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income-tax Officer Vs. Sangit Kala Mandir - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1982)2ITD17(Kol.)
Appellantincome-tax Officer
RespondentSangit Kala Mandir
Excerpt:
.....of the members is served by providing the facilities. then again, the aac found that the society held various programmes designed to improve the taste for good music, dance, drama, painting, etc., and such programmes, from the practical standpoint of organising them, were open for the audience in accordance with the rules governing their admission which are sufficiently large to represent a cross-section of the general public in order to actively participate and witness the functions. he found that no fees were charged for admission to the functions from the members and/or non-members. only when the drama troupe of the society staged dramas for outside organisations some amounts were collected from the latter towards incidental expenses. on a consideration of the entire facts.....
Judgment:
1. The learned Appellate Assistant Commissioner of Income-tax (Central), Range-I, Calcutta, has erred in holding that Sangit Kala Mandir was an institution established wholly for charitable purposes and hence exempt under Section 11 of the Income-tax Act, 1961.

2. On the facts and in the circumstances of the case, the learned Appellate Assistant Commissioner of Income-tax (Central), Range-I, Calcutta, was not justified in holding the objects of the assessee as public charitable ones and, on that ground, in deleting the addition of interest income of Rs. 82,612 from loans advanced to outsiders as exempt under Section 11 being wholly held under trust/other legal obligation for charitable purposes.

3. On the facts and in the circumstances of the case, the learned Appellate Assistant Commissioner of Income-tax (Central), Range-], Calcutta, was not justified in deleting the net surplus of Rs. 691 as being the surplus out of the receipts from the outsiders.

2. The assessee is a society, registered under the Societies Registration Act, 1860. The assessee's claim for exemption under Section 11 of the Income-tax, Act, 1961 ('the Act'), was negatived by the ITO en the ground that it was a society of mutual concern. In the previous year, relevant to the assessment year under consideration, the assessee earned a surplus of Rs. 3,191 from call shows of the Sangit Kala Mandir for programmes of some clubs who were not members of the society and it also earned interest, amounting to Rs. 82,612, from four persons on loans given to them, which was not exempt from tax on the ground of mutuality. The ITO also treated the status of the assessee as an 'AOP'. According to the ITO, the Tribunal, in IT Appeal No. 3988 (Cal.) of 1975-76 for the assessment year 1972-73, held that the assessee was a society and was a mutual concern.

3. The assessee appealed to the AAC and contended that the ITO was wrong in interpreting the findings of the Tribunal for the assessment year 1972-73. It was urged that the objects of the society were wholly charitable and this fact was accepted by the department up to the assessment year 1975-76. It was claimed that though the assessee was not a trust, the assets it held were under a legal obligation to be utilised for the charitable objects. Therefore, a mutual benefit society cannot be debarred under the law from claiming exemption under Section 11. Reliance was placed on the decision of the Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 for the proposition that mutuality and availability of exemption under Section 11 can simultaneously co-exist. Reference was also made to the various activities of the societies, viz., organisation of cultural and social functions, etc. It was urged that the surplus arising out of the contributions from the members, after meeting the expenses on such activities, was not taxable on the ground of mutuality. As regards any surplus or gain arising out of receipts from outsiders, either by way of profitable utilisation of the general funds or in the course of carrying out the activities under the objects of the society, the same, having not accrued for the private benefit of the members, will be liable for exemption under Section 11, specifically, because the objects of the society were charitable and such surplus, under the provisions of Section 14 of the Societies Registration Act, can only be spent or utilised for the furtherance of these objects. It was urged that the ITO misinterpreted the findings of the Tribunal and held that the Tribunal had not decided the question of availability of exemption under Section 11. It was, however, contended before the AAC, by the ITO, that the Tribunal did not give any positive findings on the point of applicability of Section 11 in the case of the assessee. It was pointed out that the Tribunal had held that the assessee was a mutual benefit society and, therefore, it could not be said that the property belonging to the assessee was held under a trust wholly for charitable purposes. It was also stated that the benefit of the members could not be said to be a public benefit. The AAC found that the Tribunal had held that the assessee was not a trust but that it certainly held assets under a legal obligation to utilise the same for the objects of the society and so it came within the Explanation 1 to Section 13 of the Act. He found that the Tribunal had made it clear that during the year under consideration, the assessee did not derive any income from any property held by it. Hence, the provisions of Section 11 were not applicable during the year under consideration as it exempted only the income derived from property held under trust which included other legal obligations. The AAC, therefore, .came to hold that the aforesaid observations, when viewed from the introductory discussion regarding the objects and organisation of the society and the finding on the grounds regarding applicability and fulfilment of certain procedural and technical requirements such as Explanation to Section 11 and Section 12(1) of the Act, would decidedly evidence that the Tribunal positively endorsed the claim, which was accepted at the assessment stage, that the society was an institution established wholly for charitable purposes. After going through the various objects of the society, the AAC found that under the memorandum of association the income of property, wheresoever derived, shall be applied solely for the promotion of the objects and no portion of the income or property shall be paid or transferred directly or indirectly to the members. He, therefore, came to the conclusion that the principle laid down by the Supreme Court in the case of Surat Art Silk Cloth Mfrs.

