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Addl. Commissioner of Income-tax, Mysore Vs. A.L.N. Rao Charitable Trust - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case No. 31 of 1973
Judge
Reported in[1976]102ITR474(KAR); [1976]102ITR474(Karn)
ActsIncome Tax Act, 1961 - Sections 2(15) and 11
AppellantAddl. Commissioner of Income-tax, Mysore
RespondentA.L.N. Rao Charitable Trust
Appellant AdvocateS.R. Rajasekhara Murthy, Adv.
Respondent AdvocateG. Sarangan, Adv.
Excerpt:
.....holding that the assessee was a charitable trust created for the relief of the poor, education and medical relief within the meaning of section 2(15) of the income-tax act, 1961 ?' 2. the assessee is a trust constituted by one sri alur laxminarayana rao by a deed, dated 17th march, 1958. the author of the trust settled a sum of rs. it held that the trust was formed chiefly for the relief of the poor, education and medical relief and these were the dominant objects of the trust. strong reliance was placed by the department on clause 8 of the trust deed and it was contended that it was an object clause and, therefore, the purpose of the trust was not charitable purpose, but to carry on business in partnership or otherwise. , relief of the poor, education and medical relief. the restrictive..........holding that the assessee was a charitable trust created for the relief of the poor, education and medical relief within the meaning of section 2(15) of the income-tax act, 1961 ?'2. the assessee is a trust constituted by one sri alur laxminarayana rao by a deed, dated 17th march, 1958. the author of the trust settled a sum of rs. 5,000 on trust for the objects set forth in the said feed. clause 4 of the deed sets out the objects as follows : (a) the benefits from the trust shall be open to all persons irrespective of caste, community or religion. (b) awarding scholarships to deserving students. the scholarships may be given by way of loan or outright gratuity not returnable and/or partly by way of loan and partly by way of gift or gratuity or in any other manner appropriate to the.....
Judgment:

Srinivasa Iyengar, J.

1. The Income-tax Appellate Tribunal, Bangalore Bench, has stated a case and referred the following question for the opinion of this court :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was a charitable trust created for the relief of the poor, education and medical relief within the meaning of section 2(15) of the Income-tax Act, 1961 ?'

2. The assessee is a trust constituted by one Sri Alur Laxminarayana Rao by a deed, dated 17th March, 1958. The author of the trust settled a sum of Rs. 5,000 on trust for the objects set forth in the said feed.

Clause 4 of the deed sets out the objects as follows :

(a) The benefits from the trust shall be open to all persons irrespective of caste, community or religion.

(b) Awarding scholarships to deserving students. The scholarships may be given by way of loan or outright gratuity not returnable and/or partly by way of loan and partly by way of gift or gratuity or in any other manner appropriate to the situation.

(c) To pay or advance for medical relief, expenses of marriage and other appropriate occasions in deserving cases.

(d) To create or manage endowments for prizes and scholarships in schools and colleges.

(e) To establish and run schools, destitute homes, hospitals, sanatoriums, libraries, art galleries, maternity and child welfare centres, family planning and other clinics, rural and urban medical relief services, etc.

(f) To contribute by way of donation or to advance moneys for the purpose of charitable, religious, educational and cultural activities.

(g) To make contributions for renovation of any religious or cultural institution.

(h) To construct building for schools, hostels, sanatorium, etc., and donate them to Government, quasi-Government institutions or public bodies or run them under the management of the trust.

(i) To create endowments for doing research work in all branches of science and learning.'

Clause 8 of the deed is as follows :

'As it is the desire of the author of the trust that the trustee shall endeavour to augment the trust fund the trustees are hereby empowered to enter into partnership with any person or persons and also to engage in all such trades or business as agents or otherwise as they deem proper.'

