COMMISSIONER OF INCOME-TAX VS DHARRNADEEPTI, 2000 PTD-KERALA-HIGH-COURT-INDIA 2576 (1998)

(a) Income-tax--

----Charitable purpose---Charitable trust---Business expenditure---Scope of S.13(1)(bb)---Assessee engaged in business of running Kuries---Income of assessee from Kuri business was income from property "hew under trust" for charitable purpose---Trust created for public charitable purposes and business carried on in course of actual carrying out of primary purpose of trust-- Entitled to exemption---Insertion of S.13(1)(bb) will not disentitle right of assessee to exemption---Indian Income Tax Act, 1961, Ss.l4(1)(a) & 13(1)(bb).

The assessee-company engaged in the business of running Kuries claimed that the income from the Kuri business was held under trust and was applied for charitable purposes and, therefore, it was entitled to exemption under section 11 of the Income Tax Act, 1961, on the basis of the Supreme Court decision in Dharmadeepti v. CIT (1978) 114 ITR 454, rendered in the case of the assessee itself, wherein the Supreme Court held that running of Kuri business was exempted under section 11 for the, assessment year 1969-70. The Assessing Officer rejected the claim for exemption on the ground that the decision was valid until the year 1976-77 but in view of the amendment to section 13(1)(bb), any income of a charitable institution from business or profession is not entitled to exemption under section 11, unless the business itself is carried on in the course of the actual carrying out of the primary object of the institution and that the. assessee-company is only appropriating the income from business and using it for charitable purposes and not earning the income during the course of carrying out the primary objects of the company. On appeal, the Commissioner (Appeals) affirmed the order of the Assessing Officer. On further appeal, the Tribunal, relying on the Supreme Court decision in the case of the assessee itself, held for the assessment years 1982-83 to 1984-85, that the income of the assessee from the Kuri business was the income derived from property "held under trust" for charitable purposes and as such was entitled to exemption under section 11(1)(a) and that the insertion of section 13(1)(bb) would not oust the right of the assessee to claim exemption. On a reference:

Held, (i) that the primary purpose of the trust was to carry out the charitable objects and the business was carried on as a means in the course of the actual carrying out of that primary purpose and not as an end in itself. That while the predominant object of the trust was the carrying out of the charitable objects referred to in the categories of charitable purposes referred to in section 2(15), the carrying on of the business which was actually the property held under trust or other legal obligation was incidental and the profit resulting from the business was only a by-product. Therefore, the trust was, entitled to exemption under section 11.

(ii) That the provisions of section 13(1)(bb) were not applicable in respect of the Kuri business which itself was the property held under trust.

(iii) That the inters on investment of the funds accumulated all the years could not be said to be business income that could be assessed to tax only under the head Other sources

(iv) That the assessee consistently claimed exemption under section 11 notwithstanding section 13(1)(bb) having been inserted in the Act. Therefore, when the assessee gave up a particular ground, the Tribunal was justified in considering the. ground on the merits on the basis that there was no estoppel against law.

Thanthi Trust v. CIT (Asst.) (1995) 213 ITR 626 (Mad.) fol.

CIT (Addl.) v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC) and Dharmadeepti v. CIT (1978) 114 ITR 454(SC) ref.

(b) Income-tax---

----Income from other sources---Charitable trust ---Assessee engaged in running Kuri business---Interest on investment of funds accumulated---Not income from business of running Kuries---Assessable as income from "other sources".

(c) Income-tax---

----Reference---Estoppel---Assessee giving up particular ground---Tribunal justified in considering ground on merits on basis that there was no estoppel against law.

N. R. K. Nair for the Commissioner.

V. M. Kurian, A. V. Thomas, E. K. Dilraj and Mathew B. Kurian for the Assessee.

JUDGMENT

OM PRAKASH, C. J. ---Heard counsel for the appellant.

The Income-tax Appellate Tribunal, Cochin Bench, referred the following questions relating to consecutive assessment years 1982-83 to 1984-85 for the opinion of this Court:

"(1) Whether, on the facts and in the circumstances of the case and in view of section 13(1)(bb) of the Income-tax Act, assessee is entitled to exemption under the Income-tax Act?

Whether the provisions of section 13(1)(bb) are inapplicable in respect of business which itself is the property held under trust?

(3) Whether, on the facts and in the circumstances of the case, the interest on investment of surplus fund could he assessed under the head "Business"?

(4) Whether, on the facts and in the circumstances of the case, when the assessee's counsel gave up ground No.2 the Tribunal is justified in considering the ground on merits on the basis that 'there is no estoppel against law' and is -not the above consideration based on the principle of estoppel wrong since the principle is available only to the parties to the dispute?"

We take up questions Nos. 1 and 2 first for consideration.

The assessee a public limited company is engaged in the business of running kuries. The contention of the assessee is that the income from the kuri business held under trust was applied for charitable purposes and therefore, it- is entitled to exemption under section 11 on the basis of the Supreme Court decision in Dharmadeepti v. CIT (1978) 114 ITR 454 rendered in the case of the assessee itself, wherein the Supreme Court held that running of kuri business is exempted under section 11 for the assessment year 1969-70.

The Assessing Officer rejected the contention of the assessee in the following words:

"This decision was valid until 1976-77, but in view of the amendment to the Income-tax Act introduced in-section 13(l)(bb), any income of a charitable institution from business or profession is not entitled to exemption under section 11 unless the business itself is carried on in the course of the actual carrying out of the primary object of the institution. The assessee-company is appropriating the income from business and using it for charitable purposes and not earning the income during the course of carrying out the primary objects of the company. The decision of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association (1980) 121 ITR 1, also discounts the contention of the assessee that it is earning its income during the course of the actual carrying out of the primary objects. In the. circumstances, the assessee's case is covered by section 13(1)(bb) and, therefore, no exemption can be granted under section 11. "

The assessee then carried the dispute in appeal to the Commissioner of Income-tax (Appeals), who held that after the insertion of section 13(1)(bb) in the Income-tax Act, with effect from April 1, 1977, the decision of the Supreme Court in Dharmadeepti v. CIT (1978) 114 ITR 454, in the case of the assessee itself would not be applicable and exemption under section 11 could not be claimed on the strength of that decision by the assessee.

