IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED 08.10.2010 CORAM THE HONOURABLE MR. JUSTICE F.M.IBRAHIM KALIFULLA AND THE HONOURABLE MR. JUSTICE M.M.SUNDRESH TAX CASE (APPEAL) NOS.2112 TO 2116, 1812 OF 2008 AND 468 OF 2010 The Director of Income-Tax (Exemptions) Madras. .. Appellant in TC (A) Nos Nos.2112 to 2116 & 1812/2008 The Deputy Director of Income Tax (Exemption I) Chennai ..Appellant in TC (A) 468/10 Versus The Willington Charitable Trust 18/D, Rukmani Lakshmipathy Road Chennai – 600 008. ..Respondent in T.C.Nos.2112 to 2116/08 The Willington Charitable trust Chettinad House, Raja Annamalaipuram Chennai-28 ...Respondent in T.C.Nos.1812/08 & 468/2010 Tax Case Appeals filed Under Section 260-A of the Income-Tax Act, 1961, against the order of the Income-Tax Appellate Tribunal "B" Bench, Chennai, passed in I.T.A.No.1484/Mds/2000, dated 30.06.2006. I.T.A.No.1485/mds/2000 dated 30.6.2006, I.T.A.NO.1237/mds/2001 dated 30.6.2006,I.T.A.No.1739/mds/2002, dated 30.6.2006 and I.T.A.NO.238/mds/2003 dated 30.6.2006 and order of the Income -Tax Appellate Tribunal Madras 'C' Bench, passed in I.T.A.No.1422/mds/2006 dated 31.10.2007 and the order of the Income Tax Appellate Tribunal, 'D' Bench, Chennai, passed in I.T.ANo.2225/mds/2008, dated 26.6.2009 respectively. against the Order of the Commissioner of Income-Tax(Appeals -IX) Chennai in I.T.A. Nos.197/98-99 & 39/2000-01 dated 26.6.2000 for the the Assessment years 1996-97 and 1997-98 in ITA No.31/2001-02 dated 29.5.2001 for the Assessment Year 1998-99; the Commissioner of https://hcservices.ecourts.gov.in/hcservices/ Income- Tax(Appeals.XI) Chennai -34 in I.T.A.Nos.20 & 28/2002-03 dated 11.12.2002 for the Assessment Years 1995-96 and 2000-2001; in I.T.A.No.10/2004-05 and 71/2005-06 dated 23.2.2006 for the Assessment Year 2002-03; and the Commissioner of Income Tax(Appeals -XII) Chennai in I.T.A.No.388/2007-08 dated 21.8.2008 for the Assessment Year 2005-06 respectively. against the order of the Assistant Director of Income Tax (Exemption- I) Chennai-600 034 dt.4.12.1998 in PAN/GIR No.1646-T for the Assessment Year 1996-97,Deputy Director of Income Tax (Exemption-I) Chennai 600 034 dt.30.3.2000 for the Assessment Year 1997-98 dt.30.3.2001 for the Assessment year 1998-99, the Assistant Director of Income Tax (Exemption-I), Chennai-34, dt.27.3.2002 for the Assessment Year 1995-96 and dt.22.3.2002 for the Assessment Year 2000-2001; dt.31.3.2005 for the Assessment Year 2002-2003: and the Deputy Director of Income Tax (Exemption-I) Chennai -34 dt.3.12.2007 for the Assessment Year 2005-06 respectively. For Appellant in all cases : Shri.Patty B.Jeganathan For Respondent in all cases : Shri.V.Ramachandran Senior Counsel for M/s.Dr.Anita Sumanth C O M M O N J U D G M E N T M.M.SUNDRESH, J In view of the common issues involved in all these appeals between the same parties, they have been taken up together for passing a common judgment. 2.Challenging the orders of the Tribunal for the assessment years, 1995-96, 1996-97, 1997-98, 1998-99, 2000-01, 2002-03 and 2005- 06, respectively, the Revenue has come forward to file these appeals by raising the following substantial questions of law: "(i)When Section 11(1) read with Section 11(4) of the Income Tax Act exempts income from the business undertaking of the Trust to the extent it is applied for charitable or religious purpose, can Section 11(4)(A) of the Income Tax Act can be construed to have been incorporated for the very same purpose or to be construed restricting the scope of Section 11(4) of the Income Tax Act. (ii)When the Tribunal reverses the findings of the lower authorities to hold that a joint reading of Section 11(1), 11(4) and 11(4)(a) would mean to give exemption of the income from the business of the Trust irrespective of the nature of the business, if the income derived from the https://hcservices.ecourts.gov.in/hcservices/ business is applied to the objects and purposes of the Trust in the light of the fact by the Tribunal holding that there is no finding regarding the application of the income derived from the business can the Tribunal allow the appeal of the assessee instead of remanding the same for want of finding as to the applicability of the income." 3.Facts in brief:- 3.1.A Trust was started in the year 1924, by name "The Willington". The said Trust acquired a property bearing Door No.1/4, Marshalls Road, Egmore, Chennai – 600 008. Thereafter, a resolution was passed by the Trust on 27.02.1971 to constitute a Charitable Trust in the name of "The Willington Charitable Trust". The assessee's Trust Deed mentioned the objects such as, to establish, run or maintain educational, technical or technological institutions of all kinds in India for the benefit of the public, to award scholarshiips and stipends for education, to institute Lectureships and arrange lectures and establish endowments for such purposes and to institute and maintain or support hospitals, dispensaries etc. The Honourable High Court of Madras in C.S.No.76 of 1973 by its order dated 08.03.1973 has confirmed the consideration of the assessee Trust on the acquisition of the property mentioned above as the one vested with it as a Trust property. The assessee Trust is also registered under Section 12A(a) of the Income Tax Act, 1961 (hereinafter referred as "the Act". 