1. The controversy in this appeal is regarding the exemption of the assessee's income under Section 11 of the Income-tax Act, 1961 ('the Act'), i.e., whether the income is from property held for charitable or religious purposes.
2. The assessee-society was registered on 10-5-1956 under the Registration of Societies Act, 1960. The aims and objects of the trust are establishment of (a) children homes, clubs, libraries, (b) centre for adult education, shilpkala, sewing for widows or destitute women, (c) dispensaries, hospitals, (d) centre for social welfare of children, (e) to help with stipends, fooding, clothing for poor or blind or helpless and needy children, (f) centres for homeless children and ladies, (g) institution for imparting vocational and industrial education to children and girls, and (h) dharamshalas, widow homes.
3. The admitted facts are that the two activities of the assessee-society were (a) running a tailoring establishment at Modi Nagar, and (b) carrying on business as insurance agent. The net income from tailoring establishment was of Rs. 1,85,805 as against receipts of Rs. 10,00,232, out of which sewing, cutting and printing charges of Rs. 1,20,989 and purchase of cloth of Rs. 7,01,400 were incurred as also certain other overhead business expenditure. In this tailoring establishment called 'Dayawati Modi Manila Shilp Kala Kendra', uniforms of employees of Modi Group was stitched and the tailoring business was carried on commercial lines by the assessee-society purchasing the cloth and incurring tailoring charges and other overheads. The net profit earned was roughly 19 per cent of the total receipts. Thus, it was a commercial activity carried on by the assessse-society and there is no evidence that this activity was carried on as a charitable institution or an institution which was carrying on the primary purpose of imparting training in tailoring, sewing and embroidery.
4. The other main source of income of the assessee-society was commission from insurance business of Rs. 1,21,560 in the account year under consideration ending 31-3-1977.
5. The main expenditure of the assessee was grants-in-aid to 9 educational institutions which totalled Rs. 45,680. Expenses of Rs. 25,467 were incurred for running condensed courses of education for adult women (no details in respect of courses are available). The assessee incurred administrative expenses of Rs. 24,475. The excess of income over expenditure was of Rs. 2,30,741 which was transferred to the corpus account which had opening balance of Rs. 2,85,997. The main assets of the assessee-society were buildings of four schools on which expenditure of Rs. 3 lakhs had been incurred as per balance sheet on 31-3-1977. While school building at Saidpur had been completed, other school buildings were under construction.
6. From the above facts, the first controversy to be resolved is under which of the four heads of charitable purposes the assessee's activities fall, i.e., whether it is (a) Relief of the poor, (b) Education, (e) Medical relief, or (d) Advancement of any other object of general public utility. From the narration of the facts above, it is clear that the assessee's activity of running the tailoring establishment under the name of Shilp Kala Kendra can fall, if at all, under (d) advancement of any other object of general public utility, which may be mixed with (a) relief of the poor, though no evidence in support of the second inference is available, or (b) education as it is imparting training in tailoring, sewing and embroidery for qualifying two year certificate course as per annual report to the members for the year under consideration--here again break up of quantum of commercial and educational activity is not available. The expenditure on condensed courses of education of Rs. 25,467 shows that the assessee is carrying on the activity of education. There is neither any evidence nor any claim in respect of carrying on the activity of medical relief.
7. The ITO in para 2 of his order under the head 'objects of the trust' observed that the main object of the assessee-society was to provide education to women and children and the assessee-society was running 11 educational institutions and that in the assessment year 1971-72 it was held that the main object of the assessee-trust was education and that the said finding had been repeated in the assessment orders for subsequent years but during the year under consideration (the assessment year 1977-78) the assessee by letter dated 19-1-1980 took the plea that the main object of the trust was 'any other object of general public utility' and not 'education' or 'relief of the poor'.
The ITO, however, observed that on perusal of the income and expenditure account of the assessees, he came to the conclusion that the main object of the assessee was education only.
8. A perusal of the profit and loss account of the assessee-society shows that the assessee-society had given grants-in-aid totalling Rs. 45,680 to 9 educational institutions, 7 of them were High Schools around Modi Nagar, eighth institution was a Shishu Niketan (Kindergarten) while the ninth was a tailoring and embroidery institute called Dayawati Modi Tailoring and Embroidery School at Modipuram. In the annual report to the members, similar details were given where it was observed that building of Dayawati Modi J.H. School at Saidpur had been completed and the construction of similarly named school at Bhojpur and Abupur were under progress and that two branches of Dayawati Modi Mahila Shilp Kala Kendra at Kedarpura, Modi Nagar and at Modipuram had been opened during the year, which branches were imparting training in sewing and embroidery for qualifying two years certificate course.
