CARMEL BOOK STALLversusDY. COMMISSIONER OF SALES TAX

     A                            CARMEL BOOK STALL
                                                v.
                          DY. COMMISSIONER OF SALES TAX

                                         JULY 26, 1994

     B            [K. RAMASWAMY AND N. VENKATACHALA, JJ.]

               Kera/a General Sales Tax Act, 1963-Section ll>-£xigibility to ~ax--Ex­
         emption u/s J(}-f'rofits out of sale of specified goods to be solely utilised for
         charitable pwpose-Onus of proof on assessee-Utilisation of profits need not
     C   be proved in respective assessment yea,--!'act to be proved before assessment
         order is passed.

                For the assessment year 1981-82 and 1982-83, the Sales Tax Officer
         assessed to sales tax the income deriVed by the appellant from the sales of
         the books excluding the income actually utilised for charitable purpose.
     D   On appeal, the Appellate Assistant Commissioner confirmed that order.
         In further appeal, the Tribunal .-eversed the decisions of the Authorities
         and held that the entire Income derived during the assessment years went
         towards utilisation of charitable purpose and, therefore, remitted the
         matter to the Sales Tax Officer for reconsideration. On· revision, the High
     E   Court held that though the burden was on the assessee to establish that
         the income derived by /Sale of books during the assessment years was
         utilised during that year for charitable purpose, the assessee did not
         discharge that l!urden ·and that, therefore, the appellant was not entitled
         to the exemption. Accordingly, it allowed the revision.
         '
     F         In this appeal the assessee contended that tlie High Court was in
         error in its conclusion that the appellant has to prove that it had utilised
         the income derived for charitable purpose, in the respective assessment
         years. It was urged that when the assessment could not have been com·
         pleted during the relevant assessment year, utilisation of income may spill
     G   over or set apart to the subsequent years. It was also <ontended that if the
         income derived had been set apart or utilised for charitable purpose, i.e.
         stock in trade and proved to have been nsed for that purpose, the assessee
         would be entitled to the exemption under Section 10 of the Kerala General
         Sales Tax Act.

     H         On the questions arise for consideration of Supreme Court, whether
                                               274


'.
        CHARMEL BOOKSTALL v. DY. COMMR. OF SALES TAX                      275

the appellant is required to prove that the income derived from the sale A
or the books was utilised for charitable purpose aud, whether the amount
should be utilised during that assessment year alone and the assessee
would be entitled to set apart the income for Utilisation for charitable
purpose before the assessment year is completed :

      Allowing the matter and remitting the matter back to the Sales Tax         B
Officer, this Court

      HELD : 1.1. It is for the assessee to prove, as a fact, that the profits
derived by the sale of the goods specified in the Schedule, had been utilised
solely for charitable purposes and on proof thereof that much or the
amount would get exempted from exigibility to tax. [280-B]
                                                                                 c
       1.2. Regarding the question whether the assessee should utilised the
profits in the relevant assessment year itself, the Government in their
subsequent notification dated November 3, 1993 in SRO No. 1727/93 had
clarified that utilisation of the profits may be done during the relevant year   D
or be set apart for charitable purpose, if not utilised. But, however, before
the assessment order is passed, there should be proor that the profits
derived in the relevant assessment year have been solely utilised for
charitable purpose. The direction in the notification to set apart the profits
for charitable purpose would become meaningful when the above inter-             E
pretation is adopted and at the same time the object or the notification
gets achieved. [279-B-D]

      1.3. On the point that on the basis of the object or the articles of the
charitable trust of the assessee, they were entitled to utilise the profits
derived by the sale of the books in acquiring the stock in trade also, the       F
necessary material has not been placed. The assessee should be given an
opportunity to prove that the profits derived during the relevant assess-
ment years have been solely utilised for charitable purpose. [280-C-D]

      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5064-65                     G
of 1989.

     From the Judgment and Order dated 20.2.89 of the Kerala High
Court in T.R.C. 213 & 214 of 1987.

      V. Ramachandran and K.J. John for the Appellant.                           H
    276                   SUPREME COURT REPORTS [1994] SUPP. 2S.C.R.

A         A.S. Nambiar and M. A. Firoz for the Respondent.

          The following Order of the Court was delivered :

          These appeals, by special leave, arise from the judgment of the
    Division Bench of the Kerala High Court dt. February 20, 1989 in TRC.
B
    213-14/87 which relate to the assessment years 1981-82 and 1982-83. The
    Sales Tax Officer by his order dt. August 16, 1983 assessed sales to sales
    tax the income derived by the appellant from the sales of the books
    excluding the income actually utilised for charitable purpose. On appeal,
    the Assistant Appellate Commissioner by his proceedings dt. April 23, 1985
c   confirmed that order. However, the Tribunal by its order dt. February 20,
    1989, in further appeal brought before it, accepte~ the case of the appellant
    and reversed the decisions of the lower Authorities and held .that the entire
    income. derived during the assessment years went towards utilisation of
    charitable purpose and therefore, remitted the matter to the Sales Tax
D   Officer· for reconsideration in the light of the decision of the 1ribunal. But
    on revision as stated earlier, the High Court held that though the burden
    was on the assessee to establish that the income derived by sales of the
    books during the assessment years was utilised during that year for
    charitable purpose, the assessee did not discharge that bur.den and that,
E   therefore, the appellant was not entitled to the exemption. Accordingly,-it
    allowed the revision, set aside the order of the Tribunal and confirmed the
    orders of the lower authorities.

