Dharmadeepti, Alwaye, Kerala Vs. The
Commissioner of Income Tax, Kerala [1978] INSC 114 (24 July 1978)
PATHAK, R.S.
PATHAK, R.S.
CHANDRACHUD, Y.V. ((CJ) DESAI, D.A.
CITATION: 1978 AIR 1417 1978 SCR (3)1038 1978
SCC (3) 499
CITATOR INFO :
R 1980 SC 387 (7,16,54)
ACT:
Income Tax Act 1961-Sections 2(15) and
11(1)(a)-Main objects to be pursued by the company which has been granted a
licence under s. 25 of the Companies Act were (i) to give charity and (ii) to
promote education and (iii) to establish or aid in the establishment of
associations institutions, funds, trusts with the object of promoting charity
and/or education and the objects incidental or ancillary to the attainment of
the said objects was "to run Chitties (Kuries)-Whether the said objects identifiable
with the first two heads 'relief of the poor' and "education" in the
definition of 'charitable purpose' in Section 2(15) of the Income Tax Act and
whether the income derived from running Chitties (Kuries) is exempt under
Section 1 1 (1) (a) of the Act.
HEADNOTE:
The appellant Association carries on the
business of conducting 'Kuries' which was one of the ancillary object in
furtherance of its main objects. Clause 3(a) of the Memorandum of Association
declares the main objects to be :
(1) to give charity (ii) to promote education
and (iii) to establish or aid in the establishment of associations,
institutions, funds, trusts with the object of promoting charity and/or
education. In respect of the income during the calendar year 1968 from that business
i.e. during assessment year 1969-70 the claim by the appellant for exemption
under S. 11 (1 )(a) of the Income Tax Act, 1961 was rejected by the Income Tax
Officer. The Appellate Assistant Commissioner reversed the order in appeal and
held that 'education' constituted the main object of the appellant, and
therefore, the income from the Kurie business even though a profit making
activity being in aid of or incidental to the main object was entitled to
exemption.
The appeal of the Revenue before the Income
Tax Appellate Tribunal failed and therefore at the instance of the respondent,
the question whether on the facts and in the circumstances of the case, the
assessee is entitled to exemption under s. 11 of the Income Tax Act, 1961 for
the assessment year 1969-70 ?" Was referred to the High Court of Kerala
which answered it against the appellant. The present appeal was then lodged in
this Court.
Allowing the appeal, the Court
HELD : (1) The words "not involving the
carrying on of any activity for profit" govern the words "the
advancement of any other object of general public utility" and not the
words "relief of the poor, education and medical relief" in section
2(15). The heads "relief of the poor, education and medical relief"
remained unqualified by any express statutory restriction, and income arising
from a profit making activity linked with those heads enjoyed exemption without
express limitation until section 13(1)(bb) was inserted in the Act by the
Taxation Laws (Amendment) Act, 1975 with effect from April 1, 1977. [1042 B-D]
The specific heads 'relief to the poor, education and medical relief' in s.
2(15) define well known charitable purposes. But the residual general head
"the advancement of any other object of general public utility" is of
wide comprehension, and Parliament when framing the Income Tax Act, 1961
considered it appropriate to cut down the wide scope of these words by
qualifying them with the restrictive words "not involving the carrying on
of any activity for profit", thereby emphasising that the residual general
head was to be confined to objects which were essentially charitable in nature.
[1041 E, 1042A] Morice v. Bishop of Burham, [1805] 10 Ves 522, 532;
William's Trust v. I.R., 27 T.C. 409 referred
to.
(2) In the instant case:
1039 (a)According to sub-clause (a) of clause
(3) of the Memorandum of Association, the main objects for which the appellant
was formed are "to give charity" and "to promote
education". The third sub-clause merely confers power to establish
associations and other bodies with the object of promoting the two main
objects. Having regard to the language used and the context in which the two
main objects are set forth, it would be reasonable to identify the expression
"to give charity" and "to promote education" with the first
two heads "relief of the poor" and "education" in the
definition of "charitable purpose" in section 2(15) of the Income Tax
Act. If the Memorandum of Association had referred to "charity" as
the sole object without any limitations, including those prescribed by the
context, it may have been possible to extend it to all the four heads mentioned
in section 2(15) 'as was done in Chaturbhuj Vallabhdas v. Commissioner of
Income-tax, (14 I.T.R. 144).
But the words are " to give
charity"; and then "to promote education" is also specified.
