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PETITIONER: M/S. THIAGARAJAR CHARITIES, MADURAI

       Vs.

RESPONDENT: THE ADDITIONAL COMMISSIONER OF INCOME TAX AND ANR.

DATE OF JUDGMENT:       24/04/1997

BENCH: K.S. PARIPOORNAN, K. VENKATASWAMI, B.N. KIRPAL

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Paripoornan,J.      The appellant  is a  trust. The  Trust was  created  on 4.6.1962. The  trust called  "Thiagarajar Charities"  is  an assessee to  income tax.  In this  batch of  appeals, we are concerned with  the three  assessment years  1964-65,1965-66 and  19966-67.   A  common   question  of   law  arises  for consideration  herein.  The  Income-tax  Appellate  Tribunal referred two  identical questions of law for the above three years, to  the High  Court of  Madras for  its decision. The questions of  law referred  for the above three years are as follows:-      "Whether on  a proper  construction      of the trust deed dated 4.6.62, the      Tribunal was  right in holding that      the objects  of the  trust are  not      for charitable  purposes within the      meaning of  the said  expression as      defined in  Section  2(15)  of  the      Income tax  Act, 1961,    and  that      consequently  its  income  for  the      assessment years  1964-65 and 1965-      66 is  not exempt  from  tax  under      section 11  of the  Income-tax  Act      1961?"      "Whether on  a proper  construction      of the  trust deed  dated  4.6.1962      the Tribunal  was right  in holding      that the  objects of  the trust are      not for  Charitable purposes within      the meaning  of the said expression      as defined  in Section 2(150 of the      Income-tax  Act,   1961,  and  that      consequently  its  income  for  the      assessment  year   1966-67  is  not      exempt from tax under Section 11 of      the Income tax Act, 1961?"           (emphasis supplied)      2. The  Income-tax Appellate  Tribunal as also the High Court of  Madras held  that  the  income  derived  by    the

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assessee from  the business  carried on  by it,  though held under trust  could not  be said  to be exempt from tax under Section 11  of the  Income-tax Act.  The High Court rendered the decision  by  a  common  judgment  dated  23.12.1977  in T.C.Nos. 182  and 252/74. This Court by order dated 3.3.1980 in S.L.P @ Nos. 2453-2455/79 granted special leave to appeal to the  assessee-appellant to  file  the  appeals  from  the judgment of the Madras High Court aforesaid. That is how the present appeals are before us. 3 The  short question  that arises  for our consideration in this batch of cases is, whether the appellant-assessee-trust is entitled  to exemption under Section 11 read with Section 2(15)  of   the  income-tax   Act,  1961,  as  the  relevant provisions stood then.      2(15) "charitable purpose" includes 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."      Section 11,  as originally  enacted, was couched in the following terms:      "(1) Subject  to the  provisions of      sections 60  to 63,  the  following      income shall not be included in the      total income  of the  previous year      of the  person in  receipt  of  the      income-  (a)  income  derived  from      property held  under  trust  wholly      for   charitable    or    religious      purposes, to  the extent  to  which      such  income   is  accumulated  for      application  to  such  purposes  in      India, to  the extent  to which the      income so  accumulated  is  not  in      excess of  twenty five  per cent of      the income  from the  property   or      rupees ten  thousand, whichever  is      higher;      (b) income  derived  from  property      held under  trust in  part only for      such purposes the trust having been      created before  the commencement of      this Act,  to the  extent to  which      such  income  is  applied  to  such      purposes in India, to the extent to      which the  income so  set apart  is      not in  excess of  twenty-five  per      cent  of   the  income   from   the      property held  under trust in part;      (c) income from property held under      trust- (i)  created on or after the      1st  day   of  April,   1952,   for      charitable purposes  which tends to      promote  international  welfare  in      which India  is interested,  to the      extent  to  which  such  income  is      applied to  such  purposes  outside      India, and      (ii) for  charitable  or  religious      purposes, created  before  the  1st      day of  April, 1952,  to the extent      to which  such income is applied to      such purposes outside India:      Provided that the Board, by general      or special  order, has  directed in      either case  that it  shall not  be

