TMI Blog2002 (2) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1994 and dated 19-2-1997 in ITR No. 22 of 1995. Thereupon, consequential orders under section 260(1) of the Act were passed by the Tribunal on 10-7-1997 for both the years. Thereafter, the matter was carried on by the Department to the Hon'ble Supreme Court. Their Lordships of the Supreme Court vide their order dated 21-11-2000 in Civil Appeal Nos. 6083 and 6289 of 1997 restored the matter to the file of the Tribunal, Cochin Bench, observing thus: "Accordingly, the orders of the High Court under challenge and the orders of the Tribunal from which the reference was made are set aside and the matters (ITA No 681/Coch. of 1987 and ITA No. 264/Coch. of 1989) are restored to the file of the Income-tax Appellate Tribunal, Cochin Bench to be considered afresh in the light of what has been stated above." It is how the matter is seized of by the Tribunal for the second time. 3. The assessee is following mercantile system of accounting. The assessee receives income from house property held under trust for charitable purposes and derives income from the business of conducting Kuries and Chitties. For the assessment years 1984-85 and 1985-86, under appeal, the Income-tax Officer held r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7] 109 ITR 527 relating to the assessment year 1968-69. The learned CIT (Appeals) noticed that the Hon'ble Supreme Court interpreted section 2(15), section 11(1A) and section 11(1)/(4) only of the Income-tax Act, 1961, and the Hon'ble Supreme Court had no occasion to deal with section 11(4A) of the Act, newly introduced with effect from 1-4-1984. Accordingly, for both the assessment years under consideration, the learned CIT (Appeals) for the reasoning given by him on the above lines rejected the claim of the assessee to exempt the income of the assessee under section 11 of the Income-tax Act, 1961. 5. Aggrieved by the orders of the learned CIT (Appeals) assessee preferred appeals for both the years before the Tribunal, Cochin Bench. The Tribunal by its order dated 15-3-1993 in ITA No. 681(Coch.)/87 relating to the assessment year 1984-85 held that the assessee is entitled to the benefit of exemption under section 11(1) of the Act. The same view was followed by the Tribunal for the subsequent assessment year, viz., 1985-86 by order dated 9-12-1993 in ITA No. 264 (Coch.)/1989. 6. Aggrieved by the orders of the Tribunal, the matter was carried on before the Hon'ble High Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1922 and thirdly the decision in Dharmodayam Co.'s case 45 ITR 478 has reached finality, The Revenue filed appeal against the decision of the Hon'ble Kerala High Court and it was withdrawn. Therefore, as on today there is a decision of the jurisdictional High Court which is binding on this Bench of the Tribunal. 8. The transactions in Kuries is impressed with the character of a trust. The transactions may not be said to be a "business". "Business" has commonly understood (there being no definition of 'business' even in section 2(13) which merely expands the concept of business by an inclusive not exclusive definition) is a real, substantive and systematic or organized course of activity or conduct for profit, though profit may not necessarily result always. It was the case of the assessee before the learned first appellate authority and before the Tribunal in the first round of litigation that there was no motive for profit even in the conduct of Kuries. That profit motive is necessary is accepted in a large number of Sales tax judgments and this principle is reiterated ill the case of Sri Palani Dhandayuthabani Devasthanam v. CTO [2001] 124 STC 553 (Mad.). 9. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1956 controls the assessee. Secondly, the assessee is a charitable institution. Thirdly the income from the activities of Kuri/Chitti carried on by the assessee is held under trust. All these activities are conducted not with any profit motive. The assessee maintained separate books of account. The only hitch found by the Revenue authorities to deny the benefit of exemption under section 11(1) is the newly substituted section 11 (4A)(b) which came into effect from 1-4-1984, because according to the Revenue the business is mainly not carried on by the beneficiaries and hence the case of the assessee is hit by section 11(4A)(b). 