Indian Chambers of Commerce Vs.
C.I.T., West Bengal II, Calcutta  INSC 216 (17 September 1975)
FAZALALI, SYED MURTAZA
CITATION: 1976 AIR 348 1976 SCR (1) 830 1976
SCC (1) 324
F 1976 SC1016 (13) RF 1977 SC2211 (13) RF
1978 SC1443 (8) O 1980 SC 387 (12,13,18,22,42,47,49) RF 1981 SC1408 (9,10) R
1981 SC1922 (8)
Income Tax Act (43 of 1961 ), s.2
(xv)-Charitable purposes scope of Burden of proof--Activity for profit what is.
Under the Income-tax Act 1961 one of the
items not included in the total income of an assessee for purposes of tax is
under s.11 income derived from property held under trust wholly for charitable
Charitable purpose is defined in s.2 (xv). Chambers
of commerce, promoting the trade interest of the commercial community, have
been regarded as pursuing charitable purposes within the meaning of s.2 (xv).
But under cover of charitable purposes C' they have been indulging in various
activities, and deriving tax free profit. Therefore, s. 2 (xv) was amended by
adding a clause at the end. Under the amended definition, unless the context`
otherwise requires, charitable purpose includes the advancement of any object
of general public utility not involving the carrying on of any activity for
HELD: The income of the assesses, which are
chambers of commerce, from three sources, namely, (a) arbitration fees levied
by them; (b) fees collected for issuing certificates of origin; and (c) share
of profit in another company for issue of certificates of weighment and
measurement, which services are extended to members and non-members. that is,
to be trade generally, is not entitled to the exemption, and is liable to
tax.[845E-G] (1) The test is to ask for answers to the following questions:-(a)
Is the object of the assessee one of general public utility; (b) Does the
advancement of the object involve activities bringing in money? (c) If so, are
such activities undertaken (1) for profit or (ii) without profit. Even if' (a)
and (b) are answered affirmatively, if (c) (1) is also answered affirmatively
the claim for exemption collapses. [844B-C] (2) Section 2 (xv) must be
interpreted in such a manner that every word is given a meaning and not to
treat any expression as redundant or miss the accent of the amendatory phrase.
So viewed, an institution which carries out charitable purposes out of income
'derived from property held under trust wholly for charitable purposes' may
still forfeit the claim to exemption in respect of such takings or incomes as
may come to it from pursuing any activity for profit. By the new definition the
benefit of exclusion from total income is taken away where, in accomplishing a
charitable purpose, the institution engages itself in activities for profit If'
it wants immunity from taxation the means of fulfilling charitable purposes
must be unsullied by profit-making ventures. The advancement of the object of
general public utility must not involve the carrying on of any activity for profit.
otherwise, it will lead to the absurd conclusion that a Chamber of Commerce may
run a printing press, advertisement business, market exploration activity or
even export promotion business and levy huge sums from its customer whether
they are members of the organisation or not and still claim a blanket exemption
from tax on the score that the objects of general public utility which it had
set forth for itself implied these activities even though profits or surpluses
may arise therefrom. If it runs special types of services for the benefit of
manufacturers and charges remuneration from them. it us undoubtedly an activity
which. if carried on by private agencies, would be taxable. and there is no
reason why a Chamber of Commerce should be exempt. The policy of the statute is
to give tax relief for charitable purposes. An undertaking by a business
organisation is ordinarily assumed to be for profit unless expressly or by
necessary implication. Or by eloquent surrounding circumstances the making of'
profit stands clearly negatived. For example.
if' there is a restructure provision in the
bye-laws which insists that the charges levied for services of public utility
rendered are to be on a 'no profit' basis, that is, that it shall not charge
more 831 than is actually needed for the rendering of the services then it
earns the benefit of s.2(xv). It may not be an exact equivalent such
mathematical precision being impossible in such case and there may be little
surplus at the end of the year; but the broad inhibition against making profit
is a good guarantee that the carrying on of the activity is not for
profit.[839F-840D. G-841C] (3) The answer to the question whether an activity
is one for or not for profit depends on the facts. An activity which yields
profit or gain in the ordinary course must be presumed to have been done for
profit or gain There may be activities, where` without intent or purpose the
activity may yield profit. Even then it may legitimately be said that the
activity is for profit in the sense that it is ` appropriate or adapted to such
profit. [844C E-F] (4) If The activity is prone to yielding income and in fact
results in profit the Revenue will examine the reality or pretence of the
condition that the activity is not for profit But; if the broad basis that the
activity is not for profit is made out, by the assessee, the Revenue will not
be meticulous and charge every chance excess or random surplus.
[844G-845A] (5) The assesses contention that
the Revenue should only look at the dominant intent or real object of the
assessee and that if its activity is wrapped up entangled or intertwined with a
public utility object then any incidental profit arising from it is not
taxable. does not afford a valid or satisfactory test. [841D-F.] (6) Equally The
contention of the Revenue that all activities which are prone to produce
profits should be excluded is not correct. [840E-F] (7) In the present case the
issuance of weighment and measurement certificates the issuance of certificates
of origin and the settlement of disputes by arbitration are great facilities
for trader of general public utility. There is however nothing in the
memorandum or articles of association of the assesses which provides for only
nominal fees and sets a limit on making large profits from the services.
