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TMI Blog1984 (4) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the assessee-society were (a) running a tailoring establishment at Modi Nagar, and (b) carrying on business as insurance agent. The net income from tailoring establishment was of Rs. 1,85,805 as against receipts of Rs. 10,00,232, out of which sewing, cutting and printing charges of Rs. 1,20,989 and purchase of cloth of Rs. 7,01,400 were incurred as also certain other overhead business expenditure. In this tailoring establishment called 'Dayawati Modi Mahila Shilp Kala Kendra', uniforms of employees of Modi Group was stitched and the tailoring business was carried on commercial lines by the assessee-society purchasing the cloth and incurring tailoring charges and other overheads. The net profit earned was roughly 19 per cent of the total receipts. Thus, it was a commercial activity carried on by the assessee-society and there is no evidence that this activity was carried on as a charitable institution or an institution which was carrying on the primary purpose of imparting training in tailoring, sewing and embroidery. 4. The other main source of income of the assessee-society was commission from insurance business of Rs. 1,21,560 in the account year under consideration endin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 1977-78) the assessee by letter dated 19-1-1980 took the plea that the main object of the trust was 'any other object of general public utility' and not 'education' or 'relief of the poor'. The ITO, however, observed that on perusal of the income and expenditure account of the assessees, he came to the conclusion that the main object of the assessee was education only. 8. A perusal of the profit and loss account of the assessee-society shows that the assessee-society had given grants-in-aid totalling Rs. 45,680 to 9 educational institutions, 7 of them were High Schools around Modi Nagar, eighth institution was a Shishu Niketan (Kindergarten) while the ninth was a tailoring and embroidery institute called Dayawati Modi Tailoring and Embroidery School at Modipuram. In the annual report to the members, similar details were given where it was observed that building of Dayawati Modi J.H. School at Saidpur had been completed and the construction of similarly named school at Bhojpur and Abupur were under progress and that two branches of Dayawati Modi Mahila Shilp Kala Kendra at Kedarpura, Modi Nagar and at Modipuram had been opened during the year, which branches were impa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the poor, education, medical relief and general public utility. 12. However, the said statement by the Commissioner (Appeals) is unnecessarily wide because firstly, it is nobody's case that the assessee-parishad in the last 20 years of its existence had done anything in the direction of medical relief. Secondly, it also appears that nothing had been done for the relief of the poor. The tenor of the Commissioner (Appeals) order shows that the two active objects of the assessee-society were education and advancement of any other object of general public utility. This finding of the Commissioner (Appeals) has not been challenged before us, so we proceed on the basis that the said finding is correct. 13. We have now to examine whether the income earned from the twin activities of the assessee-society of running the 'Shilp Kala Kendra' and earning insurance commission would still be exempt from taxation. For this purpose we have to see whether the conditions imposed by section 13(1)(bb) and section 2(15) of the Act are satisfied. 14. Section 13(1)(bb) which came on the statute book with effect from 1-4-1977 (relevant for the year under consideration) deals with the trusts for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst receipts mentioned above of Rs. 10 lakhs, the purchase of cloth of over Rs. 7 lakhs and the payments of sewing, cutting and printing charges of Rs. 1.21 lakhs. Thus, the activity of running the shilpkala kendra on commercial lines cannot be said to be in the course of actual carrying out of primary purpose of the trust. 16. We may next consider the test laid down by section 2(15) which defines charitable purposes to include the aforesaid three heads of relief of poor, education and medical relief and while indicating the fourth head of 'advancement of any other object of general public utility' puts a restriction on the said last head (as interpreted by the Supreme Court) that the activity under the last head should not involve the carrying on of any activity for profit. Even if the assessee's contention is accepted that running the shilpkala kendra was for the 'advancement of any other object of general public utility', still the running of the said shilpkala kendra has to satisfy the test that its running does not involve the carrying on of any activity for profit. As indicated above (as also in para 3), the activity of running shilpkala kendra does involve the carrying o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpretation appeared to it to be more plausible construction which gave meaning and effect to the last concluding words added by the Legislature to section 2(15) and, therefore, the Court preferred to accept it. At page 24, the Court further observed that to be caught within the prohibition of last concluding words of section 2(15), the activity must be carried on with the object of earning profit and the predominant object of the activity must be making of profit. At bottom of page 24, the Court reiterated that the predominant object of such activity must be to subserve the charitable purpose and not to earn profit and that the charitable purpose should not be submerged by the profit-making motive. The purpose of the trust must be essentially charitable in nature and must not be a cover for carrying on an activity which has profit-making as its predominant object. At page 26, the Court reiterated that profit-making should not be the driving force behind the trust activity. At page 27, the Court disapproved of the observations of Khanna, J. and Krishna Iyer, J. in Sole Trustee, Loka Shikshana Trust's case and Indian Chamber of Commerce's case where they observed that profit-makin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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