1978 (7) TMI 2 - SC - Income Tax

Charitable Purpose - Not Involving the activity for Profit - Whether the income of the assessee was exempt under the provisions of section 11 - some of the objects are charitable and some are not - entire exemption not granted

Issues Involved:
1. Exemption from tax under section 11 of the Income-tax Act, 1961, for the assessment years 1962-63 to 1965-66.
2. Impact of amendments to the memorandum and articles of association on tax exemption for the assessment years 1966-67 to 1968-69.
3. Applicability of the decision in Commissioner of Income-tax v. Dharmodayam Co. [1977] 109 ITR 527 (SC) to the present case.

Detailed Analysis:

1. Exemption from Tax under Section 11 of the Income-tax Act, 1961, for the Assessment Years 1962-63 to 1965-66:

The appellant, Dharmaposhnam Company, claimed exemption from tax on income derived from property, money-lending, and business in kuries or chit funds under section 11 of the Income-tax Act, 1961. The Income-tax Appellate Tribunal held that the appellant was not entitled to the exemption, and the High Court of Kerala upheld this decision. The Supreme Court noted that the appellant could only succeed in its claim if the income from the business of conducting kuries and money-lending could be considered income derived from property held under trust wholly for charitable purposes. The Court cited the definition of "charitable purpose" under section 2(15) of the Act, which includes "relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity for profit."

The Court found that the objects "industries" and "public good" mentioned in sub-clause (b) of clause 3 of the memorandum could not be described as charitable purposes because they involved profit-making activities. Consequently, the entire claim to exemption failed as the business income was not exclusively related to charitable purposes.

2. Impact of Amendments to the Memorandum and Articles of Association on Tax Exemption for the Assessment Years 1966-67 to 1968-69:

The appellant argued that the amendments made to the memorandum and articles of association on June 7, 1965, which included the removal of the word "industries" and the addition of "medical relief," altered the position for the assessment years 1966-67 to 1968-69. However, the Court held that the object "other matters of public good" still fell under the residual general head mentioned in section 2(15) of the Act and did not meet the condition of not involving profit-making activities. Therefore, the same considerations applied, and the claim for exemption was not valid even after the amendments.

3. Applicability of the Decision in Commissioner of Income-tax v. Dharmodayam Co. [1977] 109 ITR 527 (SC):

The appellant relied heavily on the decision in Commissioner of Income-tax v. Dharmodayam Co., where the income derived from kuries was held to be exempt under section 11(1)(a) of the Act. However, the Supreme Court distinguished the present case, noting that the decision in Dharmodayam Co. was based on the specific finding by the Kerala High Court that the kuries business was held under trust for charitable purposes. No such finding existed in the appellant's case. The Court emphasized that the determination of whether a trust is for charitable purposes must consider all the objects for which the trust was established, not just the activities actually conducted by the assessee.

Conclusion:

The Supreme Court endorsed the High Court's conclusion that the appellant was not entitled to tax exemption under section 11 of the Income-tax Act for the assessment years 1962-63 to 1965-66 and 1966-67 to 1968-69. The appeals were dismissed with costs, limited to one set only.

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