Commissioner Of Income-Tax v. Sri Thyaga Brahma Gana Sabha (Regd.).

Tax Case No. 1117 of 1979

Decided on June 14, 1990

The Judgment of the Court was delivered by

Thanikkachalam, J.:— Under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), at the instance of the Revenue, the Tribunal referred the following questions for our opinion:

“(1) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that, in so far as the income from letting out of Vani Mahal was concerned, the objects of the assessee were for general public utility within the meaning of section 2(15) of the Income-tax Act, 1961?

(2) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the letting out of Vani Mahal hall was not an activity?

(3) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that even assuming that letting out of the Vani Mahal was an activity, it was not an activity for profit?”

2. The assessee is Sri Tyaga Brahma Gana Sabha, a registered society, registered under the Societies Registration Act (Act XXI of 1860). The assessee is the owner of the hall called “Vani Mahal”. For the assessment year 1973-74, the Income-tax Officer, after referring to the objects of the sabha, adverted to the different types of membership and, thereafter, proceeded to compute the total income of the sabha. The Income-tax Officer computed the total income at Rs. 20,010 for the reasons stated in his order. The Income-tax Officer denied the exemption claimed by the assessee under section 2(15) of the Income-tax Act, 1961. The assessee appealed to the Appellate Assistant Commissioner and claimed the exemption under section 11 read with section 2(15) of the Act. The Appellate Assistant Commissioner held that barring the activity of letting out of the hall on rent, the rest of the income of the assessee would be exempt under section 11 of the Act, provided the other conditions were satisfied. In the matter of letting out of the hall, the Appellate Assistant. Commissioner held that there was clearly an activity which resulted in a profit and, therefore, the income attributable to such activity would not be exempt under section 11 of the Act. In the abovesaid view, the Appellate Assistant Commissioner directed the Income-tax Officer to apportion from the income and expenditure account of the sabha, the proportionate income attributable to the activity of letting out the hall and then subject it to tax after satisfying himself that, in respect of other items, the prescribed conditions as visualised under section 11 of the Act were satisfied.

3. As against this order, the assessee filed an appeal before the Tribunal and submitted that the so-called rental income from the hall would not be liable to tax and there was no warrant in denying the exemption claimed by the assessee in respect of such rental income in view of the provisions of section 11 read with section 2(15). The Tribunal held that looking to the object of the sabha, the hall was utilised only for the purpose of education within the meaning of section 2(15). The Tribunal further held that even if all the objects of the sabha were not for the purpose of education, they were clearly ones for general public utility as can be seen from the objects of the society. Thereafter, relying on the decision in the case of CIT v. Madras Stock Exchange Ltd., [1976] 105 ITR 546 (Mad), the Tribunal further held that the letting out of the sabha on days when the sabha did not require it did not amount to an activity within the meaning of section 2(15) of the Act. The Tribunal, for the sake of completeness, also held that the activity of letting out the hall is not for profit, and hence the object of the assessee was only for charitable purposes within the meaning of section 2(15) and, therefore, the rental income from the sabha is exempt under section 11 of the Act provided the assessee satisfied the other conditions.

4. Before us, learned standing counsel for the Department contended that the main object of the sabha was profit making. Learned standing counsel pointed out that there was clearly a surplus of about Rs. 20,000 in the accounts of the sabha in the accounting year relevant to the assessment year under consideration. Therefore, according to standing counsel, this would go to show that the assessee was carrying on an activity for profit by letting out the hall. Learned standing counsel further submitted that there were large amounts received from various persons year after year under the head “Donations” for the use of the hall, which would go to show that profit making is the only object of the sabha. Learned counsel also submitted that, while running the sabha, the main object of the assessee was to entertain the audience and thereby make profit out of such entertainment. According to standing counsel, some of the objects as stated by the assessee in the rules and regulations are very vague. Learned standing counsel pointed out that clauses A and B in the objects as stated in the rules and regulations are definitely hit by the provisions of section 2(15) of the Act. Therefore, it was submitted that the Tribunal was not correct in holding that the rental income from Vani Mahal is exempt from taxes under section 11 read with section 2(15) of the Income-tax Act, 1961.

