C.V. Ramulu, J.
As per the directions of this court dated 23-9-1986 in ITC Nos. 232, 273 and 296 of 1985 the following questions have been referred for opinion.
'1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee is an institution which satisfied the conditions of section 2(15), read with section 11 ?
2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee derived income from property held in trust and even if it is not to be treated as property held under trust it can only be treated as property held under trust as voluntary contribution given by Hyderabad Race Club ?
3. Whether on the facts and, in the circumstances of the case, the Appellate Tribunal is justified in holding that the activity carried on by the assessee did not constitute a business and even if it were business it was not such business as would be hit by section 13(1)(bb) of the Act?'
2. The brief facts noticed are as under :
The Hyderabad Race Club had decided to create a separate public charitable trust in the name and style 'Hyderabad Race Club Charitable Trust' and the same had come into existence under a deed of declaration dated 25-10-1976. The stewards of the Hyderabad Race Club were the settlers of the trust and an amount of Rs. 1, 116 was set apart as corpus fund. The main objects of the trust are advancement and propagation of education, medical aid and relief of poor etc. The stewards of the club as well as the trustees are identical.
3. The Hyderabad Race Club Charitable Trust obtained licence for conduct of races and inter-venue betting from the Government of Andhra Pradesh and every year conducted such activity for two or three days and the said income was added to its funds. The assessee trust claimed exemption of such income under section 11 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act' for brevity) for the assessment years 1978-79, 1979-80 and 1980-81. However, the Income Tax Officer was of the view that the assessee was not eligible for exemption and, alternatively he was of the view that even if the institution itself had been exempted, the income derived was from business and therefore hit by section 13(1)(bb) of the Act. He was also of the view that the income could not be considered as one from property held under trust. Thus, he rejected the assessee's claim for exemption and brought the following amounts for assessment and to tax.
Assessment Year
Amount
1978-79
Rs. 4,66,775
1979-80
Rs. 3,15,857
1980-81
Rs. 2,11,202
Aggrieved by the same, the trust had filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) found that the objects of the trust were of general public utility and that the institution qualified for exemption under section 11 of the Act, held that the only property under the trust was initially an amount of Rs. 1,116 which was provided by the Hyderabad Race Club as the corpus of the trust fund and that amount alone could have been exempted. The Commissioner (Appeals) was of the view that the income from conducting races and inter-venue betting as promoted by the Hyderabad Race Club Charitable Trust could not be treated as income from the property. He also held that it cannot be said that the business was carried on in pursuance of primary objects of the trust and as such the same was hit by section 13(1)(bb) of the Act and thus confirmed the assessments. The assessee filed further appeal before the Income Tax Appellate Tribunal The appellate Tribunal had categorically held that the objects of the trust are clearly charitable in nature. The assessee obtained licence, on letter from Hyderabad Race Club to conduct races and inter-venue betting from Government of Andhra Pradesh. The explanatory note relating to the resolution for creation of the trust as well as the terms of the trust did clearly contemplate the assessee getting such property from the Hyderabad Race Club. The licence obtained by the trust could be treated as property. The appellate Tribunal further held that even if it is not to be treated as property held under trust, it can be treated as voluntary contribution given by the Hyderabad Race. Club to the assessee and such voluntary contribution cannot have the character of an income and it could only be a capital receipt in the assessee's hands. It is not possible to hold that there has been business in the normal course. Even if it were to be a business in the facts and circumstances of the case, it is not such a business as to hit by section 13(1)(bb) of the Act, since the assessee satisfies the conditions of section 2(15), read with section 11 of the Act and as such allowed the appeal in toto.
4. The learned counsel for the revenue argued that stewards of Hyderabad Race Club and the Trustees of Hyderabad Race Club Charitable Trust are one and the same and that the assessee-trust is just a creation of the race club and as such, it cannot conduct races without the paraphernalia provided by the race club. Thus, it is nothing but a 'diversion by overriding title' i.e., the Trust admitted transfer of business of Hyderabad Race Club to itself. The power to conduct races is not specifically vested in the trust. There is no specific provision in the trust deed authorizing the trust to conduct the races. Thus, it is the business of the trust and not the Race Club, as the trust operated the transaction by all means with the permission of the government.
