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PETITIONER:

M/S. THIAGARAJAR CHARITIES, MADURAI

Vs.

RESPONDENT:

THE ADDITIONAL COMMISSIONER OF INCOME TAX AND ANR.

DATE OF JUDGMENT: 24/04/1997

BENCH:

K.S. PARIPOORNAN, K. VENKATASWAMI, B.N. KIRPAL

ACT:

HEADNOTE:

JUDGMENT:

J U D G M E N T

Paripoornan,J.

The appellant is a trust. The Trust was created on

4.6.1962. The trust called "Thiagarajar Charities" is an

assessee to income tax. In this batch of appeals, we are

concerned with the three assessment years 1964-65,1965-66

and 19966-67. A common question of law arises for

consideration herein. The Income-tax Appellate Tribunal

referred two identical questions of law for the above three

years, to the High Court of Madras for its decision. The

questions of law referred for the above three years are as

follows:-

"Whether on a proper construction

of the trust deed dated 4.6.62, the

Tribunal was right in holding that

the objects of the trust are not

for charitable purposes within the

meaning of the said expression as

defined in Section 2(15) of the

Income tax Act, 1961, and that

consequently its income for the

assessment years 1964-65 and 1965-

66 is not exempt from tax under

section 11 of the Income-tax Act

1961?"

"Whether on a proper construction

of the trust deed dated 4.6.1962

the Tribunal was right in holding

that the objects of the trust are

not for Charitable purposes within

the meaning of the said expression

as defined in Section 2(150 of the

Income-tax Act, 1961, and that

consequently its income for the

assessment year 1966-67 is not

exempt from tax under Section 11 of

the Income tax Act, 1961?"

(emphasis supplied)

2. The Income-tax Appellate Tribunal as also the High

Court of Madras held that the income derived by the

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assessee from the business carried on by it, though held

under trust could not be said to be exempt from tax under

Section 11 of the Income-tax Act. The High Court rendered

the decision by a common judgment dated 23.12.1977 in

T.C.Nos. 182 and 252/74. This Court by order dated 3.3.1980

in S.L.P @ Nos. 2453-2455/79 granted special leave to appeal

to the assessee-appellant to file the appeals from the

judgment of the Madras High Court aforesaid. That is how the

present appeals are before us.

3 The short question that arises for our consideration in

this batch of cases is, whether the appellant-assessee-trust

is entitled to exemption under Section 11 read with Section

2(15) of the income-tax Act, 1961, as the relevant

provisions stood then.

2(15) "charitable purpose" includes relief of the poor,

education, medical relief, and the advancement of any other

object of general public utility-not involving the carrying

on of any activity for profit."

Section 11, as originally enacted, was couched in the

following terms:

"(1) Subject to the provisions of

sections 60 to 63, the following

income shall not be included in the

total income of the previous year

of the person in receipt of the

income- (a) income derived from

property held under trust wholly

for charitable or religious

purposes, to the extent to which

such income is accumulated for

application to such purposes in

India, to the extent to which the

income so accumulated is not in

excess of twenty five per cent of

the income from the property or

rupees ten thousand, whichever is

higher;

(b) income derived from property

held under trust in part only for

such purposes the trust having been

created before the commencement of

this Act, to the extent to which

such income is applied to such

purposes in India, to the extent to

which the income so set apart is

not in excess of twenty-five per

cent of the income from the

property held under trust in part;

(c) income from property held under

trust- (i) created on or after the

1st day of April, 1952, for

charitable purposes which tends to

promote international welfare in

which India is interested, to the

extent to which such income is

applied to such purposes outside

India, and

(ii) for charitable or religious

purposes, created before the 1st

day of April, 1952, to the extent

to which such income is applied to

such purposes outside India:

Provided that the Board, by general

or special order, has directed in

either case that it shall not be

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included in the total income of the

person in receipt of such income.

Explanation.-For the purposes of

clauses(a) and (b), in computing

twenty-five percent of the income

from any such property as is

referred to in the said clauses for

any previous year, the income from

such property for the year

immediately preceding the previous

year may be adopted, if that income

is higher than the income for the

previous year.

