1. This appeal by the assessee is directed against the order of the AAC relating to the assessment year 1977-78. The assessee-trust was formed by a deed of trust executed o 1-7-1964. The settlor of the trust was one Shri Purshotam Dass, who had settled an amount of Rs. 5,000 on the trustees for carrying out the purposes of the trust. It was provided in the deed that the trustees would be possessed of the basic corpus of Rs. 5,000 and the other additions, accretions or donations as well as the property or business, which may be added later. The trustees had to hold the properties and utilise the income for the administration of the trust and to apply the balance for the purpose of the trust. The objects of the trust as given in clause 6 are as under: (a) Establishment and/or acquisition and maintenance of schools, colleges and other institutions for imparting education and training of the students in such lines of courses as the trustees may from time to time deem lit.
(b) Declaration of prizes for schools, colleges or other educational institutions.
(c) Establishment and maintenance of hostels and/or boarding houses and grants of free boarding and lodging to poor and deserving students studying in any schools, colleges and educational institutions or receiving education or training and upon such terms and for such period in each case as 'The Trustees' may deem fit.
(d) Grant monetary assistance including scholarships and/or loans to poor students, whom the trustees may deem to be deserving thereof, to enable them to receive such education, training and qualification as academical, professional, vocational, industrial, commercial, technical, scientific, physical, sociological, journalistic and arts and crafts and upon such terms and for such period in each case as the trustees may deem fit.
(e) Supply of books, food and clothes, schools or colleges fees to poor students or grant of monetary assistance to them for such purposes.
(f) The promotion of science, art, education and learning in all its branches.
(g) Establishment, maintenance and support of hospitals, dispensaries with or without medical school, nursing homes or institutions, convalescent homes or any of them for treatment of patients suffering from diseases or accident and unable otherwise to obtain such accommodation, care, nursing and attention as may be required for their proper treatment and in which they shall remain confined to bed and on such terms and conditions and for such period as the trustees may prescribe or in which they may be advised or treated as out-patients.
(h) Grant if subscriptions and donations to hospitals, dispensaries, convalescent homes, asylums, nursing homes, orphanages and other public institutions for administering medical relief to the poor upon such terms and conditions and for such periods as 'The Trustees' may think fit.
(k) Establishment, maintenance or support of sanatoriums, dharamshalas and orphanages.
(1) Subscriptions, contributions and/or donations to any public funds devoted to public charitable objects or to any institutions for advancement of any object of general public utility.
(m) (i) Relief by means of pecuniary or other help in shape of monthly or other periodic allowance or allowances or otherwise to such persons as shall in the opinion of 'The Trustees' be in strained circumstances or otherwise unable to maintain themself and may be deserving support.
(ii) Like relief to the blind or the infirm or otherwise diseased persons.
(iii) Like relief including by way of donation and subscription to any charitable institution or institutions having for its main or other objects the alleviation of human suffering or the care, maintenance or protection or the relief of old, infirm, blind, lame or otherwise diseased persons or poor persons or having any other object of public charitable nature.
(iv) Assistance and encouragement in a like manner to the poor in matters of education or in the promotion or acquisitions by them of knowledge of any science or art or mechanical or industrial arts or in receiving technical education or in setting them up in any business, trade, profession or calling so as to enable them to earn their livelihood.
(n) Constructions and maintenance of and support of public works including highways, bridges, walls, tanks, supply or water and of lights.
2. The trustees had a discretion to keep the surplus in its present form to convert the same or part thereof and invest the same in any industry or business undertaking which they thought fit. They could also deposit with any other firm, company, corporation or bank and also obtain securities of stock and shares, etc., for completion of the objects of the trust, the trustees were given certain powers, which are normal for such accomplishment. One of the powers given was to purchase immovable properties and start any industry or any other business undertaking. Other powers were of a general nature. The first trustees were also named in the trust deed. The trust had been allowed exemption in earlier years.
3. For the assessment year 1977-78, the ITO noted that while some of the objects fall in the category of relief the poors, education or medical relief, some of the objects were objects of general public utility. The ITO passed his order on 9-10-1979, i.e., before the decision of the Supreme Court in the case of Addl. CIT v. Swat Art Silk Cloth Manufacturers' Association  121 ITR 1. The ITO was of the view that insofar as the objects of the general public utility are concerned, the carrying on of business would disentitle the assessee from exemption under Section 11 of the Income-tax Act, 1961 ('the Act'). He found that the trust was carrying on a business of certain fabrication works, for which there was a factory and charges for fabrication were received. There was also sale of yarn and cloth, besides the receipt to fabrication charges. The trust had also received income from interest and from rent.
