1. The assessments were made 00 this assessee in the status of an AOP for the above assessment years. The assessee's claim for grant of exemption under Section 11 of the Income-tax Act, 1961 ('the Act') was rejected by the ITO on the ground that the benefits of the assessee-trust are not open to the public in general but are restricted to the children of the employees of the members of Shree Market Silk Merchants' Association. He relied on the decision of the Bombay High Court in the case of Zenith Tin Works Charitable Trust v. CIT  102 ITR 119. On appeal, the AAC confirmed the ITO's order. Thus, appeals are filed before the Tribunal for all these years. There are no appeals for the assessment years 1975-76 and 1979-80 because, it is pointed out, there was no demand of tax for these years.
2. The Shree Market Silk Merchants' Association is an AOP in existence for a long time for the purpose of looking after the interest of the silk industry and the silk merchants. This institution has been granted exemption under Section 11 by the revenue and the same is enjoyed by the association from year to year subject to the provisions of the law.
By a resolution dated 9-10-1957 and subsequent resolutions amending and altering the previous one passed on 4-11-1958 and 10-10-1960, the Shree Market Silk Merchants' Association started an education fund for giving scholarship to the children of the employees working in the shops, etc., belonging to the members of the association. The parent association, viz., the Shree Market Silk Merchants' Association, was to make donations to the assessee-association initially at a fixed rate for five years of Rs. 1,000 each and subsequently whenever it thought fit. A sum of Rs. 10 per year was also to be contributed by each member of the association. The source of funds of the assessee, therefore, comprised of donations received by the parent association and contributions collected annually from the members of that association.
The resolution creating the education fund put up its objects as under : Resolution : (1) Resolved that an education fund be started by the association for giving scholarship, etc., to the children of the gumasta brothers working in the shops, firms or offices of the members of the association, of the brokers holding permanent cards and of the employees of the office of the association with the object of encouraging their education. Rs. 1,000 (Rupees one thousand in full) be given to this Education Fund every year for five years from out of the fund of the association.
(2) Whatever moneys may be received in this fund as and by way of gift without any terms from the members and non-members shall be accepted. Moreover, means of income as and when may be deemed proper by the executive committee shall be created.
(3) The executive committee has been given all the powers to administer this fund, along with the power to appoint the sub-committee and to frame rules in this matter.
Rules were also made for inviting the applications for scholarship, grant of scholarship, etc., to the children of the employees, brokers, etc. The education fund at the relevant time had a corpus of more than Rs. 2 lakhs and the objects as per the rules of the fund made under the resolution were pursued out of the income of the fund. The assessee-trust applied to the ITO for granting exemption under Section 11. This, however, was rejected by him. The sole reason given by the ITO as well as the AAC for the assessment year 1973-74 is that the benefits are restricted to the members of the association.
3. Before us, the learned Counsel for the assessee has pointed out that the benefits of the education fund were available to many people and merely because some of the recipients of the scholarship are the employees of the members, it could not be held that the beneficiaries did not cover the wider public. The income of the assessee-trust was applied for educational purposes, which is a charitable purpose under Section 2(15) of the Act and was, thus, entitled to exemption under Section 11. The beneficiaries also constituted a section of the public, thus, entitling the trust to exemption under Section 11. An additional ground was also put in claiming that the contribution received by a trust can be deemed to be income under Section 12 of the Act only for the purposes of Section 11 and if the exemption under Section 11 was denied, then Section 12 of the Act had no application so that the donations and subscriptions received by the assessee-trust are not liable to tax. After hearing the parties, we admit this additional ground even though the learned Counsel for the department has strongly protested against such admission.
4. The decisions of the authorities below have gone on the basis that the beneficiaries of the trust education fund are employees of the company and so are not the wider public whose presence was a necessity for treatment of the assessee as a public charitable trust. In our view, whatever merits this assertion and counter-assertion by the assessee in this behalf have, it is not necessary to decide this in the appeals before us. The main association, Shree Market Silk Merchants' Association has been accepted to be and held by the department to be entitled to exemption under Section 11. It is as a part of the activity of that association that the education fund for specific purposes, viz., scholarship to children of employees, etc., was created. If, as the department has held, this particular function of the main association performed through the education fund is not charitable, the main association itself could not be said to be a charitable institution holding property on trust for charitable purposes. It may be mentioned that while holding that the present assessee-trust as not entitled to exemption under Section 11, the department has not denied the same exemption to the parent body, the Shree Market Silk Merchants' Association. In the first place, what we are unable to comprehend is as to how if the present assessee is denied exemption under Section 11, the main association, one of whose activities alone is performed by the present assessee, could be said to be exempt under Section 11. The fact that the revenue has not challenged the eligibility of the main association to exemption, under Section 11 is a substantial point in favour of the present assessee and one which should be of great assistance in deciding this issue. This is because it has been held by the Courts that if one of the purposes of an institution claiming exemption as a charity happens to be non-charitable, that institution cannot be said to be a charitable institution at all. Thus, the very fact that the revenue has not denied exemption under Section 11 to the principal association would ensure that all the activities of that association including the education fund would be entitled to exemption under Section 11.
5. We are informed that right from the year 1958, the present assessee has existed as a separate assessee and has been claiming and for several years getting the exemption as a charitable purpose. It is for the first time for the years under appeal that this claim was rejected.
Be that as it may, looking to the origin of the funds and the nature of this assessee, it would seem that even treating the present assessee as a separate taxable entity at all had not been properly done, but is a mistake. Where an assessee entitled to exemption under Section 11 has got several activities and makes investments in diverse forms to single out any particular activity or a particular investment and say that from the manner of investment or activity, that activity alone is a separate assessment and is also not entitled to relief under Section 11 would be preposterous. If any particular activity were not charitable, the entire main association would fail as a charitable trust. The question, therefore, as to the claim for exemption even if separately applied to any one of the activities of the main association--we are quite sure that this cannot be so applied--has to be decided on the basis of the position of the main association itself. In other words, we are quite sure that it was not proper to have treated the education fund as a separate taxable entity, even though the assessee had filed a return for the same. Even assuming that this is condoned, whether the education fund would be a charitable purpose or not will have to be seen against the background of Shree Market Silk Merchants' Association--the main body itself. The purposes of the main body as accepted by the revenue are clearly charitable. Automatically on the revenue's own finding, any activity pursuant to the objects of the main trust which includes the education fund has also to be held as charitable.
6. It requires also to be mentioned that the scholarship scheme worked under the rules caters to the children of the employees of the members of the association, brokers, etc. These are the people who directly come into contact with the association with regard to its primary objects. These objects have been accepted to be charitable. It may be that the scholarship to the children of an employee of the member may in effect add up to the remuneration of the employee. The employees of the members also have made, though indirectly, their contribution to the silk industry and to the objects of the main trust. Even if the scholarship scheme is regarded from a purely narrow point of view, it cannot be taken out of the charitable sphere of the main association.
The cases referred to by the authorities below are cases of private employers giving benefit to their employees only through the medium of a charitable trust. The present case is entirely different from these firstly, because the benefit is not to the employees of the institution ; secondly, the institution itself is a charitable one and an addition to its employees would only mean an extra expenditure of the institution on salaries. The cases cited, therefore, do not help the revenue even seen from a narrow point of view.
7. The assessee's appeals are allowed subject to the above observations.