3.2.The property purchased being an old building was demolished and two halls have been constructed by the assessee which have been let out as marriage halls and auditoriums. A part of the building is also used for running a hostel for women and another part of it has been used by letting it out to a bank on a rental basis. 3.3.The assessee filed its return claiming that the Income derived from the property held in Trust by the assessee is eligible for exemption under Section 11 of the Act. However, the assessing officer for the assessment years, 1995-96, 1996-97, 1997-98, 1998-99, 2000-01, 2002-03 and 2005-06, respectively has rejected the exemption sought for by the assessee by holding that in as much as the assessee was carrying on a commercial activity which is not incidental to the object of the Trust as required under Section 11 of the Act, the exemption cannot be granted. It was also held that the assessee has not complied with the provisions contained under Section 11(4)(A) of the Act by not maintaining separate books of accounts in respect of its income assessable under the said business. 3.4.The Commissioner of Income Tax (Appeals) has confirmed the order of the assessing officer for the years, 1995-96 and 2000- 01. However for the assessment years, 1996-97, 1997-98, 1998-99, 2002-03 and 2005-06, the appeals filed by the assessee were allowed. https://hcservices.ecourts.gov.in/hcservices/ Both the assessee as well as the revenue filed further appeals before the Tribunal for the above mentioned years. The appeals ended in favour of the assessee. Challenging the same, the revenue has filed the present appeals. 4.Findings of the Assessing Officer: 4.1.The Assessing Officer while rejecting the exemptions sought for by the assessee under Section 11 of the Act has held that in as much as the income has been derived by commercial activities such as, letting the building as marriage halls and auditoriums, apart from using the same for rental purposes and running a ladies hostel, such commercial activities cannot be termed as incidental to the objects of the Trust. Secondly, the Assessing Officer has held that the second condition required under Section 11(4)(A) of the Act of maintaining separate books of accounts is not satisfied. It was held by the Assessing Officer that the assessee is maintaining the books of accounts relating to the activities of letting out the auditoriums owned by it and it has been crediting the income of rent from Indian Bank and interest on fixed deposits etc., in the said account. The assessee has kept separate accounts only in respect of other activity of running the hostel for ladies and therefore, it has to be held that the second condition that the assessee should maintain separate books of accounts in respect of its income assessable under head "Business" is not satisfied. The Assessing Officer has also found that the assessee has filed an application under Form-10B as required under Section 11 of the Act for accumulating of the income for specified charitable purposes – towards the establishment of ladies college and construction of school building. 5.Findings of The Commissioner of Income Tax (Appeals): 5.1.The Commissioner of Income Tax (Appeals) has held that the assessee has been maintaining three sets of accounts such as, one set of books for the income from auditoriums as well as for interest receipts, one set of books for the income of the trust, wherein it accounts donations and interest receipt. The assessee accounted it's donation receipts from the occupants of the auditoriums in these books only. The assessee finally consolidated both the above accounts and prepared it's income and expenditure account as well as its Balance Sheet and one set of books for the income from the ladies hostel account and hence there is compliance of the condition stipulated under Section 11(4)(A) of the Act by maintaining separate accounts. The Commissioner of Income Tax (Appeals) has also held that in as much as the income derived by the assessee through its commercial activities is being used towards its object which is a charitable purpose, its activity of indulging in such a business is not a business activity independent of the objects of the Trust and the