Commissioner Of Income-Tax, Bihar-Ii, Ranchi v. M/S. Karimia Trust, Jamshedpur

M.Y Eqbal, J.:— By this application under Section 256(1) of the Income-tax Act, 1961, the following questions of law have been referred to this Court for opinion:—

1. Whether in the facts and circumstances of the case, the Tribunal was justified in holding that the trust was charitable-cum-religious trust and it was not hit by S. 13(1)(bb) of the Act?

2. Whether in the facts and circumstances of the case, the Tribunal was justified in holding that even if there is some miscarriage on account of breach of trust by the trustees, the benefit of Section 11 cannot be denied if such miscarriage does not effect the vires of the validity of the trust?

3. Whether in the facts and circumstances of the case, the Tribunal was justified in holding that the assessee fulfilled all the conditions laid down in Section 11 of the Act to claim the benefit of Section 11 of the Act?

2. The facts of the case, which are relevant to answer the questions of law, are as under. The assessee is M/s. Karimia Trust, Jamshedpur. The assessee-trust was created by late Hussainy Tafazul Karim of Jamshedpur under a registered deed dated 6-5-1945 which was replaced by another deed dated 30-5-1958. The assessee-trust was a charitable-cum-religious trust with primary purposes and objects of spreading and imparting education according to Muslim tenets to Mohammadan boys and girls of the town of Jamshedpur and to carry out certain religious activities. By that deed of trust, the settler settled two cinema talkies viz., Jamshedpur Talkies and Karim Talkies with its goodwill including buildings, machinery, fixture and fittings etc. The right to carry on business was also entrusted to the assessee-trust. The case of the assessee is that it had been using the income from those two cinema halls to accommodate the religious as well as charitable purposes as incorporated in the trust deed.

3. Although the assessed was allowed exemption under Section 11 of the Act till 1976–77 but for the first time exemption from income tax was disallowed in view of provisions of Section 13(1)(bb) of the Act by die Assessing Officer. However, the appellate authority allowed the claim of the assessee for entitlement of exemption under Section 11 of the Act. Thereafter, for the assessment years in question i.e 1981–82, the Assessing Officer again disallowed the assessee-trust exemption under Section 11 of the Act on the ground that there was violation of provisions of Section 13(1)(bb) of the Act inasmuch as the assessee-trust was carrying on business which is not for primary purposes of the trust. The Assessing Officer also held that the assessee has violated the provisions of Section 13(1)(c) of the Act because it has rented out the two cinema halls to one M/s. Kapur Chand Private Limited which, in their turn, gave the management and exhibition of films to one M/s. Ruhee Enterprises of Jamshedpur. The Assessing Officer further held that the assessee is not managing the trust property.

4. Aggrieved by the said order, the assessee preferred appeal before the Commissioner of Income-tax (Appeal) who reversed the order of the Assessing Officer in the light of the previous order. The appellate authority proceeded on the basis that Section 13(1)(bb) speaks about charitable trust only, whereas the assessee is a charitable-cum-religious trust. The appellate authority further held that provision under Section 13(1)(c) is not applicable. Relating to violation of terms and condition of the trust deed, the appellate authority found that though there was breach of terms and condition of the. trust deed, but they did not affect the validity of the trust. Against the said order passed in appeal, the Revenue went in Second Appeal before the Tribunal. The Tribunal examined the clause of the trust deed, particularly clauses 15, 22(ii), 22(iv) and 24(6) and found that the assessee was a charitable-cum-religious trust and not merely a charitable trust as claimed by the Revenue. Consequently, the Tribunal came to the conclusion that the provisions of Section 13(1)(bb) of the Act were not attracted. The provision of Section 13(1)(c) was also not applicable in the case. Against the said order of the Tribunal; the Commissioner of Income-tax (Appeal), sought reference on the questions of law which have been referred to as mentioned herein above.

5. We have heard Mr. K.K Jhunjhunwala, learned counsel appearing for the Revenue and, Mr. M.S Mittal, learned counsel appearing for the assessee.

6. The undisputed facts are that the assessee-trust was created by late Hussainy Tafazul Karim of Jamshedpur by registered deed dated 6-5-1945 for religious and charitable purposes. The trust had its primary purposes and objects of spreading and imparting education according to Muslim tenets to Mohammadan boys and girls of the town of Jamshedpur. In that trust deed, complete details and the scheme of the Management for disposal of the trust income have been incorporated. By the said deed, two cinema halls, namely, Jamshedpur Talkies and Karim Talkies with its goodwill including the buildings, machineries, fixtures and fittings, etc were settled with a right to carry out cinema business. As per the trust deed, income derived from those properties was to be used to accommodate the religious as well as charitable purposes.

