Commissioner of Income Tax vs Brihdaranyak Mandal (Trust)

The Income Tax Appellate Tribunal, Allahabad, has referred the following question of law u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for the opinion of this court:

Whether, on facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the income of the assessee-trust is exempt on the interpretation of the provisions of Sub-section (4A) of Section 11 of the Income Tax Act, 1961?

Briefly stated the facts giving rise to the present reference are as follows:

The reference relates to the assessment years 1990-91 and 1991-92.

Dr. Ashwani Kumar, a Professor of Mathematics of I.I.T. Kanpur, formed a trust under the name and style of M/s. Brihdaranyak Mandal (Trust), Kanpur, with a sum of Rs. 11,000 through a trust deed dated January 25, 1988. The aims and objects of the trust were to educate the general masses about the ancient glory and cultural heritage of the country, to acquaint them with nature and environment, to impart them with Vedic education and to work for the spiritual upliftment of masses in general leading them to involve in social welfare activities. The trust was registered with the Commissioner of Income Tax u/s 12A of the Income Tax Act and had also been granted benefit of Section 80G, vide the Commissioner''s order dated February 22, 1989, Originally, there were four trustees and two more were appointed in July, 1991.

Apart from settling a sum of Rs. 11,000, Dr. Ashwani Kumar raised some funds in the previous year relevant to the assessment year 1989-90 by way of donations. Being unable to get further donations in subsequent years, Dr. Ashwani Kumar raised funds by organising a coaching institute for the benefit of students seeking admission to various institutions. Lectures were organised and correspondence course was also started. A comprehensive study material was prepared by Dr. Aswani Kumar involving an expenditure of Rs. 1,84,068, in the previous year relevant to the assessment year 1990-91, for printing of 1,000 copies of the study material. A vigorous campaign of publicity was mounted through national newspapers. In all these advertisements, the name mentioned was "Logarithmica Educational Agency" and there was no mention of the name of the trust. The Assessing Officer recorded the statement of Dr. Ashwani Kumar and certain other trustees.

For the assessment year 1990-91, vide his order dated November 15, 1991, the Assessing Officer held that the trust was not a valid one and the income was actually earned by Dr. Ashwani Kumar in his individual capacity. It was also held that the income was not exempt u/s 11 of the Act since it was earned from business and the provisions of Section 11(4A) were applicable. A protective assessment order was passed in the case of the assessee-trust after denying exemption u/s 11 of the Act. On substantive basis the income was assessed in the hands of Dr. Ashwani Kumar, the founder of the trust. In appeal, vide his order dated December 29, 1992, the learned Commissioner of Income Tax (Appeals) held that the trust was valid but its income could not be exempted u/s 11 of the Act because it was hit by Sub-section (4A) of the said section. Against this order of the Commissioner of Income Tax (Appeals), the assessee came in appeal before the Tribunal (I.T.A. No. 421 (Alld.)/1993) claiming that the income was not earned from business, it did not fall within the provisions of Section 11(4A) of the Act and was exempt u/s 11 of the Income Tax Act.

For the assessment year 1991-92, vide his order dated March 23, 1994, the Assessing Officer repeated his two findings and completed the assessment of the trust on protective basis. In appeal, vide his order dated December 20, 1994, the learned Commissioner of Income Tax (Appeals) reversed both the findings of the Assessing Officer and held that the trust was a valid one and that its income was not from business and, hence, the provisions of Section 11(4A) were not attracted. Accordingly, the income was treated as exempt u/s 11 of the Act. Against this order of the learned first appellate authority, the Department filed an appeal before the Appellate Tribunal (I.T.A. No. 690(Alld.)/1995) contesting both the findings of the first appellate authority.

The Tribunal had held that the trust was genuine and valid so far as the question was to whether the activities of "Logarithmica Educational Agency" was carried out by the trust or by Dr. Ashwani Kumar in his individual capacity the Tribunal has held as follows:

We are also of the opinion that Logarithmica Educational Agency was not an independent agency as held by the Assessing Officer. Clause 4 of the trust deed empowered the assessee-trust to start educational agencies for earning income to achieve the aims and objects of the trust. We have noticed that some donations came to the trust in the assessment year 1989-90 amounting to Rs. 1,22,727 (including Rs. 11,000 settled by Dr. Aswani Kumar). However, thereafter, this source dried up. It is to the credit of Dr. Ashwini Kumar that he took it upon himself to bring in funds by setting up Loga-rithmica Educational Agency. This agency was not for his personal benefit and was set up in pursuance of minutes approved in a meeting of the trustees on September 3, 1989, as recorded by the Commissioner of Income Tax (Appeals) in the assessment year 1990-91. We have also seen from the accounts that the entire surplus was transferred to the main account of the assessee-trust, the amount being as under:

---------------------------- Rs. ---------------------------- 1990-91 2,22,047 ---------------------------- 1991-92 3,37,112 ---------------------------- 1992-93 82,703 ----------------------------

We have also seen that the assessee-trust utilised the funds, thus made available, for fulfilling its objects. A sum of Rs. 1 lakh was ear marked in the assessment year 1990-91 for purchase of land. Thereafter, Rs. 8,61,414 was spent on building. It was nothing but construction of ''Sabha Bhawan'' for the trust. A statement of Dr. Ashwini Kumar was recorded and he confirmed that Logarithmica Educational Agency had been specifically started with a clear motive of earning profit to be invested later in the trust to carry out objects of the trust. In view of these cumulative facts, we agree with the Commissioner of Income Tax (Appeals) that the trust was genuine and valid and the income belonged to the trust in substantive capacity and not just protective capacity. In other words, we hold that the income belongs to the trust and not to Dr. Ashwini Kumar, individual, as held by the Assessing Officer.

We may note here that the Commissioner of Income Tax (Appeals) has recorded in paragraph 4 of his order for the assessment year 1990-91 that it is a common fact and it has been agreed by the Assessing Officer that the objects of the trust are charitable. We have gone through the objections as noted by the Assessing Officer in the assessment year 1990-91. They were to educate the general masses about the ancient glory and cultural heritage of the country to acquaint with nature and environment, to impart them with Vedic education and to work for the spiritual upliftment of masses in general leading them to involve in social welfare activities. We agree that these are ''advancement of any other object of general public utility'' and, therefore, constitute charitable purpose within the meaning of the expression in Section 2(15) of the Act.

We have heard Sri A.N. Mahajan, learned standing Counsel for the Revenue and Sri Amitabh Agarwal, learned Counsel for the respondent-assessee.

Sri Mahajan invited the attention of the court to the findings recorded by the assessing authority wherein he has held that the activity of Loga-rithmica Educational Agency was carried out by Dr. Ashwini Kumar in individual capacity and as the name was not at all mentioned in such activity and, therefore, the provisions of Sub-section (4A) of Section 11 of the Act was clearly applicable. The submission is misconceived.

We have to answer the question on the basis of the findings recorded by the Tribunal. We may mention that the Revenue has not sought reference questioning the validity of the findings recorded by the Tribunal. As already stated herein above, the Tribunal has found that the activities of Logarithmica Educational Agency was carried out by the trust as Clause 4 of the trust deed empowered the trust to start educational agencies for earning income to achieve aims and objects of the trust. The Tribunal has further found that the surplus was transferred to the trust and utilised in purchase of land and construction of sab ha bhavan.

Thus, on the basis of finding recorded by the Tribunal we are of the considered opinion that Sub-section (4A) of the Act is not applicable in the present case.

We, therefore, answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference is accordingly answered.

However, there shall be no order as to costs.