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Pr. Commissioner of Income Tax (Exemptions) Delhi vs Servants of People Society

Civil Appeal · 2023 INSC 88Decided 31 Jan 2023
Civil Appeal No. 614 of 2023
S. Ravindra Bhat · Dipankar Datta

Background

The Servants of People Society was founded in 1921 by Lala Lajpat Rai and, under a 1928 will of Pandit Gopabandhu Das, runs the Odia newspaper "Samaj" through a printing press; it also runs schools, a medical centre and an old-age home in Delhi and is building a hospital in Odisha. It had long enjoyed tax exemption as a charitable body, but for assessment years 2010-11 and 2011-12 the Assessing Officer denied exemption, saying that running a newspaper with substantial advertisement income (about Rs 9.5 crore) was "trade, commerce or business" hit by the proviso to Section 2(15). The Commissioner (Appeals), the ITAT and the Delhi High Court all restored the exemption, following the Delhi High Court's earlier ruling in India Trade Promotion Organisation.

Decision Breakdown

The Supreme Court allowed the Revenue's appeal in part and sent the matter back to the Assessing Officer. It explained that the law on Section 2(15) had since been settled by its 2022 decision in CIT vs Ahmedabad Urban Development Authority: a "general public utility" charity may carry on trade or business only if the activity is connected to achieving its charitable object and the receipts stay within the statutory ceiling (Rs 10 lakh, then Rs 25 lakh, now 20% of total receipts). In that case the Court had specifically held, regarding the Tribune Trust, that publishing advertisements for a fee in a newspaper is an activity in the nature of business, even if advertising is the "lifeblood" of the paper. Because the lower authorities had merely followed the now-superseded ITPO ruling, the nature of the Society's receipts had to be re-examined afresh under the correct test, with the AO to decide within four months.

Lesson Learnt

A charitable trust does not lose its charitable character just because it runs a newspaper, but advertisement income is treated as business income and the exemption survives only if such receipts stay within the limits set by Section 2(15). Exemption decisions must be tested against the current Supreme Court interpretation, not older High Court rulings.

Official source (sci.gov.in)View Judgment (PDF)

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