(2) Where the persons in receipt of

the income have complied with the

following conditions, the

restriction specified in clause(a)

or clause (b) of sub-section(1) as

respects accumulation or setting

apart shall not apply for the

period during which the said

conditions remain complied with-

(a) such persons, have, by notice

in writing given to the Income-tax

Officer in the prescribed manner,

specified the purposes for which

the income is being accumulated or

set apart and the period for which

the income is to be accumulated or

set apart, which shall in no case

exceed ten years; (b) the money so

accumulated or set apart is

invested in any Government security

as defined in clause(2) of section

(2) of the public Debt Act,

1944(XVIII of 1944), or in any

other security which may be

approved by the Central Government

in this behalf.

(3) Any income referred to in sub-section (1) or sub-

section (2) as is applied to purposes other than charitable

or religious purposes as aforesaid or ceases to be

accumulated or set apart for application thereto or is not

utilised for the purpose for which it is so accumulated in

the year immediately following the expiry of the period

allowed in this behalf shall be deemed to be the income of

such person of the previous year in which it is so applied,

or ceases to be so accumulated or set apart or; as the case

may be , of the previous year immediately following the

expiry of the period aforesaid.

(4) For the purposes of the section property held under

trust' includes a business undertaking so held, and where a

claim is made that the income of any such undertaking shall

not be included in the total income of any such undertaking

shall not be included in the total income of the persons in

receipt thereof, the Income-tax Officer shall have power to

determine the income of such undertaking in accordance with

the provisions of this Act relating to assessment; and where

any income so determined is in excess of the income as

shown in the accounts of the undertaking , such excess shall

be deemed to be applied to purposes other than charitable

and religious purposes and accordingly chargeable to tax

within the meaning of sub-section(3)."

(emphasis supplied)

4. The Trust Deed dated 4.6.1962 is to the following

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effect:

"This Indenture of Trust made this Fourth day of June,

1962 by (1) Sri Karumuttu Thiagarajan Chettiar, son of

Muthukaruppan Chettiar, Hindu, Nattukottai Chettiar,

son of Sri Karumuttu Thiagarajan Chettiar, Hindu,

Nattukottai Chettiar, all residing at "Meenakshi

Nilayam", Tirupparankundram Road, Madurai, hereinafter

referred to as "the Authors of the Trust".

Whereas the Authors of the Trust are desirous of

founding a Public Charitable Trust for the purposes, ends

and objects hereinafter set forth.

And whereas for such charitable purposes, the Authors

have set apart a sum of Rs. 11,000/- (Rupees Eleven Thousand

Only) and declare hereby that the said sum shall form the

nucleus of the Trust.

NOW THIS INDENTURE WITNESSETH AS FOLLOWS:

1. The Authors hereby create a Public Charitable Trust

hereinafter referred to as THIAGARJAR CHARITIES (hereinafter

referred to as the Trust) for the purposes, ends and objects

hereinafter following:

a) To establish, maintain run

develop, improve, extent, grant

donations for and to aid and assist

in the establishment, maintenance,

running, development, improvement

and extension of Elementary

Schools, Secondary Schools, High

Schools, Colleges, Universities,

Workshops, Weaving, industrial,

technological and other Art, Craft

and Science Institutes, Schools and

Institutions of Tamil or snskrit

learning, Hostels for the benefit

of students and generally all kinds

of educational institutions whether

general, technical, vocational,

professional or of other

description whatsoever for the

welfare and uplift of the general

Indian Public and to institute and

award scholarships in India for

study, research, apprenticeship for

all or any of the said purposes.

(b) To establish, maintain, run,

develop, improve, extend, grand

donations for and to aid and assist

in the establishment, maintenance ,

running, development, improvement

and extension of libraries reading

rooms, recreation centres and all

other facilities as are calculated

to be of use in imparting education

to the Indian Public.

(c) To establish, maintain, run

develop, improve extend, grant

donations for and to aid and assist

in the establishment, maintenance ,

running, development, improvement,

and extension of Hospital ,

clinics, dispensaries. sanateria,

maternity homes and all similar

insitutions as will afford

treatment , cure, rest,

recuperation and other allied

advantages in the way of

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alleviating the sufferings of

humanity.

(d) To build, erect and construct

and to aid and assist in the

building erection and construction

of houses, tenements and places of

residence for the poor, needy and

defectives and to afford them all

comforts and conveniences.

(e) To conduct poor feeding and

generally to give food and clothing

to the poor, needy and defectives

and to afford relief to people in

distress and affected by

earthquake, flood famine,

pestilence and other accidents and

conduct or grant donations for the

support of the inmates of

orphanages.