5. On the other hand, learned counsel appearing for the assessee contended that, even according to the Income-tax Officer, the objects of the sabha were primarily for the advancement of music and to conduct musical entertainments, dramas, kalakshepams, dance recitals, bhajans, etc., and, therefore, learned counsel pointed out that this falls within the meaning of the expression “advancement of objects of general public utility”. Learned counsel contended that the so-called income attributable to the letting of the hall would not be liable to tax and there was no warrant for denying the exemption due to the assessee by virtue of the provisions under section 11 read with section 2(15) of the Act. Learned counsel submitted that the objects of the sabha were clearly for education and if that be so, even if there was a profit from letting out of the hall, it would still be a charitable purpose since whether an activity of profit is carried on or not would have to be examined only in the case of objects of general public utility other than relief of the poor, education and medical relief. Therefore according to learned counsel, the sabha had only let out the building and letting out of a building could never be an activity, much less an activity for profit. Further, learned counsel pointed out that if an analysis of facts arising in this case is made, that would reveal that, from the inception; there was no element of profit in running the hall. Learned counsel further argued that, even according to the Appellate Assistant Commissioner, except the letting out of the hall, the rest of the activities of the sabha are for charitable purposes and, therefore, the Appellate Assistant Commissioner granted exemption under section 11 read with section 2(15) of the Act. Therefore, learned counsel for the assessee submitted that the Tribunal was correct in holding that the assessee is entitled to exemption under section 11 read with section 2(15) in respect of the rental income from letting out the hall. In order to support the respective contentions, both learned standing counsel as well as learned counsel appearing for the assessee relied upon various decisions. We will consider these decisions, as and when it is necessary.

6. We have heard the rival submissions. The fact remains that Thyaga Brahma Gana Sabha is an institution, registered under the Societies Registration Act. The objects of the sabha are stated in the rules and regulations of the sabha as under:

(a) To promote the advancement of music and other fine arts.

(b) In pursuance of the above object, to hold musical entertainments, dramas, kalakshepams, dance recitals, bhajans, exhibitions, lectures, etc.

(c) To arrange for the exposition of art by competent artistes and to encourage deserving talent.

(d) To conduct a school called “Sri Thyaga Brahma Gana Sabha Music and Dance School” for imparting instruction in music and dance on the correct lines and thus afford facilities for widespread literacy in music.

(e) To do all other things as are incidental or conducive to the attainment of the above objects.

(f) To organise social gatherings as would foster comradeship among members.

(g) To organise dramatic wing called “Sri Thyaga Brahma Gana Sabha Amateurs” to stage dramas.

7. The point for consideration in this reference is whether the assessee is entitled to exemption under section 11 read with section 2(15) of the Act with regard to the rental income derived from letting out of Vani Mahal.

8. The first submission of the assessee was that the objects of the sabha were clearly for education and, if that be so, even if there was a profit from letting out of the hall, it would still be a charitable purpose, because whether any activity for profit is carried on or not would have to be examined only in the case of objects of general public utility other than relief of the poor, education and medical relief. The assessee's another submission was that the sabha had only let out the building and letting out of a building would never be an activity, much less an activity for profit.

9. The sabha was established to promote the advancement of music and other fine arts. In pursuance of the above objects, the assessee was holding musical entertainments, dramas, kalakshepams, dance recitals, bhajans, exhibitions and lectures, etc. The assessee is also making arrangements for the exposition of art by competent artistes and thereby encouraging deserving talented people. One of the objects of the assessee is to conduct a school called “Sri Thyaga Brahma Gana Sabha Music and Dance School” for imparting education in music and dance on traditional lines and thus offering facilities for spreading knowledge in music and dance. The assessee is also organising social gatherings to promote comradeship among members. The assessee started a dramatic wing called “Sri Thyaga Brahma Gana Sabha Amateurs” to stage dramas. Thus, the assessee is also doing all other things which are, incidental or conducive to the attainment of the above objects. Therefore, a plain reading of the object clauses contained in the rules and regulations of the sabha would definitely go to show that the main purpose and object of the assessee is to impart education in several branches of fine arts.