Association (supra) would clearly apply to the facts of the present case. The AAC further found that the annual report of the society for the year 1975 indicated that the various programmes organised were in conformity with the objects of the society and that out of 32 programmes, involving expenses of Rs. 2,32,590, 20 programmes were exclusively for the members, their families and their guests, and similar programmes were also organised by the subsidiary unit 'Surabhika' with an expenditure of Rs. 1,05,940. He also found that there were programmes open to the general public and the total expenses in organising them, together with proportionate office expenses, amounted to Rs. 60,000. These facts led the AAC to believe that even if the activities of the society are limited to a group of individuals, they still would serve and promote a public cause as distinguished from the private gains of those individuals. This is because no personal interest, either pecuniary or professional, of the members is served by providing the facilities. Then again, the AAC found that the society held various programmes designed to improve the taste for good music, dance, drama, painting, etc., and such programmes, from the practical standpoint of organising them, were open for the audience in accordance with the rules governing their admission which are sufficiently large to represent a cross-section of the general public in order to actively participate and witness the functions. He found that no fees were charged for admission to the functions from the members and/or non-members. Only when the drama troupe of the society staged dramas for outside organisations some amounts were collected from the latter towards incidental expenses. On a consideration of the entire facts and circumstances of the case, the AAC felt satisfied that the real object of the society was the development of an interest in fine arts and that providing facilities therefor, in the mode or method or nature of powers for the purposes of securing the fulfilment of such objects (sic). Thus keeping in view the principle of law laid down by the Supreme Court in the case of Surat Art Silk Cloth Mfrs.'' Association (supra) and considering the facts of the case, the AAC came to the conclusion that the dominant or primary purposes of the assessee-society was charitable and, therefore, the interest earned on advances was evidently held by the society under a legal obligation for promoting the charitable objects. Accordingly, the AAC held that the interest of Rs. 82,612 earned by the assessee was exempt from payment of income-tax under Section 11. Similarly, he held that the amount of Rs. 691, being surplus of collection from outsiders for staging dramas, was also exempt from tax as the same could not be said to be a commercial profit in view of the decision of the Calcutta High Court in the case of Cricket Association of Bengal v. CIT [1959] 37 ITR 277.

4. Aggrieved by the above decision of the A AC, the department has filed the present appeal before us ; and the learned departmental representative contended that the AAC was wrong in his observations that the primary objects of the assessee-society were charitable. He urged that the objects of the assessee clearly indicated that they were for the benefit of the members and, therefore, the provisions of Section 11 had no application to the facts of the present case. He relied on the decision of the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 and claimed that the objects of the assessee-society were an activity for profit and, therefore, its income was not exempt under Section 11. He took us through the objects of the society to show that it was primarily for the benefit of the members and not for the public at large. He submitted that the decision of the Supreme Court, as relied on by the AAC, was distinguishable on facts. A reference was made to the provisions of Section 2(75) of the Act and it was claimed by the learned departmental representative that the objects of the assessee-society were not of general public utility but activities for profit inasmuch as the .income earned by the society was by staging dramas as also by the earning of interest by way of advancing loans out of the funds of the society to outsiders. He also submitted that the finding of the Tribunal for the assessment year 1972-73 was not at all clear on the question of applicability of the provisions of Section 11 to the facts of the assessee's case. In short, the learned departmental representative contended that the assessee was a mutual benefit society and the income earned by it was found to be by an activity of profit.

Therefore, he submitted that the AAC was not justified in holding that the income earned by the assessee-society was exempt from tax in view of the provisions of Section 11.

