TMI Blog1985 (4) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... tered under the Companies Act, 1956, and licensed under section 25 of the said Act by the Central Government for the assessment years 1972-73 and 1973-74 is not exempt under section 11 of the Income-tax Act, 1961 ?" R.C. No. 187 of 1982: " Whether the income of the assessee, a company registered under the Companies Act, 1956, and licensed under section 25 of the said Act by the Central Government for the assessment years 1974-75 and 1975-76 is not exempt under section 11 of the Income-tax Act, 1961 ?" R.C. No. 291 of 1982: "Whether the income of the assessee, a company registered under the Companies Act, 1956, and licensed under section 25 of the said Act by the Central Government for the assessment year 1976-77 is not exempt under section 11 of the Income-tax Act, 1961 ?" We may notice a few facts relevant for the purpose of these references. Initially, the assessee was a society registered under the Societies Registration Act in the year 1951. On April 15, 1971, the society was wound up and its assets and liabilities were taken over as a going concern by public company incorporated under the Companies Act, 1956, and known as I the Hyderabad Race Club Limited. In exercise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above difference of opinion between the learned judicial member and the learned accountant member, the matter was referred under s. 255(4) of the Act by the President of the Tribunal to the Vice-President for consideration, The Vice-President agreed with the view expressed by the learned judicial member and held that the assessee is not a charitable institution and, consequently, it cannot claim exemption of its income under s. 11 of the Act for the assessment years 1971-72, 1972-73 and 1973-74. In view of the majority opinion, the Tribunal eventually dismissed the appeals filed by the assessee on the above point. Thereafter, the assessee required the Tribunal, by filing applications under s. 256(1) of the Act, to refer certain questions of law arising from the order of the Tribunal. That is how the Tribunal referred the two questions set out in paragraph I for the opinion of this court in R.C. No. 107 of 1978. In connection with the income-tax assessment years 1974-75, 1975-76 and 1976-77, the assessee reiterated its plea for being recognised as charitable institution and for exempting its income under s. 11 of the Act. Suffice it to state that the assessee's claim was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to diffuse useful and scientific knowledge of horse breeding; to encourage horse breeding in all its aspects; and to give monetary assistance to bona fide breeders. (e) To devote sums of money from the income of the club to public charitable purposes and to other worthy causes." There are various other objects specified in the memorandum. Learned counsel submitted that most of the other items specified as objects were in reality powers which can be exercised by the society and were not in the nature of objects for which the society was established. Learned counsel submits that the basic purpose for which the assessee-society was established was specified in clauses (a), (d) and (e) and the objects specified in these clauses were, according to the learned counsel, charitable in character. The object relating to the carrying on of a business of a race club in all its branches specified in clause (c), the learned counsel contends, was only a power conferred on the society in order to promote and advance the objects specified in clauses (a), (b) and (e). In other words, according to the learned counsel, carrying on the business of a race club in all its branches is not an obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspects and to give monetary assistance to bona fide breeders." It would thus be seen that the scientific breeding and training of horses and the imparting of instructions relating to horse breeding in all its aspects, is shown as an incidental or ancillary object in the memorandum of association of the assessee-company which was established in April, 1971. Learned counsel submits that in the memorandum of association constituting the assessee as a company in April, 1971, carrying on the business of a race club in all its branches had to be specified as the main object in order to meet the requirements of the Company law, although in point of fact the main object for which the assessee-company was established, was what was stated as an incidental or ancillary object against sl. No. 4 referred to above. It is pointed out that for the purpose of incorporating a company, the business which the company carries on has to be specified as the main object and all other objects have to be specified as incidental or ancillary objects, and this classification for the limited purpose of the Companies Act should not, according to the learned counsel, be confused with the real object for which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already referred to above, the memorandum of association of the assessee after its incorporation in April, 1971, as a company clearly states that the main object to be pursued by the assessee-company on its incorporation, is to carry on the business of a race club in all its branches. Even when the assessee was a society, carrying on the business of a race club was obviously the main object although it Was mixed up with other objects, as there was no statutory requirement that the main objects and ancillary objects should be separately specified in the case of a society. We are unable to appreciate the learned