Commissioner of Income-Tax, Madras Vs.
Andhra Chamber of Commerce [1964] INSC 210 (1 October 1964)
01/10/1964 SHAH, J.C.
SHAH, J.C.
SUBBARAO, K.
SIKRI, S.M.
CITATION: 1965 AIR 1281 1965 SCR (1) 565
CITATOR INFO:
R 1972 SC 273 (5) RF 1972 SC 763 (23) RF 1974
SC1527 (12) R 1975 SC 506 (3,4,5) D 1976 SC 10 (26,43) F 1976 SC 348 (4,8) R
1976 SC1836 (18) R 1980 SC 387 (5,6,40,83) RF 1981 SC1408 (6,7) R 1981 SC1462
(7) APL 1981 SC1765 (1) RF 1986 SC1054 (1,17)
ACT:
Indian Income Tax Act, 1922 (11 of 1922), s.
4(3) (i)--Charitable purpose, meaning of--Company's object to promote trade,
commerce and industry, whether charitableUrging or opposing legislation
affecting trade etc. Object whether political.
HEADNOTE:
The assessee company--Me Andhra Chamber of
Commerce-had as its main object the promotion, protection, and development of
trade, commerce and industry in India. It owned a building where it had its
offices, and those parts of it not in the company's own use were let out to
tenants. In income-tax proceedings the company claimed exemption in respect of
the rental income unders.4(3) (i) of the Indian Income-tax Act, 1922. The claim
was negatived by the assessing and appellate authorities. The High Court,
however, held that the company was a charitable institution and its income from
property was exempt under s. 4(3) (i).
The Revenue appealed to the Supreme Court by
special leave.
It was contended by the appellant that the
property was not held by the company for a charitable purpose within the meaning
of s. 4(3) (i), that the objects of the company were vague, that the benefit
contemplated by the Memorandum of Association was not to the public generally
but to the members of the company only, and that the objects of the company
were political it being open to it to appropriate the entire income for
political purposes.
HELD: (i) The term charitable purpose as
defined in the Act was inclusive and not exclusive. It included objects of
general public utility. The object of the assessee companypromotion of trade
and commerce in the country-was an object of general public utility, as not
only the trading class but the whole country would benefit by it. It is not
necessary that the benefit must include all mankind. It is sufficient if the
intention be to benefit a section of the public as distinguished from specified
individuals. [571 F-H].
Commissioners of Inland Revenue v. Yorkshire
Agricultural Society, [1928] 1 K.B. 611 and The institution of Civil Engineers
v. Commissioners of Inland Revenue, 16 T.C. 158, relied on.
Commissioner of Income-tax Bombay Presidency,
Sind and Baluchistan v. The Grain Merchants' Association of Bombay, 6 I.T.R.
427, disapproved.
(ii) There was nothing vague about the
company of general public utility such as promotion, protection, aiding and
stimulation of trade, commerce need not to be valid, specify the modus or the
steps by which the objects may be achieved or secured. [573 A-B].
Runchordas Vandrawandas v. Parvati Bai L.R.
26 I.A. 71, Commissioners of Inland Revenue v. National Anti-Vivisection
Society, 28 T.C. 311 and Baddeley and others (Trustees of the Newtown Trust) v.
Commissioners of Inland Revenue, 35 T.C. 661, distinguished.
(iii) The argument that it was only for the
benefit of the trading classes ,in Andhra Desa that the funds of the company
could be utilised did not stand scrutiny. [574 D-E].
566 (iv) It cannot be said that a purpose
would cease to be charitable even if public welfare is intended to be secured
thereby if it includes the taking of steps to urge or oppose legislation
affecting commerce, trade or manufacture. If the primary Purpose be advancement
of objects of general public utility, it would remain charitable even if an
incidental entry into the political domain for achieving that purpose e.g. promotion
of or opposition to legislation concerning that purpose is contemplated. The
object mentioned in the Memorandum of Association was that the assessee may
take steps to urge or oppose legislative or other measures affecting trade,
commerce, or manufacture.
