1981 (4) TMI 9 - SC - Income Tax

Assessee (chamber of commerce) is engaged in activities in regard to holding of the Indian Trade Fair and sponsoring the Conference of the Afro-Asian Organisation - object and purpose of the trust are promotion, protection and development of trade, commerce and industry in India - held that income derived by the assessee from such activities was exempt under s. 11(1)(a) r/w s. 2(15)

Issues Involved:

1. Whether the assessee was liable to pay no tax on income earned during the accounting year on the ground that it was derived from property held under trust wholly for charitable or religious purposes within the meaning of section 11(1) of the I.T. Act, 1961.
2. Whether the Tribunal was correct in holding that the sole purpose of the Chambers was the advancement of such objects of general public utility as did not involve the carrying on of any activity for profit, and therefore, a 'charitable purpose' within the meaning of section 2(15) of the I.T. Act, 1961.
3. Whether the Tribunal was right under the law in holding that the onus of proving that the income which the assessee claimed to be exempt was in fact not exempt lay on the department, and whether the Tribunal was correct in holding that the department had failed to discharge the onus placed on it under the law.

Issue-wise Detailed Analysis:

Issue 1:

The question was whether the income earned by the assessee during the accounting year was exempt from tax under section 11(1) of the I.T. Act, 1961, because it was derived from property held under trust wholly for charitable or religious purposes. The Tribunal held that the activities of the Federation, such as holding the Indian Trade Fair and sponsoring the Afro-Asian Organisation for Economic Co-operation, were incidental or ancillary to its main object of promoting, protecting, and developing trade, commerce, and industry in India. These activities did not involve a profit motive, and any income arising was incidental to the dominant charitable purpose. The Supreme Court, following the majority opinion in Addl. CIT v. Surat Art Silk Cloth Manufacturers Assn., concluded that the income was exempt under section 11(1)(a).

Issue 2:

The Tribunal had to determine whether the Federation's activities were for the advancement of objects of general public utility and did not involve carrying on any activity for profit, thus qualifying as a 'charitable purpose' under section 2(15) of the I.T. Act, 1961. The Tribunal emphasized the dominant object of the Federation, which was to promote trade and industry without a profit motive. The Supreme Court, referencing the Surat Art Silk case, agreed that if the profit-making was not the real object and was merely incidental, the activities could still be considered charitable. Therefore, the Federation's activities were deemed to fall within the charitable purpose definition.

Issue 3:

The Tribunal held that the onus was on the department to prove that the income claimed as exempt by the assessee was not exempt. The Tribunal found that the department had failed to discharge this onus. The Supreme Court upheld this finding, noting that the department did not provide sufficient evidence to prove that the Federation's activities involved a profit motive. The Tribunal's reliance on the principle that the burden of proof lies with the department was thus affirmed.

Judgment Summary:

The Supreme Court, in light of the majority opinion in Addl. CIT v. Surat Art Silk Cloth Manufacturers Assn., answered the reference against the revenue and in favor of the assessee. The Court held that the Federation's activities were for the advancement of objects of general public utility without a profit motive, thus qualifying as a 'charitable purpose' under section 2(15) of the I.T. Act, 1961. Consequently, the income earned was exempt from tax under section 11(1)(a). The Court also upheld the Tribunal's decision that the onus of proving the non-exemption of income lay with the department, which had failed to discharge this burden. The reference was answered in favor of the assessee, with no order as to costs.

← Previous Next →