M/S. THIAGARAJAR CHARITIES, MADURAI versus THE ADDITIONAL COMMISSIONER OF INCOME-TAX AND ANR.

Citation: [1997] 3 S.C.R. 965 · Decided: 24-04-1997 · Supreme Court of India · Bench: K.S. PARIPOORNAN · Disposal: Appeal(s) allowed

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Judgment (excerpt)

MIS. THIAGARAJAR CHARITIES, MADURAI 
v. 
THE ADDITIONAL COMMISSIONER OF 
INCOME-TAX AND ANR. 
APRIL 24, 1997 
[K. S. PARIPOORNAN, K. VENKATASWAMI 
AND B.N. KIRPAL, JJ.) 
A 
B 
Income-Tax Act, 1961-Section ll-Exemption-CJ1aritable 
Trust-Mode of determination-Main objects of Tmst were educational, medi-
C 
cal relief and relief to the poo~ther clauses of the Trust-Deed enumerates 
as its objects: to assist and promote rural reconstruction work, cottage industry 
and all other matters incidental thereto-Held, the power of the Trustees to 
effectuate the aforesaid objects should not be mistaken for the objects of the 
Trust-The business of purchasing and selling cotton, cotton yam, cloth and D 
fibres etc., held, corpus of the Trust and the real object was to afford 'relief 
to the poor'-So, profit making was not the real object of the Trust and the 
assessee Trust was entitled to exemption. 
-The appellant was a Trust and was assessed to income tax. Pursuant 
to its resolution, the Board of Trustees commenced and carried on the E 
business in the purchase and sale of cotton yarn. 
The assessee filed its Income-tax returns disclosing "nil" income, 
though, according to the profit and loss account, it had made a profit. The 
assessee claimed that the business carried on by it was one held under 
Trust and since the Trust was for charitable purposes, it income was 
F 
exempt under section 11 of the Income Tax Act, 1961. The income-Tax-Of· 
fleer rejected the claim. But in appeal, the Appellate Assistant Commis· 
sioner upheld the plea of the assessee and directed the Income· Tax-Officer 
to grant exemption. 
In further appeal, the appellate Tribunal concluded that the object G 
in the Trust-Deed involved carrying on of an activity of profit and held 
that the income derived by the assessee from the business carried on by 
it, though, held under the Trust, could not be said to be exempted from 
tax under Section 11 of the Act. On a Reference, the High court agreed 
with the view of the Tribunal and held the Trust to be a non-charitable· H 
965 
966 
SUPREME COURT REPORTS 
[1997] 3 S.C.R. 
A Trust. Hence this appeal. 
Allowing the appeal, this Court 
HELD : 1.1. The High Court had wrongly assumed that it is in 
B pursuance of clause l(g) of the Trust Deed, the business of purchasing and 
selling cotton, cotton yarn etc. was carried on by the Trust. It is patent 
that there has been a mix-up of the clauses of the Trust Deed and clauses 
of the Resolution of the Board. As per clause 3 of the Trust Deed the 
business so started and carried on was corpus of the Trust. Clause l(g) 
of the Deed had nothing to do with such business. A misreading and 
C misunderstanding of the vital clauses of the Trust Deed and the Resolution 
of the Trust Board have resulted in the wrong approach and conclusion 
of the High Court. [978-B-D] 
Dharamdeepti v. Commissioner of Income-Tax, Kera/a, 114 ITR 454 
D and Commissioner of Income-Tax, Kera/a v. Slzri Shaila And Spiritual 
Colony Chan.ties, 87 ITR 175, relied on. 
1.2. In interpreting or understanding a Trust Deed one has to bear 
in mind the basic difference between the corpus of the trust, the object of 
the Trust and the power of the Trustees. The language employed in clause 
E 1 (g) itself suggests that it is a power vested in the Trust to engage and 
promote rural reconstruction work, cottage industry and all matters in-
cidental thereto. In substance, the activities specified in clause 1 (g) is to 
afford "relief to the poor". Clause l(g) of the Trust-Deed only vests power 
in the Trustees to do certain things to effectuate the main object of the 
F Trust contained in clause 1 (a) of the Deed • to start, run, develop educa· 
tional, technical, vocational and other institutions and institutes for the 
welfare and uplift of the general public. The power so vested in the trustees 
under clause (g) cannot be called as "the object" of the Trust. So, the 
Income· Tax Appellate Tribunal and also the High Court erred in constru-
ing clause (g) as "object" of the Trust enabling it to carry on a business 
G with profit motive. It is clear that the business of purchasing and selling 
cotton, cotton yarn, cloth and other fibres etc. was held under the Trust 
and in view of clause 3 of the Deed it is the corpus of the Trust in reality. 
It is not an object of the Trust. The business is only a "means" of achieving 
the "object of the Trust; it is a medium through which the object is 
H accomplished. [

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