4. The ITO was of the view that the assessee's income was not entitled to exemption under Section 2(15) of the Act, and in this connection, he considered several decisions of the Supreme Court pronounced prior to the decision in the case of Surat Art Silk Cloth Mfrs.' Association (supra). It was pleaded before the ITO that although the objects listed in the trust deed included some purposes of general public utility, the assessee had never undertaken activities for such purposes of general public utility. According to the assessee, the activities of the trust were confined to the first three legs given in the definition of 'charitable purpose' in Section 2(75), namely, relief to the poor, education and medical relief. The ITO, however, referred to the provisions of Section 13(1)(bb) of the Act, which had been introduced with effect from 1-4-1977. He observed that the benefit of exemption was taken away in case the objects are for relief to the poor, education and medical relief, if the income is derived from any business unless the business is carried on in the course of actual carrying out of a primary purpose of the trust. The plea of the assessee that the primary purpose has to be looked into to find whether the trust was charitable or not, was not accepted by the ITO. He observed that the new provision provided that the business, if any, should be carried on in the course of carrying out of a primary purpose of the trust. The ITO held that in the present case the business carried on by the trust could not be held to be in the course of carrying out a primary purpose of the trust. The ITO came to the conclusion that the assessee was not entitled to exemption of its income as provided in the provision of Section 11. The ITO then proceeded to determine the rate of the tax to be applied and held that the shares of the beneficiary were not known and hence the provision of Section 164(1) of the Act was applicable. He, therefore, applied the maximum marginal rate. He proceeded to compute the income at Rs. 18,250.
5. When the matter came before the A AC, it was contended before her that the provisions of Sections 13(1)(bb) were not applicable to this case. It was pointed out that in this case the objects were not confined to the first three legs given in the definition of 'charitable purposes' but also to the fourth leg of general public utility. It was pointed out that the trust had been allowed exemption under Section 11 in the earlier years. It was contended on behalf of the assessee that the meaning of Section 13(1)(W>) was that none should make a business income out of relief the poor, education and medical relief to earn exemption under Section 11 so as to bring it in consonance with the objects of general public utility. The AAC was, however, of the view that the assessee could not get benefit in view of the provisions of Section 13(\)(bb), which was in force in this year. She found that the objects of the trust included relief to poor, education and medical relief, and it was an admitted position that the trust had not carried out any object of general public utility but had confined itself to relief to poor, education and medical relief. The AAC, therefore, upheld the action of the ITO holding that the income was not exempt under Section 11. It was stated by the AAC that Ground Nos. 3 and 5 had not been pressed and about Ground No. 4 it was stated that the ITO should look into this aspect again.
6. Before us, the learned counsel for the assessee first submitted that the AAC erred in stating that Ground Nos. 3 and 5 had not been pressed before her. He submitted that the ground regarding the applicability of Section 164 of the Act had not been withdrawn and the other ground had also not been considered properly.
7. Before us, the learned counsel for the assessee submitted that while applying the provisions of Section 13(1)(bb), the ITO as well as the AAC have ignored the provisions of law which only exclude the business income from exemption but does not disentitle the trust, under Section 11, as a whole. According to the learned counsel, rental and interest income should have been taken into consideration and if they had been considered and the application of income had been looked into, the income would have been reduced to 'nil' or to a very negligible amount.
