TMI Blog1975 (8) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ad with section 2(15) of the same Act, for the assessment year 1962-63 ? " Charitable purpose " was defined in section 4(3) of the Indian Income-tax Act, 1922, as under : " In this sub-section 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility." The definition of " charitable purpose " as given in section 2(15) of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), with which we are concerned reads as under : " (15) ' 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." It would appear from the above that in the definition of "charitable purpose " as given in the Act the words " not involving the carrying on of any activity for profit " have been added at the end of the definition as given in the Act of 1922. We shall see as to what is the effect of the above addition. In order to see as to whether the appellant-trust is for a charitable purpose, we may first go into the question as to what is the object of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka in particular by-- (a) 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 : (b) founding and running reading rooms and libraries and keeping and conducting printing houses and publishing or aiding the publication of books, booklets, leaflets, pamphlets, magazines, etc., in Kannada and other languages, all these activities being started, conducted and carried, on with the object of educating the people ; (c) supplying the Kannada speaking people with an organ or organs of educated public opinion and conducting journals in Kannada and other language for the dissemination of useful news and information and for the ventilation of public opinion on matters of general public utility ; and (d) helping directly or indirectly societies and institutions which have all or any of the aforesaid objects in view. 6. The Original Trustee shall have power and authority to spend and utilise the money and the property of the Trust for any of the purposes of this Trust in such manner as to him may appear proper. The Original Trustee shall be entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Trust against any loss or damage which the Trustee might suffer in regard to any act, deed, or omission of his in the performance of his duties as a Trustee, including any fines or penalties imposed under the Factories Act or any Labour Legislation or Press Act or any other similar enactment." The Income-tax Officer sent a communication to the trust on April 27, 1963, to the effect that since the only activity of the trust was printing, publication and sale of newspaper, weekly and monthly journal, the trust carried on an activity for profit and was not entitled to exemption. In reply to that notice the Sole Trustee stated that the above-mentioned activities of the trust were covered by clause (c) of the objects clause of the trust deed. It was added that the above object did not involve the carrying on of any activity for profit. In a further communication dated June 26, 1964, the Sole Trustee wrote : " The Trust has four objects in its objects clause one of which is to supply the Kannada speaking people with an organ or organs of educated public opinion, etc. (clause 2(c) of Trust Deed). Under this clause we conduct the publication of newspapers. This has not been agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. Again, when you grow up and have dealings with other people, some of whom are not straight, you learn by experience and thus add to your knowledge of the ways of the world. If you are not careful, your wallet is liable to be stolen or you are liable to be cheated by some unscrupulous person. The thief who removes your wallet and the swindler who cheats you teach you a lesson and in the process make you wiser though poorer. If you visit a night club, you get acquainted with and add to your knowledge about some of the not much revealed realities and mysteries of life. All this in a way is education in the great school of life. But that is not the sense in which the word "education" is used in clause (15) of section 2. What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling. The question as to whether a trust the object of which is to supply the people with an organ of educated public opinion should be considered to be one for educati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of the trust was relief of the poor, education, medical relief or the advancement of any other object of general public utility, the trust was considered to be for a charitable purpose. 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 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 thus of the change in the definition is that in order to bring a case within the fourth category of charitable purpose, it would be necessary to show that : (1) the purpose of the trust is 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 not necessary for the decision of the case, as already mentioned above, to go into the question as to whether the words " not inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that there are some business activities like mutual insurance and co-operative 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 incident 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 in assuming in the absence of some indication to the contrary that the object of the trust involves the carrying on of an activity for profit. The expression '.business", as observed by Shah J., speaking for the court in the case of State of Gujarat v. Raipur Mfg. Co., though extensively used in taxing statutes, is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard, an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted of no doubt after the pronouncement of the judicial Committee in the cases of Tribune and All India Spinners' Association. If despite that fact, the legislature added new words in the definition of charitable purpose, it would be contrary to all rules of construction to ignore the impact of the newly added words and to so construe the definition as if the newly added words were either not there or were intended to be otiose and redundant. The appeals fail and are dismissed but in the circumstances without costs. BEG J.