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The Commissioner of Income Tax, Mysore, Bangalore Vs. the Sole Trustee Lok Shikshan Trust, Hubli - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberI.T.R.C. No. 5 of 1968
Judge
Reported inAIR1970Kant285; AIR1970Mys285; [1970]77ITR61(KAR); [1970]77ITR61(Karn)
ActsIncome-tax Act, 1961 - Sections 2(15), 11, 11(1) and (4), 12, 13, 256(1) and 258; Indian Income-tax Act, 1922 - Sections 4(3)
AppellantThe Commissioner of Income Tax, Mysore, Bangalore
RespondentThe Sole Trustee Lok Shikshan Trust, Hubli
Appellant AdvocateG.R. Ethirajulu Naidu and ;S.R. Rajasekharaswamy, Advs.
Respondent AdvocateK. Srinivasan, Adv.
Excerpt:
.....the carrying on of any activity for profit''(underlining (here into ') is ours) the definition of 'charitable purpose' in the indian income tax act of 1922 was found in section 4 (3) of the said act which reads as follows: relief of the poor, education, medical relief, and the advancement of any other object of general public utility. ' the argument of sri naidu was that the activities which were undoubtedly of generalpublic utility and regarded as charitable till the enactment of the act have ceased to be so regarded where it involves the carrying on of any activity for profit and that the object of adding the clause 'not involving the carrying on of any activity for profit' was to exclude from the scope of exemption commercial activities, like running a newspaper; thus, under the act..........the substantive provision of section 11 which is the key provision for the purpose of exemption of income of trusts. sri kolsh argued that the word profit occurring in section 2(15) means 'private profit' only. he also argued that the definition section ought to be construed as not cutting down the enacting provision of an act unless there is absolutely clear language having the opposite effect.10. in order to appreciate the respective contentions of the learned counsel, it is necessary to briefly refer to the state of the law as it was under the indian income tax act of 1922 before the act came into force.11. in re. the trustees of the tribune , it was held by the judicial committee of theprivy council reversing the judgment of the high court of punjab that a trust with the object of.....
Judgment:

Govinda Bhat, J.

1. This is a referenceunder Section 256(1) of the Income Tax Act, 1961, hereinafter called the 'Act' made at the instance of the Commissioner of Income Tax, Mysore, Bangalore in respect of the assessment year 1962-03. The question of law referred for our opinion is:

'Whether on the facts and in the circumstances of the case, the income of the Lok Shikshana Trust was entitled to exemption under Section 11 of the Income Tax Act, 1961, read with Section 2(15) of the same Act, for the assessment year 1962-63?'

2. The assesses is the trustee of the Lok Shikshana Trust which was created by a deed dated 10-4-1947. There was a trust called The National Literature Publication Trust' created by an earlier deed dated 15-7-1935. Under the said trust, the trustee was conducting a printing press and publishing a daily paper called 'Samyuktha Karnataka' and a weekly paper called 'Weekly Samyuktha Karnataka' which was later called 'Karma Veer' and also published certain books, pamphlets and other literature; as a result thereof the property of the Trust increased from time to time and, the said property comprised of printing presses, buildings, land and other property set out in the schedule to the trust deed dated 10-4-1947. Since doubts arose regarding the legal validity of the trust declared under the deed dated 15-7-1935, the trust deed dated 10-4-1947 was executed for a declaration of the trust. The objects of the 'Lok Shikshana Trust' are set out in Clause 2 of the said Trust deed. The said clause reads as follows:--

'2. The object of the Trust shall be to educate the people of India in general and of Karnatak in particular by-

'(a) establishing, educating and helping directly or indirectly institutions calculated to educate the people by spread of knowledge on all matters of general interest and welfare;

(b) founding and running reading rooms and libraries and keeping and conducting printing houses and publishing or aiding the publication of books, booklets, leaflets, pamphlets, magazines etc., in Kannada and other languages, nil these activities being started, conducted and carried on with the object of educating the people;

(c) 'supplying the Kannada speaking people with an organ or organs of educated public opinion and conducting journals in Kannada and other languages for the dissemination of useful news and information and for the ventilation of public opinion on matters of general public utility; and

(d) helping directly or indirectly societies and institutions which have all or any of the aforesaid objects in view.'

3. The Lok Shikshana Trust, hereinafter called the Trust conducted a printing press at Hubli, printed and published a daily paper called 'Samyuktha Karnataka' and a weekly paper called 'Karma Veer' and also published certain books, pamphlets and other literature as a result of which the property in the Trust increased from time to time. For the relevant year of account, the sources of the income of the Trust were immovable properties, the printing press and the business undertaking of the daily and weekly papers referred to above.