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    included in the total income of the      person in receipt of such income.      Explanation.-For  the  purposes  of      clauses(a) and  (b),  in  computing      twenty-five percent  of the  income      from  any   such  property   as  is      referred to in the said clauses for      any previous  year, the income from      such   property    for   the   year      immediately preceding  the previous      year may be adopted, if that income      is higher  than the  income for the      previous year.      (2) Where the persons in receipt of      the income  have complied  with the      following      conditions,      the      restriction specified  in clause(a)      or clause  (b) of sub-section(1) as      respects   accumulation or  setting      apart  shall   not  apply  for  the      period  during   which   the   said      conditions  remain  complied  with-      (a) such  persons, have,  by notice      in writing  given to the Income-tax      Officer in  the prescribed  manner,      specified the  purposes  for  which      the income  is being accumulated or      set apart and  the period for which      the income  is to be accumulated or      set apart,  which shall  in no case      exceed ten years;  (b) the money so      accumulated   or   set   apart   is      invested in any Government security      as defined  in clause(2) of section      (2)  of   the  public   Debt   Act,      1944(XVIII  of  1944),  or  in  any      other   security   which   may   be      approved by  the Central Government      in this behalf.      (3) Any  income referred  to in sub-section (1) or sub- section (2)  as is applied to purposes other than charitable or  religious   purposes  as   aforesaid  or  ceases  to  be accumulated or  set apart  for application thereto or is not utilised for  the purpose  for which it is so accumulated in the year  immediately following  the expiry  of  the  period allowed in  this behalf  shall be deemed to be the income of such person  of the previous year in which it is so applied, or ceases  to be so accumulated or set apart or; as the case may be  , of  the previous  year immediately  following  the expiry of the period aforesaid.      (4) For the purposes of the section property held under trust’ includes  a business undertaking so held, and where a claim is  made that the income of any such undertaking shall not be  included in the total income of any such undertaking shall not  be included in the total income of the persons in receipt thereof,  the Income-tax Officer shall have power to determine the  income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income  so determined   is  in excess  of the  income as shown in the accounts of the undertaking , such excess shall be deemed  to be  applied to  purposes other than charitable and religious  purposes and  accordingly chargeable  to  tax within the meaning of sub-section(3)." (emphasis supplied)      4. The  Trust Deed  dated 4.6.1962  is to the following

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effect:      "This Indenture  of Trust made this Fourth day of June,      1962 by  (1) Sri Karumuttu Thiagarajan Chettiar, son of      Muthukaruppan Chettiar,  Hindu,  Nattukottai  Chettiar,      son  of  Sri  Karumuttu  Thiagarajan  Chettiar,  Hindu,      Nattukottai  Chettiar,   all  residing   at  "Meenakshi      Nilayam", Tirupparankundram  Road, Madurai, hereinafter      referred to as "the Authors of the Trust".      Whereas the  Authors  of  the  Trust  are  desirous  of founding a  Public Charitable  Trust for  the purposes, ends and objects hereinafter set forth.      And whereas  for such  charitable purposes, the Authors have set apart a sum of Rs. 11,000/- (Rupees Eleven Thousand Only) and  declare hereby  that the  said sum shall form the nucleus of the Trust.      NOW THIS INDENTURE WITNESSETH AS FOLLOWS:      1. The  Authors hereby create a Public Charitable Trust hereinafter referred to as THIAGARJAR CHARITIES (hereinafter referred to as the Trust) for the purposes, ends and objects hereinafter following:      a)  To   establish,  maintain   run      develop,  improve,   extent,  grant      donations for and to aid and assist      in the  establishment, maintenance,      running,  development,  improvement      and   extension    of    Elementary      Schools,  Secondary  Schools,  High      Schools,  Colleges,   Universities,      Workshops,   Weaving,   industrial,      technological and  other Art, Craft      and Science Institutes, Schools and      Institutions of  Tamil  or  snskrit      learning, Hostels  for the  benefit      of students and generally all kinds      of educational institutions whether      general,   technical,   vocational,      professional    or     of     other      description  whatsoever   for   the      welfare and  uplift of  the general      Indian Public  and to institute and      award  scholarships  in  India  for      study, research, apprenticeship for      all or any of the said purposes.      (b) To  establish,  maintain,  run,      develop,  improve,   extend,  grand      donations for and to aid and assist      in the establishment, maintenance ,      running,  development,  improvement      and extension  of libraries reading      rooms, recreation  centres and  all      other facilities  as are calculated      to be of use in imparting education      to the Indian Public.      (c)  To  establish,  maintain,  run      develop,  improve   extend,   grant      donations for and to aid and assist      in the establishment, maintenance ,      running, development,  improvement,      and   extension   of   Hospital   ,      clinics,  dispensaries.  sanateria,      maternity  homes  and  all  similar      insitutions    as    will    afford      treatment     ,     cure,     rest,      recuperation   and   other   allied      advantages   in    the    way    of

