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TMI Blog1975 (9) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... is the parameter 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 section 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 Sole Trustee, Loka Shikshana Trust v. Commissioner of Income-tax. The assessees are the Indian Chamber of Commerce and the Cochin Chamber of Commerce. Their memoranda and articles of association are substantially similar and so the facts in the first case alone need be stated and the question of law discussed with reference to that case only. Hardly any distinction on facts or law which desiderate a separate consideration exists. The Indian Chamber of Commerce is a company registered under section 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 utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Commissioner of Income-tax observed, while considering the import of section 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 draftsman 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e channels of income may be treated as charitable purposes and, therefore, eschewed by section 11 from the charging provision. At this stage we may read section 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 exsuscitated 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed. 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 touchstone used in several Kerala decisions. If this be the parameter, he argues, the three activities are saved because they render service, promote trade and facilitate the wheels of business to move. They do not form activities for making profit ; they are in fulfilment of the objects of the chamber. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 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. According to that view, whatever the activity, if it is intertwined with, 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 absured 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 exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 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 section 2(15). For instance, a funeral home, an S.P.C.A. or a co-operative 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 profit. As a antithesis, take a funeral home or an animal welfare organisation or a super-bazaar run for general public utility by an institution which charges larg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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 ......(emphasis ours). By the use of the expression 'profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fying exemption from income-tax, observed : " 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 some-times 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 section 2(15) according to the language used there and against the background of Indian life. 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. The assessee-company was conducting a profitable business of running chit funds and its memorandum of associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll qualify for " charitable purpose " 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 section 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 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, how does the Indian Chamber fare ? The substantial item of income comes from the share of profits in the firm called, Messrs. Calcutta Licensed Measurers. True, the issuance of weighment and measurement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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