1981 (2) TMI 49 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee-union was a mutual concern whose income was exempt from tax.
2. Whether the income of the assessee was exempt u/s 11 of the Income-tax Act by reason of its income being derived from property held under trust wholly for charitable purposes.

Summary:

Issue 1: Mutual Concern Exemption
The assessee, M/s. Truck Operators' Union, claimed exemption from tax on the grounds of being a mutual concern. The Tribunal rejected this claim, stating, "there is no complete identity between the contributors and participants." The Tribunal noted that members who did not earn freight through the union but paid commission would still be entitled to a share in the surplus upon dissolution. Additionally, outsiders contributed to the union's funds. The High Court upheld the Tribunal's finding, emphasizing that the assessee did not challenge the factual findings appropriately. Thus, the first question was answered in the negative, confirming that the assessee was not a mutual concern and its income was not exempt from tax.

Issue 2: Charitable Trust Exemption u/s 11
The assessee also claimed exemption u/s 11, arguing that its objects were charitable. The Tribunal, relying on CIT v. Sole Trustee, Loka Shikshana Trust, held that the union's objects involved an activity for profit, disqualifying it from being a charitable trust. The High Court found that the union's constitution allowed for the distribution of surplus funds among members upon dissolution, indicating an element of private gain. This was inconsistent with holding income solely for charitable purposes. The Court referenced CIT v. Indian Sugar Mills Association, where similar provisions led to the denial of tax exemption. The High Court concluded that the assessee's rules did not impose a legal obligation to hold income for charitable purposes only, thus answering the second question in the negative and against the assessee.

Conclusion:
Both issues were decided against the assessee, confirming that the union was neither a mutual concern nor a charitable trust eligible for tax exemption. The assessee was ordered to pay costs to the respondent, with counsel's fee set at Rs. 200.