[845B-E G-H] Loka Shikshana Trust v. C.I.T. Mysore  1 S.C.R:
471. C.I.T. v. Andhra Chamber of Commerce
 55 I.T.R.
C.I.T. v. Dharmodayam Co.  94 L.T.R.
ARGUMENTS For the appellant l. The primary or
dominant or real objects of the Indian Chamber Of Commerce are to promote
protect, aid and stimulate trade, commerce and industry in India. (Clause 3 of
the Memorandum of Association). The Income received was to be applied solely
for the promotion of the objects and upon dissolution no property was to be
paid or distributed among the members but was to be given or transferred to
some other institution having similar objects. (Clauses 4 and 8 of the
Memorandum of Association). It is well settled that These objects which lead to
economic prosperity and enure for the benefit of the entire community are
objects of general public utility and as such as charitable.
See  SC 55 ITR 722 Commissioner of
Income tax v. Andhra Chamber of Commerce.
2. The Indian Chamber of Commerce provides
inter alia for arbitration facilities so that trade disputes may be speedily
and efficiently settled. It further provides for certificates of origin and
certificates of weighment and measurement to be issued under the Commercial
Documents Evidence Act, 1939 under Entry 18 Part I and Entry 6 Part II of the
Schedule to the said Act respectively These certificates can only be issued by
certain bodies such as recognised chambers of commerce. The certificates are
necessary for facilitating trade.
5-L1127SCI/75 832 The carrying on of the
activities of granting certificate of origin and/or weighment and measurement
and arbitration are not activities for profit hut are in he nature of services
and/or facilities provided to the commercial community. As fees are charged the
result at the end of the year is sometimes a loss and on times surplus. The
dominant purpose for these service is not profit making but rendering a
statutory service for trade and commerce generally. The services cannot be
gratuitous as the Chamber cannot be expected to be a charitable institution
like as Dharamsala.
The fees charged are related to the services
rendered by way of quid pro quo. Quid pro quo does not mean an equivalent
mathematically. If incidental to the advancement of the objects of general
public utility some services are rendered for fees as a result of which income
results it does not means that the objects of the Chamber involves carrying on
Any activity for profit in the sense of that being.. the dominent object. The
dominant or real purpose is not to earn profit or income but to serve trade and
help the commercial community. As such the above mentioned activities carried on
by the Chamber will not be activities for profit. involving in the dominant
object of the Chamber. In order to be activities for profit the involvement of
profit making should be by the object and must be of such a degree or to such
an extent as to lead to the influence that profit making is the real object.
Since the real or dominant objects of the Chamber are not for profit and profit
is not an essential ingredient but a mere bye-product of the activities of the
Chamber. The income must be held to be exempt under S. 11(1) d with S. 2(15) of
See  1 S.C.R. 471 The Sole Trustee Loka
Shikshana Trust v. Commissioner of Income-tax, Mysore.
3. The purpose and/or dominant object must be
distinguished from the powers which are incidental to the carrying out of the
objects of The Trust.
See 27 ITR 279-Commissioner of Income-tax v.
Breach Candy Swimming Bath Trust.
 Appeal Cases 514 Cotman v. Brougham
 1 Ch. 199.
4. Under S. 2(15) of the Act the words
carrying on of any activity for profit must mean an activity whose dominant
object is profit making and not an activity which may incidentally result in
some profit as a bye-product. Of this meaning is not given then there. will be
no activity of any institution doing work of general public utility which will
he exempt including activities like those of All India Spinners Association.
5. If the primary and dominant purpose is
charitable then even if there are some incidental powers which are not
charitable it will not prevent the trust from being a valid charity. The
intention will have to be gleaned from the Constitution of the Trust or the
Memorandum of Association.
See 7 ITR 415-In Re: Trustees of The Tribune.
12 ITR 482 All India Spinners Association v. Commissioner
of Income tax 55 ITR 722-Commissioner of Income-tax v. And/1/a Chamber of
Commerce 100 ITR 392 Andhra Pradesh State Transport Corporation v. Commissioner
of Income tax.
6. Under Section 11 of the Income-tax Act
1961 it is the income derived from property held under trust wholly for
charitable purposes which is not to be included in the total income. The word
property is . Of wide import and can include a business or an undertaking or
fees and restaurant charges etc.
12 ITR 482 All India Spinners Association v.
Commissioner of Income 833 27 ITR
279-Commissioner of Income-tax, Bombay City v. Breach Candy Swimming Bath
32 ITR 535-J K Trust, Bombay v. Commissioner
of Income-tax, Excess profit Tax, Bombay.
53 ITR 176-Commissioner of Income-tax, Kerala
& Coimbatore v. P. Krishna Warriar.
7 In any event the activities of arbitration
and granting certificates of origin and weighment and/or measurement are not
activities "for profit".
80 ITR 645-Commissioner of Income-tax, Kerala
v Indian Chamber of Commerce.
87 ITR 83- Commissioner of Income-tax v.
Kochin Chamber of Commerce.
 40 Taxation (III) 15-Commissioner of
Income tax Kerala v. Ernakulam Chamber of Commerce.
As such the Chamber is entitled to exemption
under section 11 read with 2(15) of the Income-tax Act.
