TMI Blog2010 (10) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome as shown in the return is not actually utilized for a charitable purpose as claimed by the assessee then the exemption claimed for the said income goes. It would also mean that in such a case the profit making is the real object and therefore the doctrine of "feeding the charity" would have no application whatsoever. - - - - - Dated:- 8-10-2010 - IBRAHIM KALIFULLA F. M., SUNDRESH M. M. JJ JUDGMENT M. M. Sundresh J.- In view of the common issues involved in all these appeals between the same parties, they have been taken up together for passing a common judgment. 2. Challenging the orders of the Tribunal for the assessment years 1995-96, 1996-97, and 1997-98, 1998-99, 2000-01, 2002-03 and 2005-06, respectively, the Revenue has come forward to file these appeals by raising the following substantial questions of law: "(i) When section 11(1) read with section 11(4) of the Income-tax Act exempts income from the business undertaking of the trust to the extent it is applied for charitable or religious purpose, can section 11(4A) of the Income-tax Act be construed to have been incorporated for the very same purpose or be construed restricting the scope of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 2005-06, respectively has rejected the exemption sought for by the assessee by holding that inasmuch as the assessee was carrying on a commercial activity which is not incidental to the object of the trust as required under section 11 of the Act, the exemption cannot be granted. It was also held that the assessee has not complied with the provisions contained under section 11(4A) of the Act by not maintaining separate books of account in respect of its income assessable under the said business. 3.4. The Commissioner of Income-tax (Appeals) has confirmed the order of the Assessing Officer for the years 1995-96 and 2000-01. However for the assessment years 1996-97, 1997-98, 1998-99, 2002-03 and 2005-06, the appeals filed by the assessee were allowed. Both the assessee as well as the Revenue filed further appeals before the Tribunal for the abovementioned years. The appeals ended in favour of the assessee. Challenging the same, the Revenue has filed the present appeals. 4. Findings of the Assessing Officer 4.1. The Assessing Officer, while rejecting the exemptions sought for by the assessee under section 11 of the Act, has held that inasmuch as the income has been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust and the same has to be considered as incidental activity to the charitable activities. Therefore, by holding so the Commissioner of Income-tax (Appeals) allowed the appeals filed by the assessee except for the assessment years 1995-96 and 2000-01. In so far as the assessment years 1995-96 and 2000-01 are concerned, the Commissioner of Income-tax (Appeals) confirmed the order of the assessing authority by holding that the construction of the college for women and the construction of school building cannot be said to be charitable objects of the assessee as the same would amount to utilization of the income. Therefore, the appeals filed by the assessee for the abovesaid years were dismissed against the assessee. 6. Findings of the Tribunal 6.1. The Tribunal, while reversing the orders of the Commissioner of Income-tax (Appeals) for the assessment years 1995-96 and 2000-01 and confirming the orders for the assessment years 1996-97, 1997-98, 1998-99 and 2002-03 as well as 2005-06, has held that the objects of the assessee trust are charitable in nature, the property has been held in trust by the assessee, there is sufficient compliance with the books of account and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer shall have the power to determine the income in accordance with the provision of the Act and if such income so determined is in excess of the income as shown in the accounts of the assessee such excess shall be deemed to be applied to purposes other than charitable or religious purposes. Therefore, section 11(4A) of the Act should be made applicable only to those activities which are incidental to the attainment of the objects of the trust. Hence, it is submitted by the learned counsel that the business carried on by the assessee is not one of the objectives mentioned in the trust deed and hence exemption under section 11(4A) of the Act is not applicable. 