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    alleviating   the   sufferings   of      humanity.      (d) To  build, erect  and construct      and to    aid  and  assist  in  the      building erection  and construction      of houses,  tenements and places of      residence for  the poor,  needy and      defectives and  to afford  them all      comforts and conveniences.      (e) To  conduct  poor  feeding  and      generally to give food and clothing      to the  poor, needy  and defectives      and to  afford relief  to people in      distress    and     affected     by      earthquake,      flood      famine,      pestilence and  other accidents and      conduct or  grant donations for the      support   of    the   inmates    of      orphanages.      (f) To help, assist and give aid to      the  fathers,   or  other   natural      guardians,  or  near  relatives  or      indigent and  unmarried  girls  for      the marriages of such girls.      (g) To  engage in, carry on , help,      aid and  assist and  promote, rural      reconstruction    work,     cottage      industry  and   all  other  matters      incidental thereto in India-      (h)  The  above  objects  shall  be      independent of  each other  and the      Board of  Trustees  as  hereinafter      constituted may, from time to time,      apply  the   Trust  properties   in      carrying out  all  or  any  of  the      aforesaid objects  of the  Trust as      they may deem fit.      2. The  Authors do  hereby constitute themselves as the First Trustees of the Trust for their lives. On the death of any of the Authors of the Trust, his senior most male lineal descendent shall  succeed as  Trustee in  his place  for his life. The  said Trustees  shall have   authority at any time and  from  time  to  appoint  or  coopt  other  persons  not exceeding four to be Trustees to act along with themselves.      3. The Trust properties shall consist of the sum of Rs. 11,000/-  provided     to   the  Trust  by  the  Authors  as hereinbefore mentioned  and all  and every  other moneys and properties gifted  conveyed and  transferred to the Trust by any person  whatsoever for  the purpose  of carrying out the objects of  the Trust  hereby created and shall also include any income  derived by  the investment  of Trust  properties shall include any business undertaking held or carried on by the Trust Properties and in particular, the expression Trust properties shall  include any  business undertaking  held or carried on by the Trust.      4. Sri  Karumuttu Thiagarajan  Chettiar  shall  be  the first Managing  Trustee and  he shall  hold office for life, unless he voluntarily relinquishes the office and thereafter the senior most amongst the remaining Authors, failing which the senior-most  male lineal  descendent  of  Sri  Karumuttu Thiagarajan Chettiar  shall become  the Managing Trustee and such Managing Trustee shall hold office for his life.      5. The  term of  office of  a Trustee  save that of the Authors of  the Trust,  their descendants  as  mentioned  in clause 2  and the Managing Trustee shall be three years from

