captioned appeal is directed against order dt. 2nd Fed. 1985 passed by CIT Delhi-VI, New Delhi (hereinafter referred as CIT) under s. 263 (1) of IT Act, 1961 (in short referred as Act) in respect of asst. yr. 1980-81. primary contentions against finding and decision under revisionary powers that assessee foundation did not fall within ambit of charitable purposes. as defined in s. 2 (15) of act and, therefore, was not entitled to exemption under s. 11 as charitable institution. action of ld. CIT in computing business income at Rs. 1,08,973 is also challenged in alternative and denial of depreciation amounting to Rs. 17,398 is further contested. In assessment order dt. 23rd March 1983 framed under s. 143 (3) of t h e Act by ITO, Trust Circle v, New Delhi facts stated are that assessee-society was formed and registered under Societies Registration Act, 1860 at registration No. S/7466 of 1975 on 21st Jan. 1975 by Registrar o f Societies, Delhi, It was registered under s. 12A (a) of Act, registration given being DLI (C) (i-539) by CIT, Delhi-II. New Delhi Vide his office No. CIT-II/TE(82)/745/8062 dt. 19th Sept. 1975. Exemption in respect of grants and other receipts was granted under s. 80G of Act up to 31st March 1977 by said CIT vide his letter No. CIT -II/TE(82)/75/1836 dt. 19th Jan. 1976. Return showing income of Rs. 2,060 was furnished on 13th June 1980 against which assessment came to be formed at Rs. 5.0660 because assessee had set apart sum of Rs. 93,132 under s. 11 (1) (a) of Act leaving surplus of Rs. 5,062 and its claim deduction of Rs. 3,000 under s. 80-L was not allowed, being not admissible in case of AOP. following portion to assessment I am noticing below to give facts of this year, as also toe project pattern of receipts and sources thereof, as also nature of expenses form inception of foundation: "The assessee contributed interest-free loan to new entrepreneurs whose projects are financed by any of All India Financial Institution, like Industrial Finance Corporation of India, Industrial Development Bank of India; Industrial Credit & Investment Corporation of India Ltd. Etc. During year under consideration he assessee derived income of Rs. 3,72,530 which consisted of service charges of Rs. 66,359 application fees of Rs. 32,000 legal charges of Rs. 8,000, interest of Rs. 1,00,903, I.F.C.I. grant of Rs. 1,65,093 and Misc. receipts of Rs. 175. assessee had incurred expenses and applied income to Rs. 2,74,336." CIT however, gave notice dt. 17th May 1984 under s. 26 3(1) of Act intimating that he intended to withdraw exemption under s. 11 of Act. assessee resisted invoking of provisions under s. 263 by filing reply dt. 4th July 1984, along with which detailed note of 22 pages was submitted. ld. CIT, however passes impugned order by which withdrew exemption and computed taxable income at Rs. 1,08,973 by holding as follows: (a) that objects of foundation did not conform to requirements of definition of charitable purpose" in s. 2 (15) of Act, as such objects were not of general public utility, and (b) that foundation was involved in activity to profit and services were being rendered and fee being charged form various entrepreneur for rendering services. I heard Shri O. P. Vaish, Advocate for appellant at length and was assisted by Shri S. K. Bansal for Revenue. appellant foundation (hereinafter referred for convenience as " RCF" or "foundation") has been sponsored by Industrial Finance Corporation of India IFCI which is under administrative control of Minstrel of Fianc e, Government of India and constituted by Act of Parliament. RCF was inaugurated on 10th March 1975 by then Minister of Industries and Civil Supplies of Central Government. According to Memorandum of Association in Rules, copy of which has been filed, it principal object can be spelt out below: "(1) To help, aid, assist, finance, undertake and organise , assistance to new entrepreneurs, technologists and professionals for promoting industrial project by giving necessary guidance and financial assistance to enable them to subscribe to promoter s enquity of projects eligible for financial assistance form Industrial finance Corporation of India and other financial institutions and bodies corporate on such terms and conditions as may be decided upon by Foundation for time to time. (ii) To render any assistance that may be ancillary or incidental to aforesaid purposes, including giving of loans and advances free of interest or at nominal rate of interest, etc. RCF funds are stipulate to mainly consist, inter alia, (i) loans form Industrial finance corporation of India, with or without interest, out of Benevolent Reserved fund established under s. 32-B of Industrial Finance Corporation Act, 1948; (ii) Loans and grants made available by Industrial Finance Corp. of India out of interest differential funds arising out of lines of credit in D. M. to Industrial Finance Corporation of India form kreditanstalt fur wiederaufbau of west Germany and allocate to Industrial Fianc e Corporation of India by Government of India, (iii) All fees, service charges, interest and other charges received by foundation. and (iv) All donations, gifts and other monies received by foundation in any other manner or from any other source. foundation income and property is statutorily stipulated to be applied solely towards promotion of its objects and no portion thereof can be paid or transferred directly or indirectly by way of dividend, gift, division, bonus or otherwise by way of profit to its members. nature and control of management of foundation can be understood by stating that it is managed by Board of Trustees, consisting of besides its Chairman, two directors of Board and Executive Director of IFCI as Ex-office member and two persons dominated by Board for IFCI to represent industry, finance, banning and technical institution, bodies of undertakings two persons nominated by said Board to represent. All India Financial Institutions and one representative nominated by Chairman of IFCI on behalf of kerditanstalt fur wedeeratufbau of Reankfurt (KFW). Against above background ld. CIT inferred that Foundation was established to provide help, and, finance and organise advancement n d promotion of industry, trade and commerce, and such object was to be achieve by providing guidance and financial assistance to new entrepreneurs, technologist not professionals. In may considered opinion, however, it is other ways wrong. primary object is to