Per Shri A. V. Balasubramanyan, Judicial Member - The assessee, a trust, has brought these appeals from a consolidated order passed by the Commissioner (Appeals) disposing of appeals for the assessment years 1975-76 to 1978-79.
2. The principal point common to all these appeals pertains to exemption claimed under section 11, read with section 2(15) of the Income-tax Act, 1961 (the Act). The facts relevant to this issue are in this way.
3. A trust by name Saurashtra Trust was founded sometime in 1931. On 16-6-1942, the trustees made a declaration by means of an indenture to specify the details. There was some confusion in regard to certain aspects of the trust and, therefore, the same trustees, by another declaration made on 11-2-1945, clarified things, inter alia, the purpose of the trust, one of such being to publish newspapers. The trust has been publishing several newspapers and other periodicals which have earned income and this has been brought to tax by the authorities below rejecting the claim of the assessee for exemption.
4. The primary contention of the assessee is that the object of the trust is to educate people by various means including publishing of newspapers and other periodicals and that this is a charitable purpose within the meaning of section 2(15). Alternatively, it was contended that publishing newspapers is for the advancement of an object of general public utility without the primary object of profit-making so as to fulfil the requirement of section 2(15). The case law relied upon by Shri S. P. Mehta, appearing for the assessee, will be referred to at the appropriate stage. Shri Roy Alphanso, the learned representative for the department stated that publishing of newspapers can in no wise be considered as a means of providing education in view of the statement of the Supreme Court while explaining the meaning of education in sole Trustee, Loka Shikshana Trust v. CIT : 101ITR234(SC) . Replying to the alternative submission of Shri Mehta, Shri Alphanso said that assuming that this activity is one which can be said to be of general public but still it cannot be held as one not involving the carrying on any activity for profit inasmuch as this trust is not engaging itself in any of the charitable purposes for which it was founded and the main source of income being from publishing newspapers.
5. To appreciate the rival contentions, it may be proper to bear in mind certain factual aspects. In the declaration made on 16-6-1942, the object of the trust had been stated thus in clause (2) :
'(2) To work for and to conduct the activities for the welfare of the people of India in general and states people of Cutch, Kathiawad and Gujarat in particular.'
For a reason, it became necessary to amplify the object and, therefore, in the declaration of 11-12-1945, clause (2) was expanded as follows :
'(2) The objects of the trust shall be to establish, help and conduct institutions which have for their object the carrying out of public purposes of a charitable nature relating to the people of India and particularly the following :
(a) the education of the people of India by conducting and/or aiding the conduct of schools, colleges, libraries, or publishing and/or aiding the publication of books, booklets, pamphlets, newspapers, magazine, or in any other manner;
(b) providing or aiding institutions and activities providing medical or sanitary aid to the people of India for securing the improvement of their health by conducting, and/or aiding the conduct of hospitals, dispensaries, laboratories, health centers, nature cures and other institutions of a similar character;
(c) providing relief to human beings and/or animals during times of famine or distress;
(d) helping societies and institutions which have similar charitable objects.'
The trust, ever since its inception has been engaging itself principally in the activity of publishing newspapers and few other periodicals. At the present point, we may mention about certain orders regarding earlier assessments of this trust. In the assessment for 1943-44 [R. A. A. No. 248 (Bom) of 1945-46, dated 2-1-1946], the Tribunal had held this activity of Saurashtra Trust amounted to charitable purpose within the meaning of section 4(3) (i) of the Indian Income-tax Act, 1922 [this provision corresponds to section 2(15) of the 1961 Act]. In the assessments for 1962-63 to 1971-72, the Tribunal had, by order dated 9-11-1976 [in IT Appeal Nos. 1783 of 1968-69, 1059 to 1064 of 1974-74 and 3803 of 1974-75], held the very issue against the assessee following the decision of the Supreme Court in the case of Indian Chamber of Commerce v. CIT : 101ITR796(SC) .
