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TMI Blog2002 (8) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 1973-74), whereas Income-tax Reference No. 79 of 1991 relates to the assessment years 1973-74, 1974-75, 1976-77 up to 1979-80. The basic issue which arises for determination in the above two references is : whether the assessee-trust and the activities carried on by it come under the definition of "charitable purpose" under section 2(15) of the Act and, therefore, whether the assessee-Deccan Gymkhana Trust was entitled to exemption under section 11 of the Income-tax Act. The assessee is a society registered under the Societies Registration Act, 1860. It was registered on October 5, 1906. It is a public trust. The objects of the society are described in clause 3 of Part I of the constitution. The main object was to develop and promote gymnastic games (sports) and sportsmanship. The assessee was assessed for the assessment year 1973-74 by the Income-tax Officer on October 20, 1975, granting exemption under section 11 of the Act. However, the Commissioner of Income-tax initiated proceedings under section 263 of the Act and came to the conclusion that Deccan Gymkhana Trust was not a public charitable institution and was not entitled to exemption under section 11 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quire and hold immovable property 3.G. To plan a colony for the members of the society and to make other arrangements ancillary to it; 3.H. To raise funds and loan, to invest amounts and advance loans, etc. 3.I. To do all other things helpful in the achievement of the above objects." The moot point which arises is in view of sub-clauses F and G quoted above. According to the Department, sub-clauses A to F show that the object of the society was to promote sports, games and sportsmanship, but with the introduction of sub-clauses F, G, and H, the assessee cannot claim exemption under section 11 as a charitable trust. On the other hand, according to the assessee, sub-clauses A to E constituted the dominant objects whereas sub-clauses F, G and H constituted incidental objects. That, in the alternative, it was contended that in any event, sub-clauses F, G and H were never intended to be implemented; that these sub-clauses were never, in fact, implemented. That, sub-clauses F, G and H were introduced in the light of the situation which prevailed in Pune in 1906. That, after 1923, no colony has been set up by the assessee. That, in 1993, in fact, sub-clause G has been deleted and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, we are reading the aforestated sub-clauses F, G and H in the light of the historical facts enumerated above. Mr. Inamdar, learned counsel for the assessee, submitted that there was a difference between objects of the trust and the powers of the trustees. He con tended that sub-clauses A to E indicate the objects of the public trust-Deccan Gymkhana, whereas sub-clauses F, G and H only indicate the power of the trustees to acquire and hold immovable properties; to plan a colony for the members of the society and to raise funds. He contended that the powers of the trustees should not be mixed with the dominant object of the trust as indicated by clauses 3-A to 3-F. He contended that the Gymkhana was not formed in order to deal in immovable properties. He contended that in the light of the above historical facts, the youth was required to be brought to an area which was a desolate area in 1906, for sports and cultural activities. He contended that in 1906 there were logistical problems. He pointed out from the decision of the Tribunal in the aforestated historical facts to show that in 1906, in this area, there was no electricity. It is in this light that in the objects it was dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edical relief and the advancement of any other object of general public utility, not involving the carrying on of any activity for profit. In the case of Thiagarajar Charities v. Add. CIT [1997] 225 ITR 1010 (SC), it has been held that the correct test to be applied was whether the predominant object of the activity was to subserve the charitable purpose or to earn profit. Where profit making was the predominant object of the activity, the purpose would cease to be a charitable purpose. But, where the predominant object of the activity was to carry out the charitable purpose and not to earn profit, it would not lose the character of a charitable purpose merely because some profit arises from the activity. In that judgment, it has been further laid down that there is a difference between the objects of the trust and the power of the trustees. In that matter, the Supreme Court had to construe two clauses in the constitution of the trust. In that matter, under clause 1(g) the words were as follows: "To engage in...and assist and promote rural reconstruction work, cottage industry and all other matters incidental thereto...." The other clause in the trust deed was clause 7(e) which r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; Department. charitable institution within the meaning of section 2(15) of the Income-tax Act, 1961 ? Question No. 2 : Whether, on the facts and in the On the facts and in the circumstances circumstances of the case, the income of the of the case, income of the assessee assessee, was entitled to exemption either was entitled to exemption under section under section 11 of the Income-tax Act, 1961, 11 of the tax Act, 1961, read with read with section 2(15) of Income-tax Act, or section 2(15) of the Income-tax Act. under the principle of mutuality? Accordingly, both the above references are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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