9911796707
TMI Blog1977 (4) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... d all disbursements made out of the said amount shall be debited in the said account and the surplus if any carried over to the next year. (6) The partners do hereby declare that the sum at present standing in the firm books to the credit of the charity account is Rs. 9,900. And that the said sum is set apart finally for the promotion of the religious and charitable objects set out hereunder. They further acknowledge that they have no kind of beneficial interest in the amount, and that it is ear-marked for the purposes mentioned herein. (7) The sums now standing in the partnership books of account as to credit of charity and all further amounts that will be credited to the charity account out of the profits of the business in future years shall be disbursed by T.N. Venkatarama Chettiar, Shevapet, Salem, as trustees of the said fund. The partners do hereby nominate and constitute the said T.N. Venkatarama Chettiar as trustee to carry out the object hereinafter mentioned. (3) The said T.N. Venkartarama Chettiar shall from time to time after acceptance of the trust, operate on the fund in execution of the trust and spend out of the said funds in connection with temple festivals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of scholarship, donation, subscription, allowance, gratuity, guarantee, otherwise to and for the benefit of students scholars and other persons. (c) to establish maintain and conduct hospitals, clinics, dispensaries, maternity houses and other institutions for affording treatment, cure, rest, recuperation and other reliefs. (d) to manufacture, buy, sell and distribute pharmaceuticals, medicinal, chemical and other preparations and articles such as medicines, drugs, medical and surgical articles, preparations and restoratives or foods. (e) to establish and maintain choultries and rest houses; to provide food, clothes, medicines, and other articles of necessity free or at concessional rates and to make money grants to the poor and needy for celebration of marriages or ceremonies or for distress and affected by earthquake, floods, famine, pestilence and other causes. (f) to collect, encourage, conduct research in, interpret and popularise Nadis (ancient manuscripts) inscribed on palm leaves in Indian languages with authorship ascribed to Devas, Rishis, Saints, Sages and Seers). (g) to promote and encourage the study and research in religion and to pro-pagete religious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76 held that the trust was entitled to the exemption. 7. It is necessary to refer in this connection to two decisions of the Madras High Court. In CIT vs. East India Industries Pvt. Ltd.(1) the assessee paid donation of Rs. 7,500 to the Agastyar Trust referred to above and claimed exemption from tax under s. 15(b) of the IT Act. Their Lordship of the Madras High court considered the object clauses of the trust deed of 1944, namely, the declaration of trust made by the trustee Sri Venkatarama Chettiar. Clause 4 of the object cl. (d) of the object clauses referring to manufacture, buying and selling of pharmaceuticals, medicinal preparations etc., was found not to partake of a charitable or religious character. Holding that when a trust created for charitable and non-charitable objects gave an unfettered discretion to the trustees to utilise the whole of the income of the trust to objects which were non charitable, the property in respect of which the trust is created cannot be deemed to be held in trust wholly for religious and charitable purposes, their Lordships held that the trust was not entitled to the exemption under s. 4(3) (i) of the 1922 Act. The assessee in that case was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of exemption had been considered by the High Court and the Supreme court and rejected. It was, therefore, not open to the assessee to claim in law an exemption on the ground of charitable purpose at all. At any rate, the definition of charitable purpose under the 1961 Act is circumscribed by the phrase "not involving an activity for profit" obtaining in s. 2(15). Effectuating the object should not involve the carrying on of any activity for profit. This condition not being satisfied, the assessee is not entitled to be regarded as a trust for charitable purpose. 11. It is clear that the decisions in 46 I.T.R. 1086, 48 I.T.R. 673 and 65 I.T.R. 611 went on the basis of the deed dt. 2nd July, 1944. No question was raised as to whether the provisions of the trust were in law governed by any other deed in operation than that of 1944. The original trust fund was created under the deed dt. 28th Nov., 1945 which also constituted a partnership between two persons. Clauses 4 and 8 of the partnership deed were the foundation of the trust, the objects of the trust being laid down in cl.