The Director Of Income-Tax (Exemptions), Madras v. Paramartha Bhushanam Sri Nathalla Sampath Chetty Charities, Madras

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18/12/2002 CORAM THE HONOURABLE MR.JUSTICE N.V.BALASUBRAMANIANandTHE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN T.C.No.33 of 1999 and T.C.No. 71 of 1999 and T.C.No. 72 of 1999 The Director of Income-tax(Exemptions), Madras. ..... Applicant -Vs- Paramartha BhushanamSri Nathalla Sampath ChettyCharities, Madras. ..... Respondent Reference arising out of the order of the Income-tax AppellateTribunal, C-Bench, Madras in ITA.Nos.1085 (Mds)/94, 1986(Mds)/94 and 530(Mds)/93 dated 27.7.1994, at the instance of the Revenue. !For applicant :: Mr.T.Ravikumar, Jr.SC.for IT. ^For respondent :: Mr.N.Devanathan. :JUDGMENT N.V.BALASUBRAMANIAN,J. The assessee is a charitable trust having income from propertyand income from one Marriage Hall (hereinafter referred to as 'Kalyanamandapam' as called in the order of the Appellate Tribunal). Theassessee during the previous years relevant for the assessment years 1986-8 7,1987-88 and 1988-89, admitted the income from Kalyanamandapam and claimedexemption under section 11 of the Income-tax Act, 1961 ( hereinafter referredto as 'the Act'). The Assistant Commissioner of Income-tax, assessingofficer, however found that the Kalyanamandapam was let out to general publicat competitive rates and on daily basis and hence, the income was not exemptin view of section 11 (4-A) of the Act and brought to tax the income fromKalyanamandapam. The assessee preferred appeals against the orders ofassessment before the Commissioner of Income-tax (Appeals). The Commissionerof Income-tax ( Appeals), following the decision of the Appellate Tribunal inthe case of Tuluva Vellala Association Vs. C.I.T., held that the nature ofincome of the assessee from Kalyanamandapam showed that it was an income frombusiness and the conditions for exemption under section 11(4A) of the Act werenot satisfied. He therefore held that the assessing officer was justified in not granting exemption under section 11 of the Act. 3. The assessee preferred further appeals before the Income-tax Appellate Tribunal. The Appellate Tribunal, however, on the basisof the decision of this Court in C.I.T. V. MADRAS STOCK EXCHANGE LTD. (105ITR 546) and the decisions of the Madhya Pradesh High Court in MAHAKOSHALSHAHEED SMARAK TRUST v. C.I.T. (140 ITR 795) and C.I.T. v. GANESHRAMLAXMINARAYAN GOEL (147 ITR 468), held that the predominant object of the trustwas to carry out the activity of general public utility and not to earn profitand the income derived by letting out the property of the trust was used tofulfil th e object of the trust and therefore the income derived from theKalyanamandapam was not its business income. The Appellate Tribunal also heldthat section 11(4A) of the Act as inserted by Finance Act, 1983 with effectfrom 1.4.1984 would not apply as by Finance (No.2)Act, 1991 the provision hasbeen substituted and the provisions of section 11(4-A) as substituted byFinance (No.2) Act, 1991 with effect from 1.4.1992 would apply for the earlierassessment years in question also. The Appellate Tribunal also recorded afinding that the entire income from Kalyanamandapam was utilised by theassessee for the maintenance of trust and charities and therefore the incomewas exempt under section 11 of the Act. Consequently, the Appellate Tribunalallowed the appeals preferred by the assessee. The Revenue having failed toobtain a reference, approached this Court and on the basis of directions ofthis Court, the Appellate Tribunal has stated a case and referred thefollowing question of law for our consideration: " Whether on the facts and in the circumstances of the case,the Tribunal is right in law in holding that the income derived by theassessee by letting the Kalyanamandapam is exempt under section 11 of theI.T.Act, 1961?" 4. We heard learned standing counsel for the Revenue and the " Whether on the facts and in the circumstances of the case,the Tribunal is right in law in holding that the income derived by theassessee by letting the Kalyanamandapam is exempt under section 11 of theI.T.Act, 1961?" 