TMI Blog1992 (7) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... from such business and whether such income derived from the business is exempt under section 11 of the Act. The Assessing Officer in compliance with the CIT's order dated 31-3-1989 passed under section 263 of the Act made fresh assessments for the assessment years 1984-85 and 1985-86. Thus the appellant has preferred appeals against the order of the CIT (Appeals) for these assessment years. The CIT (Appeals) disposed of all the appeals for the assessment years 1984-85 and 1985-86 and subsequent assessment years by passing a consolidated order. As both the sets of appeals were heard together, therefore, they are disposed of by this consolidated order for the sake of convenience. 2. In view of the facts brought on record, relevant evidence relied upon by both the parties, the legal position and the case law, mainly the following points have arisen for our consideration : (a) Whether the assessee is a charitable trust ? (b) Whether the activity carried on by the assessee amounts to a business activity ? (c) Whether the chick levy voluntarily contributed by the poultry farmers and hatcheries or collected by the assessee is income from business activity ? (d) Whether such an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy. It is also not compulsory even for the members to contribute towards chick levy, but they have to contribute towards membership fees. Extending facilities in all respects to the poultry farmers and hatcheries to improve and protect the egg industry, whether amounts to rendering services and contribution of chick levy as service charges is also a further question. The lower authorities have held that the assessee trust is rendering specific services against payments of specific charges and therefore, its income is liable to be taxed under section 28(iii) of the Act. It was further submitted that the activities of the assessee trust were not that of poultry farmers at large and the same does not amount to rendering of specific services against specific charges. The voluntary contributions are not in proportion to the alleged services rendered but in proportion to the chicks purchased by poultry farmers. The voluntary contributions collected from the poultry farmers is 6 paise per chick and from the hatcheries 4 paise per chick totalling 10 paise per chick. 5. In the assessment years 1986-87, 1987-88 and 1988-89 another issue has been raised by the department, i.e., the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e activities carried on by it may be stated as follows : The appellant is a charitable society which was established on 31-5-1982 and was registered under the Societies Registration Act, 1860 on the same date. It may be noted that only a non-profit organisation which is engaged in carrying on activity of a charitable nature can be registered as a Society under the Societies Registration Act, 1860. The provisions of the said Act prohibit distribution of assets to the members of a society and lay down that even in the event of dissolution of the society, the assets of the society shall be handed over to another society or charitable organisation with similar objects. The appellant was also registered as a public charitable trust under the Bombay Public Trust Act on 2-8-1982. It is also registered under section 12A of the Income-tax Act. The Memorandum of Association Rules Regulations are placed on record. The main objects of the appellant, as per clause 3 of the Memorandum are as under : " Objectives : The objectives for which the appellant is formed are : (i) To promote the welfare of poultry farmers in relation to the poultry industry. (ii) To ensure that the poultry farm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise. These two Clauses are reproduced hereinbelow : " 3.16 : To utilise the income and property of the NECC towards the promotion of the objectives set forth in this Memorandum of Association. No portion of the income and property of NECC shall be paid or transferred, directly or indirectly, by way of dividends, bonus or otherwise, however, by way of profits to any person or persons, who at any time have been members of the council or to any one claiming through them, provided that nothing herein contained shall prevent the payment in good faith of honoraria, perquisites, facilities of any nature whatsoever to any member, office bearer or any one else, as the Central Committee thinks fit for any service rendered to the society. 