TMI Blog1977 (10) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... other legal obligation for any public purpose of a charitable or religious nature in India ;... " The WTO was of the opinion that the club was liable to tax on its net wealth and accordingly issued notices for the above-mentioned assessment years. The assessee filed " nil " returns for all those years and contended, inter alia, that the members of the club do not have any interest in the assets held by the club and the members have always been acting as trustees of the club properties holding the same in accordance with the memorandum and articles of association of the club. The aims and objects of the club are such that the properties of the club could be held only for discharging a legal obligation for a public purpose of a charitable nature in India. The WTO, however, did not accept the assessee's contention and treated the club as an " individual " within the meaning of s. 2 of the W.T. Act, and held it liable to tax for all the assessment years in question. On appeal, the AAC while confirming the order of the WTO treating the status of the assessee as an individual, held that the exemption from tax indicated in s. 5(1)(i) of the Act was attracted and having regard to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein, which, but for the proviso, would be within it. " The burden of proving that the assets of the assessee are exempt from tax is, therefore, upon the assessee. The question, therefore, that has to be considered in this context is whether the assets held by the club are held by it under trust or other legal obligation for any public purpose of a charitable nature or they are held for any public purpose of a religious nature. But the assets are held by the club, which is a society registered under the Societies Registration Act. For what purpose these assets are held must necessarily be deduced from the aims and objects of the club as can be gathered from the memorandum of association of the said club. The aims and objects of the club, as incorporated in the memorandum of association, are as under : " (a) to encourage and promote the scientific breeding and training of horses, ponies and mules ; (b) to promote, organise and control race meetings at Hyderabad and elsewhere ; (c) to carry on the business of a race club in all its branches ;... (e) to devote sums of money from the income of the club to public charitable purposes and to other worthy causes ; (f) to giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned is the carrying on of the business of the race club in all its branches. This business of the club need not be for charitable purpose. One of the aims and objects is as well " to establish and support or aid in the establishment or support of any association, institution, funds or trust calculated to benefit any trainer, jockey or riding boy who may carry on his profession on any race course ". This again need not be for a charitable purpose. It could be with a view to earn income. The institution to which support is given may, itself, not be an institution established to discharge a legal obligation for any public purpose of a charitable nature. Those in control of the affairs of the club are empowered to devote sums of money from the income of the club for public charitable purposes and to other worthy causes which imply that they could be purposes other than charitable as well. In Cricket Association of Bengal v. CIT [1959] 37 ITR 277 (Cal) Chakravartti C.J., speaking for the Bench while dealing with the liability of the Cricket Association of Bengal to pay income-tax on the income earned by it by conducting tournaments and test matches, held (per Headnote) : The me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the subscription paid by members to the assessee is so bound up with the business that the principle of mutuality will not apply to it and as the subscription received is relatable also to the business aspect, the assessee cannot claim exemption of the whole of the subscription. On a consideration of the aims and objects of the club, the court was of the view that " this is not a case where there is a contribution of monies by certain persons coming together for trading or non-trading purposes without any idea of making a profit. This is not also a case of mere members' club which comes into existence for the purpose of providing certain amenities to the members without any business element. " The court held that, in any view of the matter, the entire income was liable to tax. In yet another case, South Indian Athletic Association Ltd. v. CIT [1977] 107 ITR 108, the Madras High Court held that the income of the South Indian Athletic Association Ltd., the objects of which were in part charitable and in part non-charitable, was not entitled to exemption from tax. The Bench observed that " public benefit is essential in order that there may be a charitable purpose. Promotion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets of the Hyderabad Race Club are, therefore, not exempt from tax. The learned counsel for the assessee, Sri K. Srinivasa Murthi, did not contend that the aims and objects mentioned in the memorandum of association of the Hyderabad Race Club disclose a public purpose of a charitable nature. What he, however, contended and very strenuously is that it is not necessary to claim exemption under s. 5(1)(i) of the Act that the aims and objects of the club should be such as to make the board of stewards hold the property under trust or other legal obligation solely for a public purpose of a charitable nature. According to him it is enough if the dominant purpose of the assessee in holding the assets is of such nature. The fact that for achieving this dominant purpose, the assessee carries on other activities and the same are permitted by some of the aims and objects enumerated in the memorandum of association, does not render it ineligible for claiming the exemption. It is urged that unless some profit is made by engaging in activities, which could not be other than activities of a non-charitable purpose, there would be no income at all with which the dominant object of utilising the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndirectly societies and institutions which have all or any of the aforesaid objects in view and (ii) which empowered the trustee to utilise the moneys and property of the trust for any of the purposes of the trust in such manner as may appear proper, held that the object of the trust was not " education " within the meaning of s. 2(15) but an object of general public utility, that, however, the publication of newspapers and journals involved the carrying on of an activity for profit and the income of the trust was, therefore, not exempt from tax. Though some of the activities permitted under the trust deed involved the activity which did not secure any profit as well, inasmuch as some of the objects were intended for earning some profit and income, the trust was already liable to pay tax. In the course of the judgment it was pointed out that where the predominant object of the trust is of a charitable nature, the income of such trust would not be liable to tax. It would become liable to tax only in view of the amendment made in the I. T. Act in 1961 which made the provision more stringent by insisting that the trustee should not have indulged in any activity for the purposes of mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e application of the income for certain purposes. The mere fact that the assessee is authorised to expend both for charitable and non-charitable purposes is not made the basis for granting or refusing the exemption. The right to exemption is dependent on the actual application of the income irrespective of the authority of the assessee to expend both for charitable or non-charitable purposes. The application alone was laid down as the test for determining whether that particular income should be exempt. To earn exemption from income-tax, the legislature provided that the income should have been applied solely for charitable purposes, even if the society earning such income may have among its objects some non-charitable purposes also, so long as it applies its income in any year solely for charitable purpose. Under the W.T. Act because the holding of the asset itself rendered one liable to tax and if such an asset is held for public purposes both of charitable and non-charitable nature, irrespective of whether it is applied " solely " for charitable purpose or for non-charitable purpose, it was rendered liable to tax. The decisions under the I.T. Act, which lay down that the dominan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the assessee was to carry on business of race club, the Bench observed that the betting permitted in the race club " is incidental to carry out its object ". This purpose cannot, in the circumstances, be held to be a profit motive and it does not amount to a business or an adventure in the nature of trade. This decision was under the provisions of the Hyderabad Municipal Corporations Act, 1955, which are not in pari materia with s. 5(1)(i) of the W.T. Act. There general tax is attracted to all buildings or lands except those exempted, one of the exemptions being in respect of buildings solely occupied and used for a charitable or educational purpose. It is significant to note that the words " any property held under trust or other legal obligation " are not to be found in s. 202(1)(b) of the Hyderabad Municipal Corporations Act. It is the use to which the building is put that is the criteria. For exemption under the W.T. Act the property must be " held either under trust or any legal obligation for any public purpose of a charitable nature " which could be gathered from the deed. Moreover, it does not appear that all the aims and objects enumerated above were specifically bro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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