1. The question that is referred for consideration under Section 256(1) of the I.T. Act, 1961, is:
" Whether, on the facts and circumstances of the case, the net wealth of the Hyderabad Race Club is exempt from wealth-tax under
section 5(1)(i) of the W.T. Act ?"
2. The assessments in question relate to the periods 1959-60 to 1962-63 and 1964-65 to 1970-71, during which period, the Hyderabad Race Club (for short " the club "), the assessee herein, was a society registered under the Societies Registration Act. The assessee claimed exemption from payment of wealth-tax under Section 5(1 )(i) of the Act, which reads as follows :
" 5. (1) Subject to the provisions of Sub-section (1 A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee-
(i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India;... "
3. The WTO was of the opinion that the club was liable to tax on its net wealth and accordingly issued notices for the above-mentioned assessment years. The assessee filed "nil" returns for all those years and contended, inter alia, that the members of the club do not have any interest in the assets held by the club and the members have always been acting as trustees of the club properties holding the same in accordance with the memorandum and articles of association of the club. The aims and objects of the club are such that the properties of the club could be held only for discharging a legal obligation for a public purpose of a charitable nature in India. The WTO, however, did not accept the assessee's contention and treated the club as an " individual " within the meaning of Section 2 of the W.T. Act, and held it liable to tax for all the assessment years in question. On appeal, the AAC while confirming the order of the WTO treating the status of the assessee as an individual, held that the exemption from tax indicated in section 5(1)(i) of the Act was attracted and having regard to the aims and objects of the club it must be deemed to have been holding the properties for a public purpose of a charitable nature. The AAC came to this conclusion largely having regard to the view taken by this court in C.M.A. Nos. 216 and 279/70 dated December 30, 1971, with reference to the liability of the club for payment of general tax to the Municipal Corporation of Hyderabad under Section 202(1)(b) of the Hyderabad Municipal Corporations Act.
4. The revenue carried the matter in second appeal to the Appellate Tribunal. The Appellate Tribunal observed that the High Court of Andhra Pradesh in the matter of general tax under the Hyderabad Municipal Corporations Act, in the case of this very assessee, found that the purpose for which the property was held by it was a public charitable purpose and that it cannot be held otherwise for purposes of wealth-tax. In that view it dismissed all the appeals and confirmed the order of the AAC of Wealth-tax.
5. Section 3 of the Act, which is the charging section, imposes the liability of wealth-tax in respect of the net wealth of an individual, HUF and company at the specified rates. The net wealth would include assets mentioned in Section 2 of the Act. Thus, all the wealth held by an individual, HUF and company is liable to tax subject to the exemptions contained in section 5(1)(i). Once the wealth-tax is attracted to the assets held by an assessee, the burden lies on such assessee to establish that he comes within the exceptions laid down under Section 5. Primarily, all the assets of the assessee would be included in the wealth of the assessee for purposes of assessment to tax unless any such asset is excluded under the exemption provided under Section 5 of the Act. In v, the Supreme Court declared (per Headnote) :
" It is settled law that the burden is on the revenue authorities to show that the income is liable to tax under the statute; but the onus of showing that a particular class of income is exempt from taxation lies on the assessee. To earn the exemption, the assessee has to establish that his case clearly and squarely falls within the ambit of the exempting provisions of the Act.
The effect of an excepting or qualifying proviso, according to the ordinary rules of construction, is to except out of the preceding portion of the enactment or to qualify something indicated therein, which, but for the proviso, would be within it. "
6. The burden of proving that the assets of the assessee are exempt from tax is, therefore, upon the assessee.
7. The question, therefore, that has to be considered in this context is whether the assets held by the club are held by it under trust or other legal obligation for any public purpose of a charitable nature or they are held for any public purpose of a religious nature. But the assets are held by the club, which is a society registered under the Societies Registration Act. For what purpose these assets are held must necessarily be deduced from the aims and objects of the club as can be gathered from the memorandum of association of the said club. The aims and objects of the club, as incorporated in the memorandum of association, are as under :
" (a) to encourage and promote the scientific breeding and training of horses, ponies and mules ;
(b) to promote, organise and control race meetings at Hyderabad and elsewhere;
(c) to carry on the business of a race club in all its branches ;...
