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TMI Blog1980 (2) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the Commissioner of Income-tax under section 80G of the Income-tax Act, 1961, the income of M/s. Umaid Charitable Trust, Pali was entitled to exemption under section 11 of the Income tax Act, 1961, read with section 2(15) of the same Act for the assessment years 1967-68, 1968-69 and 1969-70 ? The question referred in Reference No. 29 of 1976 is also the same except that the year of assessment is different, viz., the assessment year 1970-71. For all the four assessment years, viz., 1967-68, 1968-69, 1969-70 and 1970-71, the assessee, Umaid Charitable Trust, Pali-Marwar has also submitted applications under s. 256(2) of the Act, which have been registered as Income-tax Cases Nos. 211/1975, 212/1975, 213/1975 and 232 of 1976, respectively, and it has been prayed that the Tribunal may be directed to refer one more question of law to this court. The question proposed in these cases is as follows : Whether there is any evidence or basis to support the finding of the Tribunal as a fact that one of the objects of 'the trust' was to own property and carry on the business or activity for profit ? However, having addressed arguments on the question referred for o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the assessee was not entitled to the benefit of the provisions of s. 2(15) read with S.11 of the Act. Thereupon, the assessee made an application to the Tribunal to state the case and refer the questions of law arising out of its appellate order to this court. The Tribunal allowed the assessee's application and has thus referred the question of law extracted above for the decision of this court in Reference No. 14 of 1975. As already stated above, the assessee had also filed an appeal from the order of the ITO before the AAC in respect of the assessment year 1970- 71, but by the time the appeal came up for hearing the Appellate Tribunal had already decided the case against the assessee in respect of the assessment years 1967-68 to 1969-70, and, therefore, the AAC by his order dated February 19, 1974 (annex. 'C'), dismissed the assessee's appeal. Aggrieved by the order of the AAC, the assessee filed further appeal before the Appellate Tribunal which, following its earlier order dated January 31, 1974, dismissed the assessee's appeal by its order dated July 26, 1975 (annex. 'E' Reference No. 29 of 1976), in respect of the assessment year 1970-71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:-... (4) For the purposes of this section 'property held under trust' includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Income-tax Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. In Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) Bhagwati J., representing the majority view of four judges (Sen J., dissenting), observed as follows (pp. 13, 17, 25): I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haritable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. We, therefore, agree with Beg J. when he said in Sole Trustee, Loka Shikshana Trust's case [1975] 101 ITR 234, 256 (SC) that: '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.' The learned judge also added that the restrictive condition 'that the purpose should not involve th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts as is testified by their being parties to and executing these presents. NOW THIS INDENTURE WITNESSETH and it is agreed and declared that in order to effectuate the said desire the settlor hath on or before the execution of these presents paid, delivered and transferred unto the trustees a sum of ₹ 5,100 (rupees five thousand one hundred) in cash, the payment and receipt whereof the trustees do and each of them doth hereby admit and acknowledge, TO HOLD the same unto the trustees UPON TRUSTS for the charitable object for the benefit of the public and subject to the powers, provisions, covenants and conditions hereinafter declared and contained, of and concerning the same, that is to :- 1. This trust shall be called UMAID CHARITABLE TRUST . 2. The trustees shall hold the said sum of ₹ 5,100 (rupees five thousand one hundred) paid to them in cash by the settlor on or before the execution of these presents as hereinafter stated and all property including business undertaking vested in the trustees and all income therefrom and all contributions, collections and donations hereafter to be paid to and received by them from any other person and income thereof and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit. (iii) To set apart the whole or part of the income of the corpus or part thereof for any of the objects of the trust. The trustees shall also have powers by a majority of three-fourths of the trustees for the time being of the trust to have recourse to and utilise the whole or any part or parts of the corpus of the trust property for all or any of the charitable objects or purposes herein mentioned or any of them at such time or times and in such proportions as the trustees shall in their discretion think fit. Now for a proper appreciation of the objects of the trust, it is necessary that we should draw a line of distinction between what are the objects of the trust and what are the powers conferred on the trustees for achieving the objects. It would not be proper to mix the objects of the trust with the powers conferred on the trustees. The opening part of the trust says that the settlor is desirous of creating a fund for charitable purposes for the benefit of the public . In order to effectuate the said desire the settlor delivered and transferred to the trustees a sum of ₹ 5,100 as a corpus and the trustees agreed to hold the same for the charitable object for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1976] 103 ITR 777, the Supreme Court observed that a clear distinction must be drawn between the object of a trust and the powers conferred upon the trustees as incidental to the carrying out of the object. We may observe that if that line of distinction is kept in mind while interpreting the various clauses of the trust deed there is no escape from the conclusion that profit making is not an end to which the activity of the trust is directed and by no stretch of imagination can it be said that the predominant object of the activity is making of profit. Learned counsel for the revenue also urged that the Tribunal has found, as a matter of fact, that one of the objects of the trust was to carry on a business undertaking involving profit. It is, therefore, argued by the learned counsel that that finding of fact must be accepted as final. In support of his contention he placed reliance on Hazarat Pirmahomed Shah Saheb Roza Committee v. CIT [1967] 63 ITR 490 (SC), wherein it was held that the question as to what was the object of the wakf was essentially a question of fact and the High Court could not interfere with the finding of the Tribunal that the purpose of the wakf was wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that on a proper construction of the terms of the trust deed there is no room for holding that there was any profit-making object of the trust in carrying on business activities. On the other hand, the trustees were empowered to undertake profit-making activity only for the purpose of achieving the object of general benefit and what was intended was that the profit must feed charitable purpose under the terms of the trust. It was next contended by Mr. Mehta that the trustees have been given discretion to utilise the net income of the trust for such of the charitable objects or purposes as they may, in their discretion, think fit. In other words, his contention is that the trustees have been given liberty to utilise the income of the trust for charitable objects as well as for purposes other than charitable objects. In this connection, reliance has been placed on East India Industries (Madras) P. Ltd. v. CIT [1967] 65 ITR 611 (SC), wherein it was held that under the trust deed it was open to the trustees to utilise the income for any one of the objects of the trust to the exclusion of all other objects. In other words, it would not be a violation of the trust if the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X
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