C.I.T. Bombay Vs. Bar Council of
Maharashtrabar Council of India Bar Council [1981] INSC 98 (22 April 1981)
TULZAPURKAR, V.D.
TULZAPURKAR, V.D.
VENKATARAMIAH, E.S. (J)
CITATION: 1981 AIR 1462 1981 SCR (3) 542 1981
SCC (3) 308 1981 SCALE (1)679
CITATOR INFO :
R 1986 SC1054 (7,10)
ACT:
Income tax Act, 1961, section 2(15) and
11-Whether the Bar Councils constituted under the Advocates Act, 1961, are
bodies intended to advance any object of general public utility falling within
section 2(15) for purposes of section 11 of the Act.
HEADNOTE:
The income derived by the Bar Council of
Maharashtra from securities (interest) and other income by way of enrollment
fees during the accounting periods relevant to the assessment years
1962-63,1963-64,1964-65 was subjected to tax by the Income Tax Officer. Since
the Central Government had accorded approval to the assessee for the purpose of
section 10(23A) during the pendency of the appeal before the Tribunal by a
notification dated August 5, 1966 with effect from December 28,1961, the
Tribunal held that the assessee Council was entitled to exemption under section
10(23A) in respect of its income by way of enrollment fees.
The Tribunal remanded the case back to the
Appellate Assistant Commissioner and directed him to dispose of the case by
examining the question as to the purpose for which the securities were held by
the assessee Council. It observed that if the said securities were held for
educational purpose or for any other charitable purpose then the exemption
under section 11 would be admissible to the extent available under the law. The
High Court, on a reference made at the instance of the assessee-Council,
answered the question: "Whether on the facts and in the circumstances of
the case, the assessee-Council could be taken to be a body intended to advance
any object of general public utility falling within section 2(15) for purposes
of section 11 of the Act ?" in favour of the assessee and hence the
appeals by Revenue after obtaining special leave from the Court.
Dismissing the appeals, the Court
HELD: 1. Having regard to the Preamble of the
Advocates Act, 1961 and the nature of the various obligatory functions
including the one under clause (d) enjoined upon every State Bar Council under
section 6(1) of the Advocates Act, it is clear that the primary or dominant
purpose of an institution like the assessee Council is the advancement of the
object of general public utility within the meaning of section 2(15) of the
Income Tax Act, 1961 and as such the income from securities held by the
assessee-Council would be exempt from any tax liability under section 11 of the
Income Tax Act, 1961. [551 E-G] 543
2. If the primary or dominant purpose of a
trust or institution was charitable any other object which by itself might not
be charitable but which was merely ancillary or incidental to the primary or
dominant purpose would not prevent the trust or institution from being a valid
charity.
The restrictive words "not involving the
carrying on any activity for profit" in section 2(15) of the Income Tax
Act, 1961, qualify "object" and not the advancement or accomplishment
thereof. In other words, the true meaning of the restrictive words is that when
the purpose of a trust or institution was the advancement of an object of
general public utility it was that object of general public utility and not its
accomplishment or carrying out which must not involve the carrying on of any
activity for profit. Here, admittedly, the State Bar Councils are not indulging
in any activity for profit and hence the question of applying the restrictive
words in s.2(15) does not arise. [547 C-F, 548 G-H] Commissioner of Income Tax,
Madras v. Andhra Chamber of Commerce, 55 ITR 722; Additional Commissioner of
Income Tax, Gujarat v. Surat Art Silk Cloth Manufacturers Association, 121 ITR
2, reiterated.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 2115 to 2117 of 1980.
Appeals by special leave from the judgment
and order dated the 8 the August, 1978 of the Bombay High Court in Income Tax
Reference No. 142 of 1969.
S. C. Manchanda and A. Subhashini for the
Appellant.
V. N. Ganpule and Mrs. Veena Devi Khanna for
the Respondent.
