TMI Blog2015 (3) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... ot eligible for exemption and the same has to be treated as income of the assessee. Since the assessee has not applied the surplus funds from the business of super market for charitable purpose as per the object of the trust, the assessee is not eligible for exemption. - Decided against assessee. - I.T.A. Nos. 67&68/Coch/2014 - - - Dated:- 5-12-2014 - SHRI N.R.S.GANESAN AND CHANDRA POOJARI, JJ. For The Assessee : Smt. Divya Ravindran, Adv. For The Revenue : Shri K.K.John, Sr. DR ORDER Per CHANDRA POOJARI, Accountant Member: These two appeals filed by the assessee are directed against the different orders passed by the CIT(A)-II, for the assessment years 2007-08 and 2008-09. 2. Since the issue is identical in both the appeals, they were clubbed together, heard together and are being disposed of by this common order for the sake of convenience. 3. The only grievance of the assessee in these appeals is with regard to non-granting of exemption under section 11(4A) of the I.T. Act, though the assessee was registered under section 12A of the I.T. Act. 4. The brief facts as narrated in I.T.A. No. 67/coch/2014 are that the assessee is a Public Charitable T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity. According to the CIT(A), the test which has, therefore, to be applied is whether the object which is said to be noncharitable is a main or primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is charitable. The CIT(A) also relied on the decision of the Supreme Court in the case of Addl. CIT vs. Surat Art Silk Cloth Manufactures Association (121 ITR 1) where in it was held that any commercial activity can be taken as incidental or conducive to the attainment of objects of the trust. Although the word wholly may not be applied in strict sense but it should not be that commercial activity are main activities and charitable or religious activities become ancillary in the over all activity of the assessee. 5.2 The CIT(A) also observed that since in the present case, the major activity of charitable organization is running of a super market, the same cannot be treated as charitable or relig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed as per para 4 of the Memorandum of Association are as under: (a) To promote the cause of charity, mission activities, welfare, employment, diffusion of useful knowledge, upliftment and education and to create an awareness of self-reliance among the members of the public. (b) To respond to the needs of time and to organize Catholic Community for receiving social justice, general upliftment and growth. (c) To foster the spirit of charity to all and to secure educational, social and economic development to the members of the community. (d)To establish and maintain technical, commercial and medical institutions and to impart useful training to create self-reliance to the members of the community. (e) To establish and maintain institutions for the relief of the sick and the ailing, for the indigent, the disabled, the old and destitute, the orphans and the uncared for without any consideration of caste, community, colour or creed. (f) To raise funds by subscriptions, donations, gifts foundations and loans and to receive aids and subsidies in cash or kind. (g) To establish an exhibition-cum-sales centre for the products of the various social service organizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trust and accordingly, it was held that the assessee is not eligible for exemption u/s. 11 of the Act and the CIT(A) also confirmed the above order. 6.2 The Ld. AR submitted that the assessee rejected the proposal to complete the assessment by treating the status of the Society as AOP wherein it was stated that major expenses of the Society are establishment and administrative in nature and that the amount spent for charity is only for a particular community and hence the meaning of public charity is not covered by its activities. For this, the Ld. AR relied on the following case law: 1. Sole Trustee, Loka Shikshana Trust vs. CIT (1975)(101 ITR 234) (SC). 2. Additional CIT vs. Surat Art Silk Cloth Manufactures Association (1980) (121 ITR 1 (SC). 3. CIT vs. Dharmodayam Co. (1977) 109 ITR 527) (SC). 6.3 Having rejected the claim for exemption for 2007-08, the Ld. AR submitted that the Assessing officer followed the same method of assessment for the assessment year 2008-09 also. 6.4 The Ld. AR submitted that the entire income of the Society, including the income from Super Market was earmarked for charitable activities and that the income was actually allowed as exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, for the indigent, the disabled, the old and destitute, the orphans and the uncared for without any consideration of caste, community, colour or creed. (f) To raise funds by subscriptions, donations, gifts foundations and loans and to receive aids and subsidies in cash or kind. (g) To establish an exhibition-cum-sales centre for the products of the various social service organizations in the Archdiocese on a charitable basis and to undertake any commercial activity that would not be contrary to the objectives of the society and to use the profits from such commercial activities to further the objectives of the society. (h) To proved funds from the income of the Society for the charitable works and mission activities of the Archdiocese of Verapoly as well as of similar societies within the Archdiocese of Verapoly. (i) To acquire movable and immovable properties by purchase, lease, mortgage, etc. and to administer and deal with the same in the manner as may be decided by the Governing Body. (j) To obtain finances and loans from Banks and other institutions for the establishment or otherwise and for implementing the projects that may be undertaken by the society. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if a business undertaking is held under trust for a charitable purpose, the income therefrom would be entitled to the exemption u/s. 11(1) of the Act. In the present case, the finding of the CIT(A) is that the super market business was not held under trust, but it was business commenced/carried on by the Society, subsequent to the formation of trust. Though the business was commenced by the Society and it was carried on by the Society after its formation, it cannot be said to constitute property held under trust. U/s. 11(4), it is only the business which is held under the trust that would enjoy exemption in respect of its income u/s. 11(1) of the I.T. Act and there is a distinction between the objects of a trust and the powers given to the trustees to effectuate the purpose of the trust. Though the objects of the trust were charitable, they were mere powers conferred upon the trustees to carry on the business and the profits from such business would benefit the charitable objects. The exemption u/s. 11 cannot be granted on the reason that the business itself was not in existence at the time of formation of the trust and the property held under trust at the time of formation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of income generated by the business is not relevant consideration and what is relevant is whether the activity is so inextricably connected or linked with the objects of the trust that it could be considered as incidental to those objectives. 14. It was contended by the Ld. AR that the surplus funds generated from the supermarket business was spent towards charitable activities and therefore, the assessee is entitled for exemption u/s. 11(4) of the I.T. Act. We are unable to accept this contention. Initially, the assessee carried on the business itself which is not at all property held under trust. This activity is a business activity and the provisions of section 11(4A) of the Act is applicable. 15. It was contended that if the profits of the business carried on by the trust are utilized by the trust for the purposes of achieving the objectives of the trust, then the business should be considered to be incidental to the attainment of the objects of the trust as observed by the Supreme Court in the case of ACIT vs. Thanthi Trust (2001) 247 ITR 785 which is as under: As it stands, all that it requires for the business income of a trust or institution to be exempt is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, I am unable to subscribe myself to the reasons given by the ld.A.M. Therefore, I am giving my own reason. 20. The assessee is a charitable institution registered u/s 12AA of the Act. The assessee is claiming deduction u/s 11 of the Act in respect of the income earned from super market. It is not in dispute that income derived from property held under trust wholly for religious or charitable purpose is exempted u/s 11(1) of the Act to the extent to which such income is applied to such purposes in India. There cannot be any divergent view that business or business undertaking can also be held under trust. The property / business settled upon the trust on the date of its creation or established after the creation of the trust can be treated as a business / property held under trust. Therefore, I am of the considered opinion that the super market established and run by the assessee trust can be treated as a property / business held under trust. Moreover, section 11(4A) reads as follows: (4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution being profits and gains of business, unle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). However, the assessee M/s Thanthi Trust before the Apex Court applied its income on another educational institution which carried on the object of education. The income of the trust, was also utilized for giving relief to the poor. Therefore, the Apex Court found that the trust is entitled for the benefit of section 11 fort the assessment year 1992-93 and thereafter. In fact, the Apex Court has observed on page 796 of the ITR as follows: . A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The trust, therefore, is entitled to the benefit of section 11 for the assessment year 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business has been employed to achieve its objectives of education and relief to the poor and that it has maintained separate books of account in respect thereof. 22. The Madras High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 vs Thanthi Trust [2001] 247 ITR 785 (SC). The judgment of the honourable 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. Janakiammal Ayyandar Trust [2005] 277 ITR 274 (Mad) and also by a recent judgment of this court in CIT v. Sri Narayana Guruviah Chetty s estate and Charities (2010) 326 ITR 662 (Mad). The honourable apex court in Asst.CIT v. Thanthi Trust (2001) 247 ITR 785 (SC) has observed as follows (page 796): The substituted sub-section (4A) states that the income derived from a business held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. In view of the judgment of the Apex Court in the case of Thanthi Trust (supra) and the judgment of the Madras High Court in Wilington Charitable Trust (supra) irrespective of the nature of business undertaken by the assessee trust, the income is exempt provided the same is applied for attainment of the object of the trust. The contention raised by the department that old building was demolished and reconstructed by the assessee was also rejected by the Madras High Court holding that so long as the building was used for business purpose for conducting marriage, the same is eligible for exemption if it is applied for charitable purpose as per the object of the trust. In the light of the judgment of the Apex Court in the case of Thanthi Trust (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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