COMMISSIONER OF INCOME TAX vs YENNARKAY RAJARATNAM CHARITIES

R. JAYASIMHA BABU, J.:

Two questions have been referred to us. The assessment years are 1978-79 to 1981-82. The questions referred to us are :

(1) ""Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee''s claim for exemption u/s 11

of the Income Tax Act was riot hit by s. 13(1)(bb) of the Act and consequently its income was exempt u/s 11 ?

(2) Whether the Tribunal is correct in law in holding that the income derived by the assessee from exploitation of trade-mark was not a business

activity for the purpose of s. 13(1)(bb) of the Income Tax Act, 1961?

The assessee is a charitable trust constituted under a deed of trust dt. 13th March, 1955. The author of the trust, Yennarkay Rajarathnam, was

the owner of the trade-mark ""Sun Flower"" and ""Kanthi Flower"", both of which were registered trade-marks, The primary object of the trust was

to pay 90 per cent of the income to Yennarkay Rajarathnam Welfare Centre, which was registered as a charitable institution under the Societies

Registration Act. The balance of 10 per cent was meant to provide scholarship to students for undergoing university or technical course in India or

aboard. The assessee was assessed as a charitable institution originally. In 1980-81 the Income Tax Officer found that on as the trust was carrying

on business in exploiting the commercial assets, namely, the trade-marks for the purpose of the trust, it would not be eligible for exemption u/s 11

of the Act. It was the view of the Income Tax Officer that by operation of s. 13(1)(bb) of the Act, the assessee became ineligible to claim

exemption for its income u/s 11. In his view, the exploitation of the trade-mark amounted to carrying on business and that business was not one

which was being carried on in the course of actual carrying out of the primary purpose of the trust.

The Commissioner (Appeals) having agreed with the view of the Income Tax Officer, the assessee appealed to the Tribunal. The Tribunal

upheld the assessee''s claim. Hence, this reference.

The trust deed has not been produced before us. We were referred to the extracts of the trust deed set out in para 6 of the order of the

Tribunal- The clauses extracted are as under :

5(a) Out of the net income of the charities the trustees shall pay 90 per cent to Yennarkay Rajarathnam Welfare Central Sivakasi, a charitable

institution registered under the Societies Registration Act,

(b) the balance amount of 10 per cent of the income shall be applied for providing scholarships to students for undergoing university and or

technical courses in India or abroad., and

(c) any balance amount left over after giving scholarship shall be applied in the subsequent years for giving smaller scholarships.

The Tribunal has found that the trade-marks were given to the trust to be held in trust for being exploited and derive income therefrom which

income was to be applied in the manner set out in sub-cls, (a) to (c) of cl. 5 of the trust deed, extracted above.

it is, therefore, clear that the exploitation of the trade-marks was a business which were held in trust, the trade-marks were also held in trust and

the income derived from such exploitation was required to be applied to the charitable purposes mentioned in the trust deed.

It is evident that the charitable purposes would remain unaccomplished if there is no income to the trust as it is only that income which and be

used to carry out the charities. The trade-marks must be necessarily exploited in order to derive that income. The activity of deriving income in the

circumstances was clearly an activity which is capable of being regarded as a business carried on in the course of actual carrying out of the primary

objects of the trust.

Even otherwise, the business being the one which was held in trust, s. 13(1)(bb) would not come in the way of the trust claiming exemption

under S. 11 of the Act, having regard to the decision of this Court in the case of Thanthi Trust Vs. Assistant Commissioner of Income Tax, .

The primary purpose of the trust cannot be carried out unless the income is derived from the exploitation of the trade-mark. The Tribunal was

right in holding that the business was one carried on in the course of carrying on the primary purpose of the trust.

This Court in the case of Commissioner of Income Tax Vs. Thanthi Trust, held that the business of running newspaper which business was held

in trust was a business which was carried on for carrying out the charitable object set out in the trust deed, the primary object being education and

medical relief. The Court held that business was carried on as a business in the course of actual carrying on the primary purpose of the trust and

not as an end in itself.

In this case also, the trade-marks are not being exploited as an end, in itself or as a business which is not carried on for carrying out the

charitable purpose. The income from the exploitation of the trade-marks wad to meant for application in the manner set out in cl. 5 of the trust

deed. The manner in which the trust was created clearly establishes that the business was one which was to be carried on in the course of achieving

the primary purposes of the trust. The business was first vested in the trust and the income derived therefrom was to be applied for the purpose of

satisfying the objects specified in the trust deed. The business was not one started after the trust had come, into existence, merely with a view to

earn income.

Counsel for the Revenue contended that the exploitation of the trade-mark has no direct nexus with the charitable objects and, therefore, it

cannot be regarded as a business which is carried on in the course of carrying out of the primary purpose of the trust. No formula is set out in the

Act for determining which set of businesses can be regarded as compatible with different types of charity. What is required by the statutory

provision is that there must exist an unbreakable link between the business and the charitable activity. If the business is held in trust, and the income

derived therefrom is to be applied solely for charitable purposes, such business is capable of being regarded as one which is carried on in the

course of actual carrying out the, primary purposes of the trust.

Counsel for the Revenue referred us to the decision of this, Court in the case of Commissioner of Income Tax Vs. Virudhunagar Hindu Nadars

Abiviruthi Panchukadai Mahamai, . On facts this Court in that case held that it was not shown by the assessee therein that the business of

decorticating and ginning were carried on by the there m the course of the actual carrying out of the primary objects of the trust. That decision is

not, therefore, of any assistance to the Revenue.

It is always a question of fact as to whether the business is one which is carried on in the course of actual carrying out of the primary purpose

of the trust. The relevant principles of law should no doubt be applied while making that determination. The Tribunal has held in this case that the

business was in fact carried on in the course of actual carrying out of the primary purpose of the trust. The finding is one which we find no reason

to differ from. Reference is, therefore, answered in favour of the assessee and against the Revenue.