9. Giving of grants-in-aid to educational institutions does not amount to carrying out the object of education. This was held by the Tribunal Delhi Bench 'B' vide order in Modi Charitable Fund Society v. ITO [IT Appeal No. 1021 (Delhi) of 1981, dated 28-12-1982], since reported in  5 ITD 151 (Delhi) for the assessment year 1977-78. The Tribunal in a detailed discussion from paragraph 15 onwards observed in para 26 at page 25 that considering the fact that the society was itself not running any educational institution but had only constructed the building, therefor, retaining its ownership and by giving grants-in-aid cannot be treated as one established for education and the activity of the said trust in providing grants-in-aid and school building, etc., would fall only under the head 'advancement of any other object of general public utility'. For coming to the said view, the Bench drew support from the observations of the Supreme Court in Sole Trustee, Loka Shikshana Trust v. CIT  101 ITR 134 and of the Madras High Court in Addl. CIT v. Victoria Technical Institute  120 ITR 358.
10. From the above discussion it is clear that the giving of grants-in-aid to the educational institutions by the assessee-parishad (appellant before us) does not amount to the carrying out of the object of education but amounts to advancement of any other object of general public utility. The distinction of the case before us with Modi Charitable Fund Society still remains that the assessee-parishad had incurred expenses of Rs. 25,467 for running the condensed courses of education for adult women. On the face of it the said activity appears to come under the head 'education'. Similarly, the running of Dayawati Modi Mahila Shilp Kala Kendra and its two branches mentioned above at Kedarpura, Modi Nagar and Modipuram would come partly under the had 'education'.
11. We may note that the Commissioner (Appeals) in para 7 of his order observed that besides education, the assessee's running the tailoring school would be covered under the object of 'establishing and maintaining centres for adult education . . .and sewing for widows and destitute ladies', which was an object of general public utility. The Commissioner (Appeals) observed that the assessee was having mixed objects of relief of the poor, education, medical relief and general public utility.
12. However, the said statement by the Commissioner (Appeals) is unnecessarily wide because firstly, it is nobody's case that the assessee-parishad in the last 20 years of its existence had done anything in the direction of medical relief. Secondly, it also appears that nothing had been done for the relief of the poor. The tenor of the Commissioner (Appeals) order shows that the two active objects of the assessee-society were education and advancement of any other object of general public utility. This finding of the Commissioner (Appeals) has not been challenged before us, so we proceed on the basis that the said finding is correct.
13. We have now to examine whether the income earned from the twin activities of the assessee-society of running the 'Shilp Kala Kendra' and earning insurance commission would still be exempt from taxation.
For this purpose we have to see whether the conditions imposed by Section 13(1)(bb) and Section 2(15) of the Act are satisfied.
14. Section 13(1)(bb) which came on the statute book with effect from 1-4-1977 (relevant for the year under consideration) deals with the trusts for the relief of the poor, education or medical relief. The condition in respect of the trusts for these three objects is if such trusts are carrying on any business, then income derived from the said business is exempt only when the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution. Thus, if the assessee-trust is carrying on the activity of education or relief of the poor, then the two businesses carried on by it, namely, of running the 'Shilpkala Kendra' and of earning insurance commission by holding agency for this purpose, should be in the course of actual carrying out of the primary purpose of the trust. The insurance business can by no stretch of imagination be said to be carried on in the course of actual carrying out of the primary purpose of the trust. The assessee-parishad was earning insurance commission as an insurance agent on the insurance policies taken out by the Modi Group of Industries. The said activity, therefore, has no connection with carrying out of any primary purpose of the assessee-trust. The assessee's argument at the highest is that the said insurance income fed the charity. This, however, does not satisfy the test of Section 13(1)(bb). We may note that Clause (q) of the aims and objects of the assessee-society, which permitted the assessee to carry on insurance business, was deleted with effect from 15-12-1976 which fall in the account year under consideration which ended on 31-3-1977.
15. We have next to consider whether the running of shilpkala kendra satisfied the test of Section 13(1)(bb), namely, whether the shilpkala kendra was run in the course of actual carrying out of the primary purpose of the trust. The said primary purpose as already indicated is vide Clause (b) of aims and objects, namely, 'to establish and maintain centres for adult education, shilpkala, sewing for widows or destitute ladies of all creeds and castes'. We have already mentioned above in para 3 that the running of 'shilpkala kendra' on commercial lines and earning receipts of Rs. 10,00,232 from sewing the uniforms of the employees of Modi Group is a commercial activity and the carrying out of the primary purpose of the trust appears to be a very insignificant part of the said activity as is clear from the fact that tuition fees of Rs. 3,350 were earned during the year under consideration as against receipts mentioned above of Rs. 10 lakhs, the purchase of cloth of over Rs. 7 lakhs and the payments of sewing, cutting and printing charges of Rs. 1.21 lakhs. Thus, the activity of running the shilpkala kendra on commercial lines cannot be said to be in the course of actual carrying out of primary purpose of the trust.
