1982 (12) TMI 76 - AT - Income Tax

Tribunal grants tax exemption to Modi Charitable Fund Society under Section 11

Modi Charitable Fund Society. Versus Income-Tax Officer.

The Tribunal allowed the appeal by the assessee, Modi Charitable Fund Society, holding that it was entitled to exemption under Section 11 of the ... Any Activity For Profit, Assessment Year, General Public Utility, High Court, Insurance Business Issues Involved:1. Entitlement to exemption under Section 11 of the Income-tax Act, 1961.2. Interpretation of the aims and objects of the assessee-society.3. Determination of whether the assessee-society was established for educational purposes.4. Analysis of the assessee-society's activities, including insurance agency business.5. Applicability of Section 13(1)(bb) of the Income-tax Act, 1961.6. Treatment of income from insurance business as property held in trust for charitable purposes.Issue-wise Detailed Analysis:1. Entitlement to exemption under Section 11 of the Income-tax Act, 1961:The appeal by the assessee, Modi Charitable Fund Society, was directed against the order of the Commissioner (Appeals) upholding the assessment order by the ITO. The ITO held that the assessee-society was not entitled to exemption under Section 11 for the assessment year 1977-78. The Tribunal and the Allahabad High Court had previously held that the aims and objects of the assessee-society were for the advancement of objects of general public utility, not involving the carrying on of any activity for profit.2. Interpretation of the aims and objects of the assessee-society:Dr. Devi Pal argued that the aims and objects had been judicially reviewed, and it was established that they were for the advancement of general public utility, not involving profit. The Tribunal and the High Court's findings should not be contradicted by subordinate authorities like the ITO and the Commissioner (Appeals). The Tribunal agreed that the aims and objects were distributive in nature, and none of them was a dominant object to classify the society as a trust for education.3. Determination of whether the assessee-society was established for educational purposes:The Tribunal examined the aims and objects and found that the assessee-society was not a charitable trust for education. The society did not run educational institutions directly but provided grants and constructed buildings for educational purposes. The management and control of these institutions were vested in separate committees as per the U.P. Intermediate Education Act, 1921, not the assessee-society.4. Analysis of the assessee-society's activities, including insurance agency business:The Tribunal reviewed the insurance agency activities and found that the society was not carrying on the business of an insurance agent in the conventional sense. The commission received was due to the Modi group of companies nominating the society as the agent. The activity lacked the volume, frequency, continuity, and regularity typical of a business.5. Applicability of Section 13(1)(bb) of the Income-tax Act, 1961:The Tribunal held that the assessee-society was not hit by Section 13(1)(bb) as it was established for the advancement of general public utility, not involving profit. The insurance business, even if considered a business, was property held in trust for charitable purposes, and its income was to be applied for charitable objects.6. Treatment of income from insurance business as property held in trust for charitable purposes:The Tribunal concluded that the insurance business was property held in trust for charitable purposes under sub-clause (k) of clause 2 of the aims and objects. The income from this business was to be applied wholly for charitable purposes, making it exempt from income tax under Section 11. The Tribunal relied on the Supreme Court's decisions in J.K. Trust v. CIT and Dharmodayam Co. v. CIT to support this view.Conclusion:The Tribunal allowed the appeal by the assessee, holding that the assessee-society was entitled to exemption under Section 11, as it was established for the advancement of general public utility, not involving profit, and the income from the insurance business was property held in trust for charitable purposes.