1977 (3) TMI 25 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee was carrying on an activity for profit.
2. Whether the property was held under trust wholly for charitable purposes within the meaning of section 2(15) and section 11(1) of the Income-tax Act, 1961, and exemption from tax could be claimed in respect of the income from the said property.

Issue-wise Detailed Analysis:

1. Whether the assessee was carrying on an activity for profit:

The case revolves around the interpretation of whether the activities of the Bengal National Chamber of Commerce & Industry (the Chamber) constituted an activity for profit. The Chamber's primary objective was the advancement of an object of general public utility, which is considered a charitable purpose under section 2(15) of the Income-tax Act, 1961. However, the Income-tax Officer (ITO) denied the exemption, arguing that the Chamber was carrying on an activity for profit by letting out properties and earning rental income. The Appellate Assistant Commissioner (AAC) initially accepted the assessee's plea for exemption, relying on the Kerala High Court's judgment in Commissioner of Income-tax v. Indian Chamber of Commerce [1971] 80 ITR 645, which stated that an activity resulting in profit does not necessarily imply an activity for profit unless the object itself involves profit-making. However, the Tribunal upheld the ITO's view, relying on the Calcutta High Court's decision in Commissioner of Income-tax v. Indian Chamber of Commerce [1971] 81 ITR 147 (Cal), which linked the advancement of an object of general public utility with the non-involvement of any activity for profit. The Tribunal concluded that the letting out of property by the Chamber was an organized effort to derive surplus, thus constituting an activity for profit. The Supreme Court's decisions in Sole Trustee, Loka Shikshana Trust v. Commissioner of Income-tax [1975] 101 ITR 234 and Indian Chamber of Commerce v. Commissioner of Income-tax [1975] 101 ITR 796 further clarified that the advancement of an object of general public utility must not involve the carrying on of any activity for profit to qualify as a charitable purpose.

2. Whether the property was held under trust wholly for charitable purposes within the meaning of section 2(15) and section 11(1) of the Income-tax Act, 1961, and exemption from tax could be claimed in respect of the income from the said property:

The second issue pertains to whether the property held by the Chamber under trust was wholly for charitable purposes, thus qualifying for tax exemption under sections 2(15) and 11(1) of the Income-tax Act, 1961. The Chamber's memorandum of association and the deed of trust executed on August 13, 1946, indicated that the income and property were to be applied solely for the promotion of the Chamber's objects, with no portion going to its members. Despite this, the Tribunal held that the income from letting out the property was not entitled to exemption because it involved an activity for profit. The Supreme Court's judgments emphasized that the purpose of the trust must not involve the carrying on of any activity for profit to be considered charitable. The Tribunal's view was that the Chamber's organized effort to derive surplus from renting out the property constituted an activity for profit, thus disqualifying it from tax exemption. The Supreme Court's decision in Indian Chamber of Commerce [1975] 101 ITR 796 supported this view, stating that if the advancement of the object involves activities bringing in money for profit, the claim for exemption collapses. The Madras High Court's decision in Commissioner of Income-tax v. Madras Stock Exchange Ltd. [1976] 105 ITR 546, which considered both Supreme Court judgments, was also noted but did not alter the conclusion.

In summary, the Tribunal and the Supreme Court's decisions concluded that the Chamber's activities constituted an activity for profit, disqualifying it from tax exemption under sections 2(15) and 11(1) of the Income-tax Act, 1961. The property was not held wholly for charitable purposes as it involved an organized effort to derive surplus, thus failing the test for exemption.