Such an object must be regarded as purely
ancillary or subsidiary and not the primary object. [575 G-H; 580 B-C].
In re the Trustees of the Tribune, 7 I.T.R.
415 and All India Spinnere Association v. Commissioners of Income-tax, Bombay,
12 I.T.R. 482, relied on.
Pemsel v. Commissioner for special Purposes
of Income Tax, [1891] A.C. 531 and Bowman v. Secular Society Ltd., [1917] A.C.
406, referred to.
Rex v. The Special Commissioners of
Income-tax (ex-parte The Incorporated .Association of preparatory schools) 10
T.C 73, The Commissioners of Inland Revenue v.The temporance council of the
Christian Churches of England and Wales, 10 T.C. 748, and Laxman Balwant
Bhopatkar by Dr. Dhananjaya Ramachndra Charity commissioner, Bombay, [1963] 2
S.C.R. 625,
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 941. 946 of 1963.
Appeals from the judgment dated February 22,
1961 of the Madras High Court in Case Referred No. 121 of 1956.
K. N. Rajagopal Sastri, R. H. Dhebar and R.
N. Sachthey, for the appellant (in all the appeals).
A. V. Viswanatha Sastri, K. Rajendra
Chaudhuri and K. R. Chaudhuri, for the respondent (in all the appeals).
The Judgment of the Court was delivered by Shah
J. The Andhra Chamber of Commerce-hereinafter called the assessee's a Company
incorporated under the Indian Companies Act 7 of 1913. The assessee was
permitted under S. 26 of the Act to omit the word "Limited" from its
name by order of the Government of Madras.
The following are the principal objects of
the Memorandum of Association of the assessee :
(a) To promote and protect trade, commerce
and industries of India, in the Province of Madras and in particular in the
Andhra country.
(b) To aid, stimulate and promote the
development of trade, commerce and industries in India, or 567 any part thereof
with capital principally provided by Indians or under the management of
Indians.
(c) To watch over and protect the general
commercial interests of India or any part thereof and the interests of the
Andhras in particular engaged in trade, commerce or manufacture -in India and
in particular the Andhra Desa.
(y) To do all -such other things as may be
conducive to the preservation and extension of trade, commerce, industries and
manufactures or incidental to the attainment of the above objects or any of
them.
Clauses (d) to (x) are incidental to the
principal objects.
By cl. 4 of the Memorandum of Association it
was provided that the income and property of the assessee shall be applied
solely towards the promotion of its objects as set forth therein and no portion
thereof shall be paid or transferred, directly or indirectly, by way of
dividends, bonuses or otherwise howsoever by way of profit to its members.
On December 2, 1944 the assessee purchased a
building and made substantial alterations, additions and improvements therein.
The assessee then moved its offices into that building on May 14, 1947 and let
out to tenants the portion not required for its use. The income of the assessee
is obtained from subscriptions and donations collected from its members and
rent received from the building. The following table sets out in columns 3
& 4 the net annual value of the property less -the statutory deductions
permissible under S. 9 of the Income-tax Act, 1922 and the net excess of
expenditure over the income of the assessee (other than the rental income)
incurred in connection with all its activities for the assessment years
relating to which dispute arises in this group of appeals
----------------------------------------------------------Previous year
Assessment Amount Net excess (calendar year) year Rs. Rs. ----------------------------------------------------------(1)
(2) (3) (4) ----------------------------------------------------------1947
1948-49 3,400 7,431 1948 1949-50 6,154 7,139 1949 1950-51 6,928 5,266 1950
1951-52 5,740 10,173 1952 1953-54 8,072 13,672 1953 1954-55 8,072 17,397
----------------------------------------------------------In proceedings for
assessment before the Second Additional Income-tax Officer, City Circle 1,
Madras, it was contended that Sup./65-11 568 the annual value of the building
was not assessable in its hands as the assessee was a charitable institution
within the meaning of s. 4(3) (i) of the Income-tax Act, 1922. In the
alternative, it was contended that the excess of expenditure over income should
be set off against such income if the annual value is held assess,able. The
Incometax Officer rejected the contentions of the assessee and assessed its
income from property on the basis of net annual value in the six assessment
years without debiting the -expenditure in excess of income (other than rent)
against the net annual value.
