Income from Chitty business conducted by a charitable Trust, used for medical relief, is exempt from taxation under the Income Tax Act.

JUDGMENT

Vinod Chandran, J.

The question of law arising in the above appeal is re-framed as follows:

Whether the Tribunal was correct in having denied exemption to the income generated by the assessee, who is registered under Section 12A of the Income Tax Act, 1961 ['Act' for brevity], from the business of Chitty/Kuri which was fully utilized for the purpose of 'medical relief', which is the main object of the assessee-Trust, falling under the definition of 'charitable purpose'?

2. The facts need not be elaborated. Suffice it to notice that the assessee is constituted as a Trust with its main object, as declared in its Memorandum of Association ['MoA' for brevity], for establishing, maintaining and running a hospital for philanthropic purposes and not for the purpose of profit. One of its objects which has been declared in the MoA, as incidental or ancillary to the attainment of the main object is 'To run Chitties (Kuries)'. The learned Counsel for the assessee specifically pointed out the ancillary object from the MoA and submitted that the assessee had been granted the exemption in the years prior and subsequent to the relevant assessment year. The entire income from the business of Chitties was applied for the main object, the philanthropic purpose and in any event, the income generated is less than Rs.25 lakhs, making the first proviso to Section 2 (15) inapplicable to the assessee. The assessee's Counsel relies on Commissioner of Income Tax v. Dharmodayam Company & Or s. [ (1977) 4 SCC 75 ] and Assistant Commissioner of Income Tax v. Thanthi Trust Etc. [ (2001) 2 SCC 707 ] to claim the exemption.

3. The learned Standing Counsel appearing for the Revenue draws a distinction between a business 'held under Trust' and that 'carried on by a Trust'. According to the Revenue, Thanthi Trust was a decision with respect to a business held under Trust; whereas in the present case it is a business carried on by a Trust. It is also pointed out that a Division Bench of the Delhi High Court in CIT v. Mehta Charitable Pranalay Trust [(2013) 357 ITR 560 (Delhi)] distinguished the decision in Thanthi Trust ; the facts and law declared therein being applicable here.

4. The first appellate authority found that the activity carried on by the assessee of conducting Chitty business, in its outcome, had mutual benefit to the subscribers and assessee. Substantial profit earned was passed on to the subscribers and there was only a minor profit shown by the assessee. Even if the said profit is applied fully to the main object of the assessee, it would not be an incidental activity for the attainment of the main objectives. The Tribunal agreed with the finding of the first appellate authority and specifically referred to the first proviso to Section 2 (15) to find that the Chitty business cannot be considered as incidental to the primary object of the assessee-Trust and hence, they are dis- entitled from claiming exemption under Section 11 . The reliance placed on the judgment of the Hon'ble Supreme Court in Dharmodayam Company was negated. The Tribunal was of the opinion that the said decision applies only to its facts and the same has been distinguished by the Hon'ble Supreme Court itself in Dharmaposhanam Company v. CIT [(1978) 3 SCC 414].

5. At the outset; we cannot accept the ground taken by the first appellate authority that the assessee would be dis-entitled to claim the exemption since the subscribers to the chitties profited from the business carried on. If the subscribers profited they would be taxed for the income in their hands and that would not result in denial of exemption, if the assessee is otherwise eligible.

6. We also have to notice that the Tribunal erred in brushing aside the dictum of the two judge Bench in Dharmodayam Company , since that decision was upheld by a Constitution Bench in Addl.CIT v. Surat Art Silk Manufacturers' Association [(1980) 2 SCC 31], which is later in time to the three judge Bench decision in Dharmapo