TMI Blog1974 (6) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... empt under the provisions of section II of the Income-tax Act, 1961 ? " The assessee was following the calendar year as its accounting period and on June 7, 1965, the company amended its memorandum of association and articles of association. Because of the amendments the Tribunal held that the income from the same sources (chit funds and interest from lending money), which was held to be taxable for the years 1962-63 to 1965-66, was not taxable for the years 1966-67, 1967-68 and 1968-69. At the instance of the department, the following question has been referred in relation to the years 1966-67 and 1967-68 for our opinion in Income-tax Referred Cases Nos. 55 and 56 of 1972 : " Whether, on the facts and in the circumstances of the case, the assessee is entitled to exemption under section 11 of the Income-tax Act, 1961, for the assessment years 1966-67 and 1967-68 ? " The same question has been referred to us at the instance of the department for the year 1968-69 in Income-tax Referred Case No. 79 of 1972. The Tribunal dealt with the assessments for all the 7 years by a common order and we propose to answer the questions referred to us for all these years by a common j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be included in the total income of the previous year of the person in receipt of the income,--- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India ; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India ; (c) income derived from property held under trust--- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India : Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income. Explanation.---For the purposes of clauses (a) and (b), if in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge bank or a co-operative land development bank), or (iii) deposited in an account with a financial corporation which is engaged in providing long-term finance for industrial development in India and which is approved by the Central Government for the purposes of clause (viii) of sub-section (1) of section 36 ......... (4) For the purposes of this section 'property held under trust' includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Income-tax Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment ; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes." Explanation I to section 13(4). " For the purposes of sections 11 and 12 and this section, 'trust' includes any other legal obligation and for the purposes of this section relative also includes a lineal descendant of a brother or sister. " No distincti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a business is carried on which is not wrapped in with the object of general public utility or entwined or entangled with it, the latter part of section 2(15) will not apply and so the income from the business will have to be exempted. But in case the activities in connection with the advancement of an object of general public utility are also the activities for profit the income from the activities for profit will not be exempted. Thus, if a 'chamber of commerce for the purpose of educating its members in trade and commerce conducted a school on business lines, the object of running the school would be charitable---advancement of industry and commerce---but the school being run as an activity for profit, the income would not be exempt. On the other hand, if the same school was financed by conducting a separate business which cannot be said to be involved with the school in the sense of wrapped in the school activity, the latter part of section 2(15) will not be attracted and the income from the business may be exempt if the business is held under trust for the charitable purpose of advancing trade and commerce. We do not think that the legislature meant to have any such patently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public utility when it is linked with an activity for profit will be outside section 2(15) but it need not necessarily cease to be a charitable purpose in the general sense of the word " charitable purpose ". But this is not enough in order to get the exemption provided by the Act and if there is no restriction in the case of a company by the memorandum of association and/or the articles of association enjoining that any specific part or quantum of the income from the property held under trust must be applied exclusively to specific charitable purposes, the trust will cease to be one for a charitable purpose. The principle is clearly stated in the decision of the Privy Council in Mohammad Ibrahim Riza Malak v. Commissioner of Income-tax and the decision of the Supreme Court in East India Industries (Madras) Private Ltd. v. Commisssioner of Income-tax. For the purpose of the application of this principle charitable purposes will of course have to be understood in the general sense of including charities for the advancement of general public utility and not as defined in section 2(15) of the Act. When we now turn to the provisions in the objects clause of the company in the mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Privy Council in Mohammad Ibrahim Riza Malak v. Commissioner of Income-tax and of the Supreme Court in East India Industries (Madras) Private Ltd. v. Commissioner of Income-tax must apply to the facts of these cases. There is no justification whatever in drawing any distinction between the years before 1966-67 and those from 1966-67. The position is the same in regard to all the years 1962-63 to 1968-69. We have been referred to a number of decisions on various aspects to which we have not adverted because we do not think that those decisions are really necessary or even helpful in deciding the question before us. For instance, the distinction that is drawn between " incidental objects" and main objects does not arise because the main objects of this company take in conducting kuries and lending money on interest which are both business activities. The only question then is whether there is any restriction or limitation introduced on the directors of the company obliging them to apply the income in its entirety or any specified part thereof for any of the charitable purposes. If there is no such thing, then the principle of the decisions in Mohammad Ibrahim Riza Mala ..... X X X X Extracts X X X X X X X X Extracts X X X X
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