JUDGMENT
S. Rajendra Babu, J.
1. This writ petition filed under article 226 of the Constitution of India seeks to challenge the notification of the Government of Karnataka dated November 25, 1983, in No. FD 11 CAX 83 (annexure-Q) issued under section 12(g) of the Karnataka Agricultural Income-tax Act, 1957 (hereinafter referred to as “the Act”), by which the Government withdrew the approval granted to the charitable trust under the name of “Chamundeswari Dharma Nidhi”, Chikmagalur.
2. The petitioner in this petition is the Chamundeswari Dharma Nidhi Trust constituted under a deed dated May 15, 1970, for the following purposes :
(a) To establish, maintain, run, develop, improve, extend, grant donations for and to aid and assist in the establishment, maintenance, running, development, improvement and extension of hospitals, clinics, dispensaries, maternity homes and similar institutions in the State of Karnataka for affording treatments, cure, rest recuperation and other advantages in the way of alleviating the sufferings of humanity;
(b) To establish, maintain, run, develop, extend, grant donations for and to aid and assist in the establishment, maintenance, running, development, improvement and extension of educational institutions, technical, industrial and otherwise, including schools, colleges, polytechnics and research associations and institutes, workshops, hostels etc., for the benefit of students in the State of Karnataka, and to ward scholarships for the study, research and apprenticeships for all or any of the said purposes;
(c) To establish, maintain, run, develop, improve, extend, grant donations for an to aid in the establishment, maintenance, running, development, improvement and extension of libraries, reading rooms, recreation centres and other facilities in the State of Karnataka as are calculated to be of use in imparting education to the public;
(d) To conduct poor feeding and to give food, clothing and cash grants to the poor, needy and defectives and afford relief to people in distress and affected by earthquakes, flood, famine, pestilence and other causes and to grant donations for the support of the inmates of orphanages, rescue and similar institutions and societies in the State of Karnataka.
3. The trust deed also provided, under clause 4, as follows :
“The properties, funds and assets of Chamundeswari Dharma Nidhi shall be the properties hereunder conveyed and transferred and all or any income derived from the same and all additions, accretions, accumulations, augmentations, donations and other amounts and properties received by the trust, including any profit in realisation of investment of the trust properties and in particular the expression ‘trust properties’ shall include any business undertaking held or carried on by the trust.”
4. Clause 8 of the deed empowered the trustees to invest the moneys and properties of the trust in one or more ways as enumerated therein including investment of :
“funds in any industry, trade, business or businesses as the trustees may deem proper provided that nothing contained therein shall be deemed to authorise any of the trustees for the time being to advance any of the trust properties as loans to the founder of the trust or the trustees.”
5. An analysis of these recitals in the trust deed will reveal that the trust intends to provide medical relief, education, libraries, reading rooms and recreation centres, feeding of the poor and to provide succour to people in times of distress as a result of calamities like earthquakes, famine and pestilence, besides granting donations for the support of the inmates of orphanages and such other allied institutions. Clause 4 of the deed declares that the properties of the trust include, among others, any business undertaking held or carried on by the trust, while clause 8(d) empowers the trustees to employ the funds in any industry, trade or business.
6. In this background, the petitioner-trust sought for approval as a charitable trust under section 12(g) of the Act under the name Chamundeswari Dharma Nidhi. The Government, vide its order dated October 14, 1970, as per annexure-B, approved the same. Thereafter, assessments respecting the petitioner-trust were completed for the years 1975-76 to 1980-81. However, on March 23, 1981, a show cause notice, as per annexure-M, was issued to the managing trustee of the petitioner-trust by the Commissioner of Commercial Taxes, Karnataka, Bangalore, stating that though the object of the trust appeared to be charitable, a part of its funds having been utilised for giving loans to industries mentioned therein, that activity could not be considered to be a “charitable purpose” within the meaning of the Explanation to section 12(g) of the Act and that the amounts collected by the trust by way of donations having not been fully utilised exclusively for charitable purposes mentioned in the Act, asked the petitioner to appear before him and show cause why a recommendation should not be made to the Government to withdraw its recognition. The show cause notice further states that the action of the petitioner in diverting the trust funds for purposes other than charitable ones was erroneous and defeated the objects for which recognition had been granted. The petitioner filed a reply to the said show cause notice by two letters both dated June 6, 1981. The Government of Karnataka, on a consideration of the entire matter and the provisions of section 12(g) of the Act, held that the petitioner having lent moneys to private businessmen ceased to be an institution established for charitable purposes as, in its view, lending moneys to businessmen is not one of the charitable purposes enumerated in the Act. In the opinion of the Government, what was relevant for the purpose of section 12(g) is that the institution or fund, as a whole, must be established for charitable purposes. It negatived the contention of the petitioner that the corpus of the trust could be utilised for any purpose and the restriction is only in regard to the application of the income of the institution or the fund. In these circumstances, the Government accepted the recommendation of the Commissioner to cancel the approval granted by it to the petitioner and declared that the petitioner ceased to be an institution established for charitable purposes under section 12(g) of the Act.
7. The petitioner, in the meanwhile, had also effected a deed of rectification by which it was provided that the trustees shall have power to invest moneys and property of the trust in such forms, modes and manner as prescribed by the Income-tax Act or the Rules made thereunder, from time to time, for granting tax exemptions for the income of a public charitable trust. This rectification deed was executed on August 11, 1983, by the founder of the trust. Therefore, it is contended that the Government did not understand the scope or activities of the trust in their proper perspective. The objects of the trust being for charitable purposes, the powers having also been limited only for the utilisation of funds subject to restrictions under the Income-tax Act, it could not be said that those objects are not for charitable purposes as provided in the Act, and it was submitted, that the impugned notification was wholly incorrect. Learned counsel for the respondents contended that a combined reading of clauses 4 and 8 of the trust deed clearly sets out that though the objects of the trust were charitable, providing for carrying on of the business and utilisation of money thereto for such purposes amounts to denuding the character of the trust as a charitable one. It is also submitted that the rectification deed executed by the founder trustee can have no bearing on the original trust inasmuch as he had no power for alteration of the trust deed once effected and that did not restrict the power of the trustee to carry on the business as provided in the original trust deed.