16. We may next consider the test laid down by Section 2(15) which defines charitable purposes to include the aforesaid three heads of relief of poor, education and medical relief and while indicating the fourth head of advancement of any other object of general public utility' puts a restriction on the said last head (as interpreted by the Supreme Court) that the activity under the last head should not involve the carrying on of any activity for profit. Even if the assessee's contention is accepted that running the shilpkala kendra was for the 'advancement of any other object of general public utility', still the running of the said shilpkala kendra has to satisfy the test that its running does not involve the carrying on of any activity for profit. As indicated above (as also in para 3), the activity of running shilpkala kendra does involve the carrying on an activity for profit as is very clear from a perusal of the accounts of shilpkala kendra.
17. We may now consider the test laid down by the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association  121 ITR 1.
The Supreme Court held at page 21 that the tests laid down by the Supreme Court in Indian Chamber of Commerce v. CIT  101 ITR 796 were incorrect insofar as it was observed that the means of accomplishing or carrying out an object of general public utility must not involve the carrying on of any activity for profit and 'must be unsullied by profit-making ventures' and 'even if a business is carried on by a trust for earning profit to be applied wholly for an object of general public utility, the trust or institution would forfeit the claim for exemption from tax'. The Court noted at page 22 that in the later decision in CIT v. Dharmodayam Co.  109 ITR 527 (SC) it was held that if the business is held under trust or legal obligation to apply its income for promotion of an object of general public utility or it is carried on for the purpose of earning profit to be utilised exclusively for carrying out such charitable purpose, the last concluding words in Section 2(15) would have no application and they would not deprive the trust or institution of its charitable character.
What these last concluding words require is not that the trust whose purpose is advancement of an object of general public utility should not carry on any activity for profit at all but that the purpose of the trust should not involve the carrying on of any activity for profit.
The Court then considered two interpretations (at page 23). First interpretation was that according to the definition, what was necessary was that the purpose must be of such a nature that it involved the carrying on of any activity for profit in the sense that it cannot be achieved without carrying n any activity for profit. The second interpretation was to see whether the purpose of the trust in fact involved the carrying on of any activity for profit or whether an activity for profit was actually carried on as an integral part of the purpose or 'as a matter of advancement of the purpose'. There must be an activity for profit and it must be carried on in order to advance the purpose or in the course of carrying out the purpose of the trust.
At page 24, the Court observed that the second interpretation appeared to it to be more plausible construction which gave meaning and effect to the last concluding words added by the Legislature to Section 2(15) and, therefore, the Court preferred to accept it.
At page 24, the Court further observed that to be caught within the prohibition of last concluding words of Section 2(15), the activity must be carried on with the object of earning profit and the predominant object of the activity must be making of profit. At bottom of page 24, the Court reiterated that the predominant object of such activity must be to subserve the charitable purpose and not to earn profit and that the charitable purpose should not be submerged by the profit-making motive. The purpose of the trust must be essentially charitable in nature and must not be a cover for carrying on an activity which has profit-making as its predominant object. At page 26, the Court reiterated that profit-making should not be the driving force behind the trust activity. At page 27, the Court disapproved of the observations of Kbanna, J. and Krishna Iyer, J. in Sole Trustee, Loka Shikshana Trust's case (supra) and Indian Chamber of Commerce's case (supra) where they observed that profit-making was to be presumed to be the motive for carrying on a business. The Court observed that an inference cannot be necessarily drawn that when a business was carried on, the activity was for profit and, therefore, the charitable purpose involved the carrying on of an activity for profit. The new test laid down by the Supreme Court was to consider the dominant object of the activity, i.e., whether it was profit-making or carrying out the charitable purpose.
If we apply the above tests to the two activities of the assessee-society, then it is obvious that profit-making was the dominant or the only object of carrying on the insurance business.
Similar is the position in respect of shilpkala kendra. The facts as indicated above do point unmistakably to the inference that profit-making was the dominant object and charitable purpose was only a subservient object of running the shilpkala kendra. Thus, both the activities of the assessee before us disentitle it to exemption of its income from the two said activities. We, accordingly, confirm the order of the Commissioner (Appeals) and dismiss the assessee's appeal.