1993 (3) TMI 145 - AT - Income Tax

Summary

Issues:
1. Exemption under section 11 of the Income-tax Act, 1961.
2. Interpretation of Memorandum and Articles of Association.
3. Rejection of exemption under section 11 based on section 13(1)(bb) of the Act.
4. Examination of trust's expenditure on unauthorized purposes.

Analysis:

1. The dispute in this appeal revolves around the denial of exemption under section 11 of the Income-tax Act, 1961, to the appellant, a company restricted to Roman Catholic Latin Christians. The Income-tax Officer rejected the claim citing non-registration as a charitable institution, failure to file Form No. 10, and income from kuri business not aligning with the primary charitable objects. The CIT (Appeals) upheld the denial based on article 40 of the Articles of Association. However, the Tribunal held that the Memorandum of Association prevails over the Articles of Association. The Tribunal interpreted article 40 to align with the Memorandum's objects, granting exemption under section 11.

2. The Tribunal emphasized the supremacy of the Memorandum of Association over the Articles of Association. It ruled that any article conflicting with the Memorandum is void. Article 40, allowing money utilization for any purpose, was interpreted to align with the Memorandum's authorized purposes only. The Tribunal also noted the retrospective registration granted to the trust, further supporting the exemption under section 11.

3. The Revenue contended that section 13(1)(bb) disentitles the trust from exemption under section 11. However, the Tribunal, citing precedent, determined that the kuri business was an instrumentality of the trust for charity, not a separate business activity. The Tribunal rejected the Revenue's argument, upholding the trust's eligibility for exemption.

4. The appellant's representative argued that despite article 40, the trust had only spent on charitable purposes. The Tribunal, while affirming the trust's charitable status, remanded the matter to the Income-tax Officer to verify the expenditure alignment with authorized purposes. The Income-tax Officer was directed to examine the accounts and allow the opportunity to file an audit report before completing the assessment.

In conclusion, the Tribunal allowed the appeal, granting the appellant exemption under section 11 of the Income-tax Act, 1961, and directing further examination of expenditure alignment with authorized purposes.