(f) To help, assist and give aid to

the fathers, or other natural

guardians, or near relatives or

indigent and unmarried girls for

the marriages of such girls.

(g) To engage in, carry on , help,

aid and assist and promote, rural

reconstruction work, cottage

industry and all other matters

incidental thereto in India-

(h) The above objects shall be

independent of each other and the

Board of Trustees as hereinafter

constituted may, from time to time,

apply the Trust properties in

carrying out all or any of the

aforesaid objects of the Trust as

they may deem fit.

2. The Authors do hereby constitute themselves as the

First Trustees of the Trust for their lives. On the death of

any of the Authors of the Trust, his senior most male lineal

descendent shall succeed as Trustee in his place for his

life. The said Trustees shall have authority at any time

and from time to appoint or coopt other persons not

exceeding four to be Trustees to act along with themselves.

3. The Trust properties shall consist of the sum of Rs.

11,000/- provided to the Trust by the Authors as

hereinbefore mentioned and all and every other moneys and

properties gifted conveyed and transferred to the Trust by

any person whatsoever for the purpose of carrying out the

objects of the Trust hereby created and shall also include

any income derived by the investment of Trust properties

shall include any business undertaking held or carried on by

the Trust Properties and in particular, the expression Trust

properties shall include any business undertaking held or

carried on by the Trust.

4. Sri Karumuttu Thiagarajan Chettiar shall be the

first Managing Trustee and he shall hold office for life,

unless he voluntarily relinquishes the office and thereafter

the senior most amongst the remaining Authors, failing which

the senior-most male lineal descendent of Sri Karumuttu

Thiagarajan Chettiar shall become the Managing Trustee and

such Managing Trustee shall hold office for his life.

5. The term of office of a Trustee save that of the

Authors of the Trust, their descendants as mentioned in

clause 2 and the Managing Trustee shall be three years from

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the date of his appointment but he shall, in the discretion

of the other Trustees, be eligible for re-appointment.

6. Whenever any person appointed as Trustee disclaims

or any such Trustee either original or substituted dies or

is for a continuous period of six months absent from Indian

Union or leaves Indian Union for the purpose or residing

abroad or desires to be discharged from the Trust or refuses

or becomes in the opinion of a principal Civil Court of

original jurisdiction unfit or personally incapable to act

in the Trust or accepts as inconsistent trust or is

otherwise disqualified. a new Trust or accepts as

inconsistent trust or is otherwise disqualified a new

Trustee may be appointed in his place by the Managing

Trustee with the approval of the majority of the remaining

Trustees, if any.

7. All the Trustees including the Managing Trustee for

the time being of the Trust shall be referred to

collectively as the Board of Trustees and the Board of

Trustees shall have the following powers in regard to the

investment of all or any part of the Trust properties.

(a) To invest in any securities of

the Central or State Government.

(b) To invest in the purchase of

any leasehold or freehold lands or

buildings and in the construction

of any buildings any land belonging

to the Trust.

(c) To invest in Fixed Deposits,

Current or other accounts in any

Scheduled Bank.

(d) To invest in shares, debentures

or bonds of any public Company or

corporation incorporated in India.

(e) To invest in any business

undertaking of whatsoever nature to

be carried on by the Trust.

(f) To invest moneys in any

business undertaking for the

purpose of acquiring and carrying

on any business undertaking such as

Managing Agency, Selling Agency or

Purchasing Agency of any Company,

or Corporation in India.

Provided that nothing hereinbefore contained shall be

deemed to authorise any of the Trustees for the time being

to advance any of the Trustees for the time being to advance

any of the Trust properties as loans to any of the Trustees.

Such business undertaking may be carried on individually by

the Trust or in partnership or in combination with any other

person or persons.........................."

(Clauses 8 to 31 have been omitted as they are not

relevant.)

"32. The business of the Board of Trustees shall be

dealt with either at the meetings of the Board of Trustees

or by resolution in circulation....................."

(emphasis supplied)

(Clauses 33 to 36 have been omitted as they are not

relevant.)

