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TMI Blog1982 (12) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 11 of the Income-tax Act, 1961 (' the Act '). 2 to 5. [These paras are not reproduced here as they involve minor issues.] 6. Coming to the merits of the case Dr. Devi Pal took the Tribunal through the aims and objects for which the assessee-society was established and urged that these aims and objects have been duly considered not only by the Tribunal in the following appeals in the case of the assessee but also by the Allahabad High Court in Re. Modi Charitable Fund Society [Civil Writ Petition No. 366 of 1978, decided on 29-4-1982] and that the Hon'ble High Court as well as the Tribunal have unequivocally held that the aims and objects for which the assessee-society was established were for the advancement of the objects of general public utility not involving the carrying on of any activity for profit, reversing the view taken by the AAC in the appeal of the assessee for the assessment year 1973-74 holding that, the assessee-society was established for the purpose of education as was the case of the assessee before the tax authorities in that year : 1. Delhi Bench ' B 'New Delhi---IT Appeal Nos. 4624, 4625 and 4626 (Delhi) of 1977-78 (assessment years 1973-74 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as is the case of the tax authorities nor does it by working as an insurance agent carry on any business is sought to be made out by the tax authorities. In this connection, Dr. Pal took us through the aims and objects of the assessee-society. According to him, insofar as the aims and objects at (c)--reading ' to establish and maintain any dispensary or hospital for the benefit of the public '---of the aims and objects for which the assessee-society was established is concerned, the same is to be ignored as the assessee-society never engaged itself to establish and maintain any dispensary or hospital for the benefit of the public as also conceded by the ITO in the assessment order of the assessee-society for the year under consideration, in view of the ratio of the Supreme Court decision in CIT v. Dharmodayam Co. [1977] 109 ITR 527 and Dharmaposhanam Co. v. CIT [1978] 114 ITR 463. Insofar as the remaining aims and objects of the assessee-society at (a), (b) and (d) are concerned, Dr. Pal very strenuously urged, as is also not disputed by the tax authorities in the assessment order and the appellate order, that these objects are distributive in nature and that none of them in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book filed by the assessee, the assessee-society was not running any of those educational institutions. The assessee-society was thus not a trust for education as sought to be made out by the tax authorities in the assessment order and the appellate order for the year under consideration. 10. Insofar as the activity of the assessee-society in the year under consideration as insurance agent is concerned, Dr. Pal took the Tribunal through the certificates at pages 3, 4, 5, 6 and 7 of the second paper book as also the proforma of the proposal form at pages 9 to 11 as also the letters addressed by Modi Spg. Wvg. Mills Co. Ltd. dated 13-4-1974 at page 12 of the second paper book and the insurance policies by way of specimen at pages 13 to 17 of the second paper book and urged that the Modi group of companies were getting their properties insured with various insurance companies. All the insurance was handled by the officers and staff of the insurance and accounts of the respective Modi company (sic). Since commission on insurance premium was payable to an insurance agent under the Insurance Act as then in force, the assessee-society had taken a licence for insurance agency from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on though it stands deleted with effect from 4-12-1976, was property held in trust for charitable purposes inasmuch as the income therefrom was to be applied for the objects at serial numbers (a), (b) and (d). The income from the business was thus exempt from income-tax. In support of these arguments, Dr. Pal has relied on the ratio of the following decisions J.K. Trust v. CIT [1957] 32 ITR 535 (SC), CIT v. P. Krishna Warriar [1964] 53 ITR 176 (SC) and Dharmodayam Co.'s case. 13. Dr. Pal lastly urged that if none of the above arguments were accepted by the Tribunal, then only the aforesaid sum of Rs. 58,419, the amount given in grant-in-aid to the aforesaid institutions, was not exempt from tax. It may be added at this stage that Dr. Pal took us through the report and annual accounts of R.B. Multanimal Modi Charitable Trust, Patiala, as Annexure ' B ' to the first paper book, the aims and objects of the said trust at pages 2 and 3 of the first paper book as also the assessment of the said trust for the year under consideration at page 35, and highlighted the fact that the income of the said Trust has not been brought to tax and section 13(1)(bb) was not applied there. 14. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und. (i) To do all such things either by itself or in conjunction with the bodies with similar objects as may be necessary for a proper carrying out of the objects of the society. (j) To acquire financial assistance from Government and other bodies, private or public, or private charity in order to efficiently carry out the objects of the society. (k) To work and establish agencies and depots for the purchase and sale of goods of all descriptions, borrow money and to get insurance agencies of the different companies and to do insurance work for the purpose of applying the income therefrom for objects mentioned above." It may be added that item (k) reproduced above was deleted vide resolution of the assessee-society dated4-12-1976. 