3.17 : The NECC shall not be operated for profit in the functioning to achieve the aforesaid objects. Provided that any activity carried out by NECC for the promotion of the above stated objectives shall not be construed to be an activity for profit. " The membership pattern is as per Rule 3 of the Regulations. The Members are Founder life members, Honorary Members, Associate Members and Ordinary Members. All public organisations, Government institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to the establishment of the assessee society as also the nature of its activities were stated at some length. These are also not disputed by the department. Before 1982, trading in eggs was in the hands of a few wholesalers in major towns, Bombay, Hyderabad or Delhi. These wholesalers were powerful because there was no unity among the poultry farmers who were scattered all over the rural parts of the country. These poultry farmers had no information about the market conditions and they had no bargaining power. The eggs having very little life-long in general conditions were therefore required to be sold at whatever price was prevailing. In national calamities, drought, earthquake etc. the poultry farmers will be fully exposed and face financial ruination. In times of over-production of eggs, the price dictated by the wholesaler would be totally unremunerative, the expenditure being more than the prices received. Even the Government agencies like, MAFCO, MAPDEC, TAPC NAFED or individual co-operative societies of poultry farmers were unable to change this situation. Their role was confined to functioning as buying/selling agencies following the existing pattern for pricing. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or concern. The activities of the assessee trust are not meant to promote any particular brand of eggs or brand of chicks or to assist the activities of any particular business organisation. This position has not been disputed by the department. 10. The activities of the assessee were also elaborately stated by way of a Note before the lower authorities. Broadly the activities are : (1) Price declaration and monitoring the demand and supply of eggs based on market information obtained through the net work of the Local and Zonal Committees, (2) the assessee trust provides free information regarding price through newspapers, (3) promotion, publicity, advertisements and consumer education etc. undertaken to promote the egg consumption through advertisements in newspapers, T. V. sets etc., (4) Seminars are arranged for educating the farmers regarding technical, marketing and other aspects of poultry farming. These are available to all free of charge without restriction of membership, (5) Dialogue with Government on matters affecting the poultry sector such as Income-tax exemption, (6) procurement of Maize for the farmers at controlled price etc. This background necessitated for esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Extraordinary General Meeting that no liability or obligation as such was cast on any particular poultry farmer/hatchery to pay any amount of chick levy nor could any action whatsoever be taken by the NECC against any such member for recovery of such chick levy. As a matter of fact, several hatcheries and a very large number of poultry farmers who are members of NECC have not contributed towards chick levy. Further even those hatcheries who have contributed the chick levy have done so in a very irregular manner and have made contribution to some purpose and not others. Further even with regard to hatcheries some have contributed amounts whereas many others have not. Moreover, even hatcheries and poultry farmers who are not members of NECC have also contributed their amount. No action whatsoever has been taken by the NECC against any hatchery or any poultry farmer for non-payment of chick levy or for recovery of the same. The said amounts of chick levy received by the NECC have been utilised by it for financing its activities. During the assessment years 1984-85 to 1988-89, there were surpluses of amounts of chick levy received by the NECC over and above amounts applied by it to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of market intervention and the assessee's agreeing for 50 per cent of loss was also relied on to show that the assessee was carrying on trading activities. The CIT, after considering these aspects held that the activities of the assessee were concerted and systematic so as to constitute business and therefore, surplus was taxable as business income. The CIT also relied on section 28(iii) and held that in the case of trading association like that of the assessee where specific services are rendered, the income therefrom is liable to tax. So observing, the CIT directed the Assessing Officer to compute the income and to tax it as business income. This order of the CIT is dated 31-3-1989. 13. The Asstt. Commissioner took up and completed the assessments for 1986-87 on the same day, i.e., on 31-3-1989 more or less following the reasons given by the CIT, Pune in the order under section 263 for assessment years 1984-85 and 1985-86. In doing so, he emphasised the fact that chick levy was not a voluntary payment. According to him, the assessee's activities are controlled by Venkateswara Hatcheries group who are leaders in the hatcheries. In order to increase the demand for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e market, the company could buy eggs at supportive prices and it would then preserve them or move them to areas of scarcity so that the price of eggs did not fluctuate in different markets. In order to enable ACIL to carry out its aforesaid objects which subserve the poultry industry, the assessee trust from time to time made interest free advances to ACIL which were repayable by ACIL. The initial interest free advance to ACIL in assessment year 1984-85 was of Rs. 62,407. A further amount of Rs. 56,500 was given in the assessment year 1985-86. In assessment year 1986-87 net balance increased by Rs. 1,430 taking it as on 31-5-1985 at Rs. 1,20,437. The Asstt.Commissioner, however, disagreed and held that the amounts advanced would be investments because ACIL's activities went to reduce the financial burden of the assessee and in this sense the amount advanced was a trading Investment. With this finding, it was held that there was a violation of section 11(5) read with section 13(1)(d). Consequently, the entire income of the assessee was taxed at the maximum marginal rate for the assessment year 1986-87 without giving deductions for the expenditure incurred. 