At, High Court of Judicature at Madras
By, THE HONOURABLE MRS. JUSTICE A. SUBBULAKSHMY & THE HONOURABLE MR. JUSTICE R. JAYASIMHA BABU
C.V. Rajan, P.P.S. Janarthana Raja, Advocates.
R. JAYASIMHA BABU, J.
Two questions have been referred to us. The assessment years are 1978-79 to 1981-82. The questions referred to us are,
(1) "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee's claim for exemption under s. 11 of the IT Act was not hit by s. 13(1)(bb) of the Act and consequently its income was exempt under s. 11 ?"
(2) Whether the Tribunal is correct in law in holding that the income derived by the assessee from exploitation of trade-mark was not a business activity for the purpose of s. 13(1)(bb) of the IT Act, 1961 ?
"2. The assessee is a charitable trust constituted under a deed of trust dt. 13th March, 1955. The author of the trust, Yennarkay Rajarathnam, was the owner of the trade-mark "Sun Flower" and "Kanthi Flower", both of which were registered trade-marks. The primary object of the trust was to pay 90 per cent of the income to Yennarkay Rajarathnam Welfare Centre, which was registered as a charitable institution under the Societies Registration Act. The balance of 10 per cent was meant to provide scholarship to students for undergoing university or technical course in India or aboard. The assessee was assessed as a charitable institution originally. In 1980-81 the ITO found that on as the trust was carrying on business in exploiting the commercial assets, namely, the trade-marks for the purpose of the trust, it would not be eligible for exemption under s. 11 of the Act. It was the view of the ITO that by operation of s. 13(1)(bb) of the Act, the assessee became ineligible to claim exemption for its income under s. 11. In his view, the exploitation of the trade-mark amounted to carrying on business and that business was not one which was being carried on in the course of actual carrying out of the primary purpose of the trust.
3. The CIT(A) having agreed with the view of the ITO, the assessee appealed to the Tribunal. The Tribunal upheld the assessee's claim. Hence, this reference.
4. The trust deed has not been produced before us. We were referred to the extracts of the trust deed set out in para 6 of the order of the Tribunal. The clauses extracted are as under"
5(a) Out of the net income of the charities the trustees shall pay 90 per cent to Yennarkay Rajarathnam Welfare Central Sivakasi, a charitable institution registered under the Socieities Registration Act.
(b) the balance amount of 10 per cent of the income shall be applied for providing scholarships to students for undergoing university and or technical courses in India or abroad; and
(c) any balance amount left over after giving scholarship shall be applied in the subsequent years for giving smaller scholarships."
The Tribunal has found that the trade-marks were given to the trust to be held in trust for being exploited and derive income therefrom which income was to be applied in the manner set out in sub-cls. (a) to (c) of cl. 5 of the trust deed, extracted above.
5. It is, therefore, clear that the exploitation of the trade-marks was a business which were held in trust, the trade-marks were also held in trust and the income derived from such exploitation was required to be applied to the charitable purposes mentioned in the trust deed.
6. It is evident that the charitable purposes would remain unaccomplished if there is no income to the trust as it is only that income which and be used to carry out the charities. The trade-marks must be necessarily exploited in order to derive that income. The activity of deriving income in the circumstances was clearly an activity which is capable of being regarded as a business carried on in the course of actual carrying out of the primary objects of the trust.
7. Even otherwise, the business being the one which was held in trust, s. 13(1)(bb) would not come in the way of the trust claiming exemption under s. 11 of the Act, having regard to the decision of this Court in the case of Thanthi Trust vs. Asstt. CIT.
8. The primary purpose of the trust cannot be carried out unless the income is derived from the exploitation of the trade-mark. The Tribunal was right in holding that the business was one carried on in the course of carrying on the primary purpose of the trust.
9. This Court in the case of CIT vs. Thanthi Trust held that the business of running newspaper which business was held in trust was a business which was carried on for carrying out the charitable object set out in the trust deed, the primary object being education and medical relief. The Court held that business was carried on as a business in the course of actual carrying on the primary purpose of the trust and not as an end in itself.
10. In this case also, the trade-marks are not being exploited as an end, in itself or as a business which is not carried on for carrying out the charitable purpose. The income from the exploitation of the trade-marks was to meant for application in the manner set out in cl. 5 of the trust deed. The manner in which the trust was created clearly establishes that the business was one which was to be carried on in the course of achieving the primary purposes of the trust. The business was first vested in the trust and the income derived therefrom was to be applied for the purpose of satisfying the objects specified in the trust deed. The business was not one started after the trust had come into existence, merely with a view to earn income.
11. Counsel for the Revenue contended that the exploitation of the trade-mark has no direct nexus with the charitable objects and, therefore, it cannot be regarded as a business which is carried on in the course of carrying out of the primary purpose of the trust. No formula is set out in the Act for determining which set of businesses can be regarded as compatible with different types of charity. What is required by the statutory provision is that there must exist an unbreakable link between the business and the charitable activity. If the business is held in trust, and the income derived therefrom is to be applied solely for charitable purposes, such business is capable of being regarded as one which is carried on in the course of actual carrying out the primary purposes of the trust.
12. Counsel for the Revenue referred us to the decision of this Court in the case of CIT vs. Virudhunagar Hindu Nadars Abiviruthi Panchakadai Mahamai. On facts this Court in that case held that it was not shown by the assessee therein that the business of decorticating and
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ginning were carried on by the assessee there in the course of the actual carrying out of the primary objects of the trust. That decision is not, therefore, of any assistance to the Revenue. 13. It is always a question of fact as to whether the business is one which is carried on in the course of actual carrying out of the primary purpose of the trust. The relevant principles of law should no doubt be applied while making that determination. The Tribunal has held in this case that the business was in fact carried on in the course of actual carrying out of the primary purpose of the trust. The finding is one which we find no reason to differ from. Reference is, therefore, answered in favour of the assessee and against the Revenue.