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the date  of his appointment but he shall, in the discretion of the other Trustees, be eligible for re-appointment.      6. Whenever  any person  appointed as Trustee disclaims or any  such Trustee  either original or substituted dies or is for  a continuous period of six months absent from Indian Union or  leaves Indian  Union for  the purpose  or residing abroad or desires to be discharged from the Trust or refuses or becomes  in the  opinion of  a principal  Civil Court  of original jurisdiction  unfit or  personally incapable to act in  the  Trust  or  accepts  as  inconsistent  trust  or  is otherwise  disqualified.   a  new   Trust  or   accepts   as inconsistent  trust  or  is  otherwise  disqualified  a  new Trustee may  be appointed  in  his  place  by  the  Managing Trustee   with the approval of the majority of the remaining Trustees, if any.      7. All  the Trustees including the Managing Trustee for the  time   being  of   the  Trust   shall  be  referred  to collectively as  the Board  of Trustees  and  the  Board  of Trustees shall  have the  following powers  in regard to the investment of all or any part of the Trust properties.      (a) To  invest in any securities of      the Central or State Government.      (b) To  invest in  the  purchase of      any leasehold  or freehold lands or      buildings and  in the  construction      of any buildings any land belonging      to the Trust.      (c) To  invest in  Fixed  Deposits,      Current or  other accounts  in  any      Scheduled Bank.      (d) To invest in shares, debentures      or bonds  of any  public Company or      corporation incorporated in India.      (e)  To   invest  in  any  business      undertaking of whatsoever nature to      be carried on by the Trust.      (f)  To   invest  moneys   in   any      business   undertaking    for   the      purpose of  acquiring and  carrying      on any business undertaking such as      Managing Agency,  Selling Agency or      Purchasing Agency  of any  Company,      or Corporation in India.      Provided that  nothing hereinbefore  contained shall be deemed to  authorise any  of the Trustees for the time being to advance any of the Trustees for the time being to advance any of the Trust properties as loans to any of the Trustees. Such business  undertaking may be carried on individually by the Trust or in partnership or in combination with any other person or persons.........................."      (Clauses 8  to 31  have been  omitted as  they are  not relevant.)      "32. The  business of  the Board  of Trustees  shall be dealt with  either at  the meetings of the Board of Trustees or by resolution in circulation....................." (emphasis supplied)      (Clauses 33  to 36  have been  omitted as  they are not relevant.)      5. A  True copy  of the  Resolution of  the Trust Board dated 6.6.1962 available at pages 30-31 of the Paperbook, is to the following effect:      "True copy  of the resolution dated      6.6.1962.   True    copy   of   the      resolution passed  by the  board of      Trustees at the Meeting held on 6th

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    June,       1962       "MEENAKSHI",      Tirupearankundram Road,  Maduria at      1 A.M.      PRESENT:      1.   Sree   Karumuttu   Thiagarajan           Chettiar      2.   Sri T. Sundaram Chettiar      3.   Sree     T.     Manickavasagam           Chettiar.      Sree Karumuttu Thiagarajan Chettiar      took the Chair.      The   following   resolution   were      unanimously passed:      1. ..................      2. Resolved  to undertake and carry      on the  business  of  purchase  and      sale of  cotton,  cotton  yarn  and      cloth   or    other   fibres   both      wholesale  and   retail  and    the      Managing Trustee  be and  is hereby      authorised to  take  the  necessary      steps in this behalf.      3. Resolved  to appoint  sree  T.V.      Krishnamoorthy as  Manager  of  the      Trust and to the Business aforesaid      and to  authorise him to enter into      contracts for  purchase and sale of      cotton, cotton  Yarn and  Cloth  or      other fibres  both  for  ready  and      future delivery  and  to  sign  and      execute  all   contracts  on   that      behalf from time to time."           (emphasis supplied)      6. The Board Trustees commenced and carried on business           in the purchase and sale of cotton yarn as per the           resolution of  the Board  dated  6.6.1962,  quoted           hereinabove.  For  assessment  years  1964-65  and           1965-66 the  relevant  previous  years  being  the           periods  from   4.6.1962  to  31.5.1963  and  from           1.6.1963 to  31.5.1964 respectively,  the assessee           field returns  disclosing "nil"  income,  thought,           according to   the profit and loss account, it had           made a  profit of Rs.8,72,550/- and Rs.13,14,269/-           respectively.  The   assessee  claimed   that  the           business carried on by it and from out of which it           had derived  income was  on e held under Trust and           since the  Trust was for charitable  purposes, the           income was exempt from tax under Section 11 of the           Act.   The Claim  was rejected  by the  Income-tax           officer.  He   determined  the   total  income  as           Rs.8,72,550/- for  the assessment year 1964-65 and           Rs. 13,14,269/-  for the  assessment year 1965-66.           In appeals,  the Assistant  Appellate Commissioner           by his orders dated 29.9.1969 and 22.4.1970 upheld           the plea  of the assessee and directed the Income-           tax  Officer  to  grant  exemption  .  In  further           appeals  filed   by  the  Revenue,  the  Appellate           Tribunal  held   that  the   objects  covered   by           paragraph(1) clause(g)  of the  Trust Deed did not           fall under  the head  "relief of  the  poor".  The           Tribunal further  held that the objects covered by           clause (g)  would be covered by the fourth limb of           Section 2  (15) of  the Act,  namely,  "object  of           general public Utility" and held that  the objects           stated in  paragraph (1)   clause  (g) of the Deed

