1978 (7) TMI 100 - HC - Income Tax

Activity For Profit, Carrying On Business, Charitable Purpose, General Public Utility, Income Tax Act, Winding Up

Summary

Issues Involved:
1. Whether the income of the assessee, Bangalore Stock Exchange Ltd., is exempt under Section 11 of the Income Tax Act, 1961.
2. Whether the activities of the assessee involve the carrying on of any activity for profit.
3. Whether the income derived from membership fees and listing fees is from a source involving any activity for profit.

Issue-wise Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act, 1961:
The primary issue was whether the income of Bangalore Stock Exchange Ltd. is exempt under Section 11 of the Income Tax Act, 1961. The assessee claimed that its income was not taxable as its objects were of general public utility and did not involve carrying on any activity for profit. The court noted that the principal objects of the assessee, such as facilitating transactions on the stock exchange, maintaining a building for business, and establishing institutions for the benefit of members, were of general public utility. This was in line with the Supreme Court's decision in CIT v. Andhra Chamber of Commerce, which held that promoting trade, commerce, and industry is an object of general public utility.

2. Activities Involving the Carrying on of Any Activity for Profit:
The court examined whether the activities of the assessee involved carrying on any activity for profit. The Income Tax Officer (ITO) had declined the exemption, arguing that the bulk of the assessee's receipts came from listing fees, which involved a profit-making activity. However, the court referred to the Supreme Court's decision in CIT v. Dharmodayam Co., which stated that merely having objects in the memorandum that could involve profit-making activities does not mean the assessee is engaged in such activities. The court found that during the relevant period, the assessee did not carry on any business as financiers or promoters, and the income was used for charitable purposes.

3. Income from Membership Fees and Listing Fees:
The court analyzed whether the income derived from membership fees and listing fees involved any activity for profit. The ITO had argued that the listing fees were the main source of income and involved a profit-making activity. The court, however, noted that the income from admission fees, membership fees, and listing fees did not possess any element of profit. The fees were collected to meet the expenditure involved in publishing market information, which was essential for the stock exchange's activities. The court emphasized that a marginal surplus of receipt over expenditure does not make the activity a profit-making one. The Supreme Court in Indian Chamber of Commerce v. CIT had observed that not all service-oriented activities with some charge and surplus at year-end lose the benefit of Section 2(15).

Conclusion:
The court concluded that the primary objects of the assessee were of charitable nature and the income derived from membership fees and listing fees was not from any source involving any activity for profit. The income was applied for charitable purposes, and the assessee was entitled to claim relief under Section 11 read with Section 2(15) of the Income Tax Act during the assessment years in question. The court answered the question in the affirmative, granting the exemption to the assessee.