Thiagarajar Charities, Madurai vs Additional Commissioner Of Income Tax

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1997 Supreme(SC) 739

1997(5) supreme 138
SUPREME COURT OF INDIA
(From Madras High Court)
K.S. Paripoornan, K. Venkataswami and B.N. Kirpal, JJ.
M/s. Thiagarajar Charities, Madurai -Appellant
versus
The Additional Commissioner of Income Tax & Anr. -Respondents
Civil Appeal Nos. 482-484 of 1980
Decided on 24-4-1997
Counsel for the Parties :
For the Appellant : T.A. Ramachandran, Sr. Advocate and Ms. Janki Ramachandran, Advocate.
For the Respondents : B.S. Ahuja, S.N. Terdol and B.K. Prasad, Advocates.

Headnote:Income Tax Act, 1961-Section 11 r/ws 2(15)-Charitable purpose-Claim of exemption u/s 11-Assessee claimed that business carried on by it and from out of which it had derived income was one held under Trust-Trust being for charitable purposes-Business of purchasing and selling cotton etc. was started in exercise of powers vested in Trustees-Profits or amounts earned in business fed charitable purposes specified in Trust Deed-Profit making being not the real object of Trust-Income derived by assessee from business is exempt from income tax u/s 11 of the Act-Misreading and misunderstanding of vital clauses of Trust Deed resulted in wrong conclusion of High Court in holding that appellant Trust is a non-charitable Trust.
Held; clause 1(g) of the Trust Deed dated 4.6.1962 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., 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 6.6.1962 and in view of clause 3 of the Deed it is the "corpus" of the Trust in reality. It is not an 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. (Para 9)

JUDGMENT

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 1966-67. 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(15) 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 assessee from the business carried on by it, though held under a 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. This 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 applied to such purposes in India; and, where any 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; and where any such income in finally set apart for application 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;

(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 of religious purposes, created before the 1st day of April, 1952, to the extent to which such income

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1997 Supreme(SC) 739

Cases Referred (1)