1996 (9) TMI 96 - HC - Income Tax

Assessee denied tax exemption for profit-making activities under Income-tax Act

The Tribunal determined that the assessee was not a charitable trust and therefore not eligible for tax exemption under section 11 of the Income-tax Act, ... Charitable Trust Issues Involved:1. Charitable Trust Status and Tax Exemption u/s 11 of the Income-tax Act, 1961.2. Nature of Sale Proceeds of Clear Felled Trees.3. Completion of Sale of Standing Trees.4. Inclusion of Sales in Total Income vis-a-vis Method of Accounting.Summary:1. Charitable Trust Status and Tax Exemption u/s 11:The Tribunal held that the assessee was not a charitable trust and thus not exempt from tax u/s 11 of the Income-tax Act, 1961. The assessee argued that it was a charitable organization under section 2(15) of the Act, as its objectives were of general public utility. However, the Tribunal found that the assessee's activities involved carrying on business for profit, which disqualified it from being considered a charitable trust. The court upheld this view, distinguishing the case from precedents like Addl. CIT v. Surat Art Silk Cloth Manufacturers Association and CIT v. Andhra Pradesh State Road Transport Corporation, where the organizations were not engaged in profit-making activities.2. Nature of Sale Proceeds of Clear Felled Trees:The court referred to the Supreme Court decision in V. Vengugopala Varma Rajah v. CIT, which held that income derived from clear felling of trees is subject to income-tax. The Tribunal's decision that the sale proceeds did not constitute capital receipts was upheld. The court noted that the trees were not removed with roots, allowing for regeneration, and thus the receipts from the sale were considered income.3. Completion of Sale of Standing Trees:Questions regarding the timing of the sale of standing trees were covered by Supreme Court decisions in Morvi Industries Ltd. v. CIT and State Bank of Travancore v. CIT, which were against the assessee. The court affirmed the Tribunal's decision that the sale was completed during the previous year relevant to the assessment year 1978-79.4. Inclusion of Sales in Total Income vis-a-vis Method of Accounting:The Tribunal's inclusion of Rs. 51,27,500 in the total income for the assessment year 1978-79 was upheld. The court agreed with the Tribunal's rejection of the assessee's method of accounting, which showed sales as and when items were lifted on payment of installments.The reference was answered in favor of the Revenue and against the assessee, with no order as to costs.