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9. So far as the first question is concerned i.e. whether the business itself was held under trust, the CIT (Appeals) held that where the trustees decide to carry on the business in the name of the trust by borrowing funds or diverting money from sister concerns, it cannot be a case of property being held under trust but would be only a case of business being carried on for and on behalf of the trust. He made a distinction between borrowings made for the purpose of facilitating the running of business held under trust and borrowings made for the purpose of carrying on a business for and on behalf of the trust, where such borrowings constituted the basic source for the commencement of the business. According to the CIT (Appeals), if this distinction is not maintained, there can be no case where the business would not be property held under trust or where the business can be said to be carried on for and on behalf of the trust in contrast to the business itself being held under trust. He noted that after the trust was created, the sister concerns in which the founder - trustees or their close relatives had substantial interest diverted funds in favour of the business and some borrowings were also made from the banks and the business was started. Within a year a manufacturing unit of Katha and cutch was set up and became functional; the business started earning profits and they were utilised to pay off the debts. In 1978 the unit was leased to M/s. Shankar Trading Co., a sister concern which had also contributed initially for the business and in which the trustees and their close relatives had substantial interest. The lease rent initially fixed was `25,000/- per month which was revised to `50,000/- per month from 01.04.1987 and to `1,00,000/- per month from 31.12.1991. The transactions of the business in its head office at Delhi were mostly with sister concerns. These facts, according to the CIT (Appeals), showed that the business was not settled upon trust and cannot be said to be a business held under trust. The source for the business came from borrowings and contributions by the sister concerns and not from the trust, except to a meagre extent of `2,100/-. The property held under trust may no doubt include subsequent accretions to the corpus of the trust fund but it cannot include acquisitions in relation to which the trust stood in the capacity of a debtor to third parties, according to the CIT (Appeals). The business undertaking no doubt belonged to the assessee - trust and the business was also carried on by it, but for these reasons the business cannot be held to constitute property held under trust. Having held that the business was not held under trust, the CIT (Appeals) proceeded to consider the further question whether the carrying on of the Katha business was incidental to the attainment of the objects of the trust. It was submitted before him on the basis of clause 19 of the trust deed that the whole purpose of the business was to provide funds or generate income for being applied to the charitable activities listed in the trust deed. The submission was rejected by the CIT (Appeals) by holding that the fact that the income generated by the business was applied to the charitable purposes of the trust was not relevant and what was relevant was whether the business activity was itself incidental to the attainment of the objects of the trust, within the meaning of Section 11(4A) of the Act. According to the CIT (Appeals) the running of a Katha factory can hardly be said to be incidental to the attainment of the objects of the assessee - trust, which are the advancement of education, patriotism, Indian culture, etc. The fact that the whole or some part of the income of Katha business was to be applied in terms of the trust deed to the charitable objects would by itself cannot render the carrying on the business as an activity incidental to the attainment of the objects of the trust.

