TMI Blog1989 (2) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... eople with credit facilities, to procure and supply them their domestic requirements and other necessities of life, and to arrange for the marketing of their agricultural produce. Accordingly, the Government issued Government Order Ms. No. 2551, Education and Endowments Department, dated December 14, 1955, sanctioning the setting up of a corporation, known as "Andhra Scheduled Tribes Finance and Development Corporation Ltd.". The Government Order specified the authorised capital, its board of directors, and other particulars. This corporation was later designated as "Girijan Co-operative Corporation Ltd." and registered as a co-operative society under the A. P. Co-operative Societies Act. For the three previous years relevant to the assessment years 1966-67, 1967-68 and 1968-69, certain profit resulted from its operations. The assessee-corporation, however, submitted that since it is a "charitable institution" within the meaning of section 2(15) of the Income-tax Act, its income is exempt from levy of tax under section 11. It was submitted that the basic object of the society is not to make any profit, but only to ameliorate the conditions of Girijans and to improve their economic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration. Clause (f) defines "board" as meaning the board of directors of the corporation. Bye-law 3 sets out the objects of the corporation. It reads : "3. Objects : The objects of the corporation are: (i) to purchase outright the produce brought by members of the Scheduled Tribes through the agency of any primary marketing society hereinafter referred to as "affiliated societies" and market it to the best advantage ; and for this purpose to take up forest contracts of bamboo coupes, fuel (and the like) and for procurement of minor forest produce from the Government; (ii) to supply the requirements, of the members of the Scheduled Tribes through the agency of the affiliated societies by making bulk purchases (iii) to take shares in the affiliated societies from its funds; (iv) to provide working capital to the affiliated societies by advancing loans and cash credits and the like; (v) to borrow funds for issue of loans to Girijans through the affiliated societies for purposes of agricultural operations, development of land and irrigation sources, construction and repairs to houses, purchase of ploughs, bullocks and agricultural implements, purchase of pump sets, oil engi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members and the Government, as also subsidies and grants. Bye-law 15 deals with management. A board of directors consisting of not more than 16 members, of whom 11 shall be the officers of the Government mentioned in the bye-law, shall be elected by the general body of the corporation. Bye-law 40 deals with "loans and cash credits". It says that loans and cash credits may be given to the affiliated societies for purchasing agency produce and issue of loans for domestic requirements and agricultural operations to their members. Bye-law 44 deals with disposal of net profits. According to it, 40 % of the net profits shall be carried to the reserve fund ; I% of the net profits, subject to a maximum of Rs. 2,500, shall be credited to the cooperative education fund ; dividend on shares shall be paid to the members on December 31 of the previous year at a rate not exceeding 6 1/4% per annum. There shall be a "business losses and depreciation reserve" and building fund. Bonus to employees is also provided for. Any profit not appropriated for the above purposes and all undisbursable and indivisible profits shall be added to the reserve fund of the corporation. Bye-law 45 deals with reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the words "not involving the carrying on of any activity for profit", occurring in the said clause, qualify, only the words "the advancement of any other object of general public utility" and not the words preceding them. The test to be applied in such cases is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve a charitable purpose or to earn profits. Once it is held that the predominant object is to subserve charitable purpose, the mere fact that the activity of the assessee results in some profit is of no consequence. These questions, it is clear, have to be answered with reference to the objects of the assessee-corporation as set out in its bye-laws and the nature of the activity carried on by it. It is a fact beyond dispute that Scheduled Tribes in our country are the most exploited, ignorant and poor. Their advancement is undoubtedly an, object of general public utility. If the object of the assessee-corporation is providing relief to them or improving their lot, it would certainly qualify as a charitable purpose within the meaning of section 2 (15). What we have to see is : what is the true object of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e members of the Scheduled Tribes. This corporation, no doubt, registered as a co-operative society, is in truth and substance an agency set up by the Government for the purposes stated in G. 0. Ms. No. 2551. It is the substance that matters and not the form. It has been given the form of a co-operative society only for the purposes of law and for carrying out its objects conveniently. The object is not to earn profits, though profit may result incidentally from its operations. It is true that there is a provision for declaring dividends and this is the main feature emphasised by the Revenue; but the dividend goes only to member-societies which serve the Girijans in general. There is also a ceiling on dividend-it cannot exceed 6 1/4%. Rest of the profits, if any, go into reserve fund and for other beneficial purposes. Even the reserve fund is meant only to advance the cause of the Scheduled Tribes as a whole. It would, therefore, be misleading to equate this corporation with the ordinary/general type of co-operative societies, where certain persons-may be poor, may be belonging to a certain profession, class or category-come together and form themselves into a society to carry on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he manufacture of art silk, silk and cotton fabrics ; (d) to obtain export licences and export cloth manufactured by the members; (e) to buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on behalf of the members ; ... (n) to do all other lawful things as are incidental or conducive to the attainment of the above objects . It was company registered under section 25 of the Companies Act, 1956. The income and property of the assessee were to be applied solely and exclusively for the promotion of the objects stated in the memorandum and no part of such income or property could be distributed amongst its members in any form or utilised for their benefit either during its operational existence or on its winding up or dissolution. The court held that the dominant or primary purpose of the association being promotion of commerce and trade in art silk, art silk yarn, etc., as set out in clause (a), it is an object of general public utility, not involving the carrying on of any activity for profit, within the meaning of section 2(15). It was held that the objects mentioned in clauses (b) to (e) were merely incidental to the primary purpose mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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