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CASE NO.: Appeal (civil) 4406-4410  of  1996 Appeal (civil)  4759-4761        of  1998 Appeal (civil)  4395-4402        of  1996 Appeal (civil)  497-499  of  2000 Appeal (civil)  5772     of  2000

PETITIONER: THE ASSISTANT COMMISSIONER OF INCOME TAX, MADRAS ETC.  ETC.

       Vs.

RESPONDENT: THANTHI TRUST ETC. ETC.

DATE OF JUDGMENT:       31/01/2001

BENCH: S.P. Bharucha, N. Santosh Hegde & Y.K. Sabharwal

JUDGMENT:

Bharucha, J.

L...I...T.......T.......T.......T.......T.......T.......T..J     One  S.K.  Adityan founded a daily newspaper called  the Dina  Thanthi  in 1942.  On 1st March, 1954 he  created  a trust  called  the  Thanthi Trust.  The property  that  he settled upon trust was the business of the said newspaper as a going concern.  The objects of the Trust were to establish the  said  newspaper as an organ of educated public  opinion for  the Tamil reading public and to disseminate news and to ventilate  opinion  upon  all  matters  of  public  interest through   it.   On  9th  July,   1957  Adityan  executed   a supplementary deed of trust that declared that the Trust was irrevocable.   On  28th July, 1961 Adityan executed  another supplementary  deed of trust.  Thereby he directed that  the surplus  income of the Trust, after defraying all  expenses, should be devoted to the following purposes :

   -  establishing and running a school or college for  the teaching of journalism;

   - establishing and/or running or helping to run schools, colleges or other educational institutions for teaching arts and science;

   -   establishing  of  scholarships   for   students   of journalism, arts and science;

   -  establishing and/or running or helping to run hostels for students;

   -   establishing  and/or  running  or  helping  to   run orphanages;  and

   - other educational purposes.

   On 6th November, 1961 the Income Tax Officer proposed to

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disallow  the claim of the Trust for exemption under Section 4(3)(i) of the Income Tax Act, 1922 for the Assessment Years 1955-56 to 1961-62.  The Trust challenged the correctness of the tentative decision by filing a writ petition in the High Court  of  Judicature  at Madras.  On 25th  June,  1961  the trustees of the Trust took out an originating summons in the High  Court and therein, on 2nd March, 1962, the High  Court upheld  the validity of the supplementary deed of trust  and held that the trustees of the Trust were bound to devote the surplus  income  of  the  Trust to  the  purposes  mentioned therein.   On  4th October, 1963 the High Court allowed  the writ  petition  filed  by the Trust and  quashed  the  ITOs tentative   decision  (52  I.T.R.    453).   The  claim  for exemption  made  by the Trust under Section 4(3)(i)  of  the 1922  Act  for the Assessment Years 1955-56 to  1961-62  was thereafter allowed.

   For  the Assessment Years 1962-63 the claim made by  the Trust  for exemption under Section 11 of the Income Tax Act, 1961  (the  Act) was allowed on 28th February, 1969.   The ITO  then  impounded  the  books of accounts  of  the  Trust relevant  to the Assessment Years 1965-66 to 1967-68 and  he demanded  the production of books of account relevant to the Assessment  Years 1962-63 to 1964-65.  This was the  subject matter  of challenge in a writ petition filed by the  Trust. On 23rd March, 1969 the Trust was issued three notices under Section  148  of the Act to reopen its assessments  for  the Assessment  Years  1965-66 to 1967-68.  These  notices  were challenged  in a writ petition filed by the Trust.   Notices were,  thereafter,  issued  to  the   Trust  to  reopen  its assessment  for the Assessment Years 1956-57 to 1961-62  and these  were  the subject matter of a writ petition filed  by the  Trust.  On 21st December, 1972 a Division Bench of  the High  Court of Madras quashed the notices for reopening  the assessments  for  the  Assessment  Years  1956-57,  1958-59, 1960-61  and 1961-62.  It upheld the notices that related to the  Assessment Years 1957-58, 1959-60, 1965-66, 1966-67 and 1967-68 (91 I.T.R.  261).

