1. These are two appeals filed by the Revenue against two orders of the Commissioner of Income-tax (Appeals) relating to the respective assessment years 1984-85 and 1985-86. Since both the appeals raise common questions of law and facts, both are being disposed of by this common order, for the sake of convenience.
2. In appeal No. 5499 (Del) of 1988 relating to assessment year 1984-85, grounds No. 1, 2 and 3 raise common question of law and in appeal No. 2152 (Del) of 1989 grounds No. i & 2 similarly raise the same question of law as in the earlier appeal, therefore, these grounds will be taken up jointly. The revenue has argued that the assessee is engaged in business activity and it does not, therefore, qualify as a trust engaged in a charitable activity under Section 2(15) of the Income-tax Act, 1961. The learned Departmental Representative has argued vehemently that the assessee association is an organisation primarily created for the promotion and protection of trade and manufacture of vanaspati and allied products. It has been argued that the assessee's predominant purpose is mutual benefit of its members and not for general public. It has been contended on behalf of the Revenue that since the association is not a charitable organisation and is engaged in a business activity, it is not entitled to get benefit under Section 11(2) of the Income-tax Act, 1961.
3. Learned counsel for the assessee has, on the other hand, invited our attention to the balance-sheet and the income and expenditure account which do not show any business activity being carried on by the assessee. In the assessment year 1984-85 the Assessing Officer computed income at Rs. 3,90,635 against NIL declared. Similarly in the assessment year 1985-86 the Assessing Officer computed the income at Rs. 2,38,397 as against NIL declared. The balance sheet as at 31st December, 1984 showed the assets and liabilities of the association at page 28 of the paper book filed by the assessee before us. At page 29, the income and expenditure account lias been filed which showed income from subscription and admission fees as the primary source of income of the assessee. It is on the basis of this record that the learned counsel has argued that the association was not carrying on any business activity. The learned Departmental Representative has invited our attention to Clause 13(1) of the Memorandum of Association which contains the objects of the association. On a reading of Clause B, we find that it contains objects incidental or ancillary to the attainment of the main object. Sub-clause (1) of Clause B terms the association to act as exporters, importers, agents or brokers in connection with the sale or purchase of oil seeds, oils..., vanaspati and allied productsIt is on the basis of this object that the learned Departmental Representative has vehemently contended that the association was not a charitable institution because its objects were also to carry on business.
4. Learned counsel for the assessee has invited our attention to the decision of the Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1. In that case the objects of the association were also to promote commerce and trade in art silk yarn, raw silk, cotton yarn etc. and also to carry on all or any of the business of art silk yarn, raw silk, cotton yarn, silk cloth, cotton cloth etc. In that case, the association could also obtain import and export licences. It could also buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on behalf of the members. It was held by the Hon'ble Supreme Court that these objects were merely powers incidental to the carrying out of the dominant and primary purpose which was to promote commerce and trade in art silk yarn, raw silk, cotton yarn etc. It was held that the dominant or primary purpose was an object of public utility not involving the carrying on of any activity for profit within the meaning of Section 2(15) of the Income-tax Act, 1961. It was, therefore, held in that case that the assessee was entitled to exemption under Section 11(1)(a). In the case before us, we find that the assessee is a company within the meaning of Section 25 of the Companies Act and is also registered under Section 12A of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) reversed the order of the Assessing Officer mainly on the ground that one of the objects may be as contained in Clause B(1), but it would not disentitle the assessee from claiming benefit of Section 11. It was also held by the Commissioner of Income-tax (Appeals) that the association did not carry on any activity in the relevant previous year as contemplated in Clause B(1) of the Memorandum of Association.
The objects of the assessee-association are predominantly charitable in nature as can be seen in the Memorandum of Association.
5. Our attention has also been invited to the view taken by the Tribunal in respect of the assessment year 1980-81. This Tribunal held that the association was granted registration by the Commissioner of Income-tax under Section 12A(a) and so it was entitled to the benefit of Section 11. The Assessing Officer following the direction, granted exemption to the association with respect to its income of Rs. 43,941 in the assessment year 1980-81. Copy of the order of the Tribunal has been placed at pages 9 and 11 of the paper-book filed by the assessee before us. Copy of the Assessing Officer's order dated 17-3-1988 has also been placed at pages 12-13 of the paper-book. We find that the registration was given by the Commissioner of Income-tax, vide order dated 16-10-1985, to the association under Section 12A. The delay was condoned by him. Looking to the entire facts, we are of the view that the first appellate authority has correctly taken a proper stand that the assessee is carrying on a charitable activity and it qualifies under Section 2(15) of the Income-tax Act, 1961. The main source of income of the association is from subscription and admission fees. It has disclosed income from subscription and admission fees at Rs. 4,58,700 for the year ending on 31-12-1983, vide page 29 of the paper-book. The accounting year of the assessee ends on 31st of December. The assessee accumulated income amounting to Rs. 2,00,000 and it had given a notice to the authority for investing the accumulated income in specified securities under Section 11(2). We find that looking to the total income of the assessee and source thereof, the assessee is entitled to exemption under Section 11(2).