6. We address ourselves to the first question to see whether the object of providing education to the people of India as specified in clause 2(a) of the declaration dated 11-12-1945 is in any way achieved by publication of newspapers. Dependence was placed upon the decision of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association : 121ITR1(SC) and that of the Court of Appeal in the case of Incorporated Council of Law Reporting for England and Wales v. Attorney-General and Commissioners of Inland Revenue 47 TC 321. The binding precedent on the point of advancing the cause of education by publishing newspapers and journals in Sole Trustee, Loka Shikshana Trusts case (supra) and on this aspect the Supreme Court has not struck its dissent or disapproval in the subsequent decision in the case of Surat Art Silk Cloth Mfrs. Association (supra). The decision of the Court of Appeals in Incorporation Council of Law Reporting for England and Wales case (supra) is not of any usefulness in resolving the question pertaining to trusts in India for variety of reasons. The question before the English Court was whether the role of law reports in the development and administration of Judge-made law is a purpose beneficial to the community. Shri Mehta arguments was that if publication of law reports is for the benefit of the community, as held by the English Court, then publication of newspapers should also, on the same analogy, be held to be an activity engaged in the advancement of education. We cannot accede to this view. Section 46 of the Charities Act, 1960 of England defines charitable purposes as means purposes which are exclusively charitable accordingly to the law of England and Wales. Foster, J. held :
'.... In so far as the law reports are used in the teaching of the law to students, they are of course being used for educational purposes, but when used in Court they are used to bring to the attention of the Judge the case law on the particular subject so that he may decide the case before him in accordance with former decisions binding on him or be guided by them to come to a correct decision. That purpose does not, in my judgment, come within the meaning of the phrase the advancement of education. In truth, it is the way in which the Judge-made law is developed and applied.' (p. 329)
Whether publication of law reports served any other purposes beneficial to the community is another question. However, that it does not promote in the advancement of education is clear from what is observed by Foster, J.
7. The Supreme Court has, in Sole Trustee, Loka Shikshana Trusts case (Supra), explained the word education found in section 2(15) and it has reference only to systematic instruction, schooling or training given to the young in preparation for the work of life. It has reference any to schooling and instructions given and education is not to be used in a wide and expanded sense. We do not see anything to the contrary mentioned in Surat Art Silk Cloth Mfrs. Associations case (supra) although a different observation of Justice Khanna is not approved about which we will make a mention when we take up the second limb of the argument of Shri Mehta.
8. We conclude that the Saurashtra Trust cannot be held to be carrying out the purpose of educating people of India by its publication of news-papers. It follows that the assessees activity is not within the second condition mentioned in section 2(15).
9. The declaration of 11-12-1945 specifies in clause (2) various items in which the trust would operate itself and many of them, such as conducting schools and colleges, providing medical and sanitary aid, relief to poor, helping societies and institutions having charitable objects, are per se charitable and beneficial to the society at large. But, strangely, the assessee is not engaging itself in any activity which would have doubtlessly advanced the cause of charity; but only in the field of publishing newspapers ever since its inception which has been yielding sizeable income. Two points arise here. One is whether the activity of publishing newspaper is an object of general public utility and if so, whether the same is not involving the carrying on of the activity for profit. The Judicial Committee has in the case of In re. Trustees of the Tribune  7 ITR 415 held that the newspaper which the Tribune press was publishing was supplying the public with an organ of an educated public opinion and that such a purpose should prima facie be held to be an object of general public utility. It is not apparent whether the newspapers published by the Saurashtra Trust contained only matters of topical interest coming from an organ of an educated public. But we do think from the record that these newspapers are not different from any other newspaper in circulation in this areas containing items of news value and advertisements. In the assessments for 1962-63 to 1971-72, the Tribunal had, relying upon the enunciation in Indian Chamber of commerce case (supra), found on the reason that difference had not been shown that the above purpose did not involve in the carrying on of any activity of profit. Sole Trustee, Loka Shikshana Trusts case (supra) laid down certain guidelines in the matter of finding out whether a particular activity is or is not involved in the carrying on of any activity for profit and Shri Mehta submission is correct that this has been overruled in the subsequent decision in Surat Art Silk Cloth Mfrs. Associations case (supra). But he then invited us to the observation of the Supreme Court in Surat Art Silk Cloth Mfrs. Associations case (supra) wherein the last qualifying clause object of general public utility in section 2(15) is explained. As their Lordships have summed up :
'Profit-making must be the end to which the activity musts be directed or in other words, the predominant object of the activity must be making of profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guise of the former ....' (p. 24)
It has been held that what is to be found out is whether the predominant object of an activity is advancement of a charitable purpose or profit-making. So long as the dominant purpose is advancement of a charitable purpose of the trust, the exemption from tax must be available even though during the course of such activity income had been derived. If, on the other hand, the object of the activity is profit-oriented, then it would be a an activity for profit to be out of section 2(15).