   On 29th January, 1981 a Division Bench of the High Court dismissed  references  under  the  Act  in  respect  of  the assessment of the Trust for the Assessment Years 1968-69 and 1969-70 (137 I.T.R.  735).  The High Court held :

   The founder of the trust clearly evinced an intention to create public charitable trust as seen from the preamble and clause  3(k)  of the original trust deed and the  charitable objects  referred  to in the schedule to the decree in  C.S. 90  of 1961 have to be fulfilled from and out of the  income from  the business which is directed to be held under  trust or  other  legal obligation.  Those charitable objects  fall within  the first 2 categories referred to in Section  2(15) viz.   Relief of the poor and education.  It is to carry out and fulfill those objects the business is carried on.  Thus, the  primary purpose is to carry out the charitable  objects and  the business is carried on as a means in the course  of the  actual carrying out of that primary purpose and not  as an end in itself.  While the predominant object of the trust is the carrying out of the charitable objects referred to in two  of the three categories of charitable purposes referred to  in Section 2(15), the carrying on of the business  which is  actually  the property held under trust or  other  legal obligation  is incidental and the profit resulting from  the business can be taken to be a by-product.

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   The  Revenue  preferred a petition for special leave  to appeal  against  the judgment of the High Court on the  said references.   In so far as it related to the eligibility  of the  Trust  to claim the exemption under Section 11  of  the Act, leave was declined.

   Having  set out the background, we now come to the first of the three controversies before us.  It relates to Section 13(1)(bb),  which  was introduced into the Act  with  effect from  1st April, 1977 and remained on the statute book until omitted  with  effect  from 1st April, 1984.   The  relevant portions  of  Section 11 and Section 13(1)(bb) then read  as follows :

   Section 11

   Income  from  property held for charitable or  religious purpose.

   (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 applied to such purposes  in  India;

   Section 11(4)

   For  the  purposes of this section property held  under trust includes a business undertaking so held,

   Section 13(1)(bb)

   Nothing  contained  in  section 11 or section  12  shall operate  so  as  to  exclude from the total  income  of  the previous year of the person in receipt thereof

   In the case of a charitable trust or institution for the relief  of  the  poor, education or  medical  relief,  which carries  on  any  business,  any income  derived  from  such business, unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution.

   The  claim of the Trust for exemption for the Assessment Years 1979- 80 to 1983-84 was rejected, having regard to the provisions   of  Section  13(1)(bb).    The  rejection   was challenged in a writ petition filed by the Trust in the High Court.   The  High Court upheld the contention of the  Trust (213  I.T.R.  626).  This is the first decision of the  High Court that is under appeal by the Revenue.

   The  High Court relied upon its earlier decision in  the case  of  the Trust, reported in 137 I.T.R.  735, which  had become  final  and binding on the Revenue, namely, that  the primary purpose of the Trust was to carry out its charitable objects and that the business is carried on only as a means in  the  course  of the actual carrying on  purpose  of  the Trust.   It said that it had, therefore, no hesitation  in holding  that the requirement of the last portion of Section 13(1)(bb)  namely  unless the business is carried on in  the course  of  the actual carrying out of a primary purpose  of the  trust  or institution is satisfied   We  must also  point  out  here that though the decision in  CIT  vs.

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Thanthi  Trust [1982] 137 I.T.R.  735 (Mad) was rendered  by the  Division  Bench  with regard to  the  assessment  years 1968-69  and  1969-70 and Section 13(1)(bb) of the  Act  was introduced  with effect from April 1, 1977, inasmuch as  the finding  rendered by the Division Bench in the said decision is  in express language of Section 13(1)(bb) of the Act,  it is  not open to the Revenue to contend that the decision  in CIT vs.  Thanthi Trust [1982] 137 I.T.R.  735 (Mad) will not be  applicable  to the petitioners case in respect  of  the assessment  years  in  question, after the  introduction  of Section 13(1)(bb) of the Act.

   Section  11(4A) was introduced into the Act with  effect from  1st April, 1984.  So far as it is relevant, Section 11 then read thus :

   Section 11

   Income  from  property held for charitable or  religious purpose.

   (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 applied to such purposes  in  India; .

   (4)  For  the  purposes of this 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 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 or religious purposes.

   (4A)  Sub-Section (1) or sub-section (2) or  sub-section (3)  or sub-section (3A) shall not apply in relation to  any income, being profits and gains of business, unless

   (a)  the  business is carried on by a trust  wholly  for public  religious  purposes  and the  business  consists  of printing  and publication of books or is of a kind  notified by  the  Central Government in this behalf in  the  Official Gazette;  or

   (b)  the business is carried on by an institution wholly for  charitable purposes and the work in connection with the business  is  mainly carried on by the beneficiaries of  the institution;

   and  separate  books of accounts are maintained  by  the trust or institution in respect of such business.

