TMI Blog1981 (4) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that the same was derived from property held under trust wholly for charitable or religious purposes within the meaning of section 11(1) of the I.T. Act, 1961 ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sole purpose of the Chambers was the advancement of such objects of general public utility as did not at all involve the carrying on of any activity for profit and, therefore, a ' charitable purpose ' within the meaning of section 2(15) of the I.T. Act, 1961 ? (iii) Whether the Tribunal was right under the law in holding that the onus of proving that the income which the assessee claimed to be exempt was in fact not exempt lay on the department and assuming but not admitting that it was right in holding so, whether the Tribunal was correct in holding that the department had failed to discharge the onus placed on it under the law ? " There is a conflict in the decisions of the High Courts in respect of questions of law as suggested by the applicant. The view expressed by the Calcutta High Court in the recent decision of CIT v. Indian Chamber of Commerce [1971] 81 ITR 147 is different from the view tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd international exhibitions. (h) To set up museums or show-rooms, to exhibit products of India and other countries and to participate in such activities. (i) To secure the interest and well being of the Indian business communities abroad. (j) And generally to do all that may be necessary in the interest of the realization of the above objects of the Federation directly or indirectly. (k) To attain those advantages by united action which each member may not be able to accomplish in its separate capacity. (l) To have power to establish offices or agencies within or outside India or appoint agents there in order to carry out the objects mentioned above. (m) To help in the organisation of chambers of commerce or commercial association in different commercial centres of the country. (n) To convene when thought necessary commercial conference at such place and at such time as may be determined. (o) From time to time to borrow or raise moneys which may be required for the purpose of the Federation upon bonds, debentures, bills of exchange, promissory notes or other obligations for securities of the Federation or by mortgage or charge of the Federation's property. (p) To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curities of any other association or company having objects altogether or in part similar to those of the Federation. (z) To take or otherwise acquire and hold shares in any other association or company having objects altogether or in part similar to those of the Federation. (z-1) To establish a trust or trusts and/or appoint trustees thereof from time to time and vest the funds or the surplus income or any property of the Federation in the trustees who shall hold and deal with the funds, surplus income or property in such manner as the committee may decide. (z-2) To undertake and execute any trusts the undertaking of which may seem to the Federation desirable either gratuitously or otherwise. (z-3) To draw, make, accept, discount, execute and issue bills of exchange, promissory notes, bills of lading, warrants, debentures and other negotiable instruments or securities. (z-4) And generally to do all other things incidental to the attainment of the above objects : Provided that the company shall not support with its funds, or endeavour to impose on or procure to be observed by its members or others, any regulation or restriction which if any object of the company would mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry stalls and storage, which amounted to Rs. 75,18,548. It received on sale of season tickets Rs. 20,750 and on sale of daily gate tickets Rs. 3,94,143. It also realised deposits and advance from contracts, advance from participants for hotel accommodation. For the period from September, 1959, to December, 1961, it realised advances for arbitration, Rs. 20,000, against which after expenses the assessee had a closing balance with the Bank of Baroda at Rs. 299.18. It received grant-in-aid from Government amounting to Rs. 3,00,000 in respect of the conference of Afro-Asian Organisation for Economic Co-operation for the period from September, 1961, to December 31, 1961, and after meeting expenses the Federation had a balance of Rs. 2,17,346.38. 5. In the proceedings for assessment of tax for the accounting year relevant to the assessment year 1962-63, the assessee claimed exemption of income under s. 11(1)(a) of the I.T. Act, 1961, and as such filed the income-tax return at nil figure. By relying upon the phrase " not involving the carrying on of any activity for profit " as contained in s. 2(15) of the I.T. Act, 1961, the ITO held that the principle decided by the Supreme Court in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fairs would involve activities for profit and as such whether the activity resulted in a loss or not would be no criterion and when the activities spell out activity for profit, the assessee was not entitled to exemption of income. He further submitted that only those activities would not be included as profit or income which resulted in acquisition of capital asset as contemplated in s. 2(14) of the I.T. Act, 1961. He further urged that even if the whole property or income is held under charitable trust, so long as any of the objects vitiates the object of charitable purpose, the entire income attracts tax. He further submitted that under the provisions of the I.T. Act the onus lies upon the assessee