1984 (3) TMI 109 - AT - Income Tax

Summary

Issues Involved:
1. Whether the income of the trust is exempt under sections 11, 12, and 13 of the Income-tax Act, 1961.
2. Whether the trust's purpose is charitable within the meaning of section 2(15) of the Income-tax Act, 1961.
3. Whether the trust is entitled to exemption under section 80G of the Income-tax Act, 1961.

Detailed Analysis:

1. Exemption under Sections 11, 12, and 13 of the Income-tax Act, 1961:
The primary issue raised in the appeals was whether the income of the trust is exempt within the provisions of sections 11, 12, and 13 of the Income-tax Act, 1961. The trust, formed to purchase and maintain the building housing the Princess High School for Girls, was initially granted exemption under section 80G by the Commissioner. However, the Income Tax Officer (ITO) later denied the exemption, arguing that the trust's objectives were not charitable as defined under section 2(15) and section 11 of the Act. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, leading to the present appeals.

2. Charitable Purpose under Section 2(15) of the Income-tax Act, 1961:
The AAC and ITO argued that the trust's primary purpose was to benefit the Princess High School, a partnership concern, and thus could not be considered charitable. The trust deed's clause (2) was scrutinized, which included objectives like purchasing and renovating the school building and providing financial assistance for the school's operation. The AAC concluded that these objectives were not of a public character as required under section 2(15) of the Act. However, the Tribunal found that the predominant object was to ensure the continuation of the school in the locality, which served a public utility by providing education to girls. The Tribunal emphasized that any incidental benefit to the partners running the school did not negate the charitable nature of the trust's primary objective.

3. Exemption under Section 80G of the Income-tax Act, 1961:
The trust was initially granted exemption under section 80G, indicating it was established for a charitable purpose. However, the Commissioner later initiated proceedings under section 263, arguing that the trust's objectives did not meet the charitable criteria. The Tribunal disagreed, noting that the funds were collected by a large group of well-wishers with no intention of personal gain. The trust's purpose was to maintain the school building, ensuring the school's continued operation in the locality, which was a charitable objective. The Tribunal cited the Supreme Court's observations in the case of CIT v. Bar Council of Maharashtra, emphasizing that the main objective should be considered, not incidental benefits.

Conclusion:
The Tribunal concluded that the trust's primary objective was charitable, focusing on maintaining the school building to ensure the school's continued operation in the locality. The incidental benefits to the partners did not negate the trust's charitable purpose. Therefore, the trust was entitled to exemption under sections 11, 12, and 13, and the appeals were allowed.