1980 (2) TMI 273 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to exemption under section 11 of the Income-tax Act, 1961, read with section 2(15) for the assessment years 1967-68, 1968-69, 1969-70, and 1970-71.
2. Interpretation of the trust deed and determination of whether the trust's activities involve carrying on a business for profit.
3. Applicability of the Supreme Court's interpretation of "charitable purpose" in the context of section 2(15) and section 11 of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Entitlement to Exemption under Section 11:
The primary issue was whether the income of Umaid Charitable Trust, Pali, was entitled to exemption under section 11 of the Income-tax Act, 1961, read with section 2(15) for the assessment years 1967-68, 1968-69, 1969-70, and 1970-71. The Income-tax Officer (ITO) assessed the income derived from the trust's business activity, rejecting the claim for exemption. The Appellate Assistant Commissioner (AAC) initially allowed the appeals for the assessment years 1967-68 to 1969-70, granting exemption. However, the Income-tax Appellate Tribunal overturned this decision, leading to the current references.

2. Interpretation of the Trust Deed:
The interpretation of the trust deed was central to determining whether the trust's activities involved carrying on a business for profit. The trust deed, dated August 27, 1963, outlined the trust's objects, including relief of the poor, advancement of education, medical relief, promotion of science, art, and literature, and any other object of general public utility. The deed also conferred powers on the trustees to hold and manage business undertakings. The court had to distinguish between the objects of the trust and the powers conferred on the trustees to achieve those objects. It was concluded that the powers to carry on business activities were meant to advance the charitable purposes, not to generate profit as an end in itself.

3. Applicability of the Supreme Court's Interpretation:
The court referred to the Supreme Court's decision in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1, which clarified the interpretation of "charitable purpose" under section 2(15). The Supreme Court held that the dominant or primary purpose of the trust must be charitable, and any profit-making activity must be incidental to achieving the charitable objectives. The Rajasthan High Court applied this principle, concluding that the trust's activities were not motivated by a profit objective but were undertaken to advance the charitable purposes.

Conclusion:
The Rajasthan High Court held that the predominant object of the trust was charitable, and any profit-making activity was incidental to achieving the charitable purposes. Therefore, the trust was entitled to exemption under section 11 of the Income-tax Act, 1961, for the assessment years in question. The court answered the references in the affirmative, in favor of the assessee and against the revenue. Consequently, the applications under section 256(2) of the Act became infructuous and were dismissed. The parties were left to bear their own costs.