10. The object of Saurashtra Trust in its activity of publishing newspapers has to be a mainly gathered from declaration of the trustees dated 16-6-1942 as supplemented by the second declaration dated 11-12-1945. The first declaration stated that the trust was to work for and to conduct the activities for the welfare of the people of India in general and states people of Cutch, Kathiawad and Gujarat in particular. This was amplified in the second declaration of 1945 and the preamble reads :
'And whereas doubts have been raised as to whether the objects contained in the said declaration of trust are wholly charitable and whereas it is necessary to make it clear and specific in order to leave no doubt that the intent and purpose of the said declaration of trust was and is to secure the benefit of purely charitable objects and that the trust funds have only to be used and have been used for such purposes and no other ....'
The trustees thought fit to add certain other provisions intending to secure the benefit to the charitable object contained in the declaration of the trust made in 1942, this was amplified in the second declaration of 1945 by stating that the objects of the trust shall be to establish, help and conduct institutions which have for their object the carrying out of public purposes of a charitable nature relating to the people of India and the clause continued to listing out certain various items, lone of such was publishing newspaper. We have already excerpted clause 2 in its entirety as found in the second declaration of 1945 and it will be noticed that publishing newspapers is one of the several items specified in sub-clauses (a) to (d).
11. Every trust has to have resources to sustain itself and to carry out its principal object. As the preamble of the second declaration of 1945 shows, the purpose was to secure the benefit purely of charitable objects and the trust funds will have to be used only for such purpose and no other. It may be that publishing newspaper may be one of the items which the trustees are authorised to carry out on behalf of the trust but publishing newspaper and its circulation by way of sale cannot in any way be regarded as a charitable activity although the society can be said to have been deriving the benefit of reading. The trustees are competent to carry out various other activities such as conducting schools, colleges, libraries; providing medical aid, etc.; providing relief to human beings, animals at times of famine or distress; helping societies or institutions having charitable objects. Curiously, the trust is not engaging in any of these things which can without a second thought be concluded as activities of charitable nature.
12. Perhaps publishing newspapers free of cost could have been classified as a charity. However, we are not faced with that problem as admittedly the newspapers are sold for value. Here one point was urged by Shri Mehta. page 48 of the compilation field by him shows how the cost of the papers circulated by the trust compares low as against the cost of similar publications made in Bombay by others. Low pricing itself cannot be a precise indicator as to the object. The fact-finding committee on news-papers economics had furnished a report and as can be seen from para 27 of the order of the Tribunal, dated 9-11-1976, for the earlier assessments, the low pricing of the papers was due to manifold reasons and it has nothing to do with the object of the particular trust.
13. The trust has some house property which is also yielding substantial income by way of rent. As against this massive income, only a very minor part of it is being spent for the objects of the trust as can be seen from the statements filed by the assessee. We should not be understood to say that we are examining the application of the income for the fulfillment of section 11(1) (a) of the Act, but only to point out that the trust would have spent to substantially meet the charitable objects of the trust if the income to be derived by publishing newspapers was also to achieve that object. It appears to us that the trust has expended only in enlarging the fixed assets pertaining to the printing unit of the newspaper publication. No trust will be formed only to increase the capital of the trust itself and no charitable purpose will be served by mere enhancing its fixed assets. To know the object of an activity, the crucial tests are : (i) what it promotes; (ii) the purpose; and (iii) the result. We fail to understand how any charitable purpose is promoted by publishing newspapers. It also does not result in bringing about any special benefit of charitable nature.