5. The main objects of the trust relate to the relief of poor, education and medical relief. The exemption under section 11 of the Act would be available only to a trust, which is carrying on any business in the course of the actual carrying out of the primary objects of the trust and not otherwise. In the instant case, the business conducted by the trust cannot be said to be in the course of the actual carrying out of the primary purpose of the trust. The objects mentioned in the trust deed are not all charitable in nature. The objects are distributive in nature and some of them being charitable and the remaining being non-charitable in nature, the trustees had absolute discretion to select the objects for which the trust income could be utilized.
6. It was further argued that even a business could be an occasional one or a regular one. Rather it could be a solitary and isolated transaction, nonetheless it can be called a business. In the case on hand, year after year, the trust is engaged in the conduct of races and inter-venue betting under the licence granted by the competent authority. Therefore, it amounts to income from the business. What needs to be seen is whether it is a business for the purpose of section 11(4) of the Act and whether it is hit by section 13(1)(bb) of the Act.
7. The learned counsel for the revenue has drawn our attention to sections 2(13), 2(15), 11(a) & (c), 11(4), 12, 13(1)(bb) and 14 of the Act as existed in the relevant assessment years, which read as under :
'2(13). 'business' includes any trade, commerce or manufacture of any adventure or concern in the nature of trade, commerce or manufacture;
2(15) '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;
11. Income from property held for charitable or religious purposes-(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income
(a) 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; and, where any such income is accumulated or set apart for applications to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property;
(b) *** *** ***
(c) Income derived from property held under trust
(i) created on or after the 1-4-1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and
(ii) for charitable or religious purposes, created before the 1-4-1952, to the extent to which such income is applied to such purposes outside India :
Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income;
(2) and (3) *** *** ***
(4) For the purposes of this section 'property held under trust' includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the assessing officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes.
12. Income of trusts or institutions from contributions.Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.
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) and (b)*** *** ***
(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.
14. Heads of income.Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :
A. Salaries.
B. Interest on securities.
C Income from house property.
D. Profit and gains of business or profession.
E. Capital gains.
F. Income from other sources.'
By placing reliance on sections 2(13) and 11(4) of the Act, the learned counsel for the revenue emphatically argues that the activities of the trust in conducting the races and inter-venue betting amounts to conducting business and the income derived therefrom is 'business income' and as such, it is taxable. It is neither the business of the race club nor it can be treated as an income derived from the property held under the trust. In this regard, the learned counsel relied upon the judgment in Asstt. CIT v. Thanthi Trust : [2001]247ITR785(SC) . In that case, it was found that the business of the trust was running of a newspaper and that business did not directly accomplish the whole or any part of the trust's object of relief of poor and education. The trust was not wholly for public religious purpose and it was not an institution and, therefore, the trust did not fall within the provisions of section 11 of the Act and as such, was not entitled for exemption of tax. The Supreme Court while affirming the findings of the Madras High Court in Thanthi Trust v. Assistant Director of Income Tax : [1999]238ITR635(Mad) held as follows :
'A public charitable trust may hold a business as part of its corpus. It may carry on a business which it does not hold as part of its corpus. But the distinction has no consequence insofar as section 13(1)(bb) is concerned. Section 13(1)(bb) will apply to a public charitable trust for the relief of the poor, education or medical relief that carries on a business, regardless of whether or not that business is held by the trust in trust, i. e., as part of its corpus : even a business that is held by such a trust as a part of its corpus is carried on by the trust and, therefore, section 13(1)(bb) will apply to such a trust. The words used in section 13(1)(bb) are wide enough to control not only the profit from an activity carried on in the course of the actual carrying out of the purpose of the trust or institution but also income from the corpus of the trust property if the corpus of the trust includes a business. The exemption under section 11 will not be available unless the business is carried on in the course of actually accomplishing the primary purpose of the trust; the business must, therefore, be carried on in the course of the actual accomplishment of relief of the poor, education or medical relief.' (p. 786)
The learned counsel also relied upon the decision in CIT v. Khairagarh Timber Traders : [1982]137ITR346(MP) to impress upon the court that the assessee trust though carrying on the said transaction/business two or three days a year it is very much a business under section 2(13) of the Act. In the said judgment it was observed as under :
'The Income Tax Act does not deal merely with business of selling or purchasing. Under section 28 of the Income Tax Act, 1961, the profits and gains of any business which was carried on by the assessee at any time during the previous year are assessable to tax. Under the term 'business', as defined in section 2(13) of the Act, it is not essential that there should be a series of transactions and even a single transaction may constitute business.' (p. 346)
In CIT v. Bharat Insurance Co. Ltd. : [1983]142ITR342(Delhi) , the Delhi High Court, while dealing with the definition 'business' held as under :
' 'Business' is a term of wide amplitude which includes any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture. Ordinarily, business implies continuous activity in carrying on a particular trade or vocation but it may also include an activity which may be called quiescent.' (p. 343)
While placing reliance on the reported judgment in Karanpura Development Co. Ltd. v. CIT : [1962]44ITR362(SC) the counsel submits that even a sub-leasing by a grantee amounts to business. In the said judgment the Supreme Court held as follows :
'Held, that the transactions of acquiring leases and granting sub-leases were in the nature of trading within the objects of the company and not enjoyment of property as land owner. There was no sale of its fixed capital at a profit. In acquiring the head leases and granting the sub-leases the assessee company carried on a business and the amounts received by way of salami were trading receipts and the profits therefrom where liable to income-tax.' (p. 362)
It is difficult to accept the submission made by the learned counsel for the revenue as the above referred judgments do not deal with the nature of business undertaken by a trust or an institution of akin nature and as such cannot be relied upon to the facts of this case.