5. A True copy of the Resolution of the Trust Board

dated 6.6.1962 available at pages 30-31 of the Paperbook, is

to the following effect:

"True copy of the resolution dated

6.6.1962. True copy of the

resolution passed by the board of

Trustees at the Meeting held on 6th

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June, 1962 "MEENAKSHI",

Tirupearankundram Road, Maduria at

1 A.M.

PRESENT:

1. Sree Karumuttu Thiagarajan

Chettiar

2. Sri T. Sundaram Chettiar

3. Sree T. Manickavasagam

Chettiar.

Sree Karumuttu Thiagarajan Chettiar

took the Chair.

The following resolution were

unanimously passed:

1. ..................

2. Resolved to undertake and carry

on the business of purchase and

sale of cotton, cotton yarn and

cloth or other fibres both

wholesale and retail and the

Managing Trustee be and is hereby

authorised to take the necessary

steps in this behalf.

3. Resolved to appoint sree T.V.

Krishnamoorthy as Manager of the

Trust and to the Business aforesaid

and to authorise him to enter into

contracts for purchase and sale of

cotton, cotton Yarn and Cloth or

other fibres both for ready and

future delivery and to sign and

execute all contracts on that

behalf from time to time."

(emphasis supplied)

6. The Board Trustees commenced and carried on business

in the purchase and sale of cotton yarn as per the

resolution of the Board dated 6.6.1962, quoted

hereinabove. For assessment years 1964-65 and

1965-66 the relevant previous years being the

periods from 4.6.1962 to 31.5.1963 and from

1.6.1963 to 31.5.1964 respectively, the assessee

field returns disclosing "nil" income, thought,

according to the profit and loss account, it had

made a profit of Rs.8,72,550/- and Rs.13,14,269/-

respectively. The assessee claimed that the

business carried on by it and from out of which it

had derived income was on e held under Trust and

since the Trust was for charitable purposes, the

income was exempt from tax under Section 11 of the

Act. The Claim was rejected by the Income-tax

officer. He determined the total income as

Rs.8,72,550/- for the assessment year 1964-65 and

Rs. 13,14,269/- for the assessment year 1965-66.

In appeals, the Assistant Appellate Commissioner

by his orders dated 29.9.1969 and 22.4.1970 upheld

the plea of the assessee and directed the Income-

tax Officer to grant exemption . In further

appeals filed by the Revenue, the Appellate

Tribunal held that the objects covered by

paragraph(1) clause(g) of the Trust Deed did not

fall under the head "relief of the poor". The

Tribunal further held that the objects covered by

clause (g) would be covered by the fourth limb of

Section 2 (15) of the Act, namely, "object of

general public Utility" and held that the objects

stated in paragraph (1) clause (g) of the Deed

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involved carrying on of and activity for profit,

and applying the test laid down by a decision of

the Kerala High Court in C.I.T v Indian Chamber of

Commerce, (80 ITR 645) Concluded that the income

derived by the assessee from the business carried

on by it, though held under Trust, could not be

said to be exempt from tax under Section 11 of the

Act. All the authorities authorities followed the

decision rendered for the earlier assessment years

1964-65 and 1965-66 for the subsequent assessment

year 1966-67 without further discussion. The

References made to the High Court of Madras for

all three years were considered together and

agreeing with the Tribunal, the High Court held

thus:

"....But clause (g) provides for

the Trust carrying on cottage

industries and there is nothing in

the trust deed to show that there

is no profit motive.

....................... We are,

therefore, of the opinion that the

object of the Trust is also

carrying on an activity for profit

."

( emphasis supplied)

The High Court proceeded further

and held as follows:-

".....In the present case the

object mentioned in clause (g) is

one of general public utility and

it involves the carrying on of

activity for profit , namely the

business of purchasing and selling

cotton, cotton yarn and cloth and

other fibres, wholesale or retail,

which necessarily implies a motive

for profit. It would not fall

within the meaning of "Charitable

purpose" mentioned in Section 2(15)

of the Income Tax Act, 1961. In the

present case the Trustees have

absolute discretion to utilise the

funds of the Trust to the one or

the other of the several objects of

the Trust......................."

(emphasis supplied)

In coming to the above conclusion, the High Court of

Madras followed a Full Bench decision of the High Court of

Kerala in Commissioner of Income tax, Kerala v.

Dharamadeepti (100 ITR 375). It was held that the Trust is a

non-charitable Trust and the income realised by the Trust

from its business in cotton , cotton yarn , cloth etc. for

the assessment years 1964-65 to 1966-67 is not exempt from

tax under Section 11 of the Act.

