DIRECTOR OF INCOME TAX versus M/S. BHARAT DIAMOND BOURSE

Citation: [2002] SUPP. 5 S.C.R. 95 · Decided: 06-12-2002 · Supreme Court of India · Bench: RUMA PAL · Disposal: Appeal(s) allowed

Judgment (excerpt)

DIRECTOR OF INCOME TAX 
A 
v. 
M/S. BHARAT DIAMOND BOURSE 
DECEMBER I 6, 2002 
[RUMA PAL AND B.N. SRIKRISHNA, JJ.] 
B 
Income Tax Act, 1961; Sections 2(15), II, 13 & 260(A): 
Charitable Institution-Benefits of exemption under Section I/-
Entitlement to-Held, since the dominant purpose of establishment of the C 
assessee-lnstitution being charitable, assessee entitled to benefits under Section 
I I of the Act. 
Charitable Institutions-Lending of money to its founder without 
security-Benefits of exemption under Section I I-Effect on-Held, since 
assessee lent certain income to prohibited category of person without adequate D 
security and interest, benefit of exemption under Section I I was lost in view 
of provisions under Section I 3(/)(c)(ii) of the Act. 
Constitution of India, 1950; Article 136-Appeal-Finding of facts 
recorded by Subordinate Courts-Interference-Generally finding of facts by E 
Courts below not disturbed unless it is perverse-Under the facts and 
circumstances of the case, correct finding of facts recorded by revenue 
authorities were reversed by the Tribunal and affirmed by the High Court on 
perverse reasoning-Hence set aside. 
Words & Phrases: 
'Founder', 'Foundation '-Meaning of in the context of Section I 3(3)( a) 
and I 3(3)(c) of Income Tax Act, 1961. 
F 
Respondent-assessee, a company limited by guarantee was 
incorporated under Companies Act. It was an institution established G 
wholly for charitable purposes and a non-profit Organisation and as such 
registered under the provisions of the Income Tax Act. Assessee claimed 
benefits of exemption under Section 11 of the Act for the assessment years 
1989-90 and 1990-91. Assessing Officer denied the exemption on the 
ground that objects of assessee institution were not charitable purposes H 
95 
96 
SUPREME COURT REPORTS (2002] SUPP. 5 S.C.R. 
A and assessee had breached the condition under Section 13 as well. 
Appellate authority confirmed the order of Assessing Officer. However, 
Tribunal allowed the appeals and High Court affirmed it. Hence these 
appeals. 
Ii was contended for the Revenue that since activities of assessee fell 
B outside the definition of charitable purpose it was not entitled to the benefit 
of Section 11 of the Act; and that since assessee lent its income to the 
founder of Institution without appropriate security, assessee lost the benefit 
of exemption under Section 11 of the Act. 
C 
On behalf of respondent-assessee, it was submitted that the 
judgment/order of the Tribunal which was affirmed by High Court, ought 
not to be disturbed by the Supreme Court in appeal under Article 136 of 
the Constitution of India; and that since 'B' was merely signatory to the 
Memorandum of Association of the Company, he could not be considered 
as founder of the Institution. 
D 
Allowing the appeal, the Court 
HELD: I.I. The setting up of the Diamond bourse had a great impact 
on the diamond export trade. The export turn over of diamonds gradually 
increased during the relevant period and consequently the country had 
E benefited by increased earning of foreign exchange. On the basis of these 
facts, the Revenue Authority granted registration to the appellant as an 
institution established for charitable purposes within the meaning of 
Section 2(15) of the Act. These earnings must be treated as ancillary to 
the dominant purpose for which the Diamond Bourse were established. 
F 
fl04-C-EI 
1.2. Applying the dominant purpose test to the objects of the 
respondent-assessee there is no escape from the conclusion that it is validly 
recognized as an institution established for charitable purpose. The pre-
dominant objectives are charitable purposl". Thus the Tribunal as well as 
G the High Court rightly held that the assessee was rightly registered under 
Section 11 by treating it as an institution established for charitable purpose 
within the meaning of Section 2(15) of the Act. 1106-B; Fl 
Additional Commissioner of Income Tax, Gujarat, Ahmedabad v. Surat 
Art Silk Cloth Manufacturers' Association, Surat, (19801 2 SCC 31, relied 
H on. 
DIRECTOR OF INCOME TAX v. BHARAT DIAMOND BOURSE 
97 
C/Tv. Andhra Chamber of Commerce, (1965) 55 ITR 722, relied on. A 
Commissioner of Inland Revenue v. Yorkshire Agricultural Society, (1928) 
I KB 611 and Institution of Civil Engineers v. Commissioner of Civil Revenue 
119321 J KB 1491, referred to. 
2.J. In the previous year relevant to the assessment year 1989-90, B 
the assessee had advanced cert

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