Madras High Court
The Commissioner Of Income Tax vs M/S.P.Iyya Nadar Charitable Trust on 20 February, 2006
Author: P.P.S.Janarthana Raja
Bench: P.D.Dinakaran, P.P.S.Janarthana Raja
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 20/02/2006
Coram
THE HON'BLE MR.JUSTICE P.D.DINAKARAN
AND
THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA
Tax Case (Appeal) No.1547 of 2005
Tax Case (Appeal) No.1548 and 1549 of 2005 and
259 to 261 of 2004
The Commissioner of Income Tax,
Madurai. ..Appellant
-Vs-
M/s.P.Iyya Nadar Charitable Trust,
12A Chairman Shanmugam Road,
Sivakasi. ..Respondent
Tax Case (Appeal) Nos.1547 to 1549 of 2005:
Appeals under Section 260A of the Income Tax Act, 1961 against the
order of the Income Tax Appellate Tribunal, Madras, 'C' Bench in I.T. A.
Nos.447, 448 and 449/Mds/96 dated 12.03.2004, for the assessment years
1981-82, 1982-83, 1983-84.
Tax Case (Appeal) Nos.259 to 261 of 2004:
Appeals under Section 260A of the Income Tax Act, 1961 against the
order of the Income Tax Appellate Tribunal, Madras, 'A' Bench in I.T. A.
Nos.4186, 4187 and 4188/Mds/87 dated 17.06.2003, for the assessment years
1981-82, 1982-83, 1983-84.
!For Appellant : Mrs.Pushya Sitaraman
^For Respondent : Mr.J.Balachandar
:JUDGMENT
(Judgment of the Court was delivered by P.P.S.Janarthana Raja, J.) The Tax Case (Appeal) Nos.1547 to 1549 of 2005 are filed under Section 260A of the Income Tax Act, 1961 by the Revenue, against the order of the Income Tax Appellate Tribunal, Madras, 'C' Bench, in I.T.A. Nos.447, 448 and 449/Mds/96. The Tax Case (Appeal) Nos.259 to 261 of 2004 are filed by the Revenue against the order of the Income Tax Appellate Tribunal, Madras, 'C' Bench in I.T.A. Nos.4186, 4187 and 4188/Mds/87 and the same were admitted on 23.07.2004. The common substantial questions of law raised in the above appeals are as under:
"1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that sec.13(1)(bb) would not apply to the trust although it was carrying on business?
2. Whether the ratio of the Supreme Court's judgment in the case of Thanthi Trust (247 ITR 785) is not squarely applicable to the facts and circumstances of the case?"
2. The facts leading to the above questions of law are as under:
i) The assessment years are 1981-82, 1982-83 and 1983-84 and the accounting years ended on 31.03.1981, 31.03.1982 and 31.03.1983 respectively.
The assessee is a public charitable trust. Sri P.Iyya Nadar settled certain properties at Sivakasi in favour of the assessee Trust. The Trust was accordingly formed by a deed, which was registered on 20.8.1956. The objects of the Trust are as follows:
"(a) To establish, maintain, run, develop, improve, extend, grant donations for, and to aid and assist in the establishment, maintenance, running, development, improvement and extension of hospitals, clinics, dispensaries, maternity homes and similar institutions affording treatment, cure, rest, remuneration and other advantages in the way of alleviating the suffering of humanity;
(b) To establish, maintain, run, develop, improve, extend, grant donations for, and to aid and assist in the establishment, maintenance, running, development, improvement and extension of educational institutions, technical industrial and otherwise, including schools, colleges, Polytechnics and research associations and the institutions, workshops etc. hostels for the benefit of students and to award scholarships for the study, research and apprenticeship for all or any of the said purpose;
(c) To establish, maintain, run, develop, improve, extend, grant donations for, and to aid in the establishment, maintenance, running, development, improvement and extension of libraries, reading rooms, recreation centres and other facilities as are calculated to be of use in imparting education to the Indian Public.
(d) To build, erect and construct and to aid and assist in the building, erection and construction of houses, tenements and places of residence for the poor, needy and defectives and to afford them all comforts and amenities.