15. The assessments for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equire much effort on their part except in including such chick levy in their sale bill and depositing it with NECC. " In other respects also, the CIT (Appeals) confirmed the assessments made. He, however, deleted interest levied under section 217. 17. The assessee has challenged the common order of the CIT (Appeals) for the assessment years 1984-85 to 1988-89 before us. In regard to the appeals against the order of the CIT under section 263 for assessment years 1984-85 and 1985-86, we are concerned only with the applicability of section 11(4A) while in appeals against the order of the CIT (Appeals) we have in addition to consider the violation of section 11(5) read with section 13(1)(d) as alleged by the department. With this background regarding the assessments and first appellate decision, we may now consider the various contentions raised by the parties before us. 18. Shri S. Ganesh, learned counsel for the assessee prefaced his arguments by referring to the background facts which have been set out by us in the earlier paras. Referring to its objects, he stated that NECC is a non-profit making body which was brought into existence for propagating and encouraging the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing this clause, the CIT had completely omitted to consider the specific prohibition contained in clause 3.16 on payment of dividend to any member or to paras 9.6 and 9.7 of the Rules which required the assessee to apply its residual funds in accordance with Societies Registration Act. That had to be read with section 14 of the said Act which lays a statutory prohibition on the distribution of any part of the funds of the trust as profits and which also lays down that in the event of dissolution of the society, its assets and properties cannot be distributed among its members, but had to be handed over to another society or charitable society with similar objects. He stated that in the opening sentence of para 3.17 there was a bar to the assessee from operating for profits in its functioning to achieve the objects of the assessee. Thus the constitution of NECC itself contained several specific provisions for the purpose of ensuring that NECC would be a non-profit organisation which neither may not distribute any profits and which existed and carried on its activities only for the benefit of poultry industry as a whole. Mr. Ganesh further submitted that the chick levy received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid the levy, even non-members have paid such levy. Thus according to Mr. Ganesh the benefits of the assessee flowed to every member of poultry industry whether he has paid any levy or not. There is no provision in the constitution of NECC for either imposing or recovering from members any levy or to take any action for non-payment by any hatchery or a farmer. He placed strong reliance on the decision of the Madhya Pradesh High Court in the case of CIT Madhya Pradesh Anaj Tilhan Vyapari Mahasangh [1988] 171 ITR 677. A reference was also made to the decision of the Calcutta High Court in CIT v. Bengal Mills Steamers Presbyterian Association [1983] 140 ITR 586. This was a case of association existing for public religious purpose. It derived income by way of subscriptions from member mills. The member mills had no legally enforceable obligation to make contribution. It was held that these contributions were entitled to exemption. He also relied on the decision of the Income-tax Appellate Tribunal, Delhi Bench in the case of Institute of Marketing Management v. IAC. Mr. Ganesh pointed out that the facts of these two High Court decisions and the Tribunal are very close to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the direct result of the activities of the NECC was to increase the demands for eggs which might otherwise go waste because of want of adequate storage facilities. If as a result the demand for eggs went up high by even 5 eggs per chick, then at the current rate of 0.7 per egg, the poultry farmers would benefit to the extent of 3.5 per chick per year as against only 6 paise per chick paid by him. Thus the amount of chick levy contributions from the point of view of each contributor was extremely small or negligible as compared to the value of benefits conferred on them by the activities of NECC. Mr. Ganesh further submitted that NECC has been financing its charitable activities out of the said voluntary contributions in the form of chick levy received by it. In fact the extent and nature of NECC's charitable activities themselves depended on the amount of contributions received by NECC. 20. Accepting that there