The assessee appealed to the Appellate
Assistant Commissioner against all the orders of assessments. The Appellate Assistant
Commissioner held that the assessee not being a charitable institution the
income in question was not exempt under s. 4(3) (i). He also rejected the
alternative contention, for in his view, there was no specific profitmaking
activity of the assessee the loss from which could be set off against its other
income.
Appeals were then taken to the Income-tax
Appellate Tribunal. The Tribunal held that the assessee was not exempt within
the meaning of s. 4(3) (i) from liability to pay income-tax, because the
activities of the assessee were intended for the benefit primarily of its
members and "embraced only collective action on behalf of all its
constituent members" which "could not be said to be the result of any
trade or business or vocation carried on by it".
At the instance of the assessee the Tribunal
referred the following questions to the High Court :
"(1) Whether the aforesaid income from
property owned by the assessee is exempt under S. 4 (3) (i) for the aforesaid
six years of assessment ? (2) If the answer to the above question is in the
negative, whether the activities of the assessee amount to a trade or business,
the profit or loss from which is assessable under S. 10 ?" The High Court
answered the first question in the affirmative and did not record a formal
answer on the second question. Against the order of the High Court, these
appeals are preferred by the -Commissioner of Income-tax, with certificate
granted by the High Court under S. 66A (2) of the Indian Income-tax Act.
We are concerned in this group of appeals
with the assessment of income of the assessee in the years 1948-49 to 195455
569 with the omission of the assessment year 1952-53. Between the years 1948-49
to 1952-53 there has been some change in s. 4(3) (i) which before it was
amended by Act 25 of 1953 with effect from April 1, 1952 read as follows :
"Any income, profits or gains falling
within the following classes shall not be included in the total income of the
person receiving them :
(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." By the
last paragraph of sub S. (3) "charitable purpose" was defined as
including relief of the poor, education, medical relief, and the advancement of
any other object of general public utility, but nothing contained in cl. (i) or
cl. (i) or cl.(i.a)or cl. (ii) shall operate to exempt from the provisions of
the Act that part of the income of a private religious trust which does not
enure for the benefit of the public. By the amendment made by S. 3 of the
Indian Income tax (Amendment) Act 25 of 1953, cls. (i) and (i-a) as they
originally stood were amalgamated. It is common ground that by the amendment,
no alteration which has a material bearing on the question to be decided in
these appeals has been made.
Income from property qualifies for exemption
under S. 4(3) (i) if two conditions co-exist (i) the property is held under
trust or other legal obligation; and (ii) it is so held wholly or in part for
religious or charitable purposes-. The building which the assessee owns is by
virtue of cl. 4 of the Memorandum of Association held under a legal obligation
to apply its income to purposes specified in the Memorandum of Association. It
is not the case of the assessee that the objects of incorporation are relief of
the poor, education or medical relief, and the only question canvassed at the
Bar is whether the purposes for which the assessee stands incorporated are
objects of general public utility, within the meaning of the expression
"charitable purpose" in S. 4(3).
The principal objects of the assessee are to
promote and protect trade, commerce and industries and to aid, stimulate and
promote the development of trade, commerce and industries in India or any part
thereof. By the achievement of these objects, it is not intended to serve
merely the interests of the members of 570 the assessee. Advancement or
promotion of trade, commerce and industry leading to economic prosperity enures
for the benefit of the entire community. That prosperity would be shared also
by those who engage in trade, commerce and industry but on that account the purpose
is not rendered any the less an object of general public utility. It may be
remembered that promotion and protection of trade, commerce and industry cannot
be equated with promotion and protection of activities and interests merely of
persons engaged in trade, commerce and industry.
In Commissioners of Inland Revenue v.