8. The learned counsel for the revenue argued that profits earned from the races and inter-venue betting by the assessee trust for the relevant assessment years amounts to an income from the business conducted by the trust, and it cannot be exempted from income-tax under section 11 of the Act. Further, he argued that this income is not an income from the property held under the trust and the assessee is hit by section 13(1)(bb) of the Act. Further, the income earned through the licence granted by the Government of Andhra Pradesh to run races and to inter-venue bettings, cannot be treated as an income from the property under the trust, as the assessee was not a charitable institution inasmuch as one of its objects was promotion of sports or athletic activities, and this could not be treated as an object of general public utility. Thus, the activities of the assessee fall outside the purpose of the trust and it is not a legitimate activity of the trust, which resulted in the profit and the same was not in consonance with the objects of the trust. It was only a simple profit making activity which can only be described as business. Further, placing reliance on section 11(4) of the Act he submitted that whether it is an income from the business or from the property held under the trust cannot be differentiated and no exemption can be granted. He further submits that the Income Tax Appellate Tribunal grossly erred in holding that the transaction of conducting races and inter-venue betting by the assessee trust was not a business and as such the question of considering whether such income is hit by section 13(1)(bb) of the Act does not arise and further holding that the assessee is an institution which satisfies the conditions of section 2(15), read with section 11 of the Act since the Income Tax Officer has not considered the requirements for accumulation if there has been such accumulation or application of sections 12A and 13. The learned counsel for the revenue gives thrust on section 13(1)(bb) 'as existed then'. He submitted that section 11 has no application for the cases where a trust carries on any business and any income derived from such business, unless the business is carried on in the course of actual carrying out the primary purpose of the trust or institution. Whereas in the case on hand, the primary object of the trust is not to conduct the business of races and inter-venue betting and as such it is hit by section 13(1)(bb) of the Act and the income derived by the trust cannot be exempted under section 11 of the Act. Thus, it cannot be said to be not a business and the profits or gains earned out of it cannot by said to be not an income from the business as defined under section 2(13) of the Act. Learned counsel for the revenue has drawn our attention to section 14 of the Act and submitted that this section deals with the 'heads of income, and classifies the computation of total income under various heads and as such, the income earned by the trust by conducting races and inter-venue betting should fall into any one of the heads of classification and it cannot escape the tax liability. Particularly drawing our attention to the Head-F `Income from other sources', he submits that at least it should fall into this head. We may not accept with the submission made by the revenue for the reason that the very section 14 of the Act saves the income otherwise provided by the Act. The expression 'otherwise provided by this Act 'must be construed that if the activities of the trust are not saved, the income earned by the trust by conducting such business is not saved under any other provisions of the Act.
