1974 (6) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of income from kuri (chit funds) and interest income under the Income-tax Act, 1961.
2. Applicability of section 11 of the Income-tax Act, 1961, regarding income derived from property held on trust for charitable purposes.
3. Interpretation of "charitable purpose" as defined in section 2(15) of the Act.
4. Impact of amendments to the memorandum and articles of association on tax exemption status.

Issue-wise Detailed Analysis:

1. Taxability of income from kuri (chit funds) and interest income under the Income-tax Act, 1961:
The assessee company contended that income from kuri (chit funds) and interest income earned by lending money were not taxable under the Income-tax Act, 1961, due to the exemption provided under section 11 for income derived from property held on trust for charitable purposes. However, the Tribunal rejected this claim, and the High Court upheld the Tribunal's decision, stating that the income from these sources was taxable for the assessment years 1962-63 to 1965-66.

2. Applicability of section 11 of the Income-tax Act, 1961, regarding income derived from property held on trust for charitable purposes:
Section 11(1) of the Act exempts income derived from property held under trust wholly for charitable or religious purposes, provided the income is applied to such purposes in India. The court examined whether the assessee's income could be considered exempt under this provision. The court noted that the assessee's memorandum and articles of association included objects that were not exclusively charitable, such as conducting kuries and lending money on interest. Therefore, the income could not be considered exempt under section 11.

3. Interpretation of "charitable purpose" as defined in section 2(15) of the Act:
Section 2(15) defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility, provided it does not involve carrying on any activity for profit. The court emphasized that if the advancement of an object of general public utility involves an activity for profit, it ceases to be a charitable purpose under the Act. The court interpreted the term "not involving" in section 2(15) to mean "not linked or connected" with an activity for profit. Consequently, the assessee's activities of conducting kuries and lending money on interest were deemed to be activities for profit, disqualifying them from being considered charitable purposes.

4. Impact of amendments to the memorandum and articles of association on tax exemption status:
The assessee amended its memorandum and articles of association on June 7, 1965, to include additional charitable objects such as medical relief and to alter certain clauses. Despite these amendments, the court found that the objects still included non-charitable purposes, such as conducting kuries and lending money on interest. The court concluded that there was no specific allocation of income for charitable purposes, and the income could be applied to non-charitable purposes. Therefore, the amendments did not change the tax exemption status, and the income remained taxable for the years 1966-67 to 1968-69 as well.

Conclusion:
The High Court concluded that the income from kuri (chit funds) and interest income earned by the assessee was taxable for all the assessment years in question (1962-63 to 1968-69). The court answered the questions referred to it in the negative, in favor of the department and against the assessee, and directed the parties to bear their respective costs. A copy of the judgment was ordered to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.