1. These three appeals have been filed by Hyderabad Race Club Charitable Trust of Hyderabad against, the orders of Commissioner (Appeals) for the assessment years 1978-79, 1979-80 and 1980-81.
2. The assessee is a trust which claimed exemption under Section 11 of the Income-tax Act, 1961 ("the Act'). The ITO was of the view that the assessee was not eligible for exemption. Alternatively, he was of the view that even if the institution itself had been exempted, the income was from business and, therefore, hit by Section 13(1)(bb) of the Act, He was also of the view that the income could not be considered as one from property held under trust. For these reasons, he rejected the assessee's claim for exemption and brought an amount of Rs. 4,66,775 for the assessment year 1978-79, Rs. 3,15,857 for the assessment year 1979-80 and Rs. 2,11,202 for the assessment year 1980-81 to tax. The assessee took up the matter in appeal The first appellate authority in an elaborate order found that the objects of the trust were objects of general public utility and that the institution qualified for exemption under Section 11. He, however, found that the only property held under trust was the initial amount of Rs. 1,116 which was provided by Hyderabad Race Club as the corpus of the trust fund and that only income therefrom could have been exempted. He was of the view that the assessee's income from conducting races and/or inter-venue betting as permitted by Hyderabad Race Club could not be treated as income from property. He was also of the view that the assessee cannot be said that the business was carried on in pursuance of the primary object of the trust. He was, therefore, of the view that it gets hit by Section 13(1)(bb). It is in this view that he confirmed the assessments and dismissed the appeals. The asscssee is in second appeal.
3. The learned counsel for the assessee took us over the order of the first appellate authority. He pointed out that the finding that all the objects of the assessee-trust are of charitable nature is in his favour. He further pointed out that there was nothing irregular or technically wrong in the arrangement between Hyderabad Race Club and the assessee-trust regarding the race meet and/or inter-venue betting on specified dates either with, reference to the Memorandum and Articles of Association of Hyderabad Race Club or Hyderabad Race Club Charitable Trust or with reference to the trust deed relating to the assessee. This point is again in favour of the taxpayer. He pointed out that the Madras Bench of this Tribunal held the sister organisation Madras Race Club Charitable Trust to be exempt in IT Appeal No. 2333 and others (Mad.) of 1981, date 18-2-1983, as a charitable organisation. The only two points against the assessee as decided by the learned Commissioner (Appeals) relate to his finding that the income is not income from property held under trust and that the assessee is hit by Section 13(1)(bb). While relying upon the order of the first appellate authority regarding other points made out by the ITO, he claimed that the first appellate authority had misdirected himself on both counts. He pointed out that the property for purposes of trust law and the definition of Section 11 is of widest import. He referred to the decision of the Bombay High Court in the case of AJ.Patel v. CIT  97 ITR 683. Even otherwise, he pointed out that this proposition is well established. He claimed that the permission granted by the Andhra Pradesh Government to run the races or to conduct the bets under its powers under the Andhra Pradesh Gaming Act, 1974, at the instance of Hyderabad Race Club itself would constitute property and that there was no case for presumption that the income was from anything other than property. He further pointed out to certain clauses in the trust document and the explanatory note to the resolution of the Hyderabad Race Club even it the time of formation of the trust to support his plea that the Hyderabad Race Club had always intended that this kind of benefit should be caused to the assessee. According to him, this benefit itself was again 'property' which will be treated as the initial corpus so as to be construed as property held under trust even within the stricter meaning of 'property' assigned by the authorities. As for the argument that it is business, he claimed that it is too far-fetched. The assessee was assigned the benefit of profits on races run on specified dates or on betting. The Hyderabad Race Club used its organisation and the assessee had reimbursed the cost thereof.
There was practically no element of risk for the trust inasmuch as the normal collections on a race day were Rs. 3,39,000, while the expenses for a day amounted to about Rs. 1,38,000 or, in other words, there was an expected average profit of Rs. 2,00,000 per race day. As for inter-venue betting, the collection is of the order of Rs. 1,48,400, while the expenses to be reimbursed to the Hyderabad Race Club were only about Rs. 32,400. In other words, the net surplus in any single day was Rs. 1,16,000. It was further pointed out that when a race day or inter-venue betting is allowed to the assessee, this fact is prominently publicised so that charitable minded race goers turn out in larger numbers. The element of risk, therefore, was practically absent.
