1980 (5) TMI 8 - HC - Income Tax

Summary

Issues Involved:

1. Eligibility for exemption under Section 4(3)(i) of the Indian I.T. Act, 1922, and its successor provision, Section 11 of the I.T. Act, 1961.
2. Whether the sole purpose of the society was the advancement of objects of general public utility without involving any activity for profit.
3. Whether the income of the society was exempt from tax under Section 11(1) of the Income-tax Act, 1961, as it was derived from property held under trust wholly for charitable or religious purposes.

Issue-wise Detailed Analysis:

1. Eligibility for exemption under Section 4(3)(i) of the Indian I.T. Act, 1922, and its successor provision, Section 11 of the I.T. Act, 1961:

The references pertain to the assessment years 1960-61 to 1971-72, focusing on whether the Indian & Eastern Newspaper Society qualifies for tax exemption. The society, registered under the Companies Act on October 12, 1951, argued that its income was exempt from tax based on the precedent set by the Supreme Court in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722. The Income Tax Officer (ITO) initially assessed the society's property income under Section 10 of the 1922 Act but later reassessed it under Section 9, rejecting the exemption claim. The Appellate Assistant Commissioner (AAC) and the Tribunal, however, upheld the society's claim for exemption, interpreting the memorandum of association clauses as ancillary to the society's primary charitable objectives.

2. Whether the sole purpose of the society was the advancement of objects of general public utility without involving any activity for profit:

The Tribunal and AAC concluded that the society's primary objective was to promote and safeguard the business interests of its members, which is a purpose of general public utility. The Tribunal emphasized that the clauses in the memorandum of association did not imply any organized activity for profit but were meant to prudently manage the society's resources. The Tribunal's decision was influenced by the Supreme Court's rulings in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 and Indian Chamber of Commerce v. CIT [1975] 101 ITR 796, which stressed that an activity resulting in profit does not necessarily indicate a profit motive if the primary objective is charitable.

3. Whether the income of the society was exempt from tax under Section 11(1) of the Income-tax Act, 1961, as it was derived from property held under trust wholly for charitable or religious purposes:

The society's income from property, subscriptions, and handbook sales was argued to be incidental to its primary charitable purpose. The Tribunal found that the rents charged were minimal and the facilities provided were primarily for the members' benefit, not for profit. The Supreme Court's decision in the case of Surat Art Silk Cloth Manufacturers' Association [1980] 121 ITR 1 was pivotal, clarifying that an activity resulting in profit does not negate its charitable nature if the dominant objective is not profit-making. The Tribunal concluded that the society's activities were not profit-driven but aimed at advancing its charitable objectives.

Conclusion:

The High Court upheld the Tribunal's findings, affirming that the society's primary purpose was charitable and its incidental income-generating activities did not constitute a profit motive. Thus, the society was entitled to tax exemption under both the 1922 and 1961 Acts. The questions referred were answered in favor of the assessee, with costs awarded to the assessee in one of the references, and counsel's fee set at Rs. 500.