For the Respondent
1. The Appellant Chamber of commerce was
deriving income by performing three kinds of services namely providing
arbitration facilities for standard weights and measurements to traders in
general. This was in furtherance of its objects clause 2(a); 2(b); 2(c); 2(d);
3(i); 3(p); 2(q); 3(v) The performance of
such services for remuneration clearly was an activity for profit and the said
activity was closely linked with. Or involved with the advancement of the
aforesaid objects of the Chamber. Such close linking and involvement by itself
rendered the object non-charitable within the meaning of s. 2 (15) of the
Income-tax Act 1961.
2. If the Chamber of Commerce performed the
same kind of services for it members for remuneration the income so derived was
certainly liable to tax under s. 28(iii) of the Income-tax Act, 1961. The
position became worse if the income was so derived by rendering such services
to non member traders in general.
3. It was assumed by the Tribunal and by the
High Court for which there was no warrant that the income from the said three
sources was income derived from property held under trust and the case
proceeded on such assumption although the High Court doubted the validity of
such an assumption as is clear from the text of their judgment at pp. 76-77 of
the Paper Book. The High Court. therefore proceeded to consider only whether
the production of the income from the aforesaid three sources was involved with
the advancement of any object of general public utility. The Tribunal had held
that such income was derived by carrying out the ancillary object of the Trust
and not the main object although it found as a fact that the income was deriv d
from; carrying on an activity for profit. The High Court did not recognise such
distinction and it was urged that the High
Court was right.
4. No valid reason could be found for making
a distinction between any individual or any association of persons on the one
hand, and the appellant on the other hand in respect of producing taxable
income by carrying on identical activities for profit. It was beyond any doubt
that ii an Individual or an association of persons had carried on similar
activities from profit they would not be entitled to any exemption from tax. The
appellant therefore could not be placed at a better level especially when the
words of Statute themselves had debarred it from getting the exemption. Prior
to the introduction of the qualifying clause in s. 2(15) of the Current Act
such bodies or 834 Organisations were undoubtedly enjoying exemption by virtue
of the repealed Indian Income-tax Act of 1922. The Legislature clearly intended
to remove this unreasonable distinction by adding the qualifying clause as it
is found in s. 2(15) of the Income-tax Act, 1961. The effect of such amendment
of the definition was that the institutions otherwise regarded as charitable
trusts have now been placed at par with any private organisation or individual
who would render the same kind of services to the public for profit.
5. Unless the memorandum or articles
governing a Trust or any Institution prohibated the making of profit by
carrying on any activity or the earning of the profits was not ruled out and in
fact profit resulted, the Court would assume that the activity was carried on
for profit. In support of this the Revenue counsel relied upon the judgment of
the Supreme Court recently delivered in the case of Sole Trustee Loke Shikshana
Trust  1 S.C.R. 471.
There was no such prohibition in the
regulations governing the activities of the Indian Chamber of Commerce and
therefore its case fell squarely within the principles valid by the Supreme
Court in the case of Loke Shikshana Trust.
6. In order that an activity might be called
a business activity or any other activity for profit it was not necessary to
show that it was an organised activity or that it was indulged in with a motive
on making profit. it was well established that it was not the motive of a
person doing in act which decided whether the act done by him was carrying on
an activity for profit . If any activity.
business of otherwise in fact produced an
income that was taxable income and was none the less so because it was carried
on without the motive of producing an income.
Reference was invited in this connection to
the observations o the Supreme Court in the case of P. Krishna Menon v. Commissioner
of Income-tax, Mysore (35 I.T.R.-p. 48).
7. Even in the ease of classical charities
such as promotion of education and giving of medical relief no exemption is
available if these two activities of charitable nature are carried on for
purposes of profit. A fortiori, the exemption will be denied in the case of
advancement of an object of general public utility howsoever charitable it may
otherwise be regarded in character if the advancement involved the carrying on
an activity for profit. The intention of Legislature was fully vindicated in
the language employed ins. 2(15) of the Act.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 2129 of 1970.
From the Judgment and order dated the 29th
May, 1970 of the Calcutta High Court in Income Tax Reference No. I of 1967 and
Civil Appeals Nos. 2455-2457 of 1972 Appeals by Special Leave from the judgment
and order dated the 25th February, 1972 of the Kerala High Court in Income Tax
Reference Nos. 9, to and 11 of 1970.
A. K. Sen, Mrs. Leila Seth, o. P. Khaitalz
and B. P Maheshwari for the appellant in C.A. No. 2129 of 1970.
G. C. Sharma, B. B. Ahuja and S. P. Nayar for
the respondents in C.A. 2129 of 1970.
J. Ramamurthy and D. N. Gupta for intervener
No. I, in C.A. No. 2129 of 1970.
A. K. Sen and D. N. Gupta for Intervener No.
2 in C.A.
No. 2129 of 1970.
835 J. Ramamurthi and D. N. Gupta for
Intervener No.3 in C.A. No. 2129 of 1970.
G. C. Sharma B. B. Ahuja and S. P. Nayar for
the appellants in C.AS. NOS.2455-2457/72.
A K Sen and D. N. Gupta for respondent in
C.As. Nos. 2455- 57/72.
The Judgment of the Court was delivered by
KRISHNA IYER, J. These four appeals raise but one question, turning on the
meaning of charitable purpose', as defined in s. 2(15) of` the Income Tax Act,
1961 (Act No.
XLIII of 1961) (for short. the Act) . They
may be disposed of by one common judgment, although the two High Courts
(Calcutta and Kerala) from where the appeals have come have taken contrary
views on the single point in issue.
