1998 (10) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to Charitable Trust Status and Tax Exemption
2. Applicability of Section 13(1)(bb) and Section 11(4A)
3. Interpretation and Application of Section 11(4A) Post-Amendment

Summary:

1. Entitlement to Charitable Trust Status and Tax Exemption:
The petitioner, a charitable trust running the newspaper "Daily Thanthi," claimed tax exemption u/s 11 of the Income-tax Act. The trust, established in 1954 and declared irrevocable in 1957, has its primary objectives as the relief of the poor and education. The Division Bench of this court in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad) affirmed that the trust is a public charitable trust, and the income derived from the newspaper business is held under a legal obligation for charitable purposes, thus qualifying for tax exemption.

2. Applicability of Section 13(1)(bb) and Section 11(4A):
Section 13(1)(bb), introduced in 1977 and effective until 1984, required that business income be incidental to the primary charitable purpose for exemption. The court in Thanthi Trust v. Asst. CIT [1995] 213 ITR 626 held that the trust satisfied this requirement, and thus, the exemption u/s 11(1) was applicable. Section 13(1)(bb) was later deleted, and section 11(4A) was introduced, which required that business income be incidental to the trust's objectives and that separate books of account be maintained.

3. Interpretation and Application of Section 11(4A) Post-Amendment:
The Revenue sought to tax the trust's income from the newspaper business for assessment years post-1992, invoking the amended section 11(4A). The court, referencing its earlier decision in Thanthi Trust v. CBDT [1995] 213 ITR 639, ruled that section 11(4A) did not apply to businesses held in trust for charitable purposes. The amendment to section 11(4A) in 1992, which expanded permissible business activities, did not alter this interpretation. The court concluded that the business held in trust remains outside the purview of section 11(4A), and thus, the trust's income from the newspaper business continues to be exempt from tax.

Conclusion:
The writ petitions are allowed. The assessments for the relevant years should be redone without invoking section 11(4A) of the Act. The parties shall bear their respective costs.