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         involved carrying  on of  and activity for profit,           and applying  the test  laid down by a decision of           the Kerala High Court in C.I.T v Indian Chamber of           Commerce, (80  ITR 645)  Concluded that the income           derived by  the assessee from the business carried           on by  it, though  held under  Trust, could not be           said to be exempt from tax under Section 11 of the           Act. All  the authorities authorities followed the           decision rendered for the earlier assessment years           1964-65 and  1965-66 for the subsequent assessment           year  1966-67   without  further  discussion.  The           References made  to the  High Court  of Madras for           all  three  years  were  considered  together  and           agreeing with  the Tribunal,  the High  Court held           thus:      "....But clause  (g)  provides  for      the  Trust   carrying  on   cottage      industries and  there is nothing in      the trust  deed to  show that there      is      no      profit      motive.      .......................   We   are,      therefore, of  the opinion that the      object  of   the  Trust   is   also      carrying on  an activity for profit      ."           ( emphasis supplied)      The High  Court  proceeded  further      and held as follows:-      ".....In  the   present  case   the      object mentioned  in clause  (g) is      one of  general public  utility and      it  involves  the  carrying  on  of      activity for  profit ,  namely  the      business of  purchasing and selling      cotton, cotton  yarn and  cloth and      other fibres,  wholesale or retail,      which necessarily  implies a motive      for  profit.   It  would  not  fall      within the  meaning of  "Charitable      purpose" mentioned in Section 2(15)      of the Income Tax Act, 1961. In the      present  case   the  Trustees  have      absolute discretion  to utilise the      funds of  the Trust  to the  one or      the other of the several objects of      the Trust......................."           (emphasis  supplied)      In coming  to the  above conclusion,  the High Court of Madras followed  a Full  Bench decision of the High Court of Kerala  in   Commissioner   of   Income   tax,   Kerala   v. Dharamadeepti (100 ITR 375). It was held that the Trust is a non-charitable Trust  and the  income realised  by the Trust from its  business in  cotton , cotton yarn , cloth etc. for the assessment  years 1964-65  to 1966-67 is not exempt from tax under Section 11 of the Act.      7. We heard counsel, At the outset, we should highlight one aspect,  It appears that there is some patent mistake or confusion in the approach made by the High Court . The Trust Deed  dated 4.6.1962 clause 1(g) is to the following effect:      "(g) To engage in , carry on, help,      aid and assist and promote rural      reconstruction work, cottage      industry and all other matters      incidental thereto in India-"           (emphasis supplied)