What are the words set for earning exemption
by a combined application of s. 11(1) read with s. 2(15) of the Act? What is
the para meter of the legal concept of charitable purpose ? Are the triune activities,
which have yielded income and have been assessed to tax, eligible for exemption
as falling within the scope of s. 2(15) as it now stands ? These points of law,
in the conspectus of facts presented in the case, have been argued in the light
of conflicting decisions of the High Courts and illumined in part by a very
recent pronouncement of this Court in Loka Shikshana Trust v. C.I.T..,
Mysore.(1) The assesses are the Indian Chambers of Commerce and the Cochin
Chambers of Commerce. their memoranda and articles of association are
substantially similar and so the facts in the first case alone need be slated
and the question of law discussed with reference to that case only. Hardly any
distinction on facts or law which desiderata a separate consideration exists.
The Indian Chamber of Commerce is a company
registered under s. 26 of the Indian Companies Act, 1913. Its memorandum and
articles of association spell out the broad objects and there is no doubt that
they fall within the sweep of the expression 'the advancement of any . . .
Object of general public utility' as set down in s. 2 (15) of the Act. Briefly
put, they are primarily promotional and protective of Indian trade interests
and other allied service operations. A general concluding clause authorizes it
'to do all other things as may be Conducive to the development o trade,
commerce and industries or incidental to attainment of the above objects or any
of them'. It is clear from clauses 4 and 8 of the Memorandum of Association
that the Members of the Chamber do not and cannot stand to gain personally
since no portion of 'income and property of the association' shall be paid . .
. directly or indirectly, by way of dividend or bonus or otherwise howsoever by
way of profit to the persons who at any time are . . . Members of the
Association . . . '. Even on the dissolution of the Association the Members
cannot claim any share in the assets. These highlight the fundamental fact that
the Chamber, by and large, strives to advance the general trade interests of
India and Indians without  1 S.C.R. 471 836 seeking to make profits for
its Members. In the light of this Court's decision in C.I.T v., Andhra Chamber
of Commerce(1) one may readily state that the Chambers advance objects of
general public utility and, prima facie more into the exclusionary area of
charitable purpose. However, the bone of contention in this case is as to
whether the three source of income, viz., (a) arbitration fees levied by the
Chamber; (b) fees collected for the certificates of origin;
and (c) share of profit in M/s. Calcutta
Licensed Measures for issue of certificates of weighment and Measurement fall
within the exclusion. It may be mentioned that all these three services were
extended to Members and non-Members or, rather, to the trade generally. Had the
law bearing on 'charitable purpose' been what it was prior to 1961, the Chamber
would have won hands down may be. But then there is a significant change in the
definition of 'charitable purpose' by the addition of nine new words which cut
back on the amplitude of the expression in the prior Act. The straight question
to be answered here is whether in plain English the their activities which have
yielded profits to the chamber involve 'the carrying on of any activity for
profit', uncomplicated by casuistic, nicetics, semantic nuances and case-law
conflicts. Unfortunately, legislative simplicity has not been accomplished by
the draftsman in the amended definition and, consequently, interpretative
complexity persists. The Judges of the Andhra Pradesh High Court in A. P. State
Road Transport Corporation v. C.I.T.(2) observed, while considering the import
of s. 2(15) of the 1961 Act:
"It is one of the fundamental principles
in legislation and the drafting of statutes that the provisions contained
therein should be clear and cogent and, more so, with regard to the fiscal
statutes which impose a burden on the public. But, in this case, what we find
is that the amendment, instead of being clear and cogent, is complicated and
courts have taken different views in interpreting the same." We dare say
that achieving greater simplicity and clarity in statute law will be taken up
by the draftsmen of the legislative bills to avoid playing linguistic games in
Court and promotion of interpretative litigation Lawyers and legislators must
stop confusing each other and start talking to their real audience the
people-so that communication problems may not lead to prolific forensic
battles. We must confess to having been hard put to it to get at the controlling
distinction between activities which fall on one side or the other of
'charitable purpose'. The assesses the Indian Chamber of Commerce,, was
assessed for the accounting year 1963-64 on the income which arose from the
three heads of arbitration fees, fees for certificates of origin and the share
of profits in the firm M/s. Calcutta Licensed Measurers which issued weighment
and measurement certificates charging a fee therefore the return for the
assessment year showed a profit of Rs. 1,58,690/- made up of a small amount
from arbitration fees, and a similar sum from fees for issue of certificates of
origin but a substantial sum by way of share of income from the fees charged
for weighment and measurement. Although the Income-tax officer repelled the claim
OF (1)  55 I.T.R. 722. (2)  100 I.T.R.
837 charitable purpose' on the view that
these activities were for profit the Appellate Tribunal took a contrary view
reversing the concurrent findings of the Income-tax officer and the Appellate
Assistant Commissioner. The conclusion of the Tribunal was that s. 2(15)
applied but the High Court on a reference under s. 256(1) of the Act, answered
the question in favour of the Revenue.
We have indicated earlier that the various
High Courts have taken contrary views. Kerala has consistently held on facts
substantially identical that s. 2(15) is attracted.
Andhra Pradesh has concurred, while Calcutta
and Mysore have ranged themselves on the opposite side. A recent decision of
this Court earlier mentioned has given some telling guidelines although the
precise facet pressed before us may not be said to have been wholly covered by
The scheme of the Act may be briefly
indicated to the extent it is relevant, before entering on the discussion.