There were also not other characters of business such as risking of trust capital (which was only Rs. 1,116), nor had it any organisation by way of staff, premises, etc. It was, therefore, contended that there was no business inferable from the mere fact that the assessee was given the benefit of profits of the Hyderabad Race Club on certain days. He, therefore, contended that the assessments were not justified.
4. The learned departmental representative, on the other hand, claimed that he is entitled to rely upon that part of the order with which the first appellate authority did not agree. He reiterated that the assessee was not a charitable institution inasmuch as one of its objects was promotion of sports or athletic activities. According to him, this could not be treated as an object of general public utility in the light of certain English decisions relied upon by the ITO. He also claimed that the assessee was not entitled to run these races or conducting the inter-venue betting either in terms of the Memorandum and Articles of Association of Hyderabad Race Club or the powers granted to the trustees in the trust deed in the assessee's case. It was, therefore, outside the trust purpose and not justified as a legitimate activity of the trust. This point was made to suggest that the activity which resulted in profit was not in pursuance of the objects of the trust. It was claimed that it was a simple profit making activity which can only be described as business. Element of high risk is involved as racing is an organised gambling. It also gets hit by Section 13(1)(bb). He, therefore, wanted to support the order of the ITO not only on the grounds stated by the first appellate authority but also those where he rejected the arguments of the ITO.5. We have carefully considered the records as well as the arguments.
The order of the Commissioner (Appeals) is detailed as regards facts and his findings to the effect that the assessee is a charitable institution within the meaning of requirements of Section 2(15) of the Act and that the activity which resulted in profit is a legitimate one within the powers granted to the trustees. The objects of the trust are as under: (i) for the advancement and propagation of education and learning including the establishment, maintenance and support of colleges, schools, hostels or other educational institutions, professorships, lecturerships, scholarships and prizes and grant of free boarding and lodging to poor and/or deserving students; (ii) for giving medical aid and relief to the needy including the establishment, maintenance and support of institutions or funds for medical aid and relief; (iii) for the relief of the poor and the destitute, including the establishment, maintenance and support of the institutions or funds for the eradication and relief of any form of poverty; (iv) for the promotion and advancement of Indian culture, fine arts, literature and philosophy and the preservation of our national heritage; (v) for awarding scholarships and fellowships and grants by way of loans and otherwise and on such terms and conditions as the trustees may think fit in their absolute discretion for the purpose of undertaking, prosecuting and encouraging research work in any branch of engineering, technology or any other branch or branches of knowledge in its widest and more, comprehensive sense; (vi) for promoting and encouraging all public activities in sports and games; and (vii) for advancement of any other object of general public utility not involving the carrying on of any activity for profit.
The object which was specifically found fault with is in Clause (vi), that is 'promoting and encouraging all public activities in sports and games'. This object was treated to be not charitable within the meaning of English law relating to charities. The first appellate authority has already pointed out that the definition under Section 2(15) is wider because of the use of the words 'any other object of general public utility'. The fact that the definition of charities under Section 2(15) is wider than the one in English law has been recognised in a number of decisions of the Courts in India. The Privy Council had itself pointed out to this difference in the case of All India Spinners' Association v. CIT  12 ITR 482 and this point was reiterated even in a recent decision of the Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association  121 ITR 1. As for the argument that the promotion of sports would not constitute an object of general public utility, the first appellate authority found that it is not acceptable for more than one reason. The Bombay High Court found that the maintenance of a swimming bath was an object of general public utility as it promoted public health in the case of CIT v. Breach Candy Swimming Bath Trust  27 ITR 279. Promoting social and physical well being to enable members to participate in games and sports was found to be an object which qualifies for exemption for income-tax purposes by the Madras High Court in CIT v. Ootacamund Gymkhana Club  110 ITR 392. We find that the promotion of sports and athletic activities is one of the objects of the Government. There are ministries and directorates for the purpose, both in the Central and State Governments. Every State budget makes allocation for promotion of sports. Sportsmen are honoured with National Awards. The State itself sponsores sport activities like ASIAD. Holidays are declared to enable employees to witness important sport events. Jobs are reserved even in Government for sportsmen. Section 10(25) of the Act itself provides for exemption of income of any association or institution having its object to control, supervise, regulate or encourage in India various games as may be specified by the Central Government by Gazette notification apparently because it is considered necessary that such institutions to encourage sports should flourish in public interest. Such facts can be multiplied to show that it is a matter of public concern and that there should be keen interest in sports not only in the interest of public health but also to see that sportsmen fare well in world arena. Such an object is considered to be of utmost public concern. That is the reason why the Government itself takes so much interest in promotion of sports. It is too late in the day, therefore, for the IAC/ITO to say that this object could not qualify for exemption. Even the other objects are clearly charitable in nature in the sense of involving general public utility. Though the learned departmental representative wanted to rely upon the order of the ITO, he did not bring in any material to successfully controvert the finding of the first appellate authority.