4. We heard learned standing counsel for the Revenue and the learned counsel for the assessee. Though both the counsel advanced extensivearguments, we are of the view that it is not necessary to consider them indetail as we find that the Appellate Tribunal has committed serious errors ontwo aspects of the matter. The Appellate Tribunal, in our opinion, was notcorrect in holding that the effect of substitution of section 11(4A) of theAct by the Finance (No.2) Act, 1991 as amended in 1992 was to have effect fromthe date of insertion of section 11(4A), that is, with effect from 1.4.1984.The Finance (No.2) Act, 1991 came into force with effect from 1.4.1992 and theintention of the Parliament was to substitute the existing section 11(4A) ofthe Act with effect from 1.4.1992 and the intention is manifest that thesection 11(4A) of the Act as substituted was inserted only from 1.4.1992. TheAppellate Tribunal has placed, no doubt, emphasis on the expression,'substitute' for its view that the section 11(4A) of the Act as amended nowwas substituted from 1.4.1984 itself. The Appellate Tribunal relied upon thedecision of the Karnataka High Court in VENKATAPPA v. KRISHNAPPA (173 ITR678) and the decision of the Supreme Court in SHAMRAO v. DISTRICT MAGISTRATE(AIR 1952 SC 324) to hold that the substitution of the amended section 11(4A)of the Act was with effect from 1.4.1984 itself. 5. We have carefully considered both the decisions. The decisions were rendered with reference to the applicability of section 6 ofthe General Clauses Act and the Supreme Court and the Karnataka High Court have held that though the substituted section would take the place of theoriginal section for all intents and purposes, both the Courts have not heldthat the substituted section would take effect from the date of insertion ofpre-amended section. On the other hand, the reading of the Finance (No.2)Act, 1991 shows the intention of the legislature is that the existing section11(4A) of the Act is to be substituted with effect from 1.4.1992 and notearlier. It is not advisable to attribute retrospective effect to the provision when the legislature has expressly declared that the substitutedprovision should come into force from a particular date. As a matter of fact,the Supreme Court in ASST. C.I.T. v. THANTHI TRUST (247 ITR 785) consideredsections 13(1)(bb) and section 11(4A) of the Act and held that section 13(1)(bb) of the Act would apply to the assessment years prior to 1984-85 andsection 11(4A) of the Act originally enacted would operate for the assessmentyears from 1984-85 to 1991-92 and section 11(4A) of the Act as substitutedwith effect from 1.4.1992 would operate for the assessment years 1992-93onwards and that is the reason why the Supreme Court, while considering theclaim of grant of exemption under section 11 of the Act, considered the matterseparately with reference to three segments of the assessment years. TheAppellate Tribunal therefore was erroneous in holding that section 11(4A) ofthe Act as substituted with effect from 1.4.1992 would govern the priorassessment years as well, particularly the assessment years 1986-87 to 1988-89. The Appellate Tribunal therefore fell in error in considering thequestion of exemption claimed by the assessee with reference to the section11(4A) of the Act as substituted which came into force from 1.4.1992 and notconsidering the claim of the assessee with reference to the section 11(4A) ofthe Act which was in operation from 1981 -82.6. The Supreme Court in C.I.T. v. PATEL BROS. AND CO. LTD. (215 ITR 165) has held that where an Explanation was inserted witheffect from a particular date, its application prior to that date is excluded.Here also, the section 11(4A) of the Act was substituted with effect from1.4.1992 and that section has no application prior to the substitution of theamended section 11(4A) of the Act. This Court in C.W.T. v. VARADHARAJATHEATRES PVT. LTD. (250 ITR 523) has considered a similar question and heldas under:- " When Parliament enacts law, the law must be understood withreference to the language used in the provision construed in the light of thescheme of the Act and the object of the statute and the provisions therein.If with a view to confer a benefit which had not been conferred before the lawwas amended that does not necessarily imply that the amendment is to be givenretrospective effect even without a legislative declaration