(e) to devote sums of money from the income of the club, to public charitable purposes and to other worthy causes ;
(f) to give monies either by way of gratuity or towards prizes, cups, stakes and other rewards to any club, organisation or association of any kind, private or public, which is or shall be formed having amongst any of its objects the playing of games or racing or sport;......
(l) to establish institutions, schools, funds and other conveniences for training jockeys and riders, both professional and amateur; -
(m) to establish and support or aid in the establishment or support of any association, institution, funds or trust calculated to benefit any trainer, jockey or riding boy who may carry on his profession on any race course; and
(n) to establish and support or aid in the establishment and support of associations, institutions, funds or trust calculated to benefit employees, or ex-employees of the club, etc. "
8. Some of the aims and objects of the club are undoubtedly of public purpose of charitable nature. But equally some of the aims and objects are not public purpose of charitable nature and some others are not necessarily so, being capable of being pursued by them for charitable as well as non-charitable purposes. The promotion or encouragement of scientific breeding and training of horses, ponies and mules, which is stated to be one of the objects of the club, may not necessarily be for charitable purposes. It could be purely for business purposes also. So long as the club promotes or encourages scientific breeding, it would be fulfilling the objects of the club, but at the same time scientific breeding could be by way of business, that is, solely for purposes of earning profit or solely for charitable purpose. The board of stewards controlling the affairs of the club could utilise the assets in promoting scientific breeding for either of these purposes, viz , for earning profit or for merely charitable purposes. Likewise, the promotion, organization and control of race meetings at Hyderabad and elsewhere may be merely for earning profit and the profit so earned may be utilised for the purposes mentioned in the memorandum of association or it may be used solely for charitable purposes. In either case the board of stewards would be fulfilling one of the aims and objects of the club. More often than not and in fact substantially the organisation of race meetings is for purposes of profit and not for any charitable purpose. One of the aims and objects as mentioned is the carrying on of the business of the race club in all its branches. This business of the club need not be for charitable purpose. One of the aims and objects is as well
" to establish and support or aid in the establishment or support of any association, institution, funds or trust calculated to benefit any trainer, jockey or riding boy who may carry on his profession on any race course"
. This again need not be for a charitable purpose. It could be with a view to earn income. The institution to which support is given may, itself, not be an institution established to discharge a legal obligation for any public purpose of a charitable nature. Those in control of the affairs of the club are empowered to devote sums of money from the income of the club for public charitable purposes and to other worthy causes which imply that they could be purposes other than charitable as well.
9. In Cricket Association of Bengal v. CIT [1959] 37 ITR 277 (Cal) Chakravartti C.J., speaking for the Bench while dealing with the liability of the Cricket Association of Bengal to pay income-tax on the income earned by it by conducting tournaments and test matches, held (per Head-note) :
" The mere promotion of the practice of the game of cricket in general either for the entertainment of the public or for an advancement of the game itself was not a charitable purpose.
As the rules of the association authorised it to carry out any other business activity which may seem to it capable of being carried on in connection with its objects, even assuming that there was property and that the promotion of cricket was a charitable purpose, the property was held not wholly for that purpose but for other purposes as well....."
10. The Bench further observed :
" That as there was no trust and the rules of the association, except setting out some objects, did not compel the association to apply its assets or income to these objects or to any particular purpose, there could not be said to be any legal obligation to hold property for any purpose."