V. N. Ganpule for Intervener No. 1.
S. C. Patel for Intervener No. 2.
The Judgment of the Court was delivered by
TULZAPURKAR, J. These appeals by special leave raise the question:
"whether on the facts and in the circumstances of the case the
assessee-Council could be taken to be a body intended to advance any object of
general public utility falling within s. 2(15) for purposes of s. 11 of the
Income Tax Act, 1961 ?" The facts giving rise to the aforesaid question
may briefly be stated. The respondent assessee-Bar Council of Maharashtra-is a
body corporate established under the Advocate's Act, 1961 (Act 25 of 1961)
which came into force on December 28, 1961. During the accounting periods
relevant to the assessment years 1962-63, 1963-64 and 1964-65 the assessee
derived income from 544 securities (interest) and other income by way of
enrollment fees particulars whereof, are as follows:
Assessment year Interest on securities Other
Income 1962-63 Rs. 3,779 Rs 28,035 1963-64 Rs. 8,629 Rs 3,04,103 1964-65 Rs.
9,356 Rs 96,322 The Income Tax Officer subjected to tax the income from both
the sources for all the three years. In appeals preferred to the Appellate
Assistant Commissioner it was contended by the assessee that its other income
by enrollment fees was exempt under s. 10 (23A) and interest on securities was
exempt from tax under s. 11 of the Income Tax Act, 1961. The Appellate
Assistant Commissioner negatived the exemption claimed under s. 10(23A) in the
absence of the Central Government's notification according approval to the
association and with regard to the claim for exemption in respect of the interest
on securities he held that it was not established that the securities were held
on trust for any charitable purpose. He took the view that the main object of
the assessee-Council was to benefit the legal profession (its Members) and,
therefore, the object was not one of general public utility. Accordingly he
confirmed the assessment orders for the three years.
The matter was carried in further appeal to
the Income Tax Appellate Tribunal and since by that time the Central Government
had accorded approval to the assessee for the purpose of s. 10 (23A) by a
notification dated August 5, 1966 with effect from December 28, 1961, the
Tribunal held that the assessee-Council was entitled to exemption under s. 10(23A)
in respect of its income by way of enrollment fees.
In regard to the income by way of interest on
the securities the Tribunal observed that the character of the body holding the
securities was not by itself decisive, that safeguarding the rights, privileges
and interest of advocates on its roll could not be said to be an object of
general public utility, that the real question to be considered under s. 11 was
whether the securities were held for any charitable purpose or not and the
tribunal found that there was no evidence or material on record touching this
aspect. It, therefore, remanded the case back to the Appellate Assistant
Commissioner and directed him to dispose of the case by examining the question
as to the purpose for which the securities were held by 545 the
assessee-Council. It observed that if the said securities were held for
educational purpose or for any other charitable purpose then the exemption
under s. 11 would be admissible to the extent available under the law.
At the instance of the assessee Council the
question set out at the commencement of this judgment was referred to the High
Court for its decision under s. 256(1) of the Act. The High Court took the view
that having regard to the obligatory functions enjoined upon a State Bar
Council under s.6 of the Advocate's Act the assessee-Council could be regarded
as a body constituted for general public utility and that the entire income of
the body would be exempt from tax under s.11 of the Income Tax Act, 1961. In its
view the advancement of any object beneficial to the public or a section of the
public as distinct from an individual or a group of individuals would be a
charitable purpose as defined in s.2 (15) of the Income Tax Act and in this
view of the matter the High Court answered the question in the affirmative and
against the Revenue. It is this view of the High Court that is being challenged
by the Revenue before us in these appeals.
In support of the appeals counsel for the
Revenue sought to raise two contentions. First, he urged that the relief
claimed under s.11 was ruled out by reason of relief having been obtained by
the assessee-Council in respect of its income from enrollment fees under s.10
(23A) of the Act.
According to him s.10 (23A), while exempting
from tax any income of an association or institution established in India
having as its object the control, supervision, regulation and encouragement of
the profession of law, medicine, accountancy and any other profession as the
Central Government may specify, has expressly excluded from exemption such
association's or institution's income chargeable under the head "interest
on securities" or "Income from house properties" or "any
income received in rendering any specific service", etc., and, therefore,
what has been expressly excluded from exemption under this provision could not
be or was not intended to be exempt under s.11 of the Act. In other words, the
assessee- Council's claim for exemption in respect of interest on securities
under s.11 was ruled out by reason of s.10(23A) of the Act. Secondly, counsel
contended that on merits the High Court's view that the assessee-Council was a
body constituted for advancement of an object of general public utility was
erroneous inasmuch as it was a body established principally for the purpose of
safeguarding the rights, privileges and interest of the advocates on its roll
and since such objective merely served to benefit the members 546 of the
profession it was no charitable purpose as defined by s.2 (15) for purposes of
s.11 of the Act. In support of this contention counsel placed reliance on some
English decisions.
