2013 (2) TMI 180 - HC - Income Tax

Charitable purposes as defined in section 2(15) - dominant object of the assessee-society - whether not exempt u/s 11 keeping in view Section 13(1)(bb) - Held that - The dominant purpose of the respondent society was advancement of general public utility and not for education alone. Sub-clause (k) of Clause (2) of the aims and objects was to work and establish agencies and depots for the purchase and sale of goods of all descriptions, borrow money and to get insurance agencies of the different companies and to do insurance work for the purpose of applying income there from for objects mentioned above. As decided in M/s. Radhasoami Satsang, Agra vs. Commissioner of Income Tax, 1991 (11) TMI 2 - SUPREME COURT strictly speaking res judicata does not apply to income tax proceedings but where a fundamental aspect permeating through the different assessment years has been found as fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year unless there was any material change justifying the Revenue to take a different view of the matter. Also see Bharat Sanchar Nigam Ltd. And another vs. Union of India and others, (2006 (3) TMI 1 - SUPREME COURT). As in the assessment year 1973-74, 1974-75, 1975-76 and 1976-77 the Tribunal has taken the view that the assessee society was established for advancement of any other object of general public utility. The view expressed by the Tribunal for the Assessment Year 1973-74 has been approved by this Court thus,no different view is to be taken here in this year. The question of applicability of Section 13(1)(bb) would not arise for the reason that the Tribunal has found that the business of insurance was carried under trust for carrying on the primary purpose of charitable activities thus, Section 11 was applied and it cannot be excluded - in favour of assessee.

Summary

Issues:
Whether the dominant object of the assessee-society was for 'charitable purposes' as defined in section 2(15) of the Income-tax Act, 1961 and/or the income of the assessee for the accounting year relevant to the assessment year 1977-78 was not exempt under section 11 of the Act keeping in view Section 13(1)(bb) of the Act?

Analysis:

The Income Tax Appellate Tribunal referred a question of law under Section 256(1) of the Income-tax Act, 1961 to the High Court. The case related to the Assessment Year 1977-78 where the assessee was assessed as an 'Association of Persons'. The Income-tax Officer concluded that the aims and objects of the assessee-society indicated a profit motive based on the activities mentioned in the Memorandum of Association. However, the objects were found to fall within the definition of charitable purposes under section 2(15) of the Act, covering areas like education, aiding charitable institutions, medical relief, and philanthropic purposes.

The Income-tax Officer held that the assessee was carrying on activities for profit, especially through a general insurance agency, and was therefore not entitled to exemption under Section 11 of the Act due to Section 13(1)(bb) implications. The CIT(Appeals) and the Tribunal concurred with this view, emphasizing the profit-making nature of the insurance agency business.

The Tribunal, however, in its assessment, found that the aims and objects of the assessee society were charitable, and the income from the insurance agency was wholly applied to charitable purposes as outlined in the trust's objectives. The Tribunal considered the insurance business to be held in trust and exempt under Section 11 of the Act, based on previous approvals and decisions related to the assessee's activities.

The High Court noted that the dominant purpose of the respondent society was the advancement of general public utility, including establishing agencies for the sale of goods and conducting insurance work to fund charitable activities. Referring to legal precedents, the Court highlighted that when facts and laws remain the same, a different view should not be taken in subsequent assessment years. Therefore, the Court upheld the Tribunal's findings that the assessee-society's main object was charitable, and the business of insurance was conducted under trust for charitable purposes, making it eligible for exemption under Section 11 of the Act.

In conclusion, the High Court ruled in favor of the assessee, stating that the dominant object of the society was for charitable purposes as defined in the Act, and the income for the relevant accounting year was exempt under Section 11, with Section 13(1)(bb) not being applicable due to the charitable nature of the activities conducted by the assessee.