1995 (1) TMI 15 - HC - Income Tax

Charitable Trust, General Public Utility, Not Involving The Carrying On Of Any Activity For Profit

Summary

Issues Involved:
1. Whether the assessee-trust is entitled to claim exemption u/s 11 read with section 2(15) of the Income-tax Act, 1961.
2. Interpretation of "charitable purpose" and "activity for profit" under section 2(15) of the Act.

Summary:

1. Entitlement to Exemption u/s 11:
The assessee, a society registered under the Societies Registration Act and as a public charitable institution u/s 12A of the Income-tax Act, sought exemption u/s 11 read with section 2(15) of the Act. The Income-tax Officer denied this exemption, arguing that the income from the hire of furniture and a Kalyana Mandapam constituted an activity for profit. The Appellate Assistant Commissioner upheld this decision. However, the Tribunal found the trust's objects to be clearly charitable and ruled that the assessee was entitled to exemption under section 2(15) read with section 11 of the Act.

2. Interpretation of "Charitable Purpose" and "Activity for Profit":
The Tribunal referred to the principles laid out by the Supreme Court in cases like Sole Trustee, Loka Shikshana Trust v. CIT, Indian Chamber of Commerce v. CIT, and CIT v. Dharmodayam Co. The key principles include:
- Trusts under section 4(3)(1) of the 1922 Act do not apply under the 1961 Act, section 11 read with section 2(15).
- Business activities can be charitable if they are assets of the trust or if the business feeds the charity.
- If the charitable purpose involves an activity for profit, the income may become taxable unless it balances on a no-profit-no-loss basis.

The Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers' Association clarified that if the primary purpose is charitable, ancillary non-charitable activities do not negate the charitable status. The focus should be on whether the purpose involves an activity for profit, not merely the accomplishment of the purpose.

The Tribunal erred by not considering the manner and surrounding circumstances of the activities, which are crucial to determine if they are propelled by a dominant profit motive. The law requires examining the dominant object of the activity'whether it is profit-making or genuinely charitable.

The reference is answered accordingly, with no costs.