K.C. Srivastava, Accountant Member -
(1.) THIS appeal by the assessee is directed against the order of the AAC relating to the assessment year 1977-78. The assessee-trust was formed by a deed of trust executed o 1-7-1964. The settlor of the trust was one Shri Purshotam Dass, who had settled an amount of Rs. 5,000 on the trustees for carrying out the purposes of the trust. It was provided in the deed that the trustees would be possessed of the basic corpus of Rs. 5,000 and the other additions, accretions or donations as well as the property or business, which may be added later. The trustees had to hold the properties and utilise the income for the administration of the trust and to apply the balance for the purpose of the trust. The objects of the trust as given in clause 6 are as under:
(a) Establishment and/or acquisition and maintenance of schools, colleges and other institutions for imparting education and training of the students in such lines of courses as the trustees may from time to time deem lit.
(b) Declaration of prizes for schools, colleges or other educational institutions.
(c) Establishment and maintenance of hostels and/or boarding houses and grants of free boarding and lodging to poor and deserving students studying in any schools, colleges and educational institutions or receiving education or training and upon such terms and for such period in each case as 'The Trustees' may deem fit.
(d) Grant monetary assistance including scholarships and/or loans to poor students, whom the trustees may deem to be deserving thereof, to enable them to receive such education, training and qualification as academical, professional, vocational, industrial, commercial, technical, scientific, physical, sociological, journalistic and arts and crafts and upon such terms and for such period in each case as the trustees may deem fit.
(e) Supply of books, food and clothes, schools or colleges fees to poor students or grant of monetary assistance to them for such purposes.
(f) The promotion of science, art, education and learning in all its branches.
(g) Establishment, maintenance and support of hospitals, dispensaries with or without medical school, nursing homes or institutions, convalescent homes or any of them for treatment of patients suffering from diseases or accident and unable otherwise to obtain such accommodation, care, nursing and attention as may be required for their proper treatment and in which they shall remain confined to bed and on such terms and conditions and for such period as the trustees may prescribe or in which they may be advised or treated as out-patients.
(h) Grant if subscriptions and donations to hospitals, dispensaries, convalescent homes, asylums, nursing homes, orphanages and other public institutions for administering medical relief to the poor upon such terms and conditions and for such periods as 'The Trustees' may think fit.
(i) Grant of medical help to the poor and deserving persons.
(j) Distribution of free clothing to the poor.
(k) Establishment, maintenance or support of sanatoriums, dharamshalas and orphanages.
(1) Subscriptions, contributions and/or donations to any public funds devoted to public charitable objects or to any institutions for advancement of any object of general public utility.
(m) (i) Relief by means of pecuniary or other help in shape of monthly or other periodic allowance or allowances or otherwise to such persons as shall in the opinion of 'The Trustees' be in strained circumstances or otherwise unable to maintain themself and may be deserving support.
(ii) Like relief to the blind or the infirm or otherwise diseased persons.
(iii) Like relief including by way of donation and subscription to any charitable institution or institutions having for its main or other objects the alleviation of human suffering or the care, maintenance or protection or the relief of old, infirm, blind, lame or otherwise diseased persons or poor persons or having any other object of public charitable nature.
(iv) Assistance and encouragement in a like manner to the poor in matters of education or in the promotion or acquisitions by them of knowledge of any science or art or mechanical or industrial arts or in receiving technical education or in setting them up in any business, trade, profession or calling so as to enable them to earn their livelihood.
(n) Constructions and maintenance of and support of public works including highways, bridges, walls, tanks, supply or water and of lights.
(2.) The trustees had a discretion to keep the surplus in its present form to convert the same or part thereof and invest the same in any industry or business undertaking which they thought fit. They could also deposit with any other firm, company, corporation or bank and also obtain securities of stock and shares, etc., for completion of the objects of the trust, the trustees were given certain powers, which are normal for such accomplishment. One of the powers given was to purchase immovable properties and start any industry or any other business undertaking. Other powers were of a general nature. The first trustees were also named in the trust deed. The trust had been allowed exemption in earlier years.
For the assessment year 1977-78, the ITO noted that while some of the objects fall in the category of relief the poors, education or medical relief, some of the objects were objects of general public utility. The ITO passed his order on 9-10-1979, i.e., before the decision of the Supreme Court in the case of Addl. CIT v. Swat Art Silk Cloth Manufacturers' Association  121 ITR 1. The ITO was of the view that insofar as the objects of the general public utility are concerned, the carrying on of business would disentitle the assessee from exemption under Section 11 of the Income-tax Act, 1961 ('the Act'). He found that the trust was carrying on a business of certain fabrication works, for which there was a factory and charges for fabrication were received. There was also sale of yarn and cloth, besides the receipt to fabrication charges. The trust had also received income from interest and from rent.
(3.) THE ITO was of the view that the assessee's income was not entitled to exemption under Section 2(15) of the Act, and in this connection, he considered several decisions of the Supreme Court pronounced prior to the decision in the case of Surat Art Silk Cloth Mfrs.' Association (supra). It was pleaded before the ITO that although the objects listed in the trust deed included some purposes of general public utility, the assessee had never undertaken activities for such purposes of general public utility. According to the assessee, the activities of the trust were confined to the first three legs given in the definition of 'charitable purpose' in Section 2(75), namely, relief to the poor, education and medical relief. THE ITO, however, referred to the provisions of Section 13(1)(bb) of the Act, which had been introduced with effect from 1-4-1977. He observed that the benefit of exemption was taken away in case the objects are for relief to the poor, education and medical relief, if the income is derived from any business unless the business is carried on in the course of actual carrying out of a primary purpose of the trust. THE plea of the assessee that the primary purpose has to be looked into to find whether the trust was charitable or not, was not accepted by the ITO. He observed that the new provision provided that the business, if any, should be carried on in the course of carrying out of a primary purpose of the trust. THE ITO held that in the present case the business carried on by the trust could not be held to be in the course of carrying out a primary purpose of the trust. THE ITO came to the conclusion that the assessee was not entitled to exemption of its income as provided in the provision of Section 11. THE ITO then proceeded to determine the rate of the tax to be applied and held that the shares of the beneficiary were not known and hence the provision of Section 164(1) of the Act was applicable. He, therefore, applied the maximum marginal rate. He proceeded to compute the income at Rs. 18,250.;