1980 (1) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Whether the object of the assessee fell within the definition of section 2(15) of the I.T. Act, and thus entitled to exemption u/s 11 of the Income-tax Act, 1961.
2. Whether the reopening of the assessment u/s 147(a) of the Income-tax Act, 1961, was justified due to the assessee declaring its status as an "association of persons" instead of "company".

Summary:

Issue 1: Definition of Section 2(15) and Exemption u/s 11
The assessee, originally registered as "The South India Motor Union" and later renamed "Automobile Association of Southern India, Madras," claimed exemption u/s 11 of the I.T. Act, 1961, asserting it was a charitable institution. The main objects included encouraging automobile movements, protecting members' rights, and facilitating motor-touring. The Tribunal found that activities like running traffic and mechanical schools, participating in various committees, and contributing to road safety were aimed at public utility and not profit-making. The Tribunal referenced the Supreme Court's decision in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) and Addl. CIT v. Surat Art Silk Cloth Manufacturers' Association [1980] 121 ITR 1 (SC), which emphasized that the predominant object should be charitable and not profit-making. The Tribunal concluded that the assessee's activities served a cross-section of the public and did not involve profit-making, thus qualifying for exemption u/s 11.

Issue 2: Reopening of Assessment u/s 147(a)
The assessment for the years 1958-59, 1959-60, and 1960-61 was reopened u/s 147(a) due to the assessee's status being declared as an "association of persons" instead of a "company." The AAC and Tribunal found that the assessee had disclosed all primary facts and that the description as an "association" did not amount to an omission or failure to disclose material facts. The Tribunal noted that the assessee had been consistently assessed as a "company" since 1937-38, and the status change was a mistake. The Tribunal referenced the Supreme Court decision in Gemini Leather Stores v. ITO [1975] 100 ITR 1 (SC), which held that income cannot be said to have escaped assessment if the ITO had all the necessary facts but failed to draw the correct inference. Thus, the reopening of the assessment was not justified.

Conclusion:
Both questions were answered in favor of the assessee. The object of the assessee fell within the definition of section 2(15) and was entitled to exemption u/s 11. The reopening of the assessment u/s 147(a) was not justified as there was no omission or failure on the part of the assessee to disclose material facts.