-8. The judicial decisions had no occasion to go into the provisions of this deed it being admitted by bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns not otherwise authorised, and finally, in s. 5, is an account of the jurisdiction under the Variation of Trusts Act, 1958, to vary the beneficial trusts as well as to increase trustees administrative powers." The following obtains at page-303 of Agarwala s Indian Trust Act, 1882: "But cases may well arise where it becomes necessary or beneficial that a trustee should deviate from the strict letter of the trust. In such case he can do so under the obligation and at the peril of afterwards satisfying the court that the deviation was necessary or beneficial. The section enjoins the trustee to obey the directions of the author of the trust given at the time of its creation. The only case where a trustee may be relieved or debarred from observing the directions contained in the instrument creating or regulating the trust are (1) by the request and consent of all the beneficiaries being competent to contract; or (2) where the carrying out of the direction would be impracticable, illegal or manifestly injurious to the beneficiaries; or (3) by an order of a Court of competent jurisdiction." Though the Indian Trusts Act, 1882 does not apply to religious or charitable institutions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefits provided by them, namely, the newspaper industry, which while running its concerns on commercial lines can claim that by circulating newspapers it was improving the general knowledge of the public. In order to present the misuse of this definition in such cases, the Select committee felt that the words not involving the carrying on of any activity for profit should be added to the definition." In In re The Tribune Press(4) the Privy Council held that the income of a trust, the object of which was described as "supplying the Province with an organ of educated public opinion" was entitled to exemption on the ground that it was a trust for the purpose of "general public utility." In interpreting the provisions of s. 2(15) of the 1961 Act in Laka Shishana Trust(3) the Supreme court held : "It seems clear to us that the amended provision s. 2(15) in the Act of 1961, was directed at a change of law as it was declared by the Privy Council in the Tribunal Case. "In Loka Shikshana Trust(3) the assessee-trust carried on the publication of a daily newspaper "Samyukta Karnatak . The object of the trust was to educate the people of Indian in general and of Karnataka in particular by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the sole trustee and the apparently profitable mode of conducting business, just like any commercial concern, disclosed not only by the terms of the trust but by the statement of total expenditure and income by the trustee, it is very difficult to see that educational or other charitable purpose the trust was servicing unless the dissemination of information and expression of opinion through the publications of the trust was in itself treated as the really educational and charitable purpose." Continuing his Lordship held on page-255: "All profit making, even as a mere by-product, would have been covered by the word involving , which is of wide import, if this word had stood along and by itself without further qualifications by the context. The use of the words for profit , however, shows that the involvement of profit making should be of such a degree or to such an extent as to enable us to infer it to be the real object., As a rule, if the terms of the trust permit its operation for profit , they become, Prima facie, evidence of a purpose falling outside charity. The would indicate the object of profit making unless and until it is shown that terms of the trust compel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit? Has there been in practice, profit from this venture? Although this last is a weak test. The mere fact that a service because all income is often derived by rendering some service or other." Continuing, it was observed: "Income, ordinarily chargeable, can be free from exigibility only if the assessee discharges the onus of bringing himself within s. 2(15). In so doing, he has to attract and repel-attract the condition that his objects are of general public utility and repel the charge that he is advancing these objects by involvement in activities for profit. Once this broad dual basis is made out, the revenue will not go into meticulous mathematics and charge every chance excess or random surplus. If the activity is prone to yielding income and in fact result in profits, the revenue will examine the reality or pretence of the condition, that the activity is not for profit." Holding that the three services yielding profits are liable to tax, their Lordships repelled the claim of the assessee for exemption under s. 11. 16. These provisions were considered by the Madras High Court in CIT vs. Madras Stock Exchange Ltd.(6) Dealing with the claims for exemption under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancement of an object of general public utility involves the carrying on of an activity for profit, the income may become taxable. In the Loka Shikshana Trust s(3) case the charitable purpose claimed was publication for the Kannada speaking people . This latter purpose cannot be achieved except by running the business of newspaper. In the Indian Chamber of commerce s(5) case the charitable purpose aimed at was the promotion and protecting the interest of Indian trade, such promotion being done through the arbitration, issuing certificates of origin, issue of certificates of weighment and measurement etc., for which fees were collected. Apart from these activities, such as publication of papers, setting up arbitration or issue of certificates etc., there was no other object of general public utility in these trusts. It was not a case of the trust carrying on some activity, such as business, the goods sold by the business or the service rendered by it itself not being claimed as charitable, earning income therefrom and applying the income for certain purposes claimed to be charitable; (v) even where the serving of the purpose of general public utility involves an activity for pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipients of charity. Having in view that the test laid down in the Indian Chamber of Commerce(5) case and in the absence of anything to show that the assessee is obliged otherwise to carry on general public utility activities, like educational institution, orphange etc. On a pure commercial basis and not on the marginal no profit no loss basis, exemption under s. 2(15) cannot on this ground be denied. 