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2001(1) Supreme 559
SUPREME COURT OF INDIA
(From Madras High Court)
S.P. Bharucha, N. Santosh Hegde & Y.K. Sabharwal, JJ.
The Assistant Commissioner of Income Tax, Madras etc. etc. -Appellants
versus
Thanthi Trust etc. etc. -Respondents
Civil Appeal Nos. 4406-4410 of 1996
With
C.A. Nos. 4759-4761/98, 4395-4402/96, 497-499/2000 and 5772/2000
Decided on 31-1-2001
Counsel for the Parties :
For the Appellants : Harish N. Salve, Solicitor General, M.L. Verma, K.N. Shukla, Sr. Advocates, Nikhil Sakhardande, K. Misra, Ms. Sushma Suri, T.C. Sharma, Advocates.
For the Respondents : Dr. Debiprasad Pal, Sr. Advocate, Tripurari Ray, Ms. Priya Hingorani, Vineet Kumar, Advocates.
For the Respondent in C.A.Nos. 4759-61/98 : S. Prasad, Advocate.
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. 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." (Paras 14 & 15)
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 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. (Para 16)
In the instant case 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 Trust s 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 Trust s 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. (Para 17)
(ii) Income Tax Act, 1961-Section 11(4) (as it stood during assessment years 1984-85 to 1991-92)-Exemptions-Charitable or religious trust-Business income of trust-Precondition for availing exemption-News paper business settled on trust-Objects of trust were establishing schools, colleges and educational institutions, hostels and orphanages-Trust not only for religious purpose-Nor an institution-Trust not covered by sub-section (4A) -Exemption not available.
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. (Paras 21 & 22)
(iii) Income Tax Act, 1961-Section 11(4A) (as it stands after 1.4.1992)-Exemptions-Charitable or religious trust-Business income of trust-Condition precedent to claim exemption-It is sufficient that business should be incidental to attainment of objectives of trust or institution.
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 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. (Para 24)
JUDGMENT
Bharucha. 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.
2. On 6th November, 1961 the Income Tax Officer proposed to 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 ITO s 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.
3. 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).
4. 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 fro
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