to prove that it comes within the exempted provisions of the Act. Thus, the departmental representative led the Tribunal through the definition of charitable purpose as contained in s. 2(15) of the Act. It was also stated by him that the definition of " charitable purpose " is an inclusive one and it 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 ". He a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial fairs every year and in its long history of twenty-five years, industrial fairs were held only twice. It was submitted that during the accounting year the assessee received stall hires on account and unless adjustment of expenditure was made it could not be stated that there was any income of the assessee. He further submitted that there was no motive to make profit in the activities of the Federation and if profits arose, they were incidental or ancillary to the dominant object for the welfare and common good of the country's business and business communities and associations which were the members of the Federation. It was further stated that the restaurant was run not for the purpose of making profit but for the purpose of carrying on exhibition which itself was for the welfare of the business community. Secondly, he argued, that when the dominant object could not be fulfilled without the ancillary objects which were referred to by the departmental representative, the assessee was entitled to get exemption. It was further submitted by him that even assuming that the purpose was to earn profit, the profit was to be understood in a commercial sense, a sense which no commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a presumption that Parliament understands and appreciates the needs of its own people and laws are directed to problems made manifest by experience, and as such Parliament has enacted the provisions of s. 2(15) of the Act having regard to the implications in the decision of CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722- (SC). (3) The Tribunal being a fact-finding authority and being a judicial body should take into consideration matters of common knowledge, matters of common report, history of the times and may assume every state of fact which can be conceived at the time of legislation. (4) It is not only the phraseology of the provisions of the statute that governs the situation but the effect of law is the decisive factor. 10. The departmental representative also relied upon the punctuation mark for interpretation of " charitable purpose " as contained in s. 2(15) of the Act. The Tribunal, relying upon the observations of the Supreme Court in A. K. Ghose v. Arabinda Bose, AIR 1952 SC 369, 383, held that the punctuation mark is a minor element in the construction of a statute. It also held that the statement of objects and reasons attached to a Bill was to be excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mischief. In the recent decision of the Mysore High Court in CIT v. Sole Trustee, Loka Shikshana Trust [1970] 77 ITR 61, their Lordships have held that when a trust is involved in the carrying on of a commercial activity for profit, it ceases to be a trust for charitable purpose under the Act. In that case the object of the trust was for educating the people in India in general and of Karnatak in particular by establishing, conducting and helping directly or indirectly institutions calculated to educate the people by spread of knowledge on all matters of general interest and welfare, founding and running reading rooms and libraries and keeping and conducting printing houses and publishing or aiding the publication of books, leaflets, pamphlets, magazines and other objects with the object of educating the people. Yet as this trust conducted the printing press and published a daily paper, their Lordships held that though the main object of the trust is supplying the Karnatak people with an organ of educated public opinion, yet as the income of the trust is largely from newspaper, the trust involved a commercial activity for profit and as such the trust would not be entitled to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable under section 10 ? " The High Court answered the first question against the assessee and did not give a formal answer to the second question. The Supreme Court decided the first question which was answered against the assessee in its favour and their Lordships had to interpret the meaning of " charitable purpose " as contained in the Act of 1922. Their Lordships had no occasion to discuss whether the activities of the assessee amounted to trade, business or profit or loss in activities involving profit. The object clause of the memorandum of association is based on the doctrine of ultra vires. The object clause requires that the company should devote itself only to the objects set out in the memorandum to delimit and identify the objects in such plain and unambiguous manner as that the reader can identify the field of activities within which the corporate activities are to be confined. And it is the function of the courts to see that the company does not move in a direction away from that field. The object clauses state the powers of the company and they state negatively that nothing shall be done beyond that ambit and that no attempt shall be made for any other pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he I.T. Act, 1961, has been defined in cl. (15) of s 2 of the Act. Section 2 begins with the words " In this Act, unless the context otherwise requires " and this is applicable to all definitions therein. 