same has to be considered as incidental activity to the charitable activities. Therefore by holding so the Commissioner of https://hcservices.ecourts.gov.in/hcservices/ Income Tax (Appeals) allowed the appeals filed by the assessee except for the assessment years 1995-96 and 2000-01. In so far as the assessment years 1995-96 and 2000-01 are concerned, the Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Authority by holding that the construction for the college for women and the construction of school building cannot be said to be charitable objects of the assessee as the same would amount to utilisation of the income. Therefore, the appeals filed by the assessee for the above said years were dismissed against the assessee. 6.Findings of the Tribunal: 6.1.The Tribunal while reversing the orders of the Commissioner of Income Tax (Appeals) for the assessment years 1995-96 and 2000-01 and confirming the orders for the assessment years 1996- 97, 1997-98, 1998-99 and 2002-03 as well as 2005-06 has held that the objects of the assessee Trust are charitable in nature, the property has been held in Trust by the assessee, there is sufficient compliance of the books of accounts and the business income derived by the property held in Trust is surely incidental to the objects more so when the same is utilised for the above said purposes. Hence by holding so the Tribunal has allowed all the appeals filed by the assessee and dismissed the appeals filed by the Revenue. The Revenue has filed the present appeals, challenging the said orders of the Tribunal by raising the above referred substantial questions of law. 7.Heard Shri.Patty B.Jeganathan, learned counsel appearing for the appellant/revenue and Shri.V.Ramachandran, learned senior counsel for Mrs.Dr.Anita Sumanth appearing for the respondent/assessee and perused the written arguments filed by the counsels. 8.Submissions of the Revenue: 8.1.Shri.Patty B.Jeganathan, learned counsel appearing for the revenue submitted that when it is not in dispute that the income of the institutions derived by commercial activities such as running marriage halls, auditoriums and receiving rent is augmented by commercial activities. The said business cannot be held to be incidental to the attainment of the objects of the trust. In other words it is submitted that a business whose income is utilised by the trust for the purpose of achieving its objectives cannot be construed to mean that the same is incidental to the objects. Therefore, in as much as the business carried on by the assessee having no direct relationship to the objectives of the trust the mandate of Section 11 (4)(A) of the Act has not been complied with. The learned counsel submitted that the facts involved in the judgment of the Honourable Apex Court in ASSISTANT COMMISSIONER OF INCOME-TAX v. THANTHI TRUST [2001 247 ITR 785] are totally different and therefore the ratio laid down therein by the Honourable Apex Court does not have any https://hcservices.ecourts.gov.in/hcservices/ application to the present case on hand. The learned counsel strenuously submitted that in the said case one of the objective of the Trust is to run the newspaper which is not the case on hand. Moreover the assessee has demolished the old building and constructed the halls for business purposes and therefore it cannot be construed that the properties are held in trust by the assessee. 8.2.Shri.Patty B.Jeganathan, learned counsel appearing for the revenue further submitted that a combined reading of Section 11 (4) and Section 11(4)(A) of the Act would make it clear that even for a property held in trust, the Assessing Officer shall have the power to determine the income in accordance with the provision of the Act and if such income so determined is in excess of the income as shown in the accounts of the assessee such excess shall be deemed to be applied to purposes other than charitable or religious purposes. Therefore, Section 11(4)(A) of the Act should be made applicable only to those activities which are incidental to the attainment of the objects of the Trust. Hence it is submitted by the learned counsel that the business carrying on by the assessee is not one of the objectives mentioned in the Trust deed and hence exemption under Section 11(4)(A) of the Act is not applicable. 