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1. The question before us is, whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-trust is entitled to claim exemption under s. 11 r/w s. 2(15) of the IT Act, 1961 (hereinafter referred to as "the Act").

2. The assessee is a society, registered under the Societies Registration Act and also registered as a public charitable institution with the CIT under s. 12A of the Act. It sought exemption as stipulated under s. 11 r/w s. 2(15) of the Act. The ITO, however, declined to grant exemption to it on the ground that it received income from hire of furniture and a Kalyana Mandapam, which according to him was an activity for profit. The AAC declined to interfere with the order of the ITO. The assessee appealed to the Tribunal. According to the statement of the case, the Tribunal went through the objects of the trust and found them to be clearly charitable. It did not find any element of business activity for profit in any of the objects. It found that there was no separate hire of furniture apart from letting out the Kalyana Mandampam, alongwith which the furniture was also let out. The Tribunal, accordingly, has held that the objects and activities of the assessee revealed that it was engaged in public utility services like running educational institutions, libraries, etc. According to it, the assessee is entitled to exemption under s. 2(15) r/w s. 11 of the Act.

(ii) Where the trust carried on business, there could be distinct kinds of cases; one : where the business done is the charitable purpose of the trust, two : where the business is only an asset of the trust.

(iii) If the trust is one which has as its assets or as one of several properties held by it a business so as to feed a charity but the carrying on of the business or the service to the public from the business is not claimed as charity, that does not by itself make the objects of the trust not a charitable purpose.

"The law is well settled that if there are several objects of a trust or institution, some of which are charitable and some non-charitable and the trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust or institution might be upheld as a valid charity : vide Mohd. Ibrahim vs. CIT (1930) LR 57 IA 260 and East India Industries (Madras) P. Ltd. vs. CIT . But if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity; vide CIT vs. Andhra Chamber of Commerce The test which has, therefore, to be applied is whether the object which is said to be non-charitable is a main or primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is charitable." and "The definition of 'charitable purpose' in the Indian statute must be construed according to the language used there and against the background of Indian life. The English decisions may be referred to for help or guidance but they cannot be regarded as having any binding authority on the interpretation of the definition in the Indian Act."

On the question of what is the meaning of the expression "activity for profit", the majority judgment has said :

"The answer to the question obviously depends on the correct connotation of the proposition 'for'. This proposition has many shades of meaning but when used with the active participle of a verb it means 'for the purpose of' and connotes the end with reference to which something is done. It is not, therefore, enough that as a matter of fact an activity results in profit, but it must be carried on with the object of earning profit. Profit-making must be the end to which the activity must be directed or in other words, the predominant object of the activity must be making of profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit making motive; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak, J.) in Dharmadeepti vs. CIT must be 'essentially charitable in nature' and it must not be a cover for carrying on an activity which has profit-making as its predominant object.... The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But, where the predominant object of the activity is to carry out the charitable 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."