At the outset it may be stated that we were
not inclined to permit counsel for the Revenue to urge his first contention as
in our view the Revenue must be deemed to have given up the same. We may point
out that precisely this very contention was raised by the Revenue before the
Tribunal and was negatived by it. The Tribunal on a detailed analysis of the
concerned provisions took the view that the two provisions were not mutually
exclusive but operated under different circumstances, that s.11 was relatively
wider in its scope and ambit, that while s.10 (23A) granted absolute exemption
in respect of particular types of income s.11 imposed certain conditions for
the exemption but such exemption was available for all sources and there was
nothing inherently improbable or inconceivable about the two provisions
operating simultaneously and as such the claim for exemption under s.11 was
available to the assessee- Council provided it satisfied all the requirements
of that provision. We may point out that there are other allied provisions like
for instance sub-s. (23C) in s.10 which clearly indicate that the Legislature
did not intend to rule out s.11 when exemption was claimable under such
specific provisions of s.10. It was after negativing the contention in this
manner that the Tribunal went on to consider the claim for exemption made by
the assessee-Council under s.11 but on merits found that there was no material
or evidence on record to show whether or not the securities were held by the
assessee-Council for any of charitable purposes and, therefore, it remanded the
case. The remand order was never challenged by the Revenue by seeking a
reference on the ground that a remand was unnecessary because s.11 was ruled
out by reason of exemption having been obtained by the assessee-Council under
s.10 (23A) of the Act nor was any such contention raised when reference was
sought by the assessee-Council nor when the matter was being argued in the High
Court. In these circumstances it is clear to us that the Revenue acquiesced in
the view taken by the Tribunal that the claim for exemption under s.11 of the
Act could not be said to be ruled out by reason of the provisions of s.10
(23A). We, therefore, proceed to deal with the second contention which was
principally argued before us in these appeals.
Under s.11 of the Income Tax Act, 1961,
subject to the conditions therein specified, income derived from property held
547 under trust wholly for charitable or religious purposes to the extent to
which such income is applied to such purposes in India is exempt from the tax
liability under the Act and s.2 (15) gives an inclusive definition of the
expression "charitable purpose" thus:
"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 any activity for
profit.
It may be noticed that whereas any object of
general public utility was included in the definition of "Charitable
purpose" in the 1922 Act, the present definition has inserted the
restrictive words "not involving the carrying on of any activity for
profit" which qualify or govern the last head of charitable purpose. In
Commissioner of Income Tax, Madras v. Andhra Chamber of Commerce-a case decided
by this Court under the 1922 Act where the restrictive words were absent-this
Court laid down that if the primary or dominant purpose of a trust or
institution was charitable, any other object which by itself might not be
charitable but which was merely ancillary or incidental to the primary or
dominant purpose would not prevent the trust or institution from being a valid
charity. After the addition of the restrictive words in the definition in the
1961 Act, this Court in Additional Commissioner of Income Tax, Gujarat v. Surat
Art Silk Cloth Manufacturers Association affirmed that the aforesaid test of
primary of dominant purpose of a trust or institution still holds good, that
the restrictive words qualify "object" and not the advancement or
accomplishment thereof and that the true meaning of the restrictive words was
that when the purpose of a trust or institution was the advancement of an
object of general public utility at was that object of general public utility
and not its accomplishment or carrying out which must not involve the carrying
on of any activity for profit. And applying these tests trading bodies like
Andhra chamber of Commerce and Surat Art Silk Cloth Manufacturers Association
have been held to be institutions constituted with a view to advance an object
of general public utility because their primary or dominant purpose was to
promote and protect industry, trade and commerce either generally or in certain
commodities, even though some benefit through some of their activities did
accrue to their members which 548 was regarded as incidental and this Court
held that the income derived from diverse sources by these institutions (rental
income from property in the case of Andhra Chamber of Commerce and income from
annual subscriptions collected from its members and commission of a certain
percentage of the value of licences for import of foreign yarn and quotas for
purchase of indigenous yarn obtained by the assessee from its members in the
case of Surat Art Silk Cloth Manufacturers Association was exempt from tax
liability under s.11 of the Act. Reliance on English decisions would not be of
much avail because the definition of charitable purposes as given in our Act
since it embraces 'any other object of general public utility' goes further
than the definition of charity to be derived from the English cases.
