1980 (2) TMI 105 - AT - Income Tax

Summary

Issues:
1. Whether the assessee trust is entitled to exemption under section 11 of the Income Tax Act.
2. Whether the activity of the assessee trust as a partner in a firm constitutes an activity for profit.

Detailed Analysis:
1. The judgment pertains to four appeals by an assessee trust concerning its assessment for the assessment years 1972-73 to 1975-76. The trust was created under a Deed of Trust, and the main income of the trust during the relevant years was a share of income from a partnership firm. The Income Tax Officer (ITO) held that the trust was carrying on an activity for profit by participating in the business of the firm and thus not entitled to exemption under section 11 of the Income Tax Act, relying on Supreme Court decisions. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, emphasizing the trust's involvement in profit-generating activities.

2. The counsel for the assessee contended that the trust's objects were charitable, and its participation in the partnership firm was not aimed at carrying on a partnership business but rather utilizing the profits for charitable purposes. The counsel argued that recent Supreme Court decisions supported the trust's position that the activity was not for profit. On the other hand, the Departmental Representative supported the AAC's order, asserting that the trust's partnership involvement constituted an activity for profit due to the profits generated by the partnership.

3. After considering the arguments, the Appellate Tribunal held that the assessee trust was entitled to exemption under section 11. The Tribunal observed that while one of the trust's objects involved general public utility, the share of income from the partnership firm did not directly relate to the trust's charitable objects. Therefore, even though the trust could be seen as carrying on a business, the profits were utilized for charitable purposes, aligning with the principles established in the Dharmodayam & Co. case. Consequently, the Tribunal directed the ITO to treat the income of the assessee trust as exempt under section 11, allowing the appeals.

4. In conclusion, the Tribunal allowed the appeals, emphasizing that the trust's participation in the partnership firm, while constituting a business activity, was ultimately serving charitable purposes and not primarily for profit. The judgment underscored the distinction between profit-generating activities and utilizing profits for charitable objectives, affirming the trust's eligibility for exemption under section 11 of the Income Tax Act.