4. Upto and including the assessment year 1961-62, the income of the Trust was exempted from income-tax by the IncomeTax Authorities under the provisions of Section 4 (3) (i) of the Indian Income Tax Act, 1922. When the Act came into force on the 'first day of April 1962, the question arose in, respect of the assessment year 1962-63, whether the income of the Trust was exempt from lax under Section 11(1)(a) read with Section 2(15) of the Act. The Income Tax Officer taking his stand on the definition of 'Charitable purpose' contained in Section 2(15) of the Act held that the income of the Trust was taxable since its purpose was not charitable because it involved the carrying on of an activity for profit. Against the order, the Trustee appealed to the Appellate Assistant Commissioner of Income Tax, who, upheld the contention of the assessee on the ground that the restriction regarding the carrying of an activity for profit applied to all the heads of charitable purpose referred to in the definition and that the word 'profit' referred to in the definition clause meant 'private profit'. In the appeal preferred by the Department to the Tribunal, the Tribunal held that the restrictive words 'not involving the carrying on of any activity for profit' applied only to the last head of charitable objects; that the object of the Trust would fall only under the last head; that the main object of the Trust relating to supply of an organ of educated public opinion would not fall under the head 'Education'; that in the context of Section 2(15), 'Profit' could not mean private profit and it could only mean any surplus earned by an organised activity without any limitation of the extent of the distribution of such profits and that the activity of the Trust could be carried on and its objects could be advanced without expecting any profit and income of the Trust was therefore entitled to exemption under Section 11(1)(a) of the Act.

5. Before we deal with the question referred, it is necessary to dispose of some of the grounds urged by the learned counsel for the Commissioner. Sri G.R. Ethirajulu Naidu, the learned counsel appearing for the Commissioner, urged that the trust deed dated 15th July, 1935 creating the National Literature Publication Trust was irrevocable and therefore the trust deed dated 10th of April, 1947 was void and if the trust deed dated 15-7-1935 is looked into, it will be seen that the object of the trust was not a charitable purpose but political and since this aspect of the matter has not been considered by the statutory authorities, we should call for a supplementary statement of the case from the Tribunal in exercise of our power under Section 258 of the Act. Another ground he urged was that the conduct of a newspaper as such is not an object of general public utility and the question has to be decided on the facts of each case.

6. There are limitations to the powers of this Court under. Section 258 of the Act. The High-Court cannot send back the caseto the Tribunal to find out fresh facts and embark on a fresh line of enquiry or totake additional evidence. Before the Appellate Assistant Commissioner, the Department did not contend that the objects of the Trust are of a political nature. The Appellate Assistant Commissioner in paragraph 32 of his order states that it was not disputed that the objects of the Trust are not of a political nature. Before the Tribunal also, the Department did not contend that the objects of the Trust are of a political nature. No contention was raised that the trust deed dated 10-4-1947 was void and that the objects of the Trust have to be gathered from the earlier trust deed dated 15-7-1935. The Income Tax Officer, the Appellate Assistant Commissioner and the Tribunal have all proceeded on the basis that the Trust in question was created by the deed dated 10-4-1947. Since our jurisdiction is advisory and that jurisdiction is confined to the question of law referred, it is not open to us to call further information on the question whether the trust deed dated 10-4-1947 was void. In regard to the second ground urged by Sri Naidu, the Income Tax Officer and the Appellate Authority have all proceeded on the basis that the object of the Trust was a charitable purpose under the Indian Income Tax Act, 1922, and it is solely by reason of the addition of the clause 'not involving the carrying on of any activity for profit' in Section 2(15) of the Act, that the income of the Trust is not exempt as it has ceased to be a trust for a charitable purpose under the new definition. It was not the case of the Department at any stage that the object of the Trust was not supplying the Kannada speaking people with an organ of educated public opinion and that the object of the newspaper conducted by the trust was political. In that view, we cannot in exercise of our powers under Section 258 of the Act, call for a supplementary statement of the case and to embark on a fresh line of enquiry.

7. The main contention of Shri Naidu, learned counsel for the Commissioner rested on the definition of 'charitable purpose' found in Section 2(15) of the Act. The said sub-section reads thus:

'(15) 'Charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility 'not involving the carrying on of any activity for profit''. (Underlining (here into ' ') is ours)

The definition of 'charitable purpose' in the Indian Income Tax Act of 1922 was found in Section 4 (3) of the said Act which reads as follows:

'In this sub-section 'Charitable purpose' include? relief of the poor, education, medical relief, and the advancement of any other object of general public utility.'

