Law: Income Tax Act, 1961

Section: 2,2(15),11,13,13(1)(c),13(1)(bb),13(2)(a )

(a) Income-tax -----Exemption---Chartitable purpose---Charitable trust---Objects of trust education and relief of poor---That trustees given power to do business to achieve objects or trust---That some profit earned in course of activities--­Will not derogate from charitable nature of object-Indian Income Tax Act, 1961, Ss.2(15) & 13. The assessee-trust was formed by one P who was one of the founder-trustees of the assessee trust. He was also a partner in a firm called TPC, having a 30 per cent. share in the profits of the firm. The assessee-trust was formed with the following objects 1-y a deed of December 3, 1967: (a) to promote pious nature, patriotism, character, health and social reformation among the people; (b) to establish schools, library and hostels with a view to promote education among qualified students and also to provide scholarships to poor students; (c) to help the poor people, if necessary, in performing auspicious and other rites, constructing a Kalyana Mandapam attached to the temple at Annoor. The Income-tax Officer for the assessment years 1974-75, 1975-76 and 1979-80 held that the' assessee was not entitled to exemption under section 11 of the Income Tax Act, 1961, as the trust was running a chit fund business involving an activity for profit. He also held that the provisions of section 13(l)(c) of the Act had been offended since the funds of the trust were applied for the benefits of one of the trustees, viz., P, inasmuch as the firm had taken loans from the trust. He also held that under the provisions of section 13(l)(bb) of the Act, which was introduced by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1977, the assessee was not entitled to exemption for the assessment year 1979-80. The Tribunal confirmed this. On a reference: Held, (i) that the objects of the trust showed that the trust was formed with the objects of education and relief of the poor. A reading of the various clauses clearly showed that the clause empowering the trust to carry on the business could not be regarded as an object clause and it was only a power conferred on the trustees to carry on business. Once it was not an object of the trust,…

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