1972 (10) TMI 30 - HC - Income Tax

Company conducting kuries or chits - 1. Whether on the facts and in the circumstances of the case the Appellate Tribunal is correct in law in holding that the income derived by the assessee is exempt under section 11(1)(a) of the Income-tax Act. 1961? 2. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that setting apart reserves under article 39 of the assessee s memorandum did not vitiate the charitable purpose of the institution? - writ petitions are allowed and the relevant notices sought to be quashed in the petitions are quashed

Summary

Issues:
1. Whether the income derived by the assessee is exempt under section 11(1)(a) of the Income-tax Act, 1961Rs.
2. Whether setting apart reserves under article 39 of the assessee's memorandum vitiates the charitable purpose of the institutionRs.

Analysis:
The case involved an assessee, a company registered under the Indian Companies Act of 1956, deriving income from conducting kuries (chit funds) and other sources. The primary issue was whether the income derived from conducting kuries was exempt under section 11(1)(a) of the Income-tax Act, 1961. Previously, a Division Bench of the court had held that the business of conducting kuries was held under trust for religious or charitable purposes. The Appellate Assistant Commissioner and the Appellate Tribunal also upheld this view, leading to the current reference before the High Court.

The court analyzed the definition of "charitable purpose" under section 2(15) of the Act, emphasizing that the business of conducting kuries was held under trust by the company and was not a standalone purpose. The court distinguished various precedents cited by the revenue, highlighting that the purpose of the institution was to promote charity, education, medical relief, and industry, with conducting kuries being a property held in trust. The court rejected the revenue's argument that promoting industry constituted an activity for profit, as there was no evidence that the company intended to start an industry for profit.

Regarding the second issue of setting apart reserves under article 39 of the memorandum, the court held that since the income was spent only on charitable purposes and conducting kuries was not the primary purpose of the company, setting apart reserves did not vitiate the charitable nature of the institution. The court answered both questions in the affirmative, ruling against the revenue.

Additionally, the court addressed two writ petitions related to the assessment of the company as a charitable institution under section 11 of the Income-tax Act, 1961. The court allowed both writ petitions, quashing the relevant notices, and clarified that the Income-tax Officer could continue the assessment treating the company as a charitable institution. The court also dismissed the argument for reassessment based on the opinion formed prior to the reference decision, stating that the opinion had no basis.

In conclusion, the court ruled in favor of the assessee, affirming the exemption of income derived from conducting kuries under section 11(1)(a) and rejecting the contention that setting apart reserves affected the charitable nature of the institution.