1967 (9) TMI 4 - HC - Income Tax

Assessee was the Cotton Textiles Export Promotion Council, which was registered as a company - object is to promote, support, protect, maintain and increase the export of cloth and yarn - assessee s income was exempt under s. 4(3)(i)

Summary

Issues Involved:
1. Whether the assessee's income is exempt under section 4(3)(i) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Exemption under Section 4(3)(i) of the Income-tax Act:

Facts and Circumstances:
The Cotton Textiles Export Promotion Council, registered on October 4, 1954, was exempted from adding "Limited" to its name by a government notification. The Council's principal object was to promote, support, protect, maintain, and increase the export of cloth and yarn. Its income and property were to be solely applied towards its objectives, with no portion paid as profit, except for officer remuneration. The Council received funds from government grants and member subscriptions, with unutilized balances refunded to the government.

Assessment Years and Taxation:
For the assessment years 1956-57, 1957-58, and 1959-60, the Income-tax Officer sought to tax the unutilized balance as income from "other sources" under section 12, arguing that the Council was not a mutual association and not a charitable organization. The Appellate Assistant Commissioner upheld this, treating the surplus as revenue receipt. However, the Tribunal reversed this decision, holding that the Council was not for profit and its income was exempt under section 4(3)(i).

Tribunal's Findings:
The Tribunal concluded that the Council's objects were of general public utility and related to activities within taxable territories. It was not an association for profit, and its income was legally obligated to be spent or accumulated for public charitable purposes. Thus, the income was exempt under section 4(3)(i).

Court's Analysis:
The court agreed with the Tribunal, assuming the receipts were income, and focused on whether the income was derived from property held under trust for charitable purposes. The Council's principal object was promoting trade, commerce, and industry, which is an object of general public utility. This was supported by the Supreme Court's decision in Commissioner of Income-tax v. Andhra Chamber of Commerce, which held that promoting trade and commerce is an object of general public utility.

Property Held Under Trust:
The court considered whether the income was derived from property held under trust. The Council's business was deemed its property, and its income from government grants and member subscriptions was derived from this business. The court referred to the Supreme Court's decision in J. K. Trust, Bombay v. Commissioner of Income-tax, which held that business itself could be property under section 4(3)(i). Therefore, the Council's business was property held under trust for charitable purposes.

Income Derived from Property:
The court addressed the argument that the income must be directly and substantially derived from property held under trust. It concluded that the Council's income from grants and subscriptions directly and substantially arose from its business, which was its property held under trust.

Conclusion:
The court held that the Tribunal's view was correct and the Council's income was exempt under section 4(3)(i). The question was answered in the affirmative, and the Commissioner was ordered to pay the costs of the assessee.

Separate Judgments:
No separate judgments were delivered by the judges.

Final Judgment:
The income of the assessee was exempt under section 4(3)(i) of the Income-tax Act. The question referred was answered in the affirmative, with costs awarded to the assessee.