TMI Blog1947 (2) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of most, if not of all, companies registered without the word limited, the profit making motive of the company is subordinate to, and more often than not wholly displaced by, its more beneficent objects. But this does not alter the fact that it can make profits . The assessee has, in this case, been assessed to tax as, and according to the scale applicable to, a company, as defined by Section 2(6) of the Indian Income- tax Act, for the two assessment years 1938-39 and 1939-40 respectively. The first question of law referred to us by the Appellate Tribunal in this respect is:- (1) Whether the Upper India Chamber of Commerce, Cawnpore, was rightly treated as a company within the meaning of Section 2(6) of the Income-tax Act and assessed as such to income-tax for the assessment years 1938-39 and 1939-40. The argument in support of the view that the assessee should not have been treated as a company for the purpose of assessment rests on the ground that, inasmuch as the assessee never contemplated, embarking on any business in a commercial sense, it should not be treated as a company because the ordinary conception of the activities of a limited liability c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities and deposits and so much of the annual value of its Cawnpore premises as was taxable, it had no other income except the subscriptions of its members (with which it is agreed that we are not concerned), and a very small item of ₹ 987 gross in 1938-39 and ₹ 660 in 1939-40 the bulk of which was received from non-members for managing their affairs and the balance (a sum of ₹ 162 in 1938-39) on the registration of trade marks. With these I deal later. The Income-tax Officer assessed the assessee in the years in question:- (1) in respect of its interest on securities and deposits, under Section 6(ii) and Section 8 of the Indian Income-tax Act; (2) in respect of the entire annual value of its property, under Section 6(iii) and Section 9(1) of the Act, without making any apportionment in respect of any portion thereof occupied for the purpose of any business, profession or vocation carried on by the assessee the profits of which were assessable to tax , on the simple ground that the assessee was carrying on no business the profits of which were assessable to tax as such; and (3) in respect of the small sums derived from non-members, after al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t concede this, but said:- Exception is taken out to (semble, 'to that') course, but we find no justifiable reason to interfere. Admittedly the company is not carrying on business in the sense that expression has been defined in Section 2(4) as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. No exception can be taken on that account under Section 10(2)(i). It is admittedly not a deduction that can be made under section 9 . It is fair to say that, notwithstanding the repeated use by the members of the Tribunal of the word admittedly , there is no suggestion that the assessee ever admitted that it was not carrying on business . The next stage has been, as the statement of the case points out, that the assessee has again somewhat shifted its ground by contending now that its activities constitute a vocation , and as such entitle it to the benefit of the exception contained in Section 9 of the Indian Income-tax Act. It should be pointed out that, while it has been found by the assessment order for 1938- 39 dated the 26th September, 1938, that the net income derived from non-members is inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e our own judgment for theirs, even though it might be our view that the Appellate Tribunal was wrong. None of these cases which require questions of law to be distinguished from questions of fact is very easy, and I think myself that authorities dealing with particular circumstances are apt to become misleading when applied to other circumstances. The problem here is whether the question, whether the assessee was, in the assessment years, occupying any part of the Cawnpore premises for the purpose of any business, profession or vocation carried on by him the profits of which are assessable to tax, is one of fact, or is one involving a question of law. Now, what does the answer to it require? It requires the ascertainment first of what the assessee was doing. Those are facts and they are found by the Appellate Tribunal. It then involves applying those facts to the question whether they constitute a business or vocation , and if so, whether such business or vocation was assessable to tax. The words business and vocation by themselves are, I think, very ordinary English words and I am inclined to the view that what in the common parlance of language, constitutes a busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression business, profession or vocation , it is difficult to hold that no question of law arises out of the words taken as a whole. Moreover, the words to be construed in Section 9(1) of the Income-tax Act are not simply business or vocation . They are business..............or vocation, the profits of which are assessable to tax , that is to say a business or vocation of a particular kind, namely one producing profits to which the Income-tax Act applies. This again appears to involve a question of law. In my judgment, therefore I am inclined to the view, thought not without some hesitation, in the circumstances of this case, that a question of law is involved in determining whether the assessee was, in the assessment years, occupying its Cawnpore premises for the purpose of carrying on any business or vocation, the profits of which were assessable to tax as such. That being so, it is open to us to consider whether, on the facts as disclosed by the statement of the case, any part of its Cawnpore premises was occupied by the assessee for the purposes of carrying on a vocation the profits of which are assessable to tax. It is observed that the actual question in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... businesses or vocations, whereas in truth and in reality they were nothing of the kind. The question is not, I think, whether the assessee company can legally and properly perform certain isolated functions under its memorandum; but whether those particular isolated activities (which in this case, it, of course, had a perfect right to perform) constitute in the particular circumstances of the case a business or vocation carried on by it, so that it is entitled to say that it is occupying its premises, or part of them, for the purpose of carrying on what it is doing as a business or vocation, and not as mere isolated transactions. On the facts of this case as applied to Sections 9 and 10 of the Indian Income-tax Act, 1922, I find it difficult to disagree with the learned Appellate Tribunal that the activities of the assessee in the assessment years 1938-39 and 1939-40 did not amount to a business carried on by the assessee the profits of which were assessable to tax , so as to enable it to claim that it was occupying its premises for that purposes. I think, therefore, that the income from its property (sic activities) was rightly assessed as income from other sources under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be in the negative. The