10. According to section 2(15) of the Income-tax Act, 1961, “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.

“Property held by a body corporate or unincorporated for the promotion of education, literature, science or the fine arts is technically held upon a charitable trust. This is so even if the education is not for the poor only but might extend to the rich, and might extend to professional or commercial education as well as to higher education or technical education. Education, in the context of the law of charity, is not limited to teaching in the narrow sense. In Sole Trustee, Sole Trustee, Lok Shikshana Trust v. Cit, Mysore, [1975] 101 ITR 234, 241, the Supreme Court gave, it is submitted, an unduly restricted meaning to the word ‘education’ by confining it to ‘scholastic instruction’ and ‘normal schooling’. The Court of Appeal adopted the correct concept of education in Incorporated Council of Law Reporting for England and Wales v. Attonery-General, [1971] 47 TC 321, where it held that the Council which was established to prepare and publish reports of judicial decisions, its income and property being applicable solely towards the promotion of that primary and other ancillary objects, fell within the charitable head of education. Raising the artistic taste of the country by public performances, dramatic, musical, etc., would be an educational purpose. In Royal Choral Society v. IRC, [1944] 12 ITR (Suppl.) 13, the Court of Appeal held that cultivation and improvement of public taste in music and other fine arts is education and thus falls within the category of charitable purpose. In such cases, it must be determined on the facts whether the presence of the element of entertainment or pleasure is an inevitable concomitant of a charitable and educational purpose, or whether it is the real fundamental purpose and education is merely a by-product. In the former case, the purpose would be charitable; in the latter case, not”. (See Kanga and Palkhivala's The Law and Practice of Income Tax, page 276, Volume I).

11. It remains to be seen whether a plain reading of the objects of the sabha would reveal that some objects no doubt are to provide education to artistes, etc., through the medium of school. But there are some other objects where through the sabha, other fine arts are presented to the public in the form of performances. As already pointed out, the predominant and primary object of the sabha is to impart education and letting out is only incidental since the hall was let out whenever the sabha was not utilising the same. Therefore, the only object of the sabha was to impart education in fine arts. Thus, considering the objects of the sabha in the light of the legal aspect on this point, we are of the opinion that the Tribunal was correct in holding that the assessee is imparting education in the fine arts and the hall has been utilised only for the purpose of education within the meaning of section 2(15) of the Act.

12. Another point which has got to be considered in this reference is, even assuming that there was an activity on the part of the assessee in letting out the hall, whether that activity is for profit within the meaning of section 2(15) of the Act. We have already pointed out that the objects of the sabha, even if all of them are not for the purpose of education, are clearly meant for general public utility. The objects of the sabha would definitely show this. In order to examine whether letting out of the hall is for profit, we have to see the facts in detail on this aspect. The Vani Mahal was constructed in the year 1945 on leasehold land. Whenever the hall was not utilised by the sabha, it was permitted to be used by others and, for such usage, the assessee used to collect donations. There are no particulars on record to show that the hall was let out for any specific rate. The particulars of donations for the use of the hall are shown as under:

Donation for use of hall

Donation building fund Electricity charges Cleaning charges Two watchmen Hire for chairs Misc. charges Total Remarks Saturdays, Sundays and other holidays 80 30 15 10 100 15 250 current charges, etc. Other week days 30 30 15 10 100 15 200

Note: All cheques to be drawn in favour of Sri Thyaga Brahma Gana Sabha.

13. A careful consideration of the statement of income and expenditure exclusively relating to this hall for the past 25 years ending with the accounting year relevant to the assessment year under consideration would reveal that the so-called profit earned in each year was very meagre and negligible. But the overall statement of income and expenditure relating to the assessee for all these years would go to show that the assessee was incurring loss in every year. The Tribunal in its order vividly explained various difficulties undergone by the sabha in constructing the hall and carrying out its objects with a meagre income. This is the factual position in which the sabha is running and is letting out the hall.

14. Learned standing counsel, in order to support his contentions, relied upon a decision reported in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association, [1980] 121 ITR 1 (SC). In that case, it was held as under (headnote):

“The test which has 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. 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 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.”

15. This decision was also relied upon by learned counsel for the assessee in order to support his submissions.

16. Another decision cited before us by learned standing counsel was that reported in South Indian Athletic Association Ltd. v. Commissioner Of Income-Tax, Madras., [1977] 107 ITR 108 (Mad). In that case, this court held as under (headnote):

“If there were several objects of a trust some of which are charitable and some non-charitable, and the trustees in their discretion could apply the income to any of the objects, the whole trust must fail and no part of the income would be exempt from tax and as, in the instant case, even assuming that there was a charitable purpose in the promotion of athletic sports and games still the exemption was not available as there were other non-charitable purposes.”

17. The facts appearing in the above-cited decision are different from the facts appearing in the instant case and, therefore, that decision will not be applicable to the facts of the present case.

