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TMI Blog2015 (3) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... ed its return of income for the assessment year 2007-08 on 24/10/2007 declaring nil income. While making the assessment, the Assessing officer disallowed the claim u/s. 11 of the Act. The Assessing officer also found that no separate books of accounts were maintained for business activities and also disallowed bad debts written off at Rs. 3,099/-, interest and penalty at Rs. 1,03,720/- and depreciation claimed at Rs. 1,55,540/-. The Assessing officer has also applied maximum marginal rate for the income and issued two notices one u/s. 156 for tax at nil and the other notice demanding the tax of Rs. 13,04,483/-. 4.1 While making the addition, the Assessing officer had gone into the details of the main activities of the Trust, its main objects and the nature of the activities under various head. On observing that the major income and expenditure of the assessee Trust was by running a super market on commercial basis and not by charitable and religious activities so that he disallowed exemption u/s. 11(4A) to the assessee. Against this, the assessee carried the matter in appeal before the CIT(A). 5. The CIT(A) observed that although the assessee society is religious and charitable o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of this super market can also not be treated as business incidental to the attainment of the objectives of the trust. The CIT(A) also observed that the receipts derived from such running of super market are not exclusively used for charitable purpose rather majority of the expenses are towards establishment and running of the super market. According to the CIT(A), it is also not a case where super market is selling various articles on any subsidized rates to benefit the poor or need and they are selling it at profit as any other general merchant does. Thus the CIT(A) held that running of super market where receipts are to the tune of Rs. 77,45,329/- and charitable expenses are of Rs. 12,00,177/- cannot be said as ancillary or incidental activity undertaken while doing charity, rather the whole fabric of activities looks like a corporate business being undertaken, where as part of the corporate social responsibility some charity which works out to just 15.5% of total receipts has been done. 5.3 According to the CIT(A), as per the provisions of sub-section (4A) of section 11 amended with effect from 01-04-1992 all that is required for the business income of the trust or institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety and to use the profits from such commercial activities to further the objectives of the society. (h) To proved funds from the income of the Society for the charitable works and mission activities of the Archdiocese of Verapoly as well as of similar societies within the Archdiocese of Verapoly. (i) To acquire movable and immovable properties by purchase, lease, mortgage, etc. and to administer and deal with the same in the manner as may be decided by the Governing Body. (j) To obtain finances and loans from Banks and other institutions for the establishment or otherwise and for implementing the projects that may be undertaken by the society. (k) To pledge, hypothecate or mortgage movable or immovable property belonging to the Society. (l) To equip the establishments, undertakings or institutions with necessary instruments; machineries furnitures and equipments. (m)To maintain funds to meet the expenses of capital nature and pay into such funds, moneys at such times and in such amounts as the Governing Body may decide from time to time. (n) To establish and maintain reserve funds as may be decided by the Governing Body depending upon the requirements of the Society. (o) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtend to the assessment years 2007-08 and 2008-09. Being so, there is no violation of sec. 11 of the Act. 7. The Ld. AR also filed 2nd paper book (pgs. 4 to 112) containing donation and charity vouchers for the assessment year 2007-08 and 2008- 09 respectively. In the 2nd paper book (pg. 113), the Ld. AR also filed a petition seeking admission of the additional documents. 8. On the other hand, the Ld. DR strongly objected to the admission of the additional documents and also submitted that these documents shall not be admitted at this stage. Further, he submitted that the assessee was carrying on the business of super market on commercial basis and there is no question of any charitable activities being involved in it. Being so, the assessee cannot be granted exemption u/s. 11(4A) of the I.T. Act. 8.1 The Ld. DR also relied on the following case law: 1) ACIT vs. Thanthi Trust (2001) (247 ITR 785) (SC). 2) Ideal Publications Trust vs. CIT (2008) (305 ITR 143) (Ker.) 9. We have heard both the parties and perused the record. The issue before us is whether, on the facts and circumstances of the case and having regard to the terms of the Trust Deed, it can be said that the super m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and equipments. (m)To maintain funds to meet the expenses of capital nature and pay into such funds, moneys at such times and in such amounts as the Governing Body may decide from time to time. (n) To establish and maintain reserve funds as may be decided by the Governing Body depending upon the requirements of the Society. (o) To invest and deal with the funds of the Society not immediately required, in societies or other institutions. (p) To do and carry out all such other lawful acts, deeds and things which are essential, incidental or conducive to the attainment of the objects of the society. 