TMI Blog2007 (1) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - R.V. EASWAR VICE PRESIDENT, P.N. PARASHAR J.M. AND P.M. JAGTAP A.M. For the Assessee : Ajay Vohra , Rohit Jain For the Revenue : Smt. Sangeeta Gupta ORDER These appeals have been placed before us pursuant to the directions of the Hon'ble Delhi High Court made on 20th March, 2004 in IT Ref. Nos. 237 of 1985, 36 of 1991 and 37 of 1991. These references related to the asst. yrs. 1977-78, 1980-81 and 1981-82. The question referred to the Hon'ble High Court for the asst. yr. 1977-78 was as under: Whether on the facts and circumstances of the case, the Tribunal was right in holding that assessee society's income from insurance business and Shilp Kala Kendra was not exempt from tax under s. 11 of IT Act? The common question referred to the Hon'ble High Court for the asst. yrs. 1980-81 and 1981-82 was as under : Whether on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) To establish and maintain institution or institutions for imparting general, vocational, industrial, moral and physical education to the children and girls and women of all creeds and castes. (h) To establish and maintain Dharamshalas, widow-home or any other such charitable institution for the benefit of all classes. (i) To establish and maintain any charitable institution with a philanthropic purpose which may be in the general interest of the poor of all classes and creeds. (j) To promote science, literature or fine arts, for instruction and diffusion of useful knowledge of foundation or maintenance of libraries or reading rooms for general use. (k) To ameliorate the condition of poor women and children of all classes and creeds. The sources for the above objects consisted of grants-in-aid from the Social Welfare Board, Lucknow and surplus in Mahila Shilp Kala Kendra at Modi Nagar, Kedarpura, Modipuram and Umesh Park. At these centres, uniforms, etc. of the employees of the various companies of the Modi group were stitched and tailoring charges were earned. The tailoring work was done by the wives of the workers of the group. The other source of income was comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other object of general public utility and hence the aforesaid provision was not applicable. Vis-a-vis this contention, the Tribunal held that even accepting that the words not involving the carrying on of any activity for profit qualified only the last object mentioned in s. 2(15) viz., the advancement of any other object of general public utility and not the first three objects viz., relief of the poor, education and medical relief, still the activity of Shilp Kala Kendra did involve the carrying on of an activity for profit as indicated by the accounts of the Kendra. The Tribunal also considered the decision of the Supreme Court in Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC) in which it was held that it was the dominant object of the activity that should be considered to ascertain whether the trust was involved in an activity for profit, and held that profit-making was the dominant or only object in carrying on the insurance agency business or the activity of the Shilp Kala Kendra. Thus the Tribunal ultimately held that the assessee was not entitled to the exemption under s. 11. 3. The position for the asst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject of general public utility . The present case falls under this category. In the light of the aforesaid findings, the Special Bench held that the assessee was entitled to the exemption under s. 11. 4. Both the orders of the Division Bench for the asst. yr. 1977-78 and the Special Bench for the asst. yrs. 1980-81 and 1981-82 were taken in reference to the Hon'ble Delhi High Court and the Hon'ble High Court has passed the order which we have already extracted in the beginning of this order. 5. In the light of the directions of the Hon'ble High Court and in respectful obedience to them, we have heard the rival submissions. The parties before us did not dispute the basic factual position that the assessee trust pursued an object of general public utility, which is the fourth head of charitable activity stated in s. 2(15) of the Act. If that is so, the provisions of s. 13(1)(bb) of the Act are not applicable because those provisions apply only to a trust which carries on the activity of relief of the poor, education or medical relief. In the light of this position, if we consider the applicability of the judgment of the Supreme Court in the case of Asstt. CIT vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the knowledge and skill and character of students by normal schooling and it has not been used in a wide and extensive sense, in the sense of acquiring any further knowledge. The argument of the Department did not proceed on the footing that the assessee was pursuing education as its main object. The argument was only that the predominant object of the assessee was that of profit making since the Mahila Shilp Kala Kendra was run on commercial lines. This argument, as we have already noted, was rejected by the Special Bench. We are quite aware that the orders of the Tribunal (both the Division Bench and the Special Bench) have been set aside by the Hon'ble High Court and, therefore, can no longer be regarded as holding the field and the matter has to be looked into afresh. Even so, on the question of whether the assessee can be said to have pursued education as one of the charitable objects, we have the assessee's own admission in its letter referred to above that it did not pursue the object of imparting education but pursued an object of general public utility. One of its objects was to establish and maintain centres for adult education, Shilp Kala, sewing for widows or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al aid to educational institutions. 