distribute amongst members of this Association information relating to all forms and methods of advertising.
(bb) To secure, collect, circulate and distribute information relating to all or any of the matters specified in the preceding two sub-clauses (a) and (b) amongst any Government in India or abroad or any statutory authority constituted by any such Government interested, directly or indirectly in advertising, and amongst associations, bureaux, societies, institutions and federations, whether in India or elsewhere and whether or not members of this Association, having objects similar to those of this Association.
(bbb) To promote, join as member, associate or otherwise be interested in, and take hold and dispose of shares in, any other company, association, bureau, society, institution, federation, or other organisation, whether in India or elsewhere, having objects similar to those of this Association, or otherwise in any manner concerned with advertising or carrying on any business capable of being conducted so as directly or indirectly to benefit this Association.
(c) To purchase, take on lease or in exchange, hire or otherwise acquire any real or personal property and any rights or privileges which the Association may think necessary or convenient for the promotion of its objects, and to construct, maintain and alter any buildings or erections necessary or convenient for the work of the Association.
(4) To sell, let, mortgage, dispose of or turn to account all or any of the property or assets of the Association as may be thought expedient with a view to the promotion of its objects.
(e) To undertake and execute any trusts which may lawfully be undertaken by the Association and may be conducive to its objects.
(f) To borrow or raise money for the purposes of the Association on such terms and on such security as may be thought fit.
(g) To invest the moneys of the Association not immediately required for its purpose in or upon such investments, securities or property as may be thought fit.
(h) To establish and support or aid in the establishment and support of any charitable or benevolent associations or institutions and to subscribe or guarantee money for charitable or benevolent purposes in any way connected with the purposes of the Association or calculated to further its objects.
(i) To do all such other things as are incidental as the Association may think conducive to the attainment of the above objects or any of them.
(j) To pay all the expenses connected with the formation and incorporation of the Association.
(k) Except as otherwise expressly stated to do all or any of the foregoing things anywhere.
3. The assessee-company obtained a registration certificate as required under section 12A of the Income-tax Act, 1961 (hereinafter called the "Act"). For and up to the assessment year 1980-81, the assessee was assessed as a "trade association" by the 12th ITO, Companies Circle (6). For the assessment year 1981-82 and onwards, the assessee claimed exemption under section 11. It obtained registration under section 12A. The assessments for the assessment years 1981-82 to 1983-84 were completed by the 8th ITO, Trust Circle, and the exemption as contemplated under section 11 was granted to the assessee. For these assessment years, the amount of subscription received from Members was claimed as exempted. This claim was not allowed. No appeal was preferred against such disallowance. It was stated that for these assessment years (1981-82 to 1983-84) even after such disallowance, the total income was determined at Nil.
4. The receipts from subscription and entrance fees from members were treated as exempt on the basis of mutuality for and up to the assessment year 1980-81 by the Assessing Officer. For the assessment years 1984-85 and 1985-86 such receipts were not treated as exempt on the ground of mutuality by Assessing Officer. However, this claim was allowed in appeal by the CIT(A). Exemption under section 11 was denied. Assessee contravened the provisions of section 13(1)(d). No appeal was filed. For the assessment years 1986-87 to 1988-89 exemption was claimed in the like manner. Assessment orders yet to be received.
5. For the relevant assessment years Assessing Officer allowed the claim made under section 11. But exemption in respect of subscription, application fee and entrance fee was not allowed. Being aggrieved, the assessee filed appeal. The CIT(A) found that exemption under section 11 was not correctly allowed. He, therefore, directed the Assessing Officer to withdraw the exemption as granted under section 11 of the Act.
6. It was observed by the CIT(A) that the Bureau is controlled by the Council of Management, formed by election every year, from out of its members, who are publishers, advertisers and advertising agencies. Day to day working is carried out by Bureau Secretariat. The main function of the Bureau is to find out the accurate figures of circulation of newspapers and periodicals, published in the country, through a process of independent audit. The Bureau gives a certificate of circulation (ABC certificate) free of cost to its members (publishers etc.) on the basis of audit report.
