Income Tax Appellate Tribunal - Delhi
Taxation Owners Sarla Bhargava ... vs Income-Tax Officer on 25 March, 1996
Equivalent citations: [1996]59ITD331(DELHI)
ORDER
B.S. Saluja, JM
1. The assessee is in appeal against the order of CIT(A) XVI, New Delhi dated 3-6-1991 mainly on the ground of disallowance of exemption under section 11 of the I.T. Act by invoking the provisions of section 13(1)(bb) and applicability of the rate of tax.
2. The brief facts in this case are that the assessee filed the first return of income on 30-6-1983 in Form No. 2 declaring an income of Rs. 2,57,160. A revised return was filed on 27-3-1985 in Form No. 2 declaring nil income. A further revised return of income was filed on 27-4-1985 in Form No. 3-A showing nil income and claiming exemption under section 11 of the Income-tax Act. The Assessing Officer issued a notice under section 143(2) which was complied with by the assessee. The Assessing Officer observed that the trust came into being vide Trust Deed dated 23-11-1982 executed by Shri O.C. Tandon. He further observed that the said trust deed was executed on the basis of the will of late Shri S.R. Bhargava on 18-5-1976, whereby the entire business which was running in the name of "Taxation" was transferred as a running concern with all its assets, goodwill, registration No., etc., along with the liabilities, if any, to the Sarla Bhargava Memorial Trust. The Assessing Officer also observed that the main object of the Trust was to establish hospital, dispensaries and clinics or to arrange for medical aid in association with any person or institution or individually by trust, to grant scholarship or provide financial aid to students for studies in educational, technical or research institution in India or abroad, to provide medical aid and relief to the poor and the needy persons, to establish educational institutions and libraries and to provide financial assistance and other facilities for such institutions or poor persons and to public or give financial aid in the publication of any literature on social welfare or positive thinking and run taxation with other publication as the business demands. The Assessing Officer also observed that the trust was registered under section 12A of the Income-tax Act. He also observed that the total turnover of the assessee was Rs. 11,02,995 on account of subscription of "Taxation" and Rs. 39,568 against sale of Year Book and Digest 1982. The assessee had shown gross profit of Rs. 4,50,207. He also observed that as per profit and loss account, net profit had been declared at Rs. 2,63,160. (after allowing depreciation, etc.). The Assessing Officer asked the assessee as to how the activities of the trust were charitable within the meaning of section 13(1)(bb) of the Income-tax Act, as the trust was running a business under the name and style of "Taxation" and how it would fall within the purview of that section. The Assessing Officer also held that the assessee earned a profit of Rs. 2,63,160 but the same was never applied for the primary purpose of the trust for which the trust was doing business. The assessee filed its reply on 18-3-1986, wherein the background relating to creation of the trust was given, which included, inter alia, the will executed by late Shri S.R. Bhargava on 18-5-1976, the will executed by the wife of late Shri S.R. Bhargava, wherein she had expressed a wish that the entire income and assets may be used for public charitable purpose. It was stressed in the reply that the business was being done by the Trust by virtue of the said will dated 18-5-1976 and that the provisions of section 13(1)(bb) were fully complied with insofar as the business which was being carried on was in the course of carrying out the primary purpose of the trust which was charity. The assessee also mentioned that it had filed Form No. 10 along with the return of income whereby it had sought accumulation of Rs. 1,97,370 under section 11(2) of the Income-tax Act for the purpose of construction of a hospital at Gwalior. A copy of the resolution of the Board of Trustees was also filed. The Assessing Officer, however, rejected the claim of the assessee for exemption under section 11 of the Income-tax Act and also observed that the business was being carried on to pay the liability which had been shown in the balance-sheet at Rs. 4,02,885. In the process he also held that the main object of the Trust was running the business of "Taxation" and not to achieve the charitable aims as were mentioned in the Trust Deed. He, therefore, held that the aims and objects of the Trust did not fall within the meaning of section 2(15) of the Income-tax Act.