6. The next argument of the ITO which was rejected, rightly so, in our opinion, is that there was an attempted transfer of business of Hyderabad Race Club to the assessee and that such transfer was ultra vires of the memoradum and the trust deed. The first appellate authority found that the trust deed provided powers to the trustees to augment its property. The mere fact that the particular mode of augmentation noticed in this case was not provided in the trust deed did not, in the opinion of the first appellate authority, make the arrangement any the less legally valid. He further found that even if it is illegal, it cannot be ignored for tax purposes and nothing turned on this finding of the ITO. However, he found that there was business carried on by the assessee, a point which he later utilised for his conclusion that Section 13(1)(bb) applied. We do find that the resolution which authorised the formation of the trust was not limited to the provision of Rs. 1,116 given in cash, which is the initial amount mentioned in the trust deed. It was categorically stated in the explanatory statement annexed with the resolution before the Hyderabad Race Club for creation of the assessee-trust furnished under Section 173 of the Companies Act, 1956, as under: The nucleus of the trust fund will be provided by the settlors.
Further accretions will be through donations and conduct of races under the auspices of the said charitable trust.
The trust deed also clearly specified that the property under trust is only Rs. 1,116 but also "... such as may be acquired by the trustees or come to their hands by virtue of these presents or by operation of law or otherwise howsover in relation to these presents upon the trust....
Clause (4) of the trust deed also enables the trustees to accept voluntary contributions in the following words: 4. The trustees may at any time invite and receive or without such invitation receive any voluntary contribution either from the settlor or from any member of the public by way of donation. Any such donation may be accepted by the trustees either with or without any special condition provided that such conditions are not inconsistent with the intents and purposes of these presents.
The Memorandum of Hyderabad Race Club which authorises stewards to act as trustees also enables them to establish and support or aid, establishments, associations, institutions, funds, trusts, etc., for any public charitable or other object of general public utility. We, therefore, find that there was nothing illegal or unauthorised or even irregular in the arrangement between the Hyderabad Race Club and the assessee in respect of the activities which resulted in profit. Here again, though the learned departmental representative relied upon the order of the 1TO, he had not brought anything on record to suggest where the first appellate authority was wrong in considering the activity to be legitimate.
7. The next question that would need consideration is whether the income from the race meet and the inter-venue betting could be treated as income from property as claimed by the assessee and not business as urged by the 1TO. Property is, no doubt, a word of widest import. In CIT v. P. Krishna Warrior  53 ITR 176, the Supreme Court found that property may include business as well. A partner's share in a partnership business was considered to be property in the case of CIT v. Hamdard Dawakhana  39 ITR 144 (Punj.). Right to exploit an over bridge as advertising space was treated as property in the case of A.J. Patel (supra). Income from right to levy admission fee and to sell refreshments by a swimming bath were held to be income from property in the case of Breach Candy Swimming Bath Trust (supra). Even the office of managing agency or that of a principal agency of an insurance company was held to be property within the meaning of Section 11 even if it could be considered as business in the normal sense in the case of J.K. Trust v. CITIEPT  32 ITR 535 by the Supreme Court and in Dharma Vijaya Agency v. CIT  38 ITR 392 by the Bombay High Court.
But it is not every case of business which can be treated as property.
If it were to be so treated, Section 13(1)(bb) would lose its meaning.
It may be that a business itself may be settled in trust or the trustees may conduct a business on their own under the powers given to them in the trust deed. In the assessee's case, we find it difficult to accept that the assessee was conducting the business in horse racing merely because it took the benefit of a race meet or inter-venue betting not more than two or three occasions in a year. The assessee did not have any worthwhile capital which it could risk or had risked.