Under English law of charity a trust is
charitable only if it is within the spirit and intendment of the Preamble to
the Statute of Elizabeth (43 Eliz. ch. 4) and all objects of general public
utility are not necessarily charitable, some may or some may not be, depending
upon whether they fall within the spirit and intendment of the Statute of Elizabeth.
Under our definition every object of general public utility would be charitable
subject only to the condition imposed by the restrictive words inserted in the
1961 Act. It is because of this basic difference between Indian Law and English
Law of charity that Lord Wright in All India Spinners' Assn. v. CIT uttered a
warning against blind adherence to English decisions on the subject thus:
"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."
Having regard to the aforesaid manner in which the definition of
"charitable purpose" given in s.2 (15) has been interpreted by this
Court the question that arises for consideration in these appeals is whether the
securities, interest from which is sought to be exempted from tax liability,
were held by the assessee-Council on trust wholly for a charitable purpose,
namely, for the advancement of an object of general public utility? Admittedly
the assessee- Council is not indulging in any activity for profit and hence the
aspect of considering the applicability of the restrictive words does not arise
and the answer to the question must depend upon the 549 nature or character of
the functions and activities which the assessee-Council can undertake under the
Advocates Act, 1961 for it is clear that it cannot go beyond what is prescribed
by that Act.
The Preamble of the Advocates Act, 1961 shows
that it was enacted with a view to amend and consolidate the law relating to
legal practitioners and to provide for the constitution of Bar Councils and an
All India Bar. Under s.3 of the Act Bar Councils are constituted for various
States and the assessee-Council happens to be a State Bar Council for
Maharashtra. Section 4 provides that every Bar Council shall be a body corporate
having perpetual succession and a common seal, with power to acquire and hold
property both movable and immovable and to contract, and may by the name by
which it is known sue or be sued. Section 6 is the material provision which
sets out both obligatory as well as optional functions of every State Bar
Council and so far as is material runs thus:
"6.(1)The functions of a State Bar
Council shall be- (a) to admit persons as advocates on its roll;
(b) to prepare and maintain such roll;
(c) to entertain and determine cases of
misconduct against advocates on its roll;
(d) to safeguard the rights, privileges and
interests of advocates on its roll;
(e) to promote and support law reform;
(ee) to conduct seminars and organise talks
on legal topics by eminent jurists and publish journals and papers of legal
interest;
(eee) to organise legal aid to the poor in
the prescribed manner;
(f) to manage and invest the funds of the Bar
Council;
(g) to provide for the election of its
members;
(h) to perform all other functions conferred
on it by or under this Act;
(i) to do all other things necessary for
discharging the aforesaid functions.
(2) A State Bar Council may constitute one or
more funds in the prescribed manner for the purpose of- (a) giving financial
assistance to organise welfare schemes for the indigent, disabled or other
advocates;
(b) giving legal aid or advice in accordance
with the rules made in this behalf." Sections 9, 9A and 10 of the Act
provide for the constitution of various committees for the purposes mentioned
therein. Section 15 confers power on the Bar Council to make rules to carry out
the purposes of this Chapter. The rest of the provisions of the Act are not
material for the purpose of the issue under consideration.
