1989 (1) TMI 25 - HC - Income Tax

Court dismisses petition seeking High Court reference under Income-tax Act, emphasizing primary charitable purpose.

The court dismissed the petition seeking a reference of questions of law to the High Court under section 256(2) of the Income-tax Act, 1961. It emphasized ... Charitable Purpose, Question Of Law Issues:- Application under section 256(2) of the Income-tax Act, 1961 for reference of questions of law to the High Court.- Interpretation of charitable purposes under section 2(15) of the Income-tax Act, 1961.- Whether an assessee is entitled to exemption from income-tax based on the objects of the memorandum of association.- Distinction between primary purpose and subsidiary object in determining charitable status.- Impact of carrying on an activity for profit on charitable status.Analysis:The judgment pertains to an application under section 256(2) of the Income-tax Act, 1961, seeking reference of questions of law to the High Court. The Revenue requested the Income-tax Appellate Tribunal to refer two questions regarding the charitable purposes outlined in the memorandum of association for consideration by the court. The Tribunal had previously rejected similar requests by the Revenue, prompting the current application under section 256(2) of the Act. However, the court dismissed the petition in light of previous rulings and default in civil rules relating to earlier applications.The crux of the matter revolves around the interpretation of charitable purposes under section 2(15) of the Income-tax Act, 1961. The Revenue argued that the questions posed were purely legal, warranting a reference, while the respondent contended that they were founded on factual considerations. The Tribunal's previous judgment highlighted that the primary purpose of the assessee was deemed to fall under 'Education,' a charitable category. Reference was made to a Supreme Court decision emphasizing that if the dominant purpose of an institution is charitable, subsidiary activities do not negate its charitable character.Moreover, the debate centered on whether the assessee's operation of a guest-house for profit impacted its entitlement to tax exemption. The court clarified that the requirement of not carrying on any activity for profit only applies to the last category of charitable purposes. As the primary purpose of the institution was education, the presence of a profit-generating activity did not affect its charitable status. Citing established legal precedent, the court concluded that the questions raised were settled by previous judgments, rendering a reference unnecessary and academic.Ultimately, the court held that the conditions for calling a reference under section 256(2) of the Act were not met, leading to the rejection of the petition. The judgment underscores the significance of the primary purpose in determining an organization's charitable status and clarifies the impact of profit-generating activities on tax exemption eligibility within the charitable framework.