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    The trust  carried on  the business  of purchasing  and selling  cotton,   cotton  yarn,   cloth  and  other  fibres wholesale  and  retail,  not  in  pursuance  to  clause  (g) aforesaid, but  in pursuance to the power vested in it under clause 7(e)  read with  clause 32  of the Trust Deed , which are to the following effect:-      7.(e) "To  invest in  any  business      undertaking of  whatever nature  to      be carried on by the Trust."      32. "  The business of the Board of      Trustees  or   by   resolution   in      circulation."           (emphasis  supplied)      Pursuant to  the above  power vested in the Trustees, a Resolution Dated  6.6.1962, quoted  in  this  judgment,  was passed by the Board which enabled the Trust to undertake and carry on  the business  of purchasing  and  selling  cotton, cotton yarn  and other fibres both wholesale and retail etc. It is  patent that the High Court of Madras wrongly assumed, that it  is in  pursuance of  clause 1(g) of the Trust Deed, The Business  of purchasing  and selling cotton, cotton yarn etc. was  carried on  by the Trust. We are afraid that there has been  a mixer-up  of clause  1(g) of  the Trust Deed and Clause 7(e)  read with  clause 32  of the  Resolution of the Board  dated   6.6.1962.  The   Appellate  Tribunal   denied exemption to  the assessee-Trust solely based on clause 1(g) of the Deed. The Trust Deed Vested powers on the Trustees to carry on  any business  as per  clause 7(e) of the Deed. The Board authorised  the same  by a  separate Resolution  dated 6.6.1962. The  business so  started was held under Trust. In other words,  as  per  clause  3  of  the  Trust  Deed,  the business(so started  or carried  on) was  a  corpus  of  the Trust. Clause  1(g) of  the Deed had nothing to do with such business,  We   are  afraid   that      a   misreading   and misunderstanding of  the vital clauses of the Trust Deed and the Resolution of the Trust Board-have resulted in the wrong approach and  conclusion of the Madras High Court in holding that the  appellant-Trust in  the present  case  is  a  non- Charitable Trust  and that  the income realised by the Trust from its business of cotton , cotton Yarn etc. is not exempt from tax  under Section  11 of  the Act.  The High  Court of Madras came  to the  conclusion, as  it did, based on a full Bench decision  of the  High Court  of Kerla  in C. I. T. V. Dharamadeepti (100  ITR 375). The said decision was reversed by this  Court in  Dharmadeepti v.  Commissioner Income-tax, Kerala (114 ITR 454) . So, the very basis of the decision of the High Court of Madras no longer exists.      8. Counsel  on both sides addressed elaborate arguments based on  the Trust Deed  dated 4.6.1962. The short question is, whether  the objects  of the  Trust will fall within the first three  categories mentioned  in Section  2(15) of  the Act, namely,  "relief  of  the  poor,  education  ,  medical relief’ or will  it fall under the fourth limb only and even so, its impact herein? In interpreting or understanding  the Trust Deed   one  has to  bear in  mind the basic difference between the  corpus of  the Trust,  the objects of the Trust and the  powers of  the Trustees. [See: Aditanar Educational Institution v.  Additional Commisioner of Income-tax,  (1997 (1) SCALE 758); JT 1997(20 S.C.284]      It will be useful to remember the following passages in the judgment  of the  Kerala High  Court in  Commissioner of Income-tax Kerala  v. Shri  Shaila Industrial  And Spiritual Colony Charities [87 ITR 175 (at page 182)]:-      ".........It drew  a distinction between the objects in a memorandum  of association  and the  powers taken  in  the

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memorandum  of  association  to  carry  out  those  objects. Reliance had  been placed  on a  decision of  the  Court  of Appeal in  North of  England Zoological  Society v.  Chester Rural District  Council (1959(3)  ALL ER  116 C.A.) which in turn referred  to a decision of the House of Lords in Cotman v.  Brougham.   [(1918)  A.C.   514  (H.L.)]  Lord  Wrenbury expressed the  view in  Cotman v. Brougham that there may be included in  the objects  what are  not real  objects of the company but  are enabling  powers to  achieve the objects of the company. A passage from the judgment of Lord Wrenbury at page 522 may be extracted:      "The objects of the company and the      powers  of   the  company   to   be      exercised in  effecting the objects      are different  things.  Powers  are      not required  to be,  and ought not      to   be    ,   specified   in   the      memorandum. The  Act intended  that      the company,  if it  be  a  trading      company, should  by its  memorandum      define  the   trade,  not  that  it      should  specify  the  various  acts      which it should be within the power      of the company to do in carrying on      the trade.  The Third  Schedule  of      the Act  contains  model  forms  of      memoranda  of   association.  These      ought to  be followed. Section 118,      sub-section  (1),   enacts  that  a      those  forms   or  forms   as  near      thereto  as   circumstances  admit’      shall be  used in  all  matters  to      which those forms refer.      There has  grown  up  a  pernicious      practice of  registering  memoranda      of  association  which,  under  the      clause relating to objects, contain      paragraph   after   paragraph   not      specifying   or    delimiting   the      proposed  trade   or  purpose,  but      confusing power  with  purpose  and      indicating every class of act which      the Corporation is to have power to      do. The  practice  is  not  one  of      recent growth.  It  was  in  active      operation when  I was  a junior  at      the Bar.  After a  vain struggle  I      had to  yield to it, contrary to my      own convictions. It has arrived now      at a  point at  which the  fact  is      that the function of the memorandum      is taken to be, not to specify, not      to disclose , but to bury beneath a      mass of  words the  real object  or      objects of  the  company  with  the      intent that  every conceivable form      of activity shall be found included      somewhere within its terms."      The paragraphs  relied on  by counsel  on behalf of the revenue can  be treated  as powers distinct from the primary objects of the company and they are meant to enable the real purposes being  achieved. The memorandum in  question is one wherein there  has been  a mingling  of  real  objects  with powers. The  real   objects disclose charitable purposes and the powers taken are merely to carry out the objects."

