TaxTMI 
TaxTMI 
2020 (11) TMI 1125
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....ssessee is constituted as a Trust with its main object, as declared in its Memorandum of Association ['MoA' for brevity], for establishing, maintaining and running a hospital for philanthropic purposes and not for the purpose of profit. One of its objects which has been declared in the MoA, as incidental or ancillary to the attainment of the main object is 'To run Chitties (Kuries)'. The learned Counsel for the assessee specifically pointed out the ancillary object from the MoA and submitted that the assessee had been granted the exemption in the years prior and subsequent to the relevant assessment year. The entire income from the business of Chitties was applied for the main object, the philanthropic purpose and in any event, the income generated is less than Rs.25 lakhs, making the first proviso to Section 2(15) inapplicable to the assessee. The assessee's Counsel relies on Commissioner of Income Tax v. Dharmodayam Company & Or s. [ (1977) 4 SCC 75 ] and Assistant Commissioner of Income Tax v. Thanthi Trust Etc. [(2001) 2 SCC 707] to claim the exemption. 3. The learned Standing Counsel appearing for the Revenue draws a distinction between a business 'h....
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....nt of any other object of general public utility not involving the carrying out of any activity of profit' which does not have any relevance to the subject Trust which has as its primary object 'provision of medical relief'. In Dharmodayam Company, the Court looked at the objects to which the profits were to be applied. After first applying it to the Company's stability and creating a reserve for bad debts the balance was to be applied to 'charity, education, industry and other purpose of public interest'. On facts it was found that the Company had never undertaken any industry nor any other activity of public interest other than conducting kuri business. The decision in Indian Chamber of Commerce v. CIT (1976) 1 SCC 324 which criticized the judgment of the Kerala High Court impugned in Dharmodayam Company, was held to have done so without looking at the facts and on the assumption that the Company had been carrying on an 'industry'. 7. In the case of Dharmaposhanam Company, intially the objects were inter alia to raise funds by conduct of kuries, accept donations and subscriptions, lend money for interest as also promote 'charity, education i....
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....ovision of medical relief'. Here, the question falls for consideration on the basis of the provisions as applicable to the relevant year, being Section 2(15) and Section 11(4A). But before extracting the above provisions, we refer to the judgment of the Hon'ble Supreme Court in Thanthi Trust. Therein, a Daily newspaper, called 'Dhina Thanthi', was founded in 1942 and the same was settled on a trust called 'Thanthi Trust' created in 1954. The Hon'ble Supreme Court considered the issue for various years on the basis of the relevant provisions. The first of such controversy arose prior to 01.04.1984 when Section 13(1) (bb) was in the statute book. By Section 11(4) a property held under trust included a business undertaking so held on the basis of which the assessee drew a distinction insofar as 'a business held under Trust' and that 'carried on by a Trust'. It was the case of Thanthi Trust that the newspaper business being the property settled upon the Trust, it was one held under Trust as a part of its corpus; thus creating a legal obligation to use the income generated from the business held under Trust for the public charitable purpose fo....
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....n the distinction as to a business held under Trust or carried on by it was noticed in the minority judgment without any clarification as to what would be the consequence of the distinction in the later instance. All the decisions cited, wherein business in kuries was mentioned as an object in the Memorandum of Association, were held to be business held under trust. The kuri business here too, has to be hence found to be a business held under trust. Sub-section (4) of Section 11 makes any business held under trust to be property held under trust for the purposes of this section. 12. The second controversy which arose in Thanthi Trust was the position of law between 1984 and 1992 in the context of Sub-section (4A) of Section 11 as it stood then; with which we are not concerned. For our purpose, what is relevant is sub-section (4A) of Section 11 as substituted with effect from 01.04.1992, which was the third controversy dealt with in the case of Thanthi Trust. For the said years the business of news paper held under Trust was found to be entitled to exemption on the following interpretation of sub-section (4A), in para 25: "25. The substituted sub-section (4A) states that....
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....ies, hospitals etc. As in the present case, the Trust Deed enabled carrying on of a business for and on behalf of the Trust for the sole object of applying the income and profits to the main objects of the Trust. The Trust then commenced a business for the manufacture and sale of Katha (Catechu), the funds for which came from sister concerns of the Trustees, borrowing from Banks and other agencies. The Division Bench of the High Court relied on the distinction of a business held under a Trust and carried on by Trust as recognized in Surat Art Silk Manufacturers' Association; which as we noticed does not regulate the dictum, since it is referred in the minority decision and that too without any consequence arising therefrom. It was held that the test to find a business as a property held under Trust should have been either acquired with the help of the fund originally settled upon Trust or the same having a substantial and real connection with the commencement of the business by the Trustees. It was also held that the application of the income generated from the business is not the relevant consideration and what is relevant is whether the activity is so inextricably connected o....
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....from the funds settled on the Trust, we do not think it applies in the present case. The Delhi High Court was concerned with the commencement of a manufacturing business, which requires considerable capital whereas here we are concerned with a Chitty/Kuri business wherein no such initial investment is required. On the distinction drawn, we have to notice that the Hon'ble Supreme Court while considering the assessment prior to 01.04.1984 with specific reference to Section 13(1)(bb) held so in paragraph 18 to decline claim for exemption. "18. 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 of 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". This is the specific example pointed out by the Delhi H....