1. This is a departmental appeal arising out of the order of the AAC in the case of Shri Aurobindo Ashram Harpagan Workshop Trust, Pondicherry, for the assessment year 1975-76.
2. Shri Aurobindo Ashram Harpagan Workshop Trust is a trust by way of settlement of certain properties by a deed dated 18-12-1967 registered on the same day. The settlement was made by one Laurence Marshall Pinto, who had taken lease of the Ashram Workshop and was running a workshop therein with machineries purchased by him at a cost of Rs. 72,300 and was running it as a business. By this trust deed, he had settled the machineries specifically referred to in the schedule. It is clear from the preamble that Shri Pinto had taken loans from State Bank of India and was also running the business in the name of Harpagan Workhop and that it was the intention to transfer the business as a running business for the purposes of the objects of the trust with Shri Pinto continuing to manage the business, but as the sole trustee.
Clause 4A of the trust deed relates to the objects, which are as under : 1. To aid and assist in the development, and maintenance of Shri Aurobindo International Centre for Education and Shri Aurobindo Ashram or any other public trust for charitable purpose and to establish and/or take over and/or purchase and/or otherwise acquire and run and manage services and industries required for the purpose of Shri Aurobindo International Centre for Education and/or Shri Aurobindo Ashram and/or departments connected therewith or any other public trust for charitable purpose.
2. To organise, encourage, promote, spread and impart all kinds of educations and/or aid and/or assist in imparting and/or contribute to Shri Aurobindo Ashram and/or Shri Aurobindo International Centre for Education for commercial, industrial and other educations, both theoretical and practical, based on the ideals of Shri Aurobindo and the Mother.
3. To carry on practical research, experiments, works, etc., for the solution of labour problems and solve them and demonstrate the solution in actual practice and for this purpose and for promotion and demonstration of harmonious, integrated and right relationship between labour, management and consumers to promote and/or establish model industries and businesses.
4. To impart and/or aid in imparting integral education and to promote and to help the establishment and development of an integral society and divine life in all its aspects and departments on the lines envisaged by Shri Aurobindo and the Mother.
5. To promote, carry on, aid or assist various works and efforts in connection with labour welfare or for the benefit of labour and/or for finding work for the unemployed.
6. To establish and organise, maintain, grant and assist, without distinction of religion or community, schools, dispensaries, recreation centres, libraries, technical experts aid and advice bureau, parks, children's centres, physical culture centres, etc.
Clause 4B clarifies the objects by categorically stating that the income and the corpus of the trust are to be used by Shri Aurobindo International Centre/Shri Aurobindo Ashram/any other object. It also further clarifies that it is open to the trustee to give the entire income either to Shri Aurobindo International Centre for Education or Shri Aurobindo Ashram, It is the assessee's case that the assessee has been handing over the entire income to Shri Aurobindo Ashram for the benefit of Shri Aurobindo International Centre for Education. The latter is said to be an organ of Shri Aurobindo Ashram. There is no dispute that Shri Aurobindo Ashram and Shri Aurobindo International Centre for Education has been recognised as public charitable trust within the meaning of Section 11. It appears that there are a number of similar trusts having businesses run for the benefit of Shri Aurobindo Ashram. One such case was that of Shri Aurobindo Books Distribution Agency, Pondicherry, which was the subject-matter of the order of this Tribunal in IT Appeal Nos. 1325, 1326 and '1327 (Mds.) of 1972-73 dated 2-8-1974. This order was followed in the assessee's own case for the assessment year 1971-72 by the AAC, who held that the assessee was also eligible for exemption under Section 11. We are told that the decision in this case was also accepted by the authorities. There was, however, some rethinking on the subject due to further development of law. The ITO thought that the decision of the Supreme Court in the case of Indian Chamber of Commerce v. CIT  101 ITR 796 justified the assessment of business income on the ground that it was an activity for profit and that the profit from such activities was clearly taxable. It was in this view that the ITO considered that the assessee was no longer eligible for relief under Section 11. The assessee's income for this year was Rs. 1,43,820. Though the ITO held that the assessee was not eligible for exemption under Section 11, he gave relief of an amount of Rs. 1,23,917 under Section 10(21) as income of a scientific research association, apparently on the assumption that the dedication of this income for Shri Aurobindo International Centre for Education to the extent of actual payment of the amount of Rs. 1,23,917 made it the income of the trust. According to him, only Rs. 1,23,917 was applied for the trust. It was the assessee's case that the assessee-trust was eligible for benefit of Section 11 and that the entire income had been applied. The assessee went in appeal with these pleas. The AAC agreed with the assessee on both the counts. She took the view that the contributions were made for Shri Aurobindo International Centre for Education and that, therefore, the trust was for educational purposes.
