1977 (8) TMI 78

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.... and in Sole Trustee Loka Shikshana Trust vs. CIT 1975 CTR (SC) 281 : 101 ITR 234 (SC) the Judicial Member held that the observations of the Supreme Court clinched the issue in favour of the Department and that he was of the opinion that the income earned by the Hyderabad Race Club was not entitled to exemption under s. 11 of the Act r/w s. 2(15) of the same Act for the relevant assessment years. According to him, "there was a breakthrough in the IT Act, 1961 from the position in the IT Act, 1922 so far as the definition of "charitable purpose" was concerned and this clearly unfolded the keen awareness of the Parliament of camoflauged organisations that have sprung up under cover of the charitable purposes." 3. The Accountant Member, on the other hand, after going through the objects of the Club, as contained in the Memorandum of Association, and also relying on the decision of the Andhra Pradesh High Court in Municipal Corporation of Hyderabad vs. Hyderabad Race Club (AAO No. 216/70 & 279 of 1970 A.P. High Court) wherein it was held that the Club could claim immunity from payment of municipal taxes on the grounds that it was a charitable institution, was of the opinion that the....

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....were not applicable to the present case. On the other hand, he was of the opinion that the decision of the Madras High Court in CIT vs. Madras Stock Exchange Ltd. (1977 CTR (Mad) 1 : 1976 Taxation 45(3) at 53) was more relevant, wherein it was held that s. 11 did not taboo the earning of profit as unless there was profit, there would be no need for the exemption provision and it was only on the postulate of profits being there that any exemption provision would find a place in the statute, and that what was frowned upon in s. 2(15) and s. 11 was an activity for profit by a charity, established for general objects of public utility in the course of accomplishing its objects. 4. Before me, the learned counsel for the assessee, Mr. Tagore, placed copies of the balance-sheet for the relevant assessment year in question and contended that the surpluses that came to the assessee represented amounts derived from its properties held on trust for charitable purpose. For that purpose he produced before me a statement giving income from land & buildings which showed that the net income from property before income tax was Rs. 7.84 lakhs, Rs. 11.03 lakhs and Rs. 13.01 lakhs respectively in t....

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....d to in the Memorandum of Association would lead to the inescapable conclusion that the purpose for which the Hyderabad Race Club was established was a public charitable purpose. The Departmental Representative argued that the decision of the Andhra Pradesh High Court was rendered with reference to the provisions of the IT Act of 1922 and, therefore, it had no binding force since the assessments in question were governed by the provisions of s. 2(15) of the IT Act, 1961. 7. In short, I find that while the Judicial Member had gone purely on the basis of the decisions of the Supreme Court, the Accountant Member, on the other hand, went on the footing that the Club has been established for charitable purposes as evidenced firstly from the point of view of its real and main objects being that under item 3, 4 and 24 of cl. III-B of the Memorandum of Association and, secondly, on the basis of the licence obtained from the Department of Company Affairs to omit the word 'limited' from its name. Therefore, what I have got to examine is whether the Club's real objects are those in items 3, 4 and 24 of cl. III-B, which have reproduced at page 6 of the Accountant Member's order and which ar....

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.... ancillary to the attainment of the main objects' and Part C being 'Other Objects' which are shown as 'nil'. In my opinion, the Accountant Member's treating the items under cl. III-B, which are objects incidental or ancillary to the attainment of the main objects, as the main objects does not appear to be convincing. The object of carrying on the business of a Race Club, which was under item (c) of cl. 3 in the memorandum of association, when the Club, was a society under the Registration of Societies Act, is now found as the first item under cl. III-A, Main objects, in the memorandum of association of the present club. If in the fact the real object of the club was to 'establish institutions, schools, funds and other conveniences for training jockeys and riders, both professional and amateur' and to 'impart instructions in and to diffuse useful and scientific knowledge of horse breeding and to encourage horse breeding in all its aspects and to give monetary assistance to bone fide breeders', these items should have found place under cl. III-A, Main objects, or there should not have been any bifurcation between the main objects and objects incidental or ancillary to the attainment ....

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....ds and means are mixed up, as stated by the Accountant Member, one cannot ignore the fact that the Club was deriving income from property held in trust for charitable purposes and also for non-charitable purpose, namely, for the purpose of carrying on the business of the race club. In such cases where the property is held partly for charitable purpose and partly for non-charitable purpose, only in the case of the trust created before the commencement of the Act the income to the extent it is set apart for such purposes would be entitled to the exemption under s. 17. Since in this case, the company was incorporated after the commencement of the present Act, the exemption provided under s. 11(1)(d) cannot be applied. 10. Now I will examine the question with reference to the figures in the statements filed by both the parties and also in the copies of the printed accounts filed before me. It is clear from pages 10 to 11 of the annual report and accounts for the year 1970-71 that the racing income represented roughly Rs. 44 lakhs out of the gross collection of Rs. 50,24,391. Similarly the racing expenditure is shows at Rs. 32,74,440. Almost similar is the position for the other two ....