Addl. Commissioner of Income Tax vs Adarsh Gram Trust

Dwarka Prasad, J.—This reference has been made to this Court by the Tribunal, Jaipur Bench, by its order dated 11-6-1974 u/s 256(1) of the income tax Act, 1961 (''the Act''). The Adarsh Gram Trust, Sirohi (the asses- see), failed to make a return of its income in respect of the assessment year 1963-64, corresponding to the previous year ending on 31-3-1963. The ITO made the best judgment assessment u/s 144 of the Act on 21-6-1971. Thereafter proceedings for reassessment were initiated u/s 147(a), read with section 148 of the Act, with the previous approval of the Commissioner. In pursuance of the notice issued u/s 148, the assessee filed a return of its total income declaring nil income. The assessee claimed exemption from tax under the provisions of clause (22) of section 10 of the Act. The ITO held that the assessee was not entitled to exemption u/s 10(22), as it was not an educational institution existing solely for educational purposes and not for purposes of profit. On the basis of the account accompanying the return, it was evident that the only source of income of the assessee was from bank interest on deposits. The ITO also held that the income of the assessee was not exempt u/s 11 of the Act as some of its objects, namely, promotion of manufacture of khadi was really a trading activity resulting in commercial profits. In this view, the object of promotion and organisation of hand-weaving industry was in no way different from an activity of a trading concern and so the element of profit could not be eliminated. He also held that the residuary dominant object of the assessee-trust, namely, ''other constructive activities on the lines of the doctrine of Mahatma Gandhi'', is too vague and wide and does not admit of any precise definition. More over, such an object may not be of charitable nature as defined in section 2(15) of the Act. The ITO, consequently, completed the assessment by his order dated 8-11-1971 on a total income of Rs. 60,624.

The assessee filed an appeal before the AAC and claimed that the income of the assessee- trust is exempt from tax u/s 11(1)(a) as the property of the trust was held wholly for charitable or religious purposes and the income was also applied for charitable purposes in India. The AAC held that the asses see was a trust which was created wholly and exclusively for charitable purpose and as such its income was exempted from tax u/s 11(1)(a). He further held that 25 per cent of the total income of the assessee could be excluded from computable assessable total income of the assessee, in accordance with the provisions of section 11(1)(a). But as regards the balance amount out of the income of the assessee, the AAC held that the assessee was not entitled to exemption. Consequently, the AAC computed the total income of the assessee as Rs. 45,191. The department filed an appeal against the aforesaid order passed by the AAC before the Tribunal, Jaipur Bench, and submitted that the assessee was not a charitable trust at all and was not entitled to exemption u/s 11(1)(a). On behalf of the assessee, a copy of the order of the Tribunal dated 29-1-1972 was produced before the Tribunal, wherein a similar question was decided with regard to the assessee in connection with wealth-tax assessment. It was held by the Tribunal in that matter that the assessee-trust was created for charitable and religious purposes and was entitled to exemption u/s 5(1) of the Wealth-tax Act, 1957. The Tribunal, by its order dated 18-10-1973, agreed with the finding arrived at by the AAC and held that the assessee was a trust created wholly for charitable and public purposes and its income to the extent of 25 per cent was exempt from payment of tax u/s 11(1)(a). Then an application was made by the Additional Commissioner for making a reference to this Court. The Tribunal, by its order dated 11-6-1974, drew up a statement of the case and referred the following question of law, arising out of its order dated 18-10-1973 to this Court for its opinion:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was a public charitable trust whose income was exempt u/s 11(1)(a) of the income tax Act, 1961?"

The order of the Tribunal, Jaipur Bench, dated 29-1-1972 arising out of wealth-tax reference, holding that the assessee was a trust created wholly for charitable purposes and was entitled to exemption u/s 5(1)(i) of the Wealth-tax Act, has been upheld by a Bench of this Court, of which one of us was a member and an identical question of law arising out of the aforesaid order of the Tribunal dated 29-1-1972, has been answered in the affirmative, in favour of the assessee and against the revenue by this Court. We have considered the order passed by this Court in the wealth-tax reference and we express our agreement with the view taken by this Court in its order dated 3-12-1984 in CWT v. Adarsh Gram Trust [D.B. Civil WT Reference No. 53 of 1972]. As the assessee is a trust created wholly for charitable purposes, the income derived from its property held under trust was exempt from payment of income tax on account of the provisions of section 11(1)(a).

Thus, relying upon the decision of this Court in Adarsh Gram Trust''s case (supra) and adopting the reasons given therein, yet without repeating the same, we hold that the assessee-trust is a public charitable trust, whose income was exempt from payment of tax u/s 11(1)(a). Consequently, we answer this reference also in the affirmative and in favour of the assessee and against the revenue. The parties are, however, left to bear their own costs.