1986 (11) TMI 40 - SC - Income Tax

Property use for horse racing not charitable - Supreme Court ruling clarifies tax exemption criteria

The Supreme Court held that the occupation and use of property for horse racing and training did not qualify as a charitable purpose under the Hyderabad ... Whether the High Court of Andhra Pradesh could not have taken the view that occupation or user of lands and buildings for the purpose of running horse races and for training the horses, etc., constitutes occupation or user of the property for a ' charitable ' purpose? Whether the general tax could have been lawfully levied for the assessment year 1966-67? Held that:- The judgment of the High Court in so far as the High Court holds that section 202(1)(b) is attracted must, therefore, be reversed and set aside. We are of the opinion that the user of the premises for the Race Course Club will not constitute occupation or user for charitable purpose within the meaning of section 202(1)(b) and the Race Course Club will not be entitled to claim exemption from levy of general tax. The valuation made by the Small Causes Court has been confirmed by the High Court. We see no reason to interfere with the valuation as made by the Small Causes Court and confirmed by the High Court. Accordingly, in so far as these two points are concerned, the decision rendered by the High Court must be confirmed. Appeals allowed in part. Issues:1. Whether the occupation and use of property for running horse races and training horses constitutes a charitable purpose under section 202(1)(b) of the Hyderabad Municipal Corporation Act.2. Whether the general tax could have been lawfully levied for the assessment year 1966-67.3. Whether the valuation of the property was correctly determined by the Small Causes Court and confirmed by the High Court.Analysis:1. The Supreme Court examined whether the occupation and use of property for running horse races and training horses could be considered a charitable purpose under section 202(1)(b) of the Hyderabad Municipal Corporation Act. The court disagreed with the High Court's view that such activities qualified as charitable purposes. It emphasized that the exemption under section 202(1)(b) applies only to properties exclusively used for public worship, charity, or education. The court clarified that the nature of the activity conducted on the property must be charitable, not just the application of income from that activity. In this case, horse racing and horse training were not deemed charitable activities, as they did not benefit the poor or deprived. Therefore, the Race Course Club was not entitled to claim exemption from the levy of general tax.2. The appellant, Municipal Corporation, challenged the lawfulness of levying general tax for the assessment year 1966-67. The High Court had ruled against the appellant after considering the evidence presented. The Supreme Court found no error in the High Court's reasoning and upheld its decision on this issue, thereby confirming that the general tax could be levied for the specified assessment year.3. Another issue raised was the valuation of the property, which was determined at Rs. 4 lakhs by the Small Causes Court and upheld by the High Court. The Supreme Court saw no reason to interfere with this valuation and concurred with the decisions of the lower courts regarding the property's valuation. Consequently, the Supreme Court partly allowed the appeals by setting aside the exemption from general tax under section 202(1)(b) for the Race Course Club. The Municipal Corporation was permitted to levy general tax from 1967-68 onwards in accordance with the law. The decision on the valuation of the property was also affirmed. The appeals were partly allowed, and no costs were awarded.