Kerala H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee is entitled to exemption under s. 11 of the IT Act, 1961 ?

Counsel Appeared

Menon, for the Revenue : P. Balachandran, for the Assessee

S. PARIPOORNAN, J.:

At the instance of the Revenue, the Tribunal (in short, “the Tribunal”) has referred the following question of law for the decision of this Court : “Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee is entitled to exemption under s. 11 of the IT Act, 1961 ? “

The respondent (assessee) is a charitable trust. It was formed as per deed dated January 30, 1970. As the name itself indicates, its object was for affording medical relief to the poor by establishing hospitals, nursing schools, etc. The ITO, construing the trust deed, held that since the trustees were carrying on a business in textiles, for the purpose of financing the construction of a hospital at Palai in a land taken on lease, it is pursuing an activity of general public utility and so the assessee did not qualify for exemption under s. 11 of the IT Act. In appeal, the CIT (Appeals) held that cls. 2 and 3 of the trust deed should be construed together and not in isolation and in that perspective, the trust is entitled to relief under s. 11 of the Act. In the appeal filed before the Tribunal by the Revenue, the Tribunal, after perusing the relevant clauses in the trust deed and placing reliance on the decision of the Supreme Court in Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1, concurred with the decision of the CIT (A). It is, thereafter, at the instance of the Revenue, and in pursuance of the directions of this Court in 0. P. No. 7355 of 1982, that the Tribunal has referred the question of law, formulated hereinabove, for the decision of this Court.

We heard counsel. Counsel for the Revenue submitted that in accordance with cl. 3 of the trust deed, the trust is carrying on business in textiles for the purpose of financing the construction of a hospital at Palai on a land taken on lease and this involves an activity for profit. It was submitted that in so far as the trust carries on the business in textiles, it will come only under the last or the fourth limb of s. 2(15) of the IT Act. The trust is carrying on an activity for profit ; it is not entitled to exemption under s. 11 of the Act. On the other hand, counsel for the assessee submitted that cl. 2 of the trust deed contains the objects of the trust. Admittedly, it specifies medical relief, relief of the poor and education all of them are, admittedly, charitable objects, coming under s. 2(15) of the Act. It was submitted that the last limb of cl. 2 in the deed specifies only such other acts of general public utility which, in the context, should be understood as “other acts of public utility” akin to the prior clauses occurring in cl. 2. It was further submitted that cl. 3 of the trust deed is only a power vested in the trustees to generate or augment the income of the trust so as to effectuate the carrying on of the objects of the trust specified in cl. 2 of the trust deed. It is self- evident that cl. 3 of the deed is not the object of the trust, but only a power vested in the trustees to pursue means to generate or augment the income of the trust.

4. We considered the rival contentions pressed before us on behalf of the Revenue and on behalf of the assessee. Clauses 2 and 3 of the trust deed are as follows : “Cl. 2 : The objects for which the trust is created shall be to give relief to the poor, sick and the deserving by establishing hospitals, nursing homes, asylums, sanatoriums, nursing schools and other training institutions, reading rooms, libraries, health and recreational centres, rehabilitation centres, housing colonies, to do all activities which would help the sick, poor, disabled, convalescent, and/or otherwise handicapped and to do such other acts of general public utility. (underlining ours).

5. Cl. 3 : Subject to the laws in force, the trustees shall be entitled to hold raffles, lotteries, exhibitions, shows, dramas, balls or other forms of entertainment or collection drives for the purpose of raising money and/or make collections or accept donations and grants from the public or the Government or to carry on any business, to build and/or otherwise let out buildings and other assets for finding money for carrying out the objects of the trust.”

6. It cannot admit of any doubt that the objects specified in cl. 2 of the trust deed, stated above, are only objects relating to medical relief, relief of the poor and education. They are admittedly charitable purposes within the meaning of s. 2(15) of the Act. The tail end portion of cl. 2, when it refers to “such other acts of general public utility”, can only refer to acts of public utility, which are akin to or similar to the prior or earlier clauses of cl. 2. The CIT (A) as also the Tribunal have taken the same view. In our opinion, the said view is plainly right. So, the tail end clause “such other acts of general public utility” should be and is confined to such other activities relating to “medical relief, relief of the poor and education”, which will admittedly come within the first three clauses of s. 2(15) of the Act. The only other question is whether cl. 3 can be construed as an ” object of the trust”. We should state that even on a bare perusal of cl. 3, it is evident that cl. 3 only enunciates or specifies the power of the trustees to raise funds by certain methods for finding money for carrying out the objects stated in the trust deed. One of them is by carrying on any business. The income so obtained from business is only to find money for carrying out the objects of the trust. It is only to facilitate the carrying on of the charitable objects of the trust specified in cl. 2. Clause 3 cannot, by any stretch of reasoning, be construed to be the “object of the trust”. It is only a power given to the trustees to do certain things to find money. The objects of the trust and the powers of the trustees to be exercised in effectuating the objects are distinct and different. The object and the power-power and purpose-are sometimes not distinctively and with clarity, stated. So also the corpus of the trust is still different from the “object” and the “power”. But it is for the Court to scan the entire deed and understand distinctly the three different and distinct things-the corpus, the object and the power-See CIT vs. Shri Shaila Industrial and Spiritual Colony Charities (1973) 87 ITR 175 (Ker). Once it is established that the objects of the trust are “charitable purposes”, the fact that the trustees are authorised to carry on business to find funds for the trust in order to effectuate the objects of the trust is of no relevance and the exemption available under s. 11 of the Act cannot be denied Surat Art Silk Cloth Manufacturers Association’s case (supra). The surplus, if any, remaining after meeting the objects of the trust specified in cl. 2 of the trust deed can be added or converted as forming the “corpus of the trust”. With the above aspects in mind, if we scan cls. 2 and 3 of the trust deed, they will unambiguously point out that the objects of the trust, as per cl. 2, are only to afford medical relief, relief of the poor and education ; cl. 3 is only a power vested in the trustees to augment or raise or find funds for meeting the obligations cast on the trust by cl. 2 of the trust deed, by taking any one or other steps contemplated in cl. 3 of the trust deed. On these premises, we have no doubt in our mind that the Tribunal was right in holding that the respondent (assessee) is entitled to exemption under s. 11 of the IT Act. We answer the question referred to us in the affirmative, in favour of the assessee and against the Revenue.

7. A copy of this judgment under the seal of this Court and the signature of the Registrar will be forwarded to the Tribunal, Cochin Bench.

[Citation : 181 ITR 512]