TMI Blog1975 (9) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... Act ). They may be disposed of by one common judgment, although the two High Courts (Calcutta and Kerala) from where the appeals have come have taken contrary views on the single point in issue. What are the bounds set for earning exemption by a combined application of section 11(1) read with section 2(15) of the Act ? What 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 conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the prior Act. The straight question to be answered here is whether in plain English the three activities which have yielded profits to the chamber involve the carrying on of any activity for profit , uncomplicated by casuistic niceties, semantic nuances and case-law conflicts. Unfortunately, legislative simplicity has not 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 playin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which renders specific services to its members and, therefore, section 28 will ordinarily apply to its income, unless section 11 read with section 2(15) excludes it from taxability. The income drawn from nonmembers by the chamber will clearly be taxable unless section 2(15) comes to its rescue. Thus, the pivotal issue is as to whether the three 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 vir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity for profit . The core of the dispute before us is whether this intentional addition of a cut back clause expels the chamber from the tax exemption zone in respect of the triune profit-fetching sub-enterprises undertaken by way of service or facility for the trading community. The rival constructions put forward by counsel at the Bar may now be noticed. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs or incomes as may come to it from pursuing any activity for profit. Notwithstanding the possibility of obscurity and of dual meanings when the emphasis is shifted from advancement to object used in section 2(15), we are clear in our minds that by the new definition the benefit of exclusion from total income is taken away where in accomplishing a charitable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be served. The policy of the statute is to give tax relief for charitable purpose, but what fall outside the pale of charitable purpose ? The institution must confine itself to the carrying on of activities which are not for profit. It is not enough if the object be one of general public utility. The attainment of that object shall not involve activities for profit. What 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ' 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 the 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hink it necessary to discuss the various decisions of the High Courts cited before us nor need we seek light from the English cases either. After all Indian law must bear Indian impress derived from Indian life. In All India Spinners' Association v. Commissioner of Income-tax, Lord Wright, speaking for the judicial Committee, and considering the subject of charitable purposes as justifying 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit. Even so, it may legitimately be said that the activity is appropriate or adapted to such profit . We may wind up with a brief rounding off and indication on the approach. A pragmatic condition, written or unwritten, proved by a proscription of profits or by long years of invariable practice or spelt from strong surrounding circumstances indicative of anti-profit motivation such a condition will 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itration. This is undoubtedly a service of general public utility--preventing protracted commercial litigation. If the fee charged for doing so is more or less commensurate with the expense the chamber has to incur a minor surplus will not attract tax. But no such restriction is written into the rules governing the chamber. It may charge a heavy sum and spend much less for hiring experts to decide the dispute. There is no magna carta binding the Indian or Cochin or Bengal Chamber of Commerce not to sell arbitral justice. Suppose a specialist in mercantile law and practice of reputable integrity offers himself regularly for arbitration of commercial disputes for a high fee, is he not making an income ? The difference between the two is as between Tweedledum and Tweedledee. Surely, if an innate, articulated, restraint on the levy for these, undoubted services to trade existed as a fact, so as to remove the slur of activity for profit, then the umbrella of charitable purpose would protect small surpluses. We hold that the incomes of the chambers sought to be taxed are taxable. Civil Appeal No. 2129 of 1970 is dismissed and Civil Appeals Nos. 2455 to 2457 of 1972 are allowed. Partie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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