(e) To conduct poor feeding and to give food, clothing and cash grants to the poor, needy and defectives and to afford relief to people in distress and affected by earthquake, flood, famine, pestilence and other causes and to grant donations for the support of the inmates of orphanages, rescue houses and similar institutions and societies.
(f) To engage in, carry on, help, aid and assist and promote rural reconstruction work, cottage industries and all other matters incidental thereto."
ii) The Trust Deed allowed the trustees to exploit the proprietory trade mark "CAMEL", a well-known brand of safety matches. In 1980, a safety manufacturing unit called the South Indian Lucifer Match Works, Sivakasi was settled in favour of the Trust, by means of deed dated 01.10.1980. The income has been assessed for 3 years as follows:
Asst.Year Property Business Other Sources Total Rs. Rs.
(2,12,098+Roy.42340)
1981-82 40,452 2,55,430 92,914 2,55,430
1982-83 37,940 3,60,714 1,24,446 5,23,100
1983-84 35,424 3,26,610+
royl.114002)
4,40,612 1,35,300 4,40,610
The Assessing Officer was of the view that the assessee was not entitled to the exemption u/s 11 of the Act on the ground that the case will come within the purview of Sec.13(1)(bb) of the Act. Aggrieved by the order, the assessee filed an appeal to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) allowed the appeal of the assessee Trust and set aside the order of the Assessing Officer. Aggrieved by that order, the Revenue filed an appeal to the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal dismissed the Revenue's appeal and confirmed the order of the C.I.T. (A) and held that the assessee Trust was entitled to exemption u/s 11, as a Charitable Trust.
3. The standing counsel appearing for the Revenue stated that the assessee was not entitled to benefit of Section 11 on the ground that it was hit by the provisions of Section 13(1)(bb) of the Act. Further, it was stated that the present issue is covered by a decision of Supreme Court reported in 247 ITR 785, in the case of Assistant Commissioner of Income Tax Vs. Thanthi Trust.
4. The learned counsel for the assessee submitted that the business was carried on in the course of actually carrying on the primary purposes of the Trust and the income derived from the business of the Trust was utilised for carrying out the various objects of the Charitable Trust and therefore, the Trust had no desire to carry on the business but for the fact that it was impressed with the Trust property and the income derived from the business would help in the augmentation of funds for carrying on various objects of the Trust, such as relief to the poor, education, medical relief etc.
5. We heard the learned counsel. The provision of Sec.13(1)(bb) is clearly attracted. The scope of the said section was considered by the decision of the Supreme Court reported in 247 ITR 785 in the case of Assistant Commissioner of Income Tax Vs. Thanthi Trust, at Page No.794, as follows:
"The requirement of section 13(1)(bb) is that the exemption under section 11 will not be available to such a trust that carries on any business unless the business is carried on "in the course of the actual carrying out of the primary purpose of the trust", that is to say, unless the business is carried on in the course of actually accomplishing a primary purpose of the trust; the business must, therefore, be carried on in the course of the actual accomplishment of relief of the poor, education or medical relief. As an example, a public charitable trust for the relief of the poor, education and medical relief that carries on the business of weaving cloth and stitching clothing by employing indigent women carries on the business in the course of actually accomplishing its primary object of affording relief to the poor and it would qualify for the exemption under section 11.
The business that the trust carries on is that of running a newspaper. That business, though it is held by the trust as a part of its corpus, and, therefore, in trust, does not directly accomplish, wholly or in part, the trust's objects of relief to the poor and education. Its income only feeds such activity. It cannot be held to be carried on in the course of the actual accomplishment of the trust's objects of education and relief of the poor. It is, therefore, not possible to accept the argument on behalf of the trust that it is entitled to the exemption under section 11."
6. In the present case, the business is held by the Trust as a part of the corpus and hence, the Trust did not directly accomplish any object or did not carry on in the course of the actual accomplishment of its objects. By following the principles enunciated in the above Supreme Court judgment, we answer the questions of law in favour of the Revenue and against the assessee. No costs. Consequently, TCMP Nos.1288 and 1289 of 2005 are closed.
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