TaxTMI 
TaxTMI 
2007 (1) TMI 207
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.... as under : "Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the predominant object of the activity of Mahila Shilp Kala Kendra was to carry out the charitable purpose and not to earn profit and, therefore, the assessee was entitled to claim exemption under s. 11 for both the asst. yrs. 1980-81 and 1981-82 in question ?" The Hon'ble High Court has remanded the cases back to the Tribunal for adjudication in accordance with law by observing as under : "Prima facie, we are of the view that the findings are based on the facts. However, at the Bar, learned counsel appearing for the parties were not in a position to state that the Tribunal has examined the question in proper perspective or not and, more particularly, in view of later decisions of the Supreme Court in Thiagarajar Charities vs. Addl. CIT & Anr. (1997) 140 CTR (SC) 295 : (1997) 225 ITR 1010 (SC) and Asstt. CIT vs. Thanthi Trust, Etc. (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC). Obviously, the judgments were not there at the relevant time, but as the Tribunal in both the references have given contradictory findings, it would be in the....
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....he tailoring work was done by the wives of the workers of the group. The other source of income was commission from insurance business, but this was only upto 15th Dec., 1976 from which date the business was discontinued by making necessary resolution. For the asst. yr. 1977-78, the assessee's claim for exemption under s. 11 was denied by the AO and CIT(A). The Tribunal to whom an appeal was taken by the assessee examined whether the income earned from the activity of running Shilp Kala Kendra and earning insurance commission would be exempt under s. 11 and for this purpose, the Tribunal was required to examine the applicability of s. 13(1)(bb). This section was inserted w.e.f. 1st April, 1977 and provided that the exemption given by s. 11 will not apply to income derived from business carried on by a charitable trust or institution for the relief of the poor, education or medical relief, unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution. The Tribunal held that neither the activity of "Shilp Kala Kendra" nor the activity of insurance agency was carried on in the course of carrying out the primary purpose ....
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....ly held that the assessee was not entitled to the exemption under s. 11. 3. The position for the asst. yrs. 1980-81 and 1981-82 was however different. In these years, the matter was decided by a Special Bench consisting of three Members as it was felt that the earlier order of the Tribunal (Division Bench) for the asst. yr. 1977-78 required reconsideration. After considering the legal position expounded by several authorities including the judgments of the Supreme Court in Surat Art Silk Cloth Manufacturers Association's case (supra) and CIT vs. Andhra Pradesh State Road Transport Corpn. (1986) 52 CTR (SC) 75 : (1986) 159 ITR 1 (SC) in which the meaning of the words in s. 2(15) viz., "not involving the carrying on of an activity for profit" was authoritatively laid down, and after examining the factual position with regard to the two activities, viz., the insurance agency business and the Shilp Kala Kendra, the Special Bench recorded the following findings : (a) The Kendra does not advertise for its products, has no sales managers nor does it search for customers. Its establishment expenses are low because of this. Tailoring charges are moderate. (b) The qu....
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.... medical relief. In the light of this position, if we consider the applicability of the judgment of the Supreme Court in the case of Asstt. CIT vs. Thanti Trust, Etc. (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785 (SC), it is seen that this judgment was concerned with the question regarding the applicability of s. 13(1)(bb). It was held by the Supreme Court, reversing the judgment of the Madras High Court partly that if the business of the trust is not carried on in the course of the actual carrying out of the primary purpose of the trust as required by the aforesaid section, its income would not be exempt from tax. In that case, the trust called the Thanti Trust was established with the objects of giving relief to the poor and education. The Supreme Court therefore held that the income from the newspaper, which business was held under trust, did not directly accomplish, wholly or in part the objects of the trust and that the income from the business only fed the activity. The ruling in this case is not applicable to the present case where admittedly the object of the trust is the advancement of an object of general public utility. In the asst. yr. 1977-78, the CIT(A) had recorded a ....