The argument of Sri Naidu was that the activities which were undoubtedly of generalpublic utility and regarded as charitable till the enactment of the Act have ceased to be so regarded where it involves the carrying on of any activity for profit and that the object of adding the clause 'not involving the carrying on of any activity for profit' was to exclude from the scope of exemption commercial activities, like running a newspaper; in other words the object was to override the decisions in In re, The Trustees of the Tribune , All India Spinners' Association v. Commr. of Income Tax, Bombay (1944) 12 ITR 482; (AIR 1944 PC 88) and Commr. of Income-tax v. Breach of Candy Swimming Bath Trust : [1955]27ITR279(Bom) . According to Sri Naidu, the effect of the addition of the words 'not involving the carrying on of any activity of profit' in the definition clause was to restrict the exemption only to those trusts whose income is applicable to an object which docs not involve the performance of commercial activities. Thus the trust for running a newspaper although it is a trust for a charitable purpose as held in In re, The Trustees of the Tribune now ceases to qualify for exemption as running of a newspaper involves the profit making activity.

8. Sri K. Srinivasan the learned counsel for the Respondent-Assessee, contended that the addition of the words to the definition clause was intended to exclude from exemption the income of a trust where a business is carried on by a trust and not where a business is held in trust. The learned counsel invited our attention to the Income Tax Bill of 1961 and the alterations made in the Bill by the Select Committee in support of his argument.

9. Sri Kolsh, the learned counsel for the intervener the Trustees of the Tribune, Chandigarh, contended that the definition in Section 2(15) of the Act effected no change in the law concerning trusts for charitable purposes; that the addition to the definition was merely by way of clarification intended to give effect to the judicial decision and that there is no material change effected in the substantive provision of Section 11 which is the key provision for the purpose of exemption of income of trusts. Sri Kolsh argued that the word profit occurring in Section 2(15) means 'private profit' only. He also argued that the definition section ought to be construed as not cutting down the enacting provision of an Act unless there is absolutely clear language having the opposite effect.

10. In order to appreciate the respective contentions of the learned counsel, it is necessary to briefly refer to the state of the law as it was under the Indian Income Tax Act of 1922 before the Act came into force.

11. In re. The Trustees of the Tribune , it was held by the Judicial Committee of thePrivy Council reversing the judgment of the High Court of Punjab that a trust with the object of supplying the province with an organ of educated public opinion was prima facie an object of general public utility and that the income of the Trust was exempt under Section 4 (3) (i) of the Act of 1922. In running of an institution for the hand spinning of Khadi yams and weaving them by handlooms and selling the cloth in the open market, utilising the sale proceeds thereof for purchase of charakas, handlooms and cotton and for payment to the weavers etc. was held to be an object of general public utility and as such entitled to exemption under Section 4 (3) (i) of the 1022 Act. With reference to the words, 'any oilier object of general public utility' Lord Wright who delivered the opinion of the Judicial Committee stated thus:

'These last are very wide words. Their exact scope may require on oilier occasions very careful consideration. They were applied in the Tribune Press case without any very precise definition to the production of the newspaper in question under the conditions fixed by the testator's will. The Board stated that:

'the object of the paper might be described as the object of supplying the province with an organ of educated public opinion' and that it should prima facie be held to be an object of general public utility. These words, their Lordships think, would exclude the object of private gain, such as an undertaking for commercial profit though all the same it would subserve general public utility.'

12. In : AIR1955Bom250 a trust for running of a swimming club charging fees for admission to the swimming pool and also for light refreshment supplied to the users of the swimming Bath and incurring expenses of the maintenance of the Club and the canteen attached thereto was held to be an object of general public utility and entitled to the exemption.

13. In Commr. of Income Tax v. Krishna Warrier, : [1964]53ITR176(SC) it was held that business is also property within the meaning of Clause (i) of Section 4 (3) and that Clause (b) of the proviso to Section 4 (3) (i) applies only to a business not held in trust but carried on on behalf of a religious or charitable institution. Thus, under the Act of 1922, income not only from property held in trust but also business held in trust was entitled to exemption under Clause (1) of Section 4 (3) and further business not held in trust but carried on on behalf of a charitable institution was also entitled to exemption provided the conditions specified were satisfied.

14. In the Income Tax Bill, 1961, the provisions corresponding to Section 4 (3) of the Act of 1922 are found in Sections 11 to 13 and Section 2(15). The definition of charitable purpose in Section 2(15) read as follows:

''Charitable purpose' includes relief of thepoor, education, medical relief, and theadvancement of any other object of generalpublic utility not involving the carrying onof any activity for profit.'