          Shri V. Ramachandran, learned senior counsel for the assessee,
    contended that the High Cou.rt was in error in its conclusion that the
F   appellant has to prove that it had utilised the income derived for charitable
    purpose, in the respective assessme~t years themselves. As per the proce-
    dure prescribed under the Kerala General Sales Tax Act, Act 15 of 1963
    (for short 'the Act') the assessee was required to submit his return at the
    end of every month and it is not possible to prove that the income derived
G   from the sale of the books had gone in that month towards charitable
    purpose, when the assessment could not have been completed during the
    relevant assessment year, utilisation of income may spill over or set apart
    to the subsequent years. It was, therefore, contended that it was not
    practicable to establish that the income derived by the sale of the books
H   was utilised for the charitable purpose during the year of its earning itself.
        CHARMEL BOOKSTALL v. DY. COMMR. OF SALES TAX                    277

It was also contended that if the income derived had been set apart or A
utilised for charitable purpose, i.e. stock in trade and proved to have been
used for that purpose, the assessee would be entitled to the exemption
under Section 10 of the Act. Shri Nambiar, learned counsel for the
Revenue contended that the appellant admitted before the Assistant Ap-
pellate Commissioner that the sale proceeds were utilised for purchase of B
the books, i.e. stock in trade. The appellate authority, according to him,
had found that for the relevant assessment years only a fraction of the
income had been utilised for charitable purpose. It was, therefore, con-
tented by him that the Sales Tax Officer and the Assistant Appellate
Commissioner were right in concluding that the appellant had not utilised
the income from sale proceeds of the books for charitable purpose. The
                                                                              c
High Court was, therefore, justified in its conclusion that it had not been
proved that the appellant had utilised the sale proceeds of the books for
the charitable purpose during the relevant assessment years.

      From the respective contentions, two questions would arise for our      D
consideration. Firstly, whether the appellant is required to prove that the
income derived from the sale of the books was utilised for charitable
purpose and secondly, whether the amount should be utilised during that
assessment year alone and the assessee would be entitled to set apart the
income for utilisation for charitable purpose before the assessment year is
                                                                              E
completed ? The notification issued under section 10 of the Act reads thus


        "SRO No. 342/63 - In exercise of the powers conferred by Section
        10 of the Kerala General Sales Tax Act, 1963 (Act 15 of 1963)
        the Government of Kerala, having considered it necessary in the       F
        public interest so to do hereby make an exemption in respect of
        the tax payable under the said Act on the sale or purchase of the
        goods specified in Schedule-I hereto appended and by persons
        specified in Schedule-II hereto appended in regard to their turn
        over on the sales of goods specified therein subject to the co.ndi-   G
        tions specified therein :

        xxxxxx                          xxxxxx                       xxxxxx

        2. Sales by any charitable trust or charitable institution, the profit
        of which is solely u(ilised for charitable purpose."                   H
    278                   SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R.


A          A reading of the notification clearly indicates the purpose for which
    the exemption had been granted by the Government, exercising its power
    under Section 10 of the Act. It provides that the Government is of the view
    that in the public interest with a view to encourage the assessee to utilise
    the income derived out of the turn over on the sale of goods specified in
    the schedule, for any charitable purpose, to the extent the assessee had
B
    proved to have utilised the sale proceeds for charitable purpose, would be
    entitled to the exemption from tax, being not exigible to tax. Counsel fairly
    admitted across the bar that the burden is always on the assessee, since it
    seeks exemption from the exigibility to tax on the ground that the profits
    so derived by the sale of the specified goods, had been solely utilised for
c   the charitable purpose. No doubt the assessee is a charitable trust. May be,
    that there would be more than one charitable purpose envisaged in the
    Articles of the Association of the ~haritable institution or the trust. But the
    outgoing from the profits out of the sale of the specified goods must b e
    solely utilised for charitable purposes. The object of the notification does
D   not concern itself as to which particular charitable purpose the assessee
    would utilise the profits derived from the sale of the notified goods. The
    purpose must be charitable purpose. What is a charitable purpose is a
    question of fact to be proved before the Sales Tax Officer or on appeal,
    etc. Therefore, it is for the assessee to prove, as a fact, that the profits
E   derived by the sale of the goods specified in the Schedule, had been utilised
    solely for charitable purposes and on proof thereof that much of the
    amount would get exempted from exigibility to tax. The Tribunal, therefore,
    is not right in its finding that the burden was no the Revenue to prove that
    the profits derive_d by the sale of the specified goods were utilised for
F   charitable purpose. The question, then is, whether the assessee should
    utilise the profits in the relevant assessment year itself. The Government
    in their subsequent notification dated November 3, 1993 in SRO No.
    1727/93 had explained thus:

             "1. The profit, if any, shall be solely utilised for charitable purpose
G            during the year or set apart to be utilised for charitable purposes.

