TMI Blog2003 (2) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing questions have been referred for opinion: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee is an institution which satisfied the conditions of section 2(15), read with section 11? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee derived income from property held in trust and even if it is not to be treated as property held under trust, it can only be treated as property held under trust as voluntary contribution given by Hyderabad Race Club? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding 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 section 13(1)(bb) of the Act?" The brief facts noticed are as under: The Hyderabad Race Club had decided to create a separate public charitable trust in the name and style "Hyderabad Race Club Charitable Trust" and the same had come into existence under a deed of declaration dated October 25, 1976. The stewards of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. The Appellate Tribunal had categorically held that the objects of the trust are clearly charitable in nature. The assessee obtained a licence, on letter from the Hyderabad Race Club to conduct races and inter-venue betting from the Government of Andhra Pradesh. The explanatory note relating to the resolution for creation of the trust as well as the terms of the trust did clearly contemplate the assessee getting such property from the Hyderabad Race Club. The licence obtained by the trust could be treated as property. The Appellate Tribunal further held that even if it is not to be treated as property held under trust, it can be treated as voluntary contribution given by the Hyderabad Race Club to the assessee and such voluntary contribution cannot have the character of an income and it could only be a capital receipt in the assessee's hands. It is not possible to hold that there has been business in the normal course. Even if it were to be a business, in the facts and circumstances of the case, it is not such a business as to be hit by section 13(1)(bb) of the Act, since the assessee satisfies the conditions of section 2(15), read with section 11 of the Act and as such al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of trade, commerce or manufacture; 2(15) 'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. 11. Income from property held for charitable or religious purposes.- (I) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India ; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property (c) income derived from property held under trust-- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sources." By placing reliance on sections 2(13) and 11(4) of the Act, learned counsel for the Revenue emphatically argues that the activities of the trust in conducting the races and inter-venue betting amount to conducting business and the income derived therefrom is "business income" and, as such, it is taxable. It is neither the business of the race club nor can it be treated as an income derived from the property held under the trust. In this regard, learned counsel relied upon the judgment reported in Asst. CIT v. Thanthi Trust [2001] 247 ITR 785 (SC). In that case, it was found that the business of the trust was running a newspaper and that business did not directly accomplish the whole or any part of the trust's object of relief of poor and education. The trust was not wholly for public religious purpose and it was not an institution and, therefore, the trust did not fall within the provisions of section 11 of the Act and, as such, was not entitled for exemption of tax. The Supreme Court while affirming the findings of the Madras High Court in Thanthi Trust v. Asst. Director Of Income-tax [1999] 238 ITR 635 held as follows: "A public charitable trust may hold a busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude an activity which may be called quiescent." While placing reliance on the reported judgment in Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC) counsel submits that even a sub-leasing by a grantee amounts to business. In the said judgment, the Supreme Court held as follows: "Held, that the transactions of acquiring leases and granting sub-leases were in the nature of trading within the objects of the company and not enjoyment of property as land owner. There was no sale of its fixed capital at a profit. In acquiring the head leases and granting the sub-leases the assessee-company carried on a business and the amounts received by way of salami were trading receipts and the profits therefrom were liable to income-tax." It is difficult to accept the submission made by learned counsel for the Revenue as the above referred judgments do not deal with the nature of business undertaken by a trust or an institution of akin nature end as such cannot be relied upon on the facts of this case. Learned counsel for the Revenue argued that profits earned from the races and inter-venue betting by the assessee-trust for the relevant assessment years amount to income from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and the profits or gains earned out of it cannot be said to be not an income from the business as defined under section 2(13) of the Act. Learned counsel for the Revenue has drawn our attention to section 14 of the Act and submitted that this section deals with the "heads of income" and classifies the computation of total income under various heads and as such, the income earned by the trust by conducting races and inter-venue betting should fall into any one of the heads of classification and it cannot escape the tax liability. Particularly drawing our attention to the head F "Income from other sources", he submits that at least it should fall into this head. We may not accept with the submission made by the Revenue for the reason that the very section 14 of the Act saves the income otherwise provided by the Act. The expression "otherwise provided by this Act" must be construed that if the activities of the trust are not saved, the income earned by the trust by conducting such business is not saved under any other provisions of the Act. Sri C. Kodandaram, learned counsel for the respondent-assessee, submits that the income earned by the trust is not income from the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other benefit show organised by the assessee-trust for augmenting the trust funds. Sri C. Kodandaram, learned counsel for the assessee, placing reliance on the judgment in Thanthi Trust's case [2001] 247 ITR 785 (SC), submitted that a charitable trust may hold a business as a part of its purpose and it may carry on the business which it does not hold as a part of its corpus. But the distinction has no consequence in so far as section 13(1)(bb) is concerned. Section 13(1)(bb) will apply to public charitable trust for the relief of poor, education or medical relief that carries on a business regardless of whether the property is held under the trust or in the trust. He further argued that it is not correct to contend on the part of the Revenue that the assessee carrying on this business for two or three days every year, amounts to carrying on a regular business and the income therefrom is not exempted under section 11 of the Act. On the other hand, he submitted that the income of every assessment year is to be taken separately and it can never be said that all the three years shall be taken into consideration and judged to come to a conclusion that it is a regular business being c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction is a business. To that extent, we agree with the arguments of learned counsel for the Revenue. But, it has to be seen whether the nature of the transaction undertaken by the assessee-trust is a business within the meaning of section 2(13) of the Act and whether section 11 of the Act is attracted or the income derived from such transaction is hit by section 13(1)(bb) of the Act. We are of the considered opinion that the activities of the trust, i.e., conducting races and inter-venue betting after obtaining licence from the Government of Andhra Pradesh and the income derived therefrom cannot be called an income from the business of the trust for the reason that the same is being utilised to achieve the primary object of the trust. The objects and legality of the trust and also the grant of licence by the State Government are not in dispute, except to the extent that the objects are distributive in nature and some of them are charitable and others are non-charitable in nature. But, once it is found that promotion of sports and athletics, which benefit the large number of people, are charitable in nature and also of general public utility this objection also would fall apart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly a fiduciary for the benefit of the assessee. Such voluntary contributions can be characterised only as a capital receipt in the assessee's hands. Thus, it cannot be held that there has been business in the normal sense in such arrangement and in the facts and circumstances, it is not such a business which would be hit by section 13(1)(bb) of the Act. It is only an activity which could constitute the property or an arrangement involved in transfer of funds from the Hyderabad Race Club to the assessee's institution in a form recognised by law and not shown to be colourable exercise or otherwise as contended by the Revenue. Since, it cannot be said to be a business and the income derived cannot be said to be a business income the provisions of section 13(1)(bb) of the Act are not attracted. The assessee-trust is an institution, which satisfies the conditions under section 2(15), read with section 11 of the Act and as such, we cannot reach a different conclusion other than the one reached by the Appellate Tribunal. None of the objects of the trust can be said to be non-charitable in nature. Rather the objects of the trust are purely of a charitable in nature. The main objects of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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