Yorkshire Agricultural Society(1) an association called the Yorkshire
Agricultural Society was formed with the object of holding annual meetings for
the exhibition of farming stock, implements etc., and for the general promotion
of agriculture. All prizes were open to competition in the United Kingdom, but
certain privileges were attached to membership of the Society. The income of
the Society was derived from entry fees and gate receipts, local subscriptions
for prizes, interest on investments, and subscriptions of members. It was held
by the Court of Appeal that on the facts found by the Commissioners the Society
was established for a charitable purpose and that purpose continued notwithstanding
the incidental benefits enjoyed by members of the Society; and that those
benefits did not prevent the.
Society from being established for a
"charitable purpose only".
In Halsbury's Laws of England, 3rd Edn., Vol.
4 at p. 236, Art 517, it is stated "An association or institution may
benefit its members in the course of carrying out its main charitable purpose
and this alone will not prevent it from being a charity. It is a question of
fact whether there is so much personal benefit, intellectual or professional,
to the members of a society or body of persons as to be incapable of being
disregarded." In The Institution of Civil Engineers v. The Commissioners
of Inland Revenue (2) it was held that the Institution of Civil Engineers
founded and incorporated by Royal Charter for the general advancement of
mechanical science, and more particularly for promoting the acquisition of that
species of knowledge which constitutes the profession of a civil engineer was a
body of persons established for charitable purposes only. The Special
Commissioners having regard in particular to the provisions of the supplemental
charter of 1922, by which the corporate members (1) [1928] 1 K.B. 611.
(2) 16 T.C. 158.
571 of the Institution were authorised to use
the title of member, or associate member, as the case might be, found that a
substantial part of the objects of the Institution was to benefit the
member-& and rejected the claim of the Institution for exemption. The Court
of King's Bench disagreeing with the Special Commissioners held that the
benefit of members was purely incidental to the main purpose of the Institution
which was established for charitable purposes only. The Court of Appeal found
that the only purpose for which the Institution was established was the
promotion of science and that purpose had never been added to or varied by any
of the supplemental charters : it followed therefore that the Institution was
established for charitable purposes only, notwithstanding that it is of
advantage to a civil engineer in his profession to be a member of the
Institution, this result not being a purpose for which the Institution was
established, but being incidental to and consequent upon the way in which the
Institution carries out the charitable purpose for which alone it was
established.
In the promotion of trade, commerce and
industries of India the public is vitally interested and if by the activities
of the assessee that object is achieved, it would be within the meaning of S.
4(3) (1) of the Act an advancement of an object of general public utility. In
enacting the last paragraph of S. 4(3) the legislature has used language of
great amplitude. "Charitable purpose" includes not only relief of the
poor, education and medical relief alone, but advancement of other objects of
general public utility as well. The clause is intended to serve as a special
definition of the expression "charitable purpose" for the Act : it is
again inclusive and not exhaustive or exclusive.
Even if the object or purpose may not be regarded
as charitable in its popular signification as not tending to give relief to the
poor or .for advancement of education or medical relief, it would still be
included in the expression "charitable purpose" if it advances an
object of general public utility. The expression "object of general public
utility" however is not restricted to objects beneficial to the whole
mankind. An object beneficial to a section of the public is an object of
general public utility. To serve a charitable purpose, it is not necessary that
the object should be to benefit the whole of mankind or even all persons living
in a particular country or Province. It is sufficient if the intention be to
benefit a section of the public as distinguished from specified individuals.
Observations to the contrary made by Beaumont
C.J., in Commissioner of Income-tax Bombay Presi572 dency, Sind and Baluchistan
v. The Grain Merchants' Association of Bombay(1) that "an object of
general public utility means an object of public utility which is available to
the general public as distinct from any section of the public" and that
objects of an association "to benefit works of public utility confined to
a section of the public, i.e.
those interested in commerce" are not
objects of general public utility, do not correctly interpret the expression
"objects of general public utility". The section of the community
sought to be benefited must undoubtedly be sufficiently defined and
identifiable by some common quality of a public or impersonal nature: where
there is no common quality uniting the potential, beneficiaries into a class,
it may not be regarded as valid.
