1984 (4) TMI 112 - AT - Income Tax

Summary

Issues Involved:
1. Exemption of income under Section 11 of the Income-tax Act, 1961.
2. Classification of the assessee's activities under the heads of charitable purposes.
3. Applicability of Section 13(1)(bb) and Section 2(15) of the Income-tax Act.
4. Dominant object of the assessee's activities: profit-making vs. charitable purpose.

Issue-wise Detailed Analysis:

1. Exemption of Income under Section 11 of the Income-tax Act, 1961:
The primary controversy is whether the income of the assessee-society qualifies for exemption under Section 11 of the Income-tax Act, 1961, which concerns income derived from property held for charitable or religious purposes. The assessee-society, registered under the Registration of Societies Act, 1960, claimed exemption on the grounds that its income was used for charitable purposes.

2. Classification of the Assessee's Activities under Charitable Purposes:
The assessee-society's activities included running a tailoring establishment and earning commissions from insurance business. The Tribunal had to determine if these activities fell under the four heads of charitable purposes: (a) Relief of the poor, (b) Education, (c) Medical relief, or (d) Advancement of any other object of general public utility. The Tribunal found that the tailoring establishment, operating commercially, could potentially fall under (d) advancement of any other object of general public utility, but there was no clear evidence that it was primarily for charitable purposes. The insurance business was purely commercial and unrelated to any charitable purpose.

3. Applicability of Section 13(1)(bb) and Section 2(15) of the Income-tax Act:
Section 13(1)(bb) stipulates that for trusts engaged in relief of the poor, education, or medical relief, any business income is exempt only if the business is carried out in the course of the actual carrying out of the primary purpose of the trust. The Tribunal found that the insurance business did not meet this criterion as it was unrelated to the trust's primary purpose. Similarly, the tailoring establishment, run on commercial lines, did not satisfy the condition of being carried out in the course of the primary purpose of the trust.

Section 2(15) defines charitable purposes and includes a restriction for the head "advancement of any other object of general public utility" that the activity should not involve the carrying on of any activity for profit. The Tribunal concluded that the tailoring establishment was a profit-making venture, disqualifying it from being considered a charitable activity under this head.

4. Dominant Object of the Assessee's Activities: Profit-making vs. Charitable Purpose:
The Tribunal applied the test laid down by the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association, which requires examining whether the dominant object of an activity is profit-making or charitable. The Tribunal found that both the insurance business and the tailoring establishment had profit-making as their dominant object. The tailoring establishment, in particular, earned significant income from commercial activities, indicating that profit-making was the primary motive rather than the charitable purpose of imparting training in tailoring, sewing, and embroidery.

Conclusion:
The Tribunal confirmed the order of the Commissioner (Appeals), concluding that the income from the assessee-society's activities did not qualify for exemption under Section 11 of the Income-tax Act, 1961. The appeal was dismissed on the grounds that the activities were primarily profit-driven and did not meet the criteria for charitable purposes as defined under the relevant sections of the Act.