8.3. The learned counsel further submitted that the other condition mentioned under section 11(4A) of the Act has also not been complied with by the assessee by maintaining separate books of account in relation to the business. The learned counsel submitted that in order to get the exemption under section 11(4A) of the Act, the said condition will have to be complied with by the assessee, which the Assessing Officer has rightly found as not complied with. The learned counsel without prejudice to his above submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment. 9.4. The issue involved in the appeal that the activity carried on by the trust being business in nature is incidental to the objects of the trust or not has been decided by the honorable apex court in Asst. CIT v. Thanthi Trust [2001] 247 ITR 785. The said judgment of the honorable apex court was also followed by the Division Bench of this honorable court in CIT v. Sri Rao Baghadur ADK Dharmaraja Educational Charity Trust [2008] 300 ITR 365 (Mad) and CIT v. Janakiammal Ayyandar Trust [2005] 277 ITR 274 (Mad), etc. Therefore, it is submitted that it is no longer open to the Revenue to re-agitate the said issue which has become final. The learned senior counsel also submitted that this honourable High Court has already held in CIT v. Halai Nemon Association [2000] 243 ITR 439 (Mad) that income received from a marriage hall is a business income. It is also submitted by the learned senior counsel by applying the doctrine of feeding the charity it has to be held that there is sufficient compliance with section 11(4A) of the Act. 9.5. In so far as the non-compliance with the conditions stipulated under section 11(4A) of the Act by maintaining books of account for the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... until and unless the business as such is connected either directly or indirectly to anyone of the objectives of the assessee-trust, the same cannot be declared as incidental to such objectives. The learned counsel further submitted that inasmuch as the business activities are purely commercial in nature unlike in the case in Asst. CIT v. Thanthi Trust [2001] 247 ITR 785 (SC), the assessee is not entitled for exemption under section 11(4A) of the Act. It is his further argument that the old building has been demolished and reconstructed by the assessee and therefore the same has not been held in trust. 10.4. Even though the argument of the learned counsel for the Revenue is appealing and attractive, we are not able to accept the said contention. The issue raised is no longer available for judicial review and scrutiny by this court, since the same has already been decided by the honourable apex court in Asst. CIT v. Thanthi Trust [2001] 247 ITR 785 (SC). The judgment of the honorable apex court referred to above has also been followed by the Division Bench of this court in CIT v. Sri Rao Baghadur ADK Dharmaraja Educational Charity Trust [2008] 300 ITR 365 (Mad) and CIT v. Janakia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he objectives. Therefore, it was held that it is irrelevant if the business is run on a commercial expediency with a profit motive. In view of the clear dictum of the honorable apex court it is not open to this court to go into the said question once again which is impermissible in law. More so, when the other Division Benches of this court have also dealt with identical cases as the one on hand and taken the view in favour of the assessee. While dealing with an issue in a multi-judge court, the judges are bound by precedents and procedure. Judicial decorum, discipline and legal propriety demand that the law laid down by the higher forum will have to be followed in letter and spirit. The doctrine of binding precedent brings about an element of uniformity, decisiveness as well as consistency in judicial decisions. 10.6. The judgment of the honorable apex court is binding on the High Courts as the law laid down under article 141 of the Constitution of theIndia. Such a judgment cannot be ignored or bypassed on the ground that relevant provisions have not been brought out or certain issues have not been urged. In a system which has a hierarchy of judicial forums it is incumbent on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is couched in a negative language. It provides for an exemption from the purview of the Act from the inclusion of the income while computing the income assess-able for tax when a business is incidental to the object of the trust. Similarly, section 11(4) of the Act speaks about the property held in trust and it also provides for the Assessing Officer to determine the income of an undertaking and if it is found to be in excess of the income shown in the accounts of the undertaking, such an excess shall be deemed to be applied to purposes other than charitable or religious purposes thereby assessable for tax. 11.2. Section 11(4A) of the Act does not exclude section 11(4). Exemption under section 11(4A) would be available only when the business is incidental to the attainment of object of the trust. Hence, when it is not the case then such an income cannot be exempted. Therefore, only such income which is used towards the object of the trust is exempted. In other words, section 11(4A) of the Act mandates that when an income from a business which can be by way of utilization of a property held in trust is not used towards the object of the trust then no exemption can be sought f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntextual interpretation can be purposively applied to the language of rule 9(2), particularly to examine the merit in the contentions raised by the respondent before us. The legislative background and the object of both the Rules and the Act is not indicative of any implied bar in appointment of former employees as enquiry officers. These principles are well established and have been reiterated with approval by the courts, reference can usefully be made to the judgments of this court in Gudur Kishan Rao v. Sutirtha Bhattachaarya [1998] 4 SCC 189, Nirmal Chandra Bhattacharjee v. Union of India [1991] Supp 2 SCC 363, Central Bank of India v. State of Kerala [2009] 4 SCC 94 and Housing Board of Haryana v. Employees'Union [1996] 1 SCC 95." 