Counsel for the Revenue contended that the
primary object or purpose with which the Bar Council of a State is constituted
is to benefit the members of the legal profession inasmuch as under s.6 (1) (d)
it is an obligatory function of the State Bar Council to safeguard the rights
privileges and interests of the advocates of its roll and that other functions
like promotion of law reform, conducting law seminars etc. are incidental
objects and the benefit to the public is remote or indirect or incidental and,
therefore, the assessee-Council could not be regarded as a body intended to
advance the object of general public utility. It is impossible to accept this
contention. It is clear that sub-s. (1) Lays down the obligatory functions
while sub-s. (2) indicates what are the optional or discretionary functions
that could be undertaken by the State Bar Council and from amongst the
obligatory functions it will be wrong to pick out one and say it is the primary
or dominant object or purpose. All the clauses of sub-s. (1) will have to be
considered in light of the main objective sought to be achieved as indicated in
the Preamble. The functions mentioned in cls. (a) and (b) of sub-s. (1),
namely, to admit persons as advocates on its roll and to prepare and maintain
such roll, are clearly regulatory in character intended to ensure that persons
with requisite qualifications who are fit and otherwise proper to be advocates
are available for being engaged by the litigating public; the function
prescribed in cl. (c) has been enjoined upon avowedly with the objective of
protecting the litigating public from unscrupulous professionals by taking them
to task for any misconduct on 551 their part; it is also one of the obligatory
functions of a State Bar Council to promote and support measures for law reform
as also to conduct law seminars and organise talks on legal topics by eminent
jurists, obviously with a view to educate the general public, the function
prescribed by cl.
(eee) is obviously charitable in nature, the
same being to organise legal aid to the poor. Amongst these various obligatory
functions one under cl. (d) is to safeguard the rights, privileges and
interests of the advocates on its roll and it is difficult to regard it as a
primary or dominant function or purpose for which the body is constituted, Even
this function apart from securing speedy discharge of obligations by the
litigants to the lawyers ensures maintenance of high professional standards and
independence of the Bar which are necessary in the performance of their duties
to the society. In other words, the dominant purpose of a State Bar Council as
reflected by the various obligatory functions is to ensure quality service of
competent lawyers to the litigating public, to spread legal literacy, promote
law reforms and provide legal assistance to the poor while the benefit accruing
to the lawyer members is incidental. It is true that sub-s. (2) provides that a
State Bar Council may constitute one or more funds for the purpose of giving
financial assistance to organise welfare schemes for the indigent, disabled or
other advocates; but it is an optional or discretionary function to be
undertaken by the Council. Apart from that, admittedly the assessee-Council has
not so far constituted any such fund for the purpose specified in the instant
case. As and when such a fund is constituted a question may arise for
consideration and the Court may have to decide whether the function so
undertaken by a State Bar Council has become the dominant purpose for which
that Council is operating. Having regard to the Preamble of the Act and the
nature of the various obligatory functions including the one under cl. (d)
enjoined upon every State Bar Council Under s.6 (1) of the Act, it is clear
that the primary or dominant purpose of an institution like the
assessee-Council is the advancement of the object of general public utility
within the meaning of s.2 (15) of the Act, and as such the income from
securities held by the assessee-Council would be exempt from any tax liability
under s.11 of the Act.
Having come to the aforesaid conclusion on
applying the language of our Act to the nature of functions undertaken by a
State Bar Council under the Advocates Act 1961 it is truly unnecessary to deal
with the English decisions cited during the course of 552 arguments. However,
we might indicate that in two cases (Royal College of Surgeons case and the
General Medical Council's) case on an analysis of the functions undertaken by
the two concerned institutions under the Statutes and Charters governing them
the Court came to the conclusion that the institutions were not constituted for
charitable purpose but they were more of professional institutions, the
approach being to find out whether the objects satisfied the limited concept of
charity within the spirit and intendment of the Statute of Elizabeth. In the
other two cases (The Yorkshire Agricultural Society's case and The Institute of
Civil Engineers' case the Court took the view that both the institutions were
constituted for charitable purposes entitled the exemptions under s.37 (1) (b)
of the Income Tax Act, 1918, and the benefits accruing to the members were
regarded as incidental.
In the result we are of the opinion that the
High Court was right in answering the question in the affirmative and in favour
of the assessee. The appeals are accordingly dismissed with no order as to
costs.
S.R. Appeals dismissed.
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