             2. Where the profit set apart for utilisation for charitable purpose
             is utilised for any purpose, other than charitable the institution
             shall disentitle itself for the exemption under this notification
H            dming such year."
             CHARMEL BOOKSTALL v. DY. COMMR. OF SALES TAX                      279

           Thereby the Government clarified that utilisation of the profit may A
    be done during the relevant year or be set apart for charitable purpose, if
•   not utilised. If it is utilised for any other purpose, other than charitable
    purpose, the Institution should' thereby disentitle itself for the exemption
    under the notification issued under Section 10 of the Act. The practical
    difficulty could be easily visualised to give effect to the notification. In a B
    given case, it may be possible that the profits derived from the sale
    proceeds of the goods specified in the Schedule, may not be utilised soldy
    for the charitable purpose in the relevant month or during the relevant
    assessment year. But assessment being at the end of the assessment year
    and the income derived is computable to tax on the total turn-over of the
    assessment year, the assessee may be able to prove at the time when the C
    assessment is taken up for consideration that the profits derived out of the
    sale of the goods specified in the Schedule have been solely utilised for the
    charitable purpose, even after the expiry of the relevant year. But, however,
    before the assessment order is passed, there should be proof that the
    profitS derived in the relevant assessment year have been solely utilised for D
    cha:itable purpose. The direction in the later notification to set apart the
    profits for charitable purpose would become.meaningful when we adopt
    the above interpretation and at the same time the object of the notification
    gets achieved.

           It is then contended that the appellant had utilised the profits derived   E
    by the sale of the books in the relevant assessment year to purchase stock
    in trade and it is not charitable purpose. Shri Narnbiar has drawn our
    attention to the contention of the appellant itself before the appellate
    authority namely, "it is stated on behalf of the assessee that the assessee
    had invested the profits in the books, i.e. stock in trade''. It was also noted   F
    by the appellate authority that for the years 1981-82, out of a sum of Rs.
    1,93,153.33 derived as profits only a sum of Rs. 22,400 was utilised for
    charitable purpose and for the assessment years 1982-83 out of profits of
    Rs. 1,22,124.03 only a sum of Rs. 15,570 was utilised for charitable purpose.
    In other words, it is contended that rest of the profits have been utilised       G
    only to purchase stock in trade that, therefore, the appellant is not entitled
    to any exemption for the rest of the profits derived by him. May be that
    the assessee with the object to carry on charitable purpose in terms of the
    Articles of Association may use the profits derived by sale of the specified
    goods to augment stock in trade, so that the assessee may generate further
    income or accumulate stock in trade to derive profits for utilisation of the      H
    280                   SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R.

A   profit for any of the charitable purposes. The objed of the notification is
    to exempt only that portion of the profits derived by sale by goods when
    the same has solely been utilised for charitable purpose. The exemption is·         •
    relatable only to the utilisation of the profits derived by sale of the specified
    goods for charitable purpose. In other words, only on proof that so much
    of the profits derived from the sale of specified goods has been solely
B   utilised for charitable purpose during the relevant year or set apart for that
    purpose and utilised before the assessment is made by the Sales Tax
    Officer gets exempted. On the assessee's failure to prove the same, the rest
    of the profits, in other words the assessable turnover is exigible to sales tax.
    Shri Ramachandran contended that at the relevant time, the focus was on
c   the basis of the object of the articles of the trust of the assessee that they
    were entitled to utilise the profits derived by the sale of the books in
     acquiring the stock in trade sale. The necessary material has not been
    placed and that, therefore, an opportunity may be given to the appellant
    to prove that the income derived during the relevant years has been solely
D    utilised for charitable propose. Since the assessee is seeking an oppor·
     tunity, we' find that there can be no inconvenience to the Revenue to give
     an opportunity to the assessee to prove that the profits derived during the
     relevant assessment years have been solely utilised for charitable purpose.
     The judgment of the High Court and that of the Tribunal and the appellate ;
     authority have been set aside. The assessment order is also set aside. The
E    cases are remitted to the Sales Tax Officer to assess afresh, in th~ light of
     the judgment, subject to appellant's placing the necessary evidence of
     utilisation of the profits derived during the relevant year of the sale of the
     goods specified in the schedule of the notification solely for the charitable
     purpose. The appeals are allowed, but in the circumstances, the parties to
     bear their own costs.                                                     '
F
    A.G.                                                        Appeals allowed.