assessee is a company limited by guarantee registered under Section 26 of the Indian Companies Act. Its main object as disclosed by its memorandum of association was to promote and protect the trade, commerce and manufactures of India, and in particular, the trade commerce and manufactures of the United Provinces of Agra and Oudh . Paragraph 3 of the memorandum specifies in detail the objects of the association and it may be taken for granted that, while clause (1) of that paragraph defines the main object of the association, clauses (2) to (21) specify certain objects which are incidental or ancillary to the main object defined by clause (1). It is however, to my mind, important to take note of clause (21) of paragraph 3 which lays down that the association was established to do all such other things as may be conducive to the extension of trade, commerce or manufactures, or incidental to the attainment of the above objects or any of them . It is common ground, indeed it has been found by the Appellate Tribunal, that the Upper India Chamber of Commerce, Cawnpore, the assessee, is the owner of a building in the city of Cawnpore and a portion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as income from other sources on two grounds. Firstly, he observed that it will be seen that only a small income is received from the non-members for managing their affairs and, secondly, he remarked that the main income of the Chamber is from its own members which is charged with the object of promoting and protecting the interest of those members in commercial matters. Again, the assessment order for 1939-40 printed at page 6, shows that the assessee received a sum of ₹ 660 in the accounting year from the Indian Sugar Producer's Association and registration of trade marks, and that amount was assessed to income-tax, for similar reasons, under the head of income from other sources. It cannot be disputed that the activities-I am, for the present, deliberately avoiding the use of the words business, profession or vocation -of the assessee included the management of the affairs of other associations and the registration of trade marks. It is equally manifest that these activities were carried on from the officer of the assessee located in the building and that a portion of the building was, therefore, occupied by the assessee for the purpose, amongst other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e activity, though at times a decisive factor, is by no means an infallible test. It has been held in In re Giffin 60 L.J.Q.B. 235, that if an isolated transaction, which if repeated would be a transaction in a business, is proved to have been undertaken with the intent that it should be the part of several transactions in the carrying on of a business, then it is a first transaction in an existing business. Further, there is high authority for the view that the word vocation is analogous to the word calling which is a very large word; it means the way in which a man passes his life and it is a very large word indeed : vide Partridge v. Mallandaine [1886] 2 Tax Cas. 179; 18 Q.B.D. 276. In the decision of the question under consideration it is, however, important to remember that we are concerned with a company and not with a natural person. A natural person is at liberty to engage himself in any business or vocation. A company, however, is not free to do so, for the simple reason that it is bound by its memorandum and articles. It is, therefore, manifest that a company can engage only in such businesses or vocations as fall within the purview of its memorandum and article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee from the Sugar Association and Tanners' Federation was profit made by it in the exercise of its business or vocation. It is needles to observe that, as in the present case we are concerned with the interpretation of an exemption clause in a taxing statute, that clause must be as far as possible, liberally construed and in favour of the assessee, provided no violence is done to the language used. For the reasons given above my answer to the second question is in the affirmative. BY THE COURT.- As there is difference of opinion between the Judges constituting this Bench on question No. 2 referred to this Court by the Income-tax Appellate Tribunal, we, in accordance with the provisions of the proviso to sub-clause (2) of Section 98, Civil Procedure Code, refer the following question for decision to a third Judge:- Whether in respect of the annual value of one half portion of the house property used as the premises of the Chamber, the Chamber, is entitled under Section 9(1) of the Income-tax Act to exemption from income- tax as for a portion of the property occupied by the assessee for the purpose of the vocation carried on by it? In accordance with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal-and the same question has been referred to me - speaks only of vocation , and contended that the discussion in both the judgments on the subject of business was uncalled for. I have no objection to following the suggestion of Mr. Pathak and confining myself entirely to the word vocation . Mr. Pathak has strenuously urged that a company cannot have a vocation , and has cited the case of William Esplen, Son, and Swainston Ltd. v. Inland Revenue Commissioners [1919] 2 K.B. 731. What was considered there, however, was profession and it was observed that it was of the essence of a profession that the profits should be dependent mainly upon the personal qualifications of the person by whom it was carried on, that that could only be an individual and that there could be no professional qualification except in an individual. The word with which we are concerned in this case is-as Mr. Pathak himself has insisted- vocation . I do not think, therefore, that a ruling which is concerned with the meaning of the word profession is relevant. Of the meanings of the word profession , as given in the Oxford Dictionary, those that are relevant for our present purpose are these: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Court which can rebut it. Furthermore, it has been held that these sums of money were rightly included by the Income-tax Officer in the total income of the assessee for purposes of assessment. That means that they amounted to income , in other words, that they were received in consequence of activities which were likely to recur. I agree with my Lord the Chief Justice in holding that the size of the income which resulted from the activities in question is irrelevant. Mr. Pathak then pointed out that the income in question had been assessed by the Income-tax Officer as Income from other sources under Section 6(v) read with Section 12 of the Act, and contended that the exemption claimed can only be allowed where the assessment has been under Section 10 read with Section 6(iv). I do not think, however, that the mere fact that the Income-tax Officer mentions one section and to the other can deprive an assessee of an exemption allowed by law. The assessment in question should, in my opinion, have been under Section 10, and not under section 12. I may state here that having accepted Mr. Pathak's suggestion that I should confine myself to the word vocation , as tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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