1995 (12) TMI 4 - HC - Income Tax

High Court clarifies objects in memorandum of association, rules on income tax exemption

Commissioner Of Income-Tax Versus Harijan Evam Nirbal Varg Avas Nigam

Commissioner Of Income-Tax Versus Harijan Evam Nirbal Varg Avas Nigam - [1997] 226 ITR 696, 131 CTR 169 Issues Involved:1. Whether the Tribunal was justified in holding that objects Nos. 2 to 5 were supplementary to object No. 1 in the memorandum of association.2. Whether the Tribunal was correct in holding that income from housing schemes for Scheduled Castes and Scheduled Tribes is exempt u/s 10(26B) of the Income-tax Act, 1961.Summary:Issue 1: Supplementary Nature of Objects Nos. 2 to 5The Tribunal held that object No. 1 is the main and dominant object, and objects Nos. 2 to 5 are supplementary. It reasoned that without objects Nos. 2 to 5, object No. 1 cannot be achieved, as these supplementary objects are necessary for making the housing schemes ideal. However, the High Court disagreed, stating that construction of dams, bridges, barrages, aqueducts, etc., are not necessary to complete a housing colony. Each main object is independent, and the activities connected therewith may be pursued independently. The Court concluded that the income earned from all the main objects cannot be exempted u/s 10(26B) because objects Nos. 2 to 5 do not promote the interests of Harijans.Issue 2: Exemption u/s 10(26B)The Tribunal concluded that the income attributable to housing schemes for Scheduled Castes and Scheduled Tribes is exempt u/s 10(26B). The High Court partially agreed, stating that the income attributable to housing schemes executed for the benefit of Scheduled Castes only is entitled to exemption, provided it is severable from the income accruing from other main objects. The Court emphasized that the term 'Harijan' refers only to Scheduled Castes and not Scheduled Tribes. Therefore, the assessee's income from activities promoting the interests of Scheduled Castes qualifies for exemption, but not the income from activities for backward classes and other weaker sections, as these terms were not included in clause (26B) during the relevant assessment year.The High Court also noted that the scope of clause (26B) is not restricted by terms like 'only,' 'solely,' 'exclusively,' or 'wholly.' Therefore, a body may have several objects, and it will be entitled to exemption for income attributable to activities promoting the interests of Scheduled Castes or Scheduled Tribes. The Court suggested that the assessee should amend its main object No. 1 to align with the provisions of section 10(26B).Conclusion:- Question 1: Answered in the negative, in favor of the Revenue and against the assessee.- Question 2: Partly answered in favor of the assessee, allowing exemption for income attributable to housing schemes for Scheduled Castes, provided it is severable from other income.The case was remanded to the Appellate Tribunal to pass an order conformably to the High Court's judgment.