8.3.The learned counsel further submitted that the other condition mentioned under Section 11(4)(A) of the Act has also not been complied with by the assessee by maintaining separate books of accounts in relation to the business. The learned counsel submitted that in order to get the exemption under section 11(4)(A) of the Act, the said condition will have to be complied with by the assessee, which the Assessing Officer has rightly found as not complied with. The learned counsel without prejudice to his above submissions has stated that in as much as the Assessing Officer has not gone into the breakup figure of various heads of accounts given by the assessee, considering the scope of Section 11(4)(A) of the Act as well as Section 11(4) of the Act, the appeals will have to be allowed by remanding the cases to the Assessing Officer to decide the eligibility of the assessee to get the actual income exempted under Section 11(4) of the Act. The learned counsel has relied upon the judgment of the Honourable Division Bench in DIRECTOR OF INCOME-TAX (EXEMPTIONS) v. AVM CHARITIES [[2010] 323 ITR 27] in support of the above said contention. 9.Submissions of the assessee: 9.1.Shri.V.Ramachandran, learned senior counsel appearing for the assessee submitted that the property has been held in Trust by the assessee after its purchase and an order to that effect has been passed by this Honourable High Court in C.S.No.76 of 1973 in and by the order dated 08.03.1973. The assessee has been registered as a Charitable Trust under Section 12(A)(a) of the Act. There is no dispute regarding the object of the assessee Trust which pertains to educational institutions, health etc. The income derived from the https://hcservices.ecourts.gov.in/hcservices/ business of letting out the building has been utilised for the charitable purposes. 9.2.The assessee has also been maintaining three separate accounts. In view of the fact that a portion of building has been let out to M/s.Indian Bank within the auditorium premises, the same has to be necessarily to be included in the books of the said auditoriums. Both the Commissioner of Income Tax (Appeals) and the Tribunal have held on facts that the assessee has been maintaining three separate accounts and they are in compliance of Section 11(4) (A) of the Act. The assessee has complied with Section 11(1) and 11 (2) of the Act by utilising the income for the purpose of charity. The assessee has also filed Form-10 towards the accumulation of the income for the purpose of construction of educational institutions. 9.3.Section 2(15) of the Act has been suitably amended by removing the expression "not involving the carrying of any activity for profit with effect from 01.04.1984 while defining charitable purpose". Further Section 11(4)(A) of the Act has been amended with effect from 01.04.1992 which is more beneficial to the Trust than what was available prior to the said amendment. 9.4.The issue involved in the appeal that the activity carrying on by the Trust being business in nature is incidental to the objects of the Trust or not has been decided by the Honourable Apex Court in ASSISTANT COMMISSIONER OF INCOME-TAX v. THANTHI TRUST [2001 247 ITR 785]. The said judgment of the Honourable Apex Court was also followed by the Division Bench of this Honourable Court in COMMISSIONER OF INCOME-TAX v. SRI RAO BAGHADUR ADK DHARMARAJA EDUCATIONAL CHARITY TRUST [[2008] 300 ITR 365] and COMMISSIONER OF INCOME-TAX v. JANAKIAMMAL AYYANDAR TRUST [[2005] 277 ITR 274] etc. Therefore it is submitted that it is no longer open to the revenue to re-agitate the said issue which has become final. The learned senior counsel also submitted that this Honourable High Court has already held in COMMISSIONER OF INCOME-TAX v. HALAI NEMON ASSOCIATES [[2000] 243 ITR 439] that income received from a marriage hall is a business income. It is also submitted by the learned senior counsel by applying the doctrine of feeding the charity it has to be held that there is sufficient compliance of section 11(4)(A) of the Act. 9.5.In so far as the non compliance of the conditions stipulated under section 11(4)(A) of the Act by maintaining books of accounts for the income derived from the business is concerned, the learned senior counsel submitted that the Commissioner of Income Tax (Appeals) and the Tribunal have given clear factual findings that the same has been complied with through three separate accounts maintained by the assessee. Similarly, for the contention of the revenue that in as much as the authorities have mainly concentrated on the entitlement of the exemption under Section 11(4)(A) of the Act https://hcservices.ecourts.gov.in/hcservices/ and consequently the quantum of the exemption has not been gone into, the learned senior counsel submitted that the assessee has produced all those particulars in the written arguments submitted and in support of the same, he has also produced the relevant records before this Court. The learned senior counsel also submitted that the judgment in DIRECTOR OF INCOME-TAX (EXEMPTIONS) v. AVM CHARITIES [[2010] 323 ITR 27] is distinguishable on facts, since there is no finding regarding the compliance of the conditions mentioned under section 11(4)(A) of the Act. The learned senior counsel therefore submitted that the appeals deserve to be dismissed. 