TMI Blog1995 (1) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... sistant Commissioner declined to interfere with the order of the Income-tax Officer. The assessee appealed to the Tribunal. According to the statement of the case, the Tribunal went through the objects of the trust and found them to be clearly charitable. It did not find any element of business activity for profit in any of the objects. It found that there was no separate hire of furniture apart from letting out the kalyana mandapam, along with which the furniture was also let out. The Tribunal, accordingly, has held that the objects and activities of the assessee revealed that it was engaged in public utility services like running educational institutions, libraries, etc. According to it, the assessee is entitled to exemption under section 2(15) read with section 11 of the Act. The Tribunal culled out the principles to be applied in a case where exemption is claimed by institutions for charitable purposes and under the head " Advancement of an object of general public utility " as available in the judgment of the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) ; Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 (SC) and CIT v. Dh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a false dilemma to talk of activity for profit as against activity rendered free. The true demarcating line lies in between. "If, therefore, advancement of general public utility involved activity for profit, but was of such an extent as to balance its activities on a no profit no loss basis, subject to the limitation that mathematical attainment of a strict no profit or loss being non-attainable-there is some marginal excess or deficit that does not render the trust non-charitable ". The Tribunal, on that basis, has stated : "A natural corollary of the above tests is that the question whether a trust is for a charitable purpose or not should be determined once and for all having in view its objects and not sources of income. If some of its sources of income involve activities for profit, such as running of business, that would constitute at best a property of the trust and would not affect its charitable or otherwise nature. In determining whether the assessee is entitled to exemption under section 11, the nature or type of the sources of income of the trust is, therefore, not relevant." Before saying whether the Tribunal is right or wrong, we may state that the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords ' not involving the carrying on of any activity for profit ' go with ' object of general public utility ' and not with ' advancement '. It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by these last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. That is not the mandate of the newly added words. What these words require is that the object should not involve the carrying on of any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. . . . The true meaning of these last ten words is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit." The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Now, obviously promotion of sports can be achieved by organising cricket matches on free admission or no profit no loss basis and equally it can be achieved by organising cricket matches with the predominant object of earning profit. Can it be said in such a case that the purpose of the trust or institution does not involve the carrying on of an activity for profit, because promotion of sports can be done without engaging in an activity for profit ? If this interpretation were correct, it would be the easiest thing for a trust or institution not to mention in its constitution as to how the purpose for which it is established shall be carried out and then engage itself in an activity for profit in the course of actually carrying out of such purpose and thereby avoid liability to tax. That would be too narrow an interpretation which would defeat the object of introducing the words 'not involving the carrying on of any activity for profit '. We cannot accept such a construction which emasculates these last concluding words and renders them meaningless and ineffectual. The other interpretation is to see whether the purpose of the trust or institution in fact involves the carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . But where, on the other hand, an activity is carried on with the predominant object of learning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profitmaking motive ; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak J.) in Dharmadeepti v. CIT [1978] 114 ITR 454 (SC) must be ' essentially charitable in nature ' and it must not be a cover for carrying on an activity which has profit-making as its predominant object. . . . The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Surat Art Silk Cloth Manufacturers' Association's case [1980] 121 ITR 1. A. P. Sen J., who has given a dissenting judgment in Surat Art Silk Cloth Manufacturers' Association's case [1980] 121 ITR 1 (SC), and Venkataramiah J., have followed the majority judgment in Surat Art Silk Cloth Manufacturers' Association's case [1980] 121 ITR 1 (SC), but expressed strong reservations to the views of the majority in the said case, in these words : Per A. P. SEN J.-- " Unfortunately, for the Revenue, the court has, in a five judges Bench, by a majority of 4 to 1, in Addl. CIT v. Surat Art Silk Cloth Manufacturers' Association [1980] 121 ITR 1 (SC) reversed these two decisions in Loka Shikshana Trust's case [1975] 101 ITR 234 (SC) and the Indian Chamber of Commerce's case [1975] 101 ITR 796 (SC). The court has approved of the observations of Beg J. in his separate but concurring judgment in the Loka Shikshana Trust's case that ' if the profit must necessarily feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust '. In other words, the majority view in Surat Art Silk's case wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inant or primary object of a trust was' charity ' under the fourth head ' any other object of general public utility ', it was permissible for such an object of general public utility, to augment its income by engaging in trading or commercial activities." Per VENKATARAMIAH J.- There can be no objection to a person spending his money on charity. But can he be charitable at the expense of others ? This is a question which necessarily arises when we read section 11 of the Income-tax Act, 1961. Section 11, as it stands now, grants exemption from payment of tax on any income, which would have otherwise been taxable, provided (1) the property yielding income is held under trust or such other legal obligation which is brought into existence by an act of party and not by an act of law, (2) the purpose of the trust is charitable which may enure to the benefit of the public or a section of the public, and (3) the other conditions prescribed by the Act are satisfied. It means that if there is a diversion of property or income-earning apparatus by an act of party into a charitable trust and the prescribed conditions are satisfied, the income derived from it (including the portion which woul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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