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Case Analayis: CST v/s Sai Publication Fund

Trusts which are formed for the "advancement of any object of public utility" are recognised in India as charitable trusts and they are exempted from making payment of taxes. They're often described as a "tax- efficient vehicle" for investing and contributing funds for charitable purposes. These trusts are mainly formed for the purpose of discharging certain charitable/religious sentiments of the persons forming the same.

While managing the trust, they may undertake activities which involve making sales of certain items, from which they derive income. In such cases, it becomes essential to determine whether the proceeds of such sales, made by the trust, can be taxed even if the primary purpose of the transaction is not financially motivated.

The present case is an appeal against the judgement of the High Court of Mumbai (Bombay) with respect to the payment of sales tax on income earned by a trust fund, from the publication and sale of books, pamphlets, stickers, and other literature containing religious messages. The primary question that had to be determined in this case was whether the sales were made in the course of a "business."

The question was first referred to the Deputy Commissioner of Sales tax and the matter finally appeared before the Supreme Court with two fundamental issues including issues regarding the amended definition of "business" as provided in The Bombay Sales Tax Act, 1959, and its implication in the present case.

Facts Of The Case:
The assessee (respondent) in this case, is a charitable trust which was formed by four devotees of Saibaba of Shridi with the intent of spreading the word of Saibaba and thus furthering their religious interests. To realize their objective, the assessee published various books, booklets, literature, and other publications bearing Saibaba's message, under the sponsorship of Sai Publications, and the same were then made available to the devotees for a modest fee to cover costs. The sale proceeds from such publications were appropriated by the trust, which further constituted the property of the trust and could be made use of only for advancing their goals.

The trust then made an application, in pursuant to Section 52(1)(a)[1] of the Act, to the Deputy Commissioner of Sales, to determine whether it is a "dealer" and whether it could be said to be carrying on a "business". It was determined by the Commissioner that the Trust's activity of publishing and selling books, among other things, constituted business as defined by Section 2(5A)[2] of the Act in view of the amendment[3] of 1989 as per which profit motive is immaterial for considering an activity as business. It was also held that the trust was a "dealer" as defined in section 2(11)[4] of the Act. Consequently, the trust was required to pay sales tax on the amount realised from the sales.

On appeal, the tribunal, after careful analysis of opposing arguments regarding the trust's object and its activities, held in favour of the Trust. The tribunal however also referred the matter to the High Court, at the request of the Revenue wherein the High Court was required to consider "whether the tribunal was justified in holding that Sai publications is not a "dealer" based on the facts of the case and provisions of the Act as amended by the Maharashtra Tax Laws (Levy, Amendment and Repeal) Act, 1989.

The High court decided the question in favour of the Trust, which led to the filing of the present appeal before the Supreme Court.

Issues:
The questions that arose before the court were two-fold:

  1. Whether the respondent is a dealer in accordance with Section 2(11) of The Bombay Sales Tax Act, 1959?
  2. Whether the trust, by publishing and selling booklets and other literature bearing Saibaba's words, can be said to be engaged in a "business" as contained under Section 2(5A) of the Act?


Rules applicable:
The statutory provisions as applicable to the case of CST v Sai Publication Fund are as follows:

  1. Section 2 (11) of The Bombay Sales Tax Act, 1959.
  2. Section 2 (5A) of the Bombay Sales Tax Act, 1959.
  3. Maharashtra Tax Laws (Levy, Amendment and Repeal) Act, 1989



Contentions Of The Parties:
The arguments submitted before the Supreme Court by both the parties are as follows:

Submissions by the Appellant:
The appellants argued that the term "business" has a broad and encompassing definition. It was submitted that the judgement of High Court was erroneous as it failed to consider the amended definition of business as per Section 2(5A) of the Bombay Sales Tax Act, 1959, which specifically provides that having a "profit motive" is irrelevant to consider an activity as a "business".

They further submitted that having regard to the facts, the respondent engaged in publishing books and selling the same, on a regular basis, and thus they must be held liable to pay tax for the value realized by the sales. They also claimed that all the elements of "business" have been complied with in the present case. They supported their contentions citing different case laws.