7. We heard counsel, At the outset, we should highlight

one aspect, It appears that there is some patent mistake or

confusion in the approach made by the High Court . The Trust

Deed dated 4.6.1962 clause 1(g) is to the following effect:

"(g) To engage in , carry on, help,

aid and assist and promote rural

reconstruction work, cottage

industry and all other matters

incidental thereto in India-"

(emphasis supplied)

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The trust carried on the business of purchasing and

selling cotton, cotton yarn, cloth and other fibres

wholesale and retail, not in pursuance to clause (g)

aforesaid, but in pursuance to the power vested in it under

clause 7(e) read with clause 32 of the Trust Deed , which

are to the following effect:-

7.(e) "To invest in any business

undertaking of whatever nature to

be carried on by the Trust."

32. " The business of the Board of

Trustees or by resolution in

circulation."

(emphasis supplied)

Pursuant to the above power vested in the Trustees, a

Resolution Dated 6.6.1962, quoted in this judgment, was

passed by the Board which enabled the Trust to undertake and

carry on the business of purchasing and selling cotton,

cotton yarn and other fibres both wholesale and retail etc.

It is patent that the High Court of Madras wrongly assumed,

that it is in pursuance of clause 1(g) of the Trust Deed,

The Business of purchasing and selling cotton, cotton yarn

etc. was carried on by the Trust. We are afraid that there

has been a mixer-up of clause 1(g) of the Trust Deed and

Clause 7(e) read with clause 32 of the Resolution of the

Board dated 6.6.1962. The Appellate Tribunal denied

exemption to the assessee-Trust solely based on clause 1(g)

of the Deed. The Trust Deed Vested powers on the Trustees to

carry on any business as per clause 7(e) of the Deed. The

Board authorised the same by a separate Resolution dated

6.6.1962. The business so started was held under Trust. In

other words, as per clause 3 of the Trust Deed, the

business(so started or carried on) was a corpus of the

Trust. Clause 1(g) of the Deed had nothing to do with such

business, We are afraid that a misreading and

misunderstanding of the vital clauses of the Trust Deed and

the Resolution of the Trust Board-have resulted in the wrong

approach and conclusion of the Madras High Court in holding

that the appellant-Trust in the present case is a non-

Charitable Trust and that the income realised by the Trust

from its business of cotton , cotton Yarn etc. is not exempt

from tax under Section 11 of the Act. The High Court of

Madras came to the conclusion, as it did, based on a full

Bench decision of the High Court of Kerla in C. I. T. V.

Dharamadeepti (100 ITR 375). The said decision was reversed

by this Court in Dharmadeepti v. Commissioner Income-tax,

Kerala (114 ITR 454) . So, the very basis of the decision of

the High Court of Madras no longer exists.

8. Counsel on both sides addressed elaborate arguments

based on the Trust Deed dated 4.6.1962. The short question

is, whether the objects of the Trust will fall within the

first three categories mentioned in Section 2(15) of the

Act, namely, "relief of the poor, education , medical

relief' or will it fall under the fourth limb only and even

so, its impact herein? In interpreting or understanding the

Trust Deed one has to bear in mind the basic difference

between the corpus of the Trust, the objects of the Trust

and the powers of the Trustees. [See: Aditanar Educational

Institution v. Additional Commisioner of Income-tax, (1997

(1) SCALE 758); JT 1997(20 S.C.284]

It will be useful to remember the following passages in

the judgment of the Kerala High Court in Commissioner of

Income-tax Kerala v. Shri Shaila Industrial And Spiritual

Colony Charities [87 ITR 175 (at page 182)]:-

".........It drew a distinction between the objects in

a memorandum of association and the powers taken in the

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memorandum of association to carry out those objects.

