TaxTMI 
TaxTMI 
2012 (12) TMI 136
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....tion under Section 11. 2. Aggrieved by the order of this Court, the assessee went on appeal before the Supreme Court in Civil Appeal No.1679 of 2007. Setting aside the order of this Court, by order dated 26.03.2007, the Apex Court remanded the matter back to this Court for fresh consideration. The Supreme Court pointed out that the Court had not framed substantial questions of law as required under Section 260A of the Income Tax Act. Further, the Apex Court pointed out that this Court had interfered with the concurrent findings given by the authorities below, which was without any reason. On this ground, the judgment was set aside and hence, the cases are listed before us for hearing. The Revenue is on appeal before this Court. 3. The assessment years under consideration in T.C.Nos.259 to 261 of 2004 are 1981-82 to 1983-84. T.C.Nos.1547 to 1549 of 2005 also relate to the very same years. It is seen from the facts narrated that as against the orders of assessment for the above years, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who allowed the appeals, holding that Section 13(1)(bb) was not applicable to the assessee's case. The Revenue went on ....
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....nsion of hospitals, clinics, dispensaries, maternity homes and similar institutions affording treatment, cure, rest, remuneration and other advantages in the way of alleviating the suffering of humanity; (b) To establish, maintain, run, develop, improve, extend, grant donations for, and to aid and assist in the establishment, maintenance, running, development, improvement and extension of educational institutions, technical, industrial and otherwise, including schools, colleges, polytechnics and research associations and institutions, workshops etc., hostels for the benefit of students and to award scholarships for the study, research and apprenticeship for all or any of the said purposes; (c) To establish, maintain, run, develop, improve, extend, grant donations for and to aid in the establishment, maintenance, running, development, improvement and extension of libraries, reading rooms, recreation centres and other facilities as are calculated to be of use in imparting education to the Indian Public. (d) To build, erect and construct and to aid and assist in the building, erection and construction of houses, tenemen....
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....ntly, a supplementary Trust Deed was drawn on 25.03.1957. The changes made thereon, as extracted in the order of the Tribunal, are as follows: 1. (i) Clause 9 of the Deed shall be numbered as 9(a). (ii) After Clause 9(a), the following clause shall be inserted: "9(b) INVESTMENTS AND DOCUMENTS OF TITLE SHALL BE MADE AND TAKEN IN THE NAME OF THE TRUST ITSELF REPRESENTED BY THE MANAGING TRUSTEES". 2. Clause 12 of the Deed shall be numbered as Clause 12(e) and the following clause shall be inserted after Clause 12(a): "12(b) A MINUTES BOOK SHALL BE REGULARLY MAINTAINED FOR THE RESOLUTIONS PASSED AT THE MEETING OF THE TRUSTEE OR BY CIRCULATION AND THE SAME SHALL BE SIGNED BY ALL THE TRUSTEES PRESENT". 3. The additions net out in this Deed shall be deemed always to have been part and parcel of the DEED OF TRUST dated 20.8.1956. The value of the original trust is Rs.21,000/- (Rupees Twentyone thousand only) and the schedule of properties as described in document No.1678 of Book 1." 7. Under a deed dated 01.10....
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....provisions under Section 13(1)(bb); consequently, it was not entitled to deduction. Apart from the main object of relief to poor, education, medical relief and advancement of of general public utility, he pointed out that Clause 1(f) authorised the Trustees to engage in, carry on, help, aid and assist and promote rural reconstruction work, cottage industries and all other matters incidental thereto, apart from establishing, maintaining, running, hospitals, clinics, dispensaries, educational institutions, libraries, places of residence for the poor and affording relief to the people in distress. Thus the Tribunal had both charitable and non-charitable purposes. The assessee's business activities did not fall under exceptional clauses; therefore the income derived by the assessee from business was not eligible for exemption under Section 11 and the Trust was hit by Section 13(1)(bb). 10. The assessee derived income from the property held in trust, which consisted of house property, business, shares and deposits. Holding the view that the decision reported in [1980] 121 ITR 1 (Additional CIT Vs. Surat Art Silk Cloth Manufacturers Association (S.C.) was rendered before Section 13(1)....
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....to the Trust on 01.10.1980, was leased out by the Trust so as to derive income for carrying out the various objects of the Trust, namely, relief to poor, education, medical relief, etc. The Tribunal further pointed out that the assessee carried on the business for two and half years and hence, the assessee's case would fall within Section 13(1)(bb), i.e., the business was carried on in the actual carrying out of the primary purpose of the Trust. The Tribunal observed that unless the assets of the Trust are exploited, the Trust would not be in a position to accomplish its charitable activities. Hence, to have better revenue so as to enable it to accomplish its primary purpose, it leased out its business to M/s.Rajapalayam Industrial and Commercial Syndicate Limited and the decision taken was essentially a commercial decision to protect the properties of the Trust. In so leasing out the property, the objects of the Trust had not undergone any change. It further pointed out to the amendment to the Trust Deed on 1st April 1983 as regards the leasing out of their properties to South Indian Lucifer Match Works, Sivakasi, which was settled under the settlement deed dated 01.10.1980 by P.I....
