Commissioner of Income Tax vs Nahata Charitable Trust

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 and having regard to the provisions of Section 2(15) of the Act, the Appellate

Tribunal was right in holding that the assessee is a charitable institution and that its income is exempt u/s 11 of the Act ?

(2) Whether, on the facts and in the circumstances of the case and having regard to the trust deed dated September 19, 1969, and the agreement

dated July 1, 1970, with Vijayalakshmi Pictures, the Appellate Tribunal''s view that the objects of the assessee-trust are charitable within the

meaning of Section 2(15) of the Act, is sustainable in law ?

(3) Whether the Appellate Tribunal''s view that the predominant object of the assessee-trust was to promote relief of the poor, advancement of

education and medical relief, is based on correct appreciation of the trust deed dated September 19, 1969, and a reasonable one to take, on the

facts of the case ?

The correctness of the order of the Tribunal holding that the assessee-trust is entitled to exemption as a charitable institution notwithstanding the

fact that it had carried on business for profit, namely, exhibition of pictures, has been called into question by the Revenue in this reference, relating

to the assessment years 1974-75 to 1976-77.

The trust known as Nahata Charitable Trust was created under the deed dated September 19, 1969. A perusal of the object clause shows that

the objects of the trust are to promote the relief of the poor, advancement of education, medical relief, spiritual and cultural advancement and other

objects of general public utility. The provisions of the trust include a provision conferring powers on trustees to carry on business.

A charitable trust is not to be denied exemption u/s 11 of the Income Tax Act, 1961, solely on the ground that it carries on business. The

Tribunal has rightly followed the decision of the Constitution Bench of the apex court in the case of Additional Commissioner of Income Tax,

Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, . That decision of the Constitution Bench has been reiterated by the later decision by

the apex court, recently, in the case of Thiagarajar Charities v. Addl CIT : [1997]225ITR1010(SC) . It is not the case of the Revenue that the

objects of the trust are not charitable. The only ground on which the exemption was denied by the Assessing Officer was that the trust had entered

into an agreement with one Vijayalakshmi Pictures and that agreement resulted in the trust undertaking a business activity. As held by the apex

court in the case of Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, and in the case of Thia-

garajar Chanties v. Addl. CIT : [1997]225ITR1010(SC) , carrying on business by a trust alone, would not render the trust ineligible for exemption

u/s 11 of the Act.

The questions referred to us, at the instance of the Revenue, are, therefore, answered in favour of the assessee and against the Revenue. The

assessee shall be entitled to cost in the sum of Rs. 1,000.