Reliance had been placed on a decision of the Court of

Appeal in North of England Zoological Society v. Chester

Rural District Council (1959(3) ALL ER 116 C.A.) which in

turn referred to a decision of the House of Lords in Cotman

v. Brougham. [(1918) A.C. 514 (H.L.)] Lord Wrenbury

expressed the view in Cotman v. Brougham that there may be

included in the objects what are not real objects of the

company but are enabling powers to achieve the objects of

the company. A passage from the judgment of Lord Wrenbury at

page 522 may be extracted:

"The objects of the company and the

powers of the company to be

exercised in effecting the objects

are different things. Powers are

not required to be, and ought not

to be , specified in the

memorandum. The Act intended that

the company, if it be a trading

company, should by its memorandum

define the trade, not that it

should specify the various acts

which it should be within the power

of the company to do in carrying on

the trade. The Third Schedule of

the Act contains model forms of

memoranda of association. These

ought to be followed. Section 118,

sub-section (1), enacts that a

those forms or forms as near

thereto as circumstances admit'

shall be used in all matters to

which those forms refer.

There has grown up a pernicious

practice of registering memoranda

of association which, under the

clause relating to objects, contain

paragraph after paragraph not

specifying or delimiting the

proposed trade or purpose, but

confusing power with purpose and

indicating every class of act which

the Corporation is to have power to

do. The practice is not one of

recent growth. It was in active

operation when I was a junior at

the Bar. After a vain struggle I

had to yield to it, contrary to my

own convictions. It has arrived now

at a point at which the fact is

that the function of the memorandum

is taken to be, not to specify, not

to disclose , but to bury beneath a

mass of words the real object or

objects of the company with the

intent that every conceivable form

of activity shall be found included

somewhere within its terms."

The paragraphs relied on by counsel on behalf of the

revenue can be treated as powers distinct from the primary

objects of the company and they are meant to enable the real

purposes being achieved. The memorandum in question is one

wherein there has been a mingling of real objects with

powers. The real objects disclose charitable purposes and

the powers taken are merely to carry out the objects."

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(emphasis supplied)

[See also: Pennigton's Company Law (6th Edn.) page 13;

Palmer's Company Law (25th Edn.) Vol. I para 2.606, wherein

the law has been discussed in detail.]

9. The objects of the Trust have been clearly stated in

paragraph 1 of the Trust Deed. The main purpose and objects

of the Trust are education, medical relief and poor relief.

In that behalf, the Trust has been authorised to establish,

maintain, run etc. educational institutions, technological

and other institutes for the welfare and uplift of the

general Indian public; to assist in the establishment and

running of hospitals, clinics and dispensaries etc, to

assist in building and erection of houses and places of

residence for the poor; and to afford relief to the poor by

giving food, clothing and to help them in distress during

earthquake, flood famine, pestilence etc. In this

connection, we should notice clause 1(g) which is to the

following effect:

"(g) To engage in, carry on, help,

aid and assist and promote rural

reconstruction work, cottage

industry and all other matters

incidental thereto in India-"

Though this sub-clause is included among the "objects

clause", it is, really only a power. The language employed

in clause 1(g) itself suggests that it is a power vested in

the Trust to engage and promote etc. rural reconstruction

work, cottage industry and all other matters incidental

thereto, A three-member Bench of this Court in Dharmadeepti

v. C.I.T. Kerala (114 ITR 454) construed clause 3(b) of the

Deed in the said decision, specified among the objects

clause, as one really vesting powers, incidental or

ancillary to the attainment of the main objects in clause

3(a) therein, in the appropriate authority. (See page 458).

We should also bear in mind that this power is so vested in

this case, to effectuate the objects contained in clause

1(a) to establish, maintain schools, colleges, workshops

industrial, technological and other institutes etc. "of

Whatever description for the welfare and uplift of the

general Indian Public". "Rural reconstruction", necessarily

involves the uplift of the rural masses, and is directed for

the welfare of such people. Majority of such persons belong

to the "poor(or poorer) segments of the society". Similarly

"cottage industry" is associated with the idea of a small,

simple enterprise or industry in which employees, work in

their own houses or in a small place gathered together for

the purpose, using their own equipments and is usually found

in rural areas/places or so carried on, by the poor(or

poorer) section of the society. In substance, the above

activity, specified in clause (1)(g) is to afford "relief to

the poor". We understand clause 1(g) of the Trust Deed dated

4.61962 as only vesting a power in the Trustees to do

certain things to effectuate the main objects of the Trust

contained in clause 1(a) of the Deed - to start, run,

develop, educational, technical, vocational and other

institutions and institutes for the welfare and uplift of

the general Indian public. The power so vested in the

Trustees under clause (g) cannot be called as "the objects'

of the Trust. So understood, we have no hesitation to hold

that the Income-tax Appellate Tribunal and also the High

Court erred in construing clause (g) aforesaid as "object"

