1985 (4) TMI 60 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income of the assessee is exempt u/s 11 of the Income-tax Act, 1961.
2. Whether the assessee qualifies as a charitable institution under the meaning of s. 2(15) of the Income-tax Act, 1961.

Summary:

Issue 1: Exemption u/s 11 of the Income-tax Act, 1961

The assessee, initially a society registered under the Societies Registration Act in 1951, was wound up on April 15, 1971, and its assets and liabilities were taken over by a public company incorporated under the Companies Act, 1956, known as the Hyderabad Race Club Limited. The assessee claimed that its income was exempt u/s 11 of the Act as it was established for charitable purposes within the meaning of s. 2(15) of the Act. The Income Tax Officer (ITO) rejected this claim, stating that the assessee was carrying on a business by conducting races, which was an activity for profit. This view was upheld by the Assistant Appellate Commissioner (AAC) and the Income Tax Appellate Tribunal (ITAT). The Tribunal's decision was based on the majority opinion that the assessee was not a charitable institution and thus could not claim exemption u/s 11 of the Act for the assessment years 1971-72, 1972-73, and 1973-74. This decision was followed for the assessment years 1974-75, 1975-76, and 1976-77 as well.

Issue 2: Qualification as a Charitable Institution under s. 2(15) of the Act

The assessee argued that its primary objects, such as the scientific breeding and training of horses and imparting instructions in horse breeding, were charitable in nature. However, the court held that the dominant object of the assessee, whether as a society or as a company, was to carry on the business of a race club, which is not charitable. The court rejected the contention that the scientific breeding of horses was an object of general public utility, noting that the breeding was confined to horses useful for conducting races and did not benefit the community at large. The court also pointed out that the assessee did not engage in activities promoting kindness towards animals or preventing cruelty, further disqualifying it from being considered a charitable institution.

Conclusion:

The court concluded that the assessee's primary object was to conduct races, which is not a charitable purpose. Consequently, the assessee's income was not exempt u/s 11 of the Income-tax Act, 1961. The court answered all questions in favor of the Revenue and against the assessee, affirming that the assessee did not qualify as a charitable institution under s. 2(15) of the Act.