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....n object of general public utility. One of its objects was to establish and maintain centres for adult education, Shilp Kala, sewing for widows or destitute ladies of all creeds and castes. Another object is to establish and maintain institutions for imparting general, vocational, industrial, moral and physical education to the children and girls and women of all creeds and castes. However, these two objects mentioned in the trust deed cannot be relied upon to contend that the assessee was pursuing the imparting of education as one of its objects. In this context, it is important to advert to the ruling of the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust vs. CIT 1975 CTR (SC) 281 : (1975) 101 ITR 234 (SC), a judgment of a Bench consisting of three Judges. In that case, it was held that the word "education" in s. 2(15) connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling and has not been used in the wild and extensive sense according to which every acquisition of further knowledge constitutes education. In the light of this judgment and the law laid down therein, it is not possible for us to hold ....
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....the only activity carried on by the assessee was the Mahila Shilp Kala Kendra. So far as this activity is concerned, the main argument of the learned CIT, Departmental Representative was that the assessee was making huge surplus from this activity which did not go for the benefit of the women and destitutes who were making the uniforms. In this connection, we must advert to the "statement of income and application thereof during the asst. yrs. 1977-78 to 1981-82" filed before us by the learned counsel for the assessee. The statement is reproduced below : Asst. yr. Incomes 75% of the income to be applied Application of incomes Insurance Surplus from Shilp Kala Kendra Others Total Purpose Asst. yr. Amount (Rs.) 1977-78 1,08,315 1,85,805 21,884 3,16,004 2,37,003 Grants-in-aid 1977-78 45,680 Condensed course education 1977-78 25,467 Buildings & other capital expenses 1977-78 41,053 Others 1977-78 ....
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.... the application falls short of 75 per cent of the income to be applied for charitable purposes in India, it would make no difference to the assessee's claim because the assessee had applied to the AO for accumulation of the income as permitted by s. 11(2) and, therefore, the deficiency in the application of the income has been accumulated and carried forward for future application. So far as asst. yrs. 1980-81 and 1981-82 are concerned, the assessee has applied more than 75 per cent of its income towards charitable purposes in India. It must be noted that in these years, the major source of income is the surplus from Shilp Kala Kendra and this has been applied entirely in giving grants-in-aid, condensed course education, buildings and other capital expenditure and other applications. There is no dispute that these are applications towards charitable purposes. The judgment of the Supreme Court in the case of Surat Art Silk Cloth Manufacturers Association (supra) applies to the case. In this case, it was held by majority that the test which has now to be applied is whether the predominant object of the activity involved in carrying out the object of the general public utility is....
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....er s. 11 of the Act. On reference, the High Court upheld the decision of the Tribunal. The assessee filed an appeal to the Supreme Court which held that the main purpose and objects of the trust are education, medical relief and relief of the poor and in order to carry out the objects, the trust has been authorized to establish and run educational institutions and other technological institutions for the welfare and uplift of the general Indian public, to run hospitals and clinics, to erect houses for the poor and to give relief to them in times of distress. The Supreme Court noticed that the clause in the trust deed which authorized the trust to carry on the business of cottage industry and rural reconstruction work was only a power to enable the trust to achieve its objects, and not an object by itself. In this view of the matter, the Supreme Court held that the Tribunal and the High Court erred in construing the clause in the trust deed which enabled it to carry on a business as having a profit motive. The Supreme Court also approached the case from a different angle and in the alternative held that the business in purchase and sale of yarn, cloth, etc. was itself held in a trus....
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.... 8. The learned counsel for the assessee referred to the judgment of the Andhra Pradesh High Court in CIT vs. Hyderabad Race Club Charitable Trust (2003) 183 CTR (AP) 454 : (2003) 262 ITR 194 (AP). In this case, the race club was created as a public charitable trust in 1976. The trust obtained licence from the State Government to conduct races. The licence itself constituted property held under trust. The assessee claimed exemption under s. 11 which was upheld by the Tribunal on the ground that the activity carried on by the assessee did not constitute a business and even if it were business, it was not such business as would be hit by s. 13(1)(bb). The CIT questioned the decision of the Tribunal before the Andhra Pradesh High Court which held that the income derived by the trust by conducting races was income derived from property held under trust because the licence to conduct races was itself property and was held under trust. In the alternative, it was held that even if it is held to be income not derived from property held under trust, the contributions made by the race-goers could be treated as voluntary contributions under s. 12 which were capital receipts in the hands of th....