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1984 Supreme(AP) 487
Andhra Pradesh High Court
Judges : K.A.SWAMI, Y.V.ANJANEYULU
Commissioner of Income Tax - Appellant
Versus
Arya Vysya Kalyana Nilaya Sangam - Respondent
Decided On : 12-13-84
A charitable trust does not lose its exemption under section 11 of the Income-tax Act, 1961, merely because it is registered under the Societies Registration Act.
Headnote:
INCOME TAX - Charitable trust - Registration under Societies Registration Act - Whether a new trust came into existence - Whether letting out of property amounted to an activity for profit - Interpretation of sections 11, 13(1)(b) and 2(15) of the Income-tax Act, 1961.
Fact of the Case:
The assessee, a charitable trust, was created under a will executed in 1918. The trust was registered under the Societies Registration Act in 1967. The Income-tax Officer held that a new trust came into existence in 1967 and that the income of the trust was not exempt under section 11 of the Income-tax Act, 1961, as it enured for the benefit of a particular religious community. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal held that the trust had come into existence prior to the commencement of the 1961 Act and that the income of the trust was exempt under section 11.
Finding of the Court:
The court held that the trust came into existence in 1918 and that the registration of the trust under the Societies Registration Act in 1967 did not create a new trust. The court also held that the letting out of property by the trust did not amount to an activity for profit.
Issues: 1. Whether a new trust came into existence in 1967 when the trust was registered under the Societies Registration Act? 2. Whether the letting out of property by the trust amounted to an activity for profit?
Ratio Decidendi: 1. The court held that a new trust did not come into existence in 1967 when the trust was registered under the Societies Registration Act. The court noted that there is no requirement under the law that a trust must be registered under the Societies Registration Act in order to be recognised as a charitable institution for the purpose of earning exemption under section 11 of the Income-tax Act, 1961. 2. The court held that the letting out of property by the trust did not amount to an activity for profit. The court noted that there is no material to indicate what activities were involved in the matter of letting out property to derive income. The court also noted that it cannot be said that any activity for profit is involved if admittedly a public charitable trust lets out its property.
Final Decision: The court answered the first question in the affirmative, i.e., in favour of the assessee and against the Revenue. The court answered the second question in the negative, i.e., in favour of the assessee and against the Revenue.
( 1 ) THIS reference under section 256 (1) of the Income-tax Act, 1961 (for short the "act"), relates to the income-tax assessment year 1975-76. The following three questions of law are referred for the opinion of this court by the Income-tax Appellate Tribunal :"1. Whether, an the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee was a charitable trust and that the income derived by the trust was not assessable as business income ?" 2. Whether, on the facts and in the circumstances of the case, the letting out of the building involved the earning of income and, as such, the assessee was carrying on an activity for profit ? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the rental income derived from the property held in trust was so derived fully for charitable purposes ?
( 2 ) A few facts may be noticed :- One K. China Venkata Subbaiah of Nellore executed a will on 20/10/1918. Under the will, he settled in trust his movable and immovable properties for the development mainly of a choultry for the Vysya community visiting Nellore. Under the will three trustees were appointed to administer the trust property. The trustees three, inter alia, directed to utilise the trust fund for the maintenance and development of the choultry. After the death of K. China Venkata Subbaiah, trustees had entered upon their duties. It is common ground that the trustees had been administering the fund established by the deceased under his will dated 20/10/1918. In course of time, the existing choultry building needed repairs and development. Accordingly the trustee co-opted some more persons and obtained further contributions from the members of the deceaseds family for improving the trust (building ). It appears, the trustees have added also more objects to the existing trust created by late K. China Venkata Subbaiah and these objects were to provide building for functions, arrangement of philosophical lectures, to provide facilities for travelers, to establish a library, to encourage cow protection and to give free food and education to Vysya students. Pursuant to the above objects, the trustees are maintaining a hostel for poor Vysya students. The trust was registered under the Societies Registration Act on 5/12/1967. It is called as Arya Vysya Kalyana Nilaya Sangam.
( 3 ) THE Revenue did not doubt the charitable character of the trust up to and including the assessment year 1975-76. It is admitted that the income of the assessee-trust had never been taxed prior to the assessment year under consideration. It would appear that for the assessment year under consideration, a fresh look has been given and the Income-tax Officer felt that this trust must be considered to have come into existence on 5/12/1967, on which date it was registered under the Societies Registration Act. Inasmuch as the trust enured for the benefit of the Vysya community, the Income-tax Officer thought that it was for the benefit of a particular religious community as envisaged by section 13 (1) (b) of the Act and, consequently. the income derived by such a trust for the benefit of a particular religious community was not exempt under the Act. In that view, the Income-tax Officer brought to assessment the income of Rs. 21,982.
( 4 ) THE assessee contested the assessment basically on the ground that its income is not liable to be taxed in view of the provisions contained in section 11 of the Act. In appeal before the Appellate Assistant Commissioner, the assessee urged that no new trust has come into existence on 5/12/1967, as held by the Income-tax Officer. It was explained that the trust initially came into existence on October 20, 1918, under the will executed by the late K. China Venkata Subbaiah and the trust was all along under administration. It was pointed out that the trust properties were augmented in course of time and t