'Income' is taxable, but certain incomes
shall not be included in the total incomes of the previous years of the person
in receipt of the income. Section 11 excludes from the computation income
derived from property held under trust wholly for charitable purpose. The
Chamber of Commerce is a trade association which renders specific services to
its members and therefore s. 28 will ordinarily apply to its income, unless s.
11 read with s. 2(15) excludes it from taxability. The income drawn from non
members by the Chamber will clearly be taxable unless s. 2(15) comes to its
Thus the pivotal issue is as to whether the
three channel of income may be treated as charitable purposes and therefore
eschewed by s. 11 from the charging provision.
At this stage we may read s. 2(15):
"2(15) In this Act, unless the context
otherwise requires, charitable purpose' includes relief of the poor, education
medical relief, and the advancement of any other object of general public
utility not involving the carrying on of any activity for profit.' The obvious
change as between the old and the new definitions is the exclusionary provision
introduced in the last few words. The history which compelled this definitional
modification was the abuse to which the charitable disposition of the statute
to charitable purposes was subjected by exploiting businessmen. You create a
charity, earn exemption from the taxing provision and run big industries
virtually enjoying the profits with a seeming veneer of charity a situation
which exeuscitated Parliament and constrained it to engraft a clause
deprivatory of the exemption if the institution fulfilling charitable purposes
undertook activities for profit and thus sought to hoodwink the statute. The
Finance Minister's speech in the House explicates the reason for the
restrictive condition. He stated in the House;(l) (1) Lok Sabha Dabates,
Vol.LVl.1961, p.3073 (Aug.18,1961) 838 The definition of 'charitable purpose in
that clause is it present so widely worded that it can be taken advantage of
even by commercial concerns which, while ostensibly serving a public purpose,
get fully paid for the benefits provided by them, namely, the newspaper
industry which while running its concern on commercial lines can claim that by
circulating newspapers it was improving the general knowledge of the public. In
order to prevent the misuse of this definition in such cases, the Select
Committee felt that the words 'not involving the carrying on or and activity
for profit' should be added to the definition.
Beg J., in Lok Shikshana Trust (supra) has
adverted to this statement as throwing light on the new provision. The evil
sought to be abolished is thus clear. The interpretation of the provision must
naturally fall in line with the advancement of the object. Of course, there are
borderline cases where it becomes difficult to decide at first sight whether
the undertaking which yields profit is a deceptive device or a bonafide
adventure which results in nominal surplus although substantially intended only
to advance the charitable object.
Chambers of Commerce dot this country and, by
and large, they have the same complex of objects. They exist to promote the
trading interests of the Commercial community and, after the Andhra Chamber of
Commerce Case (supra) have been regarded as pursuing charitable purposes. This
expression, defined in s. 2(15), is a term of art and embraces objects of
general public utility. But, under cover of charitable purposes, a crop of
camouflaged organisations sprung up. The mask was charitable, but the heart was
hunger for tax free profit. When Parliament found this dubious growth of
charitable chameleons, the definition in s. 2(15) was altered to suppress the
mischief by qualifying the broad object of 'general 'public utility' with the additive
'not involving the carrying on of any activity for profit'. The core of the
dispute before us is whether this intentional addition of a 'cut back' clause
expels the Chamber from the tax exemption zone in respect of the triune profit
fetching sub-enterprises undertakes by way of service or facility for the
The rival constructions put forward by
counsel at the bar may now be noticed. Shri A. K. Sen's argument for the
Chamber is that the controlling distinction between what is 'charitable
purpose' and what is not lies in discovering the dominant intent as
distinguished from the subsidiary consequence, the principal object" not
the incidental inflow, the profit motive of the operation as against the
service oriented activity which may or may not en passant yield an income His
stress, a la the Kerala cases, is on whether the activity is wrapped up,
entangled and intertwined with the public utility object. If it is, the
resultant surplus is not an exigible income. Such, certainly, are the passwords
and touch-stones used in several Kerala decisions. If this be the parameter, he
argues, the three activities are saved because 839 they render service, promote
trade and facilitate the wheels of business to move. They do not form
activities for making profit; they are in fulfillment of the objects of the
Shri Sharma for the Revenue reads into the
amended definition a total exclusion from the charmed circle of charitable
purposes all activities which are prone to produce profits. The telling test,
according to this view, is to see that the means, like the ends, are
charitable, untainted by gainful stimulus and purged of the potential for
profit in reality By this canon the Chamber's desire to serve businessmen by
offering arbitral or certificate facilities in return for a price is prima,
facie an 'activity for profit' unless the circumstances, express or necessarily
implicit eloquently proclaim a 'no profit' foundation for the undertaking. The
linkage is not between object of public utility and the challenged activity but
between the methodology adopted for the advancement of such objects and
proneness for profit flowing from such method or activity. If this standpoint
be sound, the three services which have yielded profits, although wrapped in,
entangled or inter-twined with the object of promoting trade interests, are
still liable to tax, there being no visible limitation on the revenues that Any
arise from them and these precise activities could be carried on by private
individuals for profit The legal break-through lies along a realistic line of
reasoning taking care to avoid the extreme position of Shri Sharma which will
render the last limb of s. 2(15) illusory or ineffectual and as serviceable for
tax exemption of charities as the appendix to the human physiology. In our view
the key to the problem is furnished not merely by a careful ,. Took at the
history of the evil and the Parliamentary debate at least the Finance
Minister's speech on the new change but the language of s. 2(15) itself read in
the light of the guidelines in Lok Shikshana Trust (supra) .
