An unincorporated association's written constitution can create a binding legal obligation for tax exemption. The relief of the poor and advancement of general public utility are charitable purposes, and connection to a political organization does not disqualify an entity if its primary object is charitable.

Judgement

Appeal (No. 64 of 1942) from an order of the High Court (April 8, 1941) answering adversely to the appellant a question contained in a reference under s. 66, sub-s. 3, of the Indian Income-tax Act, 1922, made by the respondent and dated March 20, 1941.

The following facts are taken from the judgment of the Judicial Committee The year of assessment concerned was the year 1936-37, the relevant accounting year being the year ended December 31, 1935. Throughout the accounting year and the year of assessment the appellant was an unregistered and unincorporated association of individuals. Its activities consisted in the acquisition of yarn, and also raw cotton, which was then given out to various poor people to be spun by them into yarn, all of which yarn was then given out to other poor people for hand-weaving into cloth. The cloth so produced for the appellant was then sold by the appellant. During the relevant accounting year those activities resulted in a profit to the appellant. The appellant also had income from interest during the same year, and the appellant was assessed to income-tax and super-tax for the year 1936-37 on the whole of such profit and income.

The question at issue in this appeal was whether the appellant was for the year 1936-37, exempt from liability to income-tax and super-tax under s. 4, sub-s. 3 (i.) of the Indian Income-tax Act, 1922, on the ground that the whole of the profit and income in question was " income derived from property held under " trust or other legal obligation wholly for .... charitable " purposes.” That depended on the true construction as applied to the facts of the case of s. 4, sub-s. 3 (i.) of the Act, which was as follows —

“(3.) This Act shall not apply to the following classes of " income —

" (i.) Any income derived from property held under trust " or other legal obligation wholly for religious or charitable " purposes, and in the case of property so held in part only “for such purposes, the income applied, or finally set apart "for application, thereto

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" In this sub-section charitable purposes includes relief " of the poor, education, medical relief, and the advancement " of any other object of general public utility.”

The facts stated in the reference could be summarized as follows —The appellant was formed in the year 1925, and had its origin in a resolution of the All India Congress Committee passed in 1925. It was started for the purpose of the development of the village industry of hand-weaving (called " khadi ") and the weaving of cotton material (called " khaddar") by the use of hand looms. The constitution of the appellant was set out in a document without date or signature (exhibit " G " of the record) which was contained in a publication by the appellant called the " Khadi Guide," published in 1931. Clause 1 of that document was in the following terms— " Whereas the time has arrived for the establishment of an " expert organisation for the development of hand-spinning " and khaddar and whereas experience has shown that such " development is not possible without a permanent organisation, unaffected and uncontrolled by politics, political changes " or political bodies, an organisation called the All India " Spinners Association is hereby established with the consent " of the All India Congress Committee as an integral part of the " Congress organisation, but with independent existence and " powers." Certain of the other clauses of the document read as follows —" 2 (a). The said Association shall consist " of members and Associates and donors hereinafter defined " and shall have a Board of Trustees who shall also be the " Governing Body of the Association." Clause 2 (b) also contained the names of the members of the Board of Trustees and Executive Council, which included Mahatma Gandhi and Pandit Jawaharlal Nehru. " 3. That the funds and assets now " held by the All India Spinners Association and its various " branches shall vest in the Board of Trustees w