TMI Blog2012 (12) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... o (i) whether the Tribunal was right in holding that Section 13(1)(bb) would not apply to the Trust, although it was carrying on business; and (ii) whether the decision of the Supreme Court reported in [2001] 247 ITR 785 (Assistant Commissioner of Income-tax v. Thanthi Trust) was not squarely applicable to the facts and circumstances of the case. Applying the decision reported in [2001] 247 ITR 785 (Assistant Commissioner of Income-tax v. Thanthi Trust), this Court allowed the Revenue's appeal, holding that Section 13(1)(bb) would govern the case of the assessee that it was not entitled to exemption 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 566, 1567, 1568 and 1569 of 2005 relating to the assessment years 1990-91, 1991-92, 1992-93 and 1995-96 respectively. 5. It is seen from the narration of facts herein that one T.Iya Nadar created a Trust in August, 1956, settling certain properties in the name of the Trust, namely P.Iya Nadar Charitable Trust. The Trust was registered on 20.8.1956. The following are the objects of the Trust: (a) 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 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 schola ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation. 13. The Trustees shall have full power and management the Trust properties and funds and they shall have full control over the finances of the Trust. They shall likewise be entitled to take all steps that may be reasonable or required for the preservation of the Trust, the Trust Properties and the title of the Trust to do the Trust Properties. 6. Subsequently, 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general public utility, the assessee's activities in exploiting the trade constituted business income and hence, the claim of the assessee was hit by the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved from the exploitation of the trade name "Camel" was utilised for carrying on the various objects of the Trust. The match factory, which was given 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing for the Revenue placed heavy reliance on the 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 bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under the Finance Act 1983 with effect from 01.04.1984, reads as under: "11. Income from property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 means to accomplish the object would not defeat the claim for exemption under Section 11. 26. A reading of the facts in the decision reported in [1997] 225 ITR 1010 (Thiagarajar Charities Vs. Additional C.I.T.) show that it related to a Trust, which had its prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pex 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 nevertheless the restrictive words "not involving the carrying on of any activity for profit" in Section 2 Sub Section (15) would apply to a case of any other object of general utility. The Supreme Court pointed out that what is inhibited by the words "not involving the carrying on o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 discontinued, the properties of the trust may, at the discretion of the then trustees, be employed for any charitable purposes. On July 9, 1957, the founder of the Trust executed a supplementary deed declaring that the trust created by the document dated March 1, 1954, was irrevocable. The said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects. 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 the view of this Court reported in [1982] 137 ITR 735 (Commissioner of Income-tax Vs. Thanthi Trust) for the period prior to the introduction of Section 13(1)(bb), as far as the issue raised in respect of the subsequent period, applying the Section, the Apex Court observed as follows: "The requirement of section 13(1)(bb) is that the exemption under section 11 will not be ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in respect of the assessment year 1992-93 that the Trust was entitled to the benefit of exemption under Section 11, which is solely for the reason specified in Sub Section (4A), the Supreme Court held that for the period prior to 1992, under the original sub section (4A), the assessee was not entitled to any exemption under Section 11. This was on the strength of the trust deed which constituted the business and subsequently the application which arose by reason of the order of the High Court. 34. As far as the relevance of the decision reported in [2001] 247 ITR 785 (Assistant Commissioner of Income-tax v. Thanthi Trust) to the present case is concerned, as already noted, the reported decision has to be seen in the light of the findings arrived at on the terms of the Trust deed. As far as the present case is concerned, with the finding given by the Tribunal that the primary purpose of the Trust was to afford relief of poor, education and medical relief, the means employed by exploiting its assets to earn income to achieve the objects, cannot, in any manner, be applied to defeat the claim of the assessee under Section 11. Thus, guided by the decision reported in [1980] ..... X X X X Extracts X X X X X X X X Extracts X X X X
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