COMMISSIONER OF INCOME TAX versus DHARMODAYAN & CO., KERALA

Citation: [1978] 1 S.C.R. 319 · Decided: 22-08-1977 · Supreme Court of India · Bench: Y.V. CHANDRACHUD · Disposal: Dismissed

Judgment (excerpt)

) 
COMMISSIONER OF INCOME TAX 
v, 
DHARMODAY AN & CO., KERALA 
August 22, 1977 
[Y. V. CIIANDRACHUD AND P. S. KAILASAM JJ.] 
319 
lru:ome-Tax Act, 1961-ss. ll(l)(a) and 2(lS) and Indian Income-Tax 
A.Ct. 1922-s. 4(3)(i)-Scope of change in the two provisions. 
Assessee carrying. on business of kuries (chit 
funds)-High 
Court 
held 
a.uessee's income exempt from tax under 1922 Act-Income Tax Officer held that 
earlier decision no longer law because of change in definition of charitable purpose 
under 1961 Act-Earlier decision, if good law. 
Under s. 4(3) (i) of the Indian Income-tax Act, 1922 income derived from 
pcoperty held under trust for religious or charitable purposes was exempt from 
taxation in so far as such income was applied for those purposes. By cl. (b) 
of the proviso to s. 4(3)(i) income mentioned in cl. (i) was includible in tho 
total income of the assessee if it was "derived from business carried on on behalf 
A 
B 
c 
of a religious or charitable institution". But cl. (b) of the proviso contained an 
exception to an exception to the effect that even income derived from business 
carried on on behalf of a religious or charitable institution was exempt from tax 
D 
if it was applied wholly for the purposes .of the institution and either the busi-
ness was carried on in the course of the actual carrying out of a primary 
purpose of the institution or the work in connection with the business was mainly 
carried on by the beneficiaries of the institution. Section 11 ( l )(a) 
of the 
1961 Act contains an identical provisio11. 
Section 2(15) of the 1961 Act defines 
"charitable purpose" to include, inter alia, the advancement of any other object 
of general public utility not involving the carrying on of any activity for profit. 
In respect of certain previous assessment years (1952-.53 to 1956-57) 
of 
the assessee the Kerala High Court in Dharmodayan Co v. C.l.T. Kerala ( 45 
ITR 478) held that since the business of kuries (chit funds) was held by the 
ass.essee under a trust for religious or charitable purposes, it could not be said that 
the business was conducted "on behalf of" the religious or charitable institu-
tion and that the income from kuries in so far as it was applied for religious 
or charitable purposes was exempt from tax. Revenue filed an 
appeal 
in 
this Court but withdrew it with the result the High Court's decision became 
final. 
After the 1961 Act came into force, for the assessment year 1968-69, the 
Income Tax Officer declined to grant exemption in respect of income derived 
by the assessee from its kurie business. 
On appeal, the 
Appellate 
Assistant 
Commissioner held that despite the amendment introduced in s. 2(15) of the 
1961 Act the earlier decision in Dharmodayan held good and that the assessee 
was entitled to claim exemption in rega;rd to its income from 
kuries. 
This 
was upheld by the Tribunal. 
Two questions, whether the Tribunal was correct in holding ( 1) that the 
income derived by the assessee was exempt under s. 11 (1) (a) of the 1961 
Act and (2) that setting apart of reserves under art. 39 of the . as~ess~'s 
articles of association did not vitiate the charitable purpose of the 
1nstitution, 
which were referted to the High Court were answered 
in favour 
of 
the 
usessee. 
In appeal to this Court it was contended by the Revenue that by re~n 
of the words "not involving the carrying on any activity for profit" occurring 
in 5 2(15) of the 1961 Act the decision of the High Court 10 Dharmodayan 
was· no longer good law and therefore that decision could not be 
said . to 
govern the question whether \ncome ireceivcd by the assessee 
by conducting 
kuries """ exempt from taxation. 
E 
F 
G 
H 
A 
B 
c 
D 
E 
G 
H 
320 
SUPREME COURT REPORTS 
Dismissing the appeals. 
HELD : Income derived by the 
assessee 
from kuries 
taxatwn under s. ll(IJ(a) of the 1961 Act. 
[328!o] 
[1978] 1 s.c.R. 
is 
exempt from 
1 (a) The significant change brought about in this regard by the 1961 Act 
is that by reason of lhe definition in s. 2(15) income denved trorn a 
busu11..:s~ 
which is carried on for the adva•ncement of an object of general pubuc ulit1ty 
has to be included in the assessee's total income, if it involves carrying on of 
any activity for profit, while under the 1922 Act income derived from a business 
carried on for the purpcse of advancing an objccl of general public Ulili<y was 
excJudible from the asscssce's income, even if such 
advancing 
involved 
the 
carr

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