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                   (emphasis supplied)      [See also:  Pennigton’s Company Law (6th Edn.) page 13; Palmer’s Company  Law (25th Edn.) Vol. I para 2.606, wherein the law has been discussed in detail.]      9. The objects of the Trust have been clearly stated in paragraph 1  of the Trust Deed. The main purpose and objects of the  Trust are education, medical relief and poor relief. In that  behalf, the Trust has been authorised to establish, maintain, run  etc. educational  institutions, technological and other  institutes for  the welfare  and  uplift  of  the general Indian  public; to  assist in  the establishment and running of  hospitals,  clinics  and  dispensaries  etc,  to assist in  building and  erection of  houses and  places  of residence for  the poor; and to afford relief to the poor by giving food,  clothing and  to help  them in distress during earthquake,  flood   famine,   pestilence   etc.   In   this connection, we  should notice  clause 1(g)  which is  to the following effect:      "(g) To  engage in, carry on, help,      aid and  assist and  promote  rural      reconstruction    work,     cottage      industry  and   all  other  matters      incidental thereto  in India-"      Though this  sub-clause is  included among the "objects clause", it  is, really  only a power. The language employed in clause 1(g)  itself suggests that it is a power vested in the Trust  to engage  and promote  etc. rural reconstruction work, cottage  industry and  all  other  matters  incidental thereto, A  three-member Bench of this Court in Dharmadeepti v. C.I.T.  Kerala (114 ITR 454) construed clause 3(b) of the Deed in  the said  decision,  specified  among  the  objects clause,  as   one  really   vesting  powers,  incidental  or ancillary to  the attainment  of the  main objects in clause 3(a) therein,  in the appropriate authority. (See page 458). We should  also bear in mind that this power is so vested in this case,  to effectuate  the objects  contained in  clause 1(a) to  establish, maintain  schools,  colleges,  workshops industrial, technological  and  other  institutes  etc.  "of Whatever description  for the  welfare  and  uplift  of  the general Indian  Public". "Rural reconstruction", necessarily involves the uplift of the rural masses, and is directed for the welfare  of such people. Majority of such persons belong to the  "poor(or poorer) segments of the society". Similarly "cottage industry"  is associated  with the idea of a small, simple enterprise  or industry  in which  employees, work in their own  houses or  in a small place gathered together for the purpose, using their own equipments and is usually found in rural  areas/places or  so carried  on,  by  the  poor(or poorer) section  of the  society. In  substance,  the  above activity, specified in clause (1)(g) is to afford "relief to the poor". We understand clause 1(g) of the Trust Deed dated 4.61962 as  only vesting  a power  in  the  Trustees  to  do certain things  to effectuate  the main objects of the Trust contained in  clause 1(a)  of the  Deed  -  to  start,  run, develop,  educational,   technical,  vocational   and  other institutions and  institutes for  the welfare  and uplift of the general  Indian public.  The  power  so  vested  in  the Trustees under  clause (g) cannot be called as "the objects’ of the  Trust. So  understood, we have no hesitation to hold that the  Income-tax Appellate  Tribunal and  also the  High Court erred  in construing  clause (g) aforesaid as "object"  of  the Trust  enabling it  to carry  on a  business with a profit motive. Looked at from a different angle , and in the alternative, it is clear that the business of purchasing and selling cotton,  cotton yarn,   cloth  and other fibres etc,

