Indian Kanoon - Search engine for Indian Law

5. In the light of the directions of the Hon'ble High Court and in respectful obedience to them, we have heard the rival submissions. The parties before us did not dispute the basic factual position that the assessee trust pursued an object of general public utility, which is the fourth head of charitable activity stated in Section 2 (15) of the Act. If that is so, the provisions of Section 13(1)(bb) of the Act are not applicable because those provisions apply only to a trust which carries on the activity of relief of the poor, education or medical relief. In the light of this position, if we consider the applicability of the judgment of the Supreme Court in the case of Assistant Commissioner of Income-tax v. Thanti Trust (and other appeals) (2001) 247 ITR 785, it is seen that this judgment was concerned with the question regarding the applicability of Section 13(1)(ob). It was held by the Supreme Court, reversing the judgment of the Madras High Court partly that if the business of the trust is not carried on in the course of the actual carrying out of the primary purpose of the trust as required by the aforesaid section, its income would not be exempt from tax. In that case, the trust called the Thanti Trust was established with the objects of giving relief to the poor and education. The Supreme Court therefore held that the income from the newspaper, which business was held under trust, did not directly accomplish, wholly or in part the objects of the trust and that the income from the business only fed the activity. The ruling in this case is not applicable to the present case where admittedly the object of the trust is the advancement of an object of general public utility. In the assessment year 1977-78, the CIT (Appeals) had recorded a finding to the effect that the objects of the assessee were education and advancement of any other object of general public utility. The Tribunal did proceed on the basis of this finding though in its order in paragraph 6 it observed that there was no material to find out whether education in the form of imparting training in tailoring, sewing and embroidery for qualifying for the two year certificate course was being pursued by the assessee and further observed that in the annual report the break up of the quantum of commercial and educational activity in this regard was not available. Even so an opinion was expressed, on the basis of the expenditure of Rs. 25,467/- incurred on condensed courses of education that the assessee was carrying on the activity of education. However, the assessee itself did not put its claim under the head education and had in fact filed a letter dated 19.1.1980 that the main object of the trust was not education or relief of the poor, but was an object of general public utility but this claim was rejected by the ITO. In the order of the Special Bench for the assessment years 1980-81 and 1981-82, there is reference to the argument of the assessee that the main object was one of general public utility and the word "education" appearing in Section 2 (15) connotes the process of training and developing the knowledge and skill and character of students by normal schooling and it has not been used in a wide and extensive sense, in the sense of acquiring any further knowledge. The argument of the Department did not proceed on the footing that the assessee was pursuing education as its main object. The argument was only that the predominant object of the assessee was that of profit making since the Manila Shilp Kala Kendra was run on commercial lines. This argument, as we have already noted, was rejected by the Special Bench. We are quite aware that the orders of the Tribunal (both the Division Bench and the Special Bench) have been set aside by the Hon'ble High Court and, therefore, can no longer be regarded as holding the field and the matter has to be looked into afresh. Even so, on the question of whether the assessee can be said to have pursued education as one of the charitable objects, we have the assessee's own admission in its letter referred to above that it did not pursue the object of imparting education but pursued an object of general public utility. One of its objects was to establish and maintain centres for adult education, shilp kala, sewing for widows or destitute ladies of all creeds and castes. Another object is to establish and maintain institutions for imparting general, vocational, industrial, moral and physical education to the children and girls and women of all creeds and castes. However, these two objects mentioned in the trust deed cannot be relied upon to contend that the assessee was pursuing the imparting of education as one of its objects. In this context, it is important to advert to the ruling of the Supreme Court in the case of Sole Trustee, Loke Shikshana Trust v. CIT (1976) 101 ITR 234, a judgment of a Bench consisting of three Judges. In that case, it was held that the word "education" in Section 2 (15) connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling and has not been used in the wild and extensive sense according to which every acquisition of further knowledge constitute education. In the light of this judgment and the law laid down therein, it is not possible for us to hold that the assessee pursued the object of imparting education as one of its objects. The learned CIT DR, Mrs. Sangeeta Gupta put form the argument that the assessee imparts adult education and vocational training to destitutes and under-privileged women. This is a mere reproduction of Clause (b) of the Memorandum of Association and there is no evidence to show mat the assessee did impart formal education in a school run for this purpose. The assessee merely got the uniforms stitched in its tailoring schools by wives of the workers of the group companies and in the process they could learn stitching, but this does not amount to imparting education to them within the meaning of the word "education" as interpreted by the Supreme Court in the case of Sole Trustee, Loke Sikshana Trust (supra). In paragraph 7 of the assessment order for the assessment year 1980-81, the Assessing Officer has stated that the main activity of the trust was providing aid to various educational institutions and, therefore, its main object is education. Similarly, in the assessment order for the assessment year 1981-82 also the same finding has been given by the Assessing Officer. However, in the light of the judgment of the Supreme Court cited above, the assessee cannot be stated to have pursued the imparting of education as one of its main objects merely by providing financial aid to educational institutions.