10.Whether profit and gains of the business would be incidental to the object of the assessee under Section 11(4)(A) of the Act:- 10.1.It is not in dispute that the assessee Trust holds the property in Trust. It is also not in dispute that the commercial activity is being carried on by the assessee by using the building as marriage halls, auditoriums etc. The assessee has filed its returns claiming that the income derived therein is being used towards its objectives which are charitable in nature. 10.2.In order to appreciate the rival contentions of the learned counsel appearing for both sides, it is useful to extract Section 11(4)(A) of the Income Tax Act, 1961. "11(4)(A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business." 10.3.Shri.Patty B.Jeganathan, learned counsel appearing for the revenue submitted that considering the scope of Section 11(4) vis-a-vis Section 11(4)(A) of the Act, it has to be held that until and unless the business as such is connected either directly or indirectly to anyone of the objectives of the assessee Trust, the same cannot be declared as incidental to such objectives. The learned counsel further submitted that in as much as the business activities are purely commercial in nature unlike in the case in ASSISTANT COMMISSIONER OF INCOME-TAX v. THANTHI TRUST [2001 247 ITR 785], the assessee is not entitled for exemption under Section 11(4)(A) of the Act. It is his further argument that the old building has been demolished and reconstructed by the assessee and therefore the same has not been held in trust. 10.4.Even though the argument of the learned counsel for the revenue is appealing and attractive, we are not able to accept https://hcservices.ecourts.gov.in/hcservices/ the said contention. The issue raised is no longer available for judicial review and scrutiny by this Court, since the same has already been decided by the Honourable Apex Court in ASSISTANT COMMISSIONER OF INCOME-TAX v. THANTHI TRUST [2001 247 ITR 785]. The judgment of the Honourable Apex Court referred above has also been followed by the Division Bench of this Court in COMMISSIONER OF INCOME-TAX v. SRI RAO BAGHADUR ADK DHARMARAJA EDUCATIONAL CHARITY TRUST [[2008] 300 ITR 365] and COMMISSIONER OF INCOME-TAX v. JANAKIAMMAL AYYANDAR TRUST [[2005] 277 ITR 274] and also by a recent judgment of this Court in COMMISSIONER OF INCOME-TAX v. SRI NARAYANA GURUVIAH CHETTY'S ESTATE and CHARITIES [[2010] 326 ITR 662]. The Honourable Apex Court in ASSISTANT COMMISSIONER OF INCOME-TAX v. THANTHI TRUST [2001 247 ITR 785 ] has observed as follows: "The substituted sub-section (4A) states that the income derived from a business held under trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the trust or institution if "the business is incidental to the attainment of the objective of the trust or, as the case may be, institution" and separate books of account are maintained in respect of such business. Clearly, the scope of sub-section (4A) is more beneficial to a trust or institution than was the scope of sub-section (4A) as originally enacted. In fact, it seems to us that the substituted sub-section (4A) gives a trust or institution a greater benefit than was given by section 13(1)(bb). If the object of Parliament was to give trusts and institutions no more benefit than that given by section 13(1)(bb), the language of section 13(1) (bb) would have been employed in the substituted sub-section (4A). As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilised by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The trust, therefore, it entitled to be benefit of section 11 for the assessment year 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business has https://hcservices.ecourts.gov.in/hcservices/ been employed to achieve its objectives of education and relief to the poor and that it has maintained separate books of account in respect thereof." (Emphasis added) 10.5.The Honourable Apex Court in the above said judgment was pleased to hold that what is sufficient is that the income derived from the business from a property held in trust by the assessee is utilised towards the attainment of the objectives. Therefore, it was held that it is irrelevant if the business is run on a commercial expediency with a profit motive. In view of the clear dictum of the Honourable Apex Court it is not open to this Court to go into the said question once again which is impermissible in law. More so, when the other Division Benches of this Court have also dealt with identical cases as the one on hand and taken the view in favour of the assessee. While dealing with an issue in a multi-judge Court, the judges are bound by precedents and procedure. Judicial decorum,