2.1 On appeal before the learned CIT(A), the AR of the assessee submitted that the Assessing Officer was not justified in denying the benefit under section 11 by invoking the provisions of section 13(1)(bb) of the Income-tax Act. He further submitted that it had been brought to the notice of the Assessing Officer that as per will executed on 18-5-1976, Shri S.R. Bhargava had created the Trust for charitable purposes and that according to the said will, the business carried on in respect of Taxation Magazine was to be held under Trust for charitable purposes which had been specified as per Trust Deed Executed on 23-11-1982 by the Trustees in accordance with the said will. He, therefore, urged that the business was carried on in respect of the Taxation Magazine by the assessee-trust only towards the primary charitable purposes of the trust. He further urged that the Assessing Officer was not justified in rejecting the claim for benefit under section 11 on the ground that the profits were never applied for charitable purposes. In this connection he mentioned that under the provisions of section 11(2), a charitable institution was entitled in law to accumulate its income for a specified period and that mere non-application of the income for charitable purposes in a particular year did not justify any adverse inference on the part of the Assessing Officer. He further submitted that the trust was already registered under section 12A of the Income-tax Act. He also urged that the assessee-trust was a charitable institution within the meaning of section 2(15) of the Income-tax Act. The learned CIT(A) considered the submissions and agreed with the observations of the Assessing Officer that the main object of the assessee-trust was running the business of taxation and not to achieve the charitable aims as were mentioned in the Trust Deed. He also observed that under similar circumstances the assessee's claim was rejected for the assessment year 1982-83. The learned CIT(A) further observed that the Trust Deed executed on 23-11-1982 was not executed by the Settlor of the Trust but only by the Trustees who were carrying on the same business as in assessment year 1982-83. He, therefore, held that the Trust Deed by itself was not sufficient to persuade a different view in the matter as compared to the position already existing in assessment year 1982-83. He also observed that the assessee had not brought any cogent material to controvert the position as already found by the Assessing Officer that the assessee-trust did not carry on any activities of a charitable nature as per its aims and objects. He, therefore, held that there was justification with the Assessing Officer to reject the claim for benefit of section 11 in the light of the provisions of section 13(1)(bb). The assessee is aggrieved.
3. The learned counsel for the assessee Shri K.C. Srivastava invited our attention to pages 1-7 of the paper book, where the copy of the will made by Shri S.R. Bhargava is placed. In para 3 at page 3, it is mentioned that the entire business run in the name of Taxation shall be transferred as running concern with all its assets, goodwill, registration No., etc., along with the liabilities, if any, to Sarla Bhargava Memorial Trust. The names of the Trustees are also mentioned. He further invited our attention to the copy of the Trust Deed executed on 23-11-1982 by the Trustees. He submitted that the said Trust Deed was executed in view of the fact that the original Trust Deed was not available and the trustees thought it proper that a fresh deed of the Trust should be drawn up with the same aims and objects as was desired by the deceased. He further invited our attention to the aims and objects of Sarla Bhargava Memorial Trust, the main objects whereof have already been mentioned by the Assessing Officer in the assessment order. In view of the foregoing the learned counsel submitted that the claim of the assessee for exemption under section 11 has to be considered mainly in the light of the provisions of section 11(1)(a), which are basic provisions, read with the provisions of section 11(4). He mentioned that whereas under section 11(1)(a), income derived from property held under trust wholly for charitable or religious purposes is exempt to the extent to which such income is applied to charitable purposes in India and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of 25 per cent of the income from such property under section 11(4), it is specified that "property held under Trust" includes a business undertaking so held. The learned counsel submitted that in view of the said provisions the question before the Tribunal for decision is as to whether the provisions of section 13(1)(bb) will apply to such cases where the business itself is held under Trust. The learned counsel urged that the provisions of section 13(1)(bb) have to be read along with the provisions of sections 11(1) and 11(4). In this connection the learned counsel made the following arguments :-
1. The business is held under Trust and the same is required to be carried on for sustaining the Trust;
2. The business held under Trust is being carried on merely for the survival and existence of the Trust;
3. The Trust cannot apply its income/profit for the purposes mentioned in section 13(1)(bb) unless the business is carried on;
4. The definition of "charitable purpose" given in section 2(15) includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. The object of general public utility constitutes the 4th limb of charitable purposes and the provisions of section 13(1)(bb) were introduced to cover only the first 3 limbs of charitable purposes, i.e., relief of poor, education and medical relief;
5. That the provisions of section 13(1)(bb) will not apply to cases where the trustees have been given a running business in the form of property held under Trust, as otherwise the said provisions will defeat the very objects of the provisions relating to exemption of such income;
6. The Trust was not created to run a business as desired by it, but it was handed over a running business, which was necessary for its very existence;
7. That some objects of the Trust as mentioned at items (1) to (17) of the Trust Deed executed on 23-11-1982 were for education and medical relief, the other objects were of general public utility and that none of the objects involved any activity for earning profits;
8. The provisions of section 13(1)(bb) should not have been used to hit the Trust, which is otherwise covered by the provisions of sections 11(1) and 11(4).
