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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 ..... of all 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 amelio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 86,514 --------------------------------------------------------------------- The Income-tax Officer noticed that for the A.Y. 1977-78 (for which the tailoring surplus was Rs. 1,85,805 exemption had been denied to the assessee ; that for that year the Commissioner of Income-tax (Appeals) had held that the activity of tailoring was a business carried entirely on commercial lines with a view to earn profit and not the advancement of a charitable purpose; and that the tailoring charges appear to have been fixed in such a way that they should aim a sufficient income over expenditure. The Income-tax Officer, therefore, called for written submissions from the assessee. The written submissions dated 20-1-1983 of the assessee for the A.Y. 1980-81 can be summarised as follows : (i) That after the A.Y, 1977-78 there had been a change in certain facts in the subsequent years inasmuch as the assessee had discontinued insurance 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 entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee it was submitted that for that year the facts had not been properly appreciated and the order was based on a wrong assumption of facts. The learned CIT(A) upheld the order of the Income-tax Officer holding that : (i) the activity of the assessee was primarily a commercial activity like any other commercial concern which was being run for profit ; and (ii) the mere fact that after the profits were earned on commercial lines the income earned, was utilised for charitable purposes, does not mean that the dominant object of the assessee was in the nature of a charitable purpose. For the A.Y. 1981-82 also the learned CIT(A) followed the order of his predecessor for the A.Y. 1980-81, denying to the assessee the claim of the exemption under see. 11 read with section 13(1)(bb). 5. Shri O.P. Vaish, the learned counsel for the assessee referred to the aims and objects of the assessee as given in its Memorandum of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l public utility but that the dominant object or purpose could not be the carrying on of a commercial activity. Reference was made by him to an order of the Appellate Tribunal in the case of Urmila Bansidhar Foundation [IT Appeal No. 2055 (Delhi) of 1979 dated 28-2-1981] wherein the Tribunal had held that exemption under sec. 11 was available. Shri Vaish pointed out that in that case not only the Reference was rejected by the Appellate Tribunal under see. 256(1) but also the Hon'ble Delhi High Court had refused to call for the Statement of the Case under see, 256(2). In this connection, reference was made by him to CIT v. Urmilla Bansi Dhar Foundation Trust [1986] 159 ITR 100 (Delhi). In that case business was settled on trust for charitable purposes and the trust deed specifically provided that the income should be used for charitable purposes and not for running the business for profit. Next, reference was made by Shri Vaish 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view to subserve charitable purposes rather than to earn profit. Reference was also made by him to the fact that for the period 1-4-1978 to 31-3-1984 certificate under section 80G had been granted to the assessee. He, therefore, submitted that for the assessment years in question, the assessee was entitled to claim exemption under section 11. On the other hand Shri O.S. Bajpai, Senior Departmental Representative submitted that in the order of the Appellate Tribunal for the A.Y. 1977-78, there was no error of fact or law although there could be a plausible argument based on ingenuity. He submitted that on that basis and on the same facts no reconsideration of that decision was required. He submitted that the finding of the Appellate Tribunal for the A.Y. 1977-78 was a finding of fact and that it had rightly applied the ratio of the decision of the Supreme Court in the case of Surat Art Silk Cloth Mfrs. Association. In this connection, 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 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Appellate Tribunal as aforesaid, the same stand had been taken by the department. We will revert to this aspect in detail later with reference, to the factual and legal position. The figures of surplus for various years were examined by the learned Commissioner of Income-tax (Appeals) for the assessment year 1977-78 and from there they have been quoted by the Income-tax Officer in the assessments for the assessment years 1980-81 and 1981-82 in question. Those figures are as follows :--- -------------------------------------------- Sl. Asst. Figures of Surplus No. Year -------------------------------------------- Rs. -------------------------------------------- 1. 1975-76 50,928 2. 1976-77 1,02,988 3. 1977-78 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment or attainment. What is inhibited is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. (5) If the intention of the Legislature were to prohibit a trust or institution established for the promotion of an object of general public utility from carrying on any activity for profit, it would have provided in the clearest terms that no such trust or institution shall carry on any activity for profit, instead of using involved and obscure language giving rise to linguistic problems and promoting interpretative litigation. (6) It is not; enough that as a matter of fact an activity results in profit but it must be carried on with the object of earning profit. The predominant activity must be making of profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on "no profit, no loss" basis or that profit shall be prescribed. Even if there is no such provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. In the case of Surat Art Silk Cloth Mfrs. Association the Supreme Court had also approved the following observations of Beg J. in Sole Trustee, Loka Shikshana Trust's case at page 256 :--- "If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit, will not alter the charitable character of the trust. The test now is more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity." In the case of Umaid Charitable Trust the Hon'ble Madras High Court was considering the case of a trust where discretion was given to the trustees to utilise the income for charitable objects or purpose and it was held that the income derived from the business was exempt. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding nature of the activity. That is why this expression had been so construed by the Supreme Court in the cases of Surat Art Silk Cloth Mfrs. Association and Andhra Pradesh State Road Transport Corpn., particularly in para 9, which we have extracted on page 15. 7. Let us now examine the facts with reference to the settled legal position as given above. The case of the assessee has been that it accepts orders for supply of uniform etc. from a limited number of companies or institutions of Modinagar which, know the Kendra on the basis of its lowest quotations. It does not search for customers, does not carry out any advertising, has no sales executives or managers and has a small complement of staff so that its establishment and administrative costs are low and the tailoring charges are moderate. The quantum of surplus would not, by itself be any guide to the activity being treated as a commercial one as has been done by the income-tax authorities for, the surplus depends upon the quantum of work turned out. The income-tax authorities did not place on the record as to what the tailoring charges of the assessee were as compared to the tailoring charges in the open market for such u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings initiated for assessment years 1978-79 and 1979-80 under section 263 appear to have been justified and in consonance with the law laid down by the Supreme, Court although they preceded the Tribunal decision in their own case. Having regard to the view which, we have taken, there would be no justification for the learned Departmental. Representative to contend that the order of the Appellate Tribunal for the assessment year 1977-78 should be followed. We have already detailed the factual and legal basis which constitute important and vital aspects justifying this course of action. It has also been clearly held by the Supreme Court in the case of Surat Art Silk Cloth Mfrs. Association that section 13(1)(bb) could not be attracted in a case of the present nature where we are considering the last head of charitable purpose namely an object of general public utility. Therefore, the income-tax authorities were not justified in holding otherwise. We are, therefore, of the clear view that the assessee is entitled to the exemption claimed under section 11 for the assessment years 1980-81 and 1981-82.
8. The appeals are accordingly allowed. X X X X Extracts X X X X X X X X Extracts X X X X
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