7. In order to get the extra copy of the ABC certificate, member is required to place request with the Bureau. [The ABC certificate indicates annual number of circulation of newspapers, magazines, etc.]. The Bureau on receipt of such request gets the copy of ABC certificate [also known as facsimile copy]. This copy is said to be printed and supplied to the members on no profit no loss basis. The ABC certificate is used by the members, as authenticated proof of the figures of circulation with various agencies. The publisher used to get their quota of newsprint on the basis of this certificate.
8. Perusing the objects as stated in the Memorandum and considering the activities as explained hereinbefore, the CIT(A) concluded that the assessee is not engaged in the advancement of a charitable purpose. Therefore, he issued a show-cause notice asking thereby why assessee should not be denied the benefit of section 11 and why the assessee should not be treated as a non-charitable organisation.
In response to this show-cause notice, the assessee furnished its reply vide letter dated 10-11-1993 and 21-9-1994. In its reply, the assessee stated:
(i) the primary or dominant purpose for which the company was established is contained in sub-clauses (a), (b) and (bb) of clause 3 of Memorandum of Association;
(ii) the CIT(A) at the time of registration under section 12A of the Act considered the object of the Company;
(iii) the benefit under section 11 of the Act was granted to the assessee-company in the preceding assessment years.
In its letter dated 21-9-1994, assessee stated that the Bureau was established for the purpose of collecting information and data which render assistance to advertisers, Government and other bodies, members and non-members. This is certainly an object of general public utility. Merely because such activity will benefit the members also, is not a material, aliunde, to which it can be said that the object is not of general public utility.
9. Smt. Arti Vissanji and Shri N.S. Porwal, learned counsel for the assessee, appeared before us. Relevant documents and papers were filed. It was contended that the assessee is not carrying on any activity for profit. The purpose of the assessee-organisation is not trade but to buttress the cause of the trade and commerce in the country. The dominant object of the organisation is to provide specialised information to the public at large. The learned counsel relied on the ratio of the decision on the Apex Court in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1. The members of the organisation represent different categories of people and includes publishers, advertisers, Government, etc. Informations gathered by the organisation are available to the members and also to the non-members. The difference is that members get information on their desk, whereas a person other than a member is required to obtain the information by making specific request for the same. It is not correct to say that only activity of the assessee is to issue ABC certificate. The assessee is engaged in other activities also. All activities are of the nature of general public utility. The assessee gets its income out of subscription, entrance fee, sale of facsimile certificate (ABC certificate) and income from investments. It was clarified that fee is charged for providing only extra copy of ABC certificate. In the assessment year 1989-90, there were 618 members. Next year the total number of members were 622. The learned counsel stated that the activities of the assessee-company were for the benefit of substantial portion of the public. It is not correct to say that the activities of the assessee-company were limited to the benefit of members only. The assessee-trust was not deriving any gain out of sale of ABC certificate. The fee was to recover the cost. Just because assessee charged some amount to recover its cost, it cannot be said that the assessee was engaged in business. On this jejune ground benefit as contemplated under section 11 cannot be denied.
10. It was pointed out that registration under section 12A was granted to the assessee. This registration is available only to the charitable trust. Necessary enquiry was conducted before issuance of the certificate. The objects of the assessee-trust were found to be charitable. Considering the objects and activities, the registration was granted.
It was submitted that the Tribunal in the case of ITO v. Dwarkaprasad, 3 ITD 84 (TM) (sic), has held that Rule 17A prescribing the procedure for making an application for registration under section 12A conveyed the intention of the Legislature that the said procedure was prescribed not to mechanically grant the registration but grant it only after making an enquiry into the charitable and religious nature of the trust. The grant of a certificate under section 12A is a power conferred upon the CIT and it is implied that every power granted under the statute carries a duty to do all such things, which would effectuate that power. Moreover, the grant of a certificate has some pertinent significance and legal sanction behind it for the purposes of grant of exemption under section 11 and it could not be by-passed as mere ideal formality. It was therefore, wrong to think that section 12A merely prescribed a formality to be complied within a routine way without investigation, and the grant of certificate did not mean that the trust was not otherwise entitled to exemption under section 11 and it would still confer upon the ITO a power to enquire into the character of the institution and deny exemption under section 11.