8. The learned counsel further submitted that the ITO and the AAC have wrongly invoked the provisions of Section 13(1)(bb). He pointed out that the purpose of introducing Section 13(1 )(bb) was to bring the first three legs of charitable purpose at par with the fourth leg of general public utility. He pointed out that in. the definition of 'charitable purpose' it has been held that the words 'not involving the carrying on of any activity for profit' governed only for the fourth leg of 'any other object of general public utility' and not the first three legs. As the intention was to put some restrictions in respect of the first three legs as well, the provisions of Section 13(1)(bb) were introduced and this provision applied where the trust had as its objects relief to the poor, education or medical relief. He submitted that when the new provision required that no business should be carried on in the course of the actual carrying out of a primary purpose of the trust or institution in order to get exemption, the intention was that no business should be carried on with the object of advancing a primary purpose of the trust. In this connection, he referred to the reference made to Section 13(1)(bb) in the judgment of the Supreme Court in the case of Surat Art Silk Cloth Mfrs.' Association (supra). The relevant observations of the Supreme Court in Surat Art Silk' case (supra) are as under : . . . Now Section 13(1)(6), introduced in the Act of 1961 with effect from 1st April, 1977, provides that in the case of a charitable trust or institution for the relief of the poor, education or medical relief which carries on any business, income derived from such business would not be exempt from tax unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution. Where, therefore, there is a charitable trust or institution falling within any of the first three categories of charitable purpose set out in Section 2, Clause (15) and it carries on business which is held by it under trust for its charitable purpose, income from such business would not be exempt by reason of Section 13(1.)(66). Section 11, Sub-section (4), would, therefore, have no application in the case of a charitable trust or institution falling within any of the first three heads of 'charitable purpose'. Similarly, on the construction contended on behalf of the revenue, it would have no applicability also in the case of a charitable trust, or institution falling under the last head of 'charitable purpose' because according to the contention of the revenue, even if a business is held under trust by a charitable trust or institution for promotion of an object of general public utility, income from such business would not be exempt since the purpose would cease to be charitable. The construction contended for on behalf of the revenue would thus have the effect of rendering Section 11, Sub-section (4), totally redundant after the enactment of Section 13(1)(bb). We do not think we can accept such a construction which renders a provision of the Act superfluous and reduces it to silence. If there is one rule of interpretation more well settled than any other, it is that if the language of a statutory provision is ambiguous and capable of two constructions, that construction must be adopted which will give meaning and effect to the other provisions of the enactment rather than that which will give none. The construction which we are placing on Section 2, Clause (75), leaves a certain area of operation to Section 11, Sub-section (4), notwithstanding the enactment of Section 13(1)(W>) and we must, therefore, in any event, prefer that construction to the one submitted on behalf of the revenue.(pp. 18-19) It was further contended that the Supreme Court had interpreted 'activity for profit' as activity for private profit and it had been held that where an activity is not prompted by private motive but is carried on primarily for serving the charitable trust it would not be correct to describe it as an activity for profit. It was, therefore, contended that the business income in the present case was wholly applicable for charitable purposes, which were, predominantly, education, medical relief and relief to poor. It was, therefore, contended that the business income should have been held to be exempt under Section 11.
9. The departmental representative, on the other hand, pointed out that the requirement of Section 13(1)(bb) is very specific and in the case of a trust for the relief to the poor, education or medical relief, which carries on any business, any income derived from such business would be liable to tax, irrespective of its application to charitable purposes, though the income would remain eligible for exemption under Section 11 if the business is carried on in the course of the actual carrying out of a primary purpose of such a trust. He submitted that in the present case, the business of fabrication and sale of cloth could not be considered as having been carried on in the course of the actual carrying out of a primary purpose of this trust. It was further pointed out that the provisions of Section 13(1)(M) do not disentitle a business for exemption but restrict the exemption to such business, which is carried on in the course of the carrying out of a primary purpose of the trust.
10. We have carefully considered the facts of the case and the rival arguments. From the orders of the ITO as well as the AAC, one thing is clear that they have not correctly followed the provisions of Section 13(1)(M>) read with Section 11. Section 13(1)(bb) provides for the exclusion of business income from exemption and does not provide for the denial of exemption under Section 11. Other incomes like rent and interest have still to be treated as exempt under Section 11 if the income has been applied for charitable purposes as required under Section 11. It was necessary for the ITO to compute the income from business and other sources separately so that the position of the various components of income are appreciated. The AAC has also not considered this aspect of the matter. It would, therefore, be necessary to set aside the orders of the lower authorities and the ITO will have to compute the income and ascertain the taxable income, if any, having regard to the provisions of Sections 11 and 13. At that time, the ITO should again consider the question of the rate of tax after hearing the assessee regarding the applicability of Section 164(1). There is a specific provision in Section 164(2) for taxing the charitable trust as if it was the income of an AOP.11. We may now come to the main controversy in this case. This controversy is regarding the interpretation of Section 13(1)(bb) which had become applicable for this assessment year. The section provided that in the case of a charitable trust for the relief to the poor, education or medical relief which carries on any business, any income derived from such business shall not be excluded under Section 11 unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust. This provision was introduced on the recommendation of the Wanchoo Committee, who had recommended as under : The adequacy of definition of the term 'charitable purpose' has also been considered by us. The scope for questionable charities to claim concession under these provisions is provided mostly by trusts indulging in profit-making activities. The Income-tax Act, 1961 defines 'charitable purpose' to include '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'. Legal opinion has veered round to the interpretation that the words 'not involving the carrying on of any activity for profit' qualify only the fourth item of charitable purpose, stated in the definition, viz., any other object of general public utility.
Consequently, it is inferred that in cases falling under the first three items of charitable purpose, the definition imposes no ban on the carrying on of any activity for profit. Thus, the restrictions on trusts in the matter of engaging in activities for profit have been considerably diluted.