It is true that in this case there is in fact
no trust in respect of the income derived from the building owned by the
assessee. But the property and the income there from is held under a legal
obligation, for by the terms of the permission granted by the Government to the
assessee to exclude from its name the use of the word "limited", and
by the express term,% of cl. 4 of the Memorandum of Association the property
and its income are not liable to be utilised only for the purposes set out in
the Memorandum of Association.
Counsel for the revenue submitted that the
purposes of the assessee are vague and indefinite. He submitted that if a
competent Court were called upon, as it may be called upon to administer the
obligation imposed by the Memorandum of Association, the Court would on account
of vagueness of the objects decline to do so, and therefore the purposes cannot
be regarded as charitable. In the alternative, counsel contended that the
benefit which is contemplated by the Memorandum of Association was not the
benefit to the public generally, but the benefit to its members to carry on
their business more profitably. In the further alternative, relying upon cl.
3(g) of the Memorandum of Association, counsel contended that the objects of
the assessee were political, it being open to the assessee to appropriate the
entire income for political purposes.
But the primary objects of the assessee are
to promote and protect trade, commerce and industries and to aid, stimulate and
promote the development of trade, commerce and industries and to watch over and
protect the general commercial interests of India or any part thereof. These
objects are not vague or indefinite (1) 6 I.T.R. 427.
573 as objects of general public utility. An
object of general public utility, such as promotion, protection, aiding and
stimulation of trade, commerce and industries need not, to be valid specify the
modus or the steps by which the objects may be achieved or secured. It cannot
be said that if called upon to administer an institution of which the objects
are of the nature set out, the Court would decline to do so merely on the
ground that the method by which trade, commerce or industry is to be promoted
or protected, aided or stimulated or the general commercial interests of India
are to be watched over or protected are not specified. Analogy of cases like
Runchordas Vandrawandas v. Parvati Bhai(1) in which the Privy Council declared
a devise under a will in favour of "dharam" void, is misleading. In
that case the devise was declared void, because the expression
"dharam" in the view of the Judicial Committee being law, virtue,
legal or moral duty was too general and too indefinite for the courts to
enforce.
Observations by Lord Simonds in Commissioners
of Inland Revenue v. National Anti-Vivisection Society(2) that "One of the
tests, and a crucial test, whether a trust is charitable lies in the competence
of the Court to control and reform it........... that it is the King as parens
patriae who is the guardian of charity, and that it is the right and duty of
his Attorney-General to intervenue and to inform "the Court if the
trustees of a charitable trust fall short of their duty. So too it is his duty
to assist the Court, if need be, in the formulation of a scheme for the
execution of a charitable trust. But......... is it for a moment to be supposed
that it is the function of the Attorney-General on behalf of the Crown to
intervene and demand that a trust shall be established and administered by the
Court, the object of which is to alter the law in a manner highly prejudicial,
as he and His Majesty's Government may think, to the welfare of -the State
?" do not assist the case of the revenue. In the view of Lord Simonds the
object of the trust was political and, therefore, void, and not because it was
vague or indefinite.
In Baddeley and others (Trustees of the
Newtown Trust) v. Commissioners of Inland Revenue(") certain properties
were conveyed to trustees by two conveyances, in one case on trust, inter alia,
for the promotion of the religious, social and physical well-being of persons
resident in the County Boroughs of West Ham and Leyton by the provision of
facilities for religious (1) L.R. 26 I.A. 71. (2) 28 T.C. 311, 367.
(3) 35 T.C. 661.
574 services and instruction and for the
social and physical training and recreation of such aforementioned persons who
were members or likely to become members of the Methodist Church and of
insufficient means otherwise to enjoy the advantages provided and by promoting
and encouraging all forms of such activities, as were calculated to contribute
to the health and well-being of such persons, and in the other case on similar
trusts omitting reference to religious services and instruction and otherwise
substituting "moral" for "religious". These trusts were, it
was held, not for charitable purposes only. The case arose under the Stamp Act
of 1891, and it was contended that the trusts being charitable stamp duty at a
lower rate was chargeable. The House of Lords held that the trust was not
charitable. It was observed by Lord Simonds that "the moral, social, and
physical well-being of the community or any part of it is a laudable object of
benevolence and philanthropy, but its ambit is far too wide to include purposes
which the law regards as charitable".