Thereupon, the assessee went up in appeal to the Income-tax Appellate Tribunal which disposed of the appeal relating to the consecutive assessment years 1982-83 to 1984-85 by a common order, dated December 2, 1993. The Appellate Tribunal, notwithstanding the amendment in the act inserting section 13(1)(bb), relied on the Supreme Court decision in Dharmadeepti v. CIT (1978) 114 ITR 454, in the case of the assessee itself for the assessment year 1969-70 and held as under:

"In the case of the assessee, the apex Court has held in clear terms that the income of the appellant from the kuri business was the income derived from the property 'held under trust', for charitable purposes of the appellant and as such was entitled to exemption in relation thereto under section .1-1_(1)(a) of the Income-tax Act. The insertion of section 13(1)(bb) -in our opinion will not in any way oust the right of the assessee-to exemption. "

The only question for consideration is as to whether the assessee will become disentitled to the exemption under section 11 after insertion of section 13(1)(bb) in the Act. -

Exactly the same controversy arose in Thanthi Trust v. Asst. CIT (1995) 213 ITR 626, before the Madras High Court. In that case the petitioner-trust was created for the purpose of establishing a Tamil daily (Daily Thanthi) by the founder of the said newspaper who was carrying on the business of printing and publishing of the said newspaper as a sole proprietor since 1942. By another supplementary deed, the founder directed that the surplus income of the said trust should be devoted by the trustees for the charitable purposes, namely, running educational institutions for teaching journalism, arts and science, setting up scholarship, hostels and other educational purposes. In the course of assessment for the years 1979-80 to 1983-84, the respondent raised the objection regarding the claim of exemption under section 11 of the Act on the ground that by virtue of section 13(1)(bb) of the Act the trust is not entitled to claim exemption. The Madras High Court held that the founder of the trust has clearly evinced an intention to create a public charitable trust as seen from the preamble and clause of the original trust deed and the charitable objects referred to in the supplementary deed have to be fulfilled from and out of the income from the business which is directed to be held under trust. It was held that it is to carry out and fulfil those objects, the business is being carried on and thus the primary purpose is to carry out the charitable objects and the business is carried on as a means in the course of the actual carrying out of that primary purpose and not as an end in itself. The Court continued to observe that while the predominant object of the trust is the carrying out of the charitable objects referred to in two of the three categories of charitable purposes referred to in section 2(15), the carrying on of the business which is actually the property held under trust or other legal obligation is incidental and the profit resulting from the business can be taken to be a by-product. This is how the Madras High Court held that the respondent was not right in denying the exemption to the petitioner-trust under section 11 of the Act for the assessment years 1979-80 to 1983-84 simply on account of section 13(1)(bb) being inserted in the Act. We quite agree with the view taken by the Madras High Court in Thanthi Trust (1995) 213 ITR 626, and following the same we answer question No. l in favour of the assessee and against the Revenue. So far as question No.2 is concerned, we are of the view that the provisions of section 13(1)(bb) are applicable to the facts of this case and yet the assessee is entitled to exemption under section 11 of the Act for all these years in question.

Coming to question No.3, the contention of the assessee before the Assessing Officer was that the interest received on the deposits should be assessed under the head "Other sources". The Assessing Officer rejected that contention and brought to tax interest income under the head "Business income". The standing counsel made a feeble attempt before us to canvass the view taken by the Assessing Officer in this behalf. The Appellate Tribunal held as under:

"We have also gone through the list of fixed deposits made under surplus funds since 1972. Barring income from those deposits which are invested as deposit under section 15 of the Chitties Act, the income from other deposits cannot be considered as income from business as such deposits have come into the surplus funds of the trust by means of accumulation over the years. Hence, the interest income from non-business deposits can be taxed under other sources and cannot be considered as income from business of running kuries. "

We fully agree with the reasoning given by the Appellate Tribunal in this behalf. Interest on the investment of the funds accumulated all the years cannot be said to be business income and that can be brought to tax only under the head "Other sources". So far as the last question is concerned, it is worth pointing out that the Appellate Tribunal formulated ground Nos.2, 3. and 4 in the beginning of its order. According to the Tribunal, "they were common grounds raised in these appeals".

In paragraph 3, the Tribunal observed as under:

"Shri V. M. Kurian, learned Advocate for the assessee, confined himself only to ground Nos.3 and 4 stating that he would give up ground No.2. In our considered opinion, there is no estoppel against law and counsel for the assessee is not permitted to withdraw ground No.2, the adjudication of which is rather very material and relevant for deciding the issue before us."

It is in this backdrop, learned standing counsel urged before us that when ground No.2 was explicitly given up by counsel for the assessee, the Tribunal was not right in deciding the said ground holding that there was no estoppel against law. It is not pointed out from the records that the assessee ever gave up the claim for exemption under section 11(1). The assessee-consistently claimed exemption under section 11, notwithstanding section 13(1)(bb) having been inserted in the Act by amendment. The matter viewed in this light, the statement made by counsel for the assessee is of no significance. We, therefore, answer all the questions against the Revenue and in favour of the assessee.

The references are, accordingly, disposed of.

M.B.A./4133/FCOrder accordingly: