TaxTMI 
TaxTMI 
TaxTMI 
2006 (6) TMI 181
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....strative General of the State of Madras and the Secretary and Treasurer of State Bank of India as Trustees. The main object of the Club was to encourage and maintain the social interconnection between Europeans and Indians for promotion of sports such as tennis and other indoor games and past-time for the purpose of entertainment and amusements, educational, instructive or otherwise and such other purposes. The Willingdon Club acquired the property known as Willingdon premises bearing Door No. 1/4, Marshalls Road, Egmore, Chennai for a sum of Rs. 2 lakhs. The activities of the club became ineffective over the years, due to significant political and social changes brought about by the Indian Independence. Subsequently, in the year 1971 a new organization was created under the name of 'The Willingdon Charitable Trust'. The said organization constituted a society by a resolution passed on 27-2-1971 for the proper utilization of the property and for the fulfilment of the objects of the trust and for promoting other objects consistent with the needs of modern times and the said trust was registered under the Societies Registration Act, 1860. The trustees of the said charitable trust app....
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....nd Managers of any institution of trust having similar objects in fit and proper cases. 10. To construct and maintain any buildings of works necessary or convenient for the purpose of the Trust. 11. To incorporate with itself any institution, society of association having objects wholly or in part, similar to those of the Trust and are of a charitable nature enuring for the benefit of the public and to cooperate with any person or body of persons in aid of such object, provided such object is of a charitable nature enuring for the benefit of the public. 12. To do such other lawful acts and things as may be necessary or incidental and conducive to the attainment of the above aims and objects of any of them." 5. The assessee-trust owned property viz., "The Willingdon" which consists of land admeasuring 187 grounds. The assessee initially built a commercial complex and three floors admeasuring about 45100 sq.ft. between 1990 and 1992 for a total sum of Rs. 3.5 crores as loan taken from M/s. Indian Bank. Thereafter, the assessee constructed additional floor area of 9105 sq.ft. for which a loan of Rs. 58.29 lakhs was received from M/s. Indian Bank. Again in the years 1997 and 1999, ....
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....6. 1997-98 Rent and 7665934 5100000 12165934 Amenities ------------------------------------------------------ Further, the assessee has also admitted the income from running of ladies hostel as under: --------------------------- S.No. Asst. Year Income --------------------------- 1. 1996-97 36,391 --------------------------- 2. 1997-98 324,620 --------------------------- The assessee claimed excess of expenditure over income for the assessment year 1995-96 and admitted the excess of expenditure over income for the assessment years 1996-97, 1997-98, 1998-99, 2000-01. During the assessment years 1996-97, 1997-98 and 2000-01, the assessee- filed Form 10 under Rule 17 ofthe Income-tax Rules read with section 11(2) of the Act for accumulation of its income starting from the assessment year 1996-97 ending with the previous year 31-3-2001 i.e., 2000-01 to construct a college for women in Madras. The assessee alo....
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....------------ Raja Muthiah Hall ---------------------------------------------------------- First Day 12,000 8,000 2,500 5,000 27,500 ---------------------------------------------------------- Subsequent 9,000 6,000 1,000 5,000 220,000 Days (Per Day) ---------------------------------------------------------- For conducting Meetings for 4 Hrs. duration ---------------------------------------------------------- The Assessing Officer also found that apart from the above the assessee was providing the following services and collecting charges from its customers which are as under: (i) Various amenities in the Halls. (ii) Vessels. (iii) Furnitures. (iv) Water facilities. (v) Electricity. (vi) Air Conditioners, auditorium maintenance charges including telephone services. (vii) Maintenance Charges. The Assessing Officer further found that the rent per day for the two auditoriums included the donations and other amenities arid held that the objects of the trust as enumerated a....
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.... to any objects of the trust but an independent activity. Accordingly, he held that it is to be treated as 'business activity for profit' for the following reasons: "(i) The activity of letting out the auditorium is organized on commercial lines as not only the auditorium but also furniture, utensils and all other infrastructure/facilities available in the premises are given on hire. (ii) The auditoriums are let out on substantially high rents to the persons of high society and to organizations for huge exhibitions and the activity of letting out resulted in profit. Considering the same, the situation is analogous to the case of CIT v. Shanmugam (147 ITR 692). Though in that case, a person was running a lodging house, in the present case, the auditorium premises and other infrastructures are hired making it a concerted business activity, having a taint of commerciality. The appellant has rendered the activity of letting out kalyana mandapams and the supporting infrastructure in a systematic well organized manner to efficiently see the users of the auditoriums and there is no difference between services rendered by a modem hotel or a lodge and the services rendered by the appellan....
