1971 (11) TMI 23 - HC - Income Tax

Kerala High Court: Society entitled to tax exemption for charitable purposes

The High Court of Kerala ruled in favor of the assessee, a registered society, in a case concerning tax exemption under section 4(3)(i) of the Indian ... Society established for charitable purposes - exemption granted under section 4(3)(i) – mere for the reason that society has been given power to carry on business, exemption cannot be denied because business were intended to carry out its main objects which were charitable in nature Issues Involved:1. Whether the assessee is entitled to exemption under section 4(3)(i) of the Indian Income-tax Act, 1922.Detailed Analysis:1. Exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922:The primary issue in this case is whether the assessee, a registered society under the Societies Registration Act, 1860, is entitled to exemption from tax under section 4(3)(i) of the Indian Income-tax Act, 1922, for the assessment years 1952-53 to 1957-58. The section states that any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and applied or accumulated for such purposes within the taxable territories, is exempt from tax.The Tribunal had earlier held that the assessee is entitled to the exemption. However, the revenue contested this decision, arguing that certain objects in the assessee's memorandum of association were not charitable.2. Nature of Objects in Memorandum of Association:The court examined the original and amended memorandum of association to determine whether the objects were for charitable purposes. The original memorandum included various objects such as organizing industrial and spiritual colonies, maintaining educational institutions, providing funds for prizes and scholarships, and establishing museums and refuges for animals. The amended memorandum made certain changes, including the omission of some paragraphs and the addition of new ones, but the primary objects remained similar.The court emphasized that the memorandum must be read as a whole to understand the real objects. If there are independent objects, some of which are charitable and others not, it must be determined whether the non-charitable objects are incidental to the primary charitable purposes. The court cited the Supreme Court's decisions in East India Industries (Madras) Private Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Andhra Chamber of Commerce to support this principle.3. Charitable Purpose:The court noted that some parts of the memorandum, when read separately, might indicate non-charitable purposes. However, the definition of 'charitable purpose' in section 4(3) includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility. The court concluded that the main purposes of the trust, as delineated in sub-paragraphs 2(b) to (f) of the original memorandum, were charitable. The settlor had created a trust in respect of his business, which was considered property, and the trust was for charitable purposes.4. Powers vs. Objects:The court distinguished between the objects of the society and the powers taken to achieve those objects. It referred to the decision in Cotman v. Brougham, where it was held that powers are different from objects and are meant to enable the real purposes to be achieved. The court found that the paragraphs in the memorandum relied on by the revenue were powers to carry out the charitable objects and not independent non-charitable objects.Conclusion:The court held that the assessee-society was established for a charitable purpose and was entitled to exemption under section 4(3)(i) of the Act. The question was answered in the affirmative, in favor of the assessee and against the department. The court also ordered that a copy of the judgment be forwarded to the Appellate Tribunal as required by section 66(5) of the Indian Income-tax Act, 1922, and there was no order as to costs.Summary:The High Court of Kerala examined whether the assessee, a registered society, was entitled to tax exemption under section 4(3)(i) of the Indian Income-tax Act, 1922. The court analyzed the original and amended memorandum of association, distinguishing between charitable objects and powers to achieve those objects. It concluded that the society was established for charitable purposes and entitled to the exemption, answering the question in favor of the assessee and against the department.