TMI Blog2001 (1) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... able. On July 28, 1961, Adityan executed another supplementary deed of trust. Thereby he directed that the surplus income of the trust, after defraying all expenses, should be devoted to the following purposes : ---establishing and running a school or college for the teaching of journalism ; ---establishing and/or running or helping to run schools, colleges or other educational institutions for teaching arts and science ; ---establishing scholarships for students of journalism, arts and science ; ---establishing and/or running or helping to run hostels for students ---establishing and/or running or helping to run orphanages ; and ---other educational purposes. On November 6, 1961, the Income-tax Officer proposed to disallow the claim of the trust for exemption under section 4(3)(i) of the Indian Income-tax Act, 1922, for the assessment years 1955-56 to 1961-62. The trust challenged the correctness of the tentative decision by filing a writ petition in the High Court of judicature at Madras. On June 25, 1961, the trustees of the trust took out an originating summons in the High Court and therein, on March 2, 1962, the High Court upheld the validity of the supplementar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ories referred to in section 2(15), viz., relief of the poor and education. It is to carry out and fulfil those objects the business is carried on. Thus, the primary purpose is to carry out the charitable objects and the business is carried on as a means in the course of the actual carrying out of that primary purpose and not as an end in itself. While the predominant object of the trust is the carrying out of the charitable objects referred to in two of the three categories of charitable purposes referred to in section 2(15), the carrying on of the business which is actually the property held under trust or other legal obligation is incidental, and the profit resulting from the business can be taken to be a by-product." The Revenue preferred a petition for special leave to appeal against the judgment of the High Court on the said references. In so far as it related to the eligibility of the trust to claim the exemption under section 11 of the Act, leave was declined. Having set out the background, we now come to the first of the three controversies before us. It relates to section 13(1)(bb), which was introduced into the Act with effect from April 1, 1977, and remained on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the 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". Section 11(4A) was introduced into the Act with effect from April 1, 1984. So far as it is relevant, section 11 then read thus : "11. Income from property held for charitable or religious purpose.---(1) 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 ; . . .' (4) For the purposes of this section 'property held under trust' includes a business undertaking so held, and where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution is respect of such business." The Income-tax Officer rejected the claim of the trust for exemption under the amended section 11(4A). A writ petition was filed in the High Court, and, relying upon the earlier decision, the High Court quashed the orders of assessment for the assessment years 1992-93, 1995-96 and 1996-97 Thanthi Trust v. Asst. Director of I. T. [1999] 238 ITR 635 (Mad). This is the third decision under appeal by the Revenue. In so far as section 13(1)(bb) is concerned, the learned Solicitor-General appearing for the Revenue, submitted that a business, to be excepted from the clutches of section 13(1)(bb), must be one carried on in the course of the actual carrying out of a primary purpose of a public charitable trust. In other words, it must be a business carried on in the course of actually carrying out the work of relief of the poor, education and medical relief. Any business carried on for generating revenue, which. revenue is used for furthering the charitable purpose for which the trust was established, is not an activity in the course of the primary purpose of the trust and does not fall within this exception. Dr. Pal, learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (bb) is the concurring judgment of R. S. Pathak J. (as he then was) in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1. He said : "when it was found that judicial decisions had held the restrictive clause ('not involving the carrying on of any activity for profit') in section 2(15) to control the fourth head ('the advancement of any other object of general public utility') only, and not also the first three heads ('relief of the poor, education and medical relief') in the definition, Parliament attempted to secure its original intent by enacting section 13(1)(bb). The two provisions represent the mode of finding finance for working out the purpose of the trust or institution, by deriving income from the corpus of the trust property and also from an activity carried on in the course of the actual carrying out of the purpose of the trust or institution." The learned judge did not, it will be seen, analyse section 13(1)(bb), nor, in the context of the case before him, was he required to. Upon analysis, it appears to us that the words used in section 13(1)(bb) are wide enough to control not only the profit from an activity carried on in the course of the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b). We are unable to agree. The earlier decision was not rendered in the context of section 13(1)(bb). That provision was not on the statute book at that time. That the provision employs language akin to that employed in the earlier decision cannot mean that in a proceeding directly related to that provision the Revenue is barred by reason of the principles of res judicata from contending that the income of the trust is not exempt under that provision. This brings us to the second controversy, relevant to the assessment years 1984-85 to 1991-92 during which period of time sub-section (4A) of section 11, as originally enacted, was in operation. It was contended by the learned Solicitor-General, that by reason of sub-section (4A) the income derived from a business held under trust wholly for charitable-or religious purposes would not be included in the total income of the previous year in the case only of (a) a trust for public religious purposes, if the business was of printing and publishing books or of a notified kind ; or (b) an institution wholly for charitable purposes, if the work in connection with the business was mainly carried on by the beneficiaries of the institution, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin clause (b). It must, therefore, be held that for the assessment years in question the trust was not entitled to the exemption contained in section 11 in respect of the income of its newspaper. We now address the third controversy, which relates to sub-section (4A) of section 11 as substituted with effect from April 1, 1992. The learned Solicitor-General submitted that while the substituted sub-section (4A) gave trusts and institutions a wider latitude than the earlier sub-section (4A), it had still to be construed to mean that a trust or institution would not get the benefit of section 11 unless the business it carried on was carried on in the course of the actual carrying out of a primary purpose of the trust or institution. Dr. Pal, on the other hand, submitted that the substituted sub-section (4A) was couched in wide language and a trust was entitled to the benefit of section 11 if it utilised the income of its business for the purposes of achieving its objects. The substituted sub-section (4A) states that the income derived from a business held under trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
