1981 (10) TMI 109 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee society's objects were charitable in nature.
2. Whether the inclusion of clause (d) in the objects clause rendered the society non-charitable.
3. Whether the assessee was entitled to exemption under sections 11, 12, and 13 of the Income-tax Act.
4. Whether the Commissioner (Appeals) erred in not addressing the ground related to the taxation of donations.

Detailed Analysis:

1. Charitable Nature of the Assessee Society's Objects:
The assessee society was formed with diverse objects, including nation-building activities, literary, scientific, cultural, and charitable activities, establishing libraries, medical relief centers, schools, and colleges, and spreading education and physical training. The society was registered under the Societies Registration Act, 1860, and the Bombay Public Trust Act, 1950. The Tribunal noted that the only activities carried out by the society were running a hostel for students and recently starting a school and a language foundation. The Tribunal concluded that these activities were of general public utility, falling under the definition of "charitable purpose" as per section 2(15) of the Income-tax Act.

2. Impact of Clause (d) on Charitable Status:
Clause (d) of the objects clause, which involved diffusing political knowledge consistent with national heritage, was contested by the revenue as being political and not charitable. The Tribunal clarified that diffusing political knowledge consistent with national heritage was not equivalent to indulging in politics. The Tribunal referred to the Supreme Court decision in Sole Trustee, Loka Shikshana Trust, which held that such activities could be considered of general public utility. The Tribunal emphasized that the assessee had not undertaken any activity in pursuance of clause (d) since its formation, making it unnecessary to speculate on its implications. The Tribunal concluded that the clause did not render the society non-charitable.

3. Entitlement to Exemption under Sections 11, 12, and 13:
The Tribunal examined whether the assessee was eligible for exemption under sections 11, 12, and 13 of the Income-tax Act. The Tribunal noted that the revenue's objection was based on clause (d) of the objects clause. However, since the assessee had not undertaken any activity under this clause, it could not be condemned in anticipation. The Tribunal held that as long as the assessee's activities were not for profit and the income was applied for charitable purposes, the assessee was entitled to claim exemption under section 11. The Tribunal relied on the Supreme Court decision in Dharmodayam Co., which stated that the mere inclusion of a non-charitable clause in the memorandum did not affect the charitable status if no objectionable activity was undertaken.

4. Non-addressing of Ground Related to Taxation of Donations:
The assessee pointed out that the IAC had taxed contributions in the form of donations, and this ground was raised before the Commissioner (Appeals), who failed to address it. The Tribunal restored this matter to the file of the Commissioner (Appeals) for fresh consideration and decision in accordance with the law.

Conclusion:
The Tribunal concluded that the lower authorities erred in holding that the society was founded for non-charitable purposes and liable to tax. The orders of the lower authorities were reversed, and the assessee's appeals were allowed. The matter regarding the taxation of donations was remanded to the Commissioner (Appeals) for fresh consideration.