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. Sub-section (1) of s.11 states: " Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated for application to such purposes in India, to the extent to which the income so accumulated is not in excess of twenty-five per cent. of the income from the property or rupees ten thousand, whichever is higher ; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell in his book (Interpretation of Statutes) (9th Edn.) at p. 34 states that definitions in dictionaries are to be deprecated. As per Asquith J., in Kerr v. Kennedy [1942] 1 KB 409, 413 (KB): " In the absence of any judicial guidance or authority, dictionaries can be consulted. " At p. 35 of his book, it has been stated that for technical terms reference may be made to technical words. As stated by P. B. Mukharji J. (as he then was) in the case of Consolidated Tea Land Co. (India) Ltd. v. CWT [1970] 76 ITR 589 (Cal), words like ideas have a certain association which is provided by the context, the object and purpose of the statute in which they were used. These lines of thought as stated above do appear to be appropriate in considering the meaning of the word " profit " in the commercial sense. It has been stated by the learned counsel for the assessee that holding of industrial fair by the Federation is not the annual feature as in the course of 25 years only twice it held such fairs., It was stated that income from books on company law is not a commercial feature and it is for the purpose of carrying out other ancillary objects of the Federation. The articles and memorandum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. If we take this view of the matter, it is the department which has to prove that the dictionary meaning of " profit has been used by Parliament in s. 2(15) of the Act. But on a close reading of the charging ss. 4 and 5, s. 11(4), definitions parts and ss. 15 and 59, we cannot hold that Parliament has used the loose dictionary meaning of profit which has have canvassed by the departmental representative before us. We are to take a commonsense approach in interpreting the meaning of the word " profit " in which it has been used in s 2(15) of the Act, as commonsense approach is not always to be abjured in the interpretation of a taxing statute. Thus, in the language of Shah J., in Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC), it can be stated that when the I.T. Act does not provide that whatever is received by an assessee must be regarded as income liable to tax and when the receipt is sought to be taxed as income the burden lies upon the department to prove that it is within the taxing provision and the department has not been able to prove this in the instant case. Besides cl. 3 of the memorandum of association, we are to consider all other clauses of the memorandum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as registered under s. 26 of that Act and permitted to omit the word " Limited " from its name. It has neither any share capital nor does it distribute any dividends to its members. The entire income is expended for the fulfilment of its objects. The main object of the assessee is the promotion, protection and development of trade, commerce and industry in India. The main objects for which the Federation has come into existence are set out in cl. 3 of the memorandum of association which, in so far as material, reads: 3. (a) To promote Indian business in matters of inland and foreign trade, transport, industry and manufactures, finance and all other economic subjects and to encourage Indian banking, shipping and insurance. While cl. 3(a) defines the primary purpose of the trust, i.e., to promote trade and industry which undoubtedly being an object of general public utility engaged in carrying on activities without any profit motive, the subsidiary objects set out in sub-cls. (b) to (z-2) of cl. 3 are merely incidental or ancillary thereof. During the assessment year 1962-63, the relevant accounting year for which was the year ended December 31, 1961, the assessee submitted r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO, however, felt that the decision of this court in the Andhra Chamber of Commerce case [1965] 55 ITR 722 (SC) was no longer good law due to the addition of the words " not involving the carrying on of any activity for profit " in the definition of " charitable purpose in s. 2(15) of the Act which qualify the fourth head of charity, viz., any other object of general public utility ", and, therefore, must be read subject to the additional statutory requirement that the object of general public utility should not involve the carrying on of any activity for profit. He accordingly raised a demand of Rs. 49,818 on a total income of Rs. 84,430. On appeal, the AAC disagreed with the view of the ITO and held that the activities carried on by the assessee were not profit oriented and, therefore, its income was exempt. The Commissioner appealed to the Appellate Tribunal without any success. The Tribunal upheld the view of the AAC and held that the dominant object with which the Federation was constituted being a charitable purpose, viz., promotion, protection and development of trade, commerce and industry, there being no motive to earn profits, it was not engaged in any activity in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersed these two decisions in Loka Shikshana Trust case [1975] 101 ITR 234 (SC) and the Indian Chamber of Commerce case [1975] 101 ITR 796 (SC). The court has approved of the observations of Beg J. in his separate but concurring judgment in the Loka Shikshana Trust case that (p. 256) " if the profit must necessarily feed charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust". In