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4. In view of the above background, The Willingdon Charitable Trust was created and managed by a board of directors with 15 trustees inclusive of the 3 trustees of the erstwhile "The Willingdon". The aims and objects of "The Willingdon Charitable Trust" are enumerated in Clause 3 of the memorandum of association, dt. 10th Feb., 1971 which reads as under:

3. The objects and aims of the trust shall be as follows:
(1) To establish, run or maintain educational, technical or technological institutions of all kinds in India for the benefit of the public.
(iv) The activity of running auditoriums is not incidental to the objects of the appellant as it is a commercial activity earning huge profits. As observed by the Madras High Court in the case of CIT v. Sivakasi Hindu Nadars Uravinmurai , the predominant object of a charitable trust should be charitable purpose and not to earn profit, whereas in the case of the appellant, the predominant object is running of the auditoriums.

7. The AO also examined another aspect as to whether these two auditoriums are a 'property held in trust' or not. He held that the running of a ladies hostel could not either be an object of the trust or incidental to the objects as the said activity was not incorporated as an object of the trust. Therefore, he held that these activities are totally independent from the objects of the trust. For this, he has given the following reasons:

9. We have heard the rival contentions and gone through the case records. Before us, the learned Counsel for the assessee has filed memorandum of income for the asst. yrs. 1995-96, 1996-97, 1997-98 and 1998-99 along with the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Janakiammal Ayyandar Trust as well as of the Tribunal. The facts are undisputed. The learned Departmental Representative has not objected to the facts. The assessee's contention before the AO as well as the CIT(A) was that even if the provisions of Section 11(4A) of the Act are considered applicable, profit making is not prohibited provided such activity is not an object in itself but it is incidental to the charitable objectives of a trust. It was also contended that even granting but not conceding that letting out of auditoriums constitutes a business activity, such business is a 'property held in trust' within the meaning of Section 11(4) of the Act and that taxability of income from such 'a business held in trust' can only be decided as per that sub-section, i.e. 11(4) and not according to Section 11(4A) of the Act. In view of this, if there is income over and above the income admitted is computed as per the provisions of the IT Act, then such excess income could be taxed under Section 11(4) of the Act. But the AO interpreted the provisions of Sections 11(4) and 11(4A) of the Act in a different manner. It was the contention of the assessee that any income from a property, being business held in trust, will be eligible for exemption under Section 11 of the Act provided conditions in Section 11(4A) are satisfied but even if the twin conditions of the Section 11(4A) of the Act are satisfied, excess of income computed over and above the income shown in the accounts will have to be taxed as income which is applied for other than charitable purposes. This interpretation of the AO was not acceptable to the assessee on the ground that the property in question was donated by another trust to it and therefore though the auditoriums were constructed by it the property should be considered as property held in the trust. The assessee relied on the decision of the Hon'ble apex Court in Asstt. CIT v. Thanthi Trust Etc., Etc (2001) 165 CTR (SC) 681 : (2001) 247 ITR 785(SC). According to the AO, the trustees are only permitted to construct the buildings to carry on the activities of the trust and not to construct auditoriums. But the contention of the assessee was that running of the auditoriums is a business held in trust but the AO did not accept this stand. After going through the assessment order, we find that the AO has arrived at the following findings:

13. Now, the issue arises whether running of two auditoriums, i.e. hiring them out and related amenities as well as running of ladies hostel would constitute the activity incidental to attainment of the objects of the trust. It is seen from the records that the main objects of the trust are charitable and the exploitation of the properties in question are incidental to attainment of the said objects. It is seen from the above facts that the properties are held in trust and their use and exploitation towards the fulfilment of the objects of the trust particularly having regard to the aims and objects, the activity should be considered as incidental to the attainment of the objects. We do not agree with the reasoning given by the AO that the properties are not held in trust and running the auditoriums is neither an activity as per the objects or incidental to the objects in holding that running of the auditoriums is independent and commercial/business activity for the reason that the hire charges received are high and the activity of letting out of the auditoriums and the related amenities are being carried out in a systematic and business manner. We also do not agree with the finding of the AO that apart from collecting rent from the auditoriums and the related amenities, the assessee also collected donations which should become part of the business income. It is seen from the resolution passed in 1992 for charges of the auditoriums as well as the ladies hostel, that the rate of hire of auditoriums and the related amenities have been fixed by taking into account the locality and the extent of space let out, the amenities/facilities provided and so on. It is a fact that hire charges have been fixed on a prudent basis so as to recoup the cost of the asset and if in that process, there is excess of income over expenditure, the same goes to augment the income for the application of incidental object, i.e. charitable purposes. For this, we have to go through the case law cited by the learned Counsel for the assessee wherein the Hon'ble apex Court in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association , wherein it was beautifully explained the meaning of activity for profit and charitable purpose which reads as under: