2001 (1) TMI 80 - SC - Income Tax

Charitable Trust, Charitable Purpose, Interpretation Of Taxing Statutes, Ambiguity, Res Judicata, Words And Phrases

Summary

Issues Involved:
1. Eligibility of the trust for exemption under section 11 of the Income-tax Act, 1961, for different assessment years.
2. Applicability and interpretation of section 13(1)(bb) of the Income-tax Act.
3. Applicability and interpretation of section 11(4A) of the Income-tax Act, both as originally enacted and as substituted with effect from April 1, 1992.

Issue-wise Detailed Analysis:

1. Eligibility of the trust for exemption under section 11 of the Income-tax Act, 1961, for different assessment years:
The trust claimed exemption under section 11 for various assessment years. Initially, the High Court upheld the trust's claim for exemption for the assessment years 1968-69 and 1969-70, stating that the primary purpose of the trust was charitable, and the business was carried on as a means to achieve the charitable objectives. However, the Revenue challenged this for subsequent years, leading to various writ petitions and appeals.

2. Applicability and interpretation of section 13(1)(bb) of the Income-tax Act:
Section 13(1)(bb) was introduced with effect from April 1, 1977, and remained until April 1, 1984. It stated that income derived from business by a charitable trust would not be exempt unless the business was carried on in the course of the actual carrying out of a primary purpose of the trust. The High Court initially upheld the trust's claim that the business was incidental to its charitable purposes. However, the Supreme Court disagreed, stating that the business of running a newspaper did not directly accomplish the trust's charitable objectives and thus did not qualify for exemption under section 11 during the period section 13(1)(bb) was in effect.

3. Applicability and interpretation of section 11(4A) of the Income-tax Act, both as originally enacted and as substituted with effect from April 1, 1992:
- Original Section 11(4A) (effective April 1, 1984, to March 31, 1992): This section restricted the exemption for income derived from business unless the business was carried on by a trust wholly for public religious purposes or by an institution wholly for charitable purposes with the work mainly carried on by the beneficiaries. The Supreme Court held that the trust did not meet these criteria and thus was not entitled to exemption for the assessment years 1984-85 to 1991-92.

- Substituted Section 11(4A) (effective April 1, 1992): The new provision allowed exemption if the business was incidental to the attainment of the objectives of the trust and separate books of account were maintained. The Supreme Court found this provision more beneficial to the trust, stating that a business whose income is used to achieve the trust's objectives qualifies for exemption. Therefore, the trust was entitled to the exemption for the assessment year 1992-93 and thereafter.

Judgment:
The Supreme Court allowed the appeals by the Revenue for the assessment years 1979-80 to 1991-92, setting aside the High Court judgments that had upheld the trust's exemption claims for those years. However, the Court dismissed the appeals for the assessment years 1992-93 and thereafter, upholding the trust's entitlement to exemption under the substituted section 11(4A).