It is in this background that we addressed ourselves to the question as to whether religious or charitable trusts enjoying tax exemption should be permitted to carry on any activity for profit,.
Indubitably, engagement in activity for profit by such trusts provides scope for manipulations for tax avoidance. We, however, consider that it will not be desirable to ban an activity for profit which arises in the pursuit of the primary purpose of a trust created with the object of relief of the poor, education or medical relief. For instance, in the case of a trust for vocational training, it would be essential for the trust to carry on its vocation. We, therefore, recommend that law should be suitably amended to provide that where a trust for the relief of the poor, education or medical relief derives income from any activity for profit its income would be exempt from income-tax only if the said activity for profit is carried on in the course of the actual carrying out of a primary purpose of the institution. We wish to make it abundantly clear that even where a business is settled in trust, the trust should fulfil this condition if it is to enjoy tax exemption in respect of the income from such business. So far as trusts for any other object of general public utility are concerned, pursuit of any activity for profit should continue to render them ineligible for tax exemption.(Paras 3.54-55) At the Select Committee stage, the words 'activity for profit' was substituted by the word 'business'. Though Section 13(1)(bb) was introduced to restrict the scope of business which would be exempt in the case of trusts for relief to poor, education and medical relief, the approach in this provision is just the opposite of what was contained in Section 2(15) of the Act, regarding the objects of the general public utility. While Section 2(15) objects to the exemption if there was involvement between the object and the activity of profit, on the other hand, Section 13(1)(bb) prohibits the exemption unless the business is carried on in the course of the actual carrying out of a primary purpose. As far as the trusts for objects of general public utility are concerned, the position of activity of profits has been considered by the Supreme Court in the case of Swat Art Silk Cloth Mfrs.' Association (supra). The result of this decision is that there cannot be any objection to a trust where the business is undertaken not for its own sake but to feed charity. As the Supreme Court held, the predominant object has to be found out and in case the business is to provide funds for such predominant charitable object, the exemption cannot be withheld because of such an activity of profit.
12. However, by introducing Section 13(1)(W>) the Legislature has not used the same language as contained in Section 2(15) for trusts, having objects of public utility. As it would appear from above, on the recommendation of the Wanchoo Committee, a restricted exemption was contemplated for certain types of business and not in respect of businesses even if the income of such business was applicable or applied for the other charities. Whether such a provision for treating the business carried on by trusts having the three primary objects was justified, or there was any rationale for this provision with reference to Section 2(15) is not for us to consider. The equity and the justification of the provision of section \3(1)(bb) is a matter which can lead to a difference of opinion. However, we have to consider the provision as it is and see whether in view of this provision the income from business should be exempted under Section 11 or not.
13. As it would appear from the objects of the trust, they are predominantly for education, medical relief and relief to poor. It is true that there are a few objects of general public utility also mentioned. The learned counsel for the assessee has, however, not challenged the position that the trust in question is for the purpose of relief to the poor, education and medical relief. In fact, it had been stated, specifically, before the ITO that the trust has not carried out any object of general public utility. Now, the business in the present case had not been received as the corpus, but the trustees had been given power to start any business undertaking for providing finance to other objects. The plea of the assessee is that the income from this business has to be applied for charitable purposes and, having regard to the provisions of Section 2(75) and the decision of the Supreme Court in Surat Art Silk Cloth Mfrs.' case (supra), the income from business could not be exempted. We are, however, not persuaded by this argument of the learned counsel for the assessee, in view of the language used in Section 13(1)(bb). As pointed out above, the substance of Section 13(1)(bb) is very much different from the language used in Section 2(75) regarding the objects of general public utility. By no stretch of imagination, we can see that the business of fabrication is being carried on by the trust in the course of actual carrying out of a primary purpose of trust. The business contemplated in Section 13(1)(bb) would be such business, which is carried on in the course of implementing the achievement of the objects, for example, by selling articles prepared by the students, who are given some sort of technical education or by running a dispensary where some charge is taken from the patients coming for their treatment. The present business cannot be brought in that category. If the intention was that any business would be exempt if its income was applied for charitable purposes, there would be no purpose served by the introduction of Section 13(1)(bb). As it cannot be held that this provision is redundant and as we have to give the normal, natural meaning to the language, we would held that the income of the fabrication business cannot be held to be exempt under Section 11 in view of the provisions of Section 13(1)(bb). The ITO is directed to recompute the income in accordance with our directions above, having regard to the provisions of law. As the matter is being sent back to the ITO the appeal shall be treated as allowed for statistical purposes subject to our findings given.