Income earned by trust from business activities eligible for exemption if primary objects were charitable
HIGH COURT OF MADRAS
Commissioner of Income-tax, Madurai
Janakiammal Ayyanadar Charitable Trust
Tax Case (Appeal) Nos. 1566 & 1567 of 2005
Date of Pronouncement – September 18, 2012
Mrs. Chitra Venkataraman, J.
The Revenue is on appeal as against the order of the Tribunal relating to the assessment years 1990-91 and 1991-92.
2. It is seen from the narration of facts herein that the assessee Trust herein was created on 30.04.1957 mainly for educational and charitable purposes. The founders gifted the land and the business run in the name of “The National Papercaps Factory” with a stipulation that the said business shall be run by the trustees and the income therefrom shall be utilised for charitable objects.
3. During the relevant previous year, the trustees were stated to have carried on the business and claimed exemption under Section 11 of the Income Tax Act, in respect of the income earned therefrom. The claim for exemption under Section 11 made by the assessee was negatived by the Assessing Officer on the ground that the same was hit by Section 11(4A), that there was no evidence to hold that the business of manufacture and sale of paper caps carried on by the assessee Trust was in the course of actual carrying on of the primary objects. In so holding, the Assessing Officer relied on the decision in CIT v. Virudhunagar Hindu Nadars Abiviruthi Panchukadai Mahamai  219 ITR 303. Aggrieved by the same, the assessee went on appeal before the Commissioner of Income Tax (Appeals). Following the decision of the Apex Court in Thiagarajar Charities v. Addl. CIT  225 ITR 1010 and the order in the assessee’s own case in respect of the assessment year 1994-95, the the assessee’s appeal was allowed. Aggrieved by this, the Revenue went on appeal before the Income Tax Appellate Tribunal. Following the decision in CIT v. Samyuktha Gowda Saraswatha Sabha  245 ITR 242 and Thanthi Trust v. CBDT  213 ITR 639 (Mad.), the Tribunal rejected the Revenue’s appeal. Aggrieved by the same, the Revenue has preferred this appeal raising the following substantial questions of law:
“1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee trust is eligible for the exemption of the income arising out of the business carried on by National Paper Caps and rental income, under Section 11?
2. Whether in the facts and circumstances of the case, the income received by the assessee charitable trust is hit by the provision of Section 11(4A) and
3. Whether the ratio of the Supreme Court’s judgment in the case of Thanthi Trust (246 ITR 785) is not squarely applicable to the facts and circumstances of the case? “
4. Even though the Tribunal had not given any finding as regards the primary purpose, yet, a reading of the order of the Income Tax Officer shows that the Officer had considered the clauses in the trust deed to arrive at the finding that the primary object of the Trust are charitable in nature and that the property given was impressed with the character of trust property. Having held so, the Officer, nevertheless, pointed out that there was no evidence to hold that the business of manufacture and sale of papercaps, carried on by the trust in the name of The National Papercaps Factory, was in the course of the actual carrying on of the primary objects; hence, the Trust was not entitled to claim exemption under Section 11 of the Income Tax Act. The Officer rejected the assessee’s reliance on the decision in Thiagarajar Charities (supra). With the finding of fact arrived at by the Officer that the primary purpose of the Trust was charitable in nature, in the face of Section 2(15) and Section 11(4A) read with Section 13(1)(bb) of the Income Tax Act, we have no hesitation in confirming the order of the Tribunal.
5. We have already considered the issues raised herein in a similar order in CIT v. P. Iya Nadar Charitable Trust [Tax Case (Appeal) Nos. 259 to 261 of 2004, 987 to 991 of 2005, 1547 to 1549 of 2005 and 675 of 2008 by order dated 18.09.2012] and rejected the Revenue’s Tax Cases by applying the law declared by the Apex Court in the decision reported in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association  121 ITR 1 and Thiagarajar Charities (supra) and we have distinguished the said case from the decision in Asstt. CIT v. Thanthi Trust  247 ITR 785.
6. Even though the Tribunal had not considered the issue as a final fact finding authority, with no disputes raised by the Revenue on the facts and on the facts admitted by the Assessing Officer, we have no hesitation in rejecting the Tax Cases preferred by the Revenue and confirming the order of the Tribunal.
In the result, these Tax Cases (Appeals) stand dismissed. No costs.