   The  Trust  claimed the benefit of the  exemption  under Section  11  in respect of the Assessment Years  1984-85  to 1991-92.   The ITO rejected the claim.  The Trust filed writ petitions  challenging the rejection.  The High Court upheld

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the  claim  of  the Trust (213 I.T.R.  639).  It  held  that inasmuch  as  the business that was carried on by the  Trust was  itself held under trust for public charitable  purposes and  it was carried on only for the purposes of carrying out the  charitable  objects of the Trust, as had been found  in the  earlier judgment, the provisions of Section 11(4A)  had no  application.   This is the second decision of  the  High Court under appeal by the Revenue.

   Section  11(4A)  was  substituted with effect  from  1st April, 1992 and it now read thus :@@                    JJJJJJJJJJJJJJJ

   Section 11(4A)

   Sub-Section (1) or sub-section (2) or sub-section (3) or sub-section  (3A) shall not apply in relation to any  income of  a  trust of an institution, being profits and  gains  of business,   unless  the  business  is  incidental   to   the attainment  of  the objectives of the trust or, as the  case may  be,  institution  and separate books  of  accounts  are maintained  by such trust or institution in respect of  such business.

   The  ITO  rejected the claim of the Trust for  exemption under the amended Section 11(4A).  A writ petition was filed in  the High Court, and, relying upon the earlier  decision, the  High  Court  quashed the orders of assessment  for  the Assessment  Years  1992-93, 1995-96 and 1996-97 (238  I.T.R. 635).   This  is  the  third decision under  appeal  by  the Revenue.

   In so far as Section 13(1)(bb) is concerned, the learned Solicitor  General appearing for the Revenue, submitted that a  business,  to  be excepted from the clutches  of  Section 13(1)(bb),  must  be  one carried on in the  course  of  the actual  carrying  out  of  a primary  purpose  of  a  public charitable  trust.   In other words, it must be  a  business carried  on in the course of actually carrying out the  work of  relief  of the poor, education and medical relief.   Any business carried on for generating revenue, which revenue is used  for  furthering the charitable purpose for  which  the trust  was established, is not an activity in the course  of the  primary  purpose of the trust and does not fall  within this exception.

   Dr.   Pal,  learned  counsel  for   the  Trust,  drew  a distinction between a business that was held under trust and a  business  that was carried on by a trust.   He  submitted that  there  was a difference between income derived from  a business  that  was  a property or part of the corpus  of  a public  charitable trust and income derived from a  business which  was carried on by such a trust but which was not held under  trust;  in other words, there was a legal  obligation to  use the income for the public charitable purpose of  the trust  in the first case and not in the latter.  This  Court had  noted  the  distinction in Additional  Commissioner  of Income-Tax,  Gujarat vs.  Surat Art Silk Cloth Manufacturers Association  (121  I.T.R.  1), Commissioner  of  Income-Tax, Kerala  and  Coimbatore vs.  P.  Krishna Warriar (53  I.T.R. 176),  Commissioner  of Income-Tax, Kerala vs.   Dharmodayam Co.  (109 I.T.R.  527).  The provisions of Section 13(1)(bb) applied only to a public charitable trust which carried on a business  that it did not hold in trust.  They did not apply to  a public charitable trust, such as the Trust, which held

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the business in trust.

   No  judgment of this Court has been pointed out to us in which   the  provisions  of   Section  13(1)(bb)  have  been interpreted.   Only  passing  references thereto are  to  be found in some of the judgments aforementioned.

   A public charitable trust may hold a business as part of its  corpus.   It may carry on a business which it does  not hold  as a part of its corpus.  But it seems to us that  the distinction  has no consequence insofar as Section 13(1)(bb) is  concerned.   Section  13(1)(bb) provides, so far  as  is relevant  to  this case, that the provisions of  Section  11 shall  not  operate so as to include in the total income  of the  previous  year  of a public charitable  trust  for  the relief  of  the  poor,  education or  medical  relief  which carries  on  any  business,  any income  derived  from  such business  unless the business is carried on in the course of the  actual carrying out of a primary purpose of the  trust. Section  13(1)(bb),  therefore,  will   apply  to  a  public charitable  trust  for the relief of the poor, education  or medical  relief  that carries on a business,  regardless  of whether  or not that business is held by the trust in trust, that  is, as a part of its corpus.  Even a business that  is held  by such a trust as a part of its corpus is carried  on by the trust and, therefore, Section 13(1)(bb) will apply to such trust.

