1964 (8) TMI 90 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income of the assessee was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922.
2. Whether the business of the company was carried on by trustees or directors.
3. Necessity of a trust deed for claiming exemption under section 4(3)(i).
4. Utilization of income for charitable purposes.

Detailed Analysis:

1. Exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922:
The primary issue was whether the income of the assessee company was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922. The assessee argued that its income was derived from property held under trust or other legal obligation wholly for religious or charitable purposes. The court referred to the memorandum and articles of association of the company, which specified that the profits were to be utilized for promoting education, social welfare, and other purposes of common good. The court concluded that these purposes fell within the definition of "charitable purposes" as per the Income-tax Act. Therefore, section 4(3)(i) was applicable, and the income in question was exempt from tax.

2. Business Conducted by Trustees or Directors:
The Tribunal had held that the business was carried on by the directors qua directors, and not by trustees, thus disqualifying the income from exemption. However, the court found this reasoning irrelevant. It stated that the property was held under a legal obligation to apply the income for specified purposes, and whether the business was managed by trustees appointed by the directors or by the directors themselves was not material for the applicability of section 4(3)(i).

3. Necessity of a Trust Deed:
The Tribunal also argued that in the absence of a trust deed, section 4(3)(i) could not be invoked. The court rejected this argument, stating that a trust deed was not essential for the provisions of section 4(3)(i) to apply. The legal obligation to use the income for charitable purposes, as specified in the memorandum and articles of association, was sufficient.

4. Utilization of Income for Charitable Purposes:
The Income-tax Officer and the Tribunal had noted that only a small portion of the income was spent on scholarships and charity, and thus questioned the charitable nature of the company. The court found this reasoning flawed, as the memorandum and articles of association mandated that the profits be used for charitable purposes. The court emphasized that it was not alleged that any part of the income was used for purposes other than those specified in the memorandum and articles of association. Therefore, the court concluded that the requirement of section 4(3)(i) was satisfied.

Conclusion:
The court answered the referred question in the affirmative, holding that the income of the assessee for the relevant years was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922. The court directed the parties to bear their own costs.