C. S. P. Singh, J. - The Income-tax Appellate Tribunal, Allahabad Bench has at the instance of the Additional Commissioner Income-tax, Lucknow, referred the following question for our opinion :-
'Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the objects of the assessee trust are charitable within the meaning of section 2(15) and that its income is exempt to the extent provided under section 11 of the Income-tax Act, 1961 ?'
2. One Niranjan Lal Bhargava created a trust which is the assessee in this case. The trust deed was executed on 13th October, 1952 and registered on the 19th March, 1953. The deed declared that the Niranjan Cinema and its building would vest in the trust deed. The object of the trust was to establish an educational institution where the religious teaching would be compulsory alongwith the study of ordinary subjects. Preference in admission was to be given to students belonging to Bhargava caste and in the event of vacancies to Brahmin students and for residue seats to such students as the trustees might think fit and proper to admit. The trustees were entitled to grant scholorships for special study and research of religious treatise. The founder trustee desired that the income from that trust property should be utilised for constructing a college, and after its construction for the expenses of the college. The author of the trust appointed himself as one of the trustees along with 10 other trustees, and retained the right to change the trustees during his life time. Sri Avinash Chandra and Sri Naresh Chandra were to act as the Managing Trustees and to get an amount of Rs. 1,000/- each out of the income of the trust. On the death of Avinash Chandra and Naresh Chandra, their respective eldest sons and grandsons were to be Managing trustees. Provision was made for appointing the younger sons and grandsons of Avinash Chandra and Naresh Chandra as trustees by the general body of trustees, in case the eldest sons and grand sons were found to be unsuitable. The Magistrate trustees after Avinash Chandra and Naresh Chandra were to get a sum of Rs. 1,000/- each per month. In the event of the income from the trust property becoming less than 20,000/- per month, the monthly salary of the Managing trustees was to be reduced ratably. The author of the trust constituted himself the President of the trust, and after his death the trustees were given power to appoint President from the trustees. The author of the trust desired that after his death Avinash Chandra and Naresh Chandra be treasurers and after them their sons and grand sons who were also to become Managing trustees, would be made treasurers. In the event of there being no issue in the family of Avinash Chandra and Naresh Chandra, the treasurers were to be appointed by the general body of trustee.
3. For the assessment years 1958-59 to 1960-61, the income of the trust was held to be exempt by the Tribunal in appeal by its order dated 28-9-1966. The Income-tax Officer following the order of the Tribunal treated the income of the trust exempt for the assessment years beginning from 1962-63 to 1966-67. The Commissioner of Income-tax, however, issued a notice under section 263(1) of the new Act, on the view that if the accumulated income of the trust was more than 20,000 - it was not entitled to exemption under section 11 of the Income-tax Act, 1961. The Commissioner after hearing the assessee came to the conclusion that the trust was not for charitable purpose as defined under section 2(15) of the new Act, since the trust was carrying on the business of running a cinema which was an activity of profit. He accordingly set aside the order of the Income-tax Officer, and directed him to make fresh assessments.
4. The assessee preferred an appeal to the Tribunal. The Tribunal on appeal held that the business and the property itself was held in trust and the object of the trust was charitable as it contemplated the promotion of education and the founding of a college. In view of these conclusions, it set aside the order of the Commissioner.
5. In order to appreciate the controversy, it is necessary to extract section 4(3) of the Income-tax Act, 1922 as also sections 11 and 2(15) of the Income-tax Act, 1961. Section 4(3)(i) runs as under :-
Section 4(3)(i) -
'Any income profits or gains falling within the following classes shall not be included in the total income of the person receiving them .............
In this sub-section 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, (but nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act that part of the (income from property held under a trust or other legal obligation for private religious purposes) which does not ensure for the benefit of the public.')
Section 11(i)(a) :
'Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India and where any such income is accumulated for application to such purposes in India, to the extent to which the income so accumulated is not in excess of twenty five per cent of the income from the property or rupees ten thousand, which ever is higher.'
Section 2(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.'
6. On of the main questions covassed before us was as to whether the words carrying on of any activity for profit, qualified the words relief of the poor, education ................. This question was considered by the Mysore High Court in the case of C.I.T. vs. Loka Shikshana Trust (77 I.T.R. 61). Their Lordships of the Mysore High Court considering this question made the following observations :-
'The words 'not involving the carrying on of any activity for profit' qualified the words 'advancement of any other object of general public utility' and not the first three heads of charitable purpose 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 purpose which fall under the fourth 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 all 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 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. 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 for charitable purposes under the Act. When sec. 11 and section 2(15) of the Act are so construed, there ceases to be any conflict between sub-sections (a) and (4) of section 11 of the Act.'