5. The learned counsel for the assessee, on the other hand, at the very outset, took us through the order of the Tribunal for the assessment year 1972-73 and pointed out that the Tribunal categorically observed that the assessee was not a trust but it certainly held the assets under a legal obligation to utilise the same for the objects of the society and so it came within the Explanation I to Section 13. The learned counsel for the assessee urged that during the assessment year 1972-73 the assessee-society did not derive any income from the property held by it. Hence, the Tribunal observed that the provisions of Section 11 were not applicable for the year. He stated that while deciding the case for the year 1972-73, the Tribunal had no occasion to consider the question of applicability of Section 11 inasmuch as the assessee did not earn any net surplus from those activities because there was, in fact, a net deficit. He took us through the order of the AAC to show that elaborate and detailed reasons were given by the AAC for coming to the conclusion that the provisions of Section 11 had application to the facts of the case. He urged that the department had not challenged that finding of the AAC. He contended that up to the assessment year 1975-76 the Commissioner himself granted a certificate under Section 11 to the assessee-society. He also pointed out that the Tribunal had found as a fact that although the assessee was not a trust, it certainly held property under the trust. Reference was also made to Explanation 1 to Section 13 wherein it has been provided that for the purpose of Sections 11, 12, 12A and this section, 'trust' includes any other legal obligation. According to him, in order to obtain the benefit of exemption under Section 11 the assessee need not be a trust and what is necessary is that certain properties must be held under the trust. Reliance was placed on the decision of the Supreme Court in the case of Surat Art Silk Cotton Mfrs' Association (supra) and it was urged that if the dominant or primary purpose of the assessee is of promotion or development of public utility and not involving carrying on of any activity for profit, the assessee can be said to be entitled to exemption under Section 11. He pointed out that in the case of Surat Art Silk Cloth Mfra' Association (supra} the assessee was a company and the objects were to benefit the members only ; even then the Supreme Court held that when the dominant or primary purpose of the assessee is of the promotion of commerce and trade in art silk, the assessee is entitled to the exemption under Section 11.

He took us through the various objects of the society and pointed out that the membership of the society shall be open to all persons without distinction of caste, colour, creed or nationality, provided that the Committee shall always have the right to close or throw open admission to the society as and when it so deems proper. He pointed out that the objects of the society at clause 3(a) is to provide a facility to its members and the public at large for the development of interests in drawing, painting, drama, dance, music and other fine arts. He, therefore, claimed that the objects of the assessee-society were in the nature of a public utility at large, and, hence, |he AAC was perfectly justified in his finding that the provisions of Section 11 were applicable to the facts of the assessee-society.

6. We have heard the rival submissions and gone through the facts of the case as also the order of the Tribunal for the assessment year 1972-73 (in which one of us was a party). As rightly pointed out by the learned counsel for the assessee the Tribunal in its order dated 19-9-1978 in IT Appeal No. 3988 (Cal.) of 1975-76 at paragraph 18 has held that the assessee was not a trust but it certainly held the assets of the society under a legal obligation to utilise the same for the objects of the society and so it came within the Explanation 1 to Section 13. Therefore, it has to be held that the ITO misunderstood the findings of the Tribunal and came to the conclusion that the Tribunal had given a negative finding as to the applicability of the provisions of Section 11 in this case. We have gone through the various objects of the assessee-society as mentioned in the AAC's order and found that there was no bar to become a member of the society which was open to all persons without distinction of caste, colour, creed or nationality.

The main objects of the assessee-society were to afford its members and the public at large facilities for development of interests in drawing, painting, drama, dance, music and other fine arts and to arrange debates, lectures, cultural shows, recitations, dramatic performances, etc., of public interest having educational value. Therefore, it can be said that the primary or dominant objects of the assessee-society were to fulfil a charitable purpose, that being development of public interests in fine arts. Such activities, even if limited to a group of individuals, would still serve and promote a public cause as distinguished from private gains of the members of the society. As has been held by the Supreme Court in the case of Surat Art Silk Cotton Mfrs' Association (supra), if the dominant or primary purpose of the assessee is to promote commerce and trade, as set out in its objects, it can be said to be an object of public utility not involving carrying on of any activity for profit within the meaning of Section 2(15) and the assessee is entitled to exemption under Section 11. Their Lordships also made it clear that though some objects would benefit the members of the assessee, the benefit would be merely incidental in carrying out the main or primary purposes and if the primary purposes of the assessee are charitable, the subsidiary objects set out in those clauses would not militate against its charitable character and the purpose of the assessee would not be any the less charitable. In our opinion, the facts of the present case are in a better footing than those found in the case of Surat Art Silk Cloth Mfrs'. Association (supra) where the assessee-company was a company engaged in the business of manufacturing art silk and its objects were for the benefit of the members. In spite of these facts, the Supreme Court in that case held that when the dominant or primary purpose is of the promotion of commerce and trade, it was entitled to exemption under Section 11, whereas in the present case, the assessee-society had not any such business activity. Its membership was open to all and the main objects were to afford its members and the public at large facilities for development of interests in drawing, painting, drama, dance, music and other fine arts, etc. We are, therefore, of the opinion that the principle laid down by the Supreme Court in the case of Surat Art Silk Cloth Mfrs'. Assn. (supra) is clearly applicable to the facts of the present case and the assessee is entitled to exemption under Section It is noted that the AAC has carefully considered the various objects and activities of the assessee-society, kept in view the findings of the Tribunal for the assessment year 1972-73, and has given detailed reasons for coming to the conclusion that the main objects of the assessee-society having been charitble and of general public utility, it was entitled to the exemption provided under Section 11. We, therefore, find no reason to interfere with the order of the AAC on this point.


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