9911796707
TMI Blog1984 (3) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... at 301, Lamington Road, now known Dr. Bhandarkar Road, Bombay 400002. The school was founded sometime in 1895. It was stated that the building in which the school was housed are rented premises. The owner of the building was not prepared to undertake the necessary repairs. It may be added that the school is the proprietary school run by a partnership. Realizing that if the owner of the building could not undertake or would not undertake the necessary repairs of the school building, the school may be required to be shifted to some other place or circumstance may arise such that the school may even be closed down, there was some apprehension in the locality. It was stated that in 1968 the partners of the proprietary school were Ardeshir Rustomji Dubash, Soli Ardeshir Dubash and Zarin Soli Dubash. Since the school was founded way back in 1895, naturally there were large number of past students. Equally there was large number of parents of the girls taking education in the school. These persons and a few other parents and well-wishers living in the locality had great personal regard and esteem for Ardeshir Rustomji Dubash, the founder of the school. Shri Dastur stated that with a view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that sometime after the ITO had finalised the assessment for the years 1973-74 and 1974-75, the Commissioner (Appeals) initiated proceedings under section 263 of the Act. Shri Dastur undertook to produce and produced after hearing a copy of the notice under section 263, bearing BC No. IV/263/20 and 21/77-78, dated 3-9-1977, issued by the Commissioner, whereby the Commissioner observed as under : " A perusal of your income-tax records reveal that the assessments for the years 1973-74 and 1974-75 have been completed, by the ITO under section 143(3) read with section 11 of the Income-tax Act, 1961, on 23rd September, 1975. It is also seen from the records that the trust has been given exemption under section 80G of the Income-tax Act, 1961. However, it is noticed from the trust deed that the trust seeks to assist in all possible ways to maintain and continue and promote the interest and benefit of ' Princess High School ', a partnership concern of (1) Ardeshir Rustomji Dubash, (2) Soli Ardeshir Dubash, and (3) Zarin Soli Dubash, who also happen to be the trustees of the trust. The objects of the trust, therefore, cannot be considered as a charitable nature within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment years 1975-76 and 1976-77, the ITO made similar assessments on an income of Rs. 65,090 and Rs. 53,725, respectively. Shri Dastur added that whereas the assessment for the year 1975-76 was made on 22-3-1978, for the year 1976-77 the assessment was made on 15-3-1979. Shri Dastur then pointed out that the first order of the ITO wherein the assessee's claim for exemption was denied, was the one for the year 1975-76, dated 22-3-1978. Shri Dastur submitted that the assessment order dated 22-3-1978 and the order for the year 1973-74, dated 10-12-1979 give the reasons on the basis of which, according to the department, the assessee was not entitled to the exemption under section 11. 6. Analysing the two main orders, Shri Dastur submitted that the thrust of attack of the department was on clause (2) of the trust deed. Clause (2) of the trust deed, Shri Dastur pointed out, reads as under : " 2. The trustees shall hold the building trust fund and all the income, interest, benefit and profit thereof for the following purposes (a) To negotiate for, acquire and purchase the building known as ' Father's Gift ' in which the school is at present housed and to renovate and make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Act, 1961. Thus, the trust is not entitled or exemption under section 11 of the Income-tax Act, 1961 ". Shri Dastur, submitted that in the reassessment order, for the year 1973-74, the ITO referred to the representatives letter dated 28-10-1977 wherein it was pointed out that the trust was a wholly charitable trust which satisfied all the conditions of sections 11, 12 and 13. Shri Dastur submitted that it was the assessee's case that the trust was not created out of any funds contributed by the partners of the Princess High School but the same was created by the several past students parents of the past and present students and friends and well-wishers not or these partners of the school but the school as an institution. Shri Dastur urged that unfortunately the ITO confused between the school as an institution imparting education to a number of girls living in the area and the firm which runs the school. Shri Dastur pointed out that in the other order dated 10-12-1979 that ITO had not made any other points. 8. On appeal, the AAC considered all the appeals in terms of his consolidated order in appeal Nos. ER/IT/TC/483A, 482A, 846, 568A, 101, 100 of 1979-80, dated 18-11-198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry out necessary repairs and renovation or to acquire, purchase, repair and renovate any other buildings for giving it on rent to Princess High School and to maintain and continue and promote the interest and benefit of the said School. Thus, clauses (2)(a), (c), (d) and (e) are for the benefit of Princess High School, which is owned by a partnership of which Shri A.R. Dubash, Shri S.A. Dubash and Smt. Z.S. Dubash are partners and clause 2(b) is for the benefit of the students of this school." According to the AAC, properly understood, sub-clauses (a), (c), (d) and (e) of clause (2) were not or public character as envisaged under section 2(15)'. As such, the AAC confirmed the assessments as made by the ITO. 9. Shri Dastur pointed out that though the lower authorities had confused between the school as an institution which imparted an education to girls and the firms which ran the school Shri Dastur fairly conceded that the firm ran the school for profit. However, Shri Dastur added that when the trustees would have purchased the building, the trustees as a new owners could never have evicted the partnership firm who were the tenants of the premises known as ' Father's Gift '. