Law:

Section:

Section 11, read with section 2(15) of the Income-tax Act, 1961 – Charitable or religious trust – Exemption of income from property held under – Assessment years 1959-60 to 1963-64 – Assessee was association of hotel proprietors – Main activity of association was to secure permits and to buy under such permits various raw materials which were necessary for hoteliering trade, in bulk and to distribute them to its members – Whilst so doing, assessee gained surplus – Whether assessee could not be accepted as an institution existing for charitable purpose within meaning of section 2(15) – Held, yes – Whether, therefore, surplus derived from activity of assessee was within net of taxation and it could not claim exemption under section 11 – Held, yes FACTS The members of the assessee association were engaged in the business of hotels, eating houses, cafes, tea-shops, confectionery and the business of a like nature and having a licence to run the same either as proprietors or lessees or as a corporate body. The main activity of the assessee was to secure permits for rice, wheat, sugar and other articles of food needed by the members from the authorities empowered to issue these permits and to buy the goods which the assessee-association was authorised to buy under the said permit and to make them over to the members. The assessee had earned an income over expenditure in the course of their commercial activity and sustained losses also during three assessment years in question. The ITO brought to tax the amounts shown by the assessee as profits and accepted their statements as regards the alleged loss sustained by them. On appeal, the assessee contended, inter alia, that the objects of the assessee-association were charitable and, therefore, the assessee's income, if any, was not assessable. The AAC rejected the contention, and affirmed the order of the ITO. The Tribunal dismissed the assessee's appeal. On reference: HELD It is an established principle in commerce and trade that it is not the element of sale alone which would result in a profit. It was admitted that the assessee secured various raw materials which were necessary for the hoteliering trade, obviously in…

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