- (1.) 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 assesment years 1964-65, 1965-66 and 1966-67. 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(15) of the Income-tax Act, 1961, and that consequently its income for the assesment 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 assessee from the business carried on by it, though held under a 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. (c) 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 Section 11, as originally enacted, was couched in the following terms : "(1) Subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of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 applied to such purposes in India; and, where any 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; and where any such income in finally set apart for application 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 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 per cent. 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 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);