Section 11 exemption and business activity: beneficiary participation need not mean each beneficiary personally conducts the business.

Section 11 exemption was considered in relation to income from a Kuri/Chitti business, with section 11(4A) examined as to whether the business work was mainly carried on by the beneficiaries. The expression was read in the context of the earlier pari materia language in the 1922 Act and was construed to require that the business be managed and controlled in substance for the benefit of the institution, not that every beneficiary personally conduct the business. As the revenue did not dispute the assessee's charitable character, application of income for charitable purposes, or maintenance of separate books of account, section 11(4A) did not disqualify the assessee from exemption under section 11.

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Issues: Whether the assessee was entitled to exemption under section 11 of the Income-tax Act, 1961 for income from Kuri/Chitti business in the assessment years 1984-85 and 1985-86, or whether section 11(4A) denied the exemption because the business was not mainly carried on by the beneficiaries of the institution.

Analysis: The business had been carried on by the assessee since inception and was treated as property held under trust. The Court held that section 11(4A)(b) had to be read in the context of the earlier pari materia language in section 4(3)(i) of the Income-tax Act, 1922. The expression that the work in connection with the business is mainly carried on by the beneficiaries of the institution was construed to mean that the business must be managed and controlled in substance for the benefit of the institution, and not that every beneficiary must personally conduct the business. The Court further held that the Revenue had not disputed the charitable character of the assessee, the application of income for charitable purposes, or the maintenance of separate books of account.

Conclusion: Section 11(4A) did not disqualify the assessee, and the assessee remained entitled to exemption under section 11.

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