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was held  under Trust;  the said  business  was  started  in exercise of  the powers  vested in the Trustees under clause 7(e) read with clause 32 of the Resolution dated 6.61962 and in view  of clause  3 of  the Deed it is the "corpus" of the Trust in  reality, It is not and object of the Trust. so, it cannot be  said that the trust is carrying on (business)- an activity for  profit. The  business - corpus - property held under trust  - produces or results in income, like any other property. That  is all  . The  business is  only a "means of achieving the "object" of the Trust ; it is a medium through which the  "objects" are  accomplished. In  this  view,  the entire approach  made by  the Appellate  Tribunal as also by the High Court fails to give due effect to the Trust Deed as a  whole   and  is  palpably  erroneous  and  the  resultant conclusion is  vitiated, in  denying the  exemption  to  the appellant Trust. We hold accordingly .      10.  Counsel   for  the  apppellant-assessee  drew  our attention to  a decision rendered by a constitution Bench of this  court  in  Additional  Commissioner    of  Income-tax, Gujarat v.  Surat Art  Silk cloth  Manufacturers Association [(1980) 121  ITR 1], and contended that the dominant purpose as could  be gleaned  from the  various clauses of the Trust Deed is  only to sub-serve the charitable purpose and not to earn profit  and so,  the appellant-assessee is entitled, in any view of the matter. [even if  this case  falls under  the fourth limb of Section 2(15) ]   to the exemption under Section 11 of the Act . Our Attention was  innovated to  the following  observations  of Bhagwati, j. (who delivered the judgment of the majority) at pages 25-26 of the report which is to the following effect:      ".........The test  which has.  therefore,  now  to  be applied is  whether the  predominant object  of the activity involved in  carrying  out  the  object  of  general  public utility is  to subserve  the charitable  purpose or  to earn profit. Where profit-making is the predominant object of the activity, the  purpose, though  an object  of general public utility, would  cease to  be a charitable purpose. But where the predominant  object of  the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character  of a  charitable purpose  merely because some profit arises  from the  activity. The  exclusionary  clause does not  require that  the activity  must be  carried on in such a  manner that  it does  not result  in any  profit. It would indeed  be difficult  for persons in charge of a trust or  institution  to  so  carry  on  the  activity  that  the expenditure balances  the income  and there  is no resulting profit. That  would  not  only  be  difficult  of  practical realisation but  would also  reflect  unsound  principle  of management. We, therefore, agree with Beg J. when he said in Sole Trustee,  Loka Sikhshana  Trust’s case  [1975] 101  ITR 234,256(SC) that:      "If the  profits  must  necessarily      feed a charitable purpose under THE      terms of  THE trust,  the mere fact      that the  activities of  the  TRUST      yield profit  will  not  alter  the      charitable character  of the trust.      The test  now is, more clearly than      in the past, the genuineness of the      purpose tested  by  the  obligation      created   to    spend   the   money      exclusively   or   essentially   on      charity."      The learned  judge  also  added  that  the  restrictive condition "that  the purpose should not involve the carrying

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on of  any activity for profit would be satisfied if profit- making is not the real object. "(emphasis supplied). We wholly endorse these observations." (emphasis supplied)      We are  of  the  view  that  the  above  test  is  also satisfied on the facts of this case.      11.  It   appears  from  the  affidavit  field  by  the appellant-turst, which  is available  at page  142   of  the paperbook, that an aggregate sum of Rs.16,48,030/- was spent for charitable  purposes during  the period  from 4th  June, 1962 to  31st May, 1967. The purposes are aid to the various colleges, orphanages,  relief  to  the  poor  and  different categories or  types of  education. It also; appears that in one of  the assessment  years, the amount so applied is much more than  the total  income. The  facts  available  in  the records go to show that the profits or amounts earned in the business fed  the charitable purposes specified in the Trust Deed.  In   other  words,   the  amounts   earned  had  been essentially spent  on charity  . There  can be no doubt that profit making was not the real object of the Trust.      12. In  the light  of the above, we answer the question referred to  the High  Court in  favour of  the assessee and against the  Revenue. We hold that the income derived by the assessee from  the business  carried on  by it,  held  under trust, is  exempt from  income tax  under Section  11 of the Act. The  common judgment  of the  Madras High  Court  dated 23.12.1977 rendered in T.C.  Nos.182 and 252 of 1974, is set aside and this batch of appeals allowed with costs including Advocates’ fees   which  is estimated at Rs.10,000/- in each appeal.