MADRAS RACE CLUB Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following three questions relating to the assessment years mentioned hereunder have been referred, at the instance of the assessee, for the opinion of this court :

(2.) THE circumstances giving rise to the reference under question No. 1 stated above are as under : THE assessee is a company limited by guarantee and registered under the Companies Act, 1913. In the original assessment for the year 1968-69, development rebate on air-conditioners has been allowed by the ITO, though they were used in the office and in the residential premises of the assessee and as such not eligible for rebate under s. 33(6) of the I.T. Act, 1961 (hereinafter referred to as "the Act"). In the reassessment made for the assessment year 1968-69, the ITO was of the view that the development rebate had been wrongly allowed and added back Rs. 8,486. Later, other air-conditioning equipments valued at Rs. 2,58,219 had been installed and for the assessment year 1970-71, the ITO made an addition of Rs. 56,642, negativing the claim for development rebate made by the assessee. On appeal, the AAC deleted the addition of Rs. 8,486 and Rs. 56,642 for the assessment years 1968-69 and 1970-71, respectively, on the ground that the clarification furnished by the assessee established that the place of installation of the air-conditioning equipments was only the club house forming part of the business premises of the assessee and the equipments had also been used for its business purposes. On further appeal to the Tribunal by the Department, the Tribunal applied its earlier decisions relating to the assessee in I.T. As. Nos. 1147 to 1149 (MDS)/1969-70 (C Bench) dated March 31, 1975, to hold that the premises where the air-conditioning equipments were installed was used as place of meeting for the members for discussing racing events on race days and that the premises cannot be considered as anything other than an office premises and, therefore, no development rebate could be allowed in respect of the air-conditioning plants installed in such office premises under sub-section (6) of s. 33 of the Act. In this view, the Tribunal restored the order of the ITO adding back a sum of Rs. 8,486 and Rs. 56,642 for the assessment years 1968-69 and 1970-71, respectively. THE question is whether this view of the Tribunal is correct.

(3.) EVEN though the assessee claimed that it has earlier declared and made it widely known that the collections at the races on March 19, 1969, March 26, 1969, and March 19, 1970, March 22, 1970, and March 29, 1970, were for the benefit of charity even long before the holding of those events, before the authorities below, no material to support such an unequivocal declaration or intention on the part of the assessee was made available and, therefore, it was the claim of the assessee which came to be examined in the light of the resolution relied on by the assessee. With reference to the claim made by the assessee for the assessment year 1969-70, the resolution passed at an extraordinary general body meeting held on March 21, 1969, was to the effect that the committee of management was authorised to contribute to such charitable institutions or organisations such sums as it may think fit not exceeding Rs. 7 lakhs from out of the proceeds of the two extra days' races held on March 19 and March 26, 1969. This resolution cannot be pressed into service by the assessee to claim that the collections were earlier subjected to any legal obligation for being applied to specific or stated purposes and the obligation was of such a nature as to render the collections not part of the income of the assessee. The very idea of dealing with and disposing of the collections appears to have been entertained and put in the form of a resolution only on March 21, 1969, two days after the holding of the first of such events on March 19, 1969. Therefore, in so far as the collections referable to the racing event on March 19, 1969, were concerned, the resolution merely enabled the committee of management to appropriate those collections by making contributions to charitable institutions and other organisations. EVEN such an application by contribution was made a matter of discretion to be exercised by the committee of management as seen from the terms of the resolution. No reference to the availability of net collections for distribution amongst charitable institutions and organisations has been made in the resolutions and this would indicate that there was no earlier earmarking of the collections or net proceeds for any particular purpose. With reference to the racing event held on March 26, 1969, the assessee's reliance upon the resolution, referred to earlier, is of no avail as the resolution merely enables the committee of management to indulge in a discretionary, appropriation of the collections from the events held limiting such appropriation to Rs. 7 lakhs. The resolution is merely in the nature of an authorisation and not a mandate and does not compel the committee of management to spend amounts on charities. In other words, if the committee of management chose to spend Rs. 7 lakhs or much less or nothing even on charities, its action could not be questioned. An element of compulsion in the matter of spending the amounts on charities is significantly absent in the resolution. That coupled with the discretion vested in the committee to spend or not to spend the amounts on charity, may enable the committee of management to make available amounts for the use of the assessee. The resolution does not, therefore, assets the assessee to establish that the collections on the specified days were ab initio burdened with an obligation to be applied for specific or stated charitable purposes and that the assessee had acted merely as a conduit pipe in making such collections. For the claim made by the assessee for the assessment year 1970-71, there was no resolution even and it was rested on the mere assertion made by it that the proceeds of the race meets conducted on March 19, 22 and 29, 1970, were for the benefit of the Madras Race Club Charitable Trust and the Madras Cricket Association, respectively. We do not see how in the total absence of necessary and relevant materials, the assessee can claim that the collections made by it on March 19, 1970, March 22, 1970, and March 29, 1970 were ab initio impressed with the character of charity funds creating a benefit in those collections in favour of certain charities.