Taking a close-up of s. 2(15) with special
emphasis on the last concluding words, we have to interpret 'charitable
purpose' in such manner that we do not burke any word, treat any expression as
redundant or miss the accent of the amendatory phrase. So viewed, an
institution which carries out charitable purpose out of income 'derived from
property held under trust wholly for charitable purposes' may still forfeit the
claim to exemption in respect of such takings or incomes as may come to it from
pursuing any activity for profit. Notwithstanding the possibility of obscurity
and of dual meanings when the emphasis is shifted from 'advancement' to
'object' used in s. 2(15), we are clear in our minds that by the new definition
the benefit of exclusion from total income is taken away where in accomplishing
a charitable purpose the institution engages itself in activities for profit.
The Calcutta decisions are right in linking; activities for profit with
advancement of the object. If you want immunity from taxation, your means of
fulfilling charitable purposes must be unsullied by profit making ventures. The
11 advancement of the object of general public utility must not involve the
carrying on of any activity for profit If it does, you forfeit. The Kerala
decisions fall into the fallacy of emphasizing the linkage between the objects
of public utility and the activity carried on.
840 According to that view,. whatever the
activity, if it is intertwined with, A wrapped in or entangled with the object
of charitable purpose even if profit results therefrom, the immunity from
taxation is still available. This will result in absurd conclusions. Let us
take this very case of a Chamber of Commerce which strives to promote the
general interests of the trading community. If it runs certain special types of
services for the benefit of manufacturers and charges remuneration from them,
it is undoubtedly an activity which, if carried on by private agencies, would
be taxable. Why should the Chamber be granted exemption for making income by
methods which in the hands of other people would have been exigible to tax ?
This would end up in the conclusion that a Chamber of Commerce may run a
printing press, advertisement business market exploration activity or even
export promotion business and levy huge sums from its customers whether they
are members of the organisation or not and still claim a blanket exemption from
tax on the score that the objects of general public utility which it has set
for itself implied these activities even though profits or surpluses may arise
therefrom. Therefore, the emphasis is not on the object of public utility and
the carrying on of related activity for profit. On the other hand, if in the
advancement of these objects the Chamber resorts to carrying on of activities
for profit, then necessarily s. 2(15) cannot confer cover. The advancement of
charitable objects must not involve profit making activites.
That is the mandate of the new amendment.
The opposite position in its extreme form is
equally untenable. While Shri Sharma is right that merely because service is
rendered to traders escapement from tax liability does not follow. Every type
of service-oriented activity, where some charge is levied from the beneficiary
and at the end of the year some surplus is left behind, does not lose the
benefit of s. 2(15). For, then., one cannot conceive of any object of general
public utility which can be advanced by the Chamber of Commerce. For every such
activity some fee will have to be levied if the Chamber is not to turn bankrupt
and merely because a fee is levied one cannot castigate the activity as one for
profit. Therefore it is a false dilemma to talk of activity for profit as
against activity rendered free. The true demarcating line lies in between.
In our view, the ingredients essential to
earn freedom from tax are discernible from the definition, if insightfully read
against the brooding presence of the evil to be suppressed and the beneficial
object to be served. The policy of the statute is to give tax relief for
charitable purpose, but what falls outside the pale of charitable purpose ? The
institution must confine itself to the carrying on of activities which are not
for profit. It is not enough if the object be one of general public utility.
The attainment of that object shall not
involve activities for profit. What then is an activity for profit ? An
undertaking by a business organisation is ordinarily assumed to be for profit
unless expressly or by necessary implication or by eloquent surrounding
circumstances the making of profit stands loudly negatived. We will illustrate
to illumine. If there is a restrictive provision in the bye- laws of 841 the
charitable organisation which insists that the charges levied for services of
public utility rendered are to be on a 'no profit' basis, it . clearly earns
the benefit of s.
2(15). For instance, a funeral home, an
S.P.C.A. Or a cooperative may render services to the public but write a condition
into its constitution that it shall not charge more than is actually needed for
the rendering of the services,may be it may not be an exact equivalent, such
mathematical precision being impossible in the case of variables,may be a
little surplus is left over at the end of the year the broad inhibition against
making profit is a good guarantee that the carrying on of the activity is not
for pro fit. As an antithesis, take a funeral home or an animal welfare
organisation or a super bazaar run for general public utility by an institution
which charges large sums and makes huge profits. Indubitably they render
services of general public utility. Their objects are charitable but their
activities are for profit Take the case of a blood bank which collects blood on
payment and supplies blood for a higher price thereby making profit Undoubtedly
the blood bank may be said to be a general public utility but if it advances
its public utility by sale of blood as an activity for (making) profit, it is
difficult to call its purposes charitable. It is just blood business ! In the
United States, for instance, there are many funeral homes which make
considerable profits. There are super bazaars and animal welfare institutions
in many countries which may be run on a profit motive. Inevitably these
activities are caught in the meshes of the tax law.