7. In the case of Thiagarajar Charities v. Addl. CIT and Anr. , the Supreme Court was considering the difference between the objects of a trust and the powers given to the trustees to achieve the object. In the case before the court, the objects of the trust were charitable. The trustees were given the power to carry on the business in cotton yarn, cloth etc. The business constituted the corpus or the property held under trust. The assessee claimed exemption under Section 11 in respect of the income from the business. The Supreme Court upheld the claim holding that the business was only a means of achieving the objects of a trust and since the profits from the business was spent for the objects of the trust, the trust was entitled to the exemption. The decision of the Madras High Court holding to the contrary was reversed. In doing so, the Supreme Court applied its earlier judgment in Surat Art Silk Manufacturers Association (supra). This judgment (i.e., Thiagarajar Charities - supra) has been directed to be considered by us by the Hon'ble Delhi High Court while disposing of the references. In this case (Thiagarajar Charities - supra) the finding of the Tribunal was that the assessee carried on an object of general public utility, but held that since the assessee carried on an activity namely the business in purchase and sale of cotton yarn, for profit, it concluded that the income derived from the business, though held under trust, was not exempt under Section 11 of the Act. On reference, the High Court upheld the decision of the Tribunal. The assessee filed an appeal to the Supreme Court which held that the main purpose and objects of the trust are education, medical relief and relief of the poor and in order to carry out the objects the trust has been authorized to establish and run educational institutions and other technological institutions for the welfare and uplift of the general Indian public, to run hospitals and clinics, to erect houses for the poor and to give relief to them in times of distress. The Supreme Court noticed that the clause in the trust deed which authorized the trust to carry on the business of cottage industry and rural reconstruction work was only a power to enable the trust to achieve its objects, and not an object by itself. In this view of the matter, the Supreme Court held that the Tribunal and the High Court erred in construing the clause in the trust deed which enabled it to carry on a business as having a profit motive. The Supreme Court also approached the case from a different angle and in the alternative held that the business in purchase and sale of yarn, cloth etc. was itself held in a trust and it is the corpus of the trust in reality and the relevant clause in the trust deed which authorized the carrying on of the business was not an object of the trust and, therefore, it cannot be said that the trust was carrying on an activity for profit. All that has happened was that the business which was the property held under trust produced income just like any other property. It was observed that the business was only a means of achieving the object of the trust and a medium through which the object was accomplished. The relevant observations of the Supreme Court are contained in pages 1024 and 1025. This case establishes the proposition that there is a difference between the objects of the trust and the powers vested in the trustees to achieve the objects of the trust. In addition, this case also establishes the proposition that if the carrying on of the activity of profit, namely, the business, is itself held as corpus of the trust, it is only a means of achieving the object of the trust, provided that the profits earned in the business fed the charitable purposes specified in the trust deed. In such a case, it cannot be said that profit-making was the real object of the trust. In the present case, though it is not the assessee's case that the business of Manila Shilp Kala Kendra itself was held under trust, that would not make any difference to the ultimate result, because as laid down in the aforesaid judgment of the Supreme Court, the surplus from the Mahila Shilp Kala Kendra has been consistently applied for the charitable activities carried on by the assessee and to this limited extent, the aforesaid judgment applies to its case. It should, however, be noted that the provisions of Section 13(1)(bb) were not under consideration before the Supreme Court since the assessment years involved in the case was 64-65, 65-66 and 66-67, during which years the provisions of Section 13(1)(bb) were not in the Act. In the ultimate analysis, to the limited extent of saying that if the profits of the business carried on by the trust feed the charitable objects then it can be said that the activity carried on by the trust is not guided solely by a profit motive, the aforesaid judgment applies. We may also add that even in the judgment of the Supreme Court in the case of Surat Art Silk Cloth Manufacturers Association (supra), the same principle was laid down.