8. In order to appreciate the rival contentions, it is necessary to set out the relevant portion of section 12(g) of the Act which reads as follows :
“12. Exemption from assessment of income-tax. – Agricultural income-tax shall not be payable on that part of the total agricultural income of a person which is – …
(g) any sums paid by such person as donations to any institution or fund which is established for charitable purposes and is subject to such restrictions and conditions as may be prescribed is approved by the State Government for the purpose of the section :
Provided that each such sum is not less than two hundred and fifty rupees.
Explanation. – In this section, –
(1) ‘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;
(2) ‘institution which is established for a charitable purpose’ includes an institution which is financed wholly or in part by the Government or a local authority whether owned by the Government or a local authority or not.”
9. The definition of “charitable purpose” set forth above falls into four heads, viz.,
(i) relief of the poor;
(ii) education;
(iii) medical relief; and
(iv) advancement of any other object of general public utility not involving the carrying on of any activity for profit.
10. The meaning of the first three heads referred to above does not present much difficulty. But the last expression has lead to a large amount of litigation. The decisions in Sole Trustee, Loka Shikshana Trust v. CIT and in Indian Chamber of Commerce v. CIT , however, do not provide sufficient clarification. Though some light was thrown in the decision in Dharmadeepti v. CIT , it was only in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association , that the law was really settled and the Supreme Court held in that case that the words “not involving the carrying on of any activity for profit” qualify or govern only the last head of “Charitable purpose” and not the earlier three heads. Where, therefore, the purpose of the trust or institution is relief of the poor, education or medical relief, the requirement of the definition “charitable purpose” would be fully satisfied even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution. In that case, Supreme Court held that the dominant or primary purpose was to promote commerce and trade in art silk yarn, etc., an activity not involving the carrying on of any activity for profit within the meaning of section 2(15) of the Income-tax Act and the assessee was entitled to relief under section 11(1)(a) thereof. Thus, where the primary objects are distributive, each and every one of the objects must be charitable in order that the trust or institution must be held as a charitable one. When the primary or dominant purpose of the trust or institution is charitable, another object, which, by itself, may not be charitable but is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being charitable.
11. The objects of the petitioner-trust as set out in para 2 above would be to the benefit of the members of the public and the properties, funds and assets held by it being employed in carrying out the main or primary purpose and, therefore, these objects being only subsidiary would not militate against its charitable character and the purposes of the assessee would not be any the less charitable. The true effect of the expression “not involving the carrying on of any activity for profit” is that when the purpose of a trust is advancement of an object of general public utility, it is that object of general public utility and its accomplishment or carrying out which must not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit the requirement of the definition will be met and it is immaterial how the moneys for achieving or implementing such purpose are found whether by carrying on an activity for profit or not. The bar in the exclusionary clause would be attracted if the purpose of the trust itself involves the carrying on of an activity for profit, that is to say, if an activity for profit is actually carried on as an integral part of the purpose for advancement of any other object of general public utility. There must be an activity for profit and it must be involved in the carrying on of the purpose of the trust, or it must be carried on in order to advance the purpose or in the course of carrying out the purpose of the trust or institution. The test that has to be applied is whether the predominant object of the activity involved in the carrying out the object of general public utility was to subserve the charitable purpose or to earn profit. If the profits are to merely fill a charitable purpose under the terms of the trust, the mere fact that activities of the trust yield profit will not alter the charitable character of the trust. The test now is the genuineness of the purpose tested by the obligation created to spend the money exclusively and essentially on charity. The restrictive condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is not the real object. Viewed in this light, the order of the Government which is based on the finding that the institution or fund as a whole must be established as a charitable purpose and the utilisation of the funds for the purpose of business which is an activity for profit is a total misreading of the deed and in the light of the enunciation made above, the same is wholly impermissible.
12. However, Shri Dattu, the learned High Court Government Pleader, contended that though the objects of the trust may be laudable inasmuch as clause 8(d) of the trust deed empowers the trustees to employ the funds in any industry, trade, business or businesses as they think proper and the fact that the business undertaking held or carried on by the trust could itself be the property of the trust, it is obvious that the carrying on of business is not an activity for general or public utility and, therefore, the order of the Government was perfectly in order. There is no gainsaying that the deed empowers the trustees to employ the funds of the trust in any industry, trade or business. But that is not the object of the trust. The object of the trust is tending to the sick, ignorant, poor and the needy. When that is the dominant object of the trust, in order to augment the funds of the trust, if the trustees are empowered to carry on any other activity which is merely incidental and which by itself does not convert the trust into one for the purpose of carrying on the business not covered by the definition of “charitable purpose” in the Explanation to section 12(g) of the Act, and since that ancillary or incidental activity does not come within the definition of “charitable purpose”, it cannot be said that the trust itself is not established for charitable purposes. In the circumstances, I have no hesitation in holding that the trust is one created for a charitable purpose covered by the Explanation to section 12(g) of the Act and is entitled to the benefit thereof. Merely because the petitioner employed its funds by way of loans which the deed enabled the trustees to do, should not be considered lethal enough to take out the petitioner from the category of a trust approved under section 12(g) of the Act.
13. In the circumstances, this petition is allowed and the impugned notification at annexure-Q shall stand quashed. A direction shall issue to the respondents to restore the notification dated October 14, 1970. Rule made absolute accordingly.