16. Coming to the aims and objects of the assessee-society detailed in paragraph 15 above, it may be stated that the ITO in the assessment of the assessee-society for the year under consideration has at page 4 stated that object (c) thereof though falling within the category of medical relief was never implemented by the assessee-society. As already stated, the assessee-society was established in 1940. The year under consideration is the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ategory of charitable purposes defined in section 2(15) of the Income-tax Act.' In his assessment order for the assessment year 1976-77, the ITO in para 6 at page 3 has held that : ' Further, as discussed in the assessment orders of past years, the society is not entitled for exemption under section 11(1) of the Income-tax Act as the conditions of section 2(15) as well as section 13(1)(c) of the Income-tax Act are not statisfied this year also.' To put in other words, the stand of the ITO in all these assessments was that the dominant object for which the assessee-society was established, was advancement of an object of general public utility covered by the second limb of section 2(15), defining ' charitable purpose '. 18. It may be added at this stage that the assessee being aggrieved against the assessment order for the accounting period relevant to the assessment year 1973-74, brought the matter by way of appeal before the AAC, who vide his order dated 29-11-1977 agreed with the assessee. The observations of the AAC in this behalf have been reproduced by the ITO at page 4 of the assessment order for the year under consideration. This order of the AAC was challenged by the depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess of law if a subordinate quasi-judicial authority while interpreting the aims and objects of the assessee-society which have already been interpreted by the Tribunal and the High Court should record a finding contrary to those recorded by the Tribunal and the Hon'ble High Court. It would be nothing but a process which will lead to endless litigation which ought to be avoided and should not be permitted. In Madan Lal Bhimsaria's case the Patna High Court was concerned with a matter arising under the Estate Duty Act, 1953. ' The facts in that case were that the WTO in the assessment of the executor of the will of the deceased had recorded a finding that the Dharamshala involved over there was an endowment of public charitable nature and so was to be treated to be one of a public religious and charitable nature. At the same time, the Assistant Controller in the estate duty assessment of the deceased, with which the Appellate Controller also agreed, held to the contrary. In the appeal filed, the Tribunal on the basis of the wealth-tax assessment order held the Dharamshala to be one of a public religious and charitable nature not includible in the estate of the assessee passing on h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les and regulations of the assessee-society vide para 3 of the rules and regulations of the assessee-society, its affairs were to be managed by the managing committee consisting of not more than 11 members elected by the society in the manner detailed therein.Para8 of the said rules and regulations has laid down the manner in which meetings of the managing committee should be convened and held.Para12 thereof lays down the powers and duties of the office bearers of the assessee-society. According to para 12(1)(d), the President has a general control over the officers of the society and the institutions under it. The secretary, according to para 12(3)(b), has to carry on the correspondence on behalf of the society and the institutions run by the society. According to para 12(5), the managing committee has the power to appoint one or more managers and/or assistant managers for each institution under the society. The manager/assistant manager so appointed has to look after the finance of the institution by collecting donations and raising subscriptions. According to para 13, the managing committee has to carry on the day-to-day administration of the institutions run by the society ; it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Intermediate Education Act, 1921, the scheme of administration by way of illustration in the case of ' Modi Science and Commerce College ', Modi Nagar, was drawn up and the same was got approved from the director of the Education Department of the Government of U.P. The said scheme of administration pursuant to section 16A of the U.P. Intermediate Education Act, 1921, in the case or ' Modi Science and Commerce College ', Modi Nagar, is at pages 25 to 42 of the second paper book. According to para 4 of the said scheme, the authority to manage and conduct the affairs of the said college vests in the committee of management which alone is responsible for proper running of the institution in accordance with the provisions of the U.P. Intermediate Education Act, 1921, and the regulations and instructions issued from