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....vely satisfied under section 11 (4A) of the Act for exemption. Since the assessee has not satisfied any of the conditions, he denied the exemption under section 11(4A) of the Act. Aggrieved by the orders of the Assessing Officer in all these years, the assessee preferred appeals before the CIT (Appeals). The CIT (Appeals) has allowed the claim of the assessee for the assessment years 1996-97, 1997-98, 1998-99 and for the assessment years 1995-96 and 2000-01 were not allowed and the order of the Assessing Officer was confirmed. Hence, aggrieved, the revenue is in appeal for the assessment years 1996-97, 1997-98 and 1998-99 and the assessee is in appeal for the assessment years 1995-96 and 2000-01. On the same reasoning, the order of the Assessing Officer was revised for the assessment year 1995-96 under section 263 of the Act against which the assessee is also in appeal before the Tribunal. 9. We have heard the rival contentions and gone through the case records. Before us, the ld. counsel for the assessee has filed Memo of income for the assessment years 1995-96, 1996-97, 1997-98 and 1998-99 along with the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Jan....
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....ssment order we find that the Assessing Officer has arrived at the following findings: "(i) The activity of the assessee viz., letting out the two magnificent auditoriums to trade association for carrying on exhibition etc. and to provide them to individuals for conducting marriages along with necessary infrastructure such as furniture, utensils, etc. at exorbitant rates affordable only by the most affluent in the society, is not a charitable activity. On this count, the assessee should loose its claim for exemption under section 11 in respect of its business income. (ii) The above activity constitutes a commercial activity, the income from which is assessable under the head business or profession. This business is not one held in trust by the assessee. (iii) If the income from business is to enjoy the benefit of exemption under section 11 it has got to satisfy the conditions mentioned in section 11(4A). (iv) Out of the two conditions mentioned in section 11(4A) the one viz., that the business should be incidental to the objectives of the trust is not satisfied in the assessee's case. Also the second condition, viz., that it should maintain separate accounts in respect of its b....
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....he Assessing Officer that the rent charged for the two auditoriums are very high and are beyond the reach of the common man is not warranted on the facts of the case since the rent charged is based on the area occupied and also taken into account certain other considerations like provisions of amenities such as electricity, car parking, watch and ward and other facilities. (iii) The observation of the Assessing Officer that neither the erstwhile "The Wellington" or the appellant "The Willingdon Charitable Trust" were authorized to construct and let out auditoriums and to run a ladies hostel is erroneous and is not born out by any material on record to the contrary. The Memorandum of Association lists out the objects and aims of the trust which contains the following :- "3(10) construct and maintain any buildings or works necessary or convenient for the purpose of the trust." In view of the above clause, the appellant can construct and maintain any building or works necessary or convenient for the purpose of the trust. The purpose of the trust is mainly educational, medical relief and relief of poor, protection of animals useful to mankind and as mentioned in sub-clauses 3(1) to ....
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....ecific educational purpose and thus the facts are to be distinguished. (v) The Assessing Officer remarked that running of a ladies hostel cannot be considered as a property held in trust. This hostel is basically meant for college students and, therefore, it is also incidental to the education object of the trust. (vi) Though the Assessing Officer observed that the activities of the appellant are not for charitable purposes within the meaning of section 2(15) of the Income-tax Act. it is submitted that the objects of the trust listed out in the Memorandum of Association detailed above are charitable objects. Reliance is placed on the decision of the Supreme Court in the case of Thiyagarayar Charities v. CIT (225 ITR 1010) and CIT v. Surat Art Silk Cloth Manufacturers Association (121 ITR 1). (vii) The activities of running auditoriums are intermingled with the objects of the trust and the power of the trust. The activities are charitable and the exploitation of. the properties are incidental to the appellant's objects. Therefore the case laws relied on by the Assessing Officer are not applicable to the facts of the case. In the case of CIT v. Shanmugam (147 ITR 692), the Madras ....