were sizable surpluses each year from assessment years 1984-85 to 1988-89, Mr. Ganesh pointed out that in assessment year 1989-90 there was shortage of Rs. 22,64,000 or so which wiped out almost half of the accumulated surplus. He therefore submitted that surpluses were ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to tax irrespective of the manner of application of such profits, i.e., whether a charitable purpose or otherwise. It was with this object that section 11(4A) was inserted in the statute book. It is significant to note that it was inserted after section 11(4) which referred to separate business held under trust for charitable purposes. Further section 11(4A) while providing for availability of tax exemption on the fulfilment of certain conditions even in respect of business income received by charitable trust stipulates that separate books of accounts must be maintained in respect of such business. Thus it is clearly indicated that section 11(4A) was intended to apply to and cover a separate business owned by a trust which was distinct and different from the carrying on of the charitable activity of the trust itself. In support of the said interpretation of section 11(4A), Mr. Ganesh placed reliance on the decision of the Madras Bench of the Tribunal in Auroboutique Trust v. ITO [1990] 36 TTJ (Mad.) 318 which specifically states that the object of insertion of section 11(4A) was to get over the decision of the Supreme Court in the case of Dharmadeepti. It is submitted that, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financing its charitable activities. It is not as if the carrying on of the charitable activities produces income for NECC. The said receipt of voluntary contributions and the application of the same to charitable purposes cannot possibly be considered by any principle of reasoning to a business activity. In the present case, it is not as if the assessee trust is collecting a levy and in return gives benefit of some services to persons paying levy. On the contrary, the assessee trust has merely and passively been receiving voluntary contributions which it has been using to finance its charitable activities. Thus, there are no transactions in that sense as such between the assessee trust and the persons paying levy. In this situation, there is no question of any business at all being carried on by the assessee. It was submitted that on this account it had to be held that NECC was not carrying on any business within the meaning of section 11(4A). 23. It was further submitted without prejudice to the earlier submissions, that an activity can be considered to be business only if it is undertaking with a profit motive. It was submitted that to constitute business, there must not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of determining whether the work in connection with the business was mainly carried on by the beneficiaries of the institution, it had to be seen whether the basic and essential functions and working which lead to the continuation of the fundamental object of the trust was being carried on by the beneficiaries. The fact that routine and clerical work such as delivery of letters, writing of account letters, typing of letters, answering of telephone calls etc. was done by persons other than beneficiaries will not in any way lead to the conclusion that sub-clause (b) of section 11(4A) was therefore rendered inapplicable. It was submitted that section 11(4A)(b) did not prohibit the employment of clerks, peons, stenographers, accountants, telephone operators etc. In fact, the lower authorities had accepted that the members were the mind and brain of the activities carried on. If this was the accepted position, then according to Mr. Ganesh, provisions of clause (b) clearly applied and therefore, for this reason also provisions of section 11(4A) did not apply. 25. Referring to the points raised by the CIT as also by the CIT (Appeals) that provisions of section 28(iii) were applicable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by V. H. Ltd. for their own benefit. In this behalf, Mr. Ganesh also made reference to the decision of the Madras High Court in the case of Madras Stock Exchange Ltd. for the proposition that activities of the members who promoted the trust are not relevant for the purpose of considering exemption under section 11. The High Court observed that concentration and attention must be on the assessee as such and not on those who either promoted it or were benefited by or from it. Merely because the members who constituted the Chamber were businessmen, it did not follow that their activity tainted the Chamber as such. Mr. Ganesh stated that these observations of the Madras High Court aptly refuted the allegations made by the lower authorities regarding involvement of V. H. Ltd. in the activities of the assessee trust. 27. It was submitted by Shri Ganesh that the impugned order of the CIT under section 263 of the Income-tax Act, is patently erroneous as it was based on complete mis-conception of chick levy is a compulsory exertion of NECC. Further the provisions of NECC constitution including, in particular, clauses 3.16 and 3.17 have been completely mis-read and mis-understood. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Memorandum and Association of ACIL and pointed out that the objectives of the ACIL were like objects of the assessee-trust, i.e., advancement of interest of the poultry industry as a whole. It was also pointed out that the main objects of ACIL were totally in harmony with those of the assessee trust. It was also submitted that for the purpose of achieving the basic object of the NECC it was absolutely essential to carry on extensive market survey operation by way of buying and selling of eggs and such operations could be carried on only by a separate company, which was why ACIL had been incorporated. It was pointed out that it was not sought to be contended by the Income-tax department that ACIL was employed for some other collateral or other purpose. The shareholders of ACIL were completely farmers and the assessee did not hold any shares of ACIL. The amounts in question were advanced to ACIL only for the purpose of assisting the NECC to achieve its objects and purposes which also were the objectives of the assessee trust. Further the assessee's representative also placed strong reliance on the minutes of the meeting of the National Bank for Agriculture Rural Development (NABARD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Cutchi Menon Union [1985] 155 ITR 51 in which it was held that the grant of interest-free loans by the trust to needy persons such as widows or other persons who were very poor constituted application of income by the trust in the year in which the money was given. The Karnataka High Court had placed reliance on the CBDT circular No. 100 dated 24-1-1973 which laid down that if an educational trust give loan scholarships to students, the loan scholarships should be considered to be application of income. Mr. Ganesh, therefore, submitted that in the present case also the advances made by the assessee to ACIL would be regarded as application of the assessee's income to charitable purposes. Mr. Ganesh further submitted that provisions of sections 11(5) and 13(1)(d) apply only with regard to the investments of that income of the trust which remains after application of the portion thereafter to the attainment of the charitable purposes. Section 13(1)(d) has no application at all to the income of the trust which has already been applied to charitable purposes. It was also pointed out that if this interpretation was not accepted and if the stand of the revenue was upheld, it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes to the Clauses explaining the provisions to the Finance Act, 1983 wherein it is clear that the expression " invested or deposited " used in section 13(1)(d) only reflects the mode of pattern of investment to be complied with by a trust. According to Mr. Ganesh, the lower authorities were not justified in holding that in advancing the amount to ACIL, the assessee had violated the provisions of section 11(5) read with section 13(1)(d) and thereby its income had become liable to be taxed at the maximum marginal rate. 34. It was also submitted that if all the aforesaid contentions of the appellant were rejected and if the appellant's income has to be assessed as if it is business income, then all the business expenditure incurred should be allowed as a deduction. Instead, the Income-tax authorities have assessed the gross amount of contribution received by the NECC as taxable without allowing any expenses whatsoever as deduction from the same. 35. Mr. Ganesh summed up his arguments by submitting that at the highest, what could be contended against the assessee was that it was possible to take another view of the statutory provisions. It was therefore, submitted that in any even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ak, there was sufficient nexus between the chick levy and the activities of the trust. Mr. Pathak also referred to the fact that the levy was raised from 6 paise to 24 paise in April 1976 and even then the farmers continued to pay the levy in large amounts. According to him, unless there was some kind of force or consideration, such large collections were not possible. If the collections were voluntary as was claimed by the assessee, there was no necessity of passing any resolution. The very fact that the assessee had to pass resolution was indicative of the fact that large collections were not otherwise possible. In other words, if the collections were voluntary as was claimed by the assessee, there was no necessity of passing any resolution. The resolution was indicative of the fact that as such it created a binding obligation for all the members to comply with the same. The fact that out of 31 hatcheries, majority of them have come liable under the resolutions showed that it had a binding force. Mr. Pathak, therefore, concluded that the assessee's contention that chick levy collected was purely voluntary and that it had no nexus in the activities of the assessee was not factuall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Pathak thereafter referred to the decision of the Supreme Court in the case of Indian Chamber of Commerce v. CIT [1975] 101 ITR 796. According to this decision, an activity which yields profit or gain in the ordinary course must be presumed to have been done for profit or gain. According to Mr. Pathak, if profit has resulted from the activity of the assessee, the intention of the assessee must be presumed to have been to gain such a profit. Mr. Pathak added that though subsequently this decision was overruled, in other respects, the basic principles laid down by it still hold the field. Mr. Pathak made a pointed reference to the fact that in spite of knowing that large funds would be required for carrying on these activities, admission fee for the members was kept at Rs. 50. Therefore he urged that there was reason to believe that the subsequent resolution to collect chick levy was intended as a regular and profit making activity. 