These cases have, in our judgment, no bearing
on the interpretation of the language used in the Memorandum of Association of
the assessee.
The argument that it is only for the benefit
of the members or the trading classes in Andhra Desa that the funds of the
assessee could be utilised does not stand scrutiny. It is clear from the
diverse clauses in paragraph 3 of the Memorandum of Association that the
objects were not merely to benefit the members of the assessee or even the
trading community of Andhra Desa. Reliance was placed upon the membership
clause in the Articles of Association and it was submitted that only persons
speaking Telugu language and residing in Andhra Desa [as defined in cl. 1 (s)
of the Articles of Association] could be members. But that argument is wholly
unfounded. By sub-cl. (iii) of cl. 5 a Chamber of Commerce or Trade Association
protecting and promoting Indian trade, commerce and industry is eligible for
election as a member of the Chamber and the representative of such a Chamber of
Commerce or Trade Association need not necessarily be able to speak and write
Telugu. Similarly by sub-cl. (iv) a Company or Corporation having its principal
office or registered office in Andhra Desa or a branch in Andhra Desa is
eligible to become a member in its conventional or corporate name and the
representative of such a Company or Corporation need not necessarily be able to
speak or write Telugu. Again under sub-cl. (v) a Partner of a Firm of a
"Private Partnership Concern" or a Joint Family Business 575 concern,
or a Sole Proprietory concern having its principal office or registered office
in Andhra Desa or a branch in Andhra Desa is eligible for membership of the
Chamber and the representative of such a member need not necessarily be able to
speak or write Telugu. Finally, by sub-cl. (vi) an individual residing anywhere
in India and connected in any manner with trade, industry and commerce is
eligible for membership of the Chamber provided his mother tongue is Telugu or
he can both speak and write Telugu. There is no geographical limitation upon
the membership qualification, nor is there limitation about the capacity to speak
or write Telugu. We should not be taken as holding that if there were such
restrictions, the character of the assessee as an institution for promotion of
charitable objects would thereby be necessarily effected.
Clause 3(g) of the Memorandum of Association
on which strong reliance was placed reads as follows :
"To urge or oppose legislative and other
measures affecting trade, commerce or manufactures and to procure change of law
and practice affecting trade, commerce and manufactures and in particular those
affecting trade, commerce and industries in which Andhras are concerned and
obtain by all acknowledged means the removal, as far as possible, of all
grievances affecting merchants as a body and mercantile interests in
general." But cl. 3(g) is not the primary object of the assessee : it is
merely incidental to the primary objects of promotion or protection of trade,
commerce and industries, or to aid, stimulate and promote the development of
trade, commerce and industries or to watch over and protect the general
commercial interests.
The expression "object of general public
utility" in s. 4(3) would prima facie include all objects which promote
the welfare of the general public. It cannot be said that merely a purpose
would cease to be charitable even if public welfare is intended to be served
thereby if it includes the taking of steps to urge or oppose legislation
affecting trade, commerce or manufacture. If the primary purpose be advancement
of objects of general public utility, it would remain charitable even if an
incidental entry into the political domain for achieving that purpose e.g.
promotion of or opposition to legislation concerning that purpose, is
contemplated. In In re The Trustees of the Tribune(1) the (1) 7 I.T.R. 415.
576 Judicial Committee of the Privy Council
was called upon to consider whether a trust created under a will to maintain a
printing press and newspaper in an efficient condition, and to keep up the
liberal policy of the newspaper, devoting the surplus income of the press and
newspaper after defraying all current expenses in improving the newspaper and
placing it on a footing of permanency and further providing that in case the
paper ceased to function or for any other reason the surplus of the income
could not be applied to the object mentioned above, the same should be applied
for the maintenance of a college which had been established out of the funds of
another trust created by the same testator, was a charitable purpose within the
meaning of S. 4(3). The Judicial Committee expressed the view that the object
of the settler was to supply the province with an organ of educated public
opinion and this was prima facie an object of general public utility, and
observed "These English decisions-are in point in so far only as they
illustrate the manner in which political objects, in the wide sense which
includes projects for legislation in the interests of particular causes, affect
the question whether the Court can regard a trust as being one of general
public utility. In the original letter of reference it was not suggested by the
Commissioner that the newspaper was intended by its founder to be a mere
vehicle of political propaganda, and in the case of Sardar Dyal Singh it seems
unreasonable to doubt that his object was to benefit the people of Upper India
by providing them with an English newspaper-the dissemination of news and the
ventilation of opinion upon all matters of public interest.
