2000 (12) TMI 225 - AT - Income Tax

Summary

Issues Involved:
1. Denial of exemption under section 10(23C)(iv) of the Income-tax Act, 1961.
2. Requirement of maintaining separate books of account under section 11(4A) of the Income-tax Act, 1961.
3. Applicability of section 2(15) regarding charitable purposes and profit-making activities.

Issue-wise Detailed Analysis:

1. Denial of exemption under section 10(23C)(iv) of the Income-tax Act, 1961:
The appellant, an apex coordinating body of State Road Transport Undertakings, was denied exemption under section 10(23C)(iv) by the Assessing Officer (AO) and the CIT(A) for the assessment years 1989-90, 1990-91, 1993-94, and 1994-95. The AO argued that the appellant did not satisfy the conditions laid down in the Notification issued by the Central Board of Direct Taxes (CBDT) for granting exemption, particularly the requirement to maintain separate books of account for business activities incidental to the main charitable objects. The AO also noted that the appellant's main source of income was commission from suppliers, which was deemed incidental to its objectives. Despite the appellant's reliance on previous Tribunal decisions and the Supreme Court's ruling in the case of Surat Art Silk Cloth Mfrs. Association, the AO maintained that amendments effective from 1-4-1989 necessitated compliance with new conditions, leading to the denial of exemption.

2. Requirement of maintaining separate books of account under section 11(4A) of the Income-tax Act, 1961:
The Tribunal examined whether the appellant was required to maintain separate books of account for its commission income, which was considered incidental to its main charitable activities. The appellant argued that its activities were solely aimed at achieving its charitable objectives, and all income, including commission, was used for these purposes. The Tribunal noted that the appellant's activities had been consistently recognized as charitable by the Department from 1965-66 to 1988-89. The Tribunal concluded that since the appellant's only business activity was earning commission to support its charitable aims, maintaining separate books of account was unnecessary. The Tribunal emphasized that separate books are required only when multiple business activities are conducted, which was not the case here.

3. Applicability of section 2(15) regarding charitable purposes and profit-making activities:
The Tribunal referred to the Supreme Court's decision in Addl CIT v. Surat Art Silk Cloth Mfrs. Association, which distinguished between activities carried out for profit and those aimed at charitable purposes. The Tribunal highlighted that the appellant's dominant objective was to promote research and efficiency in road transport services, not profit-making. The Tribunal reiterated that the appellant's commission income was used exclusively for its charitable purposes, thus retaining its charitable character. The Tribunal also considered relevant case laws, including CIT v. Dharmodayam Co. and Thanthi Trust v. CBDT, which supported the view that business income used for charitable purposes does not negate the charitable nature of the organization.

Conclusion:
The Tribunal held that the appellant was entitled to exemption under section 10(23C)(iv) for the assessment years in question. The Tribunal directed the AO to allow the exemption, emphasizing that the appellant's activities were charitable in nature and that maintaining separate books of account was unnecessary given the singular nature of its business activity. Consequently, the Tribunal did not adjudicate on other grounds raised by the appellant, as they were deemed consequential to the main issue.

Result:
The appeals of the assessee were allowed.