9911796707
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Issues Involved:
1. Applicability of sections 13(1)(c), 13(2)(a), and 13(3) of the Income-tax Act, 1961. 2. Entitlement to exemption under section 11 of the Income-tax Act, 1961. 3. Violation of section 13(1)(bb) of the Income-tax Act, 1961, for the assessment year 1979-80. Issue-wise Detailed Analysis: 1. Applicability of Sections 13(1)(c), 13(2)(a), and 13(3): The Income-tax Officer (ITO) found that the funds of the assessee-trust were applied for the benefit of one of the trustees, T. Ponniah Chettiar, thus violating section 13(1)(c). It was observed that the firm, T. Ponniah Chettiar and Sons, in which the trustee had a substantial interest, utilized the trust's funds. Specifically, amounts of Rs. 18,400, Rs. 10,000, and Rs. 18,950 were involved. However, upon review, it was found that these amounts were either part of normal chit transactions or adequately secured. The court concluded that the trust did not violate section 13(1)(c) read with section 13(2)(a), as the transactions were secured by contributions made by the firm. 2. Entitlement to Exemption under Section 11: The primary object of the trust was charitable, focusing on education and relief to the poor. The court examined whether the trust's activities, including carrying on a chit fund business, were in furtherance of its charitable objectives. The court referred to the Supreme Court's rulings in Thiagarajar Charities v. Addl. CIT and Addl. CIT v. Surat Art Silk Cloth Manufacturers Association, which established that if the predominant object of the trust is charitable, it does not lose its character merely because it earns profit. The court found that the trust's predominant objective was charitable, thus entitling it to exemption under section 11 for the assessment years 1974-75 and 1975-76. 3. Violation of Section 13(1)(bb) for Assessment Year 1979-80: Section 13(1)(bb) stipulates that a charitable trust carrying on any business must do so in the course of actual carrying out of its primary purpose to claim exemption under section 11. The ITO held that the chit fund business was not the primary object of the trust. The court agreed, noting that the chit business was not carried on in the course of actual carrying out of the trust's primary charitable objectives. Therefore, the trust violated section 13(1)(bb), and the income from the chit business was not exempt under section 11 for the assessment year 1979-80. Judgment Summary: 1. The court held that the provisions of sections 13(1)(c), 13(2)(a), and 13(3) were not applicable, favoring the assessee. 2. The trust was entitled to exemption under section 11 for the assessment years 1974-75 and 1975-76. 3. For the assessment year 1979-80, the trust violated section 13(1)(bb), and the income from the chit business was not exempt under section 11. In conclusion, the court ruled in favor of the assessee for the assessment years 1974-75 and 1975-76, granting exemption under section 11, but ruled against the assessee for the assessment year 1979-80, denying exemption due to the violation of section 13(1)(bb).
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