other words, the majority view in the Surat Art Silk case was that the condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is not the real object. The theory of dominant or primary object of the trust has, therefore, been treated to be the determining factor, even in regard to the fourth head of charity, viz., the advancement of any other object of general public utility, so as to make the carrying on of the business activity merely ancillary or incidental to the main object. One should have thought that the correct way to approach this question of interpretation was to give the words used by Parliament their ordinary meaning i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Radcliffe Commission on Taxation of Profits and Income 1 recommended in 1955, that for purposes of taxation, charity should be restricted to relief of poverty, advancement of education and advancement of religion and that the fourth category mentioned in the dictum of Lord Macnaghten, namely, " trusts for other purposes beneficial to the community " should be cut out entirely. The majority in the Surat Art Silk case [1980] 121 ITR 1 (SC) has evolved the doctrine of dominant or primary object and there is little that we can do about it. Faced with this difficulty, learned counsel for the revenue advanced no submissions with regard to the questions referred and indeed in view of the majority decision in Surat Art Silk case [1980] 121 ITR 1 (SC), the answers to the questions are self-evident. The doctrine of dominant or primary object must, as laid down in Surat Art Silk case, hold the field till there is a change in the law. Undoubtedly, the activities of the assessee in regard to holding of the Indian Trade Fair and sponsoring the Conference of the Afro-Asian Organisation in the relevant accounting year were for the advancement of the dominant object and purpose of the trust, vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution is charitable, any other object which is merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or the institution from being a valid charity. Likewise, cls. 3(z-1) and (z-2) which permit the establishment of a trust or trusts, appointment of trustees thereof from time to time and the vesting of funds or surplus income or any property of the assessee in the trustees, are nothing but powers conferred on them for the proper financial management of the affairs of the trust which are incidental or ancillary to the main purpose of the trust. The contention must, therefore, fail. In the result, the reference under s. 257 of the I.T. Act, 1961, made by the I.T. Appellate Tribunal, Delhi-B New Delhi, must be answered against the revenue and in favour of the assessee. There shall be no order as to costs. VENKATARAMIAH J.-I have had the advantage of reading the judgment prepared by my learned brother, A. P. Sen J., and I respectfully agree with his reasoning and conclusion. I share with him my doubts about the correctness of the decision in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC). I would like to sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, A. P. Sen J., in the Surat Art Silk Cloth Manufacturers Association case (See [1980] 121 ITR 1, 54): " The judicial attitudes cannot be formed in isolation from legislative processes, particularly in connection with tax avoidance provisions. It is true that it is open to the Legislature to give encouragement to objects which it considers to be laudable by means of fiscal exemptions. At the same time it takes care to enact fresh provisions from time to time to suppress any mischief which may have resulted from the misuse of the existing law. Parliament deliberately stepped in by adding the words " not involving the carrying on of any activity for profit " in the definition of charitable purpose in s. 2(15) of the Act, when the tax exemptions available to charitable and religious trusts came to be misused by some for the unworthy purposes of tax avoidance. The law had been so re-structured to prevent allergy to taxation masquerading as charity. The law was thus designed by Parliament to prevent this misuse of tax exemption in the name of charity. The majority decision in Surat Art Silk Cloth Manufacturers Association case [1980] 121 ITR 1 (SC), if I may say so without meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the spirit and intendment of the preamble to the Statute of Elizabeth if it is to be regarded as charitable. There is no such limitation so far as Indian law is concerned even if a purpose is not within the spirit and intendment of the preamble to the Statute of Elizabeth, it would be charitable if it falls within the definition of 'charitable purpose ' given in the statute. Every object of general public utility would, therefore, be charitable under the Indian law, subject only to the condition imposed by the restrictive words 'not involving the carrying on of any activity for profit' added in the present Act. It is on account of this basic difference between the Indian and English law of charity that Lord Wright uttered a word of caution in, All India Spinners' Association v. CIT [1944] 12 ITR 482 (PC) against blind adherence to English decisions on the subject. The definition of 'charitable purpose' in 'the Indian statute must be construed according to the language used there and against the background of Indian life. " If Indian life should be a true guide for the determination of questions arising in court, then we should go back to our ancient treatises to find out the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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