1966 (11) TMI 5 - HC - Income Tax

Assessee is a stock exchange company - General Public Utility - entitled to exemption u/s 4(3)(I) of the IT Act, 1922.

Summary

Issues:
- Interpretation of section 4(3)(i) of the Indian Income-tax Act for exemption eligibility.

Analysis:
The judgment addressed the question of whether an assessee-company, a stock exchange limited by guarantee, was entitled to exemption under section 4(3)(i) of the Indian Income-tax Act. The company had claimed exemption in previous years, but it was rejected by the tax authorities. The company filed a return for the assessment year 1961-62, declaring income from interest on securities and dividends. It contended that its income was exempt under section 4(3)(i). The Appellate Assistant Commissioner agreed with the assessee, holding that the company was under a legal obligation to spend its income for charitable purposes, thus qualifying for exemption.

The Tribunal examined the conditions for exemption under section 4(3)(i), requiring the property to be held under trust or legal obligation for charitable purposes, with the income applied or accumulated for such purposes. The Tribunal found that the stock exchange primarily benefited its members, with the public benefiting indirectly, not meeting the charitable purpose criteria. However, the High Court disagreed with this narrow view, emphasizing the significant role of stock exchanges in economic progress and efficiency. The Court highlighted the charitable objectives of the stock exchange, as outlined in its memorandum of association, including promoting honorable practices and benefiting the public interested in securities.

Citing a Supreme Court decision, the High Court clarified that an object of general public utility need not benefit all of mankind but a section of the public with identifiable common qualities. Applying this test to the stock exchange's objectives, the Court concluded that the stock exchange served general public utility and charitable purposes, satisfying the conditions for exemption under section 4(3)(i). Therefore, the Court answered the question in favor of the assessee, allowing the exemption claim and awarding costs.