TMI Blog1980 (1) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... inally registered as " the South India Motor Union " on 24th July, 1911, under s. 26 of the Indian Companies Act, 1882. Its name was subsequently changed to " Automobile Association of Southern India, Madras ". The main objects of the association were as follows: " To encourage and develop the automobile movements in the Madras Presidency, Hyderabad, Mysore, Travancore, Cochin and other Native States of Southern India, and, as far as possible, work in conjunction with other similar associations to watch, protect and extend the rights and privileges of its members and of automobiles generally; to encourage and facilitate motor-touring ; to supply to its members a centre of information and advice on matters pertaining to motor vehicles, and so far as may be practicable to afford them support in the protection and defence of their rights. There are other objects set out in the memorandum of association, but they are either incidental to the main object or in the nature of powers. Clause 4 of the memorandum provides that the income and property of the association shall be applied solely towards the promotion of objects of the association, as set forth in the memorandum of associati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for disposal by the Tribunal. In the course of its order, the Tribunal has referred to the activities of the association as follows: " The providing of badges to members, supplying of periodical magazines to members, arrangement of payment of motor vehicle tax of members and supplying of road maps, all may constitute specific services to the members. But running of traffic school and mechanical school, participating in the activities of various bodies like Tamil Nadu State Road Development Traffic Planning Committee, Tamil Nadu Tourism Development Committee, Tamil Nadu State Transport Advisory Committee, Regional Tourist Committee for Southern Region, all these have a wider impact on the automobile movement. The object of the driving school and mechanical school is to see that driving in scientific and organised way is imparted to its members and the mechanical school, in turn, could also bring out persons with full confidence to deal with the mechanical problems. In our opinion, these two activities are not done with a view to be run in a commercial way, but to train persons in these respects with a view to see that proper motorists are made available. The participation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment on account of the assessee's failure to disclose fully and truly all material facts relating to the assessment. It is not in dispute that the assessee had given all the particulars regarding the income. The assessee had described the status as " association of persons ". As the assessee was registered as a "company" under the Indian Companies Act, its real status was that of a " company" However, there is nothing to show that the material facts relating to the status were not made available to the income-tax authorities. The name of " Automobile Association of Southern India " was apparently responsible for the person concerned filling up the form with the status being described as " association ". The AAC has pointed out that the association was being assessed for the past several years from about the assessment year 1937-38. In the assessment for that year it was stated that the assessee was an association and registered under the Indian Companies Act and that it was, therefore, a company as defined in s. 2(6) of the 1922 Act. This status has been followed right through in all the subsequent assessment years up to the assessment year 1954-55. For the assessment year 1955- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years the following are the items of income in respect of which the claim for exemption has been made: ----------------------------------------------------------------------------------------------------------------------------------------------- Assessment Profit on sale A.A.S.I. Map sales year of badges charges ----------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. 1958-1959 454 1,760 985 1959-1960 2,601 1,592* 1,344 1960-1961 3,902 2,406* ----- 1969-1970 10,552 (Gross) 23,960 (Gross) *These charges are referred to as triptyque charges in some of the orders. The AAC has analysed the receipts of the assessee from the assessment years 1957-58 to 1969-70. He found that the receipts by way of subscription and entrance fees left the assessee with some income after deducting all the expenditure. In some of the years there were deficits. For instance, in the assessment year 1958-59, there was an excess of expenditure over income or loss of Rs. 5,900 ; for 1959-60 and 1960-61, there were excess of income over expenditure of Rs. 1,700 and Rs. 1,000, respectively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption. The main judgment for the majority was pronounced by Bhagwati J., with whom Untwalia and Tulzapurkar JJ. concurred. R. S. Pathak J. delivered a separate judgment, but it was in agreement with the majority view. In that case, the assessee was a company incorporated under s. 25 of the Companies Act, 1956, and its object was to promote commerce and trade in art silk yarn, raw silk cotton yarn, art silk cloth, silk cloth and cotton cloth. The memorandum permitted the assessee to carry on all or any of the businesses of art silk yarn, etc., belonging to and on behalf of the members and to obtain import and export licences and to buy and sell and deal in all kinds of cloth belonging to and on behalf of the members. The income of the assessee was mainly derived from annual subscription at the rate of Rs. 3 per powerloom, and commission calculated on the basis of a certain percentage of the value of licences for the import of foreign yarn and quotas for purchase of indigenous yarn obtained by the assessee for its members. The assessee claimed that it was an institution established for a charitable purpose and that its income was, therefore, exempt from tax under s. 11. In dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a charitable purpose, but if it is the latter, the charitable character of the purpose would not be lost ; (5) The question whether a trust is created or an institution is established for a charitable purpose falls to be determined by a reference to the real purpose of the trust or institution, and not by the circumstances that the income derived can be measured by standards usually applicable to a commercial activity. The quantum of the income is not a test in itself. It may be the result of an activity permissible under a truly charitable purpose, for profitable activity in working out the charitable purpose is not excluded; and (6) Where a company was registered under section 25 of the Companies Act, 1956 (or its earlier counterpart), and under the memorandum of association the profit arising from any activity carried on by the assessee was liable to be applied solely and exclusively for the promotion of trade and commerce and no part of such profit could be distributed amongst the members in any form or under any guise, the assessee would be eligible for the exemption and the mere fact that the activity yielded profit did not affect the charitable character of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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