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TMI Blog1992 (4) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee-trust is liable to be assessed at the maximum marginal rate of tax under section 164(1) of the Act as contended by the Revenue or whether it is liable to be assessed at the normal rates applicable to an Association of Persons as per section 164(2) of the Act, a position canvassed by the assessee. We may make it clear that the assessee does not claim total exemption in respect of the income under section 11 of the Act. It is common ground that the assessee has not complied with the elaborate procedure prescribed by section 12 of the Act and that it has not also satisfied the stringent requirements of section 11. What all the assessee claimed--and this is disputed by the Revenue--is that it should be assessed in the status of an AOP at the normal rate of tax, since it is a public charitable trust, as per section 164(2). 3. A few facts have to be stated first to give a sort of a background to the case. M/s. Toristeg Steel Corporation, a company incorporated under the laws of Luxem bourg, having its registered office in that country and a branch office in Calcutta, was carrying on business by turning to profit the fruits of research carried out by it in the field of specialised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees from the sponsors of research and development work as the Trustees may decide from time to time. 2. (a) The Trustees shall have power to seek, accept and give donations, endowments, rights, grants,aids and payments against specific assignments for rendering technical, promotional and quality control services for the optimum utilisation of technology, know-how, processes, systems whether developed by the Foundation or others in India or outside. (b) The Trustees shall have power to invest in India any moneys forming part of the Trust Fund in such investments including shares and debentures of bodies corporate and immovable properties as the Trustees shall in their sole discretion decide with power to transpose or vary such investments from time to time without being liable for any loss occasioned thereby." Clause 18 made provision for the appointment of additional trustees. It further provided that if no additional trustee was appointed, Dr. Mohanty would be entitled to exercise all the powers of the trustees. Clause 25 gave powers to the trustees to frame rules for the governance of the trust, subject to the condition that the rules should not be inconsistent with the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust deed. His next point was that the predominant motive of the assessee-trust was the carrying on of an object of public utility, viz., making available to those who need them, the fruits of research in the field of torsteel manufacture and conducting seminars on the subject etc., and not profit-making, which was only incidental. He submitted that though the assessee-trust made profit, that was only because it was not practical or feasible to so fix the fees for rendering public utility services as to just cover the expenses only without leaving any surplus. In this context, he relied on the decision of the Supreme Court in CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1 which recognised and approved the principle that mathematical precision in the matter of fixing the fees is not practical nor desirable. He also relied on the analogy of section 10(22A) where the condition for exemption was that the institution claiming exemption thereunder should exist solely for philanthropic purposes and not for purposes of profit. He pointed out that the Calcutta High Court had explained the principle in CIT v. Economic & Entrepreneurship Development Foundation [1991] 188 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch in the field of specialised twisted steel called 'torsteel' is an object of general public utility. In fact, the departmental authorities did not seriously dispute the fact that the object simplicitor of the assessee-trust is charitable in nature ; their main objection is to the fact that what was a commercial venture--pure and simple--is now claimed to be a noble object, just because the assessee is a trust at para 7 of this order, the CIT(A) says--" There is no doubt that the business of the foreign company was a successful commercial proposition and there has been no change in the nature and mode of the business even though a clock (sic) of a trust has been given to it ... in the case of this trust profit is the main object as it was when the same business was conducted by the foreign company and services are provided only to those who can afford to pay for it. In cannot certainly be said that the business acquired the characteristic of 'charitable' nature by the change in the ownership of the business. I find that the business continues to be the same as before and is conducted purely on commercial lines." It will be clear from these lines that the department has viewed wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e foundation, contributions to P.F., travelling expenses, interest expenses, rates & taxes, repairs, etc., are charged to the Income & Expenditure A/c. before arriving at the surplus. Thus, it will been seen, that there is no element of private gain, which is the distinguishing feature, after the advent of the assessee as a trust with effect from 1-8-1973. The surplus is to be "ploughed back" by an express mandate contained in the indenture of trust. The departmental authorities appear to have lost sight of this aspect, which seems vital to us, in coming to the conclusion that what was admittedly a commercial venture cannot oversight cease to be so. 9. We have now to examine whether the assessee falls within the ratio of the decision of the Supreme Court in Surat Art Silk Cloth Mfrs. Association's case. It was held in that decision that the last ten words in section 2(15) of the Act qualify only the words "any other object of general public utility"; it is the assessee's case before us that it falls within this residuary object. It was further held in that decision that it is the object of the trust that should not involve the carrying on of any activity for profit and that profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar "mixing up" was exposed by the Supreme Court in Andhra Pradesh State Road Transport Corpn.'s case referred to by Mr. Bajoria during the course of his argument. In that case, an argument was raised by the Revenue that even as per section 22 of the Road Transport Corporations Act, the Corporation (assessee) was expected to carry on the operations on "business principles" and, therefore, the assessee could not be held to carry on an object of general public utility. Dealing with this contention, the Supreme Court held at page 10 of the Report, as follows : " The submission founded upon section 22 is based upon a misunderstanding of what that section provides. A road transport corporation cannot be expected or be required to run at a loss. It is not established for the purpose of subsidising the public in matters of transportation of passengers and goods. The objects for establishing a road transport corporation are those set out in section 3 of the RTC Act which we have already reproduced above. Section 18 shows that it is the duty of a road transport corporation to provide, secure and promote the provision of an efficient, adequate, economical and properly co-ordinated system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n's case and in Andhra Pradesh State Road Transport Corpn.'s case . 11. We may notice that the Calcutta High Court has, in CIT v. Sangit Kala Mandir Trust [1987] 166 ITR 217, held that if the primary and dominant object was of general public utility, the clause empowering the trust to carry on business should be read in the context of the main object and must be held to be ancillary and incidental to the carrying on of the main object. The principle of this decision is applicable with full force to the present case. 12. A few minor points raised by Mr. Roy for the Department have to be disposed of. He stated that Dr. Mohanty was given wide powers under clause 18(d) of the deed of trust. But that is not correct. The said clause merely stated that he was to exercise all the powers of the trustees so long as no additional trustees were not appointed. There is nothing obnoxious about the clause. The powers conferred upon him were powers of management and day-to-day administrations of the trust it was not suggested that he was given the powers of disposal over the income or assets of the trust towards purposes other than those stated in the objects clause of the deed of trust. The oth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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