Income Tax Appellate Tribunal (ITAT) Chennai in a recent judgment has held that income from organising book fairs in the form of sale of tickets and rent of stalls not trade/commerce or business with the meaning of proviso to section 2(15) of the Income Tax Act, 1961 so as to deny exemption u/s 11, 12A.

The ITAT also held that provisions related to depreciation as per Section 32 are not applicable in respect of charitable activities.

Case Details:
ITA No.1602/Mds/2014 ; Ay: 2009-10
Dy Director of Income Tax (Exemptions) (Appellant) vs M/s The Booksellers & Publishers Association of South India (Respondent)
Date of Order: 18-12-2015

Case Laws/Circular covered:
Tamil Nadu Cricket Association (ITAT Chennai)
DCIT VS. Girdharilal Shewnarain Tantia Trust reported in [1993] 199 ITR 15(Cal.)
Lissie Medical Institution Vs. CIT reported in [2012] 348 ITR 344(Ker.)
CBDT Circular No. 5-P (LXX-6) of 1968, dated 19-6-1968

Brief facts of the Case:
The appellant assessee-trust was registered under Section 12AA of the Income-tax Act, 1961. The object of the trust was to promote the habit of reading among general public. During the year under consideration, the assessee conducted book fairs at various places. The assessee received income on letting out stalls and sale of tickets. The assessee also collected service tax from the publishers of the books. The Revenue observed that the object of the assessee-trust falls under “advancement of any other object of general public utility” under section 2(15) and that collection on sale of tickets, rent on stalls, service tax, etc. were in the nature of trade, commerce, business, etc. Accordingly, referring to proviso to Section 2(15) the department held that the activities of the assessee were commercial in nature, therefore, its object could not be  treated as charitable activities. Therefore, the Assessing Officer (AO) rejected the claim of the assessee as being eligible for exemption under Sections 11 and 12.

However, on appeal by the assessee, the CIT(Appeals) found there was no element of profit making therefore, proviso to Section 2(15) of the Act is not applicable.

Contentions of the Revenue
Before ITAT, the department argued following contentions:
(1) The object of the assessee were of general public utility, since the assessee was engaged in trade, the proviso to Section 2(15) would come into operation making the assessee ineligible for exemption under Section 11 .
(2) Depreciation under Section 32 of the Act is available only to  business or profession and not for charitable activities. Once the income is allowed as application of income under Section 11, the same cannot be claimed as deduction under Section 32 of the Act.

Contentions of the assessee:
The receipt of cash through sale of tickets and rent on stalls, is incidental to the activity carried on by the assessee and it was not doing any trading or commerce; the assessee was not selling any books; the assessee was merely providing facility to readers to come and see all the books at one place. Incidentally, to meet the expenditure, the assessee collected entrance fee on sale of tickets and also collected rent on stalls put by the publishers of the books.

The income of the assessee has to be computed on commercial basis. Therefore, depreciation has to be allowed on the capital asset of the assessee.

Important Excerpt from ITAT Judgment:

The Revenue claims that the collection of entrance fee on sale of tickets, rent on stalls and service tax would amount to trade or commerce. Therefore, proviso to Section 2(15) of the Act would come into operation. In fact, on identical situation, the Director of Income Tax (Exemptions) cancelled the registration granted to the assessee by an order dated 23.12.2011. The assessee filed an appeal before this Tribunal. This Tribunal found that the object of the trust continues as such without any change. Therefore, the receipts in question are incidental to the activities carried on by the assessee.

..... In fact, the registration granted to the assessee was cancelled on the ground that the assessee is collecting sale of tickets on book fair, rent on stalls and service tax. For the very same assessment year under consideration, this Tribunal found that the cancellation of registration is not justified.....

Once the assessee claims that it is a business, then proviso to Section 2(15) of the Act would come into operation. Therefore, the assessee’s activity cannot be treated as charitable activity any more. Moreover, Section 32 of the Act is not applicable in respect of charitable activities.

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