HYDERABAD RACE CLUB Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) These there references arise under the I.T. Act, 1961 ("the Act" for short). the reference are made by the Income-tax Appellate Tribunal at the instance of the Hyderabad Race Club, hereinafter referred to as "the assessee". R.C. No. 107 of 1978 relates to the income-tax assessment years 1971-72, 1972-73 and 1973-74. R.C. No. 187 of 1982 relates to the income-tax assessment years 1974-75 and 1975-76 while R.C. No. 291 of 1982 relates to the income-tax assessment year 1976-77. The following questions of law are referred to this court under s. 256(1) of the Act : R.C. No. 107 of 1978 : "1. Whether the income of the assessee, a society registered under the societies Registration Act, for the assessment year 1971-72 is not exempt under section 11 of the Income-tax Act, 1961 ? 2. Whether the income of the assessee, a company registered under the companies Act, 1956, and licensed under section 25 of the said Act by the Central government for the assessment years 1972-73 and 1973-74 is not exempt under section 11 of the Income-tax Act, 1961 ?" R.C. No. 187 of 1982 : "Whether the income of the assessee, a company registered under the Companies Act, 1956, and licensed under section 25 of the said Act by the central government for the assessment years 1974-75 and 1975-76 is not exempt under section 11 of the Income-tax Act, 1961 ?" R.C. No. 291 of 1982 : "Whether the income of the assessee, a company registered under the companies Act, 1956, and licensed under section 25 of the said Act by the Central Government for the assessment year 1976-77 is not exempt under section 11 of the Income-tax Act, 1961 ?"

(2.) We may notice a few facts relevant for the purpose of these references. Initially, the assessee was a society registered under the societies Registration Act in the year 1951. On 15/04/1971, the society was wound up and its assets and liabilities were taken over as a going concern by a public company incorporated under the companies Act, 1956, and known as the Hyderabad Race Club Limited. In exercise of the powers vested under s. 25 of the Companies Act. the Central government licensed the registration of the assessee as company with limited liability, without the addition to its name of the word "limited". For the income-tax assessment years 1971-72, 1972-73 and 1973-74, the assessee filed its returns of income for the corresponding accounting years which ended on 31/03/1971, 31/03/1972, and M 31/03/1973. The assessee claimed before the ITO that the income derived by it from various sources is exempt under s. 11 of the Act inasmuch as, according to the assessee, it is established for charitable purposes within the meaning of s. 2(15) of the Act. The ITO rejected the assessees claim that it is a charitable institution and that its income is exempt under s. 11 of the Act, basically on the ground that the assessee was carrying on a business by conducting races which was an activity for profit. According to the ITO, the assessee was not established for any object of general public utility not involving the carrying on an activity for profit, and, consequently, the assessees claim for exemption of its income could not be admitted. The assessee carried the matter is appeal to the AAC of Income-tax, who upheld the view taken by the ITO and confirmed the rejection of the assessees claim that it is a charitable institution. The assessee carried the matter in second appeal to the income-tax Appellate Tribunal and reiterated its plea that it is established for charitable purposes within the meaning of s. 2(15) of the act, and that its income qualifies for charitable purposes within the meaning of s. 2(15) of the Act, and that its income qualifies for exemption under s. 11 of the Act. The assessee challenged the correctness of the view held by the lower authorities. The matter was argued at considerable length before the Tribunal and there was a conflict of opinion between the judicial member and the accountant member. Learned judicial member held that the income earned by the assessee is not entitled to exemption under s. 11 read with s. 2(15) of the Act, upholding the view taken by the ITO and confirmed by the Assistant commissioner of Income-tax in first appeal. The learned accountant member, on the other hand, held the view that the assessees income for the years under consideration is exempt from tax in terms of s. 11 and s. 2(15) of the Act and, accordingly, allowed the assessees contention that it is a charitable institution. In view of the above difference of opinion between the learned judicial member and the learned accountant member, the matter was referred under s. 255(4) of the Act by the President of the Tribunal to the vice-president for consideration. The vice-President agreed with the view expressed by the learned judicial member and held that the assessee is not a charitable institution and, consequently, it cannot claim exemption of its income under s. 11 of the Act for the assessment years 1971-72, 1972-73 and 1973-74. In view of the majority opinion, the Tribunal eventually dismissed the appeals filed by the assessee on the above point. Thereafter, the assessee required the Tribunal, by filing applications under s. 256(1) of the Act, to refer certain questions of law arising from the order of the Tribunal. that is how the Tribunal referred the two questions set out in paragraph 1 for the opinion of this court in R.C. No. 107 of 1978.

(3.) In connection with the income-tax assessment years 1974-75, 1975-76 and 1976-77, the assessee reiterated its plea for being recognised as a charitable institution and for exempting its income under s. 11 of the Act, Suffice it to state that the assessees claim was rejected, following the view taken by the Tribunal in connection with the income-tax assessment years 1971-72, 1972-73 and 1973-74. Consequently, the assessees claim for exemption of its income for the assessment years 1974-75, 1975-76 and 1976-77 was also rejected. thereafter, the Tribunal referred, at the instance of the assessee, the questions of law enumerated in paragraph 1 in R.Cs. Nos. 187 of 1982 and 291 of 1982.