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Issues Involved:
1. Whether the assessee-trust was rightly held to be exempt under section 11 of the Income-tax Act, 1961. 2. Whether the donations received by the trust were exempt under section 12 of the Income-tax Act, 1961. 3. Whether donations received by the trust could be treated as its income if the trust is not entitled to exemption under section 11. Issue-Wise Detailed Analysis: 1. Exemption under Section 11 of the Income-tax Act, 1961: The assessee, a trust constituted by a deed dated December 3, 1959, aimed to promote science, literature, fine arts, sports, and other charitable objectives. In the assessment year 1971-72, the Income-tax Officer found the trust's income exempt under section 11 of the Income-tax Act, 1961, as it had no taxable income. However, the Commissioner of Income-tax, upon reviewing the records, found the assessment erroneous and prejudicial to the Revenue's interests. The Commissioner noted that the trust's activities, such as letting out halls for cultural programs at commercial rates, constituted a business activity for profit, thus disqualifying it from exemption under section 11. The Tribunal, however, found that the trust's primary and dominant objects were of general public utility and that the activities did not involve profit-making. The Tribunal concluded that the trust was entitled to exemption under section 11, as its activities were on a no profit no loss basis and any profits were applied exclusively for the trust's purposes. 2. Exemption under Section 12 of the Income-tax Act, 1961: The Commissioner had also denied exemption under section 12 for donations received by the trust, asserting that the trust's activities were not charitable. The Tribunal, however, found that the donations received were capital receipts and not income, as per a Departmental Circular dated May 1, 1967. Consequently, the Tribunal held that the donations were exempt under section 12, as the trust's income was exempt under section 11. 3. Treatment of Donations as Income if Exemption under Section 11 is Denied: The Tribunal also addressed the hypothetical scenario where the trust might not be entitled to exemption under section 11. It held that even in such a case, donations received could not be treated as income of the trust. The Tribunal's findings were based on the fact that donations were capital receipts and not income, thus reinforcing the trust's entitlement to exemption under section 12. Court's Conclusion: The High Court upheld the Tribunal's findings, emphasizing that the primary and dominant objects of the trust were charitable and did not involve any activity for profit. The court referenced the Supreme Court's decision in Surat Art Silk Cloth Manufacturers Association, which clarified that a trust's charitable status is not negated by incidental business activities if the primary purpose remains charitable. The court concluded that the trust was entitled to exemptions under sections 11 and 12 of the Income-tax Act, 1961, and answered all questions in favor of the assessee. There was no order as to costs. Separate Judgment: MRS. MONJULA BOSE J. concurred with the judgment delivered.
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