1971 (12) TMI 42 - HC - Income Tax

Activity For Profit, Advancement Of Object Of General Public Utility, Income Tax, Road Transport Corporation

Issues Involved:
1. Whether the assessee's income for the assessment years 1960-61 and 1961-62 was exempt from income-tax under section 4(3)(i) of the Indian Income-tax Act, 1922.
2. Whether the assessee's income for the assessment year 1962-63 was exempt from income-tax under section 11 of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922 for Assessment Years 1960-61 and 1961-62
The court examined whether the income of the Andhra Pradesh Road Transport Corporation (the assessee) for the assessment years 1960-61 and 1961-62 was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922. This section exempts income derived from property held under trust wholly for religious or charitable purposes. The definition of "charitable purposes" includes the relief of the poor, education, medical relief, and the advancement of any other object of general public utility.

The court determined that the dominant and sole purpose of the assessee was to provide transport facilities to the public, trade, and industry, which qualifies as a public utility service and, therefore, a charitable purpose. The court noted that although the Act allows for raising capital through shares and paying dividends, the assessee had not raised share capital and was funded entirely by the State Government. The surplus income was to be used for road development, further confirming the charitable nature of the enterprise.

The court referenced several precedents, including decisions from the Privy Council and the Supreme Court, which supported the view that the assessee's activities were for the advancement of general public utility. Consequently, the court concluded that the assessee's income was exempt from tax for the years 1960-61 and 1961-62 under section 4(3)(i) of the Indian Income-tax Act, 1922.

Issue 2: Exemption under Section 11 of the Income-tax Act, 1961 for Assessment Year 1962-63
For the assessment year 1962-63, the court had to consider the provisions of section 11 of the Income-tax Act, 1961, which exempts income derived from property held under trust wholly for charitable or religious purposes. The definition of "charitable purposes" under section 2(15) of the 1961 Act includes the advancement of any other object of general public utility, not involving the carrying on of any activity for profit.

The court acknowledged that the definition under the 1961 Act introduced a new element, "not involving the carrying on of any activity for profit," which had led to varied interpretations by different High Courts. The court reviewed the decisions of the Kerala, Calcutta, and Mysore High Courts, which had interpreted this clause differently.

The court took a different view, emphasizing that the inclusive definition of "charitable purpose" should be read in conjunction with the overall objective of the statute. The court held that the purpose of the restriction was to prevent entities with a profit motive from claiming charitable status, not to exclude entities that incidentally earn income while primarily serving a public utility purpose.

The court found that the assessee's activities did not involve a profit motive and that any surplus income was used for road development, a public utility purpose. Therefore, the court concluded that the assessee was an institution meant for the advancement of general public utility, not involving the carrying on of any activity for profit, and its income was exempt from tax under section 11 of the Income-tax Act, 1961, for the assessment year 1962-63.

Conclusion
The court answered the question referred to it in the affirmative, holding that the assessee's income was exempt from income-tax under section 4(3)(i) of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62, and under section 11 of the Income-tax Act, 1961, for the assessment year 1962-63. The assessee was awarded costs, including an advocate's fee of Rs. 250.

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