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....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." 15. Thus the questions that arose for consideration before this Court again are: 1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that Section 13(1)(bb) would not apply to the trust although it was carrying on business? 2. Whether the ratio of the Supreme Court's judgment in the case of Thanthi Trust (247 ITR 785) is not squarely applicable to the facts and circumstances of the case? 16. It may be seen from a reading of the grounds of appeal raised before this Court that the finding of the Tribunal is that the primary object of the Trust was to provide relief to the poor, education and medical relief. The Revenue does not dispute the fact that the business was impressed with the character of the Trust property, as evidenced by the lease deed exe....
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.... decision of the Apex Court reported in [2001] 247 ITR 785 (Assistant Commissioner of Income-tax v. Thanthi Trust) and submitted that the main relief of exemption under Section 11 to the Charitable Trust is relief to poor, education and medical relief, the business run by the assessee must be one which is carried on to exploit its primary object of affording relief to the poor and in giving aid to the poor and medical relief. Supporting the view taken by the Assessing Officer, learned counsel submitted that the provisions under Section 13(1)(bb) stood clearly attracted. 20. Countering the claim of the Revenue, learned counsel appearing for the assessee took us through the decision reported in [1982] 137 ITR 735 (Commissioner of Income-tax Vs. Thanthi Trust), a decision rendered prior to the introduction of Section 13(1)(bb) as well as to the observation of the Constitution Bench of the Apex Court reported in [1980] 121 ITR 1 (Additional CIT Vs. Surat Art Silk Cloth Manufacturers Association (S.C.) (at page 16), which also considered the provision under Section 13(1)(bb), even though the issue raised in the said decision was well before the introduction of the said Section. He al....
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....mary purpose of the Trust or the Institution. 23. Section 11 is concerned about the exemption on the income earned by the Trust from the property held for the charitable or religious purposes. It defines "property held under trust" under Sub Section (4) as follows: "11. Income from property held for charitable or religious purposes.-- (1) ... (2) ... (3) ... (4) for the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Income-tax Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes." 24. Section 11(4A), introduced under Finance Act No.2 of 1991 with effect from 01.04.1992, after its insertion un....
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....er the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity." The learned judge also added that the restrictive condition 'that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is not the real object.' We wholly endorse these observations." (emphasis supplied). We are of the view that the above test is also satisfied on the facts of this case. It held that where the predominant object of the activity is to carry out the charitable purpose and profit making is not the predominant object, the engaging in an activity is only to subserve the primary object of the activity and the activity would only be a means to accomplish the primary object. The Supreme Court pointed out to the difference between the objects of the Trust and the means to accomplish the object and held that engaging in business activity as a ....
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....n the predominant object of the activity is to carry out the charitable purpose and not to earn profit, the exclusive clause which would otherwise be available to a case of general public utility would not stand in the way of the assessee claiming an exemption under Section 11. The Apex Court pointed out to the spending of the money for charitable purpose specified in the Trust Deed. "In other words, the amounts earned had been essentially spent on charity." There can be no doubt that profit making was not the relevant object of the Trust. 28. In the decision reported in [1980] 121 ITR 1 (Additional CIT Vs. Surat Art Silk Cloth Manufacturers Association (S.C.), the Apex Court laid down the principle that if a business is carried on by a trust or institution for the purpose of accomplishing or carrying out an object of general public utility and the income from such business is applicable only for achieving that object, the purpose of the trust or institution would cease to be charitable and not only income from such business but also income derived from other sources would lose the exemption. Pointing out to the far reaching consequence that may come, the Supreme Court held that....
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....hi Trust). There the assessee was a Trust. The author of the Trust was carrying on the business of printing and publishing a Tamil daily newspaper as the sole proprietor thereof, since 1942. The author of the Trust transferred the business of the newspaper as a going concern with all its assets and liabilities to the Trust constituted under the deed of trust dated 01.03.1954. The Trust was constituted to establish the newspaper and provide for its efficient running. It is stated that the trust deed mentioned as its object, (a) the establishment of Dina Thanthi, known as Daily Thanthi, as an organ of educated public opinion for the Tamil reading public, (b) to disseminate news and to ventilate opinion upon all matters of public interest through the said newspaper, and (c) to maintain the said newspaper and its press in an efficient condition devoting the surplus income of the said newspaper and its press after defraying all expenses, in improving and enlarging the said newspaper and its services and placing the same on a footing of permanency. Clause 3(k) of the Trust Deed provided that if for any reason, the newspaper "Daily Thanthi" becomes defunct or its publication is discontinu....
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....under Section 11. This Court held on an analysis of the Trust Deed and the order of this Court, that the objects of the Charitable Trust referred to in the schedule to the decree clearly showed that the objects had to be fulfilled from and out of the income from the business carried on and that the primary purpose flowing out of the legal obligation was to fulfil the charitable objects. It further held that business was carried on as a means in the course of the actual carrying out of that primary purpose and not as an end in itself. 32. Referring to the decision reported in [1980] 121 ITR 1 (Additional CIT Vs. Surat Art Silk Cloth Manufacturers Association (S.C.), this Court held that it was not possible to accept the case of the Revenue that the Trust was not entitled to claim an exemption. The decision of this Court reported in [1982] 137 ITR 735 (Commissioner of Income-tax Vs. Thanthi Trust) came up for consideration before the Apex Court in the decision reported in [2001] 247 ITR 785 (Assistant Commissioner of Income-tax v. Thanthi Trust) in the same assessee's case for the subsequent years starting from 1984-85 to 1991-92, and 1992-93, 1995-96 and 1996-97. While confirming....