Lodha, C.J. - (1.) BY this order we propose to dispose of two Income-tax References Nos. 14 of 1975 and 29 of 1976 as well as four applications under Section 256(2) of the I.T. Act, 1961 (hereinafter referred to as "the Act"). Both the references have been made by the Income-tax Appellate Tribunal, Jaipur Bench, at the request of the assessee, Umaid Charitable Trust, Pali-Marwar. Reference No. 14 of 1975 pertains to the assessment years 1967-68, 1968-69 and 1969-70 and Reference No. 29 of 1976 is with regard to the assessment year 1970-71. The question of law referred to us in Reference No. 14 of 1975 reads thus : " Whether, on the facts and circumstances of the case, and also in view of the certificate granted by the Commissioner of Income-tax under Section 80G of the Income-tax Act, 1961, the income of M/s. Umaid Charitable Trust, Pali was entitled to exemption under Section 11 of the Income-tax Act, 1961, read with Section 2(15) of the same Act for the assessment years 1967-68, 1968-69 and 1969-70 ? "
(2.) THE question referred in Reference No. 29 of 1976 is also the same except that the year of assessment is different, viz., the assessment year 1970-71. For all the four assessment years, viz., 1967-68, 1968-69, 1969-70 and 1970-71, the assessee, Umaid Charitable Trust, Pali-Marwar has also submitted applications under Section 256(2) of the Act, which have been registered as Income-tax Cases Nos. 211/1975, 212/1975, 213/1975 and 232 of 1976, respectively, and it has been prayed that the Tribunal may be directed to refer one more question of law to this court. THE question proposed in these cases is as follows : " Whether there is any evidence or basis to support the finding of the Tribunal as a fact that one of the objects of 'the trust' was to own property and carry on the business or activity for profit ? " However, having addressed arguments on the question referred for our decision by the Tribunal, learned counsel for both the parties submitted that since the decision of the case turns upon the interpretation of the trust deed, it would not be necessary to direct the Tribunal to refer any more questions of law to this court. We, therefore, proceed to decide the references. The assessee, M/s. Umaid Charitable Trust, Pali, was constituted under a trust deed dated August 27, 1963 (annex. ' A '), by the Maharaja Shri Umaid Mills Ltd., a company having its registered office at Pali. During the assessment years under consideration, the assessee had earned commission as area managers of M/s. Laxmi Cement Distributors (P.) Ltd., but did not show the income in its return on the ground that the income earned by the assessee was not liable to income-tax as the same had been derived from a business undertaking held under trust for charitable purposes, and had been applied to such purposes in India in terms of Section 2(15) and Section 11 of the Act, The ITO, however, did not agree with the assessee and assessed the income derived by the assessee from its business activity. Copies of the assessment orders dated March 24, 1972, for the assessment years 1967-68, 1968-69 and 1969-70 have been submitted along with the reference, and are marked annexs. ' B ', ' C ' and ' D ', respectively, in Reference No. 14 of 1975. Similarly, copy of assessment order dated March 25, 1973, for assessment year 1970-71 has been annexed to Reference No. 29 of 1976 and is marked annex. 'F'. Aggrieved by the orders of the ITO, the assessee filed appeals before the AAC against the assessment orders for all the four assessment years. The AAC by his order dated October 3, 1972 (annex. 'E'). allowed the appeal in respect of the assessment years 1967-68, 1968-69 and 1969-70, and held that the assessee was entitled to exemption from income-tax under Sections 2(15) and 11 of the Act. A copy of the AAC's order has been placed on the record and is marked annex. ' E ' (Reference No. 14 of 1975). Dissatisfied with the order of the AAC the department filed an appeal before the Tribunal which by its order dated January 31,1974 (annex. ' F '), allowed the appeal, set aside the order by the AAC and restored that of the ITO holding that the business undertaking carried on by the assessee was one of the objects of the trust, and, therefore, the assessee was not entitled to the benefit of the provisions of Section 2(15) read with Section 11 of the Act. Thereupon, the assessee made an application to the Tribunal to state the case and refer the questions of law arising out of its appellate order to this court. The Tribunal allowed the assessee's application and has thus referred the question of law extracted above for the decision of this court in Reference No. 14 of 1975. As already stated above, the assessee had also filed an appeal from the order of the ITO before the AAC in respect of the assessment year 1970-71, but by the time the appeal came up for hearing the Appellate Tribunal had already decided the case against the assessee in respect of the assessment years 1967-68 to 1969-70, and, therefore, the AAC by his order dated February 19, 1974 (annex. 