9. Sri C. Kodandaram learned counsel for the respondent-assessee, submits that the income earned by the trust is not an income from the business of the race club. The races and the inter-venue betting was conducted by the assessee trust for the objects sought to be achieved by the trust under licence granted by the competent authority and as such it must be deemed that it is also not an income from the business of the trust. But it is an income from the property held under trust. He also argued that it is not a business of regular nature conducted by the assessee trust. Every year two or three days is devoted for this purpose and the income derived from this solitary transaction is being spent for the charitable purposes for which the trust has been established. The objects of the trust and the legality of the trust and the grant of licence by the government are not in dispute. According to him, section 13 takes away the benefit given under section 11. But, in fact this is a case which falls under section 2(15), read with section 11 of the Act. He further stated that the activity undertaken by the trust for the benefit of the trust to carry on the objects of the trust smoothly, cannot be called a business systematically organized and any income derived from such transaction cannot be called to be an income from the business and taxable under the Act. He had drawn our attention to the resolution of the club and the relevant clause of the trust deed, which read as under :
'The nucleus of the trust fund will be provided by the settlers. Further accretions will be through donations and conduct of races under the auspices of the said charitable trust.
The trustees may at any time invite and receive or without such invitation receive any voluntary contribution either from the settler or from any member of the public by way of donation. Any such donation may be accepted by the trustees either with or without any special condition provided that such conditions are not inconsistent with the intents and purposes of these presents.'
The Memorandum of Hyderabad Race Club authorizes stewards to act as trustees and also enables them to establish and support or did for any public charitable or other object of general public utility. Thus, it cannot be said that the arrangement between Hyderabad Race Club and the assessee in respect of the activities, which resulted in profit to be unauthorised or illegal and it is a business in the strict sense of the term as per section 2(13) of the Act. It is like any other benefit show organized by the assessee trust for augmenting the trust funds.
10. Sri C. Kodandaram, learned counsel for the assessee, placing reliance on the judgment in Thanthi Trust's case : [2001]247ITR785(SC) (supra) submitted that a charitable trust may hold a business as a part of its purpose and it may carry on the business which it does not hold as a part of its corpus. But the distinction has no consequence insofar as section 13(1)(bb) is concerned. Section 13(1)(bb) will apply to public charitable trust for the relief of poor, education or medical relief that carries on a business regardless whether the property held under the Trust or in the trust. He further argued that it is not correct to contend on the part of the revenue that the assessee carrying on this business for two or three days every year, amounts to carrying on a regular business and the income therefrom is not exempted under section 11 of the Act. On the other hand, he submitted that the income of every assessment year is to be taken separately and it can never be said that all the three years shall be taken into consideration and judged to come to a conclusion that it is a regular business being conducted by the trust. In fact it can never be said that the activities of the trust for two or three days meant for raising funds for the purpose of achieving the objects of the trust as business.
11. He further argued that the assessee did not have any worthwhile capital, which could risk or had risked. Hence it cannot be said that the activities are in colourable exercise of its powers. The assessee is a public trust, which promotes certain activities for raising fund for public cause. The activities of the assessee are not different from similar public institutions raising funds by staging benefit performances etc. In fact Bombay High Court had an occasion to consider such a situation in CIT v. Trustees of Visha Nima Charity Trust : [1982]138ITR564(Bom) and found that conducting of entertainment, bringing out souvenirs for raising funds, obtaining donations are purely of voluntary nature and there could be no element of quid pro co in these transactions. The contributions collected by way of tickets and for advertisements, on the facts and circumstances of the case, can be regarded as merely voluntary contributions attracting exemptions. The receipts did not constitute income from the business.
12. In this backdrop of submissions, we may have to examine the very word 'business' as contemplated under section 2(13) of the Act. The word 'business' is one of large and indefinite import. However, it connotes something which occupies the labour and attention of a person for the purpose of profit. Generally speaking business is an activity of a commercial nature and means practically anything, which is an occupation as distinguished from a pleasure. If the transaction is a trading transaction or an adventure in the nature of trade, it will amount to business, whether it results in loss or profit. It also includes adventure in the nature of trade. The object of the definition of 'business' in the Act is to treat the receipts from an adventure also, to tax just as the receipts from the trade profit are brought to tax. In each case, however, one has to determine the nature of transaction, its volume, frequency, continuity and regularity. There is no hard and fast rule for application that particular transaction is a business. Any transaction, whether it is continuously undertaken or isolated transaction can be treated alike to hold that a particular transaction is a business. To that extent, we agree with the arguments of the learned counsel for the revenue. But, it has to be seen whether the nature of transaction undertaken by the assessee-trust is a business within the meaning of section 2(13) of the Act and whether section 11 of the Act is attracted or the income derived from such transaction is hit by section 13(1)(bb) of the Act. We are of the considered opinion that the activities of the trust, i.e., conducting races and inter-venue betting after obtaining licence from the Government of Andhra Pradesh and the income derived therefrom cannot be called an income from the business of the trust for the reasons that the same is being utilized to achieve the primary object of the trust. The objects and legality of the trust and also the grant of licence by the State Government are not in dispute, except to the extent that the objects are distributive in nature and some of them are charitable and others are non-charitable in nature. But, once if it is found that promotion of sports and athletics, which benefit the large number of people, are charitable in nature and also of general public utility this objection also would stand apart. The trust has conducted these stray activities for the purpose of achieving its primary objects i.e., relief of poor, education, medical aid etc. Thus, the, activities undertaken by the Trust cannot be called a business systematically organized. The contention of the revenue that though it is occasional and isolated transaction, it can also be called a business also cannot be accepted for the reason that it is not an occupation nor it is a trade of the trust. The transactions in conducting the races and inter-venue betting are being meant for achieving the primary objects of the trust cannot be called a business and the natural corollary that follows is that the income derived from such transactions cannot be called an income from the business. Assuming that it is a business as contemplated under section 2(13) of the Act, the same is exempted under section 11 of the Act. Further, the submission that the income shall be treated as an income derived from the property held under the trust cannot also be disbelieved.