38. Mr. Pathak made a reference to clause 3.17 of the Memorandum of Association and enquired as to the purpose of the proviso if no profit was to be made. He stated that the question whether the assessee makes a profit or not depends not on the clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be considered as confined to the laying out of an amount in a venture or institution with a profit motive and with no promise of assured return. In the process of investment, an element of risk is involved and the expectation of return or profit is not assured and the depletion of capital itself is not an abnormal feature. According to Mr. Pathak this principle very clearly applies to the advances made by the NECC to the ACIL. Mr. Pathak thus submitted that there was clear violation of section 13(1)(d). He also made a reference to the decision of the Punjab Haryana High Court in the case of Sharda Trust v. CIT [1981] 127 ITR 236. 41. Mr. Pathak then proceeded to deal with the specific points raised by the assessee's representative. He said that the case law relating to interpretation of section 2(15) before its amendment is no longer good law and it is not relevant. He then stated that the registration under the Societies Registration Act had no material bearing. Prohibition of distribution under the Act is applicable to charitable trust. Yet income-tax considers possibility of charitable trust having business activity. This clearly establishes that a mere registration un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a charitable trust in the course of carrying on of its charitable activities cannot possibly lead to the inference or conclusion that the trust is carrying on a business or that section 11(4A) applies to the same. Further, according to him a charitable trust depending on voluntary contributions cannot possibly be said to have profit motive. In regard to the department's reliance on the decision of the Supreme Court in the case of P. Krishna Menon, Mr. Ganesh pointed out that in that case, the Supreme Court had proceeded of the specific basis that the assessee was admittedly carrying on the vocation, i.e., vocation of teaching of Vedanta and the only question which arose for the decision of the Court was whether the receipt of income arose in the course of carrying on of the said vocation. Shri Ganesh, therefore, submitted that the judgment in Krishna Menon's case cannot possibly be relied upon by the department for the purpose of seeking to contend that the particular activity constituted a business or vocation or profession. In the present case, the basic issue which arose was itself whether the activities of the assessee trust constitute a business. The ratio of P. Krishna Men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision in the Income-tax Act. 47. Fourthly, the Federation was found to be engaged in the publication of periodicals, bulletins etc. which were available on payment of subscription or price even to non-members. This was clearly business activity. In the present case, however, the assessee trust does not carry on any such activity. It was submitted that the activities of the assessee in the present case are different from those of the Federation which included publication of periodicals, bulletins, holding commercial and industrial exhibition, running museums etc. all of which resulted in profit. Mr. Ganesh therefore urged that the above decision given in entirely different context may not be followed. Mr. Ganesh then dealt with the decision of the Supreme Court in the case of Management of the Federation of Indian Chamber of Commerce Industry v. Their Workman, R. K. Mittal AIR 1972 SC 763 which was followed in Federation of Indian Chambers of Commerce Industry's case. It was pointed out that R. K. Mittal's case only dealt with the question or issue as to whether a certain activity was ' industry ' within the meaning of Industrial Disputes Act from the point of view of empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r association, instituted for the promotion of some object especially one of public or general utility, religious, charitable, educational, etc. (definition as per Oxford Dictionary). 