In support of the above arguments, the learned counsel relied on the following decisions :-
1. CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad.),
2. Thanthi Trust v. Asstt. CIT [1995] 213 ITR 626 (Mad.), and
3. Thanthi Trust v. CBDT [1995] 213 ITR 639 (Mad.).
He submitted that whereas the first decision reported in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad.) related to the years before the introduction of section 13(1)(bb), the second decision reported in Thanthi Trust v. Asstt. CIT [1995] 213 ITR 626 (Mad.) dealt directly with the provisions of section 13(1)(bb). The third decision reported in Thanthi Trust v. CBDT [1995] 213 ITR 639 (Mad.) dealt with the provisions of section 11(4A) which were introduced simultaneously with the omission of the provisions of section 13(1)(bb). The learned counsel further submitted that in the first decision reported in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad.), the question considered was as to whether the Trust created, to which the business of newspaper was transferred as a going concern, was entitled to exemption under section 11 of the Income-tax Act. He submitted that it was held in that case that "the property held under Trust or under legal obligation" was the business itself and the entire income from the business had to be utilised for the various charitable objects set out in the Schedule to the decree of the High Court and merely because the Trust was carrying on an activity for profit for the purpose of carrying on the charitable objects referred to in the Schedule to the decree, it could not be deprived of the benefit of section 11. He further submitted that in the second case reported in Thanthi Trust v. Asstt. CIT [1995] 213 ITR 626 (Mad.), the department had disallowed the claim of the assessee for exemption under section 11 in view of the provisions of section 13(1)(bb) and the Hon'ble Madras High Court, after examining the provisions of section 11 and section 13(1)(bb) had held -
"That in view of the categorical finding rendered by the Division Bench in CIT v. Thanthi Trust [1982] 137 ITR 735 (Mad.) that the primary purpose of the trust was to carry out charitable objects and that the business was carried on as a means in the course of the actual carrying out of the primary purpose of the trust, the requirement of the last portion of section 13(1)(bb), namely, 'unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution' was satisfied by the petitioner. Therefore, section 13(1)(bb) could not stand in the way of the petitioner claiming the benefit of exemption under section 11(1) of the Act."
He also submitted that in the third decision reported in Thanthi Trust v. CBDT [1995] 213 ITR 639, the Hon'ble Madras High Court further examined the provisions of sub-section (4A) of section 11 and held that "the provisions of sub-section (4A) can be applied only to income being profits and gains of business carried on by a trust, which is not held under trust and the said sub-section (4A) cannot be applied to a case where the business undertaking itself is held under trust for charitable purposes. Section 11(1)(a) of the Act grants exemption generally in respect of income derived from property held under trust wholly for charitable or religious purposes. Sub-section (4A) carves out only certain categories of income,.., leaving the income derived from property held under trust for charitable purposes, to be taken care of by the provisions of section 11(1)(a) read with section 11(4) of the Act. Again by inserting sub-section (4A), if it was intended to narrow down the scope of section 11(1)(a) so as to withdraw the exemption enjoyed by income derived from property held under trust for charitable purposes, it would have been mentioned specifically that the scope of section 11(1)(a) was being restricted to that extent. Even assuming that there is some ambiguity, it is the settled position of law that in the case of Fiscal statutes that impose pecuniary burden, if a reasonable doubt exists, the construction most beneficial to the subject must be adopted. Moreover, the construction, namely, that section 11(4A) will have no application to income derived from property held under trust for charitable purposes, leaves a certain area to section 11(4) of the Act, for its operation, notwithstanding the enactment of sub-section (4A)". In view of the foregoing decisions, the learned counsel urged that the benefit of exemption under section 11 may be granted to the assessee-trust, as the provisions of section 13(1)(bb) are not attracted in the case of the assessee-trust. He further submitted that the assessee-trust had already applied to the Assessing Officer in Form No. 10 for accumulation of income of Rs. 1,97,370 in accordance with the provisions of section 11(2) and that the assessee had not flouted any relevant provisions of law, which may entail disallowance of exemption under section 11.
3.1 With reference to applicability of maximum marginal rate as applied by the Assessing Officer, the learned counsel invited our attention to the orders of the learned CIT(A) dated 26-5-1994 for the assessment year 1988-89 and orders dated 26-7-1994 for the assessment year 1989-90 wherein it has been held that the normal rate of taxation applicable to AOP should be taken in the case of the assessee.
4. The learned DR Mrs. Saroj Deswal relied heavily on the orders of the tax authorities and submitted that the assessee-trust had not applied the profits for the primary objects of the trust, i.e., charity. She also submitted that even in the preceding year the assessee was denied the benefit of exemption under section 11.
5. The learned counsel in his rejoinder submitted that the assessee had not claimed the benefit of exemption under section 11 in the preceding assessment year.
