Profit motive defeats public utility exemption where the governing instruments permit profit-making activities.

An association claiming charitable status was denied tax exemption because its activities were carried on for profit and its governing documents did not prohibit profit-making. Although it argued that its objects promoted general public utility through support of motor trade and industry, the court held that the relevant exemption provisions were unavailable where the memorandum and articles allowed profits to be earned from the activities in question. The income from those activities was therefore not exempt under section 4(3)(i) of the Indian Income-tax Act, 1922 or section 11 of the Income-tax Act, 1961.

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Issues: Whether the assessee-association's objects were objects of general public utility and whether its income from the specified activities was exempt from tax under section 4(3)(i) of the Indian Income-tax Act, 1922 and section 11 of the Income-tax Act, 1961.

Analysis: The reference concerned assessment years 1961-62 to 1964-65. The assessee sought exemption on the footing that it was established for public utility. On the memorandum and articles, the activities were found to be carried on for profit and there was no restriction preventing the assessee from making profit from those activities. In that situation, the income from those activities could not be treated as exempt merely because the association promoted motor trade and industry. The claimed exemption under the relevant provisions was therefore unavailable.

Conclusion: The question was answered in the negative. The assessee was not entitled to exemption from tax in respect of any of its activities under section 4(3)(i) of the Indian Income-tax Act, 1922 and section 11 of the Income-tax Act, 1961. The answer was against the assessee and in favour of the Revenue.

Ratio Decidendi: An association is not entitled to exemption for activities carried on with a profit motive where its governing instruments do not restrict the earning of profit, even if its objects are said to promote public utility.

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