In Section 11, there was an explanation to the effect that in the said section, property does not include business. Section 12 provided for exemption of income from business carried on by a trust for charitable or religious purposes. Thus under the Income Tax Bill of 1961, the word 'property' in Section 11(1) did not include business but business carried on by a trust was entitled to exemption. The Act which emerged from the Parliament however made material alterations in the Bill. In the definition clarise, the restrictive words 'not involving the carrying on of any activity for profit' were added to qualify the words 'advancement of any other object of general public utility'. Section 12 of the Bill was altogether omitted and in Section 11, Sub-section (4) was introduced stating that for the purpose of this Section 'property held under trust' includes a business. There is no provision corresponding to Clause (b) of Section 4 (3) (i) of the Act of 1922, providing for exemption of income from business carried on by a trust for a charitable purpose.

15. The argument of the learned counsel for the assessee was that in order to give effect to this change in the law, the clause was added in the definition sub-section. His further argument was that if the clause 'not involving the carrying on of any activity for profit' is construed in the manner contended for by the learned counsel for the Department, then, there will be contradiction between Clause (a) of Sub-section (1) and Sub-section (4) of Section 11. He elaborated his argument thus: That for the purpose of Section 11, property held under trust includes a business undertaking so held and therefore the income derived from a business undertaking held in trust wholly for charitable purpose is entitled to exemption under Clause (a) of Sub-section (1) of Section 11. If the definition in Sub-section (15) of Section 2 is construed as restricting the scope of the words 'advancement of any other object of general public utility' a trust for an object of general public utility cannot hold a business undertaking under Trust. In the alternative he adopted the argument of Sri Kolsh that the word 'profit' in Section 2(35) means 'private profit' and if that meaning is given, effect can be given to Section 11 of the Act.

16. In our judgment the words 'not involving the carrying on of any activity for profit' qualify the words 'advancement of any other object of general public utility' and not the first three heads of charitablepurposes, 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, the 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 of the business undertaking, it involves the carrying on of any activity for profit and therefore ceases to be a charitable purpose under the Act. The Parliament has deliberately added the restrictive words 'not involving the carrying on of any activity for profit' which qualify the residuary bead 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 trust for charitable purposes under the Act. When Sections 11 and Section 2(15) of the Act are so construed, there ceases to be any conflict between Sub-sections (1) (a) find (4) of Section 11 of the Act. We are also unable to accede to the argument of Sri Kolsh that the word 'profit' in Section 2(15) has to be understood as 'private profit'. If that was the intention, the Parliament need not have made any changes in the definition of 'charitable purpose'. As the old definition stood, the Judicial Committee of the Privy Council had held that the words 'any other object of general public utility' exclude the object of private gain, such as an undertaking for commercial profit. We have to give effect to the deliberate words used by the Parliament in Section 2(15).

17. In the instant case, the main object of the Trust is supplying the Kannada speaking people with an organ of educated public opinion. The statement of income and expenditure of the Trust shows that the income of the Trust is largely from the newspaper undertaking. Carrying out the Trust necessarily involves the commercial activityof running a newspaper organisation which in our opinion is not a charitable purpose as defined under the Act.

18. It was pointed out by the learned counsel for the assessee that the object of the Trust was 'education'. Reliance was place on Clause (2) of the Trust deed which states that the object of the Trust shall be to educate the people of India in general and of Karnataka in particular.

19. In re: The Trustees of the Tribune , the Judicial Committee of the Privy Council, rejected the contention that the object of the trust was for the purpose of education. We are unable to see as to how the instant case is different from the Tribune Trust case where the Judicial Committee was of the opinion that the object of the trust may fairly be described as the object of supplying the province with an organ of educated public opinion. The trust deed in the instant case provides for its object the supplying of an organ of educated public opinion to the Kannada speaking people. It was contended by Sri Naidu the learned counsel for the Commissioner, that the assessee is not entitled to raise this question as no such question was referred for our opinion. It is seen from the statement of the case, that the assessee sought the reference of the question whether the Tribunal erred in coming to the conclusion that the main object of the trust could not be put in the category of 'education'. The Tribunal while referring the question set out earlier was of the opinion, that it would cover all aspects of disputes raised by both the parties. In our opinion, the assessee is entitled to urge in the reference that the object of the Trust is 'education'. Though newspapers have an educative value, advancement of education results only indirectly. Advancement of education resulting indirectly, in our opinion, does not come under the head of 'education'.

20. For the above reasons, our answer to the question of law referred to is in the negative and in favour of the Department. In the circumstances of the case, there will be no order as to costs.

21. Answer in negative.


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