11. It was submitted that the income of the assessee from subscription and application fees and also entrance fees is not exigible to tax in view of the decision of the jurisdictional High Court rendered in the case of Trustees of Shri Kot Hindu Stree Mandal v. CIT [1994] 209 ITR 396 (Bom.). Apropos the same learned counsel also relied on the decision of the CIT v. Film Federation of India [1989] 178 ITR 425 (Bom.).
12. Next it was argued that the Assessing Officer has not applied the appropriate modus for the computation of the income. According to the learned counsel, he ought to have deducted out of the income the amount of general expenses and depreciation. In regard to the levy of interest under section 234B, the learned counsel stated that this ground is consequential. Therefore, necessary direction may be rendered in regard to the same.
Next, without prejudice to the contention that the appellant-Bureau is entitled to exemption under section 11, learned counsel stated that if the exemption under section 11 is not allowed, the principle of mutuality be invoked in relation to the income of the assessee.
Lastly, it was argued that the CIT(A.) ought to have allowed set-off of carried forward deficit/loss of earlier years.
13. Sri D.K. Singh, learned D.R. appeared before us. It was vehemently argued that the objectives as described in the memorandum of the assessee-organisation cannot be construed to be the objects of general public utility. The predominant object of the bureau is to issue the ABC certificate. The certificate is issued to the members. On the strength of this certificate, quota of newsprint is allotted to the publisher. It can, therefore, be said that the purpose of the issuance of certificate is to facilitate the grant of quota of newsprint. This is not an activity of general public utility. This activity is of a personal nature and is not of public nature. Our attention was invited to the decision of the Gujarat High Court rendered in the case of Addl CIT v. Ahmedabad Millowners Association [1977] 106 ITR 725 wherein it was held that the expression "object of general public utility" in section 2(15) would include only those objects which promote the welfare of the general public and not the personal and individual interests of some persons. According to Sri Singh, in the instant case, the assessee organised/catered only the personal and individual interest of some persons.
Sri Singh further submitted that the activities of the assessee are in the nature of business activities and falls within the ambit of section 11(4A) of the Act.
14. Coming to section 12A, the registration aspect, it was contended that this is only a condition, for availing section 11 benefit just because certificate under section 12A is granted, it cannot be concluded that assessee satisfied all the conditions precedent for availing the benefit of section 11. Once it is concluded that assessee is engaged in the business, the amount received on account of subscription and application fees and also the entrance fees is exigible to tax.
15. Apropos the modus of computation, it was submitted that general expenses and depreciation are not allowable. Expenses were considered while working out the surplus. It was stated that the cost of asset was reflected as application of income towards the object of charity. Assessee claimed total deduction in respect of the same. Again it cannot be permitted to claim depreciation.
In regard to the set-off and carry-forward of deficit, Shri Singh submitted that there is no such provision in the law.
Regarding the concept of mutuality, it was contended that assessee admitted the position that information are available to the outsiders also on payment basis. Therefore, principle of mutuality cannot be invoked. He further relied on the reasoning as given in the impugned order.
16. We have heared the rival submissions in the light of the material placed before us and the precedents relied upon. We have perused the various objections listed in the Memorandum of Association. The members represent different categories of people. Bureau provides services to the publishers, advertisers, Government, etc., etc., Informations gathered by the Bureau are available to the members and also to the public at large. One who is member of the Bureau gets all the information at his desk. One who is not a member needs to make a request for the same. He also gets the desired information from the Bureau. In a democratic set up, the role of newspaper and periodical is very significant. The popularity of the newspaper can be ascertained with reference to its circulation. Publishers get their newsprint quota on the basis of circulation. The assessee company provides authentic information by the issuance of ABC certificate. This ABC certificate is given to the members without any charge. For extra copy of the certificate, some nominal charge is there. This charge is just to meet the cost of facsimile certificate (ABC certificate). The sale of extra copy of the ABC certificate is on no profit no loss basis. The assessee is engaged in the service which is of public consequence. The activity of securing accurate circulation figures in Data relating to all periodicals and media is not an activity for profit. It assists the concerned to reach consumers through the advertising media. With the help of information gathered by the Bureau the advertisers can make a right choice. It also provide necessary information to the Government and other agencies. In our opinion, the Bureau cater to the needs of public.
17. The mere fact that the assessee-company charged the cost for providing the extra copy of ABC certificate does not alter the character of object of "general public utility". Justice Joyce, in the case of Webster, Pearson v. Webster, 1, Ch. 106 has observed thus:
"There are hospitals where patients pay something according to their means, but that does not prevent such a hospital from being a charity in the legal sense; nor do I think that a school would be prevented from being a charity because the boys who received its benefit paid for their education a moderate sum proportionate to their means."
Public utility could best be adjudged by examining the character of the utility and intention for rendering the same utility to the public.
18. The assessee-company was treated in the preceding assessment years as a charitable organisation. The benefit contemplated under section 11 of the Act was conferred on the assessee. The activity remains the same. The objects are the same. There was no contravention of any rule and procedure. Without assigning any cogent reason, such benefit cannot be withdrawn.
19. The assessee was granted registration under section 12A. The Tribunal in the case of Dwarkaprasad (supra) has held that section 12A does not prescribe a mere formality which is to be applied in a routine way. The grant of certificate manifest legal sanction for the purpose of grant of exemption under section 11. The requirement of section 12A certificate is a sine qua non, for availing the benefit under section 11. It is a pre-condition and such certificate is available only to charitable organisations.
20. The ratio rendered in the case of Surat Art Silk Mfgs. Association (supra), was relied on by the learned counsel for limited purpose. It was used in relation to expand the meaning and scope of the words "object of general public utility". This was used as a brick to build the case and it was not purported to be the bedrock. Therefore, the amendment in law, on that point is of no consequence. The primary purpose for which the Bureau was set up was to provide specialised information in respect of the circulation of newspapers and periodicals through the process of independent audit. The purpose can be said to be useful to the public at large. It was, therefore, for the advancement of object of general public utility. The Bureau is registered under section 25 of the Companies Act, 1956. It is non-profit-making company. It was formed for the furtherance of the general interest of the public. In view of the above, we hold that the assessee was engaged in an activity which is of general public utility. As such, the assessee is entitled to get the benefit of section 11.
21. We now come to the next issue that whether the income of the assessee from subscription, application fees and entrance fee is exigible to tax. The jurisdictional High Court in the case of Trustees of Shri Kot Hindu Stree Mandal (supra) has held that when a person paid membership fee or subscription to a society or a trust, he does not make a gift of the membership fee or subscription amount to the society. It can never be considered as gratuitous payment made by the member to the society. The membership and subscription amounts received by the trust from its members cannot be characterised as "voluntary contribution" within the meaning of the said expression under section 12. Accordingly, the subscription amount received by the assessee-trust is not liable to be included in the total income. In the case of Film Federation of India (supra), it was held:
"As far as subscription from members are concerned, we have been referred to the decision given by a Division Bench of this High Court in I.T. Ref. No. 38 of 1972 - CGT v. Film Federation of India In view of the above decisions which are of the binding nature, we hold that income of the assessee from subscription, application fees and entrance fee is not exigible to tax.
22. Apropos the modus for the computation of income we have noted the arguments. In our opinion the Assessing Officer has applied the correct modus. While ascertaining the surplus the expenses debited to the account were taken care of. The cost of assets on which the depreciation was claimed was reflected in the accounts as application of income towards the object of charity, resultantly, the assessee claimed total deduction in respect of the cost of assets. In our opinion, again he cannot be permitted to claim the depreciation on the same.
23. The next ground in regard to the levy of interest under section 234B was stated to be consequential. We direct the Assessing Officer to grant consequential relief in respect of the same.
24. In view of our decision concerning the exemption under section 11, the ground apropos the mutuality does not survive. We dismiss the same as infrustuous.
25. Lastly, the ground apropos the allowability of set off and carried forward deficit/loss of earlier years. There is no precedent, nor any express provision in law in regard to this. In our opinion, the claim of the appellant cannot be accepted. We do not find any force in the arguments given by the learned counsel. Accordingly, we dismiss the appeal on this count.
26. In the result, the appeal of the assessee stands partly allowed.