2001 (1) TMI 80 - SC - Income Tax

Trust denied Section 11 exemption for certain years as newspaper business fell outside Section 13(1)(bb) and s.4A

Assistant Commissioner Of Income-Tax Versus Thanthi Trust

SC held that the trust was not entitled to exemption under section 11 for the assessment years in question because its newspaper business did not itself ... Eligibility of the trust to claim the exemption u/s 11 - Charitable Trust - demand the production of books of account - requirement of section 13(1)(bb) - Interpretation Of Taxing Statutes - principles of res judicata - HELD THAT:- The requirement of section 13(1)(bb) is that the exemption under section 11 will not be available to such a trust that carries on any business unless the business is carried on 'in the course of the actual carrying out of the primary purpose of the trust', that is to say, unless the business is carried on in the course of actually accomplishing a primary purpose of the trust ; the business must, therefore, be carried on in the course of the actual accomplishment of relief of the poor, education or medical relief. The business that the trust carries on is that of running a newspaper. That business, though it is held by the trust as a part of its corpus, and, therefore, in trust, does not directly accomplish, wholly or in part, the trust's objects of relief to the poor and education. Its income only feeds such activity. It cannot be held to be carried on in the course of the actual accomplishment of the trust's objects of education and relief of the poor. It is, therefore, not possible to accept the argument on behalf of the trust that it is entitled to the exemption under section 11. The High Court, in the first judgment under appeal, held that it was not open to the Revenue to contend that the earlier decision in CIT v. Thanthi Trust[1981 (1) TMI 26 - MADRAS HIGH COURT] would not apply to the case of the trust for the assessment years in question after the introduction of section 13(1)(bb) of the Act because the finding rendered in that decision was in the express language of section 13(1)(bb). We are unable to agree. The earlier decision was not rendered in the context of section 13(1)(bb). That provision was not on the statute book at that time. That the provision employs language akin to that employed in the earlier decision cannot mean that in a proceeding directly related to that provision the Revenue is barred by reason of the principles of res judicata from contending that the income of the trust is not exempt under that provision. Sub-section (4) defines the words 'property held under trust' for the purposes of section 11 to include a business held under trust. Sub-section (4A) restricts the benefit under section 11 so that it is not available for income derived from business unless (a) the business is carried on by a trust only for public religious purposes, and it is of printing and publishing books or any other notified kind or (b) it is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, provided, in both cases, that separate books of account are maintained by the trust or the institution in respect of such business. The expressions refer to entities differently constituted. It is thus clear that the newspaper business that is carried on by the trust does not fall within sub-section (4A). The trust is not only for public religious purposes so it does not fall within clause (a). It is a trust not an institution, so it does not fall within clause (b). It must, therefore, be held that for the assessment years in question the trust was not entitled to the exemption contained in section 11 in respect of the income of its newspaper. As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilised by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The trust, therefore, is entitled to the benefit of section 11 for the assessment year 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business has been employed to achieve its objectives of education and relief to the poor and that it has maintained separate books of account in respect thereof. Issues Involved:1. Eligibility of the trust for exemption under section 11 of the Income-tax Act, 1961, for different assessment years.2. Applicability and interpretation of section 13(1)(bb) of the Income-tax Act.3. Applicability and interpretation of section 11(4A) of the Income-tax Act, both as originally enacted and as substituted with effect from April 1, 1992.Issue-wise Detailed Analysis:1. Eligibility of the trust for exemption under section 11 of the Income-tax Act, 1961, for different assessment years:The trust claimed exemption under section 11 for various assessment years. Initially, the High Court upheld the trust's claim for exemption for the assessment years 1968-69 and 1969-70, stating that the primary purpose of the trust was charitable, and the business was carried on as a means to achieve the charitable objectives. However, the Revenue challenged this for subsequent years, leading to various writ petitions and appeals.2. Applicability and interpretation of section 13(1)(bb) of the Income-tax Act:Section 13(1)(bb) was introduced with effect from April 1, 1977, and remained until April 1, 1984. It stated that income derived from business by a charitable trust would not be exempt unless the business was carried on in the course of the actual carrying out of a primary purpose of the trust. The High Court initially upheld the trust's claim that the business was incidental to its charitable purposes. However, the Supreme Court disagreed, stating that the business of running a newspaper did not directly accomplish the trust's charitable objectives and thus did not qualify for exemption under section 11 during the period section 13(1)(bb) was in effect.3. Applicability and interpretation of section 11(4A) of the Income-tax Act, both as originally enacted and as substituted with effect from April 1, 1992:- Original Section 11(4A) (effective April 1, 1984, to March 31, 1992): This section restricted the exemption for income derived from business unless the business was carried on by a trust wholly for public religious purposes or by an institution wholly for charitable purposes with the work mainly carried on by the beneficiaries. The Supreme Court held that the trust did not meet these criteria and thus was not entitled to exemption for the assessment years 1984-85 to 1991-92.- Substituted Section 11(4A) (effective April 1, 1992): The new provision allowed exemption if the business was incidental to the attainment of the objectives of the trust and separate books of account were maintained. The Supreme Court found this provision more beneficial to the trust, stating that a business whose income is used to achieve the trust's objectives qualifies for exemption. Therefore, the trust was entitled to the exemption for the assessment year 1992-93 and thereafter.Judgment:The Supreme Court allowed the appeals by the Revenue for the assessment years 1979-80 to 1991-92, setting aside the High Court judgments that had upheld the trust's exemption claims for those years. However, the Court dismissed the appeals for the assessment years 1992-93 and thereafter, upholding the trust's entitlement to exemption under the substituted section 11(4A).