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Issues Involved:
1. Whether the appellant association's income is exempt from income-tax and super-tax under Section 4(3)(i) of the Income-tax Act, 1922. 2. Whether the appellant association's activities constitute a charitable purpose under the Act. 3. Whether the property from which the income is derived is held under trust or other legal obligation for charitable purposes. Issue-wise Detailed Analysis: 1. Exemption from Income-Tax and Super-Tax: The primary issue in this appeal is whether the appellant association is exempt from liability to income-tax and super-tax for the year 1936-37 under Section 4(3)(i) of the Income-tax Act, 1922. The relevant provision states that income derived from property held under trust or other legal obligation wholly for religious or charitable purposes is exempt from tax. The High Court of Bombay had previously answered this question adversely to the appellant, concluding that the association did not meet the criteria for exemption. 2. Charitable Purpose: The appellant association was formed in 1925 with the objective of developing the village industry of hand-weaving (khadi) and weaving cotton material (khaddar) using hand looms. The association's activities included acquiring yarn and raw cotton, which were then given to poor individuals to spin into yarn and weave into cloth. The cloth was sold, and the profits were used to further the association's objectives. The appellant argued that these activities constituted a charitable purpose, specifically the relief of the poor and the advancement of an object of general public utility, as defined in Section 4(3)(i) of the Act. The High Court had assumed that the association's object was the relief of the poor but held that the income was not derived from property held under trust or legal obligation for charitable purposes. The High Court emphasized that there was no trust deed or clear declaration of trust, and thus no legal obligation to dispose of the income for charitable purposes. 3. Trust or Legal Obligation: The appellant's constitution, as set out in the "Khadi Guide," established the association for the development of hand-spinning and khaddar, with a Board of Trustees holding the funds and assets for the association's purposes. The High Court had focused on the absence of a formal trust deed and concluded that there was no legal obligation to use the income for charitable purposes. However, the judgment under appeal disagreed with the High Court's conclusion. It held that the association's constitution did create a trust or legal obligation to use the property and income for the association's charitable purposes. The constitution's provisions, including the vesting of funds and assets in the Board of Trustees for the association's purposes, constituted a binding legal obligation. The judgment emphasized that a formal deed is not necessary to establish a trust or legal obligation. Conclusion: The judgment concluded that the appellant association's income is exempt from income-tax and super-tax under Section 4(3)(i) of the Income-tax Act, 1922. The association's activities constituted a charitable purpose, specifically the relief of the poor and the advancement of an object of general public utility. The association's constitution created a trust or legal obligation to use the property and income for charitable purposes. Therefore, the appeal was allowed, and the question submitted to the Court was answered in the negative. The respondent was ordered to pay the appellant's costs of the appeal and the proceedings below.
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