Income Tax Act, 1961 - Sections 2(15), 11 and 11(1)
CIT v. Dharmodayam Co., (1977) 109 ITR 527 (SC)
1. At the instance of the Revenue, the following question has been referred to this court for its opinion by the Income-tax Appellate Tribunal, Madras :
'Whether, on the facts and in the circumstances of the case, the Tribunal's finding that the business was held under trust and accordingly the sum of Rs. 18,628 is exempt under section 11 is valid in law ?'
2. The assessee is a trust and for the year 1974-75 it filed a return admitting an income of Rs. 17,690, after claiming exemption in a sum of Rs. 18,628 spent on charity under section 11 of the Income-tax Act, 1961. The Income-tax Officer, however, took the view that for the attainment of general public utility the assessee carried on an activity for profit and therefore it is not entitled to any exemption. The Income-tax Officer also found that the assessee cannot be held to be a charitable trust within the meaning of section 2(15) of the Act. On appeal by the assessee, the Appellate Assistant Commissioner has confirmed the order of the Income-tax Officer. On further appeal to the Tribunal, it has held that from the terms of the trust deed, it is clear that the business of running the printing press itself is held as trust and therefore the income from the business, that is, the sum of Rs. 18,628 should be taken to fall within the exemption under section 11 of the Act. Aggrieved by the view taken by the Tribunal, the Revenue has sought and obtained a reference on the question set out above.
3. It has been found by the Tribunal that the founder of the trust was running a printing press and by a deed dated September 23, 1946, he had endowed the said printing press as a trust and the income of the trust was to be spent on the objects set out in the trust deed. The objects set out in the trust deed are two fold, namely, (1) to supply free of cost cow's milk to poor children below the age of 2 in Coimbatore District; and (2) to utilise the surplus, if any, after meeting the expenditure on the first object, for promoting primary education among girls.
4. Thus, it will be seen that the printing press has been endowed as a trust and the objects of the trust are to supply cow's milk free of cost to children under the age of 2 and if there is any surplus after meeting the expenditure on the above object to establish a school for promoting primary education among girls. According to the Tribunal, since the business of running the printing press itself has been endowed as a trust, the said business should be held under trust by the assessee and there is no question of the object of the trust being one to carry on any activity of profit. The Tribunal has followed the decision in CIT v. Madras Stock Exchange Ltd. wherein a distinction has been made between a business being held under trust, whose profits feed a charity and a business being carried on as the object of the charity.
5. According to the said decision, in the former case the income will clearly be exempt, but in the latter case, the income will be taxable. Applying the above test, the Tribunal in this case held that the business of printing press was held under trust for feeding the charity and therefore, it is entitled to exemption under section 11 of the Act.
6. On a due consideration of the matter, we are of the view that the Tribunal has come to the right conclusion. We find that the facts of the present case are similar to those in the case which came up before the Supreme Court in CIT v. Dharmodayam Co. and in that case also the business of conducting kuries was kept under trust and the income from the business was held to be exempt under section 11(1)(a) of the Income-tax Act, 1961 The Supreme Court has referred to the definition of 'charitable purpose' in section 2(15) of the Act and held that once it is found that the business itself was held under a trust for religious or charitable purpose, then the trust cannot be treated as having undertaken a business activity in order to advance any object of general public utility, which will take it out of the purview of section 11.
7. In this case also, the business of printing press which was run by the founder of the trust has been endowed as a trust for the purpose of conducting the charitable objects referred to in the trust deed. It is not in dispute that the objects in the trust deed will come within the definition of 'charitable purpose' in section 2(15). Hence the decision of the Supreme Court will squarely apply to the facts of the present case. In this view of the matter, we have to answer and we accordingly answer the question referred to us in the affirmative and against the Revenue. The Revenue will pay the costs of the assessee-counsel's fee Rs. 500 (Rupees five hundred only).