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2007 (1) TMI 207 - AT - Income TaxApplicability of section 13(1)(bb) - Charitable And Religious Trust - Object of general pubic utility - earning from activity of running Shilp Kala Kendra and insurance commission are eligible exemption u/s 11 ? - stitched and tailoring charges were earned - Grants in aid from the Social Welfare Board - HELD THAT - Assessee must be held to have carried on an object of general pubic utility which is the fourth head mentioned in section 2(15) and not that of imparting education. The consequence will be that section 13(1)(bb) is not attracted. However the assessee has to still satisfy the condition that the carrying on of the object of general public utility does not involve the carrying on of any activity for profit. The words not involving the carrying on of any activity for profit appearing in section 2(15) were omitted by the Finance Act 1983 only with defect from 1-4-1984. Therefore for the years under consideration these words were present in the sub-section and therefore it is necessary for the assessee to establish that the charitable object pursued by it does not involve the carrying on of any activity for profit. We have already noticed that with effect from 15-12-1976 the insurance agency business was discontinued. Therefore for the assessment years 1980-81 and 1981-82 the only activity carried on by the assessee was the Mahila Shilp Kala Kendra. So far as this activity is concerned the main argument of the learned CIT DR was that the assessee was making huge surplus from this activity which did not go for the benefit of the women and destitutes who were making the uniforms. In the case of Thiagarajar Charities v. Addl. CIT 1997 (4) TMI 7 - SUPREME COURT the Supreme Court was considering the difference between the objects of a trust and the powers given to the trustees to achieve the object. In the case before the court the objects of the trust were charitable. The trustees were given the power to carryon the business in cotton yarn cloth etc. The business constituted the corpus or the property held under trust. The assessee claimed exemption u/s 11 in respect of the income from the business. The Supreme Court upheld the claim holding that the business was only a means of achieving the objects of a trust and since the profits from the business was spent for the objects of the trust the trust was entitled to the exemption. In the present case though it is not the assessee s case that the business of Mahila Shilp Kala Kendra itself was held under trust that would not make any difference to the ultimate result because as laid down in the aforesaid judgment of the Supreme Court the surplus from the Mahila Shilp Kala Kendra has been consistently applied for the charitable activities carried on by the assessee and to this limited extent the aforesaid judgment applies to its case. It should however be noted that the provisions of section 13(1)(bb) were not under consideration before the Supreme Court since the assessment years involved in the case was 1964-65 1965-66 and 1966-67 during which years the provisions of section 13(1)(bb) were not in the Act. In the ultimate analysis to the limited extent of saying that if the profits of the business carried on by the trust feed the charitable objects then it can be said that the activity carried on by the trust is not guided solely by a profit motive the aforesaid judgment applies. We may also add that even in the judgment of the Supreme Court in the case of Surat Art Silk Cloth Manufacturers Association case the same principle was laid down. Moreover the CIT took proceedings u/s 263 to deny the exemption to the assessee-trust for the assessment years 1978-79 and 1979-80 but dropped the proceedings. For the assessment years 1984-85 to 1999-2000 the Assessing Officer himself granted the exemption and these assessments have not been disturbed. For the assessment years 1982-83 and 1983-84 the Tribunal allowed the exemption. In such circumstances following the rule of consistency also apart from the reasons given by us earlier the assessee s claim has to be upheld. The Hon ble Delhi High Court has taken the view in CIT v. Lagan Kala Upvan 2002 (12) TMI 74 - DELHI HIGH COURT and Director of Income-tax v. Lovely Bal Shiksha Parishad 2003 (10) TMI 25 - DELHI HIGH COURT that the income-tax authorities cannot take inconsistent views on the same set of facts. Respectfully following these decisions and applying the rule of consistency the assessee s claim requires to be upheld. This reasoning of ours is independent of the other reasons given by us in the earlier paragraphs to uphold the assessee s claim. In the result we accept assessee s claim and allow all the assessee s appeals.
Issues Involved:
1. Exemption under Section 11 of the Income Tax Act for the assessee's income from insurance business and Shilp Kala Kendra for the assessment year 1977-78. 2. Exemption under Section 11 for the assessment years 1980-81 and 1981-82, focusing on whether the predominant object of Mahila Shilp Kala Kendra was charitable or profit-oriented. Detailed Analysis: Issue 1: Exemption under Section 11 for the Assessment Year 1977-78 The Tribunal examined whether the income from the Shilp Kala Kendra and insurance business was exempt under Section 11. Section 13(1)(bb), inserted from April 1, 1977, was pertinent as it stipulated that income from business carried on by a charitable trust for relief of the poor, education, or medical relief would not be exempt unless the business was carried out in the course of the actual carrying out of the primary purpose of the trust. The Tribunal concluded that neither the Shilp Kala Kendra nor the insurance agency business was carried out in the course of the primary purpose of the trust. The Tribunal noted that the insurance agency business, discontinued from December 15, 1976, did not satisfy the provisions of Section 13(1)(bb). It also held that the Shilp Kala Kendra was conducted on commercial lines, with profit-making as the dominant object, thus not qualifying for exemption under Section 11. Issue 2: Exemption under Section 11 for the Assessment Years 1980-81 and 1981-82 A Special Bench reconsidered the earlier Tribunal's decision for the assessment year 1977-78. It examined the legal position and factual circumstances, concluding that the Shilp Kala Kendra's activities did not involve a profit motive. Key findings included: - The Kendra did not advertise, had no sales managers, and accepted orders only from a limited number of companies, indicating no profit motive. - The surplus generated was applied towards charitable purposes. - The CIT had granted a certificate under Section 80G and dropped proceedings under Section 263, supporting the charitable nature of the trust. The Special Bench held that the assessee was entitled to exemption under Section 11, as the predominant object was charitable. High Court's Remand and Tribunal's Reconsideration The High Court remanded the cases back to the Tribunal for reconsideration in light of Supreme Court decisions in Thiagarajar Charities vs. Addl. CIT and Asstt. CIT vs. Thanthi Trust. The Tribunal, upon reconsideration, acknowledged that the assessee pursued an object of general public utility, not education, thus Section 13(1)(bb) was not applicable. The Tribunal emphasized that the charitable object did not involve a profit motive, as the surplus from the Shilp Kala Kendra was consistently applied towards charitable activities. Supreme Court Precedents The Tribunal referred to the Supreme Court's ruling in Surat Art Silk Cloth Manufacturers Association, which established that if the predominant object of an activity is charitable, the mere fact that it yields profit does not alter its charitable character. The Tribunal also considered the Thiagarajar Charities case, which differentiated between the objects of a trust and the powers given to trustees to achieve those objects. The Supreme Court held that if the business profits feed the charitable purposes, it cannot be said that profit-making was the real object. Conclusion The Tribunal concluded that the assessee's activities did not involve a profit motive and were aimed at achieving charitable purposes. The assessee's claim for exemption under Section 11 was upheld for all the assessment years in question, following the principles laid down by the Supreme Court and the rule of consistency as established by the Delhi High Court in similar cases. The appeals were allowed in favor of the assessee.
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