Submissions by the Respondent:
The Respondents argued that the primary intention of the Trust was to preach the words of Saibaba which is a charitable activity and the same can be inferred from contents of the trust deed. To achieve this goal, they also undertook to publish and sell literature which is merely incidental to the primary activity of spreading the word of Saibaba, and thus cannot amount to "business." The objects included in the trust deed further, makes it apparent that the trust was not created to pursue a business.

It was further submitted on behalf of the respondent that it was not a "dealer" as defined under the act as it was not engaged in any commercial activity.

Judgement:
The ratio decidendi and obiter dicta of the present case have been discussed below:

Ratio decidendi:
If the trust's primary activity is not a "business," any transaction, however incidental or secondary, would not be considered business unless the primary intent is "profit motive." Publishing and selling books and other publications with the aim of spreading a religious message or raising public awareness is incidental to the main idea behind the formation of the trust and the same cannot be classified as a business.

Obiter Dicta:
The phrase "carrying on business" involves more than just making sales and purchasing items. The court also noted that if the legislature meant to tax every single transaction of sale and purchase without having regard to the purpose which led to the transaction, then it would not have been necessary to declare that the individual must be "carrying on a business"

Observations:
The following observations were made by the Court in the present case:

  1. The definition of "dealer" as contained under Section 2(11) of the Act presupposes that the person is engaged in a business. However, in the present case, since business isn't the main activity and merely an incidental activity, such persons cannot be considered as a "dealer".
     
  2. The Court further observed that even though the term "business", without profit motive has a broad and encompassing definition as contained under Section 2(5A), since the primary activity of the trust, in this situation does not amount to business, any incidental transaction would not generally be considered as "business" unless an intention to pursue "business" as part of the incidental activity has been proven.

    Further, citing the case of State of Tamil Nadu & anr. V. Board of trustees of the port of Madras[5], the burden of proof lies on the Revenue Department to prove that the principal intention of the trust was to engage in a business.
    In the present case, the court noted that the revenue had not established the same.

    The court also cited numerous other precedents to justify its reasoning such as the case of State of Bombay Vs. Ahmedabad Education Society,[6] wherein an educational institution was required to establish a college for which certain buildings had to be constructed. In this case it was determined that the educational institution could not be deemed to be pursuing a business for selling unused bricks and thus will not be chargeable to pay sales tax. It was emphasised in the case that the intention of the person undertaking such activities, is relevant and needs to be considered.

    Further, the court considered the case of Girdharilal Jiwanlal vs. CST[7], wherein the High Court decided that, just because an agriculturalist sold commodities, he/she will not necessarily be considered a dealer unless it is proved that he is running a business.

    In University of Delhi v. Ram Nath,[8] it was ruled that serving food in a canteen cannot amount to a "business" and thus sale of the same will not be liable to tax.

    The amended definition of business also caused confusion, with respect to its applicability in different cases, one such case is of Indian Institute of Technology v State of UP,[9] wherein an issue was raised concerning the lodging accommodation provided by the IIT to students. Here it was determined that maintenance and provision of boarding facilities could not be considered as Institute's primary activity, however it is intrinsic to the main activity of providing an education. Thus, IIT could not be said to be pursuing a business.

    Finally, decision in the case of State of T.N. v. Cement Research Institute of India,[10] was also considered, wherein it was ruled that, sale of cement manufactured during the course of research cannot be considered as a commercial activity
     
  3. In the present case, the court observed that the primary condition that needs to be satisfied, is that the person must be engaged in "trade, commerce, manufacture or adventure in the nature of trade or commerce", only then can the consideration of profit motive arise. In the present case, the trust could not be considered as a "dealer" due to its charitable nature and further the activity would not amount to business irrespective of the profit element.
     
  4. The court also noted that the questions with respect to whether a person could be called a "dealer" and whether the person could be said to be carrying on a "business" depend on the facts and circumstances of each individual case.


Held:
Based on the aforementioned principles and cases cited, the two judge bench upheld the judgement of the High Court and decided in favour of the Respondent holding that the trust, "Sai Publication Fund" is not a "dealer" in accordance with the provisions of the Bombay Sales Tax Act, 1959, and their act of publishing and selling literature for furthering religious interests, cannot amount to a "business" and further it was clarified that the sales made by the trust cannot be made subject to Value added Tax or Sales tax.

