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Commissioner of Income-tax Vs. Arya Vysya Kalyana Nilaya Sangam - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberReferred Case No. 207 of 1980
Judge
Reported in[1986]159ITR324(AP)
ActsIncome Tax Act, 1961 - Sections 2(15), 11 and 13(1)
AppellantCommissioner of Income-tax
RespondentArya Vysya Kalyana Nilaya Sangam
Appellant AdvocateM. Suryanarayana Murthy and ;A.V. Krishna Koundinya, Advs.
Respondent AdvocateA.L. Satyanarayana, Adv.
Excerpt:
direct taxation - charitable institution - sections 2 (15), 11 and 13 (1) of income tax act, 1961 and societies registration act - deceased executed will settling properties for welfare of vysya community - trust was registered - whether income derived by such property was exempt under the act - exemption denied on ground that registration created a new trust so section 13 (1) (b) came into operation and the trust being new for benefit of particular religious community trust would not qualify for exemption under section 11 - no new trust came into existence on registration - not imperative to get trust registered in order to be recognised as charitable institution under section 11 - requirement for earning exemption under section 11 is that there must be institution in existence which may..........reference under section 256(1) of the income-tax act, 1961 (for short the 'act'), relates to the income-tax assessment year 1975-76. the following three questions of law are referred for the opinion of this court by the income-tax appellate tribunal : '1. whether, an the facts and in the circumstances of the case, the appellate tribunal was justified in holding that the assessee was a charitable trust and that the income derived by the trust was not assessable as business income ?'2. whether, on the facts and in the circumstances of the case, the letting out of the building involved the earning of income and, as such, the assessee was carrying on an activity for profit 3. whether, on the facts and in the circumstances of the case, the appellate tribunal was justified in holding that.....
Judgment:

Y.V. Anjaneyulu, J.

1. This reference under section 256(1) of the Income-tax Act, 1961 (for short the 'Act'), relates to the income-tax assessment year 1975-76. The following three questions of law are referred for the opinion of this court by the Income-tax Appellate Tribunal :

'1. Whether, an the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee was a charitable trust and that the income derived by the trust was not assessable as business income ?'

2. Whether, on the facts and in the circumstances of the case, the letting out of the building involved the earning of income and, as such, the assessee was carrying on an activity for profit

3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the rental income derived from the property held in trust was so derived fully for 'charitable purposes ?'

2. A few facts may be noticed :- One K. China Venkata Subbaiah of Nellore executed a will on October 20, 1918. Under the will, he settled in trust his movable and immovable properties for the development mainly of a choultry for the Vysya community visiting Nellore. Under the will three trustees were appointed to administer the trust property. The trustees three, inter alia, directed to utilise the trust fund for the maintenance and development of the choultry. After the death of K. China Venkata Subbaiah, trustees had entered upon their duties. It is common ground that the trustees had been administering the fund established by the deceased under his will dated October 20, 1918. In course of time, the existing choultry building needed repairs and development. Accordingly the trustee co-opted some more persons and obtained further contributions from the members of the deceased's family for improving the trust (building). It appears, the trustees have added also more objects to the existing trust created by late K. China Venkata Subbaiah and these objects were to provide building for functions, arrangement of philosophical lectures, to provide facilities for travellers, to establish a library, to encourage cow protection and to give free food and education to Vysya students. Pursuant to the above objects, the trustees are maintaining a hostel for poor Vysya students. The trust was registered under the Societies Registration Act on December 5, 1967. It is called as Arya Vysya Kalyana Nilaya Sangam.

3. The Revenue did not doubt the charitable character of the trust up to and including the assessment year 1975-76. It is admitted that the income of the assessee-trust had never been taxed prior to the assessment year under consideration. It would appear that for the assessment year under consideration, a fresh look has been given and the Income-tax Officer felt that this trust must be considered to have come into existence on December 5, 1967, on which date it was registered under the Societies Registration Act. Inasmuch as the trust enured for the benefit of the Vysya community, the Income-tax Officer thought that it was for the benefit of a particular religious community as envisaged by section 13(1)(b) of the Act and, consequently. the income derived by such a trust for the benefit of a particular religious community was not exempt under the Act. In that view, the Income-tax Officer brought to assessment the income of Rs. 21,982.

4. The assessee contested the assessment basically on the ground that its income is not liable to be taxed in view of the provisions contained in section 11 of the Act. In appeal before the Appellate Assistant Commissioner, the assessee urged that no new trust has come into existence on December 5, 1967, as held by the Income-tax Officer. It was explained that the trust initially came into existence on October 20, 1918, under the will executed by the late K. China Venkata Subbaiah and the trust was all along under administration. It was pointed out that the trust properties were augmented in course of time and the trust fund was also used for the objects which are of charitable character. The Appellate Assistant Commissioner accepted the assessee's contentions that no new trust has come into existence by reason of registration of the trust on December 5, 1967, under the Societies Registration Act. He held that the trust had already been in existence prior to the commencement of the 1961 Act and, consequently, the provisions of section 13(1)(b) of the Act have no application. Once the trust is held to have come into existence prior to the commencement of the 1961 Act, the trust qualified for being treated as a charitable trust in the absence of any dispute regarding the charitable character of the objects. In that view, the Appellate Assistant Commissioner allowed the appeal filed by the assessee and cancelled the assessment.