Readymade nostrums like 'dominant
intent'" 'incidental profits', 'real object' as against 'ostensible
purpose', 'entangled', 'wrapped in,' 'inter-twined' and the like fail as criteria
in critical cases, although they have been liberally used in judicial
vocabulary. In this branch of law verbal labels are convenient but not
infallible. We have to be careful not to be victimised by adjectives and
appellations which mislead, if pressed too far, although they may loosely serve
in the ordinary run of case.
To sum up, s. 2(15) excludes from exemption
the carrying on of activities for profit even i they are linked with the
objectives of general public utility, because the statute interdicts, for
purposes of tax relief, the advancement of such objects by involvement in the
carrying on of activities for profit. We appreciate the involved language we
use but when legislative draftsmanship declines to be simple, interpretative
complexity becomes a judicial necessity.
Lok Shikshana Trust (supra) is the
latest-perhaps the only case of this Court-dealing directly with s. 2(15) of
the Act. Khanna J., speaking on behalf of himself and Gupta J.. Observed:
"As a result of the addition of the words
'not involving the carrying on of any activity for profit' at the end of the
definition in section 2(15) of the Act even if the purpose of the trust is
'advancement of any other object of general public utility', it would not be
considered to be 'charitable purpose' unless it is shown that the above purpose
does not involve the carrying on of any activity for profit. The result 842
thus of the change in the definition is that in order to bring A a case within
the fourth category of charitable purpose, it would be necessary to show that (
1 ) the purpose of the trust is the advancement of any other object of general
public utility, and ( 2 ) the above purpose does not involve the carrying on of
any activity for profit. Both the above conditions must be fulfilled before the
purpose of the trust can be held to be charitable purpose." * *: *
"It is true that there are some business activities like mutual insurance
and cooperative stores of which profit making is not an essential, ingredient,
but that is so because of a self imposed and innate restriction on making
profit in the carrying on of that particular type of business. Ordinarily
profit motive is a normal incidence of business activity and if the activity of
a trust consists of carrying on of a business and there are no restrictions on
its making profit, the court would be well justified on assuming in the absence
of some indication that the contrary that the object of the trust involves the
carrying on of an activity for profit." (emphasis. ours) "By the use
of the expression 'profit motive' it is not intended that profit must in fact
be earned. Nor does the expression cover a mere desire to make some monetary
gain out of a transaction or even a series of transactions. It predicates a
motive which pervades the whole series of transactions effected by the person
in the course of his activity." * * * * "We are not impressed by the
submission of the learned counsel for the appellant that profit under section
2(15) of the Act means private profit. The word used in the definition given in
the above provision is profit and not private profit and it would not be
permissible to read in the above definition the word 'private' as qualifying
profit even though such word is not there." Beg J., spoke on the subject
with different accent but drew pointed attention to one aspect:
"The deed puts no condition upon the
conduct of the .1 newspaper and publishing business from which we co infer that
it was to be on 'no profit and no loss' basis. I mention this as learned counsel
for the appellant repeatedly asserted that this was the really basic purpose
and principle for the conduct of the business of the trust before us. This
assertion seems to be based on nothing more substantial than that the trust
deed itself does not expressly make profit 843 making the object of the trust.
But, as I have already indicated, the absence of such a condition from the
trust deed would not determine its true character. That character is determined
for more certainly and convincingly by the absence of terms which could
eliminate or prevent profit making from becoming the real or dominant purpose
of the trust. It is what the provisions of the trust make possible or permit
coupled with what had been actually done without a illegality in the way of profit
making, in the case before us, under the cover of the provisions of the deed,
which enable us to decipher the meaning and determine the predominantly profit
making character of the trust." (emphasis, ours) We do not think it
necessary to discuss the various decisions of the High Courts cited before us
nor need we seek light from the English Cases either. After all, Indian law
must bear Indian impress derived from Indian life.
In All India Spinners' Association v. Commr.
Of Income- tax Bombay, (1) Lord Wright, speaking for the Judicial Committee d
considering the subject of 'charitable purposes' as justifying exemption from
`It is now recognised that the Indian Act
must be construed on its actual words and is not to be governed by English
decisions on the topic." * . : * *: * "The Indian Act gives a clear
and succinct definition which must be construed according to its actual
language and meaning. English decisions have no binding authority on its
construction and though they may sometimes afford help or guidance, cannot
relieve the Indian Courts from their responsibility of applying the language of
the Act to the particular circumstances that emerge under conditions of Indian
life." * * * Crypto-colonial inclinations have sometimes induced Indian
draftsmen and jurists to draw inspiration from English law but, for reasons
felicitously expressed by Lord Wright, we are adopting interpretation of s.
2(15) according to the language used there and against the background of Indian
Coming to the facts of the present case, the
criteria we have evolved have to be applied.
Among the Kerala Cases which went on the
wrong test we wish to mention one" Dharmodayam.( 2). The assessee company
was conducting a profitable business of running chit funds and its memorandum
(1)  12 1. T. R. 482. 486.
(2) C. 1. T. v. Dharmodayam Co.  941.
T. R. 113.
844 of association had as one of its objects
to do the needful for the promotion of charity, education and industry. The
court found it possible on these facts to (grant the benefit of s. 2(15) by a
recondite reasoning. If this ratio were to hold good businessmen have a
highroad to tax avoidance Dharmodayam (supra) shows how dangerous the
consequence can be if the provisions were misconstrued.