13. The licence to run races and betting itself could be treated as property and the said property was obtained with the consent of the Hyderabad Race Club and with the licence granted by the Government of Andhra Pradesh. The term 'property' itself has got widest import for income-tax purposes and inclusive of holding a licence. But, it is not every case of business which can be treated as property. If it were to be so treated, section 13(1)(bb) of the Act would lose its meaning. It may be that a business itself may be settled in trust or the trustees may conduct a business on their own under the powers given to them in the trust deed. In this case, we find it difficult to accept that the assessee-trust was conducting the business in horse racing merely because it took the benefit of a race meet or inter-venue betting for few occasions in a year. Thus, there cannot be any doubt that the income derived by the trust for the relevant assessment years is from the property held under trust and as such, it is exempted under section 11 of the Act. Assuming, even if it is not treated as income from the property held under the trust it can be treated as voluntary contribution given by the Hyderabad Race Club to the assessee-trust as contemplated under section 12 of the Act. The conduct of the Hyderabad Race Club in respect of this transaction is only a fiduciary for the benefit of the assessee. Such voluntary contributions can be characterized only as a capital receipt in the assessee's hands. Thus, it cannot be held that there has been business in the normal sense in such arrangement and in the facts and circumstances, it is not such a business which would be hit by section 13(1)(bb) of the Act. It is only an activity which could constitute the property or an arrangement involved in transfer of funds from Hyderabad Race Club to the assessee's institution in a form recognized by law and not shown to be colourable exercise or otherwise as contended by the revenue. Since it cannot be said to be a business and the income derived cannot be said to be a business income the provisions of section 13(1)(bb) of the Act are not attracted. The assessee-trust is an institution, which satisfies the conditions under section 2(15), read with section 11F of the Act and as such, we cannot reach a different conclusion other than the one reached by the appellate Tribunal.
14. None of the objects of the trust can be said to be non-charitable in nature. Rather the objects of the trust are purely of a charitable in nature. The main objects of the trust are advancement and propagation of education, medical aid and relief to the poor. In fact, promotion of sports and games is also one of the charitable objects. Merely because a discretion is vested in the trustees to utilize the income to any one or more of the objects will not make any difference. The contention of the revenue that conducting of sports and games cannot be treated as primary object of the trust is without any substance in view of the decision rendered by the Bombay High Court in Trustees of Visha Nima Charity Trust's case (supra). Since there is no payment of club's funds to the trust, there is no scope for retrieval of the funds of the race club from the assessee-trust. Thus, it satisfies the test that the objects of the trust are not only charitable in nature, but also of general public utility and as such, attracts the provisions of section 11 of the Act and, therefore, the income derived by the trust is exempted under section 11 of the Act.
15. Thus, in the facts and circumstances of the case, we hold that the assessee is an institution which satisfied the conditions of section 2(15) read with section 11F of the Act and the derived income is from the property held under the trust and even otherwise it can only be treated as a voluntary contribution given by the Hyderabad Race Club and it cannot be said that the activities carried on by the assessee constitute a business and even if it were to be a business it was not such a business as would hit by section 13(1)(bb) of the Act.
16. Thus, the questions are answered in favour of the assessee and against the revenue. No order as to costs.