The judgment emphasized the change in the definition of 'charitable purpose' under the Income Tax Act 1961 and its impact on the exemption of income derived from property held for religious or charitable purposes.

1. The assessee is these appeals in a company which was registered under the Cochin Companies Act and later under the Indian Companies Act, 1956 The sources of income of the assessee are interest on securities, income from property and kuries or chit funds. For the assessment years 1952-53 to 1956-57, in making its returns of income, the assessee did not show the income from kuries on the ground that it was exempt under S.4(3) (i) of the Income Tax Act 1922 and that the proviso to that section had do application as the business of kuries was not carried on "on behalf of a religious or charitable institution" but was the trust business of the assessee itself. This contention was rejected by the Income-tax officer, the Appellate Assistant Commissioner and the Appellate Tribunal but on a reference under S.66(1) of the Act of 1922, the High Court of Kerala in Dharmodayam Co. v. Commissioner of Income Tax, Kerala 45 ITR 478:1962 KLT. 136 held that the business of kuries was itself held by the assessee under a trust for religious or charitable purposes and that it could not be said that the business was conducted "on behalf of" the religious or charitable institution. Therefore, according to the Division Bench which decided that case, the proviso to S.4(3) (i) was not attracted and the income from kuries in so far as it was applied for religious or charitable purposes was exempt from tax. The Revenue brought the matter in appeal to this Court but it withdrew the appeal with the result that the decision of the High Court became final.

2. The instant case arose after the Income Tax Act of 1961 came into force, the assessment year being 1968-69. The Income-tax Officer declined to grant exemption in respect of the income derived by the assessee from its kuries business but that order was set aside by the Appellate Assistant Commissioner whose judgment was confirmed by the Appellate Tribunal. These two authorities held that despite the amendment introduced by the Act of 1961 in S 2(15), the earlier decision would apply and the assessee was therefore entitled to claim exemption in regard to its income from kuries.

3. The Tribunal at the instance of the Revenue, referred the following two questions for the opinion of the High Court:

1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the income derived by the assessee is exempt under S.11[1] [a] of the Income-tax Act 1961?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that setting apart reserves under Art.39 of the assessee's memorandum did not vitiate the charitable purpose of the institution."

The assessee also filed two writ petitions in the High Court challenging, by one writ petition, a notice for re-opening an assessment and by the other, a notice calling upon it to file a return. The High Court answered both the questions in favour of the assessee, allowed the writ petitions and quashed the notices. These appeals by special leave are directed against the judgment and orders of the High Court.

4. On the first of the two questions referred to the High Court for its opinion it becomes necessary to consider comparatively the relevant provisions or S.4 (3) of the Income Tax Act 1922 as it existed when the Kerala High Court decided the Dharmodayam case 45 ITR 478;1962 KLT.136 on December 20,1961 and the provisions contained in the relevant part of S.11 read with S.2 (15) of the Income Tax Act 1961.

5. S.4 (3) of the Act of 1922 read thus.

"4(3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them.

(i) Subject to the provisions of clause (c) of sub-section (1) of S.16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable pur