TaxTMI 
TaxTMI 
2003 (2) TMI 36
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....the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding 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 section 13(1)(bb) of the Act?" The brief facts noticed are as under: The Hyderabad Race Club had decided to create a separate public charitable trust in the name and style "Hyderabad Race Club Charitable Trust" and the same had come into existence under a deed of declaration dated October 25, 1976. The stewards of the Hyderabad Race Club were the settlers of the trust and an amount of Rs. 1,116 was set apart as corpus fund. The main objects of the trust are advancement and propagation of education, medical aid and relief of poor, etc. The stewards of the club as well as the trustees are identical. The Hyderabad Race Club Charitable Trust obtained a licence for conduct of races and inter-venue betting from the Government of Andhra Pradesh and every year conducted such activity for two or three days and the said income was added to its funds. The assessee-trust claimed exemption of such income under section 11 of the Income-tax Act, 19....
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....esh. The explanatory note relating to the resolution for creation of the trust as well as the terms of the trust did clearly contemplate the assessee getting such property from the Hyderabad Race Club. The licence obtained by the trust could be treated as property. The Appellate Tribunal further held that even if it is not to be treated as property held under trust, it can be treated as voluntary contribution given by the Hyderabad Race Club to the assessee and such voluntary contribution cannot have the character of an income and it could only be a capital receipt in the assessee's hands. It is not possible to hold that there has been business in the normal course. Even if it were to be a business, in the facts and circumstances of the case, it is not such a business as to be hit by section 13(1)(bb) of the Act, since the assessee satisfies the conditions of section 2(15), read with section 11 of the Act and as such allowed the appeal in toto. Learned counsel for the Revenue argued that the stewards of Hyderabad Race Club and the trustees of Hyderabad Race Club Charitable Trust are one and the same and that the assessee-trust is just a creation of the race club and, as such, it....
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....11. Income from property held for charitable or religious purposes.- (I) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India ; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property (c) income derived from property held under trust-- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that i....
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....he income derived therefrom is "business income" and, as such, it is taxable. It is neither the business of the race club nor can it be treated as an income derived from the property held under the trust. In this regard, learned counsel relied upon the judgment reported in Asst. CIT v. Thanthi Trust [2001] 247 ITR 785 (SC). In that case, it was found that the business of the trust was running a newspaper and that business did not directly accomplish the whole or any part of the trust's object of relief of poor and education. The trust was not wholly for public religious purpose and it was not an institution and, therefore, the trust did not fall within the provisions of section 11 of the Act and, as such, was not entitled for exemption of tax. The Supreme Court while affirming the findings of the Madras High Court in Thanthi Trust v. Asst. Director Of Income-tax [1999] 238 ITR 635 held as follows: "A public charitable trust may hold a business as part of its corpus. It may carry on a business which it does not hold as part of its corpus. But the distinction has no consequence, in so far as section 13(1)(bb) is concerned. Section 13(1)(bb) will apply to a public charitable trust ....
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....n the said judgment, the Supreme Court held as follows: "Held, that the transactions of acquiring leases and granting sub-leases were in the nature of trading within the objects of the company and not enjoyment of property as land owner. There was no sale of its fixed capital at a profit. In acquiring the head leases and granting the sub-leases the assessee-company carried on a business and the amounts received by way of salami were trading receipts and the profits therefrom were liable to income-tax." It is difficult to accept the submission made by learned counsel for the Revenue as the above referred judgments do not deal with the nature of business undertaken by a trust or an institution of akin nature end as such cannot be relied upon on the facts of this case. Learned counsel for the Revenue argued that profits earned from the races and inter-venue betting by the assessee-trust for the relevant assessment years amount to income from the business conducted by the trust, and it cannot be exempted from income-tax under section 11 of the Act. Further, he argued that this income is not income from property held under the trust and the assessee is hit by section 13(1)(bb) ....
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....bmitted that this section deals with the "heads of income" and classifies the computation of total income under various heads and as such, the income earned by the trust by conducting races and inter-venue betting should fall into any one of the heads of classification and it cannot escape the tax liability. Particularly drawing our attention to the head F "Income from other sources", he submits that at least it should fall into this head. We may not accept with the submission made by the Revenue for the reason that the very section 14 of the Act saves the income otherwise provided by the Act. The expression "otherwise provided by this Act" must be construed that if the activities of the trust are not saved, the income earned by the trust by conducting such business is not saved under any other provisions of the Act. Sri C. Kodandaram, learned counsel for the respondent-assessee, submits that the income earned by the trust is not income from the business of the race club. The races and the inter-venue betting were conducted by the assessee-trust for the objects sought to be achieved by the trust under a licence granted by the competent authority and as such it must be deemed tha....
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....d that a charitable trust may hold a business as a part of its purpose and it may carry on the business which it does not hold as a part of its corpus. But the distinction has no consequence in so far as section 13(1)(bb) is concerned. Section 13(1)(bb) will apply to public charitable trust for the relief of poor, education or medical relief that carries on a business regardless of whether the property is held under the trust or in the trust. He further argued that it is not correct to contend on the part of the Revenue that the assessee carrying on this business for two or three days every year, amounts to carrying on a regular business and the income therefrom is not exempted under section 11 of the Act. On the other hand, he submitted that the income of every assessment year is to be taken separately and it can never be said that all the three years shall be taken into consideration and judged to come to a conclusion that it is a regular business being conducted by the trust. In fact it can never be said that the activities of the trust for two or three days meant for raising funds for the purpose of achieving the objects of the trust are business. He further argued that the ....
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....aning of section 2(13) of the Act and whether section 11 of the Act is attracted or the income derived from such transaction is hit by section 13(1)(bb) of the Act. We are of the considered opinion that the activities of the trust, i.e., conducting races and inter-venue betting after obtaining licence from the Government of Andhra Pradesh and the income derived therefrom cannot be called an income from the business of the trust for the reason that the same is being utilised to achieve the primary object of the trust. The objects and legality of the trust and also the grant of licence by the State Government are not in dispute, except to the extent that the objects are distributive in nature and some of them are charitable and others are non-charitable in nature. But, once it is found that promotion of sports and athletics, which benefit the large number of people, are charitable in nature and also of general public utility this objection also would fall apart. The trust has conducted these stray activities for the purpose of achieving its primary objects, i.e., relief of poor, education, medical aid, etc. Thus, the activities undertaken by the trust cannot be called a business syst....
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....uch arrangement and in the facts and circumstances, it is not such a business which would be hit by section 13(1)(bb) of the Act. It is only an activity which could constitute the property or an arrangement involved in transfer of funds from the Hyderabad Race Club to the assessee's institution in a form recognised by law and not shown to be colourable exercise or otherwise as contended by the Revenue. Since, it cannot be said to be a business and the income derived cannot be said to be a business income the provisions of section 13(1)(bb) of the Act are not attracted. The assessee-trust is an institution, which satisfies the conditions under section 2(15), read with section 11 of the Act and as such, we cannot reach a different conclusion other than the one reached by the Appellate Tribunal. None of the objects of the trust can be said to be non-charitable in nature. Rather the objects of the trust are purely of a charitable in nature. The main objects of the trust are advancement and propagation of education, medical aid and relief to the poor. In fact, promotion of sports and games is also one of the charitable objects. Merely because a discretion is vested in the trustees to....