5. The Income-tax Officer filed an appeal before the Income-tax Appellate Tribunal against the above decision of the Appellate Assistant Commissioner. The Appellate Tribunal affirmed the view of the Appellate Assistant Commissioner and dismissed the appeal. It may be mentioned that before the Tribunal, a further argument was raised that the assessee-trust was deriving income by letting the building involving the earning of income and, as such, the assessee is carrying on an activity for profit within the meaning of section 2(15) of the Income-tax Act and, consequently, the income derived by the trust would not qualify for exemption. The Tribunal negatived this contention also on the ground that letting out of the properties belonging to the trust did not amount to an activity for profit as envisaged by section 2(15) of the Act. Aggrieved by the decision of the Tribunal, the Commissioner carried the matter on reference to this court and the three questions mentioned above have been referred.

6. Learned standing counsel for the Revenue, Sri. M.S.N. Murthy, contended that on the facts and circumstances of this case, the assessee-trust must be held to have come into Existence only on December 5, 1967, when it was registered under the Societies Registration Act. If the trust should be held to have come into existence on December 5, 1967, then the provisions of section 13(1)(b) of the Act would automatically come into operation and the trust being one for the benefit of a particular religious community (Vysya community), the income of the trust would not qualify for exemption under section 11 of the Act. It is also submitted that, in any event, the income of the assessee-trust derived by letting out the properties could not be exempt as the assessee-trust must be held to be carrying on an activity for profit.

7. We are unable to accept the Revenue's plea that a new trust has come into existence on December 5, 1967, when registration was made under the Societies Registration Act. It may be pointed out that there is no requirement under the law that a trust should be registered under the Societies Registration Act in order to be recognised as a charitable institution for the purpose of earning exemption under section 11 of the Act. The requirement for earning exemption under section 11 of the Act is that there must be an institution in existence which may be in the nature of a trust or held under any legal obligation. The will dated October 20, 1918, executed by the late K. China Venkata Subbaiah had undoubtedly brought into existence a trust for the benefit of the Vysya community. Trustees were duly appointed under the will. Objects were specified and the manner in which the trust fund should be utilised was specified in the will. These requirements are sufficient to render the purpose as coming within the purview of a trust created under the will dated October 20, 1918. There is also a legal obligation imposed under the will to hold the properties for the purposes specified in the will. The Act does not lay down any requirement that in order to be recognised as a public charitable institution, there must be registration under the Societies Registration Act. It is obviously for a collateral purpose that registration has been sought in the present case under the Societies Registration Act and that fact does not militate against the claim that there has been in existence already an institution administered under the will dated October 20, 1918. There is also nothing inconsistent in law in an existing trust augmenting its resources by securing more contributions with the specific purpose of utilising all such contributions upon the objects specified in the trust already created. Indeed, there is no dispute in the present case that the objects for which the trust was created under the will dated October 20, 1918, or the objects subsequently added by the trustees were charitable in character. The only dispute is that although the objects were charitable in nature, the society having come into existence on December 5, 1967, could be governed by the provisions of section 13(1)(b) of the Act. As already pointed out, there is already in existence an instrument evidencing the creation of a trust as far back as October 20, 1918, and what had happened on December 5, 1967, was merely registering the same document under the Societies Registration Act. We do not think that the Revenue is right in contending that a new trust came into existence and the provisions of section 13(1)(b) of the Act hit the new trust of the trust has come into existence prior to April 1, 1962, its income would qualify for exemption under section 11 of the Act even if it enured for a particular community. This proposition is not disputed before us by the learned standing counsel for the Revenue.

8. The other question that requires consideration is whether letting out of the property belonging to the trust amounted to an activity for profit. In the first place, there is no material to indicate what activities were involved in the matter of letting out property to derive income. Even otherwise, it cannot be said that any activity for profit is involved if admittedly a public charitable trust lets out its property. This proposition is fairly settled in the decisions of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association : [1980]121ITR1(SC) and CIT v. Federation of It Indian Chambers of Commerce and Industry : [1981]130ITR186(SC) . We do not consider that there is any activity for profit involved in merely letting out a property to derive income from rents. The Tribunal was, therefore. justified in rejecting the Department's plea that there was any activity for profit involved in the present case.

9. We accordingly answer the first question referred in the affirmative, i.e., in favour of the assessee and against the Revenue. The answer to the second question is in the negative, i.e., in favour of the assessee and against the Revenue. The answer to question No. 3 is in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference is answered accordingly.

10. The Revenue shall pay the assessee's costs. Advocate's fee Rs. 300.


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