11. In the instant case the aims and objects enumerated above authorised ' the utilisation of the property or assets even for purposes which are not charitable but also authorised the carrying on of business of race club which cannot be said to be public purpose of a charitable nature. It cannot be said that the assets of the club are held under trust or other legal obligation for any purpose of a charitable nature. At least some of them are clearly for purposes other than those of charitable nature. In Bangalore Race Club v. CIT [1970] 77 ITR 435, the Mysore High Court dealt with the case of Bangalore Race Club's liability to pay income-tax. Repelling the contention that the income of the club was exempt from tax, the court held that racing does not confer any public benefit and since betting on horses is one of the essential concomitants of the activity of racing it cannot be said that betting on horses is beneficial to the public. One of the objects of the Hyderabad Race Club, as already noticed above, is to carry on the business of a race club in all its branches and to conduct, hold and promote race meetings in Hyderabad and elsewhere. In a case arising under the I. T. Act and relating to the income earned by the Madras Race Club in CIT v. Madras Race Club [1976] 105 ITR 433, the Madras High Court while recognising that the presence of business element as such would not be destructive of the claim for exemption, if really the members' club had been shown to have been run as a separate and distinct activity, held that the subscription paid by members to the assessee is so bound up with the business that the principle of mutuality will not apply to it and as the subscription received is relatable also to the business aspect, the assessee cannot claim exemption of the whole of the subscription. On a consideration of the aims and objects of the club, the court was of the view that " this is not a case where there is a contribution of monies by certain persons coming together for trading or non-trading purposes without any idea of making a profit. This is not also a case of mere mem-
bers' club which comes into existence for the purpose of providing certain amenities to the members without any business element. " The court held that, in any view of the matter, the entire income was liable to tax.
12. In yet another case, South Indian Athletic Association Ltd. v. CIT [1977] 107 ITR 108, the Madras High Court held that the income of the South Indian Athletic Association Ltd., the objects of which were in part charitable and in part non-charitable, was not entitled to exemption from tax. The Bench observed that
" public benefit is essential in order that there may be a charitable purpose. Promotion of intercourse among the members of the association cannot be considered to be a charitable purpose. The members of the association could apply the income to any of the objects some of which were non-charitable in the instant case. If there were several objects of a trust some of which are charitable and some non-charitable, and the trustees in their discretion could apply the income to any of the objects, the whole trust must fail and no part of the income would be exempt from tax and as, in the instant case, even assuming that there was a charitable purpose in the promotion of athletic sports and games still the exemption was not available as there were other non-charitable purposes."
13. In Ramchandra Shukla v. Shree Mahadeoji , the Supreme Court held that the maintenance of an akhra by an individual interested in promoting wrestling is not a charitable purpose.
14. In order to attract the exemption indicated under Section 5(1)(i) of the W. T. Act, the assets must be held : (1) in trust or other legal obligation; (2) they must be held for a public purpose. Further, this public purpose must be of a charitable nature. Unless all these requirements are satisfied the exemption is not attracted. The society being registered under the Societies Registration Act, the affairs of the society are controlled by a board of stewards. The board of stewards has to hold the assets for the aims and objects enumerated above. So long as they apply the assets or the income thereof for achieving all or any of the purposes of the club, they would be discharging their legal obligation. As discussed above, some of the aims and objects are of a non-charitable nature. If the board of stewards were to apply the assets and income of the club even for such non-charitable purposes, they cannot be held guilty of contravening the legal obligations imposed upon them. Even if they apply such assets wholly for non-charitable purposes it cannot be said, having regard to the aims and objects of the club, which also include non-charitable purposes, that they are not holding the assets for non-charitable purposes also. What is determinative of the liability of the club for purposes of wealth-tax is not the application of the assets or the income thereof for achieving the aims and objects of the club but the holding of the assets itself that imposes the liability. The assets of the Hyderabad Race Club are, therefore, not exempt from tax.
15. The learned counsel for the assessee, Sri K. Srinivasa Murthi, did not contend that the aims and objects mentioned in the memorandum of association of the Hyderabad Race Club disclose a public purpose of a charitable nature. What he, however, contended and very strenuously is that it is not necessary to claim exemption under section 5(1)(i) of the Act that the aims and objects of the club should be such as to make the board of stewards hold the property under trust or other legal obligation solely for a public purpose of a charitable nature. According to him it is enough if the dominant purpose of the assessee in holding the assets is of such nature. The fact that for achieving this dominant purpose, the assessee carries on other activities and the same are permitted by some of the aims and objects enumerated in the memorandum of association, does not render it ineligible for claiming the exemption. It is urged that unless some profit is made by engaging in activities, which could not be other than activities of a non-charitable purpose, there would be no income at all with which the dominant object of utilising the assets for a public purpose of a charitable nature could be achieved. In support of this contention he relied upon decisions rendered mostly under the Indian I. T. Act of 1922.