Hence, the activity was not "for any other object of general public utility" and the assessee did not stand disqualified from exemption, notwithstanding the fact that it had carried on business as an activity for profit. As for the application of the income, she found that there were outstandings by way of loan to Shri Aurobindo Ashram for the benefit of Shri Aurobindo International Centre for Education of a larger amount and that such loan stood abated to the extent of profits credited to such account. She was, therefore, of the view that the entire amount of Rs. 1,42,812 credited to the beneficiary should be taken as having been paid during the period. It is against this order that the ITO has come up in appeal to this Tribunal.
3. It is stated in the grounds of appeal that the assessee is not eligible for exemption on the entire income and that there has been no application of the entire income when judged by the tests laid down by the Madras High Court in the case of Nachimuthu Industrial Association v. CIT 123 ITR 611. The learned departmental representative repeated these grounds. He claimed that this was a case of business.
According to him, the objects, as inferred from the preamble, were to run the business at a profit and that the assessee was not eligible for exemption under Section 11. On the question of application of the income, he contended that the decision of the Madras High Court mentioned in the grounds of appeal fully supported the departmental stand.
4. The learned counsel for the assessee claimed that the grounds of appeal do not specifically question the inference of the first appellate authority that the assessee was eligible for relief under Section 11. According to him, the appeal should be taken as being confined to the issue relating to the application of income. He, however, argued on the question of exemption under Section 11 also. He pointed out that the decision in the case of Indian Chamber of Commerce (supra) has since been overruled by a subsequent decision of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers" Association  121 ITR 1. Apart from the reasoning of the AAC in support of the case for exemption, he also claimed that even if the assessee-trust is not taken as a trust for educational purposes, the assessee will still be not liable to tax. According to him, it is well settled that where a business itself is the subject-matter of the trust, the question of any independent activity for profit by the trustees does not arise as long as the settled business is carried on and there is no other independent business. He took us over the preamble and the schedule to suggest that Shri Pinto had settled a running business along with machinery, which were again the subject-matter of further liability towards instalments, etc., as is evident from the schedule itself. The majority view of the Supreme Court in the case of Addl. CIT v. Surat Art Silk Manufacturers'' Association (supra) reiterated its earlier stand in CIT v. Dharmodayam & Co.  109 ITR 527, wherein the Supreme Court observed that where the business itself is held under trust, the last concluding words in Clause (75) of Section 2 would have no application. He, therefore, contended that there cannot he any doubt that the assessee continues to enjoy benefit of exemption already granted by the department in this and other similar cases of this group for past many years.
As for the question of application, he claimed that there has been a lot of misunderstanding as to the facts in the mind of the ITO and the grounds of appeal. He filed copies of relevant accounts in the books.
The assessee-trust has been making contributions to Shri Aurobindo Ashram for the benefit of Shri Aurobindo International Centre for Education from time to time. In the calendar year, an amount of Rs. 1,24,591.43 was actually paid as such advance. However, "the advance against profit" account show that there was an opening outstanding amount of Rs. 90,404 (being the consolidated amount of the two separate accounts for Workshop and Wood Working Unit). After the amount of Rs. 1,24,591.43, the amount due from the Ashram to the assessee would work out to Rs. 2,14,995.43. An amount of Rs. 1,42,812.67 representing the entire profits of both these units was credited in two parts to these two accounts. Hence, the entire profits of the year have been used to adjust the advance account and the amount carried forward as outstanding advance on 31-12-1974 as at the end of the year is only Rs. 72,182.76. It will be clear from the analysis of both the accounts reproduced as under :Outstanding advance (as on 1-1-1974) receivable fromAshram 90,404.00Payments made to the Ashram during the year 1974- Workshop 81,669.54- Wood working 42,921.89 1,24,591.43Total payments made to the Ashram 2,14,995.43Less applied for the object of the trust to the extentof the net profits of the year 1974 1,42,812.67Outstanding advance recoverable from Ashram as on He pointed out that the decision of the Madras High Court in the case of Nachimuthu Industrial Association (supra) could not support the departmental view because there was only advance in that account and the profits were not adjusted against advance in this manner, but were taken to donation fund account, which was the assessee's own account and not that of a third party. Mere advance, it was held, would not amount to application merely on the strength of a resolution passed subsequent to the year of account. It is not so in the assessee's case.