6. The result of the above discussion is that the assessee must be held to have carried on an object of general public utility, which is the fourth head mentioned in s. 2(15) and not that of imparting education. The consequence will be that s. 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 s. 2(15) were omitted by the Finance Act, 1983 only w.e.f. 1st April, 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 w.e.f. 15th Dec., 1976, the insurance agency business was discontinued. Therefore, for the asst. yrs. 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 lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1978-79 30,196 Buildings other capital expenses 1978-79 26,588 Others 1978-79 95,178 Total 2,40,515 1979-80 3,37,223 30,820 3,68,043 2,76,032 Grants-in-aid 1979-80 1,59,449 Condensed course education 1979-80 29,658 Buildings other capital expenses 1979-80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the application falls short of 75 per cent of the income to be applied for charitable purposes in India, it would make no difference to the assessee's claim because the assessee had applied to the AO for accumulation of the income as permitted by s. 11(2) and, therefore, the deficiency in the application of the income has been accumulated and carried forward for future application. So far as asst. yrs. 1980-81 and 1981-82 are concerned, the assessee has applied more than 75 per cent of its income towards charitable purposes in India. It must be noted that in these years, the major source of income is the surplus from Shilp Kala Kendra and this has been applied entirely in giving grants-in-aid, condensed course education, buildings and other capital expenditure and other applications. There is no dispute that these are applications towards charitable purposes. The judgment of the Supreme Court in the case of Surat Art Silk Cloth Manufacturers Association (supra) applies to the case. In this case, it was held by majority that the test which has now to be applied is whether the predominant object of the activity involved in carrying out the object of the general public uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt under s. 11 of the Act. On reference, the High Court upheld the decision of the Tribunal. The assessee filed an appeal to the Supreme Court which held that the main purpose and objects of the trust are education, medical relief and relief of the poor and in order to carry out the objects, the trust has been authorized to establish and run educational institutions and other technological institutions for the welfare and uplift of the general Indian public, to run hospitals and clinics, to erect houses for the poor and to give relief to them in times of distress. The Supreme Court noticed that the clause in the trust deed which authorized the trust to carry on the business of cottage industry and rural reconstruction work was only a power to enable the trust to achieve its objects, and not an object by itself. In this view of the matter, the Supreme Court held that the Tribunal and the High Court erred in construing the clause in the trust deed which enabled it to carry on a business as having a profit motive. The Supreme Court also approached the case from a different angle and in the alternative held that the business in purchase and sale of yarn, cloth, etc. was itself held in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own. 8. The learned counsel for the assessee referred to the judgment of the Andhra Pradesh High Court in CIT vs. Hyderabad Race Club Charitable Trust (2003) 183 CTR (AP) 454 : (2003) 262 ITR 194 (AP). In this case, the race club was created as a public charitable trust in 1976. The trust obtained licence from the State Government to conduct races. The licence itself constituted property held under trust. The assessee claimed exemption under s. 11 which was upheld by the Tribunal on the ground 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 s. 13(1)(bb). The CIT questioned the decision of the Tribunal before the Andhra Pradesh High Court which held that the income derived by the trust by conducting races was income derived from property held under trust because the licence to conduct races was itself property and was held under trust. In the alternative, it was held that even if it is held to be income not derived from property held under trust, the contributions made by the race-goers could be treated as voluntary contributions under s. 12 which were capital receipts in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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