6. We have carefully considered the rival submissions and have also perused the orders of the tax authorities and other relevant record to which our attention was invited during the course of hearing. We have also seen the case law relied upon by the learned counsel. It is observed that it is not in dispute that the business of "Taxation" was handed over to the assessee-trust as a running business along with its liabilities, as property to be held under Trust. It is also not in dispute that the assessee-trust is running the said business as a necessity in terms of the provisions of the Trust Deed so as to ensure the survival of the Trust and also the carrying on of the aims and objects of the Trust. It is also observed that the assessee has claimed exemption under section 11 in the year under consideration, i.e., 1983-84, for the first time and it had also moved an application under section 11(2) of the Income-tax Act in the prescribed form for accumulation of income of Rs. 1,97,370 with the ultimate object of construction of hospital at Gwalior, which happens to be one of the objects mentioned at items (1) to (17) of the Trust Deed executed on 23-11-1982. We are satisfied that the said Trust Deed dated 23-11-1982 had to be executed by the surviving Trustees in view of the fact that the original Trust Deed was not available. In view of the fact that the assessee-trust had applied under section 11(2) for accumulation of income, we do not subscribe to the view of the tax authorities that the assessee had not applied its income/profit towards the primary object of the Trust, i.e., charity. In this connection we get support from the following observations made at page 635 of the decision of the Hon'ble Madras High Court in the case of Thanthi Trust v. Asstt. CIT [1995] 213 ITR 626, namely :-
"In the case on hand the property held under trust is the business itself and the business is carried on only, and exclusively, for carrying out the charitable objects set out in the schedule to the decree in C.S. No. 90 of 1961. As pointed out by the Supreme Court, if the contention of the Revenue that once a trust carries on a business activity it loses the benefit of section 11 is accepted, no trust can carry on any business even for the fulfilment of the charitable objects, such as, relief of the poor, education and medical relief and, therefore, such a contention cannot be accepted. If the intention of the Legislature were to prohibit a trust or institution established for a charitable purpose or for the promotion of an object of general public utility from carrying on any activity for profit, it would have provided in the clearest terms that no such trust or institution should carry on any activity for profit. On the other hand, the Legislature by enacting section 11(4) under which the business may also be the property held under trust appears to contemplate a trust actually carrying on a business for charitable purposes or for general public utility."
It is also observed that various objects mentioned in the Trust Deed dated 23-11-1982 are of general public utility which constitutes the 4th limb of the definition of "charitable purposes" given in section 2(15) of the Income-tax Act. The provisions of section 13(1)(bb) only cover the first 3 limbs of the definition, i.e., relief of the poor, education and medical relief and the said provisions do not cover the 4th limb of the said definition. In this view of the matter also the provisions of section 13(1)(bb) will not be attracted in the case of the assessee, whose claim for exemption under section 11 is clearly allowable in view of the provisions of section 11(1)(a) read with the provisions of section 11(4), whereunder "property held under Trust" in the form of a business undertaking is also covered for the purposes of claiming benefit under section 11. It is also observed that when the provisions of section 13(1)(bb) were omitted with effect from 1-4-1984, the provisions of sub-section (4A) were inserted in section 11 from the same date, i.e., 1-4-1984. The provisions of section 11(4A) were also examined by the Hon'ble Madras High Court in the case of Thanthi Trust v. CBDT [1995] 213 ITR 639 and the relevant extracts from the said judgments with reference to harmonious construction of the provisions of section 11(1)(a) read with the provisions of section 11(4) and the provisions of section 11(4A) have already been extracted in this para above. The Hon'ble Madras High Court had also examined the contents of CBDT Circular No. 372 dated 8-12-1983, whereby the CBDT had expressed the view that the provisions of sub-section (4A) will apply, irrespective of whether the profits and gains are derived from a business carried on by the trust or institution or from a business undertaking which is held in trust for charitable purposes and the Hon'ble Madras High Court had held the said circular to be invalid by observing in the process that the said view was not warranted by the plain language of sub-sections (1), (4) and (4A) of section 11. In view of the foregoing we hold that the assessee is entitled to exemption under the provisions of section 11 and that the provisions of section 13(1)(bb) are not attracted in the case of the assessee, as the business held under trust is being carried on to achieve the primary purposes of the trust.
7. Ground No. 4 urged by the assessee relates to exemption of interest income earned on fixed deposits, which was also denied by the learned CIT(A) in view of the rejection of the claim of the assessee for exemption under section 11.
7.1 In view of our decision on the main grounds relating to exemption under section 11, we feel that the claim of the assessee for exemption of interest income earned on fixed deposits should be considered. Accordingly the Assessing Officer is directed to consider the claim of the assessee with reference to this income under the provisions of section 11 in accordance with law.
8. Ground No. 5 urged by the assessee relates to applicability of the maximum marginal rate of tax. This matter was restored by the learned CIT(A) to the Assessing Officer with the direction to give fresh finding in this regard after allowing due opportunity to the assessee. In view of above facts we see no reason to interfere with the orders of the learned CIT(A). This ground is, therefore, rejected.
9. In the result, the appeal is allowed in part.