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....the direction of the settler or a donor. The view of the appellant that it constructed the present building on a property settled by a Court order and as such this property held in trust, cannot be accepted as the present buildings are constructed on the plot without any authorization by the objects of the trust. In his view, the activities are commercial in nature as fully detailed in the assessment order. (iv) As regards the issue whether the activities undertaken by the appellant are incidental to the objects of the trust, the Assessing Officer contended that letting out of auditoriums is not one of the objects of the trust and hence such commercial activity is not in any way incidental to the objects of the trust. (v) The appellant submits that its activities are so intermingled with the objects and power of the trust and it is also pleaded that the activities are charitable and the exploitation of the properties are incidental to its objects. In view of the Assessing Officer, the activities of running the auditoriums and ladies hostel are not incidental to the objects. The word "incidental" would mean "depending upon or appertaining to something else as primary; something ne....
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....er, it is observed that the Assessing Officer was of the view that if the vacant land in the property has been used for construction of an educational institution, which would be run by the trust, then it would be in order, whereas the construction of auditoriums and running of the same is not in order. It is not denied by the revenue that excess of income over expenditure from the activity of letting out the auditoriums is being used by the assessee towards the main object. There is no finding by the authorities below that the assessee is not carrying on charitable activities. The only dispute is regarding running of auditoriums and a ladies hostel and collecting rent and donations. This income was utilized by the assessee for the charitable activities and the assessee has fulfilled all the conditions as enumerated in section 11(5) of the Act. Further, sub-clause 3(12) shows that the founders of the trust did visualize future needs of the trust by way of unspecified 'lawful acts' and 'things' as may be 'necessary or incidental or conducive' to the attainment of the aims and objects of the trust. Since the assessee developed the property received from the erstwhile "The Willingdon"....
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....he meaning of activity for profit and charitable purpose which reads as under: "It being clear then that the charitable purpose is the advancement of the object, and that the advancement must not involve carrying on of an activity for profit, I proceed to the next step. The words "activity for profit" should, I think, be taken as descriptive of the nature of the activity. It is an activity of a kind intended to yield profit. It is a profit making activity. That it may not actually yield profit during any period does not deny its true nature. Conversely, if profit has resulted from an activity, that does not, without anything more, classify it as an 'activity for profit'." Therefore, for a purpose to fall under the fourth head of "charitable purpose", it must constitute the advancement of an object of general public utility in which the activity of advancement must not involve a profit making activity. The word "involving" in the restrictive clause is not without significance. Activity is involved in the advancement of an object when it is enwrapped or enveloped in the activity of advancement. In another case, it may be interwoven into the activity of advancement, so that the resu....
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....rust, and indeed may betray the fact that the real purpose of the trust is not essentially charitable. If it is a business entered into for working out the purpose of the trust or institution, that is to say, in the course of, and with a view to, the realization of the charitable purpose, the income therefrom will be entitled to exemption under section11. In this connection, it is appropriate to note that section 11(4) specifically defines "property held under trust" as including a business undertaking. Moreover, when it was found that judicial decisions had held the restrictive clause in section 2(15) to control the fourth head only, and not also the first three heads in the definition, Parliament attempted to secure its original intent by enacting clause (bb) in section 13(1). The two provisions represent the mode of finding finance for working out the purpose of the trust or institution, by deriving income from the corpus of the trust property and also from an activity carried on in the course of the actual carrying out of the purpose of the trust or institution. At this stage, it will be appropriate to point out that the question whether a trust is created or an institution is....
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....of the learned judges that a carefully enacted scheme has been incorporated in the Act which closely controls the utilization of the trust income, and that the tax exemption is conditional on the observance of the statutory conditions stipulated in that scheme." 14. Further in the case of Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785, the Hon'ble Apex Court has held regarding applicability of sub-sections (4) and (4A) of section 11 of the Act as under: "Sub-section (4) of section 11 remains on the statute book, and it defines property held under trust for the purposes of that section to include a business so held. It then states how such income is to be determined. In other words, if such income is not to be included in the income of the other words, if such income is not to be included in the income of the trust, its quantum is to be determined in the manner set out in subsection (4). Sub-section (1)(a) of section 11 says that income derived from property held under trust only for charitable or religious purposes, to the extent it is used in the manner indicated therein, shall not be included in the total income of the previous year of the trust. Sub-section (4) defines the wo....
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....objective of the trust or, as the case may be, institution" and separate books of account are maintained in respect of such business. Clearly, the scope of sub-section (4A) is more beneficial to a trust or institution than was the scope of sub-section (4A) as originally enacted. In fact, it seems to us that the substituted sub-section (4A) gives a trust or institution a greater benefit than was given by section 13(1)(bb). If the object of Parliament was to give trusts and institutions no more benefit/than that given by section 13(1)(bb), the language of section 13(1)(bb) would have been employed in the substituted sub-section (4A). 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 utilized 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 benefi....