JUDGMENT:

C.V. RAMULU, J.:— As per the directions of this Court dated 23-9-1986 in I.T.C. Nos. 232, 273 and 296 of 1985 the following questions have been referred for opinion.

“(1) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee is an institution which satisfied the conditions of Section 2(15) read with Section 11?

(2) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the assessee derived income from property held in trust and even if it is not to be treated as property held under trust it can only be treated as property held under trust as voluntary contribution given by Hyderabad Race Club?

(3) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the activity carried on by the assessee did not constitute a business and even if it were business it was not such business as would be hit by Section 13(1)(bb) of the Act?”

2. The brief facts noticed are as under:

3. The Hyderabad Race Club had decided to create a separate public charitable trust in the name and style “Hyderabad Race Club Charitable Trust” and the same had come into existence under a deed of declaration dated 25-10-1976. The stewards of the Hyderabad Race Club were the settlers of the trust and an amount of Rs. 1,116/- was set apart as corpus fund. The main objects of the trust are advancement and propagation of education, medical aid and relief of poor etc. The stewards of the club as well as the trustees are identical.

4. The Hyderabad Race Club Charitable Trust obtained licence for conduct of races and inter-venue betting from the Government of Andhra Pradesh and every year conducted such activity for two or three days and the said income was added to its funds. The assessee trust claimed exemption of such income under Sec. 11 of the Income-Tax Act, 1961 (hereinafter referred to as ‘the Act’ for brevity) for the assessment years 1978–1979, 1979–1980 and 1980–1981. However, the Income Tax Officer was of the view that the assessee was not eligible for exemption and, alternatively he was of the view that even if the institution itself had been exempted, the income derived was from business and therefore hit by Section 13(1)(bb) of the Act. He was also of the view that the income could not be considered as one from property held under trust. Thus, he rejected the assessee's claim for exemption and brought the following amounts for assessment and to tax.

Asst. Year Amount

1978–1979 Rs. 4,66,775/-

1979–1980 Rs. 3,15,857/-

1980–1981 Rs. 2,11,202/-

5. Aggrieved by the same, the trust had filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) found that the objects of the trust were of general public utility and that the institution qualified for exemption under Section 11 of the Act, held that the only property under the trust was initially an amount of Rs. 1,116/- which was provided by the Hyderabad Race Club as the corpus of the trust fund and that amount alone could have been exempted. The Commissioner of Income Tax (Appeals) was of the view that the income from conducting races and inter-venue betting as promoted by the Hyderabad Race Club Charitable Trust could not be treated as income from the property. He also held that it cannot be said that the business was carried on in pursuance of primary objects of the trust and as such the same was hit by Sec. 13(1)(bb) of the Act and thus confirmed the assessments. The assessee filed further appeal before the Income Tax Appellate Tribunal. The appellate Tribunal had categorically held that the objects of the trust are clearly charitable in nature. The assessee obtained licence, on letter from Hyderabad Race Club to conduct races and inter-venue betting from Government of Andhra Pradesh. The explanatory note relating to the resolution for creation of the trust as well as the terms of the t