1988 (7) TMI 85 - AT - Income Tax

Issues Involved:
1. Applicability of Section 13(1)(bb) of the Income Tax Act, 1961.
2. Filing of Form No. 10 under Section 11(2) of the Income Tax Act, 1961 and Rule 17 of the Income Tax Rules, 1962.
3. Interpretation of the trust's object clause.
4. Taxability of income derived from partnership firms and interest income.

Detailed Analysis:

1. Applicability of Section 13(1)(bb) of the Income Tax Act, 1961:
The primary issue was whether the trust was entitled to exemption under Section 11 of the Income Tax Act, 1961, given that it was argued to be carrying on business not in the course of actually carrying out a primary purpose of the trust. The Income Tax Officer (ITO) proposed that the trust was not entitled to exemption under Section 11 due to Section 13(1)(bb) of the Act, which states that a charitable trust for the relief of the poor, education, or medical relief carrying on any business would not be entitled to exemption unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust.

The assessee contended that Section 13(1)(bb) did not apply to the trust as its object clause included "advancement of general public utility," which was not covered under Section 13(1)(bb). The CIT(A) accepted this contention, noting that the trust was not actively engaged in business activities but was deriving income as a partner in firms and through interest on deposits.

However, the Tribunal found that the trust's case was clearly hit by Section 13(1)(bb) since the construction of a hospital (for which income was accumulated) falls under "medical relief" as per Section 2(15) of the Act. The Tribunal concluded that the trust's income was taxable under Section 13(1)(bb), reversing the CIT(A)'s decision.

2. Filing of Form No. 10 under Section 11(2) of the Income Tax Act, 1961 and Rule 17 of the Income Tax Rules, 1962:
The trust filed Form No. 10 for accumulation of income beyond the prescribed time limits. The CIT(A) condoned the delay, treating it as a technical and procedural lapse. The Revenue argued that the CIT(A) had no power to condone such delay and that the assessee had not applied for condonation as per the Board's Circular No. 273 dated 3rd June 1980.

The Tribunal did not find it necessary to give a decision on this issue due to its finding on the applicability of Section 13(1)(bb). However, it noted that the assessee could approach the concerned authorities for redressal based on the Board's circular.

3. Interpretation of the Trust's Object Clause:
The trust's object clause included relief of the poor, education, medical relief, and advancement of general public utility. The ITO argued that the trust was carrying on business not in the course of actually carrying out a primary purpose of the trust, thereby invoking Section 13(1)(bb).

The CIT(A) found that the trust was not actively engaged in business but was deriving income as a partner in firms. The Tribunal, however, held that the trust's activities, including earning interest income, were aimed at earning profits, thus falling under Section 13(1)(bb).

4. Taxability of Income Derived from Partnership Firms and Interest Income:
The trust derived income as a partner in firms and through interest on deposits. The ITO argued that this income was taxable under Section 13(1)(bb) as it was not in the course of carrying out the primary purpose of the trust.

The CIT(A) disagreed, stating that the trust was not actively engaged in business activities. However, the Tribunal found that the income, including interest earned from deposits, was an activity of earning profits and thus taxable under Section 13(1)(bb).

Conclusion:
The Tribunal allowed the Revenue's appeals, holding that the trust's income was taxable under Section 13(1)(bb) of the Income Tax Act, 1961. The Tribunal reversed the CIT(A)'s decision, finding that the trust's activities aimed at earning profits fell within the purview of Section 13(1)(bb). The issue of filing Form No. 10 was left open for the assessee to seek redressal from the concerned authorities.

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