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Commissioner of Income-tax Vs. Ganesh Ram Laxminarayan Goel - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 503 of 1979
Judge
Reported in(1983)33CTR(MP)20; [1984]147ITR468(MP)
ActsIncome Tax Act, 1961 - Sections 2(15), 11, 11(2), 12 and 13
AppellantCommissioner of Income-tax
RespondentGanesh Ram Laxminarayan Goel
Appellant AdvocateB.K. Rawat, Adv.
Respondent AdvocateB.L. Nema, Adv.
Cases ReferredMorice v. Bishop of Durham
Excerpt:
- - the assessee appears to be satisfied with the order, but at the instance of the department, the question stated above has been referred. according to 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. we are satisfied that the dominant object of the assessee-trust is not to earn profit but to carry out objects of public utility and, therefore, the profit earned as rent from the dharmshala and the shops cannot take the assessee-trust out from the definition in section 2(15), for the reasons aforesaid, our answer to the question preferred is that no activity for benefit was carried on by the assessee-trust......present case is a trust. it has been duly registered under the provisions of the madhya pradesh public trusts act by order of the registrar, dated may 14, 1968. while so registering the trust, the nature and objects of the trust are stated as follows :' 1. the trust has been created by the late laxmi narayan by means of a registered trust deed, dated 25-2-65 by setting apart his house situated in chowk, bhopal, valued at about rs. 64,000 for purposes of constructing and maintaining a dharmshala, which shall be open to visitors and general public for use. the trust will construct some shops to be let out on rent and the income derived from this source will be devoted primarily to the running and maintenance of the dharmshala and surplus, if any, to any other social, educational or.....
Judgment:

B.C. Varma, J.

1. At the instance of the Commissioner of Income-tax, the following question has been referred to us by the Income-tax Appellate Tribunal for our answer :

2. Whether, on the facts and in the circumstances of the case, theTribunal was right in law in holding that no activity for benefit was carried on by the assessee ?

3. The assessee in the present case is a trust. It has been duly registered under the provisions of the Madhya Pradesh Public Trusts Act by order of the Registrar, dated May 14, 1968. While so registering the trust, the nature and objects of the trust are stated as follows :

' 1. The trust has been created by the late Laxmi Narayan by means of a registered trust deed, dated 25-2-65 by setting apart his house situated in Chowk, Bhopal, valued at about Rs. 64,000 for purposes of constructing and maintaining a Dharmshala, which shall be open to visitors and general public for use. The trust will construct some shops to be let out on rent and the income derived from this source will be devoted primarily to the running and maintenance of the dharmshala and surplus, if any, to any other social, educational or philanthropic purposes which may he decided upon by the trustees. It is thus clear that the trust has been created for charitable purpose and is, therefore, a public trust.

2. To provide accommodation to visitors and general public free of charge.

3. To let shops on rent and to run the management with their income and to do social, educational, religious and charitable works.'

4. The deed under which the trust was created by its author also states that the purpose of the trust was to erect a dharmshala for the purpose of use and residence of the travelling public free of any charge and to let-out certain shops of the dharmshala (the building to be erected) in order that from the income of those shops the dharmshala be run and the building be maintained. Proceedings were initiated to assess the trust under the l.T. Act for the years 1971-72 to 1976-77. The assessee-trust claimed exemption under Sections 11 to 13 read with Section 2(15) of the I.T. Act. The ITO held that the objects of the trust were not charitable as no income was applied for any social, educational or philanthropic objects. The passengers, who stayed in the dharmshala, were charged halting charge (rent). It was, therefore, held by the ITO that the provisions of Section 2(15) of the Act were not applicable to the assessee who was, therefore, not entitled to claim exemption under Sections 11, 12 and 13 of the Act. The entire income of the trust was, therefore, held to be exigible to income-tax. In appeal by the assessee, the AAC held that as the passengers staying in the dharmshala were required to pay room rent, the trust was carrying on an activity for earning profit by letting out the rooms on hire. The assessee went up in further appeal before the Income-tax Appellate Tribunal which held that the excess income realised from the rent of the shops was not utilisedfor any religious or charitable purposes and the same was, therefore, taxable. The assessee-trust did not dispute before the Tribunal that 75% of the income of the trust had not been applied for religious or charitable purposes, but was accumulated and the other conditions mentioned in the proviso to Sub-section (2) of Section 11 of the Act had not been complied with. In the ultimate analysis, the Tribunal held that this excess income of 75% of the total income of the trust was liable to assessment. The assessee appears to be satisfied with the order, but at the instance of the Department, the question stated above has been referred.

