Commissioner of Income Tax vs Isa Farms Pvt. Ltd.

T.D. Sugla, J.—The only question of law raised in this reference at the instance of the Departments is :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income of the assessee-company is exempt u/s 11 of the Income Tax Act, 1961 ?"

The assessee is a company. The proceedings relate to its assessment years 1971-72 and 1972-73. The company was incorporated on September 17, 1951. On March 4, 1963, the company passed a resolution for amending its object clauses. A petition was filed in this court for permission to do so. The petition was initially opposed by the Registrar of Companies. However, ultimately, on the company''s passing a fresh resolution retaining some object clauses and replacing certain others, permission was granted by this court. As a result of amendments, clause (e) was added to article 3 of the memorandum of association after clause (d). The opening portion of clause (e) reads as follows :

"(e) To hold the business or business for the time being carried on by the company and all other capital and assets for the time being of the company and all investments representing the same and the dividends, profits and income arising therefrom in trust with an obligation on the company to apply the same wholly for the following purposes :- ..."

By clause (r), (s), (t) and (u) inserted in article 3, the utilisation of income for distribution of dividends, etc., was prohibited. The entire income of the assessee-company, after the amendment of the objects it was ensured, was to be utilised for the purposes of charity only.

On the basis of the amendments of its objects, the assessee-company claimed, in respect of its income, exemption u/s 11 of the Income Tax Act, 1961. The claim was rejected by the Income Tax Officer. The Appellate Assistant Commissioner, on the other hand, accepted it and his order was confirmed by the Tribunal.

Dr. Balasubramanian, for the Department, stated that clauses (a) to (e) in article 3 of the memorandum of association were independent, and then it was open to the assessee to utilise its income for any of its objects and not necessarily for the charitable objects referred to in clause (e).He contended that the Supreme Court decision in the case of Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, was not applicable in this case. Shri Dilip Dwarkadas, learned counsel for the assessee-company, on the other hand, stated that the other clauses in article 3 of the memorandum of association such as clauses (a) to (d) and (f) to (q) empowered the company to carry on its business activities properly and efficiently. They did not deal with the utilisation of income. Clause (e), on the other hand, clearly and categorically provided that the entire income of the assessee was to be utilised for the objects set out in that clause and clauses (r), (s), (t) and (u) prohibited the utilisation of income for purposes other than clause (e). He, thus, argued that the Supreme Court decision in Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, , was applicable and the Tribunal was right in holding that the income of the assessee was exempt u/s 11.

We are in agreement with Shri Dilip Dwarkadas that clause (e) of article 3 of the memorandum of association of the assessee-company is the clause which creates a trust in respect of all the assets of the assessee-company and its income and that it provides for the utilisation of the income for charitable objects set out in detail in that clause. While clauses (r) to (o) prohibit the utilisation of the assessee''s income for any other purpose, the other clauses in article 3 merely empower the assessee-company to carry on its activities most efficiently. It is, therefore, not possible to appreciate as to what exactly was meant by Dr. Balasubramanian when he stated that the clauses in article 3 being independent, income could be applied for one or the other object in its discretion by the assessee-company.

There is no dispute that the objects mentioned in clause (e) are of a charitable nature. In this view of the matter, the Supreme Court decision applies. Accordingly, the question is answered in the affirmative and in favour of the assessee. No order as to costs.