Recently, in Delhi Bureau Of Text Books v. DIT(E), the division bench of the Delhi High Court held that Generating profits out of publishing and selling of school text books can be treated as “Charitable purpose” and therefore, exemption under sections 11 and 12 of the Income Tax Act cannot be denied to the assessee-society.
Assessee was registered under section 12A(a) of the Income Tax Act, was formed with an object to ensure timely supply of prescribed text books at fair prices to school students and to improve the quality of primary and secondary school education in Delhi schools. They provide books at subsidized rates and is also distributing free books, reading material and school bags to needy students. AO, vide the impugned order, held that the activity of publication and sale/purchase of books should not be treated as business activity and therefore, denied exemption u/ss 11 and 12 of the Income Tax Act. While holding so, he relied upon the Apex Court decision in Sole Trustee Loka Shikshana Trust v. Commissioner of Income Tax (1975) 101 ITR 234 (SC), wherein the Court observed that since the Assessee was earning huge profit margins of about 35.15%, the activity of publication and sale of books could not be said to be a “charitable activity”.
Though the first appeal filed by the assessee was allowed, the Tribunal reversed the same on departmental appeal. Aggrieved by the order of the ITAT, the assessee approached the High Court.
The bench noted that it was an undisputed fact that the Assessee is a non-profit organization. “The preparation and distribution of text books certainly contributes to the process of training and development of the mind and the character of students. There does not have to be a physical school for an institution to be eligible for exemption. What is important is the activity. It has to be intrinsically connected to ‘education’.”
Allowing the appeal, the bench said that finding of the ITAT that merely because the Assessee had generated profits out of the activity of publishing and selling of school text books it ceased carrying on the activity of “education” is erroneous. “The ITAT failed to address the issue in the background of the setting up of the Assessee, its control and management and the sources of its income and the pattern of its expenditure. The ITAT failed to notice that the surplus amount was again ploughed back into the main activity of ‘education’. The question to be asked was whether the activity of the Assessee contributed to the training and development of the knowledge, skill, mind and character of students?.”
Read the full text of the Order below.
