1992 (4) TMI 70 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee-trust is liable to be assessed at the maximum marginal rate of tax under section 164(1) of the Income-tax Act or at the normal rates applicable to an Association of Persons under section 164(2).
2. Validity and nature of the trust as a public charitable trust.
3. Profit motive and charitable purpose of the trust.
4. Interpretation of trust deed clauses and their impact on the trust's status.
5. Department's objections regarding the trust's activities and financial management.

Detailed Analysis:

1. Assessment Rate:
The primary issue in these appeals is whether the assessee-trust should be assessed at the maximum marginal rate under section 164(1) of the Income-tax Act, as contended by the Revenue, or at the normal rates applicable to an Association of Persons under section 164(2), as argued by the assessee. The assessee does not claim total exemption under section 11 of the Act but seeks assessment at the normal rate applicable to an AOP, asserting its status as a public charitable trust.

2. Validity and Nature of the Trust:
The trust, known as "Torsteel Research Foundation in India," was established by M/s. Toristeg Steel Corporation through an indenture of trust dated 1-8-1973. The trust deed specifies the trust fund's composition and the trustees' powers. The Department has not questioned the trust's validity. The trust's object is the review, study, and development of technology and products through research, which qualifies as an object of general public utility.

3. Profit Motive and Charitable Purpose:
The predominant object of the trust is the propagation of knowledge obtained through research in specialized twisted steel (torsteel). The trust charges fees for its services, but this is incidental to its main charitable purpose. The Supreme Court's decision in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association and CIT v. Andhra Pradesh State Road Transport Corpn. supports the view that profit-making is not the primary motive, and the trust's activities are charitable in nature.

4. Interpretation of Trust Deed Clauses:
Clause 1(b) of the trust deed mandates the trustees to apply the income for research activities. Clauses 26 and 27 ensure that no part of the income benefits the settlor or trustees personally. The surplus income is ploughed back into the trust's activities, and the trust's funds are not distributed among the settlors, trustees, or employees. The trust deed's provisions align with the charitable purpose and non-profit motive.

5. Department's Objections:
The Department argued that the trust's activities were similar to the commercial venture previously conducted by the Luxembourg company and that profit-making was the predominant motive. However, the trust's establishment removed the element of private gain. The Department also raised concerns about Dr. Mohanty's powers and benefits provided to employees. These points were deemed irrelevant to the trust's charitable status.

Conclusion:
The assessee-trust qualifies as a public charitable trust assessable at the rates applicable to an Association of Persons under section 164(2) of the Act. The orders of the CIT passed under section 263 for the assessment years 1981-82 and 1982-83 are set aside, and the assessments for these years are restored. The order of the CIT(A) for the assessment year 1983-84 is reversed. The appeals are allowed.