10. It is to be noted that section 11(1) of the Act grants exemption to the income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. There is no exhaustive definition of the words "property held under trust" in the Act; however, sub-section (4) says that for the purposes of section 11, the words "Property held under trust" "includes a business undertaking so held". Sub-section (4A) as it stands amended by the Finance (No. 2) Act, 1991, with effect from April 1, 1992, is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust. Thus, the supermarket business was not even in the contemplation of the Memorandum of Association on the basis of which the Society is formed and, therefore, could not have been settled upon trust. The business carried on behalf of a trust rather indicates a business which is not held in trust, than a business of the trust run by the assessee. In this case, the supermarket business was carried on by the assessee for and on behalf of the trust and it was not business held under trust. Section 11(1) of the Act confers exemption from tax only where the property is itself held under trust or other legal obligation; it does not apply to cases where a trust or legal obligation is not created on any property but only the income derived for a charitable or religious purpose. Surplus funds of a trust, which was claimed to be exempt on the footing that it was property held under trust within the meaning of sec. 11(1) of the Act, was not property held under trust since the property from which the surplus was generated was itself not held under trust. In other words, merely carrying on business for and on behalf of the trust and applying the profits of the same for the object of the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ..In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee". 16. Prima facie the above observation would appear to support the assessee's case in the sense that even if the supermarket business is held not to constitute a business held under trust, but only as a business carried on by or on behalf of the trust, so long as the profits generated by it are applied for the charitable objects of the trust, the condition imposed u/s. 11(4A) of the Act should be held to be satisfied, entitling the trust to the tax exemption. 17. In our opinion, these observations have to be understood in the light of the facts before the Supreme Court in the case of Thanthi Trust (supra) wherein the trust carried on the business of a newspaper and that business itself was held under trust. The charitable object of the trust was the imparting of education which falls u/s. 2(15) of the Act. The newspaper business was incidental to the attainment of the object of the trust, namely that of imparting education and the profits of the newspaper business ere utilized by the trust for achieving the object of imparting education. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4A) was introduced by Finance (No.2) Act of 1991 with effect from 01-04-1992. The income of the trust being profit and gains of business is eligible for exemption u/s 11(1) of the Act, provided the business is incidental to the attainment of the object of the trust and separate books of account are maintained by such trust in respect of the business. Therefore, sub section (4A) of section 11 prescribes two conditions, viz. (i) business shall be incidental to the attainment of the object of the trust; and (ii) separate books of account shall be maintained by the trust in respect of such business. 21. The Apex Court had an occasion to interpret the provisions of section 11(4) and 11(4A) of the Act in ACIT vs Thanthi Trust (2001) 247 ITR 785 (SC). The Apex Court found that all that is required for the business income of the trust to be exempt is that the business should be incidental to the attainment of the object of the trust. The Apex Court further observed that a business whose income is utilized by the trust or the institution for the purpose of achieving the object of the trust or institution is a business which is incidental to the attainment of the objectives of the trust or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities which are incidental to the object of the trust. It was also contended by the revenue that business carried on by the assessee was not one of the objectives mentioned in the trust deed; hence, the assessee is not eligible for deduction u/s 11(4A) of the Act. While considering this objection, the Madras High Court found that the argument of the ld.counsel was appealing and attractive. However, in view of the judgment of the Apex Court in Thanthi Trust (supra) the contention of the revenue cannot be accepted. In fact, the Madras High Court has observed as follows on pages 33, 34, & 35 of the ITR: "10.1 It is not in dispute that the assessee-trust holds the property in trust. It is also not in dispute that the commercial activity is being carried on by the assessee by using the building as marriage halls, auditoriums, etc. The assessee has filed its returns claiming that the income derived therein is being used towards its objectives which are charitable in nature. 0.2 In order to appreciate the rival contentions of the learned counsel appearing for both sides, it is useful to extract section 11(4A) of the Income-tax Act, 1961. "(4A) Sub-section (1) or sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion' and separate books of account are maintained in respect of such business. Clearly, the scope of sub-section (4A) is more beneficial to a trust or institution than was the scope of sub-section (4A) as originally enacted. In fact, it seems to us that the substituted sub-section (4A) gives a trust or institution a greater benefit than was given by section 13(1)(bb). If the object of Parliament was to give trusts and institutions no more benefit than that given by section 13(1)(bb), the language of section 13(1)(bb) would have been employed in the substituted sub-section (4A). As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objections of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The trust, therefore, is entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket is to the extent of Rs. 77,45,329 out of which a sum of Rs. 11,96,410 was claimed to be applied for charitable purpose. From the details available on record, it appears, a sum of Rs. 11,50,000 was donated to other institutions. The details of such donations are as follows: 1. department of catechism Rs. 3,00,000 2. paid to Youth Ministry Rs. 3,50,000 3. paid to Archdiocese of Verapoly for Charity purpose Rs. 5,00,000 No details is available with regard to application of income to the extent of Rs. 46,410. The fact remains is that the assessee trust has not applied the funds to the object of the trust. In fact, it donated the funds to the other institutions. It is not known whether the other institutions to which donations are made has similar objects like that of assessee. However, section 11(3)(d) introduced by Finance Act, 2002 with effect from 01-04- 2003 clearly says that any income which is credited or paid to a trust or institution is not eligible for exemption and the same has to be treated as income of the assessee. Since the assessee has not applied the surplus funds from the business of super market for charitable purpose as per the object of the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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