- The question, answered in the negative in this case by the Mysore High Court, which is now before us after certification of the case under section 261 of the Income-tax Act, 1961 (hereinafter referred to as the Act "), was framed by the Income-tax Tribunal as follows : Whether, on the facts and in the circumstances of the case, the income of the Loka Shikshana Trust was entitled to exemption under section 11 of the Income-tax Act, 1961, read with section 2(15) of the same Act, for the assessment year 1962-63." The appellant is a sole trustee of the " Loka Shikshana Trust ", holding properties mentioned in a schedule attached to a deed of trust executed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which a deduction could not be claimed by any private concern carrying on a profitable business. These items of expenses consisted of money spent on repairs of buildings, payments of taxes, purchases of newsprint and other kinds of paper, ink, photographic materials, blocks, binding, stitching and packing materials, payments of salaries, wages and allowances to the staff. After deducting the total expenditure of Rs. 4,92,246.81 from the gross income, the net income for the year is shown as Rs. 30,376.80 for which exemption from income-tax is claimed by the appellant on the ground that it is protected from taxation by section 11 read with section 2(15) of the Act. The trust deed of 1962, which, as already stated, is a part of the statement of the case, gives the past history of the trust, in the course of a fairly long preamble. It contains the following passage giving some idea of the activities of the trust, the composition of its present assets, as well as of utilisation of its income since 1935 : " AND WHEREAS in furtherance of the objects contained in the said deed of Trust dated 15th July, 1935, I took over on 17th July, 1935, a concern called the Karnatak Prakashana Man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing or aiding the publication of books, booklets, leaflets, pamphlets, magazines, etc., in Kannada and other languages, all these activities being started, conducted and carried on with the object of educating the people ; (c) supplying the Kannada speaking people with an organ or organs of educated public opinion and conducting journals in Kannada and other languages for the dissemination of useful news and information and for the ventilation of public opinion on matters of general public utility ; and (d) helping directly or indirectly societies and institutions which have all or any of the aforesaid objects in view." In addition to the power which the sole trustee had to collect donations and subscriptions for the trust, he had all the powers which the sole manager of a business may have in order to carry it on profitably. He had the power of transferring trust properties and funds if he thought " it expedient in the interest of the objects of the trust, to transfer the assets and liabilities of this trust to any other charitable trust or institution conducted by such trust, which in the opinion of the original trustee or the board of trustees, has objects similar to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... education " which must control and determine the true nature of the activities of the trust so that profit making, as an incidental consequence of these activities, was quite immaterial ; and, secondly, even if the activities of the trust did not fall within the separate category of "education" as such, in which case profit yielding became quite irrelevant, but fell under the more general or the 4th and last category of purposes of general public utility specified in section 2(15) of the Act, the mere fact that the conduct of the printing business was profitable sometimes or even constantly was not enough to make it an activity carried on " for profit ". The first contention rests on the assumption that an express mention of a dominant though general purpose of " education " will enable the courts to supervise the execution of such a trust as one intended solely for educational purposes. The second submission, accepted by the Income-tax Tribunal but rejected by the High Court, implies that the profit-making motive must be specifically and expressly made the object of an activity which is of obvious utility to the public before exemption from taxation can be denied to such an activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment by Sir Samuel Romilly in Morice v. Bishop of Durham. These were :(1) relief of poverty, (2)advancement of education ; (3) advancement of religion ; (4) other purposes beneficial to the community not falling under any of the preceding heads. The last or the residuary category seemed very wide and general. Properly speaking such a wide category would be interpreted, if it were found in a statute, ejusdem generis with the previous three categories which were less wide and more specific. The framers of our Act of 1922 must have been attracted by this classification which they adopted with some modifications. " Medical relief " was apparently substituted for " advancement of religion. " In All India Spinners' Association v. Commissioner of Income-tax, Lord Wright, while considering the meaning of section 4(3) of the 1922 Act, observed : The Act of 43 Elizabeth (1601) contained in a preamble a list of charitable objects which fell within the Act, and this was taken as a sort of chart or scheme which the court adopted as a groundwork for developing the law. In doing so they made liberal use of analogies so that the modern English law can only be ascertained by considering a mas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses seems to have revolved round the question whether the body of beneficiaries was large enough to constitute the purpose one of " public utility ". Some of the decisions on income for which exemption was claimed on the ground that it was meant for a charitable purpose failing within the wide residuary class perhaps travelled even beyond the " bursting point " to which, according to Lord Russell of Killowen, English courts had stretched the concept of charity (see In re Grove-Grady ). At any rate, the reason which induced our Government to make an amendment to section 2(15) of the Act of 1961 was thus stated by the Finance Minister, Shri Morarji Desai, in the course of his speech in Parliament explaining the proposed amendment (See Lok Sabha Debates , dated August 18, 1961) : " The other objective of the Select Committee, limiting the exemption only to trusts and institutions whose object is a genuine charitable purpose has been achieved by amending the definition in clause 2(15). The definition of 'charitable purpose' in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving a public purpose, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law the amendment had sought to remove. It was not just the speech of any member in Parliament. It was the considered statement of the Finance Minister who was proposing the amendment for a particular reason which he clearly indicated. If the reason given by him only elucidates what is also deducible from the words used in the amended provision, we do not see why we should refuse to take it into consideration as an aid to a correct interpretation. It harmonises with and clarifies the real intent of the words used. Must we, in such circumstances, ignore it ? We find that section 57, sub-section (4), of the Evidence Act, not only enables