Commissioner of Income Tax, Gujarat v. Surat Art Silk, (1998) 121 ITR 1, a decision of five Judges of the Supreme Court. It was observed that if a business undertaking is held under trust for a charitable purpose, the income therefrom would be entitled to the exemption under Section 11(1) of the Act. In the case before us the finding of the CIT (Appeals), in his order for the assessment year 1992-93, is that the Katha business was not held under trust, but it was a business commenced by the trustees with the aid and assistance of borrowings from the sister concerns in which the settlors and the trustees or their close relatives had substantial interest, as well as from banks. It is thus with the help of the borrowed funds, or in other words, the funds not belonging to the assessee trust, that the Katha business was commenced and profits started to be earned. The CIT (Appeals) has also found that the earnings from the business were utilised to pay off the borrowings. It was for these reasons that he held that through the business undertaking belonged to the trust and the business was carried on by or on behalf of the trust, but for those reasons the business cannot be said to constitute "property held under trust". He made reference to clauses 19 and 20 of the trust deed in this behalf and noted that clause 19 provided that the trust may "carry on any business for or on behalf of or in the name of the trust for the sole object of supplying to income and profits thereof for the purposes and objects of the trust". Clause 20 provided that the trust may obtain financial help from banks, financial institutions, business houses and other organisations, etc. He was inclined to view these clauses only as powers enabling the trustees to commence and carry on business to augment the resources available to the trust. It was for these reasons that the CIT (Appeals) held that the Katha business was not held under trust. Unfortunately the Tribunal, which appears to have disposed of the appeal in a rather summary manner did not examine this aspect and merely endorsed the claim of the assessee. This is a matter of considerable importance and we would have thought that it was incumbent upon the Tribunal to have examined this fundamental aspect, for two reasons: firstly, under Section 11(4), it is only the business which is held under the trust that would enjoy exemption in respect of its income under Section 11(1); secondly, there is a distinction between the objects of a trust and the powers given to the trustees to effectuate the purposes of the trust. The CIT (Appeals) also held for the assessment year 1992-93 that while the objects of the trust were certainly charitable, clauses 19 and 20 are mere powers conferred upon the trustees to carry on business, the profits from which would feed the charitable objects. There is no settlement of the business in Katha upon trust for the simple reason that the business itself was not in existence at the time of formation of the trust. The property held under trust was merely a sum of `2,100/-, contributed more or less equally by the settlors at the time of creation of trust on 08.09.1971. The business in Katha came into existence in the year 1972 and the production unit in Mahesh Udyog, Himachal Pradesh started production on 08.02.1973. Thus the Katha business was not even in the contemplation of the settlors and, therefore, could not have been settled upon trust.

These cases reiterate the position that the question to be examined is whether the business itself is held under trust or is merely carried on by and on behalf of the trust. It is also significant that Section 11(1) of the Act starts with the expression "subject to the provisions of Sections 60 to 63........". These Sections find place in Chapter V of the Act. Section 60 provides for the consequences of a transfer of income where there is no transfer of assets. It says that where a person transfers merely the income from an asset without transferring the asset itself, he would continue to be chargeable to income tax. Section 61 provides for the consequences of a revocable transfer of assets and says that the same would be the position where a person is in receipt of income by virtue of a revocable transfer of assets. Section 62 provides for the consequences of a transfer of assets for specified period. It is an exception to Section 61. Generally a person has to get rid of the asset itself before ceasing to be assessable in respect of the income from that asset. A mere direction that the income from the business shall be applied to the charitable objects of a trust, without there being a settlement of the business itself upon trust, does not result in any trust or legal obligation.

Prima facie the above observations would appear to support the assessee‟s case in the sense that even if the Katha 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 under Section 11(4A) of the Act should be held to be satisfied, entitling the trust to the tax exemption.

25. In our opinion these observations have to be understood in the light of the facts before the Supreme Court. Thanthi 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 under Section 2(15) of the Act. The newspaper business was certainly incidental to the attainment of the object of the trust, namely that of imparting education. The observations were thus made having regard to the fact that the profits of the newspaper business were utilised by the trust for achieving the object, namely education. The type of nexus or connection which existed between the imparting of education and the carrying on of the business of a newspaper does not exist in the present case. There is no such nexus between the Katha business and the objects of the assessee - trust that can constitute the carrying on of the Katha business an activity incidental to the attainment of the objects, namely advancing of education, patriotism, Indian culture, running of hospitals and dispensaries, etc. It would in our opinion be disastrous to extend the sweep of the observations made by the Supreme Court (quoted above) in the case of Thanthi Trust (supra), on the facts of that case, to all cases where the trust carries on business which is not held under trust and whose income is utilised to feed the charitable objects of the trust. We are, therefore, of the respectful opinion that the observations of the Supreme Court must be understood and appreciated in the background of the facts in that case and should not be extended indiscriminately to all cases.