48. Mr. Ganesh firstly pointed out the legal significance and implication of registration of the assessee trust as a public charitable trust under the provisions of Bombay Public Trust Act. Our attention was invited to the provisions of section 9 of the Bombay Public Trust Act which defines the term ' charitable purposes '. It is clear that the definition of " charitable purposes " in section 9 of the Bombay Public Trust Act is virtually identical with that contained in section 2(15) of the Income-tax Act. Consequently, a public charitable trust formed under the Bombay Public Trust Act would necessarily be a charitable trust or institution within the meaning of Income-tax Act. 49. With regard to the advances made to ACIL, Mr. Ganesh stated that though it was a commercial concern it had to be noted that it was a public company entirely of poultry farmers. Its objects were entirely harmonious and complimentary with those of the assessee. Nobody other than poultry farmers would become shareholder. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try farmers in general whereas the amount of contribution by way of chick levy is so small and negligible in comparison that the various poultry farmers and hatcheries have agreed to really pay the said chick levy as they realised that it is in their interest to do so. We have perused the constitution of the NECC as also the resolution passed by the General Body of the Executive Committee of NECC by which the decision was taken to raise funds by way of chick levy. We are satisfied that there is nothing on the basis of which it can possibly be contended that NECC has a right to levy and recover chick levy either from its members or from anybody else nor is any liability imposed in law on any poultry farmers or hatcheries to contribute the said amount of chick levy. We have noted that many hatcheries and thousands of poultry farmers have not paid the chick levy at all to NECC and further, even those who have paid the said levy they have done so in a highly irregular manner. The NECC has not taken any action whatsoever against any member or non-member for recovery of chick levy. Further the members of NECC retained full membership rights notwithstanding they may not have contributed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts are received by the assessee. (b) The said transactions should be entered into by the assessee with the object of making profit. These principles have been laid down clearly in the following decisions : (i) Raipur Mfg. Co. Ltd.'s case (ii) Bharat Development (P.) Ltd.'s case (iii) Barendra Prasad Ray's case (iv) Senairam Doongarmall's case (v) Eclat Construction (P.) Ltd.'s case (vi) Gannon Dunkerley Co. (Mad.) Ltd. v. State of Madras [1954] 5 STC 216 (Mad.) affirmed in State of Madras v. Gannon Dunkerley Co. (Mad) Ltd. [1958] 9 STC 353 (SC). 55. In the present case the assessee trust is merely receiving voluntary contributions. It utilised the said contribution for the purpose of carrying out its charitable activities for the benefit of the poultry industry as a whole. It is an amount of the said voluntary contribution received by the NECC which determined the extent and nature of activities carried out by the NECC. In other words, it is the receipt of voluntary contributions which makes it possible for NECC to carry on its charitable activities. This carrying on of charitable activities generating income in the form of chick levy contribution is sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Income-tax Act was entirely different and on that basis declined to consider the decision which was relied upon by the counsel for the assessee. It is also interesting to know that subsequently in the case of the same Federation of Indian Chambers of Commerce Industries [1980] 130 ITR 186 case the Supreme Court held that the activities of FICCI did not involve the carrying of any activity for profit and that the same were covered by the definition of " charitable purposes " in terms of section 2(15) of the Income-tax Act 1961. 56. Besides, we find that the assessee is not carrying on any other activities which the above Federation was carrying on, which were considered to be in the nature of business. The question whether a particular activity can be regarded as business can also be considered from a common sense point of view. In the present case, if we see the overall activities of the assessee, we find that these are the normal activities of any genuine charitable trust. It was in need of funds and these funds were raised on voluntary basis from the members. We do not see how and what business the assessee is supposed to carry on. Thus, we hold from documentary evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of contribution received by NECC from a particular area would always include a certain margin of profit over and above the cost incurred by NECC for that area. This is not the case with the assessee. This is another clear indication to show that the assessee has merely been carrying on its charitable activities out of the contributions received by it and the assessee is not carrying on business activities in any sense of the term. We are also fortified in reaching this conclusion by the closing words of section 11(4A) in which it clearly contemplates that the business in question must be a separate and distinct undertaking as compared to the carrying on charitable activity itself. It is for that reason that the section requires that a separate books of accounts should be kept for the said business. 