Supreme Court Allows Assessee Appeal in Sales Tax Exemption Case Due to Clarification of Charitable Utilization Period. Burden on Assessee to Prove Sole Charitable Use of Profits Under Kerala General Sales Tax Act, 1963 Section 10 Notification, with Provision for Setting Apart Profits.

Case Note & Summary

The case arose from an appeal by special leave filed by the assessee, Carmel Book Stall, a charitable trust, against the judgment of the Kerala High Court denying sales tax exemption on the turnover from sale of books for assessment years 1981-82 and 1982-83 under Section 10 of the Kerala General Sales Tax Act, 1963 and notification SRO 342/63. The exemption was available to sales by any charitable trust or charitable institution, the profit of which is solely utilised for charitable purpose. The Sales Tax Officer by order dated August 16, 1983 assessed to sales tax the income derived from the sales of books excluding the income actually utilised for charitable purpose. The Assistant Appellate Commissioner confirmed that order on April 23, 1985. On further appeal, the Tribunal by order dated February 20, 1989 accepted the assessee's case that the entire income derived during the assessment years went towards utilisation of charitable purpose and remitted the matter to the Sales Tax Officer for reconsideration. However, on revision, the High Court held that the burden was on the assessee to establish that the income derived by sales of books during the assessment years was utilised during that year for charitable purpose and that the assessee did not discharge that burden, thereby denying the exemption. The High Court allowed the revision, set aside the Tribunal order and confirmed the orders of the lower authorities. The assessee appealed to the Supreme Court. Two questions arose for consideration: first, whether the assessee is required to prove that the income derived from the sale of books was utilised for charitable purpose; second, whether the amount should be utilised during that assessment year alone or whether the assessee could set apart the income for utilisation for charitable purpose before the assessment year is completed. The assessee argued that the High Court erred in requiring proof of utilisation within the respective assessment years; due to the monthly return procedure, it was impractical to prove monthly utilisation, and income could spill over or be set apart. The Revenue contended that the assessee had admitted before the appellate authority that sale proceeds were used to purchase stock in trade, and only a fraction was utilised for charitable purpose. The Supreme Court examined the notification under Section 10 and held that the burden is on the assessee to prove as a fact that profits derived from the sale of specified goods were solely utilised for charitable purposes; only to the extent proved does the exemption apply. The Tribunal was wrong in placing the burden on the Revenue. On the timing issue, the Court referred to a subsequent notification dated November 3, 1993, SRO 1727/93, which clarified that profit may be utilised during the relevant year or set apart for charitable purpose; if set apart profit is used for any other purpose, the institution disentitles itself for exemption. The Court acknowledged the practical difficulty and held that the assessee may prove utilisation even after the expiry of the relevant year, but before the assessment order is passed. Regarding stock in trade, the Court held that purchase of stock in trade from profits does not per se amount to charitable utilisation; however, if the assessee's articles permitted augmenting stock to generate further income for charitable purposes, that could be considered, but evidence was necessary. The Court noted that for 1981-82, out of profits of Rs. 1,93,153.33 only Rs. 22,400 was utilised for charitable purpose, and for 1982-83, out of Rs. 1,22,424.03 only Rs. 15,570 was utilised, with the rest used to purchase stock. The Court found that necessary material had not been placed and that no inconvenience would be caused to the Revenue by giving an opportunity to the assessee to prove charitable utilisation. Accordingly, the Court set aside the High Court judgment, the Tribunal order, the appellate authority order and the assessment order, and remitted the cases to the Sales Tax Officer for fresh assessment subject to the assessee placing necessary evidence of utilisation of profits derived during the relevant years of sale of specified goods solely for charitable purpose. The appeals were allowed, with parties bearing their own costs.

Headnote

Issue of Consideration

Final Decision

Appeals allowed; judgment of Kerala High Court, order of Tribunal, appellate authority and assessment order set aside; cases remitted to Sales Tax Officer for fresh assessment in light of judgment, subject to assessee placing necessary evidence of utilisation of profits derived during relevant years of sale of specified goods solely for charitable purpose; parties to bear their own costs.

Law Points