7. It is worth to be noted here that in all assessment proceedings from 1969 onwards, the characters and objects of the trust was not disputed and had always been accepted by the Assessing Officer. It was for the first time the Assessing Officer denied exemption from income tax in view of provisions of Section 13(1)(bb) of the Act. According to the Assessing Officer, the assessee was not entitled to have exemption under the aforesaid provision.

8. Before answering the questions, I would first like to consider the relevant provisions of the Income-tax Act, 1961.

9. Chapter III (Section 10 to 13A) deals with the provisions with regard to income which do not form part of total income. Section 11 lays down the detailed provision with regard to income which shall not be included in the total income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. Section 13 makes provisions with regard to application of Section 11 of the Act in respect of certain income from the property. The relevant provisions read as under:

“13. Section 11 not to apply in certain cases:—

(1) Nothing contained in Section 11 (or Section 12) shall operate so as to exclude from the total income of the previous year of the person in receipt thereof-

(a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public;

(b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof, if the trust or institution is created or established for the benefit of any particular religious community or caste;

(bb) In the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business, any income derived from such business, unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution.

(c) In the case of a, trust for charitable or religious purposes or a charitable or religious institution, any income thereof—

(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or

(ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3):

Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of subclause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution:

Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes of a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970;

(d) … … … … … …

(i) to (iii) … … … … … …”

10. Clause (bb) in Section 13 was inserted by the Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1977, but the said clause was finally omitted by the Finance Act, 1983 with effect from 1-4-1984.

11. In the instant case, as noticed above, in all assessment proceedings from 1969 onwards, the character and objects of the trust was not disputed and had always been accepted by the Assessing Officer, the Commissioner of Income-tax (Appeal) and the upto the Tribunal.

12. At the very outset, we deprecate the attitude of Assessing Officer in passing comments against the appellate authority and the Tribunal by holding that the appellate Tribunal or the Tribunal has not correctly appreciated the concept of charitable-cum-religious trust. The Assessing Officer cannot sit over the findings recorded by the appellate authority or by the Tribunal. Both the appellate authority and the Tribunal fully dealt with the matter at length and in the appeal against the assessment order for the years 1978–79,1979–80 and 1980–81 with regard to applicability of Section 13(1)(bb) of the Act.

13. The appel-late authority has gone in detail into the reasonings given by the Assessing Officer and finally came to the conclusion that breach of conditions of the trust deed even if committed by the assessee, that will not disentitle the assessee from getting the benefits which the assessee had been getting since 1969. The Tribunal in its order also recorded the detailed finding in the concluding portion of the order:—

“The above findings of the Ld. CIT(A) clearly show that if the trust has been validly created with its charitable and religious objects and that are being fulfilled, the benefit of exemption cannot be denied only because there are some miscarriage on account of breach of trust by the trustees without affecting the vires of validity of the Trust. In fact the crux of the law relating to exemption to the charitable or religious trust is that its obligation being discharged by applying the income or property for those avowed or cherished purposes and even the existence of the trust deed is not required and this proposition is very much clear from the proviso to Explanation (1) to Sec. 13 of the I.T Act where the word ‘trust’ has been given amplitude to encompass a valid or legal obligations to be discharged for the charitable or religious purposes. It is also to be noted that there is nothing in the appeal record to show that such omissions and commissions from the Income-tax point of view rendered the trust invalid. We agree with the finding of the Ld. CIT (A) that even if there being breach of trust which are in fact extraneous so far as Income-tax is concerned does not render the trust from qualifying it to obtain exemption u/S. 11 of the Act particularly when the application of the Income of the trust has been towards the cherished and avowed objects and purposes of the assessee trust. The order of the Ld. CIT (A) is justified and so we uphold it”.

14. Regard being had to the finding of fact recorded by the appellate authority and the Tribunal and the law discussed herein above, we have no doubt in our mind in holding that the questions of law must be answered in favour of the assessee and against the Revenue. The questions of law are, accordingly, decided in affirmative.

D.G.R Patnaik, J.:—

15. I agree.

16. Reference answered in favour of assessee.