TaxTMI 
TaxTMI 
1964 (8) TMI 90
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....e company by the secretary to the Dewan of Cochin and this was as under: "Under section 26(1) of the Indian Companies Act, VII of 1913, made applicable to Cochin by his Highness the Maharaja's proclamation dated 19-3-1097, Government are pleased to direct that the association named Dharmaposhanam Company, Irinjalakuda, which has as its object the promotion of charity, education and industry be registered with limited liability without the addition of the word 'limited' to its name." The memorandum and articles of association of the company are in Malayalam. The following is a rough translation of the relevant objects of the company and certain articles of association: "(1)To raise funds by conducting kuries with the company as foreman receiving donations and subscriptions and by such other means as the company deems fit; (2)To do the needful for the promotion of charity, education and industry; (3)To construct buildings or acquire properties on own account or for rent for the above-mentioned purposes; (4)To encourage others to carry on similar institutions with objects identical to that of the company; (5)To carry on activities for the fulfilment o....
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.... from year to year to the general body of shareholders the appropriation of the net profits to various funds, like reserve fund, bad debts reserve fund, scholarship fund and charity fund. The transfer to scholarship and charity funds were as under: Year ended 31-12-53 Year ended 31-12-54 Year ended 31-12-55 Year ended 31-12-56 Year ended 31-12-57 Rs. Rs. Rs. Rs. Rs. Scholarship fund 200 129 492 400 nil Charity fund 744 794 689 744 600 The expenses debited to scholarship and charity funds in the above years were as under: Rs. Rs. Rs. Rs. Rs. Scholarship 198 181 192 277 274 Charity nil 427 537 1014 874 The Income-tax Officer brought to tax the incomes during these years. He gave exemption in respect of interest received by the assessee on account of interest on National Savings Certificates. It was submitted before him that the income of the company was exempt from income-tax as the income, according to it, was applied wholly for religious or charitable purposes. The Income-tax Officer rejected the contention of the assessee. His reasons therefore are given in the assessment order for 1956-57. These reasons may be summarised as under: "(....
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....as claimed to be not business income flowing from normal business activities of the assessee-company, he held that the interest received from these also formed part of the assessee's business, which, according to him, under the objects of the memorandum was that of money-lending business. The clause referred to is clause 6 mentioned in paragraph 3 of this statement. Apart from the above reasons, he considered that, for the following reasons also, the assessee was not entitled to the exemption: "As stated above under article 58, the profits of the company cannot be divided among the members and 20 per cent. thereof is required to be set apart towards reserve. It is quite clear from this article that the appellant-company is under an obligation to utilise only 80 per cent. of its annual income from business for public and charitable purposes and that with regard to the balance it is under no such obligation. This in itself is sufficient to disqualify the appellant-company from claiming in respect of its business income, quite apart from the fact that the conditions laid down in clause (b) of the proviso to section 4(3)(i) arc not satisfied." In the result, he rejecte....
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....ness. (2)In the absence of a trust deed, section 4(3)(i) does not come to the aid of the business. (3)Having regard to the income spent on scholarships and charity (₹ 200, ₹ 129, ₹ 492, ₹ 400 for scholarships and ₹ 744, ₹ 794, ₹ 689, ₹ 743 and ₹ 600 for charity), it cannot be said that the object of the company was a charitable purpose. It is therefore unnecessary to consider whether clause (a) or (b) of the proviso applies." A copy of the Tribunal's order is annexure "D" and forms part of the case. Parties agree to the facts stated above and have referred the following question of law: "Whether, on the facts and in the circumstances of the case, the income of the assessee for the above-mentioned previous years was exempt under the provisions of section 4(3)(i) of the Income-tax Act?" The assessee is a company registered under section 32 of the Cochin Companies Act which corresponds to section 25 of the Indian Companies Act. It is contended by counsel appearing on behalf of the assessee that by virtue of the memorandum and articles of association which is annexure "A" it is clear that....