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making income so as to derive any personal benefit. Shri Dastur submitted that the predominant object of the various persons who came together to collect the funds and collected the funds for the period from 1968 onwards has been to collect the necessary funds so as to enable the trustees to purchase the building known as ' Father's Gift ' which has housed a school giving education to female way back from 1895. Shri Dastur added that even after the trust could have purchased the building, so far as the firm was concerned, the firm would have continued to pay the same rent and the mere fact that the trust would have purchased the building would not have enabled the firm to make any additional income. Shri Dastur submitted that the large body of persons who collected the funds had no intention of benefiting in any manner whatsover from the proprietary of the school, that those persons were interested in ensuring that the girls of the locality attend a neighbourhood school. Shri Dastur submitted that one must take a practical view of the present circumstances and realise that if on account of the failure of the present owners to repair the building, the circumstances would have arisen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incidental.' According to Shri Dastur, in the event of the trust purchasing the building and the main object for which the trust was formed was achieved, it would have ensured the continuance of school as a school in the locality, any benefit to the partner was merely incidental and has to be considered of the same character as observed by the Supreme Court, viz., ' benefit accruing to the lawyer-members ', because the legal assistance is being provided to the poor. 11. In reply, Shri D. Agarwala for the department submitted that both the ITO and the AAC were justified in reading the trust deed in the manner in which they did. According to Shri Agarwala, the main purpose of the trust is not education but the main purpose of the trust is to collect funds to purchase the building in which the School is housed. Shri Agarwala stressed the fact that the school is run by a partnership firm and as such any benefit arising from the purchase of the building known as ' Father's Gift ' by the trust will practically go to the firm running the school so that what is prominent in the trust is the profit motive. Shri Agarwala further submitted that the objects 2(b), 2(c) and 2(d) are in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that would affect the health of the young children generally. We further find merit in Shri Dastur's submission that the large body of persons who were instrumental in collecting the funds and donations were primarily moved by the object of ensuring that the well established school of more than 70 years' standing does not move out of the locality. In our opinion, one can equally take note of a fact that the proprietors of private schools are not unknown to collect the charges for admission under the guise of collecting donations for school building. On record, there is no charge against the partners of the firm which runs Princess High School. True, three of the trustees are proprietors of the private school, in the sense that they are partners which run the school. However, apart from these three, there are two outsiders who are trustees, viz., Irach Sorabji Kuka and Phiroze Kaikhusroo Shroff. There is nothing on record which would enable one even remotely to doubt the bona fides either of the first three trustees or the two outsider trustees. One cannot be oblivious of a fact that the trust has been registered with the Charity Commissioner and if the trustees infringed any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmaterial so long as the rules remain unaltered . . ." Their Lordships further observed as under : " So far the case seems to fall within the exemption of the section. The second and more important point is whether the undertaking is a charity. Their Lordships are fully conscious of the importance of applying correct principle in such a matter and do not repeat the reasons for caution stated by the Board in the Trustees of the Tribune, In re. [1939] 7 ITR 415 (PC). The limits fixed by the section must be strictly observed and its definition must be satisfied by the character of the Association and its activities. Whether that is so depends on the true construction of the section and on the meaning and effect of the Constitution which defines the character of the Association. The construction of the section is obviously a question of law but so also is the question what is the real purpose of the Association. The Court must make its decision on the latter point on the basis of the facts found for it, but given the fact the question is one of law. In this particular case the principal facts is the constitution, the true construe ion of which is again a question of law. The High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f giving financial assistance to organise welfare schemes for the indigent, disabled or other advocates ; but it is an optional or discretionary function to be undertaken by the Council. Apart from that, admittedly, the assessee-council has not so far constituted any such fund for the purpose specified in the instant case. As and when such a fund is constituted, a question may arise for consideration and the Court may have to decide whether the function so undertaken by a State Bar Council has become the dominant purpose for which that Council is operating. . . . ." 14. In the present case, as we understand, should the trust purchase a building but not charge any rent from the school, perhaps, there will be some substance in Shri Agarwala's arguments. As has been observed both by the Privy Council and the Supreme Court, one will have to consider the facts as they are in the particular accounting year. So far as the years under consideration are concerned the only fact, as we are able to appreciate, is that the persons are desirous of ensuring that the old established school should continue to run peacefully in the locality in which it has been running satisfactorily for more than ..... X X X X Extracts X X X X X X X X Extracts X X X X
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