Obviously, the former must bear a limited meaning and therefore, the most
appropriate seems to be "relief of the poor". That being so, neither
of the main objects can be classed under the residual general head "the
advancement of any other object of general public utility." [1041 B-D]
(b)The 'Power to run the kurie business stems from the provision "to run
chitties (kuries)" mentioned in sub-clause (b) of clause (3) of the
Memorandum. From the description prefacing the enumeration of the objects, it
is plain that the objects are really in the nature of powers incidental or
ancillary to the attainment of the main objects mentioned in sub-clause (a) of
clause (3). The income from the kurie business is intended to be applied only
to the charitable purposes of giving to charity or the promotion of education.
That is the basis on which the licence was
granted under section 25 of the Companies Act to the appellant. No question
arises of applying the income from the kurie business to the other objects for
which the appellant has been established, that is to say, the objects set forth
in sub-clause (c) of clause (3) of the Memorandum of Association. [1042 D-E]
(c)The business of conducting kuries is held under trust.
The income from that business is income
derived from property held under trust for charitable purposes. The appellant,
therefore, is entitled to exemption on the, income from the kurie business for
the assessment year 1969- 70 under section 11(1)(a) of the Income-tax Act,
1961. [1042 G]
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 82 of 1975.
From the Judgment and Order dated 12-6-1974
of the Kerala High Court in. Income Tax Reference No. 77/72.
Y. S. Chitale, V. J. Francis and Mukul Mudgal
for the Appellant.
B. B. Ahuja and A. Subhashini for the
Respondent.
The Judgment of the Court was delivered by
PATHAK, J. This appeal, by certificate under section 261 of the Income-Tax Act,
1961, is directed against the judgment of the High Court of Kerala disposing of
a reference made to it by the Income-Tax Appellate Tribunal under section
256(1) of the Act.
The appellant is an association constituted
under a licence granted under section 25 of the Companies Act, 1956 on January
5, 1967. The relevant provisions of its Memorandum of Association are :
"3. (a) : The main objects to be pursued
by the Company on its incorporation are (i) To give charity.
1040 (ii) To promote education.
(iii)To establish or aid in the establishment
of associations, institutions, funds, trusts with the object of promoting
charity and/or education provided that the Company shall not support its funds
or endeavour to impose on, or procure to be observed by, its members or others
any regulation or restriction which if an object of the company, would make it
a trade union.
(b) The objects incidental or ancillary to
the attainment of the above main objects are :
(i)To receive donations, subscriptions, or
gifts for the furtherance 'of the purpose of the Company, and to do all such
other things as may be considered to be incidental or conducive to the
attainment of its objects or any of them, by the Directors.
(ii) .... .... .... .... ....
(iii) .... .... .... .... ....
(iv)To run Chitties (Kuries).
(V) ..... ..... .... .... ....
(vi) ..... ..... .... .... ....
(vii) ..... ..... .... ... . .....
(c)The other objects for which the Company is
established are :
(i)To establish, promote, and carry on any
other business which may seem to the company profitable or advantageous and to
establish offices and other places of business in this State or anywhere in
India, as the Directors deem necessary." The appellant carries on the
business of conducting Kuries, and in respect of the income during the calendar
year 1968 from that business, it was assessed to tax for the assessment year
1969-70. The Income-Tax Officer, rejected the claim that the Kurie business was
incidental to the main objects of charity and education and that the income
proceeding from it was exempt under section 1 1 (1) (a) of the Income-Tax Act.
The Appellate Assistant Commissioner reversed the order of the Income-Tax
Officer and held that education constituted the main object of the appellant
and, therefore, the income from the Kurie business, even though a profit making
activity, being in aid of or incidental to the main object was entitled to
exemption. The Income Tax Appellate Tribunal, on further appeal, upheld the
view taken by the Appellate Assistant Commissioner. At the instance of the
Commissioner of Income Tax, the Tribunal referred the following question to the
High Court of Kerala for its opinion :- "Whether on the facts and in the
circumstances of the case, the assessee is entitled to exemption under section
11 of the Income-Tax Act, 1961 for the assessment year 1969-70?" 1041 The
High Court answered the question in the negative and in favour of the
Income-Tax Department by its judgment dated June 12, 1974.
According to sub-clause (a) of clause (3) of
the Memorandum of Association, the main objects for which the appellant was
formed are "to give charity" and "to promote education".
The third subclause merely confers power to
establish associations and other bodies with the object of promoting the two
main objects. Having regard to the language used and the context in which the
two main objects are set forth, it would be reasonable to identify the
expression "to give charity" and "to promote education"
with the first two heads "relief of the poor" and "education"
in the definition of "charitable purpose" in section 2(15) of the
Income Tax Act.
