2013 (3) TMI 484 - HC - Income Tax

Charitable purposes U/s 2(15) of the Income-tax Act - Amendment to the clauses of the trust deed - Benefits of U/s 11 - Exemption U/s 10(22) of the Income-tax Act - Violation of the provisions of sec. 11(5) and sec. 13(1)(c) of the Income-tax Act - Held that - It cannot be said to be commercial ventures as held by the Commissioner of Income-tax. To argue that the trust exists for the benefit of a few members cannot be accepted as there has been an amendment in the memorandum of association as noticed supra. The assessee herein was running educational institutions and to aid spreading of the education and update the syllabus and other related educational aspects, two magazines were started by the assessee or their sister concern. They are incidental and ancillary to the main activities of the trust. Therefore, has to be answered in the negative in favour of the assessee and against the Revenue.

Issues Involved:
1. Whether the trust was for charitable purposes within the meaning of section 2(15) of the Income-tax Act.
2. Whether the original infirmity in the trust deed was rectified after the amendment.
3. Whether the amendment of the trust deed has a retrospective effect.
4. Whether the absolute discretion vested in the trustees disqualifies the trust from section 11 benefits.
5. Whether the trust's income is exempt under section 10(22) despite benefiting its members.
6. Whether the trust is entitled to section 11 benefits despite violations of sections 11(5) and 13(1)(c).

Detailed Analysis:

1. Charitable Purpose (Section 2(15)):
The Tribunal held that the trust was for charitable purposes within the meaning of section 2(15) of the Income-tax Act. The trust's primary objective was running educational institutions, which falls under the definition of "charitable purpose" as per section 2(15). The High Court agreed with this interpretation, noting that the trust's activities align with the systematic instruction and training required for education.

2. Rectification of Original Infirmity:
The Tribunal found that any original infirmity in the trust deed's aims and objects was rectified by an amendment in October 1989. The High Court concurred, stating that the trust had amended its memorandum of association to open membership to all, thereby addressing the issue of being limited to family members.

3. Retrospective Effect of Amendment:
The Tribunal held that the amendment to the trust deed had a retrospective effect, making the benefits of section 11 available for the assessment years 1986-87 and 1987-88. The High Court supported this view, indicating that the amendment rectified earlier defects, thus allowing retrospective application of the benefits.

4. Absolute Discretion of Trustees:
The Tribunal did not find the absolute discretion vested in the trustees to be a disqualification for section 11 benefits. The High Court agreed, referencing the Supreme Court's decision in Yogiraj Charity Trust v. CIT, which stated that if the primary purpose is charitable, incidental non-charitable objects do not negate the trust's charitable status.

5. Exemption under Section 10(22):
The Tribunal held that the trust's income was exempt under section 10(22) despite claims that the benefits enured to its members. The High Court upheld this, noting that the trust was primarily engaged in educational activities and any incidental benefits to members did not negate its educational purpose.

6. Violations of Sections 11(5) and 13(1)(c):
The Tribunal found no violation of sections 11(5) and 13(1)(c) in the trust's investments. The High Court agreed, stating that the investments in "Maabadi," "Patasala," and "Vijaya Vani Printers" were incidental to the trust's educational objectives and did not disqualify it from section 11 benefits.

Conclusion:
The High Court answered questions 1, 2, 3, and 6 in the affirmative in favor of the assessee, confirming the trust's charitable status, the rectification of the trust deed, the retrospective effect of the amendment, and the trust's entitlement to section 11 benefits. Question 4 was answered in the negative, indicating that the trustees' discretion did not disqualify the trust. Question 5 was answered in the affirmative, confirming the trust's income exemption under section 10(22). The referred cases were disposed of without any order as to costs.

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