Printing & Selling Educational Books Qualifies As ‘Education’: ITAT Restores Section 11 Relief To Charitable Trust

Background Of The Dispute

M/s. Rashtrotthana Sahitya and Mudrana Trust, a charitable trust registered under Section 12AA since 08.07.1987, faced denial of exemption under Section 11 and Section 12 for a particular assessment year. The core controversy before the Bangalore Bench of the ITAT was whether a trust engaged in printing, publishing and selling books of educational value continues to be regarded as carrying on “education” for purposes of Section 2(15), or whether such activities amount to “advancement of any other object of general public utility” falling foul of the proviso to Section 2(15) on account of surplus and volume of receipts.

The assessee had filed its return of income on 10.2018 declaring NIL income after claiming exemption under Section 11. The case was flagged for limited scrutiny, specifically to examine the assessee’s accumulation under Section 11(2) in relation to its gross receipts. However, the Assessing Officer (AO) went beyond this limited mandate and proceeded to question the very eligibility of the assessee to claim exemption under Section 11 and Section 12.

Activities And Objects Of The Trust

The trust, as per its founding deed, is dedicated to:

  • Printing and publication of books of educative value for the benefit of the public; and
  • Carrying out educational activities.

In practice, the trust is involved in publishing literature on:

  • History and culture
  • Science and mathematics
  • Biographies
  • Health and environment
  • Personality development
  • Bharatiya life-values, traditions, and true history of India

The publications are intended to foster value-based education, awareness and character building. Over the years, Rashtrotthana Sahitya has received various recognitions and awards, such as:

  • Ankita Puraskara by Kannada Sahitya Parishat
  • Academy Award by Karnataka Sahitya Academy for works like “Torberalu”, “Ajeya”, “Adamya”, “Shatamanada Tiruvinalli Bharata”, “Gandheeya Arthashastra”
  • Best Translation award for “Samajika Kranti Surya Dr. Babasaheb Ambedkar” by Kuvembu Bhasha Bharati Pradhikara
  • Institution Award for “Utkarsha Patha” by Gandhi Sahitya Sangha
  • Best Publisher Award (2021) by Kannada Pustaka Pradhikara

These details were placed on record by the assessee to demonstrate that its publications are aimed squarely at disseminating educational and socially relevant content, and not at pursuing any commercial trading venture.

Stand Of The Assessing Officer

Characterisation As ‘General Public Utility’

The AO noted that during the relevant year the assessee:

  • Had total receipts of Rs. 8,40,28,752/- from printing and publication activities; and
  • Earned a surplus of Rs. 1,49,15,806/-.

Relying on these figures, the AO held that:

  1. The primary activity of the assessee involves printing, publishing and selling books and magazines for consideration.
  2. Such activity falls under “advancement of any other object of general public utility” and not under “education” within the meaning of Section 2(15).
  3. Since the activity generates surplus and involves receipts beyond 20% of gross receipts, the proviso to Section 2(15) and Section 13(8) becomes applicable.

Accordingly, the AO issued a show cause notice to the assessee as to why exemption under Section 11 should not be denied. After considering the submissions, he concluded:

  • The assessee trust was carrying on activities in the nature of trade, commerce or business.
  • The proviso to Section 2(15) was attracted due to the scale of receipts and surplus.
  • Exemption under Section 11 and Section 12 was, therefore, not available.
  • The surplus of Rs. 1,49,15,806/- was taxable as business income.

The assessment under Section 143(3) r.w.s. Section 143(3A) and Section 143(3B) was completed on 23.03.2021 denying the exemption.

Approach Of The CIT(A)

On appeal, the National Faceless Appeal Centre (NFAC), acting as CIT(A), confirmed the AO’s findings. Key observations by the CIT(A) were:

  • The trust is “solely engaged” in the business of printing and publishing books and magazines for which it charges consideration.
  • The appellate authority recorded that there was no evidence of amounts applied towards education or other charitable objects.
  • From the computation annexed to the assessment order, no expenditure was shown as applied for charitable purposes under either revenue or capital heads.
  • No valid claim under Section 11(2) for accumulation existed and Form 10 was also not filed.
  • Surplus was not shown as being applied for any charitable purpose.