If the Memorandum of Association had referred
to "charity" as the sole object without any limitations, including
those prescribed by the context, it may have been possible to extend it to all
the four heads mentioned in section 2(15), as was done in Chaturbhuj Vallabhdas
v. Commissioner of Income-Tax(1). But the words are "to give
charity"; and then "to promote education" is also specified. Obviously,
the former must, bear a limited meaning. To our mind, the most appropriate
seems to be "relief of the poor". That being so, neither of the main
objects can be classed under the residual general head "the advancement of
any other object of general public utility". Now, those words are followed
by the words "not involving the carrying on of any activity for
profit". Do these restrictive words govern the residual general bead only
or also the preceding specific heads "relief of the poor, education, and
medical relief" ? The specific heads "relief of the poor, education
and medical relief" define well known charitable purposes. But the
residual general head "the advancement of any other object of general
public, utility" is of wide comprehension.
This head was defined in the same terms in
the definition of "charitable purpose" in section 4(3) of the Indian
Income- Tax Act, 1922. The same words were used in English law to describe one
of the heads of charitable purpose in Morice v. Bishop of Durham(2). Under the
English law they were regarded as words of sufficiently extensive import to
warrant the observation by the House of Lords in William's Trust v. I.R.(3)
that all objects of general public utility were not necessarily charitable, and
that while some may be so others may not. The law in India under the Indian
Income-Tax Act, 1922 was not in congruency with the English law of charity
inasmuch as by including those words in its statutory definition the Indian law
extended the expression "charitable purpose" to an area beyond that
covered by the English law. In other words, while the words "any other
object of general public utility" in the Indian enactment included the
purposes recognised as charitable purposes under the English law, they ex- (1)
14 I.T..R. 144.
(2) (1805) 10 Ves 522, 532.
(3) 27 T.C. 409.
1042 tended also to objects which were not
accepted as charitable tinder the English law. Apparently, when framing the
Income-Tax Act, 1961, Parliament considered it appropriate to cut down the wide
scope of these words by qualifying them with the restrictive words " not
involving the carrying on of any activity for profit". This was done to
emphasise that the residual general head was to be confined to objects which
were essentially charitable in nature. It is, therefore, clear that the words
"not involving the carrying on of any activity for profit" govern the
words "the advancement of any other object of general public utility"
and not the words "relief of the poor, education and medical relief"
in section 2(15). The heads "relief of the poor, education and medical
relief" remained unqualified by any express statutory restriction, and
income arising from a profit making activity linked with those heads enjoyed
exemption without express limitation until section 13 (1) (bb) was inserted in
the Act by the Taxation Laws (Amendment) Act, 1975 with effect from April 1,
1977.
Now, the power to ran the kurie business
stems from, the provision "to run chitties (kuries)" mentioned in
sub-clause (b) of clause (3) of the Memorandum. From the description prefacing
the enumeration of the objects, it is plain that the objects are really in the
nature of powers incidental or ancillary to the attainment of the main objects
mentioned in sub-clause (a) of clause (3). Accordingly, we hold that the income
from the kurie business is intended to be applied only to the charitable
purposes of giving to charity or the promotion of education. That is the basis
on which the licence was granted under section 25 of the Companies Act to the
appellant. No question arises of applying the income from the kurie business to
the other objects for which the appellant has been established, that is to say,
the object set forth in sub-clause (c) of clause (3) of the Memorandum of
Association. In the circumstances, it is not necessary to con-Sider the effect
of the inclusion of those other objects in the Memorandum and whether the
appellant can embark on the realisation of those objects without complying with
the statutory formalities mentioned under seetion 149 of the Companies Act.
It is not disputed that the business of
conducting kuries is held under trust. We are, therefore, of opinion that the
income from that business is income drived from property held under trust for
charitable purposes. In the circumstances, the appellant is @ntitled to
exemption on the income from the eurie business for the assessment year 1969-
70 under section 1 1 (1) (a) of the Income-Tax Act. We are unable to agree with
the opinion expressed by the High Court which, it seems, omitted to consider
the significance of the fact that the business of conducting kuries is covered
by a power conferred expressly only for the purpose of attainment of the main
objects of giving charity and promoting education.
10 43 The appeal is allowed, the judgment
dated June 12, 1974 of the High Court is set aside and the question referred by
the Income-Tax Appellate Tribunal is answered in the affirmative, in favour of
the appellant and against the Commissioner of Income-Tax. The appellant is
entitled to his costs of this appeal.
Appeal allowed.
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