CIT v. P. Iya Nadar Charitable Trust

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The Tax Publishers2013 TaxPub(DT) 0691 (Mad-HC) : (2013) 050 (I) ITCL 0501 : (2013) 213 TAXMAN 0048 : (2013) 087 DTR 0118 INCOME TAX ACT, 1961 --Charitable trust--Bar to exemption under section 11 Exploitation of trade vis-a-vis business or commercial purpose/objects--Assessee-trust's main objects were to establish, maintain, run, develop, extend grant donation for, and to aid and assist in establishment, maintenance, running, development, improvement and extension of hospitals, clinic to conduct poor feeding etc. Subsequently, a unit dealing in safety matches got settled in favour of assessee through a trust deed. Trust deed exploit proprietary trade mark 'camel' which was a well-known brand of safety matches. Evidently business continued till 31-3-1983 after which, it was leased out to one M/s 'R' and assessee discontinued its activity of manufacturing. Assessee claimed exemption under section 11which was denied by AO taking view that assessee's activities in exploiting trade constituted business income and hence, claim of assessee was hit by provisions under section 13(1)(bb); consequently, it was not entitled to deduction. However, Tribunal allowed exemptions *Held :* Rightly So. Primary purpose of carrying on business was to carry out objects of trust consequently, assessee was entitled to exemption under section 11 which could not be denied merely because assessee carried on business which was only for purpose of doing charity. A reading of the provision contained in section 13(1)(bb), is shows that the exemption under section 11 will not be of any benefit to the assessee Trust constituted for the relief of poor, education and medical relief, unless the business carried on is in the course of actual carrying out of the primary purpose of the Trust or Institution. Thus, for the relief under section 13(1)(bb), the question herein is that whether the business carried on could be held as one in the course of actual carrying out of the primary purpose of the Trust or Institution and whether the Trust would be entitled for an exemption of its income earned from the carrying out of its business, which is in the course of actual carrying out of the primary purpose of the Trust or the Institution. [Para 22] As far as the relevance of the decision reported in Thanthi Trust to the present case is concerned, as already noted, the reported decision has to be seen in the light of the findings arrived at on the terms of the Trust deed. As far as the present case is concerned, with the finding given by the Tribunal that the primary purpose of the Trust was to afford relief of poor, education and medical relief, the means employed by exploiting its assets to earn income to achieve the objects, cannot, in any manner, be applied to defeat the claim of the assessee under section 11. Thus, guided by the decision reported in Surat Art Silk Cloth Manufacturers Association and applying section 11(4A) and section 13(1)(bb), there was no hesitation in agreeing with the assessees case what when the main object of the Trust is charitable and to afford relief to the poor, to promote education and medical relief, there has no hesitation in confirming the order of the Tribunal and thereby rejecting te revenue's appeal. [Para 34] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0691 (Mad-HC) : (2013) 050 (I) ITCL 0501 : (2013) 213 TAXMAN 0048 : (2013) 087 DTR 0118

INCOME TAX ACT, 1961

--Charitable trust--Bar to exemption under section 11 Exploitation of trade vis-a-vis business or commercial purpose/objects--Assessee-trust's main objects were to establish, maintain, run, develop, extend grant donation for, and to aid and assist in establishment, maintenance, running, development, improvement and extension of hospitals, clinic to conduct poor feeding etc. Subsequently, a unit dealing in safety matches got settled in favour of assessee through a trust deed. Trust deed exploit proprietary trade mark 'camel' which was a well-known brand of safety matches. Evidently business continued till 31-3-1983 after which, it was leased out to one M/s 'R' and assessee discontinued its activity of manufacturing. Assessee claimed exemption under section 11which was denied by AO taking view that assessee's activities in exploiting trade constituted business income and hence, claim of assessee was hit by provisions under section 13(1)(bb); consequently, it was not entitled to deduction. However, Tribunal allowed exemptions Held : Rightly So. Primary purpose of carrying on business was to carry out objects of trust consequently, assessee was entitled to exemption under section 11 which could not be denied merely because assessee carried on business which was only for purpose of doing charity.

A reading of the provision contained in section 13(1)(bb), is shows that the exemption under section 11 will not be of any benefit to the assessee Trust constituted for the relief of poor, education and medical relief, unless the business carried on is in the course of actual carrying out of the primary purpose of the Trust or Institution. Thus, for the relief under section 13(1)(bb), the question herein is that whether the business carried on could be held as one in the course of actual carrying out of the primary purpose of the Trust or Institution and whether the Trust would be entitled for an exemption of its income earned from the carrying out of its business, which is in the course of actual carrying out of the primary purpose of the Trust or the Institution. [Para 22] As far as the relevance of the decision reported in Thanthi Trust to the present case is concerned, as already noted, the reported decision has to be seen in the light of the findings arrived at on the terms of the Trust deed. As far as the present case is concerned, with the finding given by the Tribunal that the primary purpose of the Trust was to afford relief of poor, education and medical relief, the means employed by exploiting its assets to earn income to achieve the objects, cannot, in any manner, be applied to defeat the claim of the assessee under section 11. Thus, guided by the decision reported in Surat Art Silk Cloth Manufacturers Association and applying section 11(4A) and section 13(1)(bb), there was no hesitation in agreeing with the assessees case what when the main object of the Trust is charitable and to afford relief to the poor, to promote education and medical relief, there has no hesitation in confirming the order of the Tribunal and thereby rejecting te revenue's appeal. [Para 34]