5. We have carefully considered the records as well as the arguments.
We would assume that the departmental appeal questions the right of the assessee to exemption under Section 11 also, though the grounds of appeal are not very clear on this point. We do find that it is a case where the business itself has been subject-matter of settlement by way of trust. We find that the objects reproduced earlier do not indicate that the object of the trust was to make profit or to run the business, as sought to be suggested by the learned departmental representative.
The objects are very clear and they are for purposes enumerated under Section 1(15). At any rate, there has been no objection to any part of the object clauses. We may not be able to accept the learned AAC's inference that it is a pure and simple educational trust, because it has not been shown to us that Shri Aurobindo Ashram is an educational institution, though Shri Aurobindo International Centre for Education, an organ of the Aurobindo Ashram, appears to be an educational centre.
Since the funds could be given to Shri Aurobindo Ashram and not to Shri Aurobindo International Centre for Education, it may not be possible to hold that it is a pure educational trust. However, since the business itself has been settled by the settlor in favour of the trust, it is not possible to say that the assessee-trust carries on any activity for profit to advance any object of general public utility. It is clearly the view taken in Dharmodayam's case (supra), reiterated by the Supreme Court in the case of Surat Art Silk Manufacturers' Association (supra).
Since both Shri Aurobindo Ashram and Shri Aurobindo International Centre for Education are admittedly treated as exempt under Section 11 by the income tax department, we do not find any justification for the departure sought to be made by the ITO for this assessment year on the ground that there has been changes in law. At any rate, the ITO's reliance is upon the decision in Indian Chamber of Commerce's case (supra) which is no longer a good law. Hence, we find that the assessee is eligible for being treated as a public charitable trust within the meaning of Section 11.
6. As for the question of application of the income, the ITO is not right in construing only the cash payments made during the year as income applied for that year. The assessee keeps accounts on mercantile basis. The income is determined at the end of the year. However, the assessee goes on contributing cash from time to time over the entire accounting year. At the end of the year the entire profits are transferred by suitable entries by debiting in profit and loss appropriation account to the credit of Shri Aurobindo Ashram to whom the advances have been initially made. Since it is very difficult to anticipate the exact profits at the end of the year, the payment may be either larger or smaller than the actual profits. In the assessee's case, the assessee has been making contributions to a larger extent than warranted by the profits. It is for this reason that on the last day of the accounting year 31-12-1974, relevant for the assessment year under consideration, there was still an outstanding balance recoverable from the Ashram at Rs. 72,182.76. In other words, the assessee had advanced over the course of the years moneys to a larger extent than the entire profits which have been credited to the Ashram. Under these circumstances, there was hardly any scope for any doubt as to the non-application of any part of the profits. We have no difficulty in accepting the argument of the learned departmental representative that a mere advance does not amount to application, even as held by the Madras High Court in Nachimuthu Industrial Association (supra). The facts in assessee's case are entirely different. The entire profits have been credited to the advance account and the advances made in the past and during the year have been fully adjusted to the extent of the entire profits of Rs. 1,42,812.67. Since the entire current profits have been applied by way of adjustment to the accounts, we do not find any difficulty in accepting the assessee's case. The ITO may have legitimate doubt as to whether a particular sum has been applied for charitable purposes, if the sum is merely credited to the particular account. But where the payment has preceded the credit, the position in law and accountancy would appear to be that there is an abatement of the obligation to repay the advance to the extent of the amount credited to that account by way of donation or otherwise. Hence, we find that there has been application of the entire income of the assessee during the year and that the order of the first appellate authority has to be upheld for this reason.