TMI Blog1964 (8) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... sued to the company by the secretary to the Dewan of Cochin and this was as under: Under section 26(1) of the Indian Companies Act, VII of 1913, made applicable to Cochin by his Highness the Maharaja's proclamation dated 19-3-1097, Government are pleased to direct that the association named Dharmaposhanam Company, Irinjalakuda, which has as its object the promotion of charity, education and industry be registered with limited liability without the addition of the word 'limited' to its name. The memorandum and articles of association of the company are in Malayalam. The following is a rough translation of the relevant objects of the company and certain articles of association: (1)To raise funds by conducting kuries with the company as foreman receiving donations and subscriptions and by such other means as the company deems fit; (2)To do the needful for the promotion of charity, education and industry; (3)To construct buildings or acquire properties on own account or for rent for the above-mentioned purposes; (4)To encourage others to carry on similar institutions with objects identical to that of the company; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. Rs. Rs. Rs. Rs. Interest 2.474 3.307 5,421 1,681 880 Kuri 1,773 500 1,357 3,220 2,457 The income shown under interest includes interest on mortgage loans, pro-note loans, etc. The directors, of whom three are named as trustees, recommended from year to year to the general body of shareholders the appropriation of the net profits to various funds, like reserve fund, bad debts reserve fund, scholarship fund and charity fund. The transfer to scholarship and charity funds were as under: Year ended 31-12-53 Year ended 31-12-54 Year ended 31-12-55 Year ended 31-12-56 Year ended 31-12-57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being carried on behalf of the beneficiaries of the institution. The orders of the Income-tax Officer are annexures B to B-4 and form part of the case. There were appeals to the Appellate Assistant Commissioner. It was contended before him that the assessee-company was a company incorporated for charitable purposes; that all its income was derived from property held under trust or other legal obligation wholly for religious or charitable purposes and, therefore, no part of the income was liable to income-tax under section 4(3)(i). It was further submitted that the interest incomes from mortgage, pro-notes, etc., were also income from property held under trust or other legal obligation wholly for religious or charitable purposes and that income from kuri was also from property held under trust or other legal obligation wholly for religious or charitable purposes and, therefore, these were also exempt from taxation. The Appellate Assistant Commissioner has considered all these contentions in his appellate order for 1956-57. He was of the view that the main part of section 4(3)(i) was a general provision applicable to all categories of properties of which proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner should have held that the appellant-company's income from dividends and interest on securities, mortgages, pro-notes, etc., is income from property held under trust or other legal obligation wholly for religious or charitable purposes and that the whole of the said income is being applied or accumulated for application to such religious or charitable purposes within the taxable territories. (3)The learned Appellate Assistant Commissioner should have held that the income from kuries is income from property held under trust or other legal obligation wholly for religious or charitable purposes and that the whole of the said income is being applied or accumulated to such purposes within the taxable territories. (4)The learned Appellate Assistant Commissioner has erred in holding that income derived from items other than kuries is income from business activities of the appellant-company. (5)The learned Appellate Assistant Commissioner has gone wrong in holding that by setting apart 20 per cent. of the profits to the reserve fund, the entire income is not applied wholly for religious or charitable purposes. He should have found that the reserve fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Home Industries Association [1963] 48 ITR 181 . The terms of the constitution which were considered by the Judicial Committee of the Privy Council as well as the memorandum and articles of association of the companies dealt with in the three decisions referred to above are similar to the memorandum and articles of association of the assessee-company (annexure A ). The profit of the company is not to be divided. It is to be utilised for the purpose of social education and for the purpose of industry. This will fall within the meaning of charitable purposes as defined in the Indian Income-tax Act, 1922. We think, therefore, this is a case where section 4(3)(i) of the Indian Income-tax Act, 1922, is attracted. If that section is attracted, proviso (b) to the section cannot apply. It has been so held by the Supreme Court in a decision in Commissioner of Income-tax v. P. Krishna Warriar [1964] 53 ITR 176. The reasons which prompted the Income-tax Appellate Tribunal to hold that the benefit of section 4(3)(i) will not be available to the assessee are summarised in the statement of the case in paragraph 14 under three heads (1), (2) and (3) reading as follows: (1)It i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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