TMI Blog1994 (12) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... eed wherein he declared that the trust created by the document dated March 1, 1954, was irrevocable. Again, the founder of the trust, on June 28, 1961, executed a supplementary deed. By the said supplementary deed, the founder directed that the surplus income of the said trust, after defraying all the expenses, should be devoted by the trustees for the following purposes : 1. Establishing and running a school or college for the teaching of journalism. 2. Establishing and/or running or helping to run schools, colleges or other educational institutions for teaching arts and science. 3. For establishing of scholarships for students of journalism, arts and science 4. Establishing and/or running or helping to run hostels to students; 5. Establishing and/or running or helping to run orphanages ; and 6. Other educational purposes. For the assessment year 1968-69, the previous year ending June 30, 1967, the petitioner filed its return of income on October 10, 1968, admitting an income of Rs, 13,62,954 and claimed exemption under section 11 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), on the ground that 75 per cent. of such income had been applied for ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this court in Tax Cases Nos. 1240 to 1245 of 1979 held that the petitioner trust is entitled to claim exemption under section 11 of the Act. This judgment is reported in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad). The special leave petition filed by the Department was dismissed by the Supreme Court. By Act 41 of 1975, the following clause was inserted in section 13 of the Act as section 13(1)(bb) with effect from April 1, 1977: "13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- . . . . (bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business, any income derived from such business, unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution." In the course of assessment for the years 1979-80 to 1983-84, the respondent raised the objection regarding the claim of exemption under section 11 of the Act on the ground that by virtue of section 13(1)(bb) of the Act the trust is not entitled to claim exemption. The petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent is not at all correct in denying the exemption to the petitioner under section 11 of the Act. Per contra, Mr. S. V. Subramanian, learned senior counsel for the Revenue, submitted that the exemption under section 11 of the Act will not be available to the petitioner for the assessment years 1979-80 to 1983- 84, in view of section 13(1)(bb) of the Act. Learned senior counsel for the Revenue also contended that the decision of the Division Bench of this court in Tax Cases Nos. 1240 to 1245 of 1979, in the petitioner's own case CIT v. Thanthi Trust [1982] 137 ITR 735, will not be applicable to the case of the petitioner, after the introduction of section 13(1)(bb) of the Act. Learned senior counsel further contended that the petitioner has got effective alternative remedy by way of appeal to the appellate authority and a further appeal to the Tribunal as against the orders challenged in these writ petitions and that the petitioner should not be permitted to bypass the effective alternative remedies available under the statutes and, accordingly, the writ petitions are liable to be dismissed on this ground also. In the light of the rival contentions of learned senior counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object of general public utility not involving the carrying on of any activity for profit. Section 13(1)(bb) of the Act came into effect (inserted by the Taxation Laws (Amendment) Act, 1975) with effect from April 1, 1977. As already stated, the petitioner-trust was created by the founder under an instrument of declaration of trust on March 1, 1954, for the purpose of establishing the Tamil daily ("Daily Thanthi") and the founder of the trust on June 28, 1961, executed a supplementary deed, in and by which the founder directed that the surplus income of the said trust after defraying all the expenses should be devoted by the trustees for the purposes already stated. The trustees thereafter took out originating summons and instituted C. S. No. 90 of 1961 in the original side of this court under Order 13(1)(g) of the Rules of this court (original side) and prayed for the determination of the question as to whether they were bound under the deed dated March 1, 1954, and the deed dated June 28, 1961, to utilise the surplus funds of the trust, after defraying all expenses in connection with the newspaper for one or more of the purposes mentioned in the supplementary deed. This court, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business for carrying out the objects set out in the schedule to the decree in C. S. No. 90 of 1961? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the trust is in respect of the entirety of the business for the objects mentioned in the schedule to the decree in C. S. No. 90 of 1961 on the file of the High Court, Madras, and not merely in respect of the income from the said business ? (4) Whether, on the facts and in the circumstances of the case, the mere crediting of 75 per cent. of the assessee's income to the accounts of Adityanar College of Arts and Science in the assessee's books will amount to application within the meaning of section 11 of the Income-tax Act,1961? (5) Whether, on the facts and in the circumstances of the case, such application of income should take place during the relevant accounting years for claiming exemption under section 11 of the Act ? (6) Whether, on the facts and in the circumstances of the case, the assessee is entitled to exemption in respect of Rs. 3,04,035 only for the assessment year 1968-69 ? Questions Nos. 1, 2, 3 and 6 referred above, had been referred at the instance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT v. Thanthi Trust [1982] 137 ITR 735 (Mad), on a consideration of the nature and character of the trust deed dated March 1, 1954, and the supplementary trust deed dated June 28, 1961, the objects of the trust created under the trust deeds referred to above, and the judgment in C. S. No. 90 of 1961 on the file of this court, and in the light of the principles laid down by the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers' Association [1980] 121 ITR 1, has held as follows : " In the case on hand the property held under trust is the business itself and the business is carried on only, and exclusively, for carrying out the charitable objects set out in the schedule to the decree in C. S. No. 90 of 1961. As pointed out by the Supreme Court, if the contention of the Revenue that once a trust carries on a business activity it loses the benefit of section 11 is accepted, no trust can carry on any business even for the fulfilment of the charitable objects, such as, relief of the poor, education and medical relief and, therefore, such a contention cannot be accepted. If the intention of the Legislature were to prohibit a trust or institution established for a charitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swered questions Nos. 1 to 6 referred to it, for opinion, in the affirmative and against the Revenue. The Revenue, aggrieved by the judgment of the Division Bench in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad), filed special leave petitions before the Supreme Court, in Civil Nos. 10007-12 of 1981. The apex court, by its order dated February 24, 1984, granted special leave only in respect of questions Nos. 4, 5 and 6, referred for the opinion of this court and dismissed the special leave petition with regard to questions Nos. 1 to 5. Therefore, the first three questions answered by the Division Bench in favour of the petitioner in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad) had become final and the findings rendered by the Division Bench with regard to questions Nos. 1 to 3 are binding on both the petitioner-trust as well as the Revenue. Thus, in the petitioner's own case, relating to the assessment orders 1968-69 and 1969-70, the Division Bench in the decision referred to above after considering the trust deed, supplementary deed and the effect of the judgment in C. S. No. 90 of 1961, on the file of this court, has rendered a categorical finding that the founder of the trust, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the petitioner claiming the benefit of exemption under section 11(1) of the Act. We must also point out here that though the decision in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad) was rendered by the Division Bench, with regard to the assessment years 1968-69 and 1969-70, and section 13(1)(bb) of the Act was introduced with effect from April 1, 1977, inasmuch as the finding rendered by the Division Bench in the said decision is in express language of section 13(1)(bb) of the Act, it is not open to the Revenue to contend that the decision in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad) will not be applicable to the petitioner's case in respect of the assessment years in question, after the introduction of section 13(1)(bb) of the Act. In view of the above legal and factual position, the respondent is not at all correct in taking the view in the impugned orders, that the decision in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad) will not be applicable to the case of the petitioner, after the introduction of section 13(1)(bb) of the Act. The respondent, in the impugned orders, has recorded the following reasons for holding that the petitioner is not entitled to the exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the petitioner is having an alternative remedy and that the writ petitions are liable to be dismissed on that ground. However, as the writ petitions have been admitted and kept pending before this court all these years, we are of the view that it is not proper to dismiss these writ petitions, at this stage, on the ground that the petitioner has not exhausted the alternative remedy. Inasmuch as these cases involve interpretation of section 13(1)(bb) of the Act on the undisputed facts of the cases and as it is also in the interest of the Revenue to have the issue in question settled early, the petitioner is not directed to avail of the remedy of appeal. Point No. 2 is answered accordingly. In the result, in view of our findings on points Nos. 1 and 2 the writ petitions are allowed, the orders challenged in these writ petitions are quashed and the matters are remitted to the respondent, with a direction to proceed afresh and complete the assessments for the year 1979-80 to 1983-84, according to law and in the light of our findings in this common order, with regard to the petitioner's claim for exemption under section 11 of the Act. However, there will be no order as to costs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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