1978 (12) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee association was formed primarily for the purpose of regulating relations between employers and their workmen.
2. Whether the income from interest on securities and dividend income is exempt from tax under section 10(24) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Primary Purpose of the Assessee Association
The assessee, Calcutta Hydraulic Press Association, was registered under the Indian Trade Unions Act, 1926. The primary objects of the association included regulating relations between members and their employees, imposing restrictive conditions on the conduct of trade, and securing advantageous terms from balers in relation to jute press houses. The Income Tax Officer (ITO) found that the activities of the assessee did not primarily relate to the regulation of relations between its members and their employees but were mainly focused on the protection and promotion of trade interests of its members.

The Appellate Assistant Commissioner (AAC), however, concluded that the assessee was constituted primarily for regulating relations between workmen and employers, and other objects were additional. The Income-tax Appellate Tribunal upheld this view, noting that the assessee administered a welfare fund for the benefit of workers, which promoted good relations between employers and workmen.

The High Court observed that the Tribunal's conclusion was based on a proper interpretation of the rules and actual activities of the assessee. The primary object was indeed the regulation of relations between members and their employees, and this finding was neither erroneous nor perverse.

Issue 2: Exemption Under Section 10(24)
The assessee claimed that its income from interest on securities and dividend was exempt under section 10(24) of the Income Tax Act, 1961, which provides tax exemption for income of trade unions formed primarily for regulating relations between workmen and employers. The ITO denied this exemption, arguing that the assessee's activities did not align with the statutory requirements.

The AAC disagreed, holding that the income from interest and dividend could not be included in the taxable income of the assessee. The Tribunal confirmed this view, stating that the assessee was formed primarily for the purpose of regulating relations between employers and workmen and thus fell within the purview of section 10(24).

During the High Court hearing, the revenue argued that the assessee's objects included various activities that did not pertain to regulating relations between employers and workmen. They cited several case laws, including East India Industries (Madras) P. Ltd. v. CIT and CIT v. Indian Sugar Mills Association, to support their contention that multiple objects of an association could disqualify it from tax exemptions meant for charitable purposes.

The High Court, however, found merit in the assessee's arguments. The court noted that the Tribunal had duly considered the rules and actual activities of the assessee and concluded that the primary object was the regulation of relations between employers and workmen. The court held that section 10(24) did not require an association to be formed wholly and exclusively for the specified purposes to qualify for tax exemption.

Conclusion:
The High Court answered the question in the affirmative and in favor of the assessee, confirming that the assessee association was formed primarily for the purpose of regulating relations between employers and their workmen and thus qualified for the tax exemption under section 10(24). There was no order as to costs.