The primary objects of a trust, such as relief of the poor, education, and medical relief, determine its eligibility for exemption under the Income Tax Act, 1961, regardless of its business activities.

Srinivasa Iyengar, J.—The Income Tax Appellate Tribunal, Bangalore Bench, has stated a case and referred the following question for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was a charitable trust created for the relief of the poor, education and medical relief within the meaning of section 2(15) of the Income Tax Act, 1961 ?"

2. The assessee is a trust constituted by one Sri Alur Laxminarayana Rao by a deed, dated 17th March, 1958. The author of the trust settled a sum of Rs. 5,000 on trust for the objects set forth in the said feed.

Clause 4 of the deed sets out the objects as follows :

(a) The benefits from the trust shall be open to all persons irrespective of caste, community or religion.

(b) Awarding scholarships to deserving students. The scholarships may be given by way of loan or outright gratuity not returnable and/or partly by way of loan and partly by way of gift or gratuity or in any other manner appropriate to the situation.

(c) To pay or advance for medical relief, expenses of marriage and other appropriate occasions in deserving cases.

(d) To create or manage endowments for prizes and scholarships in schools and colleges.

(e) To establish and run schools, destitute homes, hospitals, sanatoriums, libraries, art galleries, maternity and child welfare centres, family planning and other clinics, rural and urban medical relief services, etc.

(f) To contribute by way of donation or to advance moneys for the purpose of charitable, religious, educational and cultural activities.

(g) To make contributions for renovation of any religious or cultural institution.

(h) To construct building for schools, hostels, sanatorium, etc., and donate them to Government, quasi-Government institutions or public bodies or run them under the management of the trust.

(i) To create endowments for doing research work in all branches of science and learning."

Clause 8 of the deed is as follows :

"As it is the desire of the author of the trust that the trustee shall endeavour to augment the trust fund the trustees are hereby empowered to enter into partnership with any person or persons and also to engage in all such trades or business as agents or otherwise as they deem proper."

3. Up to and inclusive of the assessment year 1968-1969, the trust was granted exemption from Income Tax. But, for the assessment year 1969-70, the Income Tax Officer took a different view and held that there was no genuine charitable trust in existence and, therefore, the assessee was not entitled to the exemption contemplated in section 11 of the Act. The Appellate Assistant Commissioner upheld the view of the Income Tax Officer. On further appeal by the assessee, the Tribunal held that the assessee was a charitable trust as defined in section 2(15) of the Income Tax Act, 1961, that it was a genuine trust and that it was entitled to the exemption in section 11 of the Act.

4. The Tribunal found that up to the year 1971, the assessee had applied a sum of Rs. 5,25,000 for charitable purposes. The Tribunal discussed the material placed before it in this behalf and recorded the said finding in paragraph 10 of its order. It thus rejected the contention on behalf of the department that there was no genuine trust and that its funds were not applied for charitable purposes. It held that the trust was formed chiefly for the relief of the poor, education and medical relief and these were the dominant objects of the trust. It further rejected the submission on behalf of the department that the accumulations of the trust fund have benefited the authors of the trust. Strong reliance was placed by the department on clause 8 of the trust deed and it was contended that it was an object clause and, therefore, the purpose of the trust was not charitable purpose, but to carry on business in partnership or otherwise. The Tribunal held that clause 8 could not be construed as an object claus