5. Section 11 of the I.T. Act provides that 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 or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent. of the income from such property, shall not be included in the total income of the previous year of the person in receipt of the income. According to 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. In Mahakoshal Shaheed Smarak Trust v. CIT (Miscellaneous Civil Case No. 190 of 1979, decided on May 21, 1982, reported in : [1983]140ITR795(MP) ), G. P. Singh C.J., while pronouncing the judgment of the court, pointed out that the words 'the advancement of any other object of general public utility ' occurring in Section 2(15) have their origin in the summary of Sir Samuel Romilly submitted by him in the, course of arguments in Morice v. Bishop of Durham [1805] 10 YJ. 522. It was held that every object of general public utility would, therefore, be charitable under the Indian law. In Mahakoshal Shaheed Smarak Trust's case, the object of the trust was to commemorate and perpetuate the sacred memory of the martyrs of Mahakoshal who lost their precious lives in the Congress movements for the attainment of India's independence from 1920 to 1945. This object was to be attained by constructing buildings and establishing institutions of a permanent character, such as a spacious hall, library, reading room, etc. The spacious hall erected by that trust provides a venue for social and cultural gatherings and benefits the general public although some charge is levied for making the building available. It was held that the object of that trust is of general public utility within the meaning of Section 2(15) of the Act and the trust is,a charitable trust. In the present case also, we have earlier shown the nature and objects of the trust. The Dharmshala to be constructed out of the funds provided by the author shall be open to visitors and general public for use. Accommodation is to be provided free ofcharge. The trust, therefore, is thus one of general public utility and is, therefore, a charitable trust within the meaning of Section 2(15).

6. Shri B. K. Rawat, learned standing counsel for the Department, however, argued that because the assessee is earning some income from its buildings by letting them out, it has to be excluded from the definition of ' charitable purpose ' as used in Section 2(15) of the Act. The learned counsel relied, in support of his submission, upon two authorities of the Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT : [1975]101ITR234(SC) and Indian Chamber of Commerce v. CIT [1975] 101 ITR 736. These authorities were, however, again considered by the Supreme Court in Addl. CIT v. Swat Art Silk Cloth Manufacturers Association : [1980]121ITR1(SC) . It was held that where the predominant object of the activity of the trust is the carrying out of objects of general public utility and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. Bhagwati J., while explaining the import of the expression ' activity for profit' laid stress upon the proposition ' for ' as used therein. This proposition was held to connote the end with reference to which something is done. It was, therefore, held that it is not enough that as a matter of fact an activity results in profit but it must be carried on with the object of earning profit and profit-making must be the end to which the activity must be directed or, in other words, the predominant object of the activity must be making of profit. The charitable purpose should not be submerged by the profit-making motive; the latter should not masquerade under the guise of the former. Where the predominant object of the activity of the trust is the carrying out of an object of general public utility and not to earn profit, it will not lose its character of a charitable purpose merely because some profit arises from the activity. In the instant case, the income derived from the trust property is to be utilised for its upkeep and maintenance, i.e., to feed the object of public utility. We are satisfied that the dominant object of the assessee-trust is not to earn profit but to carry out objects of public utility and, therefore, the profit earned as rent from the Dharmshala and the shops cannot take the assessee-trust out from the definition in Section 2(15), For the reasons aforesaid, our answer to the question preferred is that no activity for benefit was carried on by the assessee-trust. There shall be no order as to costs.


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