11.7. The honorable apex court in American Hotel and Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86, while construing the provisos to section 10(23C)(vi), has adopted the principle of harmonious construction for coming to its conclusion. 11.8. The honorable Supreme Court in a recent judgment rendered in Vijaya Bank v. Shyamal Kumar Lodh [2010] 7 SCC 635 has observed as follows (page 641) : "19. But this does not end t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from auditoriums including the interest receipt. (ii) One set of books for the income of the trust wherein the assessee accounts donations receipt, dividend, lease rent, amenities account, and interest receipt. It is to be noted here that the assessee accounts its donation receipt from the occupants of the auditoriums in this book only. This compulsive donation amount is pre-determined by the assessee as per its resolution. The assessee finally consolidates both the above accounts and prepares its income and expenditure account as well as its balance-sheet, and (iii) One set of books for the income from the ladies hostel account. It is to be noted here that the profit arising out of this activity is never spent but taken to balance-sheet u/h `Excess of income over expenditure' in this book itself." 12.2. Considering the abovesaid facts, both the Commissioner of Income-tax (Appeals) and the Tribunal have held that the assessee has complied with the condition of maintaining the accounts. The said findings being findings of fact, we are of the opinion that the contention of the Revenue that no separate books of account are maintained by the assessee in respect of his inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not used for charitable purposes. Therefore, such a condition is mandatory. In other words, a failure to comply with the condition would make the assessee concerned from claiming exemption. Such a compliance on behalf of the assessee while seeking exemption also consequently mandates the Assessing Officer to verify the accounts under different heads with its break-ups of figures by applying his mind while doing a thorough verification. In the case on hand, we find that all the authorities have mainly dealt with eligibility of the assessee to seek exemption under section 11 of the Act. 13.4. A perusal of the provisions contained in section 11(4A) of the Act would make it clear that it contains two separate elements. The first one being if the Assessing Officer is convinced on enquiry about the genuineness of the trust on a consideration of the relevant materials then he can decide and declare the eligibility of exemption. The second one being the entitlement of the income as eligible for exemption. In order to satisfy himself the Assessing Officer has to necessarily go through the relevant records like the application, accumulation, deployment of income in specified assets, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished." (Emphasis added) 13.7. In a recent pronouncement, the honorable apex court was pleased to hold that when a person claims exception from the operation of a statute then he has to establish the same. Further, an exception provision will have to befriend the main statute. Thus, in Project Officer, IRDP v. P.D. Chacko [2010] 6 SCC 637 it has been held as follows (page 641) : "14. An exception clause is normally part of the enacting section, unlike a proviso which follows an enacting part. Crawford's Interpretation of Laws (1989), p. 128, speaks of exception as follows: ₹ 91. Exceptions and provisos.- . . . The exception, however, operates to affirm the operation of the statute to all cases not excepted and excludes all other exceptions ; that is, it exempts something which would otherwise fall within the general words of the statute.' 15. It is trite law that an exception clause has to be strictly interpreted and cannot be assumed but be proved. An exception clause is always subject to the rule of construction and in case of doubt, it must befriend the general provision and disfavour the exception. If any category of person claims exception from the opera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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