58. To support this conclusion that the assessee was running the business, the CIT Pune in his order under section 263 has referred to two more facts. Firstly reference is made to the association of the assessee called NAFED for market intervention. The CIT himself has noted that in this activity the assessee has agreed for sharing 50 per cent of the losses. We do not see how this asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the matter, section 11(4A)(b) comes to the rescue of the assessee. Section 11(4A)(b) applies to an institute where the work connected with the business is mainly carried on by the beneficiaries. We have no doubt that the assessee-trust is a charitable institution within the meaning of section 11 (4A)(b) of the term. The term " institution " is wide enough to cover and include the societies registered under the Societies Registration Act. This is clearly brought out by section 10(23)(b) of the Income-tax Act, 1961. Further the work which is referred to in section 11(4A)(b) cannot merely be charitable work. The clause referred to us is of importance for the purpose of achieving the object of the trust or institution. This important work should mainly be carried on by the beneficiaries. This condition is fulfilled in the present case. We find that most important aspect of the basic and fundamental activities of NECC are being carried out by the beneficiaries themselves. Section 11(4A)(b) does not lay down that the benefit of exemption is lost only because it employs the clerks, stenos, typists, telephone operators, despatch clerks and peons. That would be a highly unreasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified in sub-section (5), and it required that such money should be invested or deposited in the forms or modes prescribed under section 11(5). The question that arose is, whether the money advanced to ACIL is part of the money " applied ". The question of its investment under section 11(5) will not arise. It is therefore, necessary first to see what is the amount that was " applied ". Both the Asstt. CIT and the CIT and the CIT (Appeals) have equated the word " applied " to " spend ". The CIT (Appeals) in para 32 of his order states that the amount advanced to ACIL cannot be considered as an application of the assessee's income. He states that the amounts have not gone out irretrievably and, therefore, it cannot be considered as an expenditure and hence there is no application of money. This approach of the CIT (Appeals) regarding the application of income is erroneous and not keeping with the decided cases cited by the assessee's representative and even the Board's circular No. 100 dated 29-1-1973. If the interpretation of the CIT was correct then the Board's instructions to consider the loans, scholarships granted by the educational trusts as application of income would beco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of carrying on its activities. There is no allegation or suggestions made even by the department that the advances which were made by the NECC were for ulterior motive. We therefore, hold that the amounts advanced to ACIL constituted monies applied by the NECC to its charitable object and activities. Further the minutes of NABARD meeting wherein the said proposal to carry out the market operations was discussed and contains considerable light on the matter which makes it clear that by establishing ACIL and by carrying on regular operations the interest of poultry industries as a whole would be correctly protected. We also agree with the assessee's submissions, which were very fairly accepted by the learned departmental representative, that the provisions of section 11(5) read with section 13(1)(d) have no application at all whereas monies or income of the trust have already been applied to the charitable objects of the trust. Consequently, the mischief of section 13(1)(d) is not attracted to the present case for that reason alone. It was also contended by the assessee's representative that in any event the amounts advanced by NECC to ACIL are neither investments nor deposits as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of section 11(5) read with section 13(1)(d) does not arise and there would be no question of withdrawing the exemption under section 11 and sub-section of income to the maximum marginal rate also does not arise. Incidentally, we may observe that the Asstt. CIT was not justified in applying the maximum marginal rate to the gross receipts. Even though exemption under section 11 was not available, it does not mean that the income of the assessee-trust became equal to that of gross receipts. The income of the assessee in that case should have been computed in a commercial sense, i,e., after allowing all the expenses that were laid out for the purposes of activities. If the entire activity of the assessee was business income then the Asstt. CIT should have applied the maximum rate to the business income separately computed by him and not to the gross receipts. These observations are only incidental and they would arise only if there was any justification for applying the maximum rate at all. 66. For the reasons given above, we hold that the assessee was entitled to claim exemption under section 11 for all the years under appeals. We, therefore, set aside the order of the CIT Pune u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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