20. Objection has been raised by the learned Departmental representative to the gift of money to poor deserving persons for celebration of marriages as not constituting a charitable purpose. This has been dealt with by the Tribunal in I.T.A. No. 7961/1958-59 etc. dt. 31st Dec., 1976 where they held that this clause did not constitute a non-charitable purpose. The Tribunal held. "The trust created for a charitable purpose must bear a public character. The public element in a valid charity is lost if it is created for the benefit of relations or to benefit only the community of the settlor. Such family and communal trusts may no doubt smack of a private trust for a very private purpose. In the present case, the contribution towards marriage expenses is not confined to the members of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the joint family properties for this purpose is for legal necessity. It is this concepts Hindu marriage that has given rise to the belief that rendering monetary assistance or help to bring the union of "man" and woman in holy wedlock is a benevolent Act of charity. In the mid thirties and forties it was not uncommon at least in the State of Tamil Nadu to see a poor aged father going to selective group of people with Thirumangalyam placed on a Thamblam (Brass plate) and request monetary assistance for completing the marriage of his daughter and the assistance being rendered willingly with the firm belief that if may confer spiritual benefit and solace both to the giver and the receiver. The very same belief is perhaps the basis for Kalyana Mahotsavam performed by hundred of devotees almost daily to the Lord of the Seven Hills at Tirupathi. After all the test of charity for public benefit has to necessarily taken into account the custom, outlook, and religious belief of the authors of the trust. In the present case the authors of the trust belonged to the Vaishya Community. The trust was created in 1941. Viewed in the background of the social custom, outlook of the community ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73-74 89,40 ---- ----- ---- 22. The assessee had income from various sources, such as dividends, property, and interest for all the asst. yrs. 1962-63 to 1974-75. For the asst. yr. 1962-63 the assessee was a partner in Indian Metal and Metallurgical Corporation (IMMC) and was assessed on the share income from this firm of Rs. 49,627 under the head "income from business". For the asst. yr. 1963-64 and 1964-65 the assessee received amounts of Rs. 1 lakh and Rs. 50,000 from IMMC. It was claimed that the employees of this concern were the receipients of benefit from the assessee s charitable dispensary. This firm gave the above amounts as donations to the assessee, partly in recognition of the services done to its own employees on a charitable basis. There was no quid pro qu between either the payment or the benefit received by the employees, but it was conventionally understood that along with other receipients of the benefits of the dispensary, the employees of IMMC would also receive medical relief given by the assessee on a charitable basis. The assessee claimed before the ITO that these receipts of Rs. 1 lakh and Rs. 50,000 were at best capital rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 1 lac and Rs.50,000 would be exempt whether it be regarded capital or revenue if the other conditions in s.11 are satisfied. The assessee himself has put this only as an alternate claim. Since we hold that the entire income of the trust being intended for a charitable purpose is exempt, the question whether these two amounts constitute capital or revenue receipts does not require separate consideration. 25. The assessee is in receipt of lease rent from the lease of Agastyar Theatre for the asst. yrs. 1972-73 and 1973-74. Under the lease deed dt. 7th June, 1967, the assessee, the owner of the property, namely, the plot No.2 and Door Nos. 393 and 394 in Tiruvottiyur High Road, Madras having a total area of land 22 grounds and 306 sq. ft. together with cinema building, structures, annexed stalls, cycle stands, appurtenant constructions and electrical installations, has leased out the above premises to Devi Cine-Projector Manufacturing Co. On a monthly rent of Rs. 3,250. Clauses 1,2,5 and 8 of the lease deed are as under :- "1. In consideration of the convenants and stipulations on the part of the lessees hereinafter contained, the lessor lets and demises into the lessee all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itute an educational purpose and hence, charitable, the lease rent is only a source of income of the trust to be used for other charitable purpose enumerated in cl.-8 of the deed of 1941. One of the source of income of the trust, therefore, being lease rent received by leasing out its property would not, therefore, disentitle the assessee to exemption under s.11. 