of the Trust enabling it to carry on a business with a

profit motive. Looked at from a different angle , and in the

alternative, it is clear that the business of purchasing and

selling cotton, cotton yarn, cloth and other fibres etc,

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was held under Trust; the said business was started in

exercise of the powers vested in the Trustees under clause

7(e) read with clause 32 of the Resolution dated 6.61962 and

in view of clause 3 of the Deed it is the "corpus" of the

Trust in reality, It is not and object of the Trust. so, it

cannot be said that the trust is carrying on (business)- an

activity for profit. The business - corpus - property held

under trust - produces or results in income, like any other

property. That is all . The business is only a "means of

achieving the "object" of the Trust ; it is a medium through

which the "objects" are accomplished. In this view, the

entire approach made by the Appellate Tribunal as also by

the High Court fails to give due effect to the Trust Deed as

a whole and is palpably erroneous and the resultant

conclusion is vitiated, in denying the exemption to the

appellant Trust. We hold accordingly .

10. Counsel for the apppellant-assessee drew our

attention to a decision rendered by a constitution Bench of

this court in Additional Commissioner of Income-tax,

Gujarat v. Surat Art Silk cloth Manufacturers Association

[(1980) 121 ITR 1], and contended that the dominant purpose

as could be gleaned from the various clauses of the Trust

Deed is only to sub-serve the charitable purpose and not to

earn profit and so, the appellant-assessee is entitled, in

any view of the matter.

[even if this case falls under the fourth limb of Section

2(15) ] to the exemption under Section 11 of the Act . Our

Attention was innovated to the following observations of

Bhagwati, j. (who delivered the judgment of the majority) at

pages 25-26 of the report which is to the following effect:

".........The test which has. therefore, now to be

applied is whether the predominant object of the activity

involved in carrying out the object of general public

utility is to subserve the charitable purpose or to earn

profit. Where profit-making is the predominant object of the

activity, the purpose, though an object of general public

utility, would cease to be a charitable purpose. But where

the predominant object of the activity is to carry out the

charitable purpose and not to earn profit, it would not lose

its character of a charitable purpose merely because some

profit arises from the activity. The exclusionary clause

does not require that the activity must be carried on in

such a manner that it does not result in any profit. It

would indeed be difficult for persons in charge of a trust

or institution to so carry on the activity that the

expenditure balances the income and there is no resulting

profit. That would not only be difficult of practical

realisation but would also reflect unsound principle of

management. We, therefore, agree with Beg J. when he said in

Sole Trustee, Loka Sikhshana Trust's case [1975] 101 ITR

234,256(SC) that:

"If the profits must necessarily

feed a charitable purpose under THE

terms of THE trust, the mere fact

that the activities of the TRUST

yield profit will not alter the

charitable character of the trust.

The test now is, more clearly than

in the past, the genuineness of the

purpose tested by the obligation

created to spend the money

exclusively or essentially on

charity."

The learned judge also added that the restrictive

condition "that the purpose should not involve the carrying

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on of any activity for profit would be satisfied if profit-

making is not the real object. "(emphasis supplied).

We wholly endorse these observations."

(emphasis supplied)

We are of the view that the above test is also

satisfied on the facts of this case.

11. It appears from the affidavit field by the

appellant-turst, which is available at page 142 of the

paperbook, that an aggregate sum of Rs.16,48,030/- was spent

for charitable purposes during the period from 4th June,

1962 to 31st May, 1967. The purposes are aid to the various

colleges, orphanages, relief to the poor and different

categories or types of education. It also; appears that in

one of the assessment years, the amount so applied is much

more than the total income. The facts available in the

records go to show that the profits or amounts earned in the

business fed the charitable purposes specified in the Trust

Deed. In other words, the amounts earned had been

essentially spent on charity . There can be no doubt that

profit making was not the real object of the Trust.

12. In the light of the above, we answer the question

referred to the High Court in favour of the assessee and

against the Revenue. We hold that the income derived by the

assessee from the business carried on by it, held under

trust, is exempt from income tax under Section 11 of the

Act. The common judgment of the Madras High Court dated

23.12.1977 rendered in T.C. Nos.182 and 252 of 1974, is set

aside and this batch of appeals allowed with costs including

Advocates' fees which is estimated at Rs.10,000/- in each

appeal.