help new entrepreneurs by giving interest free loans and in process industry gets impetus for advancement. Therefore basis approach of ld. CIT made all difference. For assessee, statement of income and expenditure loan and disbursement from its inception to 31st Dec. 1984 has been filed and is at p. 159 of paper book, from where I notice that for said period advances by way of risk capital to entrepreneurs amounted to Rs. 349.57 lakhs. total recovery on account of all charges over said period has been Rs. 18.66 lakhs only. administrative cost of Foundation for said period was 36.36 lakhs. deficit has been made partly out of grants received form IFCI and partly form investing non-refundable grants and interest-free loans in short term deposits until disbursement. other heads of receipts and expenditre, which I like to notice, are as follows: Recpts form borrower on account of SC CSC etc. Rs. 14,17 lakhs Recpts on a/c of Appl. fees and legal charges Rs. 4.49 lakhs Misc. income (Int. on STO etc) Rs. 28.43 lakhs Exp. grant reco. form IFCI Rs. 9.92 lakhs Total income (4+6+7+8+) Rs. 57.01 lakhs Shri. S. K. Bansal, Departmental Representative submitted that keeping view findings of CIT that Foundation was carrying on activities for proof it which he emphasised was positive, assessee was rightly denied exemption under s. 11 r/w s. 2 (15) of Act, Next Shri Bansal referred me to decision of ITAT in case of Samaj Kalyan Parished vs. ITO cited as (1984) 9 ITD 799 (Del) and contended dominant and ancillary objects must be separated n d in such view of matter also assessee could not be held to be charitable institution. charitable institution. For assessee Shri Vaish submitted that if revenue s representative s argument was to be accepted, it would follow that CIT inferences should be taken as positive findings, which could not be correct approach. As far as Samaj Kalyan Parishand s case (supra). Mr. Vaish submitted that it was simply not applicable to facts, because it was held in that case that tailoring establishment was run on commercial lines and that assessee had derived substantial profit form such activity. There was further finding in that case by Tribunal that income derived form given business would be exempt only when such business is carried on in course of actual carrying out of primary purpose of trust, which come within ambit of s. 2 (15) of Act and such was not situation in said case. necessary facts have been given and working of foundation has l s o been projected. Before proceeding further definition of word "charitable purpose" may be noticed, given under s. 3(15) of Act: "2 (15) "charitable purpose" includes relief of poor, education, medical relief, and advancement of any other object of general public utility." I have recorded contentions of parties and have referred to decision in Samaj Kalyan Parished s case (supra) and accept appellant- advocate s contention that decision in that case want against assessee because of finding that profit activity was not being carried to further case of primary object. cited Tribunal decision, is, therefore, not applicable. I have given necessary date with regard to advancing of loans and related receipts and expenses with purpose to show that activity of profit can be only if activity is for profit can be only if activity is for profit. Hon ble Supreme Court in case of Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association, cited as (1979) 13 CTR (SC) 378: (1980) 121 ITR 1 (SC) has laid down golden principle, which is law of land, that true meaning of last 10 word in s. 2 (15) , "not involving carrying on any activity for profit", is that when purpose of trust or institution is advancement of object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve carrying on of any activity for profit. So long as purpose does not involve carrying on of any activity for profit, requirement of definition would be met and it is immaterial how monies for achieving or implementing such purpose are found, whether by carrying on activity for profit or not. said principle has not been diluted but has been re-affirmed by later judgment in case of CIT vs. Federation of Indian Chambers of Commerce, (1981) 22 CTR (SC) 124: (1981) 130 ITR 186 (SC). Activity of profit should either be stipulated or profits should arise Considering terms of advancing loans, which were free of interest and keeping in view actual facts prevailing, there was no question of making any profit are made but there is no likelihood of such event even in foreseeable future. When I observe this, I should not be understood say that because of non- earning of profit I am taking view that deponent purpose of Foundation is as contemplated in last 10 words of sub s. (15) of See. 2. According to me, there has been no activity for profit at all. As far as ld. CIT s approach that there was activity for, profit by Foundation, same is held to be erroneous on face of it because (a) loans are advanced without interest: (b) no securities are taken for advance, except pledging of shares: (c) service charge of 1 per cent cannot possibly made any significant part even of administrative cost and this I have projected by statistics reproduced in this order (d) contingent service charge by way of 1/4th of dividend when paid by promoted company on equity shares acquired out of loan form Foundation in its very nature indicates recovery contingent upon project yielding and profit. 10 per cent terminal service charges is recoverable either through adjustment against contingent service charge or at end of period of repayment of loan. Such recovery thereof was therefore, also dependent on successful implementation of project and due recovery of loan. most fundamental point is that no one proposing to take up any activity for profit would venture to take up activity that foundation is involved in. In very nature of working of Foundation, question of any profit form activity does not arise at all. Therefore, holding that Foundation is engaged in object of general public utility and its activities do not involve carrying of activity for profit, I hold that basis of assessment under s. 143 (3) of Act in respect of assessment year under question was correct and ld. CIT wrongly and unjustifiably assumed jurisdiction under s. 263 of Act for withdrawing exemption under s. 11. I accordingly vacate CIT s order and restore assessment. In result, appeal allowed. *** RISK CAPITAL FOUNDATION v. INCOME TAX OFFICER