14. The record shows that the trust had been making massive profits from 1962-63 onwards (there is no information with regard to the past) except in the assessment year 1977-78. The total assets which were of the order of Rs. 49.40 lakhs as at 31-3-1962 gradually had risen to Rs. 130.33 lakhs as at 30-9-1977, and the related actual liability was approximately Rs. 8.5 lakhs and Rs. 41 lakhs, respectively. The trust fund and other connected funds were Rs. 23 and odd in 1962 and gradually increased to little less of Rs. 84 lakhs in 1977. Coming to the assessment year 1975-76, the net surplus was Rs. 9,32,885 while it had applied only Rs. 11,250 for the object of the trust. In the next year, while the total income was Rs. 12,12,488, the amount applied for the object of trust was only Rs. 3,500. It also appears to us that there were additions of fixed assets. This is only to illustrate how the expenditure for real charity is glaringly low and this would not have been the situation if really the income of publication was only to subserve the chief object proclaimed in the preamble to the declaration of 1945. It may be apposite to mention here about the following observation of Beg, J. in Sole Trustee, Loka Shikshana Trusts case (supra), which has been quoted with a approval in the majority judgment in Surat Art Silk Cloth Mfrs. Associations case (supra) :
'... If the profits must necessarily feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity ......' (p. 256)
Expending for adding to the fixed assets is only to increase the corpus o; f the trust and that does not promote any charitable purpose. What appears to us clearly is that the trust in spite of substantial income, is not engaging itself in any of the laudable objects which would have undoubtedly resulted in advancing a charitable cause, but is operating chiefly in the activity of making income by way of publishing and selling newspapers and the charitable element is significantly absent in the pursuits of the trust. It passes ones understanding as how a trust which is solely engaging itself in the activity of publishing newspaper for value is different from any other business enterprise solely established for earning profit by similar activity. An activity of publishing newspaper for value cannot be said to be an activity of charity merely because it is included in the declaration, for the object of a trust cannot be camouflaged merely because the trustees are authorised to carry out that activity. As Bhagwati, J. observes in Surat Art Silk Cloth Mfrs. Associations case (supra) the charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guise of the former. As we understand the preamble and clause 2 of the second declaration of 1945, it appears to us that the predominant object of the trust is to secure benefit purely of charitable object to the people of India and in particular to the people of certain states, namely, Cutch, Kathiawad and Gujarat. This particular activity cannot be linked to the predominant object set out in the preamble of the second declaration of 1945. Considering the activity of publishing of newspaper in this context, it appears to us that publishing newspapers and selling them for value cannot be treated as one not involving the carrying on of an activity for profit. We are, therefore, clear that the trust is not qualified to gain exemption under section 11, read with section 2(15).
15. The next question for consideration is in regard to the income from house property. The assessee claimed exemption in respect of such income also. In the assessment years 1975-76 to 1978-79 the house property income had been Rs. 25,761, Rs. 42,351, Rs. 41,841 and Rs. 45,792, respectively. It was the case of Shri S. P. Mehta that this income is exempt under section 11 inasmuch as the income has generated from the property held in trust without any activity carried on by the trust for profit. The claim was rejected and the commissioner (Appeals) observes that the income from house property arises from the same activity of publication of newspapers. We do not think that the view taken by the first appellate authority accords with law.
16. The activity of the trust is publishing newspapers is a separate entity and this cannot be linked to the immovable property held by the trust which is generating income by way of rent. Indeed, there is no positive activity of the trust to earn this rent income which, if we may say so, is self-generating.
17. It is not in dispute that the house property belongs to the trust. It is part of its corpus. Therefore, the income derived from such property held under trust is within the compass of section 11 as it does not involve the carrying on of any activity for profit. Reversing the findings of the Commissioner (Appeals) in this behalf, we answer the second question in favour of the assessee.
18. To gain absolute exemption, the application of the income has to be examined to know whether the entire income is applied for charitable purposes or any portion in excess of the percentage fixed in sub-clause (a) is allowed to be accumulated or set apart. This requires factual verification which the ITO has not done since the income was thought to be outside the scope of section 11. We, therefore, direct the ITO to examine the application of the funds from the provisions of section 11(1) (a) and to give the assessee such relief as it would be entitled, in each year, in the circumstances with this direction, we dispose of point No. 2.
19. In the result, the appeals by the assessee are partly allowed.