The question of whether something is a tax-exempt, charitable enterprise or is one with a half-concealed political motive and therefore is undeserving of a tax exemption has been causing a lot of headaches for the IRS in recent years. But the issue is not a new one, as the following interesting example shows.
It’s an interesting footnote to the tax angle behind Gandhi’s khādī campaign, as found in an aside from a Spectator article:
In these days of alert journalism it is not often that a story that anyone could have had for the asking is missed by everybody — except one enterprising paper. The Daily Express deserves congratulation on its sense of values, or its estimate of intrinsic interest, in sending someone on to report a Privy Council case in which the Judicial Committee sat “in a quiet room over London’s grey river” to consider whether the All India Spinners’ Association of Mirzapur, formed by Mr. Gandhi in to provide work for the agricultural population in periods when work on the land was slack, existed for charitable purposes, and was therefore exempt from income tax, or for political purposes and was therefore subject to tax. The High Court of Bombay decided in favour of the Commissioner of Income-Tax, and it was this decision that was being appealed against. Two facts gave extraneous interest to the appeal: the first being that Mr. Gandhi is very much in the news at the moment in another context [he had just been released from prison where he had been held by British authorities ]; the second that Mr. Roland Burrows, K.C., of whom we have just been hearing a good deal in connexion with the Newcastle-on-Tyne enquiry, was appearing for “the anonymous multitude of Indian villagers.” Arguments were heard; the familiar terms “khadi” and “khaddar” were bandied to and fro; their lordships listened — and reserved their judgements.
The Privy Council ended up ruling in the Association’s favor, saying, in part, that “If an association is set on foot by a political organization and is connected with it but still has for its real object the relief of poverty, its connection with the political organisation does not make its real object any the less charitable.”