6. We, therefore, find no substance in grounds No. 1, 2 & 3 taken by the Revenue relating to assessment year 1984-85 and grounds No. 1 & 2 relating to assessment year 1985-86 and reject them.
7. Grounds No. 4 & 5 in the appeal relating to the assessment year 1984-85 and grounds No. 3 & 4 relating to the assessment year 1984-85 are common and are, therefore, taken up together. The Revenue has pleaded that Section 11(2) cannot be applied in view of the provision contained in Section 11(4A) of the Income-tax Act, 1961. The learned Departmental Representative has argued before us that Sub-section (4A) was inserted in Section 11 by the Finance Act, 1983 with effect from 1 -4-1.984. Sub-section (4A) provides that Sub-section (2) shall not apply unless the business is carried on by an institution wholly for charitable purposes and the work in connection with such business is mainly carried on by the beneficiaries of the institution. It is contended by the Revenue that looking to the provision contained in Sub-section (4A) it should be inferred that the present assessee is not working wholly for charitable purposes. We have observed earlier that though the objects of the association permit it to carry on business, but these objects are incidental or ancillary to the attainment of the main objects. Moreover, the assessee does not appear to have carried on any business activity during the previous years under consideration. We are, therefore, of the view that Section 11 (4A) is not attracted. The learned counsel has contended before us that the aims and objects of the association and its predominant activities take it out of the mischief of Section 11 (4A). His main plank of argument is that no business activity was carried out by the association and its accumulated income was invested in the prescribed securities. The learned counsel has invited our attention to the decision of the Madras High Court in the case of Second ITO v. M.C.T. Trust [1976] 102 ITR 138 and decision of the J & K High Court in the case of CIT v. Shri Krishen Chand Charitable Trust [1975] 98 ITR 387.
8. Looking to the predominant object and the activities of the association and also keeping in view the observation made by the Tribunal relating to the assessment year 1980-81, we are of the clear view that the assessee is entitled to the benefit of Section 11(2) and Section 11(4A) does not prevent the assessee from taking the benefit as a charitable organisation.
9. We, therefore, hold that the grounds No. 4 & 5 in the appeal relating to the assessment year 1984-85 and grounds No. 3 & 4 taken in the appeal for the assessment year 1985-86 have no force and are, therefore, rejected.
10. Ground No. 7 in the appeal relating to the assessment year 1984-85 and ground No. 5 relating to the assessment year 1985-86 are also common and are, therefore, taken up jointly. The learned Departmental Representative has argued that the first appellate authority has wrongly relied upon the earlier years' orders which were not at all relevant. His main plank of argument is that after the insertion of Sub-section (4A) in Section 11 with effect from 1-4-1984, the institution has to prove that it was carrying on business wholly for charitable purposes. He has, therefore, argued that what Sub-section (4A) requires is not that the pre-dominant activity should be of a charitable nature, but that the business should be wholly for charitable purposes and not otherwise. As we have already seen, the primary object of the association is to promote and protect the interest of its members who are manufacturers of vanaspati and allied products. It has also been found that the assessee did not carry on any business activity and its income was primarily derived from subscription and admission fees. We, therefore, find no force in the argument put forward by the learned Departmental Representative and find that the learned first appellate authority was right in following the earlier years' assessment orders relating to the assessee. Once the assessee has been treated to be a trust and has been granted registration under Section 12A, it is entitled to the benefits under Section 11 (2) of the Income-tax Act, 1961.
11. Ground No. 6 in appeal relating to the assessment year 1984-85 raises a question regarding delay in filing Form No. 10 by the assessee. It has been argued by the learned Departmental Representative that the assessee failed to file Form No. 10 in time for the purpose of accumulation of income under Section 11(2) and, therefore, it was not entitled to the benefits under the said provision. The learned counsel of the assessee has, on the other hand, argued that Section 11(2) does not prescribe any time-limit for investment of accumulation of a charitable trust in Government securities. We have already referred to the two decisions given by the Madras High Court and the J & K High Court wherein it was held that the time-limit prescribed in the Rules are beyond the scope of the Act and are, therefore, invalid. In view of the above, we find that there was no time-limit for filing Form No. 10.
The assessee had filed Form No. 10 along with the return on 21-10-1986.
In view of the decisions of the Madras High Court and the J & K High Court, we find that there is no time-limit under Section 11(2) for giving a notice to the Assessing Officer specifying the purpose for which the income is being accumulated or set apart by the institution.
Therefore, ground No. 6 is also rejected.
12. No other ground has been raised by the Revenue in either of the appeals.
13. In the result, both the appeals are found to have no force and are dismissed.