Analysis:
The prominent issues involved in the present case were with respect to the definition of a "dealer" and "business" as contained under the act and also the amended definition of business which was brought forth by the Maharashtra Tax Laws (Levy, Amendment and Repeal) Act, 1989.

The amendment of the act has resulted in a lot of confusion pertaining to the applicability pf the amended definition to charitable activities, which appear to be in the nature of a "business"
In a plethora of decisions, the court has reiterated that charitable activities will not be regarded as a business or a commercial activity merely because there is a surplus. Further, surplus income cannot amount to a profit, as was observed in the case of Director of Income tax (Exemption) v Gujarat Cricket Association,[11] and thus, the findings of the present case were made applicable in the aforementioned case.

Through the case of CST v Sai publications, the court established that the trust was not carrying on any commercial/business activity and hence does not come within the ambit of section 2(5A) which defines business. It is pertinent to note in the present case, that the subsidiary activity is connected to the main idea of advancing Saibaba's philosophies which led the Supreme Court to conclude that the subsidiary activity cannot be regarded as a business.

Thus, this reasoning will not have any bearing where the activity under consideration has no connection to the prime object, and functions independently even though the income accrued from this activity is used to fund the main object. It also cannot apply in situations where the activity in question has resulted in the generation of a considerable amount of money. Furthermore, the ruling in the present case was made in relation to a "dealer." As a result, once it is determined that the assessee is not a dealer, the sales it makes are not subject to taxation.

However, the decision given in this case has an implication with respect to the liability of trusts to pay GST. Back in 2017, the Central Board of Indirect Taxes and Customs (CBIC) released a notification pertaining to GST provisions, highlighting that the GST exemption for trusts doesn't extend to all the services, and thus GST will be levied on the trusts, for goods supplied by them.

Thus, the decision given in the present case could support claims of a trust or an NGO, not wanting to pay GST with respect to the sales that are made by them for furthering a charitable activity, particularly those sales which are not made in the course of business.

The findings of the court, in the present case, have been relied upon by different judges while deciding cases involving similar issues, one such example is the case of Adit (exemption)-ii (1, Mumbai v. Jeevan Vidya Mission[12], wherein it was observed that circulating DVD's and books, whether by sale or any other means, by "Jeevan Vidya", would not amount to a commercial activity as the activity was undertaken to raise awareness about the respondent's initiative of imparting education.

Conclusion:
It can be concluded that the rule laid down, in this case, has been made applicable to different situations involving similar questions of law. However, the question as to whether reliance can be placed on the present decision needs to be determined in the light of the factual circumstances of each case.

The ideal approach would be to examine each activity based on the facts and circumstances of each individual case and to be circumspect in ascertaining that the activities under consideration are not undertaken in the course of business to determine the applicability of the rule laid down in the present case.

End-Notes:

  1. The Bombay Sales Tax Act, 1959, no. 51, 52 cl 1(a).
  2. The Bombay Sales Tax Act, 1959, no. 51, 2 cl 5A: "business includes any trade, commerce or manufacture or any adventure of concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern [8] or trade, commerce or manufacture and any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern [9] and any transaction in connection with, or incidental or ancillary to, the commencement or closure of such trade, commerce, manufacture, adventure or concern."
  3. Maharashtra Tax Laws (Levy, Amendment & Repeal) Act, 1989.
  4. The Bombay Sales Tax Act, 1959, no. 51, 2 cl 12: "Dealer means any person who whether for commission, remuneration or otherwise carries on the business of buying or selling goods in the State, and includes [16] the Central Government, or any State Government which carries on such business, and also any society, club or other association of persons which buys goods from or sells goods to its members."
  5. (1999) 4 SCC 630.
  6. 1956 7 STC 497 (Bom).
  7. (1957) 8 STC 732 (Bom).
  8. AIR 1963 SC 1873.
  9. (1976) 38 STC 428 (All).
  10. (1992) 86 STC 124 (Mad).
  11. Tax Appeal No. 268 of 2012.
  12. Income Tax Appeal No. 770 (Mum.) Of 2014.

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