Public Charitable Purpose Test denied exemption where beneficiaries formed a closed caste-based class without public character

Income derived from property held under legal obligation was not exempt under section 4(3)(i) because the charitable-purpose test required a benefit to the community or a section of the community with a genuine public element. The beneficiaries were confined to a closed and indeterminate class within the Rana caste in Ahmedabad, including natives of Ahmedabad and persons admitted by caste usage, so they were not a section of the public. The class lacked a single impersonal characteristic and its admission-based nature destroyed public character, leaving the assessee ineligible for exemption.

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Issues: Whether the income derived from properties held under legal obligation was exempt under section 4(3)(i) of the Income-tax Act, 1922, on the footing that the beneficiaries constituted a section of the public.

Analysis: The exemption depended on the existence of a charitable purpose with the requisite public element. A purpose is charitable only if it is directed to the benefit of the community or a section of the community and not to private individuals or a fluctuating body of private individuals. Applying that test, the beneficiaries here were confined to a closed and indeterminate class within the Rana caste in Ahmedabad, consisting of natives of Ahmedabad and persons admitted according to caste usage. The class was not unified by a single impersonal characteristic, and the admission-based element destroyed its public character.

Conclusion: The beneficiaries did not constitute a section of the public, and the assessee was not entitled to exemption under section 4(3)(i).

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