counsel's contention that notwithstanding the memorandum of association specifying the carrying on of the business of a race club as the main object for which the assessee-company was incorporated, we should hold that the main object for the purpose of the Companies Act is the carrying oil of the business of a race club, and the main object for the purpose of the I.T. Act is the scientific breeding of horses. We must reject the contention that the main objects for which the assessee was established should be regarded differently for the purpose of the Companies Act and the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... helping gaushalas, panjarapoles and other similar institutions for animals, could be regarded as charitable object. Examining the above aspect, the court observed that (p. 857) : " ...the object beneficial to mankind or humanity is interpreted in wide manner so as to embrace within its scope those acts of charity, which advance general public morality, alleviating suffering of weak, infirm animals or preventing cruelty to animals, encouraging compassionate feeling and tender treatment by protecting such domestic animals, by service of such animals or looking after and promoting the well-being of these domestic animals, including such bovine animals which are the mainstay of our agricultural community. Such objects are looked upon as proper objects of public charity in this country. " The court referred to various authorities in support of the basic proposition that any trust created or institution established which tends to promote public morality by checking the innate tendency to cruelty towards animals, should be regarded as charitable in character. The following observations of Lord justice Swinfen Eady in In re Wedgwood: Allen v. Wedgwood [1915] 1 Ch 113, 122, are instruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove premises, the Gujarat High Court held that cl. 4(g) of the trust deed for establishing, maintaining, running and helping gaushalas, panjarapoles and other similar institutions for animals, was a charitable purposes. The following principles emerge from the observations enumerated above: "(a) A trust for improving the standard of cattle in our country is regarded as an object of general public utility because cattle is the mainstay of our agricultural community and most important for the rural economy of India. (b) A trust for the protection of cows and bovine cattle from premature deaths, neglect and deterioration and destruction and to save bovine cattle by improving their breed and raising their economic standard, was for a charitable purpose under the head 'Any other object of general public utility '. (c) A trust created or institution established which tends to promote public morality by checking the innate tendency to cruelty towards animals should be regarded as beneficial to the community as a whole and, therefore, charitable in character." The object of scientific breeding of horses does not come within any of the above principles. In the first place, horse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, etc., is a charitable purpose being an object of general public utility. According to the learned counsel, the only dispute was whether the object of general public utility in the assessee's case is hit by the exclusionary clause " not involving any activity for profit " within the meaning of s. 2(15) of the Act. Learned counsel pointed out that the judicial as well as the accountant member of the Tribunal and also the Vice-President considered the question only from the above point of view. It is, therefore, suggested that this court ought not to examine the question whether the scientific breeding of horses, etc., is a charitable purpose or not, as it does not arise out of the Tribunal's order. The learned counsel is perhaps right in pointing out that the judicial as well as the accountant member of the Tribunal, who differed, and also the Vice-President, proceeded on the assumption that the scientific breeding of horses, etc., is an object of general public utility and came to the conclusion by a majority that such an object of general public utility is hit by the exclusionary clause in s. 2(15) of the Act " not involving any activity for profit ". We do not understand the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leaves us to examine only one decision which was pressed upon us by the learned counsel with sufficient justification and that is the decision of a Division Bench of this court in Municipal Corporation of Hyderabad v. Hyderabad Race Club (AAOs Nos. 216 and 279 of 1970, dated December 13, 1971). Learned counsel heavily relied on the above decision as it was rendered in the assessee's own case, where it was accepted that the assessee, when it was constituted as a society under the Societies Registration Act, was a charitable institution. We have stated earlier that in a subsequent judgment concerning wealth-tax matters of the assessee, another Division Bench of this court in CWT v. Hyderabad Race Club [1978] 115 ITR 453 (AP), held that the assessee is not a charitable institution. It is because of this apparent conflict between the two Division Benches of this court that the matter has been referred to a Full Bench. We are inclined to hold that the decision of the Division Bench in CWT v. Hyderabad Race Club [1978] 115 ITR 453 (AP), is correct. We are unable to agree with the decision in Municipal Corporation of Hyderabad v. Hyderabad Race Club (AAOs Nos. 216 and 279 of 1970, dated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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