The element of risk even as pointed out in the figures available in the record and furnished by the assessee before us as well clearly suggest that for every race meet, the assessee stood to make a net profit of Rs. 2,00,000 per day while the estimated-profit from inter-venue betting was approximately Rs. 1,16,000 without considering the extra profit which such occasions may give rise if publicised as a special charity activity. After all the charities given by the race clubs in India are well-known. Institutions like National Defence Fund, Indian Red Cross Society, Flag Day Fund Guild of Service, Bharatiya Vidya Bhawan, Society for Prevention of Cruelty to Animals Ramarkishna Math, etc., benefit from the contributions made by the Hyderabad Race Club besides other race clubs in India. The assessee-trust itself, after obtaining fund's, has given practically the entire profits to charities, such as Prime Minister's National Relief Fund, Andhra Pradesh Chief Minister's Relief Fund, Andhra Pradesh Chief Minister's Cyclone Relief Fund, Hyderabad Charitable and Hospital Trust and various other well-known institutions in and around Hyderabad. Hence, it cannot be said that the activities were in colourable exercise of its powers. Here is a public trust which promotes certain activities for raising funds for public cause. The assessee's activities are not essentially different from similar public institutions raising fund by staging benefit performances. The Bombay High Court in CIT v. Trustees of Visha Nima Charity Trust  10 Taxman 10 found that conducting entertainment and bringing out souvenirs for raising funds and obtaining donations are purely of a voluntary nature and there could be no element of quid pro quo in these transactions. In this view of the matter, the High Court held that the contributions collected by way of tickets and for advertisement should, on the facts and in the circumstances of the case, be regarded as merely voluntary contributions attracting the exemption. Even if the receipts did not constitute the corpus, in the assessee's case, there was certainly no quid pro quo in the arrangement between the assessee and the Hyderabad Race Club as the assessee was getting an almost certain profit from the Hyderabad Race Club periodically at no risk or cost to the assessee. It could not have, therefore, the character of income assessable to tax, though no doubt, if it is not towards corpus, the assessee may have to either apply such income also for charitable purposes or obtain permission to accumulate the same.
8. From the discussion in the foregoing paragraphs, we find that the assessee is entitled to exemption in any of the two possible views. The assessee obtained licence on a letter from the Hyderabad Race Club for permission to conduct races and inter-venue betting from the Government under the Andhra Pradesh Gaming Act The explanatory note relating to the resolution for creation of the trust as well as the terms of the trust deed clearly contemplate the assessee getting such property from the Hyderabad Race Club. The licence to run these races or betting itself could be treated as property. Such property was obtained with the consent of the Hyderabad Race Club and was contemplated even at the very inception of the trust. Since property has widest import for income-tax purposes, the income was from property held under trust.
Even if it is not to be treated as property held under trust, it can only be treated as voluntary contribution given by the Hyderabad Race Club to the assessee. No doubt, to all intents and purposes, the from of such voluntary contribution made it apparent that the assessee itself had to conduct the races though the actual conduct was done by the Hyderabad Race Club on behalf of the assessee merely as a fiduciary for the benefit of the assessee. Since such voluntary contribution cannot be treated as 'a periodical monetary return with regularity or expected regularity from definite sources, it cannot have the character of income'. It could only be a capital receipt in the assessee's hands.
The argument that it is business and that it is hit by Section 13(1)(bb) cannot, therefore, hold good in the light of either of the conclusions mentioned herein. The facts also do not justify the inference that the assessee-institution was in business for conducting races. It had neither the horses nor organisation nor any other equipment for that purpose. The risk element, pointed out by the learned departmental representative, is also minimum considering that the assessee was to reimburse only the cost and the profit of a large magnitude was certain. There is only the degree of uncertainty common in human affairs. It is not possible to hold that there has been business in the normal sense in such an arrangement. Even if it were business, on the facts and in the circumstances of the case, it is not such business, as would be hit by Section 13(1)(bb) but only an activity which would constitute property or an arrangement involving transfer of funds from the Hyderabad Race Club to the assessee-institution in a form recognised by law and not shown to be colourable or otherwise sham and, therefore, not capable of being ignored. Since it is not business, the question of considering whether such income is hit by Section 13(1)(bb) does not arise and we have not gone into that aspect of the assessee's argument. In the circumstances, we hold that the assessee is an institution which satisfies the conditions of Section 2(15) read with Section 11. Since the ITO has not considered the requirements for accumulation, if there has been such accumulation or application of Sections 12, 12A and 13 of the Act, in the view we have taken, we set aside the assessment, for considering these aspects of the case.
9. In the result, the appeals are treated as allowed. The assessments are set aside. Since the appeals themselves have been disposed, stay petitions have become infructuous and they are, accordingly, dismissed.