The true test is to ask for answers to the
following question (a), Is the object of the assessee one of general public
utility? (b) Does the advancement of the object involve activities bringing in
moneys ? (c) If so, are such activities undertaken (i) for profit or (ii)
without profit ? Even if (a) and (b) are answered affirmatively, if (c) (i) is
answered affirmatively, the claim for exemption collapses. The solution to the
problem of an activity being one for or irrespective of profit is gathered on a
footing or facts. What is the real nature of the activity? one which is
ordinarily carried on by ordinary people for gain'? Is there a built in
prescription in the constitution against making a profit? Has there been in
practice, profit from this venture ? Although this last is a weak test. The
mere fact that a service is rendered is no answer to chargeability because all
income is often derived by rendering some service or other.
Further, what is an activity for profit
depends on the correct connotation of the preposition. 'For' used with the
active participle of a verb means 'for the purpose of (Sec judgment of Westbury
C., 1127) 'For' has many shades of meaning. It connotes the end with reference
to which anything is done. It also bears the sense of 'appropriate or 'adopted
to': 'suitable to purpose' vide Black's Legal Dictionary. An activity which
yields a profit or gain in the ordinary course must be presumed to have been
done for profit or gain. Of course, an extreme case could be imagined where
without intent or purpose an activity may yield profit. Even so, it may
legitimately be said that the activity is 'appropriate or adapted to such
We may wind up with a brief rounding off and
indication on the approach. A pragmatic condition, written or un- written,
proved by. a prescription of profits or by long years of invariable practice or
spelt from strong surrounding circumstances indicative of anti-profit
motivation such a condition will qualify for 'charitable purposes' and
legitimately get round the fiscal hook. Short of it, the tax tackle holds you
fast. A word about the burden of proof is necessary here. Income. Ordinarily
chargeable, can be free from exigibility only if the assessee discharges the
onus of bringing himself within s.
2(15). In so doing, he has to attract and
repel attract the condition that his objects are of 'general public utility'
and repel the charge that he is advancing these objects by involvement in
activities for profit. Once this broad dual basis is made out, the Revenue will
not go into meticulous mathematics and charge every chance excess or random
surplus; If the activity is Prone to yielding income and in fact results in
profits, the 845 Revenue will examine the reality or pretence of the condition,
that the activity is not for profit. Here, one may well say: 'Suit the action
to the word, the word to the action'.
If such be the legal criteria for fixing
charitable purpose, low does the Indian Chamber fare ? The substantial item of
income comes from the share of profits in the firm called M/s. Calcutta
Licensed Measurers. True, the issuance of weighment and measurement
certificates is a great facility for traders and under the Commercial Documents
Evidence Act only recognised institutions arc permitted to issue such
certificates. Recognition be speaks the status, integrity and efficiency of the
institution but does not transmute a service for profit into nonprofitable
It is irrelevant whether this service is in
implementation of or interwoven with trade promotion. What is partinent is
whether the advancement of trade promotion by issuing such certificates is done
for a nominal fee conditioned by the cost of the operation, and profit making
by this means is tabooed. For there is nothing in the memorandum or articles of
association which sets any limit on making a large profit this way. And, after
all, any institution or individual may set up a weighment and measurement
business as a source of income and if it is of sufficient probity and
competence recognition to may well be accorded under the Commercial Documents
Evidence Act. We cannot mix up or confuse the two concepts. The activity of
charging fees and issuing certificates of origin valuable as a service though
it is, is in not different position. Both these activities are amenable to tax
as being carried on for profit, there being nothing to show that the Chamber
was undertaking this job on a 'no profit' basis. The presumption, if at all, is
that a businessman association does a business of it. More so when the facility
is available to members and non members. Not infrequently one comes across
weighment stations where loaded trucks are weighed for payment as a business.
So also approved valuers value property as business and charge for that
service. Merely because it is carried on by a Chamber of Commerce no difference
in incidents arises and tax incidence can be repelled only if the work is done
explicitly on a 'no profit' basis. Such is not shown to be the case here.
The objects of the Chamber include settlement
of disputes among traders by arbitration. This is undoubtedly a service of
general public utility preventing protracted commercial litigation. If the fee
charged for doing so is more or less commensurate with the expense the Chamber
has to incur, a minor surplus will not attract tax. But no such restriction is
written into the rules governing the Chamber.
It may charge a heavy sum and spend much less
for hiring experts to decide the dispute. There is no magna carta hiding the
Indian or Cochin or Bengal Chamber of Commerce not to sell arbitral justice.
Suppose ; specialist in mercantile law and practice of reputable integrity
offers himself regularly for arbitration of commercial disputes for a high fee,
is he not making an income? The difference between the two is as between
Tweedledum and Tweedledee.
Surely, if an innate, articulated, restraint
on the levy for these undoubted services to Trade existed as a fact, so as to
remove the slur of activity for profit, then the umbrella of charitable purpose
would protect small surpluses.
846 We hold that the incomes of the Chambers
sought to be taxed are taxable. Civil Appeal No. 2129 of 1970 is dismissed and
civil Appeals Nos. 2455 to 2457 of 1972 are allowed. Parties will bear their
Before parting with the case we may as well
make it clear that our conclusion would have been the same even without
reference to or reliance on the speech of the Finance Minister we have
V.P.S. Appeals partly allowed.