2012 (12) TMI 136 - HC - Income Tax

Exemption u/s 11 - charitable activities - profit motive - Applicability of section 13(1)(bb) - whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. - held that - the primary purpose of the Trust was to afford relief of poor education and medical relief the means employed by exploiting its assets to earn income to achieve the objects cannot in any manner be applied to defeat the claim of the assessee under Section 11. Decision in the case of Additional CIT Vs. Surat Art Silk Cloth Manufacturers Association 1979 (11) TMI 1 - SUPREME COURT followed.

Summary

Issues Involved:
1. Applicability of Section 13(1)(bb) to the Trust carrying on business.
2. Applicability of the Supreme Court's judgment in the case of Thanthi Trust (247 ITR 785) to the present case.

Issue-wise Detailed Analysis:

1. Applicability of Section 13(1)(bb) to the Trust carrying on business:

The primary issue was whether Section 13(1)(bb) of the Income Tax Act applied to the Trust, which was carrying on business. The Tribunal held that Section 13(1)(bb) would not apply as the Trust's dominant object was charity. The Tribunal emphasized that the income derived from the business was used to accomplish the Trust's charitable objectives, such as relief of the poor, education, and medical relief. The Trust carried on business for two and a half years and later leased it out to generate income for its charitable activities. The Tribunal concluded that the business was carried on in the actual carrying out of the primary purpose of the Trust, thus qualifying for exemption under Section 11.

2. Applicability of the Supreme Court's judgment in the case of Thanthi Trust (247 ITR 785) to the present case:

The Revenue argued that the Supreme Court's judgment in the case of Thanthi Trust was applicable, which held that the exemption under Section 11 would not be available unless the business was carried on in the course of the actual accomplishment of the primary purpose of the Trust. The Court noted that the factual findings in the present case were different. The primary purpose of the Trust was to provide relief to the poor, education, and medical relief, and the business activities were incidental to achieving these objectives. The Court distinguished the present case from Thanthi Trust, where the business did not directly accomplish the Trust's charitable objects. The Court held that the primary purpose of the Trust was charitable, and the business activities were a means to achieve this purpose, thus not attracting the provisions of Section 13(1)(bb).

Conclusion:

The Court concluded that the Trust was entitled to exemption under Section 11 as the business was carried on in the course of the actual carrying out of the primary purpose of the Trust. The Court dismissed the Revenue's appeals, affirming the Tribunal's decision that Section 13(1)(bb) did not apply to the Trust. The Court emphasized that the primary object of the Trust was charitable, and the business activities were incidental to achieving this purpose. Consequently, the Trust was entitled to the exemption, and the Revenue's appeals were dismissed.