16. In In re The Trustees of the ' Tribune ' [ 1939] 7 ITR 415 (PC), the property held in trust for publishing a newspaper, the income of which, after defraying the expenses of the press and newspaper, was held to be in trust for charitable purposes. It was held, reversing the judgment of the High Court, that the object of the settlor was to supply the province with an organ of educated public opinion and this was prima facie an object of general public utility. Though a trust for conducting a newspaper as a mere vehicle for the promotion of a particular political or fiscal opinion may not be within the exemption, where the object is to disseminate news and ventilate opinion on matters of public interest, the fact that the paper may have, or may acquire, a particular political complexion would not take away its exemption. Here the question whether its income was utilised wholly for a public purpose of a charitable nature and whether it would still be entitled to exemption if some of the objects of the trust were to be deemed to be objects of a non-charitable nature, did not arise for consideration.
17. In Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234, the Supreme Court dealing with a clause of the trust deed of the Loka Sbikshana Trust which provided that the object of the trust shall be to educate the people of India in general and of Karnataka in particular by-
(a) establishing, conducting and helping directly or indirectly institutions calculated to educate the people by spread of knowledge on all matters of general interest and welfare ; (b) founding and running reading rooms and libraries and keeping and conducting printing houses and publishing or aiding the publication of books, booklets, leaflets, pamphlets, magazines, etc., in Karnataka and other languages, all these activities being started, conducted and carried on with the object of educating the people; (c) supplying the Kannada speaking public with an organ or organs of educated public opinion and conducting journals in Kannada and other languages, for the dissemination of useful news and information and for the ventilation of public opinion on matters of general public utility, and (i) helping directly or indirectly societies and institutions which have all or any of the aforesaid objects in view and (ii) which empowered the trustee to utilise the moneys and property of the trust for any of the purposes of the trust in such manner as may appear proper, held that the object of the trust was not " education " within the meaning of section 2(15) but an object of general public utility, that, however, the publication of newspapers and journals involved the carrying on of an activity for profit and the income of the trust was, therefore, not exempt from tax. Though some of the activities permitted under the trust deed involved the activity which did not secure any profit as well, inasmuch as some of the objects were intended for earning some profit and income, the trust was already liable to pay tax. In the course of the judgment it was pointed out that where the predominant object of the trust is of a charitable nature, the income of such trust would not be liable to tax. It would become liable to tax only in view of the amendment made in the I. T. Act in 1961 which made the provision more stringent by insisting that the trustee should not have indulged in any activity for the purposes of making any profit. The amendment reads as follows :
" ' Charitable purpose ' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity for profit."
18. The learned counsel for the assessee relied on Sole Trustee, Loka Shikshana Trust v. CIT and Satya Vijay Patel Hindu Dharamshala Trust v. CIT and contended that if under the I.T. Act the income is exempt only if the income is applied "solely" for charitable purpose although that income is derived by the assessee having among its aims and objects even non-charitable purpose, more so under the W.T. Act where Section 5(1)(i) does not expressly lay down that the property should have been held under trust or other legal obligation " solely " for any public purpose of a charitable nature, it cannot be insisted that in order to earn exemption the property should have been held only for a public purpose of a charitable nature and that even if one of the purposes is of a non-charitable nature, exemption must be denied.
We are unable to agree with this contention. No doubt, the words " solely for any public purpose of a charitable nature " do not occur in section 5(1)(i) of the Act. But the context in which the exemption is allowed cannot be lost sight of. Sections 3 and 4 render all assets liable to wealth-tax. No doubt they are subject to the exemption provided under Section 5 of the Act. The liability to tax is incurred no sooner than the property is held, and all assets are liable to wealth-tax provided the wealth is of a particular value. The exemption is attracted if the property is held for the purposes mentioned in section 5(1)(i). In other words, if the property is held for purposes other than those mentioned in section 5(1)(i) the exemption is not applicable. Admittedly, having regard to the aims and objects of the Hyderabad Race Club, it cannot be said that the assets are held by it under a legal obligation for any public purpose of a charitable nature. It, therefore, follows that the exemp tion is not attracted. Unlike the provision for the exemption under the W.T. Act, the I.T. Act renders the income in the bands of an assessee liable having regard to its application. The income itself may be earned from any source; the exemption of such income from tax is made dependent upon the application of the income for certain purposes. The mere fact that the assessee is authorised to expend both for charitable and non-
charitable purposes is not made the basis for granting or refusing the exemption. The right to exemption is dependent on the actual application of the income irrespective of the authority of the assessee to expend both for charitable or non-charitable purposes. The application alone was laid down as the test for determining whether that particular income should be exempt. To earn exemption from income-tax, the legislature provided that the income should have been applied solely for charitable purposes, even if the society earning such income may have/ among its objects some non-charitable purposes also, so long as it applies its income in any year solely for charitable purpose. Under the W.T. Act because the holding of the asset itself rendered one liable to tax and if such an asset is held for public purposes both of charitable and non-charitable nature, irrespective of whether it is applied " solely " for charitable purpose or for non-charit able purpose, it was rendered liable to tax. The decisions under the I.T. Act, which lay down that the dominant purpose of any trust or assessee alone should be the criterion for judging whether the exemption from tax is attracted or not, cannot be applied to the cases arising under the W.T. Act.