   A  judgment of this Court which comes closest to putting a meaning to Section 13(1)(bb) is the concurring judgment of R.S.    Pathak,  J.   (as  he   then  was)   in   Additional Commissioner of Income-tax, Gujarat v.  Surat Art Silk Cloth Manufacturers  Association (1980) 121 ITR 1.  He said, When it   was  found  that  judicial   decisions  had  held   the restrictive  clause  (not involving the carrying on of  any activity for profit) in Section 2(15) to control the fourth head (the advancement of any other object of general public utility)  only, and not also the first three heads (relief of  the  poor,  education  and   medical  relief)  in   the definition,  Parliament  attempted  to secure  its  original intent  by  enacting section 13(1)(bb).  The two  provisions represent  the  mode of funding finance for working out  the purpose of the trust or institution, by deriving income from the  corpus of the trust property and also from an  activity carried  on  in  the course of actual carrying  out  of  the purpose  of the trust or institution. The learned Judge did not, it will be seen, analyse Section 13(1)(bb), nor, in the context  of  the case before him, was he required to.   Upon analysis,  it  appears to us that the words used in  Section 13(1)(bb)  are  wide enough to control not only  the  profit from  an  activity  carried on in the course of  the  actual carrying  out of the purpose of the trust or institution but also  income  from the corpus of the trust property  if  the corpus  of  the trust includes a business.  This is for  the reason  that a trust or institution carries on the  business that  is  part  of  its corpus just as much as  a  trust  or institution  carries on a business that is not a part of its corpus,  and  Section  13(1)(bb) operates in respect  of  a charitable  trust or institution for the relief of the poor, education  or medical relief which carries on any business. (Emphasis supplied).

   The  requirement  of  Section   13(1)(bb)  is  that  the exemption  under Section 11 will not be available to such  a trust  that  carries on any business unless the business  is

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carried  on in the course of the actual carrying out of the primary  purpose  of the trust, that is to say, unless  the business   is  carried  on  in   the  course   of   actually accomplishing  a primary purpose of the trust;  the business must,  therefore, be carried on in the course of the  actual accomplishment  of relief of the poor, education or  medical relief.   As  an example, a public charitable trust for  the relief  of  the  poor,  education and  medical  relief  that carries  on  the  business of weaving  cloth  and  stitching clothing by employing indigent women carries on the business in  the course of actually accomplishing its primary  object of affording relief to the poor and it would qualify for the exemption under Section 11.

   The  business  that  the  Trust carries on  is  that  of running  a  newspaper.  That business, though it is held  by the Trust as a part of its corpus, and, therefore, in trust, does not directly accomplish, wholly or in part, the Trusts objects  of  relief of the poor and education.   Its  income only  feeds such activity.  It cannot be held to be  carried on in the course of the actual accomplishment of the Trusts objects  of  education  and  relief of  the  poor.   It  is, therefore,  not possible to accept the argument on behalf of the Trust that it is entitled to the exemption under Section 11.

   The High Court, in the first judgment under appeal, held that  it  was  not open to the Revenue to contend  that  the earlier  decision  (in 137 ITR 735) would not apply  to  the case of the Trust for the assessment years in question after the introduction of Section 13(1)(bb) of the Act because the finding  rendered  in  that  decision  was  in  the  express language of Section 13(1)(bb).  We are unable to agree.  The earlier  decision was not rendered in the context of Section 13(1)(bb).   That  provision was not on the statute book  at that time.  That the provision employs language akin to that employed  in  the  earlier decision cannot mean  that  in  a proceeding directly related to that provision the Revenue is barred  by  reason  of the principles of res  judicata  from contending  that the income of the Trust is not exempt under that provision.

   This  brings  us to the second controversy, relevant  to the  Assessment Years 1984-85 to 1991-92 during which period of  time  sub-section  (4A)  of Section  11,  as  originally enacted,  was in operation.  It was contended by the learned Solicitor  General  that by reason of sub-section  (4A)  the income  derived from a business held under trust wholly  for charitable  or  religious purposes would not be included  in the  total  income of the previous year in the case only  of (a)  a trust for public religious purposes, if the  business was  of printing and publishing books or of a notified kind; or (b) an institution wholly for charitable purposes, if the work  in connection with the business was mainly carried  on by  the  beneficiaries  of the  institution,  provided  that separate books of accounts had been maintained in respect of such business.

   Learned  counsel for the Trust laid emphasis on the fact that  in the Bill to introduce sub-section (4A) into Section 11, sub-section (4) thereof had been proposed to be deleted, but  it  had  been  retained when the Bill  was  passed.   A business  held under trust had, therefore, not been intended to  be excluded from the benefit of Section 11 by reason  of the  enactment of sub- section (4A).  This was also  evident

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from  the fact that sub-section (4A) did not mention in  its non obstante clause sub-section (4).