3. Up to and inclusive of the assessment year 1968-1969, the trust was granted exemption from income-tax. But, for the assessment year 1969-70, the Income-tax Officer took a different view and held that there was no genuine charitable trust in existence and, therefore, the assessee was not entitled to the exemption contemplated in section 11 of the Act. The Appellate Assistant Commissioner upheld the view of the Income-tax Officer. On further appeal by the assessee, the Tribunal held that the assessee was a charitable trust as defined in section 2(15) of the Income-tax Act, 1961, that it was a genuine trust and that it was entitled to the exemption in section 11 of the Act.

4. The Tribunal found that up to the year 1971, the assessee had applied a sum of Rs. 5,25,000 for charitable purposes. The Tribunal discussed the material placed before it in this behalf and recorded the said finding in paragraph 10 of its order. It thus rejected the contention on behalf of the department that there was no genuine trust and that its funds were not applied for charitable purposes. It held that the trust was formed chiefly for the relief of the poor, education and medical relief and these were the dominant objects of the trust. It further rejected the submission on behalf of the department that the accumulations of the trust fund have benefited the authors of the trust. Strong reliance was placed by the department on clause 8 of the trust deed and it was contended that it was an object clause and, therefore, the purpose of the trust was not charitable purpose, but to carry on business in partnership or otherwise. The Tribunal held that clause 8 could not be construed as an object clause and that it was only an enabling provision or power.

5. The main argument for the department has been that, in view of clause 8, the trust cannot be said to be for charitable purposes and the object of the trust is to carry on business and that, therefore, it is not entitled to exemption under section 11 of the Act. This argument, in our opinion, is untenable. In commissioner of Income-tax v. Sole Trustee, Loka Shikshana Trust, on which both the counsel rely, the law has been stated thus :

'........... the words 'not involving the carrying on of any activity for profit' qualified the words,'advancement of the any other object of general public utility' and not the first three heads of charitable purposes, viz., relief of the poor, education and medical relief. When a purpose appears to fall within one of the first three above categories, the court will assume it to be for the benefit of the community and charitable unless the contrary is shown. In the case of new or unfamiliar categories of purposes which fall under the 4th category, viz., the advancement of any other object of general public utility, the question whether or not the purpose is for the benefit of the community has to be considered by the court as to whether it is for a charitable purpose. In regard to the residuary head of charitable purpose, Parliament has restricted the scope of that head by providing that in order to fall under the residuary head of 'general public utility' it should not involve the carrying on of any activity for profit. A business undertaking is an activity for profit. Where a business undertaking is held under a trust and the object of the trust provides for carrying on the business undertaking, it involves the carrying on of an activity for profit and, therefore, ceases to be a charitable purpose under the Act. Parliament has deliberately added the restrictive words 'not involving the carrying on of any activity for profit' which qualify the residuary head of charitable purpose and effect has to be given to the same. The restrictive clause does not apply to trusts created for the purpose of relief of the poor, education and medical relief. Where the trust is for the first three purposes, income derived from a business undertaking held under trust is exempt from taxation; but where a trust is for an object of general public utility and a business undertaking is held under the trust, it involves the carrying on of a commercial activity for profit and such a case ceases to be a trust for charitable purposes under the Act.'

6. In the instant case, clause 4 defines the objects of the trust. The trust is mainly for the purpose of relief of the poor, education and medical relief. The Tribunal has found it as a fact. The finding that up to 30th June, 1971, a sum of Rs. 5,25,000 had been applied for charitable purposes has not been disputed by the department. That fact was not challenged in the application seeking for reference to this court. Therefore, the main object of the trust being the relief of the poor, education and medical relief the carrying on of a business with a view to fulfil those objects does not deprive the assessee of the exemption under section 11 of the Act. The Tribunal was, therefore, right in holding that the assessee was entitled to exemption under section 11 of the Act.

7. Accordingly, we answer the question in the affirmative and in favour of the assessee. The assessee is entitled to costs of this reference. 'Advocate's fee Rs. 250.

8. Question answered in the affirmative.


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