26. We, therefore, hold that the assessee is entitled to exemption under s.11 r/w s.2(15) for all the assessment years under appeal. The ITO has therefore to the extent to which the amount of income has been applied to charitable purposes for each of the years under appeal give the assessee relief for each of the years. For the asst. yrs. 1963-64, 1964-65, 1966-67, 1967-68 and 1968-69 the assessee has claimed that he had invested amounts of Rs. 1,92,000, Rs.23,132, Rs.38,791 and Rs.3,10,030 in the construction of a theatre. The income from the theatre was to augment the trust fund and to be utilised for charitable purposes mentioned in the trust deed. Since this is only an investment of the income for fetching a better return for the advancement of the purposes of the trust, if it is claimed that the investment in the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said conditions remain complied with - (a) such persons have, by notice in writing given to the ITO in the prescribed manner, specified the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; (b) the money so accumulated or set apart is invested in any Government security as defined in cl.(2) of s.2 of the Public Debt Act, 1944 (XVIII of 1944), or in any other security which may be approved by the Central Government in this behalf." Sub-cl.(2) refers to accumulation or setting apart for the application of the income to charitable etc., purposes at a future date. In the present case no part of the income can be said to have been accumulated. The table at para-21 shows that while for some years 75 per cent of the income has been fully utilised as expenditure on charitable purposes, for other years either loss or more than 75 per cent of the income has been spent. 29. s.11(1)(a) consists of two parts. The first part refers to the exemption to the extent to which income is applied to such purposes in India. The second part refers to income to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but spends it at the earliest opportunity he is able to spend it on charitable purposes, it cannot be said that he transgresses the requirement of the first part of s.11(1)(a). 30. In the present case it cannot be stated that the assessee has "accumulated" within the meaning of s. 11(2) apart of his income. Taking an overall total of the amounts earned during the years 1962-63 to 1973-74 it should be seen whether 75 per cent of the overall income has been spent during these years or in any subsequent years for the purpose of charity. If that be so, exemption under s. 11 would be available for all the years. Form the tabular column at para-21, we find that for the years 1962-63 to 1973-1974 75 per cent of the income totals up to Rs. 9,72,852, the assessee has spent a sum of Rs. 7,92,934 (Total of column-4) on avowedly for charitable purpose. A sum of Rs. 9,09,406 has been spent on the construction of the theatre. To the extent of Rs. 7,92,934 there is no question, therefore, of not applying the income of the assessee to charitable purposes. With regard to the balance, the question is whether the amount spent of Rs. 9,09,406 on the construction of a theatre would constitute applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the objects the trust? The answer is obviously No . The same reasoning must apply in the present case. Here, as is evident from cl. (2), the dominant object of the settlors was to establish dharamashala for the use of the Hindu public and cl. 8 contemplated that the trustees may enlarge the dharamshala by additional construction. The establishment of additional dharamashala was, therefore, clearly a charitable purpose which fell within the objects of the trust. It was in order to carry out this charitable object that the trustees utilised the income of the trust properties and the amounts spent by the trustees in the construction of the new dharamashala were; therefore, clearly by way of application of income of the trust properties for carrying out a charitable purpose of the trust. The tribunal was, in our view, wrong in holding that the use of moneys in the construction of the new dharamashala was an investment of the trust funds and not its expenditure." 32. In the present case it is claimed for the assessee that the construction of the theatre was for audio visual education. In fact, after the theatre was constructed except to the extent that the property was leased ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust received by way of interest from IMMC for the asst. yrs. 1963-64 onwards. Upto the accounting year relevant to the asst. yr. 1962-63 the assessee trust was a partner in the firm of IMMC. The assessee retired from the firm on 11th June, 1961. By an agreement dt. 12th June, 1961 by the assessee trust agreed to advance amounts to the IMMC. The following clauses of the agreement are relevant for our purposes : "(1) The lender agrees that it shall furnish finance to the borrower to the extent of 6 lakhs for the purposes of its business; (2) The borrower agrees that it will during the subsistence of the loan pay each year interest at 5 per cent annum as fixed interest and will further pay as for further interest a sum calculated at 25 per cent of the net annual profits of the firm, the said profit being computed without deducting any amount for income-tax. (3) The parties agreed that the amount advanced by the lender shall be repayable on the expiry of three months from service of a notice of demand made by the lender in this behalf." 34. Accordingly, the assessee was assured of a minimum interest of five per cent and in years when the IMMC earned profit a percentage of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