   Sub-section  (4)  of Section 11 remains on  the  statute book,  and  it  defines property held under  trust  for  the purposes  of that section to include a business so held.  It then  states how such income is to be determined.  In  other words, if such income is not to be included in the income of the trust, its quantum is to be determined in the manner set out in sub-section (4).

   Sub-section  (1)(a)  of  Section  11  says  that  income derived  from property held under trust only for  charitable or  religious  purposes,  to the extent it is  used  in  the manner indicated therein, shall not be included in the total income  of the previous year of the trust.  Sub-section  (4) defines  the  words  property  held under  trust  for  the purposes  of  Section  11 to include a business  held  under trust.  Sub-section (4A) restricts the benefit under Section 11  so  that  it is not available for  income  derived  from business  unless  (a) the business is carried on by a  trust only for public religious purposes and it is of printing and publishing  books  or any other notified kind or (b)  it  is carried  on by an institution wholly for charitable purposes and  the  work  in connection with the  business  is  mainly carried   on  by  the   beneficiaries  of  the  institution, provided,  in both cases, that separate books of account are maintained  by  the trust or the institution in  respect  of such business.  Trusts and institutions are separately dealt with  in the Act (Section 11 itself and Sections 12, 12A and 13,  for  example).   The   expressions  refer  to  entities differently   constituted.   It  is   thus  clear  that  the newspaper  business that is carried on by the Trust does not fall  within  sub-section (4A).  The Trust is not  only  for public  religious purposes so it does not fall within clause (a).   It is a trust not an institution, so it does not fall within clause (b).  It must, therefore, be held that for the assessment  years in question the Trust was not entitled  to the  exemption  contained  in Section 11 in respect  of  the income of its newspaper.

   We  now address the third controversy, which relates  to sub-section  (4A)  of Section 11 as substituted with  effect from  1st  April,  1992.    The  learned  Solicitor  General submitted  that while the substituted sub-section (4A)  gave trusts  and  institutions a wider latitude than the  earlier sub-section  (4A), it had still to be construed to mean that a  trust or institution would not get the benefit of Section 11  unless the business it carried on was carried on in  the course  of  the actual carrying out of a primary purpose  of the  trust  or  institution.  Dr.  Pal, on the  other  hand, submitted that the substituted sub- section (4A) was couched in  wide language and a trust was entitled to the benefit of Section 11 if it utilized the income of its business for the purposes of achieving its objects.

   The  substituted sub-section(4A) states that the  income derived  from  a  business  held   under  trust  wholly  for charitable  or  religious purposes shall not be included  in the  total  income  of  the previous year of  the  trust  or institution if the business is incidental to the attainment of  the  objective  of  the trust or, as the  case  may  be, institution and separate books of account are maintained in respect of such business.  Clearly, the scope of sub-section (4A)  is more beneficial to a trust or institution than  was

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the  scope  of sub- section (4A) as originally enacted.   In fact,  it seems to us that the substituted sub-section  (4A) gives  a  trust  or institution a greater benefit  than  was given by Section 13(1)(bb).  If the object of Parliament was to  give  trusts and institutions no more benefit than  that given   by  Section  13(1)(bb),   the  language  of  Section 13(1)(bb)  would  have  been  employed  in  the  substituted sub-section  (4A).   As it stands, all that it requires  for the  business income of a trust or institution to be  exempt is  that the business should be incidental to the attainment of  the objectives of the trust or institution.  A  business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution  is,  surely, a business which is incidental  to the  attainment  of  the objectives of the  trust.   In  any event,  if there be any ambiguity in the language  employed, the  provision  must be construed in a manner that  benefits the  assessee.   The  Trust, therefore, is entitled  to  the benefit  of  Section 11 for the Assessment Year 1992-93  and thereafter.   It is, we should add, not in dispute that  the income  of  its  newspaper  business has  been  employed  to achieve  its objectives of education and relief to the  poor and  that  it  has maintained separate books of  account  in respect thereof.

   Accordingly,  Civil Appeals 4406-4410 of 1996, 4395-4402 of  1996, 4759-4761 of 1998 and 5772 of 2000 are allowed  in as  much  as they relate to the Assessment Years 1979-80  to 1991-92  and  the  two judgments of the  Madras  High  Court relating thereto (reported in 213 I.T.R.  626 and 213 I.T.R. 639)  are  set  aside.  Civil Appeals 497-499  of  2000  are dismissed.  There shall be no order as to costs.