but enjoins courts to take judicial notice of the course of proceedings in Parliament assuming, of course, that it is relevant. It is true that the correctness of what is stated, on a question of fact, in the course of Parliamentary proceedings, can only be proved by somebody who had direct knowledge of the fact stated. There is, however, a distinction between the fact that a particular statement giving the purpose of an enactment was made in Parliament, of which judicial notice can be taken as part of the proceedings, and the truth of a disputabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of general public utility which involves the carrying on of any activity for profit should not come within the ambit of a charitable purpose. " In Commissioner of Income-tax v. Vadilal Lallubhai this court, following its earlier decision in Commissioner of Income-tax v. Sodra Devi, did not consider it at all inappropriate to refer to the Select Committee's Report for finding out the reason behind an ambiguous provision so as to be able to apply the mischief rule. It is too late in the day for Mr. Palkhivala to object to the adoption of such a course in an attempt to apply the mischief rule to find out the reason behind an amendment of the law. The case on which Mr. Palkhivala, the learned counsel for the appellant, relies most strongly for support to his client's case on merits is In re The Tribune, where the Privy Council, allowing an appeal from a Full Bench decision of the Lahore High Court, held that the income of a trust, the object of which was described as " supplying the Province with an organ of educated public opinion " was entitled to exemption on the ground that it was a trust for the purpose of " general public utility and not just for propagating any politic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the word "private" before "profit" which is quite unjustifiable. Furthermore, if that was the sole purpose of the amendment, we think that the amendment was not necessary at all. It had been declared repeatedly by the courts even before the amendment that activities motivated by private profit making fell outside the concept of charity altogether. We think that it is more reasonable to infer that the words used clearly imposed a new qualification on public utilities entitled to exemption. It was obvious that, unless such a limitation was introduced, the fourth and last category would become too wide to prevent its abuse. Wide words so used could have been limited in scope by judicial interpretations ejusdem generis so as to confine the last category to objects similar to those in the previous categories and also subject to a dominant concept of charity which must govern all the four categories. But the declaration of law by the Privy Council in the Tribune case had barred this method of limiting an obviously wide category of profitable activities of general public utility found entitled to exemption. Hence, the only other way of cutting down the wide sweep of objects of " gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit, provided that profit has to be used up for what is recognised as charity. The very concept of charity denotes altruistic thought and action. Its object must necessarily be to benefit others rather than one's self. Its essence is selflessness. In a truly charitable activity any possible benefit to the person who does the charitable act is merely incidental or even accidental and immaterial. The action which flows from charitable thinking is not directed towards benefiting one's self. It is always directed at benefiting others. It is this direction of thought and effort and not the result of what is done, in terms of financially measurable gain, which determines that it is charitable. This direction must be evident and obligatory upon the trustee from the terms of a deed of trust before it can be held to be really charitable. We think that this governing idea of charity must qualify purpose of every category enumerated in section 2(15) of the Act of 1961. We think that the words introduced by, the Act of 1961 to qualify the last and widest category of objects of public utility were really intended to bring out what has to be the dominant characteristic of each and every cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trust funds for purposes of the trust but could divert its assets as well as any of the funds of the trust to other institutions whose objects are " similar to the objects " of the trust and of " carrying out the objects and purposes of this trust either fully or partially ". The whole deed appears to me to be cleverly drafted so as to make the purpose of clause 2(c) resemble the one which was held to be protected from income-tax in the Tribunal case. Indeed, the very language used by the Privy Councial in the Tribune, case for describing the objects of the trust in that case seems to have been kept in view by the draftsman of the trust deed before us. And we find that the power of diverting the assets and income of the trust, although couched in language which seems designed to conceal their real effect, is decisive on the question whether the trust is either wholly or predominantly for a charitable purpose or not. The trustee is given the power of deciding what purpose is allied to or like an object covered by the trust and how it is to be served by a diversion of trust properties and funds. If the trustee is given the power to determine the proportion of such diversion, as h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use 2(c) of the deed. This clause speaks of a supply of " organs of educated public opinion " to Kannada speaking people and of a presumed need for " useful " information and " ventilation " of views on " matters of public utility ". It is left to the trustee to decide which class of people is " educated " so as to be permitted to voice its views through these organs. He is also to decide what is " useful " and what is harmful and what is a matter of general public utility ". If, as it seems to us to be the position here, the trustee is the sole judge of how these presumed needs are to be satisfied, he could certainly cater for them in a manner which would be considered debased or offensive by people of good taste with a proper sense of values. I do not mean to cast the slightest reflection on the manner in which the appellant-trustee conducts his business or on the quality or value of materials found in his newspapers or other publications We have no evidence and no finding on these aspects of the case before us. All I would like to point out here is that the trust deed leaves it entirely to the sweet will of the sole trustee to decide all questions relating to policy or the way i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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