1980 (7) TMI 47 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee held property under trust within the meaning of section 11(1)(b) of the Income-tax Act, 1961, and was entitled to exemption under section 11(1)(b) of the Act.
2. Whether the income of the assessee association was exempt under section 11(1)(a) of the Act.
3. Whether holding of agricultural and industrial exhibitions and cattle fair involved an activity for profit within the meaning of section 2(15) of the Act.

Detailed Analysis:

Issue 1: Property Held Under Trust and Exemption under Section 11(1)(b)

The Tribunal found that the assessee, an unincorporated association, constructed shops from its funds and used the income from these shops for its objectives, which were deemed charitable. Despite not being a registered body, the Tribunal held that the assessee could be considered as holding property under a legal obligation, thus satisfying the conditions of section 11(1)(b). However, the High Court disagreed, stating that the assessee's objects included both charitable and non-charitable purposes, and since none of the objects were dominant, the entire claim to exemption must fail. The High Court concluded that the assessee did not qualify for exemption under section 11(1)(b), answering the question in the negative and in favor of the department.

Issue 2: Exemption under Section 11(1)(a)

The Tribunal had initially rejected the assessee's claim for exemption under section 11(1)(a), stating that the income was derived from activities involving profit. The High Court upheld this view, emphasizing that the objects of the assessee included activities for profit, which disqualified it from exemption under section 11(1)(a). The High Court affirmed that the assessee's income was not exempt under this section, answering the question in the affirmative and in favor of the department.

Issue 3: Activity for Profit within the Meaning of Section 2(15)

The Tribunal concluded that the activities of holding agricultural and industrial exhibitions and cattle fairs were means to fulfill the assessee's objectives and involved profit-making. The High Court agreed with this interpretation, citing that the restrictive clause "not involving the carrying on of any activity for profit" applied to the assessee's objects of general public utility. The High Court referenced the Supreme Court's decision in Surat Art Silk Cloth Manufacturers Association, which clarified that the object of general public utility must not involve profit-making activities. Consequently, the High Court determined that the assessee's activities did involve profit and thus did not qualify for exemption under section 2(15). The question was answered in the affirmative, in favor of the department.

Conclusion:

The High Court concluded that the assessee did not qualify for tax exemptions under sections 11(1)(a) and 11(1)(b) of the Income-tax Act, 1961, as its activities involved profit-making and included non-charitable objectives. The department's position was upheld, and the assessee's claims for exemptions were denied. The department was awarded costs assessed at Rs. 200.