to that effect.Every case of removal of hardship by Parliament does not indicate aparliamentary intention to remove that hardship from an anterior date unlessthe scheme of the Act, the context in which the amendment was made and thelanguage of the amendment warrant such a view. When a thing which wasspecifically excluded is subsequently included, such inclusion cannot beregarded as indicative of an intention on the part of the Legislature to havetreated what is now included as having been included at all times". We are of the view that by applying the ratio of the decision the substitutedprovision of section 11(4A) of the Act by Finance (No.2) Act of 1991 wouldoperate with effect from 1.4.1992 and not from 1.4.19 84 as held by the Appellate Tribunal. 7. The second mistake committed by the Appellate Tribunal was We are of the view that by applying the ratio of the decision the substitutedprovision of section 11(4A) of the Act by Finance (No.2) Act of 1991 wouldoperate with effect from 1.4.1992 and not from 1.4.19 84 as held by the Appellate Tribunal. 7. The second mistake committed by the Appellate Tribunal was that the Appellate Tribunal has considered the question whether the activitiescarried on by the assessee trust in letting out the Kalyanamandapam would bebusiness or not by applying the tests which are meant to determine whether theobjects of the trusts are charitable objects or not within the meaning ofsection 2(15) of the Act. The Appellate Tribunal fell in error in holdingthat where the object of the trust was general utility and not to earn profit,it would not lose its character of charitable purposes, merely because someprofit arose out of the activities. This Court in C.I.T. v. MADRAS STOCKEXCHANGE LTD. (105 ITR 546) and the Madhya Pradesh High Court in MAHAKOSHALSHAHEED SMARAK TRUST v. C.I.T. (140 ITR 795) and C.I.T. v. GANESHRAMLAXMINARAYAN GOEL (147 ITR 468) have considered the question as to what arethe predominant objects of the trust and whether the activity of the trust wasto carry out an object of general public utility and not to earn profit. TheAppellate Tribunal therefore was not correct in applying the tests laid downin these cases in considering the question whether the activities of the trustare business activities or not.8. It is no doubt true that Mr.Devanathan, learned counselfor the assessee relied upon the decision of this Court in C.I.T. v.SAMYUKTHA GOWDA SARASWATHA SABHA (245 ITR 242) and an unreported decision ofthis Court in t.c.No.235 of 1997 dated 12.11.2001 (The Director of Wealth-tax(Exemptions), Madras v. M/s.A.V.M.Charities, Madras) wherein it was held thatthe income derived from letting out kalyanamandapam was not a business incomeand hence, the provisions of section 13(1 )(bb) of the Act were notapplicable. On the other hand, learned counsel for Revenue strongly relied onthe decision of this Court in C. I.T. v. HALAI NEMON ASSOCIATION (243 ITR439) where this Court held that the letting out of kalyanamandapam formarriages and other functions and thereby making the premises available toothers for limited periods would amount to business activity and what wasgranted by the owner was only a licence for a specified period and theactivity of the assessee would be described as business activity with theintention of earning income from the building. Though Mr.Devanathan, learnedcounsel for the assessee sought to distinguish the decision of this Court inHalai Nemon Association's case on the ground that this Court was consideringthe question whether the income from letting out the kalyanamandapam wasbusiness income or income from house property, however, we are of the viewthat the decision cannot be side-tracked because this Court considered thequestion with reference to the assessability of income from letting out ofkalyanamandapam. This Court has considered the question with reference to thehead of income under which the income from letting out the kalyanamandapamwould fall. We are of the view that the decision is relevant in consideringthe question whether the letting out of kalyanamandapam would amount tobusiness activity or not. 9. As far as the decision of this Court in C.I.T. v. SAMYUKTHA GOWDA SARASWATHA SABHA (245 ITR 242) and the unreported decision ofthis Court in T.C.No.235 of 1997, dated 12.11.2001 (The Director of Wealth-tax(Exemptions), Madras v. M/s.A.V.M.Charities, Madras) are concerned, learnedcounsel for the Revenue would contend that this court has held that the incomederived from letting out kalyanamandapam was not a business income and it wasan income from house property with reference to the provisions of section 9. As far as the decision of this Court in C.I.T. v. SAMYUKTHA GOWDA SARASWATHA SABHA (245 ITR 242) and the unreported decision ofthis Court in T.C.No.235 of 1997, dated 12.11.2001 (The Director of Wealth-tax(Exemptions), Madras v. M/s.A.V.M.Charities, Madras) are concerned, learnedcounsel for the Revenue would contend that this court has held that the incomederived from letting out kalyanamandapam was not a business income and it wasan income from house property with reference to the provisions of section 13(1)(bb) of the Act and not with reference to the provisions of section11(4A) of the Act. However, we are of the opinion that it is not necessary toexpress any opinion on the question as to whether the letting out ofkalyanamandapam was a business of the assessee as it would depend upon theintention of the assessee and whether it was systematically carried on by theassessee with intention to make profit out of the assets. The IncometaxOfficer has, no doubt, observed that the kalyanamandapam was let out togeneral public at competitive rates and also on daily basis and hence, it wasa business activity. The Commissioner of Income-tax (Appeals) also, followingan earlier order of the Appellate Tribunal in Tuluva Vellala Association v.C.I.T. dated 8.2.1950, held that the income from kalyanamandapam was businessincome. However, the Appellate Tribunal has not considered the question withproper perspective, but decided the question by applying a wrong test, viz.,whether the predominant object of the trust was to make profit or not. We areof the view, in so far as section 11(4A) of the Act is concerned, it is theactivity of the assessee that would be relevant. 10. Learned counsel for the Revenue also referred to the deed of settlement dated 1.3.1958 to show the objects of the trust. Mr.Devanathan, learned counsel for the assessee submitted that the deed was notreferred to either by the assessing officer, or by the Commissioner ofIncome-tax (Appeals) or by the Appellate Tribunal and therefore it is not opento the counsel for the Revenue to refer to the said document. We find forcein the submission of the learned counsel for the assessee as the deed was notreferred to by the Appellate Tribunal or by the Commissioner of Income-tax(Appeals) or by the assessing officer in their respective orders. Though thedocument was included as a part of the statement of the case on the basis ofthe directions given by this Court under section 256(2) of the Act inT.C.P.Nos.41 1 to 413 of 1996 dated 25.2.1997, we are of the view, since theAppellate Tribunal or other authorities have not considered the said deed, itis impermissible for the learned counsel for the Revenue to refer to the saiddocument. 11. Learned counsel for the assessee therefore submitted that the matter may be remitted back to the Appellate Tribunal so that theAppellate Tribunal may consider the question, for such course of action thecounsel for Revenue did not object. Hence, we return the reference withoutanswering the question of law referred to us. The Appellate Tribunal isdirected to consider the question afresh in the light of the principles laiddown earlier and in the light of the decisions referred to by us in ourjudgment. It is made clear that it is open to the parties to let in freshevidence before the Appellate Tribunal. It is also made clear that it is opento the Appellate Tribunal to remit the matter to the lower authorities forfresh consideration. 12. Accordingly, the reference is disposed of without answering the question, but with a direction for fresh hearing. There will beno order as to costs. Index: YesWebsite: Yesna. To1. The Assistant Registrar,Income-tax Appellate Tribunal,Rajaji Bhavan, Besant Nagar,Chennai 600 090 (five copies with records) 2. The Secretary,Central Board of Direct Taxes, New Delhi (3 copies) 3. The Commissioner of Income-tax,Madras. 4. The Commissioner of Income-tax (Appeals),Madras-34. 5. The Director of Income-tax,(Exemptions), Madras.