It is not necessary for us to give our own reasons for holding that the words 'carrying on any activity for profit' are adversed only to the words 'other objects of general public utility as we fully subscride to the reasons given by the Mysore High Court. So far as the objects of the trust being charitable are concerned, that hardly admits of any arguments. We may extract the relevant portion of the trust to show that trust was created for educational purposes, which would be a charitable purpose, as defined under section 2(15) of the Act :-
'I have constantly nourished a desire that I should make some such arrangement for the advancement of education so that the members of my community in particular and Brahmins in general and thereafter those belonging to other castes of the country may derive advantage and the country may thereby be benefited. It is my conviction that if the character of a man is modelled on the foundations of Sanatan Dharm, then alone he can make real progress. Falsehood and sin are gradually on the increase in our country, because we have discarded our ancient culture. Though our country has attained freedom, still we have not yet taken to he study of ancient knowledge and reinstatement of our religions (Dharm). No body at all cares to study the old Shastras, jurisprudence and books relating the Theology. If religious treatises are also studied side by side with the subjects relating to production of wealth then these very students can bring welfare to the Motherland by leading an ideal life. There is no religious teaching at all in the present day Colleges. Therefore, I wish to establish such educational institution where religious teaching be made compulsory along with the study of ordinary subjects. It is my desire that in such a College, first of all the students of my Biradari i.e. belonging to Bhargava caste and if their number is not sufficient then those belonging to Brahmin caste should benefit by such an education. However, if room is still left in the College, then such other students may also be admitted whom the Trustees may consider fit and proper. Out of such students the Trustees may grant such scholorships to those whom they think fit and books would particularly (preferably technical) which will be imparted to the boys and girls of the college, in confirmity with the requirements of the time and the country. The study of the said (religious) books would be compulsory in various classes. There would also be a provision for the grant of scholorships for the special study and research of the religious treaties. The students should study these books in the same spirit as research work is carried on in ordinary universities. For fulfilment of the above subjects, I am creating a Trust, which will frame Rules and a trust, which will frames Rules and works out their details for giving effect to them. I have constructed a building in order to meet the expenses of the proposed college. The building consists of 5 storeys as well as a running cinema equipped with modern amenities. Other portions of the building have mostly been let out on rent. I have constructed the said building only for the purpose of the proposed College. The total monthly income from this building and cinema would be quite considerable. The savings from that income would be utilised for construction of the building in which the proposed College would be housed. For that building I hope to get a plot of land from the Government in the local Company Garden or round about it. I will myself get the buildings constructed for the purpose of the College and in the event of non-completions thereof, this work shall be carried out by the Trustees. However, during my life time the other Trustees shall not interfere with the construction of these buildings. On the completion of the College buildings, the College will start functioning. The income from the building known as No. 1, Johnstonganj, Prayag (Allahabad) as well as from the Cinema housed therein, shall be utilised to meet the expenses of the College. With effect from todays date, hereby donate the Cinema machines as well as the building to the trustees mentioned hereunder. From today the said building and cinema together with its existing equipment as well as the cinema licence vest in the Trust and my interest in that building and its income remains only that of a trustee. Since 1-8-1951, I have been setting apart the income derived from the said buildings. I hereby donate the entire Trust building known a No. 1, Johnstonganj, Prayag, Allahabad as well the entire savings from its income for the purpose of the College. From today their entire property will be utilised by the Trustees for the purposes already detailed by me, the burden and responsibility of giving effect thereto will be on the Trustees. I further transfer to the trustees the burden of establishing, running and managing the said College.'
The aforesaid recitals clearly show that the founder established a trust for advancement of education and for founding a college where religious instruction was mandatory. Students from the Bhargava caste and Brahmin students, and thereafter other students were to be educated in that college. Provisions for scholorship for special study and research of religious treatise has also been made in the trust deed. Such an object is clearly one for providing education to the public and as such comes within the definition of the word charitable purpose given under section 2(15) of the Act. The only question that now survives for consideration is as to whether the income from the property and business was held under trust or the property and business itself was held under trust. We have already extracted the relevant part of the trust deed relating to the founding the trust. The words '..................... I have constructed a building in order to meet the expenses of the proposed college, the building consists of 5 storeys as well as a running cinema equipped with modern amenities. Other portions of the building have mostly been let out on rent. I have constructed the said building known as No. 1 Johnstonganj, Prayag (Allahabad) as well as from the Cinema housed therein shall be utilised to meet the expenses of the College, with effect from todays date. I hereby donate the Cinema machines as well as the building to the trustees mentioned hereunder. From today the said building the cinema together with its existing equipment as well as the cinema licence vests in the Trust and my interest in that building and its income remains only the income from the building and the cinema in the trustees but also the running business of cinema and the building in the trustees. As a result of these recitals, the running of the cinema together with the building machines etc. became property held under trust. These recitals are sufficient to satisfy the requirements of section 11 that the property itself should be held in trust wholly for charitable purpose. Thus, the Tribunal reached correct conclusion.
7. We accordingly answer the question referred in the affirmative in favour of the assessee and against the department. The assessee is entitled to its costs which we assess at Rs. 200/-. Counsels fee is assessed at the same figure.