18. Another decision brought to our notice by learned standing counsel was that reported in Addl. Commissioner Of Income-Tax, Madras-I v. Gangabai Charities., [1983] 142 ITR 718, 721. In that case, this court held as under (headnote):

“Even assuming that the objects set out in the trust deed could be regarded as purely charitable in nature, they were not the objects of the trust” and hence the exemption would not be available. The intention of the founder was that while the public should have the use of the building, for religious, charitable, educational and social purposes, nowhere in the deed was it stated that the trust had come into being for the purpose of carrying out any social, cultural or religious purposes, and the point of view throughout the trust deed was that of the users of the trust and not the point of view of the founder of the trust.”

19. The facts on which the above said decision was rendered are different from the facts appearing in the present case. Therefore, this decision will also not be applicable to the facts appearing in the present case.

20. On the other hand, learned counsel appearing for the assessee relied upon a decision reported in the case of CIT v. Madras Stock Exchange Ltd., [1976] 105 ITR 546 (Mad), in order to support his contention. In the above-said decision, while considering the provisions contained in section 2(15), this court held as under (at p. 556):

“A person who lets out a property and enjoys the income therefrom, is more passive than active. It is not, therefore, reasonable to call it an activity for profit. As rightly pointed out by learned counsel for the assessee, the whole of section 11 would be rendered useless if the construction sought to be placed for the Revenue is to be accepted. If merely because there is an income either from the property or from other investments it should be held that it is an activity for profit, then the exemption under section 11 would have no scope to operate. It would be reduced to a dead letter. Any construction which would render a provision nugatory should be avoided. Therefore, it is necessary to give scope for the exemption under section 11 keeping at the same time in mind the amendment to section 2(15). It is possible to do so in the present case by holding that the assessee by purchasing a building and letting out some surplus area was not indulging in any activity for profit. Section 11 does not taboo the earning of profit as, unless there was profit, there would be no need for the exemption provision. It is only on the postulate of profits being there, that any exemption provision would find a place in the statute. The effect of the contention of learned counsel for the Revenue is to show that when once there was a profit, the exemption was taken away. This, in our opinion, could not be the intention of Parliament which has granted the exemption on the profits earned. A reading of section 2(15) and section 11 together shows that what is frowned upon is an activity for profit by a charity established for general objects of public utility in the course of accomplishing its objects. There is no activity here. The activity spoken of by the provision is not a mere act of purchase of a building or making an investment and getting income therefrom, but something more substantial and continuous.”

21. This decision was affirmed by the Supreme Court in CIT. v. Andhra Chamber of Commerce, [1981] 130 ITR 184 (SC). In CIT v. Andhra Chamber of Commerce, [1981] 130 ITR 184, the Supreme Court held as under*:

“that the income derived by the respondent from the activities, such as holding the Indian Trade Fair and sponsoring the conference of the Afro-Asian Organisation, were for the advancement of the dominant object and purpose of the Federation, viz., promotion, protection and development of trade, commerce and industry in India, and were exempt from tax under section 11(1)(a) read with section 2(15).”

22. Another decision relied upon by learned counsel for the assessee was that reported in CIT v. Andhra Pradesh State Road Transport Corporation, [1986] 159 ITR 1, wherein the Supreme Court held as under (headnote):

“The test is ‘what is the predominant object of the activity—whether it is to carry out a charitable purpose or to earn profit?’ If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arises from the activity.”

23. As already pointed out, in the present case, Vani Mahal was let out to others whenever the assessee was not utilising it. Even assuming that the net income of the sabha is from an activity, the question is whether it is for profit. In the objects of the society, nowhere it is stated that earning of profit is its object. Therefore, there is no profit motive in running the sabha. It would appear that no specific rate was fixed by the sabha for letting out the hall and, on several occasions, the hall was let out on concessional rates to various parties. The rates charged are more or less ad hoc and in later stages it was shown as “donations”. The rate was usually in the routine of Rs. 100 per day. After examining the income and expenditure statement for the past 25 years and the report of the governing body of the sabha, the Tribunal, on facts, came to the conclusion that the sabha was running at a loss all these years. Therefore, the Tribunal came to the conclusion that even assuming that there was an activity on the part of the assessee in letting out the hall, it was not an activity for profit within the meaning of section 2(15) of the Income-tax Act, 1961. Thus, considering the facts appearing on this aspect, in the light of the decisions cited supra, we are of the opinion that the Tribunal was correct in holding that the assessee is entitled to the exemption under section 11 read with section 2(15) of the Act in respect of the rental income derived from letting out the Vani Mahal.

24. In that view of the matter, we answer the questions referred to us in the affirmative and against the Revenue. The assessee is entitled to its costs. Counsel's fee is fixed at Rs. 500.