DHARMADEEPTI, ALWAYE, KERALA vs. THE COMMISSIONER OF INCOME TAX, KERALA

CIVIL APPEAL No. 82/1975Supreme Court[1978] 3 S.C.R. 103824 July 1978Bench: 3 JudgesAuthor: Y.V. CHANDRACHUD, D.A. DESAI, R.S. PATHAK B6 pages
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What were the facts?

The appellant, Dharmadeepti, an association licensed under Section 25 of the Companies Act, 1956, had main objects including 'to give charity' and 'to promote education'. An ancillary object was 'to run Chitties (Kuries)'. For the assessment year 1969-70, the Income Tax Officer rejected the appellant's claim for exemption under Section 11(1)(a) of the Income Tax Act, 1961, on income derived from running Kuries. The Appellate Assistant Commissioner reversed this, holding the income was exempt as it aided the main object of education. The Income Tax Appellate Tribunal dismissed the Revenue's appeal. The High Court of Kerala, however, answered a reference against the appellant, leading to this appeal to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the words 'not involving the carrying on of any activity for profit' in Section 2(15) of the Income Tax Act, 1961, govern only the residual head 'the advancement of any other object of general public utility' and not the specific heads 'relief of the poor, education and medical relief'. These specific heads remain unqualified by express statutory restriction, meaning income from a profit-making activity linked to them enjoyed exemption until Section 13(1)(bb) was inserted in 1977. The Court found that the appellant's main objects 'to give charity' and 'to promote education' were identifiable with 'relief of the poor' and 'education' respectively. The Kuries business was an ancillary object, and its income was intended to be applied solely for these charitable purposes. Therefore, the income from the Kuries business was income derived from property held under trust for charitable purposes and was entitled to exemption under Section 11(1)(a) for the assessment year 1969-70. The Court set aside the High Court's judgment.

What were the issues?

1. Whether the objects 'to give charity' and 'to promote education' in the appellant's Memorandum of Association are identifiable with the heads 'relief of the poor' and 'education' respectively, as defined under Section 2(15) of the Income Tax Act, 1961? The assessee contended that these main objects align with the statutory definitions. The revenue did not record specific arguments on this point in the judgment. 2. Whether the income derived from running 'Chitties (Kuries)', an ancillary activity, is exempt under Section 11(1)(a) of the Income Tax Act, 1961, given that the Kuries business is held under trust for charitable purposes? The assessee argued that the income from Kuries was intended solely for charitable purposes (giving charity or promoting education) and thus eligible for exemption. The revenue's contention, as reflected in the High Court's decision, was that the profit-making nature of the Kuries business disqualified it from exemption.

Which sections of the Income-tax Act were involved?

Section 2(15),Section 11(1)(a),Section 13(1)(bb),Section 25,Section 261,Section 256(1)

AI-generated summary — verify with the full judgment below

A B c D E F G H 1038 DHARMADEEPTI, ALWAYE, KERALA v. THE COMMISSIONER OF INCOME TAX, KERALA July 24, 1978 [Y. V. CHANDRACHUD, C.J., D. A. DESAI AND R. S. PATHAK, JJ.] Income Ta.x Act 1961-Sections 2(15) and 11 (1) (a)-Main objects to be pursued by the company which has been granted a licence under s. 25 of the Companies Act were (i) to give charity and (ii) to promote education and (iii) to establish or aid in the establishment of associations institutions, funds, trusts with the object of promoting charity and! or education and the objects incidental or ancillary to the attainment of the said objects was "to run Chitties (Kuries)-Whether the said objects identifiable with the first two heads 'relief of the poor' and "education" in the definition of 'charitable purpose' in Section 2(15) of the Income Tax Act and whether the income derived from running Chillies (Kuries) is exempt under Section 11 ( 1) (a) of the A ct.

The appellant _Association carries on the business of conducting 'Kuries' which was one of the ancillary object in furtherance of its main objects. Clause 3(a) of the Memorandum of Association declares the main objects to be : (1) to give cha

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