'C'), dismissed the assessee's appeal. Aggrieved by the order of the AAC, the assessee filed further appeal before the Appellate Tribunal which, following its earlier order dated January 31, 1974, dismissed the assessee's appeal by its order dated July 26, 1975 (annex. 'E'--Reference No. 29 of 1976), in respect of the assessment year 1970-71 also. Consequently, the assessee made an application for making a reference to this court under Section 256(1) of the Act before the Tribunal and the Tribunal has referred the same question for the year 1970-71. It appears that there was conflict of decisions among different High Courts in regard to the true interpretation of the words "not involving the carrying on of any activity for profit" occurring in Section 2(15), but fortunately now the controversy has been set at rest by a decision of the Supreme Court by a Bench of five judges in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1. Since, the said judgment is the last word on the point, we do not consider it necessary to delve into a discussion of the various authorities of the High Courts and the earlier authorities of the Supreme Court. The subject, it appears to us, has been discussed threadbare by their Lordships in Surat Art Silk Cloth Manufacturers Association's case [1980] 121 ITR 1 (SC) and we shall, therefore, only state here the principles laid down by the Supreme Court in that case, and see whether after applying those principles to the present case, the assessee can be held to be entitled to the benefit of Clause (15) of Section 2 and Section 11 of the Act. But, before we do so, it may be proper to read Clause (15) of Section 2 as well as the relevant portions of Section 11 : "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." "11. (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 or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent. of the income from such property ;... (2) Where seventy-five per cent. of the income referred to in Clause (a) or Clause (b) of Sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely :--... (4) For the purposes of this 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 or religious purposes."
(3.) IN Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) Bhagwati J., representing the majority view of four judges (Sen J., dissenting), observed as follows (pp. 13, 17, 25): "If, therefore, the dominant or primary purpose of the assessee was charitable, the subsidiary objects set out in Sub-clause (b) to (e) of Clause (3) would not militate against its charitable character and the purpose of the assessee would not be any the less charitable.... It is clear on a plain natural construction of .the language used by the legislature that the ten crucial words ' not involving the carrying on of any activity for profit' go with ' object of general public utility ' and not with ' advancement'. It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by these last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. That is not the mandate of the newly added words. What these words require is that the object should .not involve the carrying on of any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. The decisions of the Kerala and Andhra Pradesh High Courts in CIT v. Cochin Chamber of Commerce and INdustry [1973] 87 ITR 83 (Ker) and Andhra Pradesh State Road Transport Corporation v. CIT [1975] 100 ITR 392, in our opinion, lay down the correct interpretation of the last ton words in Section 2, Clause (15). The true meaning of these last ten words is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit." Then again, at page 25, his Lordship observed as follows : "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 Shikshana 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 on of any activity for profit would be satisfied if profit making is not the real object'. We wholly endorse these observations." Thus, it would be clear that according to the latest view of the Supreme Court an activity involved in carrying out charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out the charitable purposes. It would not be correct to draw invariably an inference that whenever an activity is carried on which yields profit, the activity must be deemed to be for profit and the charitable purpose involves a carrying on of activity for profit. In other words, the object must be of general public utility, that is, it must not involve the carrying on of any activity for profit, but if for advancement of that object it becomes necessary to carry on any activity for profit, such an activity could not detract from the charitable purpose. That the legislature did not intend to debar a trust created for charitable purpose from holding property under trust including a business undertaking is clearly borne out by the language of Sub-section (4) of Section 11 which lays down that for the purpose of this section property held under trust includes a business undertaking so held. Thus, taking into consideration the provisions of Sub-section (4) of Section II, it is clear that a business undertaking can be held for charitable purpose but the object of the trust must not be the carrying on of any activity for profit. ;