Charitable exemption fails where a society's constitution allows income to be applied to non-charitable objects as well.

Income applied under a society's constitution was not exempt where the memorandum and rules authorised both charitable and non-charitable objects. The governing test under section 4(3)(i) of the Indian Income-tax Act required property to be held under a trust or other legal obligation wholly for religious or charitable purposes, or, if only partly so held, for the relevant income to be applied or finally set apart for those purposes. Because the society's objects included social, moral, physical and material improvement of the community, funds for marriage and funeral ceremonies, regulation of social luxuries, and preservation of monuments, the property could not be treated as held wholly for charitable purposes. The exemption claim therefore failed.

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Issues: Whether the assessee society's income, or any part of it, was exempt from income-tax under section 4(3)(i) of the Indian Income-tax Act on the footing that the property was held for religious or charitable purposes.

Analysis: The society was registered under the Societies Registration Act, 1860 and its memorandum and rules authorised the application of its income to several objects, many of which were not charitable in nature. The governing test under section 4(3)(i) was whether the income was derived from property held under a trust or other legal obligation wholly for religious or charitable purposes, or, where held in part only for such purposes, whether the relevant income was applied or finally set apart for such purposes. A society may be validly registered under the Societies Registration Act for objects that are not charitable within the meaning of the Income-tax Act. The objects here included promotion of the social, moral, physical and material condition of the community, funds for marriage and funeral ceremonies, regulation of social luxuries, purchase of materials for marriages and ceremonies, and preservation of monuments, which could not be treated as wholly charitable. Since the income could be applied to non-charitable objects as well, the property was not held wholly for charitable purposes and the claim to exemption failed.

Conclusion: The income was not exempt under section 4(3)(i) of the Indian Income-tax Act and the answer to the reference was against the assessee.

Ratio Decidendi: Where a society's constitution permits application of income to both charitable and non-charitable objects, the property cannot be treated as held wholly for charitable purposes within section 4(3)(i) of the Indian Income-tax Act.

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