time to time by the authorities of the Education Department of Uttar Pradesh Government.Para5 thereof lays down the constitution of the committee. Para 12 thereof lays down the powers, duties and functions of the committee which, inter alia, include control and management of all moneys, securities, property and endowments of the institution, excluding the boys funds and taki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e construction of the buildings, boarding houses and other buildings, furniture and fixtures in the aforesaid four institutions, the management and control of each of those institutions vests not in the assessee-society but in the respective managing committee for each of those institutions. The authority to control and manage each of such institutions vests in the respective committee of management of the said institutions which alone is responsible for properly running the institution in accordance with the provisions of the U.P. Intermediate Education Act, 1921, and the rules and instructions issued by the authorities of the Education Department, U.P. 24. Can we on the facts as found out by us and stated above hold that the assessee-society has been established for education as was the case of the departmental representative before us ? This takes us to the aims and objects of the assessee-society reproduced in para 15 above. As brought out in paragraph 16 above, we have to ignore object (c). On perusal of the rest of the aims and objects of the assessee-society, we find that sub-clauses (e), (f), (g), (h), (i) and (j) in the aims and objects clauses of the assessee-society, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust was established for education ? This takes us to the decision of the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust. Therein, the object of that assessee was to educate the people of India in general and of Karnataka in particular by : (a) establishing, conducting and helping, directly or indirectly, institutions calculated to educate the people by spread of knowledge on all matters of general interest and welfare ; (b) founding and running reading rooms and libraries and keeping and conducting printing houses and publishing or aiding the publication of books, booklets, leaflets, pamphlets, magazines, etc., in Kannada and other languages, all these activities being started, conducted and carried on with the object of educating the people ; (c) supplying the Kannada speaking public with an organ or organs of educated public opinion and conducting journals in Kannada and other languages, for the dissemination of useful news and information and for the ventilation of public opinion on matters of general public utility ; and (d) helping, directly or indirectly, societies and institutions which have all or any of the aforesaid objects in view. In 1935 the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existed under the Act of 1922 was that once the purpose of the trust was relief of the poor, education, medical relief or the advancement of any other object of general public utility, the trust was considered to be for a charitable purpose. As a result of the addition of the words ' not involving the carrying on of any activity for profit ' at the end of the definition in section 2(15) of the Act, even if the purpose of trust is ' advancement of any other object of general public utility ', it would not be considered to be ' charitable purpose ' unless it is shown that the above purpose does not involve the carrying on of any activity for profit. The result thus of the change in the definition is that in order to bring a case within the fourth category of charitable purpose, it would be necessary to show that : (1) the purpose of the trust is advancement of any other object of general public utility, and (2) the above purpose does not involve the carrying on of any activity for profit. Both the above conditions must be fulfilled before the purpose of the trust can be held to be charitable purpose. . . ." Our above view in the present case is also supported by the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferred from a review of the circumstances attendant upon the transaction. 28. Keeping in view the above test, if we come to the facts of the above case, we find that one of the aims and objects as detailed in sub-clause (k) of clause 2, detailing the aims and objects, is ' to work and establish agencies and depots for the purchase and sale of goods of all descriptions, borrow money and to get insurance agencies of the different companies and to do insurance work for the purpose of applying the income therefrom for objects mentioned above '. It was pursuant to this that the assessee-society trust obtained the licence as early as on17-1-1958from the Government of India, Department of Insurance. The licence to act as an insurance agent under Part 11 of the Insurance Act, 1938 was for general insurance business only. The said certificate was valid from1-9-1957. Pursuant to this, the assessee for all these years up to the year under consideration was working as an insurance agent., May be for carrying on the activity as an insurance agency the assessee-society had one employee. Yet the assessee-society every year up to the year under consideration was involved in a number of transact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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