Amounts received by a charitable trust from the distribution and exhibition of films, pursuant to a donation by way of assignment of copyright, subject to the condition that such amounts shall form part of the corpus of the trust, are not income derived from business and are not subject to the provisions of s. 13(1)(bb) of the Income Tax Act, 1961.

R. JAYASIMHA BABU, J.

The questions referred to us at the instance of the Revenue are,

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the activity of the assessee relating to the exploitation of film distribution rights and realisation of income therefrom is not 'business activity' ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the activity of the trust relating to the exploitation of film distribution rights and realisation of income therefrom is a business carried on by the assessee trust in the course of actual carrying out of the primary purpose of the trust, and the provisions of s. 13(1)(bb) of the Act, 1961 are not applicable to the case ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the income realised by the assessee-trust by exploitation of the film distribution rights is part of the corpus of the trust and not 'income' under s. 2(24) of the IT Act, 1961 ?"

The assessment years are 1977-78, 1978-79 and 1979-80.

2. The assessee is a trust constituted under a deed of trust dt. 29th November, 1972. The trust is named as Nagi Reddi Charities. The objects of the trust as set out in the deed are medical relief, education and, relief to the poor including construction, maintaining choultries, public halls, Kalyana mandapa for the benefit of the public free of charge, medical relief to the sick and sufferings irrespective of caste, creed and community, constructing and maintenance of hospitals, dispensaries, maternity and children homes; and education of the public by establishing schools and other educational institutions without any restriction as to any caste, community or creed granting scholarships or subsidies to poor students.

3. The assessee received donation by way of assignment of the copyright of several movies produced by the film producers. The author of trust being a producer of films and a member of a family which owned film studios in a portion of which a hospital was to be built by the trust. While making assignment of the copyright, the respective donors had informed the trust that the assignment of the copyright of the films was subject to the distribution arrangement already made with several distributors, details of which were made known to the trust. The monies payable to the donor under these distribution arrangements were thereafter to be paid to the trust and those monies were required to be held by the trust as donation by the donor for acquiring or establishing or supporting a hospital as soon as possible 'either by yourselves' or any other trust or institution which has or the object the provision of medical relief. It was further stated in that matter that monies made available to the trust 'shall form part of the corpus of your trust'.

4. The assessee received various sums from the distributors who had been given the right to exploit the four movies; Ram and Shyam, Manha Earisha, Julie and Premnagar. The ITO sought to tax the amounts so received on the ground that the assessee was carrying on business in film distribution which was not directly connected with the carrying out of the objects of the trust and therefore, under s. 13(1)(bb) of the Act, those amounts could not be excluded from the total income of the assessee.

That statutory provision relied on by the ITO provides that in the case of 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, is to be included in the total income of the previous year of the trust which received such donation. Sec. 11 of the Act exempts income from property held for charitable or religious purpose subject to the conditions set out in the section from being included in t