While not perhaps impossible it is difficult
for a newspaper to avoid having or acquiring a particular political complexion
unless indeed it avoids all reference to the activities of Governments or
legislatures or treats of them in an eclectic or inconsistent manner. The
circumstances of Upper India in the last decade of the nineteenth century would
doubtless make any paper published for Indian readers sympathetic to various
movements for social and political reform. But their Lordships having before
them material which shows the character of the newspaper as it was in fact
conducted in the testator's lifetime, have arrived at the conclusion that
questions of politics and legislation 577 were discussed only as many other
matters were in this paper discussed and that it is not made out that a
political purpose was the dominant purpose of the trust." In All India
Spinners' Association v. Commissioner of Income tax, Bombay(1) the assessee was
formed as an unregistered association by a resolution of the All India Congress
Committee for the development of village industry of hand-spinning and hand-weaving.
The Association was established as an integral part of the Congress
Organisation, but it had independent existence and powers unaffected and
uncontrolled by politics. The objects of the Association, amongst others, were
to give financial assistance to khaddar organisations by way of loans, gifts or
bounties, to help or establish schools or institutions where handspinning is
taught, to help and open khaddar stores, to establish a khaddar service, to act
as agency on behalf of the Congress to receive self-spun yarn as subscription
to the Congress and to issue certificates and to do all the things that may be
considered necessary for the furtherance of its objects, with power to make
regulations for the conduct of affairs of the Association of the Council and to
make such amendments in the present constitution, as may be considered from
time to time. The funds of the Association consisted mostly of donations and
subscriptions, and out of the funds charkas and handlooms were purchased and
supplied to the inhabitants free of charge. Raw cotton was supplied to the poor
people to be spun into yarn and the yam so spun along with the yam acquired by
the Association were supplied to other poor people for hand-weaving. The income
of the Association was treated by the Commissioner of Income tax as not exempt
under s. 4(3) (i) of the Indian Income-tax Act inasmuch as (i) the dominant
purpose of the Association was political, (ii) even assuming it was not
political, the dominant purpose was not in any event a valid charitable purpose
in law, and (iii) some of the objects were not clearly charitable objects.
The Judicial Committee held that the income
of the Association was derived from property held under trust or other legal
obligation wholly for charitable purposes and the English decisions on the law
of charities not based upon any definite and precise statutory provisions were
not helpful in construing the provisions of S. 4(3) (i) of the Indian
Income-tax Act. The words of S. 4(3) were largely influenced by Lord Macnaghten's
definition of charity in Pemsel v. Commissioners for Special Purposes of
Income-Tax (2) , but that definition had no statutory (1) 12 I.T.R. 482. (2)
[1891] A.C. 53 578 authority and was not precisely followed in the most
material particulars; the words of the section being "for the advancement
of any other object of general public utility" and not as Lord Macnaghten
said "other purposes beneficial to the community". The Judicial
Committee observed that the primary object of the Association was relief of the
poor and apart from that ground there was good ground for holding that the
purposes of the Association included advancement of other purposes of general
public utility. The Judicial Committee then held :
"These words, their Lordships think, would
exclude the object of private gain, such as an undertaking for commercial
profit though all the same it would sub-, serve general public utility. But
private profit was eliminated in this case. Though the connation in one sense
of the Association with Congress was relied on as not consistent with 'general
public utility' because it might be for the advancement primarily of a
particular party, it is sufficiently clear in this case that the Association's
purposes were independent of and were not affected by the purposes or
propaganda of Congress." The Indian legislature has evolved a definition
of the expression "charitable purpose" which departs in its material
clause from the definition judicially supplied in Pemsel's case(1), and
decisions of English Courts, which proceed upon interpretation of language
different from the Indian statute have little value. We, therefore, do not
propose to deal with the large number of English cases cited at the Bar, except
to mention three, which declared trusts for political purposes invalid.