13. Replying to the above, the learned departmental representative submitted that the assessee is a charitable institution. The assessee's claim that the assessee's position is cleared by the decision of the jurisdictional High Court in CIT v. Dharmodayam Co. [1974] 94 ITR 113 (Ker.) and of the Supreme Court in Dharmodayam Co.'s case 109 ITR 517 is incorrect. This is clear from the decision of the Supreme Court in the case of the assessee in CIT v. Dharmodayam Co. [2001] 248 ITR 816 by virtue of which the matter is now before the Tribunal. In none of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on in the course of the actual carrying out of a primary purpose of the institution, or (ii) the work in connection with the business is mainly carried on by the beneficiaries of the institution." It is to be seen that, as rightly contended by the learned counsel for the assessee, Sri G. Sarangan, the newly substituted section 11(4A) is almost same verbatim of section 4(3)(i), proviso (b)(ii) of the Income-tax Act, 1922, as we have reproduced above reads as under: "the work in connection with the business is mainly carried on by the beneficiaries of the institution." The newly substituted sub-section (4A)(b) reads as follows: "(4A)(b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution and separate books of account are maintained by the trust or institution in respect of such business." It is not the case of the Revenue that the assessee is not a charitable institution. It is not the case of the Revenue that the income is not applied for charitable purposes. There is also no case that the assessee is not maintaining separate books of acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that section 11(4A) is a beneficial section and the law intends to extend the benefits only to such institutions where the work in connection with the business is mainly carried on by the beneficiaries of the institution. We are of the view that "the work in connection with the business is mainly carried on" does not mean that the activity should be mainly carried on by all the beneficiaries of' the institution. It is qualified with the words 'mainly carried on". "Mainly carried on" means mainly managed and controlled by the institution. The management and control is not the same as the physical carrying on of the business like conducting the Kuri/Chitti, etc. 18. Before parting with the order, we would also like to mention that, as hereinabove noted, section 11(4A)(b) of the Income-tax Act, 1961 and section 4(3)(i), proviso (b)(ii) of the 1922 Act are similar, except for the qualification added in section 11(4A)(b), i.e., "the business is carried on by an institution wholly for charitable purposes" and further separate books of account are maintained by the trust or institution in respect of such business". When the Hon'ble Supreme Court held that the assessee was a charitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements of section 11(4A). It is the very same cases which is the basis of the impugned order of the Tribunal. The short order of the Hon'ble Supreme Court is reproduced below: "The assessment years here involved are 1984-85 and 1985-86. Until the introduction of section 11(4A) into the Income-tax Act, 1961, on April 1, 1984, the case of the assessee was governed by the decision of this court in its own case (CIT v. Dharmodayam Co. [1977] 109 ITR 527). Section 11(4A) has introduced conditions in the application of sub-sections (1), (2), (3) and (3A) of section 11. It does not appear that the Tribunal has applied its mind to these conditions and given findings of fact as to whether or not they are satisfied. Nor has the High Court given due consideration to this aspect. To be able to decide whether the assessee is entitled to the benefit of the exemption under section 11, it is necessary for the Tribunal to determine whether it satisfies the requirements of section 11(4A). Accordingly, the orders of the High Court under challenge and the orders of the Tribunal from which the reference was made are set aside and the matters (ITA No. 681/Coch. of 1987 and ITA No. 264/Coch. of 1989) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-86 also. 5. Can a Charitable trust or institution, in order that it may retain its character, never carry on any business? Obviously, that cannot be the case, for then sub-section (4) of section 11 providing that "property held under trust" for the purposes of the said section 11, includes a business undertaking so held, would be meaningless. Provisions of section 11(5) prescribing the forms and modes of investing or depositing the money, may, preclude a charitable trust or institution from acquiring a business by the application of its funds and then carrying on the said business for the purpose of the trust or from commencing a new business by such application. This follows from the provisions of section 13(1)(d), which makes a Charitable trust ineligible to the benefits of exemption under section 11 of the Act, if the trust or institution makes any investment of its funds other than in the manner prescribed in section 11(5). But there is nothing to prevent a charitable trust or institution from carrying on a business donated to it or settled on it by a donor or a settlor. Therefore, if a charitable trust is created having as its nucleus a property, a business with or without ..... X X X X Extracts X X X X X X X X Extracts X X X X
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