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TMI Blog1989 (4) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... l creeds and castes. (c) To establish and maintain dispensaries, hospitals, maternity homes for the use of poor persons of all creeds and castes. (d) To establish and maintain centres for social welfare of children of all creeds and castes. (e) To help with stipends, fooding, clothing or by other means poor or dumb or blind or such other helpless and needy girls, children and ladies of all creeds and castes. (f) To establish centres for the homeless, parentless children and ladies of all castes and creeds. (g) To establish and maintain institution or institutions for imparting general, vocational industrial, moral and physical education to the children and girls and women of all creeds and castes. (h) To establish and maintain Dharamshalas, widow-home or any other such charitable institution for the benefit of all classes. (i) To establish and maintain any charitable institution with a philanthropic purpose which may be in the general interest of the poor of all classes and creeds. (j) To Promote science, literature or fine arts, for instruction and diffusion of useful knowledge of foundation or main tenance of libraries or reading rooms for general use. (k) To am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance agency business and the clause relevant thereto in the Memorandum of Association had been deleted with effect from 15-12-1976. (ii) The Income-tax Officer had himself found for the subsequent years 1978-79 and 1979-80 that the assessee was entitled to claim exemption under section 11. For those years the ITO had completed the assessments by following the IAC (Asst.)'s instructions under section 144A. (iii) The assessee was granted certificate under section 80G in respect of donations made for the period 1-4-1978 to 31-3-1982 which showed that the Commissioner of Income-tax was satisfied that the assessee fulfilled the conditions laid down under section 80G(5) including the condition that its income was eligible for exemption under sections 11 and 12. (iv) The material facts regarding the charitable objects and activities of the assessee for the assessment years 1980-81 and 1981-82 were the same as for the assessment years 1978-79 and 1979-80 for which the assessee had been held to be exempt under sections 11 and 12. (v) The objectives of the assessee were genuinely charitable in their concept and precept as well as practice and implementation. The surplus arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Association. He submitted that the aims and objects were enumerated in sub-clauses (a) to (k) of clause 2 (enumerated above) and that sub-paras (l) to (r) referred to the powers for the realisation or advancement of such aims and objects. He submitted that so far as sub-clause (q) relating to the working and establishments of agencies and depots of the purchase and sale of goods of all description in the interest and for the benefit of the Parishad and to get insurance business in furtherance of the objects of the Parishad for its benefit is concerned it was deleted with effect from 15-12-1976 and therefore, did not figure for any assessment year after the assessment year 1977-78, and therefore, there was no insurance work after 15-12-1976. He submitted that the main object of the assessee was promotion of (i.e.) advancement of "any other object of general public utility". Referring profusely to the decision of the Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1, he submitted that tailoring was not the object of the assessee and that it only fed the purpose of general public utility. He submitted that the business was not barred if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish to another decision of Delhi Bench 'B' in the case of Modi Charitable Fund Society [IT Appeal No. 1021 (Delhi) of 1981 dated 28-12-1982] for the A.Y. 1977-78 wherein it was held that since the business of insurance agency was held on trust, the income whereof was to be wholly applied to charitable purposes, the entire income from the insurance business was exempt under sec. 11. He submitted that the decision of the Appellate Tribunal for the A.Y. 1977-78 went against the Tribunal's decision in the cases of Modi Charitable Fund Society and Urmila Bansidhar Foundation as also against the decision of Supreme Court in the case of Surat Art Silk Cloth Mfrs. Association which was applied in the case of CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR 1. He referred to the Third Member decision in the case of Export House v. ITO [1985] 13 ITD 687 (Asr.) for the proposition that glaring mistakes should not be allowed to be perpetrated. In this connection, reference was also made by him to the observations of Bhagwati J. in the case of Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120 (SC). Reference was also made by him to the decision of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection, reference was also made by him to the decision of the Hon'ble Madras High Court in the case of CIT v. L.G. Ramamurthi [1977] 110 ITR 453. He submitted that the fact that action under sec. 263 had been dropped by the Commissioner for the Asst. Years 1978-79 and 1979-80 could not assist the assessee and that the Appellate Tribunal could