In Rex v. The Special Commissioners of
Income-tax (ex-parte The Headmasters' Conference) and Rex v. The Special Commissioners
of Income Tax (ex-parte) The Incorporated Association of Preparatory School(1)
it was held that a conference of Headmasters incorporated under the Companies
Act as an Association limited by guarantee, of which under the Memorandum of
Association income was to be applied towards the promotion of its expressed
objects, one of which was the promotion of or opposition to, legislative or
administrative educational measures, the holding of examinations, etc. was not
a body of persons established for charitable purposes only within the meaning
of the Income Tax Acts. Similarly an incorporated Association of Preparatory
Schools incorporated under the Companies Act as an Association limited by
guarantee, income (1) [1891] A.C. 531.
(2) 10 T.C. 73 579 whereof was to be applied
solely towards the promotion of its expressed objects which included the
advancement and promotion of, or opposition to, legislative or administrative
educational measures etc. was not an association whose income was applicable to
charitable purposes only. The Court of King's Bench held in the case of each of
the two trusts that because the income could be utilised for promotion of, or
opposition to, legislative or administrative educational measures, and those
being the primary objects, the income was not liable to be applied solely to
charitable purposes.
In The Commissioners of Inland Revenue v. The
Temperance Council of the Christian Churches of England and Wales (1) a Council
constituted by resolution at a meeting of representatives of the temperance
Organisation of the Christian Churches of England and Wales, the purpose of
which being united action to secure legislative and other temperance reform was
held not to be a council established for charitable purposes only, nor was its
income applicable to charitable purposes only, and that it was therefore not
entitled to the exemption sought.
In Bowman v. Secular Society Ltd.(2) Lord
Parker observed:
"A trust for the attainment of political
objects has always been held invalid, not because it is illegal but because the
Court has no means of judging whether a proposed change -in the law will or
will not be for the public benefit." This Court in a recent judgment,
Laxman Balwant Bhopatkar by Dr. Dhananjaya Ramchandra Gadgil v. Charity
Commissioner, Bombay (3) considered whether for the purposes of the Bombay
Public Trust Act 29 of 1950 a trust to educate public opinion and to make
people conscious of political rights was a trust for a charitable purpose. The
Court held (Subba Rao J., dissenting) that the object for which the trust was
founded was political, and political purpose being not a charitable purpose did
not come within the meaning of the expression "for the advancement of any
other object of general public utility" in S. 9(4) of the Bombay Public
Trusts Act, 1950. The definition of "Charitable purpose" in s. 9 of
the Bombay Public Trusts Act closely follows the language used in the
definition given under the Income-tax Act s. 4(3). But in Laxman Balwant
Bhopatkar's case(1), as in the cases of the Courts in England which we (1) 10
T.C. 748. (2) [1917] A.C. 406, 442.
(3) [1963] 2 S.C.R. 625.
580 have referred to, it was held that the
primary or the principal object was political and therefore the trust was not
charitable. In the present case the primary purpose of the assessee was not to
urge or oppose legislative and other measures affecting trade, commerce or
manufactures. The primary purpose of the assessee is, as we have already
observed, to promote and protect trade, ,commerce and industries to aid,
stimulate and promote the development of trade, commerce and industries and to
watch over and protect the general commercial interests of India or any Part thereof. It is only for the purpose of securing these primary aims that
it was one of the objects mentioned in the Memorandum of Association that the
assessee may take steps to urge or oppose legislative or other measures
affecting trade, commerce or manufactures. Such an object must be regarded as
purely ancillary or subsidiary and not the primary object. The appeals
therefore fail and are dismissed with costs.
One hearing fee.
Appeals dismissed.
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