TMI Blog1986 (7) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... e public and to invite poets, artists and literatures and other learned persons to participate therein ; (y) To collect, raise and receive subscriptions, donations and gifts, in cash or in kind for all or any of the objects hereinbefore mentioned and to apply the same in accordance with the conditions prescribed by the donors and agreed to by the trustees but not contrary to the above objects and ........" Clause 8 of the trust deed is as follows: " In the course of actual carrying out of the object of the trust, the trustees shall be entitled with the trust funds to carry on such business or businesses on behalf of the trust as they may think fit from time to time and to close and restart any such business provided that all such businesses shall be carried on upon trust to utilise all profits that may be derived from such business or businesses wholly for the purposes mentioned above. Provided further that for the purpose of carrying on such business, the trustees shall be entitled to do all acts, matters and things which an ordinary businessman is entitled to do including the use of the trust funds for the purposes of such business." In the assessment year 1971-72, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial rates. The Commissioner held that the trust was being actually implemented for a purpose which was not charitable and it was not entitled to exemption under section II of the Act. Accordingly, the trust was not also entitled to exemption under section 12 of the Income-tax Act, 1961, in respect of the donations received by it. The Commissioner set aside the order of assessment of the Income-tax Officer and directed the latter to make a fresh assessment in accordance with law. Being aggrieved, the assessee preferred an appeal before the Income-tax Appellate Tribunal. It was contended on behalf of the assessee before the Tribunal that the objects of the trust as enumerated in the trust deed did not involve carrying on any activity for profit. Under clause 8 of the deed, no doubt, the trust was empowered to carry on business with the help of the trust fund but it was also laid down in the said clause that such business could be carried on only in the course of implementing the objects of the trust and all profits arising from such business had to be applied only for the purposes of the trust. It was contended further that the trust did not let out its halls and building on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal to have been carried on under clause 8 of the trust deed. The Tribunal held that the said clause merely empowered the trustees to utilise the trust fund in any business, but the trustees were not obliged to do so. The Tribunal concluded that the activity on the basis of which the Commissioner passed his order was not one which could be said to disentitle the assessee from exemption of its income under section 11 of the Act. The Tribunal also found as a fact that there was no material to support the conclusion that the assessee was letting Out its property at commercial rates and the Revenue could not produce any evidence to the contrary. The Tribunal noted the report of the cost accountant dated June 3, 1968, and held that the activities carried on by the assessee did not produce any profit. The Tribunal held further that the treatment of the property of the assessee in its accounts as a business asset and return of its income as a business income made no difference to the position. The Tribunal held that the income of the assessee was exempt from income-tax under section 11 of the Act and that it followed that donations received by the assessee were also exempt from su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt held that where a trust was established for charitable, religious, cultural and social purposes, the expression " cultural and social purpose " would not necessarily encompass the entire public. There might be difference of opinion as to what would be a social purpose. The definition of the purpose by user of vague phrases such as cultural and social was defective and could entitle the trustees to put the trust property to uses other than charitable. The learned advocate for the Revenue next submitted that, in any event, there was a clear provision in the trust deed permitting the assessee to carry on business activities and the assessee had in fact done so. Therefore, it must be held that the objects of the trust permitted the assessee to carry on business and, therefore, the assessee was not entitled to any, exemption from income-tax as a charitable trust. In support of his contentions, the learned advocate for the Revenue cited the following decisions: (a) Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC). The assessee here was a trust set up for the object of educating the people of India in general and Karnataka in particular. The object was to be carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and protection of Indian trade interests and rendering of allied services for the said object and as such was an object for advancement of general public utility. Under its memorandum, no part of the income or profit of the assessee could be paid directly or indirectly by way of profit to the members even on its dissolution. The assessee derived income, inter alia, from arbitration fees, fees collected for issuing certificates and share of profits in M/s Calcutta Licensed Measurers for issue of certificates of weighment and measurement. The question which was posed before the Supreme Court on the above facts was whether the assessee was exempt from income-tax under section 11 read with section 2(15) of the Act of 1961. The Supreme Court held that the activities of the assessee were carried on for earning profits and in the absence of any restriction in the memorandum and articles of association against making of profit from such activities, the income of the assessee from such activities would be exigible to income-tax. If there were restrictive provisions in the constitution of the assessee requiring that charges were to be levied for services rendered on a no profit basis, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public utility. It was further held that if the primary or dominant purpose of trust was charitable, any other objects merely ancillary or incidental to the primary or dominant purpose and by itself not charitable would not preclude the trust from being, charitable. When the purpose of trust was the advancement of an object of general public utility, it is that object and not its accomplishment which must not involve the carrying on of any activity for earning profit. As long as that purpose did not by itself involve carrying on of any activity for profit, the definition under section 2(15) of the Income-tax Act, 1961, would apply. If the purpose itself involved carrying on of an activity for profit, then it would not be charitable purpose within the meaning of section 2(15) of the Income-tax Act, 1961. The earlier decision of the Supreme Court in Indian Chamber of Commerce's case [1975] 101 ITR 796 was overruled. The observations of Beg J. in Sole Trustee, Loka Shikshana Trust [1975] 101 ITR 234 (SC) were approved and those of Khanna J. in the said decision were disapproved. The learned advocate for the assessee contended, on the other hand, that the controversy raised in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was only incidental or ancillary to the dominant object, viz., welfare and common good of the country's trade, commerce and industry, and its income was, therefore, exempt from income-tax under section 11 of the Income-tax Act, 1961. There was a direct reference from the decision of the Tribunal to the Supreme Court which upheld the decision of the Tribunal, following its earlier decision in Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1. It was held by the Supreme Court that the clauses in the memorandum of the assessee enabling it to undertake and execute trusts or undertakings which may seem to it to be desirable, were merely powers incidental or ancillary to the main purpose of the assessee. (c) CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad). In this case, the assessee was a trust constituted to take over an existing Tamil daily newspaper and to provide for its efficient running. Under the terms of the deed, the trust was also required to devote its surplus income for certain specified educational purposes. In the assessment year concerned, the assessee claimed exemption from income-tax under section 11 of the Act of 1961 on the ground that 75% of its inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main objects for which the corporation was established. Though the activity of the corporation was being carried on with the object of making profits, the surplus in its hands as directed could only be utilised for the purpose and objects of general public utility. From the facts on record, it appears to us that the finding of the Tribunal that the assessee does not carry on any activity for making profits has become final inasmuch as none of the facts found by the, Tribunal has been challenged as perverse or being based on no evidence. It has been found that the assessee lets out its property on a no profit no loss basis. Even otherwise, it appears and as has been found by the Tribunal that the primary and dominant objects of the assessee as set out in the trust deed are all objects of general public utility. On a reading of the trust deed, we find that none of the objects set out in the deed involves any activity for earning any profit. No doubt, in one of the clauses of the deed, the assessee has been empowered to carry on any business and earn profits but the same is to be read in the context of its main objects and must be held to be ancillary and incidental to the carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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