Dot follow it. He submitted that since the certificate under sec. 80G had been given in 1982, the learned Commissioner may have dropped proceedings under sec. 263 on 23-3-1984 whereas the order of the Appellate Tribunal for the A.Y. 1977-78 was passed later i.e. on 25-4-1984 whereafter the stand of the department was that the activity of tailoring at the Mahila Shilp Kala Kendra was a commercial activity which was being carried on with a predominant profit motive. He, therefore, submitted that a view different from the view taken by the Appellate Tribunal for the A.Y. 1977-78 would not be justified on the basis of the same facts. Next, he submitted that the predominance of the object of profit making which has to be decided in each case, was not considered by the Appellate Tribunal in the case of Urmila Bansidhar Foundation According to him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,76,725 7. 1981-82 2,69,983 -------------------------------------------- The case of the assessee is that it is covered under the latter part of the definition of "Charitable purpose" under section 2(15) namely "any other object of general public utility not involving the carrying on of any charity for profit". It is now well settled as a result of the decisions of the Supreme Court in Dharmadeepti v. CIT [1978] 114 ITR 454 and Surat Art Silk Cloth Mfrs. Association's case that the words "not involving the carrying on of any activity for profit" qualify or govern only the last head of Charitable purpose and not the earlier three heads "relief of the poor, education and medical relief". The propositions laid down in the case of Surat Art Silk Cloth Mfrs. Association were the following : (1) Where the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of "charitable purpose" would be satisfied even if an activity for profit is carried on in the actual carrying out of the primary purpose of the trust or institution. (2) Section 11(4) declares that for the purpose of section 11 "property held un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otive ; the later should not masquerade under the guise of the former. The purpose of the trust must be essentially charitable in nature and it must not be a cover for carrying on an activity which has profit making as its predominant object. (7) The test which has therefore to be applied is 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. Where profit making is the predominant object of the activity, the purpose though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. (8) ". . . profit making would not be the driving force behind this activity. But it is possible that in a given case the degree or extent of profit making may be of such a nature as to reasonably lead to the inference tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were to be utilised for providing amenities to passengers and welfare of labour and approved expansion programme and remainder was to be made over to the State Government for road development. Even though section 22 of the Road Transport Corporations Act, 1950 provided that it shall be the general principle that in carrying on its undertaking it shall act business principles, the Supreme Court, after applying the test of predominant, object of the activity, held that it was entitled to claim exemption under section 11. Ours is a welfare State. The basic idea behind the grant of the exemption under section 11 is that if an assessee trust or institution has for its object, the attainment of such charitable purpose as is the primary duty of the State to secure for its citizens, the income derived by such a trust or institution should not be taxed because what such trust or institution is doing thereby is really to assist the State or to supplement the State's efforts in that direction. That is why the Legislature provided that if the charitable purpose of the trust or institution be specific i.e. if it includes relief of the poor, education and medical relief, it can carry on an acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it necessarily feeds the said purpose. This fact has not been disputed by the learned CIT(A) and is also borne out from the figures given in Para 1 of this order. Thus it cannot be said that the assessee's activity is pervaded by a profit motive or that it is carried on with the predominant object of earning profit. It can also not be said that the charitable purpose in this case was sub-merged by any profit making motive or that it masqueraded under the cover or guise of a charitable purpose. On facts, the pre dominant object of the activity of the Mahila Shilp Kala Kendras was to carry out the charitable purpose and not to earn profit and more particularly, the surplus earned genuinely feeds the charitable purpose. In terms of the test laid down by the Supreme Court in the case of Surat Art Silk Cloth Mfrs. Association and applied in the case of Andhra Pradesh State Road Transport Corpn. it does not appear on facts that profit making is the driving force behind the tailoring activity of Mahila Shilp Kala Kendras. There is also no material on the record to establish that the activity or the tailoring charges are wholly on commercial lines nor the degree or the extent of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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