19. It is next contended that the principle of mutuality applies to the assessee, for it is a members' club and even on i:s dissolution the assets are transferred by the assessee to a club having similar aims and objects and no member holds as such any property. It is not denied that the assets of the club are used for conducting races though not throughout the year at least for a substantial part of the year. No doubt when the races are not held a major part of the assets are utilised for providing amenities to the members of the club. But, as already discussed above, the assets of the club are being utilised not merely for members but also for non-members and not merely for charitable purposes but also for non-charitable purposes. The mere fact that some of the assets are used solely for the benefit of its members and on its dissolution the assets would pass on to clubs haying similar aims and objects does not, therefore, entitle the assessee to exemption from wealth-tax on the principle of mutuality.
20. Sri Srinivasa Murthy, however, laid great stress on the decision of this court in C.M.A. Nos. 16 and 279/70 dated December 30, 1971, in which a Bench of this court had occasion to consider the aims and objects of this very assessee club and determined its liability to pay general taxes under Section 202(1)(b) of the Hyderabad Municipal Corporations Act, 1955. Section 202(1)(b) of the Hyderabad Municipal Corporations Act is as follows :
"202. General tax on what premises to be levied.--(1) The general tax shall be levied in respect of all buildings and lands in the city except--(a)... (b) buildings and lands or portions thereof solely occupied and used for public worship or for a charitable or educational purpose."
21. That provision provides for levy of general tax on certain premises and also makes a provision for exemption of buildings from levy of general tax if they are "solely occupied and Used for public worship or fora charitable or educational purpose". The Bench in this context observed that no purpose other than a public charitable purpose in the memorandum of association has been brought to our notice by the respondent. Referring to the contention that one of the objects of the assessee was to carry on business of race club, the Bench observed that the betting permitted in the race club " is incidental to carry out its object". This purpose cannot, in the circumstances, be held to be a profit motive and it does not amount to a business or an adventure in the nature of trade. This decision was under the provisions of the Hyderabad Municipal Corporations Act, 1955, which are not in pari materia with Section 5(1)(i) of the W.T. Act. There general tax is attracted to all buildings or lands except those exempted, one of the exemptions being in respect of buildings solely occupied and used for a charitable or educational purpose It is significant to note that the words " any property held under trust or other legal obligation " are not to be found in Section 202(1)(b) of the Hydenbad Municipal Corporations Act. It is the use to which the building is put that is the criteria.; For exemption under the W.T. Act the property must be '' held either under trust or any legal obligation for any public purpose of a charitable nature " which could be gathered from the deed. Moreover, it does not appear that all the aims and objects enumerated above were specifically brought to the notice of the court some of which undoubtedly refer to non-charitable purpose and also purposes which are not public purposes within the meaning of the said Act. The court did not consider and hold that even on the footing that some of the objects were of a non-charitable nature it was entitled to claim exemption. In any event, merely because an exemption from payment of general 'tax was granted under the Hyderabad Municipal Corporations Act, the assessee-club cannot be deemed to be entitled to exemption from wealth-tax under section 5(1)(i) of the W.T. Act, 1957.
22. In view of the foregoing discussion, we hold that the net wealth of the Hyderabad Race Club is not exempt from wealth-tax under Section 5(1)(i) of the W.T. Act, 1957, and we, accordingly, answer the reference in the negative.