TMI Blog1981 (12) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... r charitable purposes, to the extent to which such income is applied to such purposes in India;...... (b) income derived from property held under trust in part only for such purposes...... to the extent to which such income is applied to such purposes in India ;...... Before proceeding further, we have to clarify that we are actually concerned in these references with the assessment years 1958-59 to 1962-63 but the parties have all through proceeded on the footing that the provisions of the 1961 Act will be applicable to decide the issue of exemption. It does not also matter whether the question is considered in the light of the 1922 Act or the 1961 Act because the relevant provisions in so far as they are material for our present purposes, are identical. The change introduced in the definition of " charitable purpose " by the addition, in the 1961 Act of the last ten words of the definition, is not material for the purposes of the present case. It may also be mentioned that the only income which has been assessed and for which exemption was sought was the income derived by the Sabha from a house property situated in Reading Road (now Mandir Marg), New Delhi, known as " Hindu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (10) To establish Sanskritised Hindi as the National Language and Devanagri as the National Script, with due regard to regional languages. (11) To cultivate friendly relations with other nations with a view to maintain international peace and progress. (12) To lay down from time to time suitable programmes with view to accomplish as soon as possible the above objects. Clause 4 defines a " Hindu " and also the requirements for a membership of the Sabha. It reads: " Definition of a Hindu Membership 4. (a) A Hindu means a person who regards this land of Bharatvarsha from the Sindhu to the Seas as his Fatherland, regards it also as his Holyland and professes any religion of Bharatiya origin. (b) Every Hindu who declares himself to be a Hindu as such, is above eighteen years of age and accepts in writing the aims and objects of the Hindu Mahasabha is entitled to become a primary member of the Hindu Mahasabha on payment of annas four a year." The document then proceeds to describe the component elements of the Sabha: and its organisational structure with village and town sabhas and above them an All India Committee and a working committee. The full details of these prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be said to be charitable. He relied for this conclusion on the decision in the case Lokamanya Tilak jubilee National Trust Fund, In re [1942] 10 ITR 26 (Bom), and distinguished the cases of All India Spinners' Association [1944] 12 ITR 482 (PC), and Tribune Trust [1939] 7 ITR 415 (PC), relied on for the assessee. He pointed out that in the case of the All India Spinners' Association, the court had to consider an Organisation, which, though a creation of the All India Congress Committee, had nothing to do with the political aims of the latter and had purely social objects which were charitable. In the Tribune case, again, the Privy Council drew a distinction between the case of a rust for conducting a newspaper as a mere vehicle for the promotion of a particular political or fiscal opinion which will not be entitled to exemption under s. 4(3)(i) as a charity and the case where a newspaper is conducted with the object of disseminating news and ventilating opinion on matters of public interest but acquires a particular political complexion in doing so, which would be. In his view, the dominant object of the Sabha was political and all the other aims and objects mentioned were sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the office-bearers of the Mahasabha or other persons connected with it. It was submitted that no details were kept regarding the specific items but these were included in the total expenses under various heads. Shri Ram Singh submitted that whenever he, or his colleagues, or other members connected with the Mahasabha had the occasion of travelling, it was normally for the welfare of the people and that it was difficult to give any specific illustration. He also said that it was well known that the appellant, Mahasabha, was spending money on the relief of the poor in case of earthquakes, floods, etc. Further, the Sabha was spending money on the shudhi of non-Hindus, which, according to him, was one of the greatest ideals. I do not agree with Shri Ram Singh, in the absence of any evidence that 70% of the total income of the appellant was spent for public charitable purposes or on matters of general public utility, even though its dominant motive may have been that (apart from its political aim). Normally, therefore, the appellant could not have been allowed any deduction regarding the expenses for charitable purposes or for purposes of general public utility. But considering the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extent to which the income of the assessee was actually applied for charitable purposes ? On the first question, the Tribunal came to the conclusion that the assessee was a political organisation referring to the aim of the Sabha as set out in cl. 2 of its constitution and the meanings ascribed to the expression " political " in Webster's Dictionary. In regard to the second question, the Tribunal gave its answer in two parts. It first observed: " The Appellate Assistant Commissioner has held that at least objects Nos. 1 5 were charitable in nature. In our opinion, all the objects, aforementioned, would in a way be of a charitable nature being objects of general public utility for the people of India. Removal of inequalities and disabilities or enabling the people of the State to have freedom of thought, expression, association and worship, making Bharat politically strong and self-reliant, promoting of good ideals, so on are all objects of general public utility. They would benefit the people of India in general and consequently all the objects can only be characterised as charitable in nature, charitable as defined u/s. 2(15) of the I.T. Act, 1961. As a matter of fact the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to us some evidence on record which would show that even these two professed charitable objects were wholly dominated by political considerations. No such evidence has, however, been pointed out to us. We have accordingly to hold that the finding given by the Appellate Assistant Commissioner, namely, that notwithstanding the political feature of the assessee some of the objects over which it applied its income arising from the trust property was dominantly charitable stands unassailed. In such view of the matter we cannot but reject the appeal filed by the department. " As to the third question, the Tribunal dealt with it as follows: " 18. The manner in which the income has been applied or the purpose for which it had been kept accumulated cannot be ascertained on the basis of any affidavit. However respectable be the person swearing the affidavit for the purposes of income-tax assessments, expenses or accumulations of income and the objects over which such expenses had been incurred or kept accumulated must be proved by relevant details in the accounts in respect of each item of such expenses or accumulations and not by an affidavit. 19. In the instant case, as it appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, questioning the validity of the assessment itself. The argument addressed on behalf of the assessee on this question before the Tribunal has been set out earlier. The argument was that there can be no assessment of the income in the hands of the Sabha because the beneficiary of the income from the trust property was the entire cross-section of the general public of India represented by every person " who was a Hindu or who professed a religion which had its origin in India Such a beneficiary, it was argued, was not contemplated as a chargeable unit under the provisions of s. 4 of the I.T. Act, 1961. The Tribunal answered the contention by saying that the beneficiary of the trust was the Sabha under cl. 13 of the constitution and this was an " association of persons ". We think that both lines of reasoning are erroneous in two respects. The first is that the beneficiary benefiting under the legal obligation in this case (which we shall briefly refer to as the trust) is neither the Sabha, as stated by the Tribunal, nor Hindus only of the categories mentioned in the assessee's argument. The Sabha is in the position of trustee holding its properties and income therefrom under a lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a legal entity by itself or as a " society "which is the same as an "association " of persons who have come together to constitute it, the Sabha clearly falls within the term of the charging section, whether of the 1922 Act or the 1961 Act. That apart, if we are considering the provisions, not of the 1922 Act but of the 1961 Act then the association will clearly be, if not an association of persons, a: body of individuals, which is a wider term than " society of individuals referred to by Bhagwati J. Reference may also be made in this context to the discussion of the scope and meaning of the expression " body of individuals " in Deccan Wine and General Stores v. CIT [1977] 106 ITR III (AP), CIT v. Harivadan Tribhovandas [1977] 106 ITR 494 (Guj), Meera and Co. v. CIT [1979] 120 ITR 564 (P H) and CIT v. Deghamwala Estates [1980] 121 ITR 684 (Mad). Sri P. N. Monga, learned counsel for the assessee, urged before us that the assessee could not be described as an "association of persons " for two reasons. His first point was that, in order to constitute an association of persons, a number of persons " should join in a common purpose or action with the object of producing income " and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e constitution clearly envisages that this property was to be retained and utilised for the purposes of the Sabha. The terms of the clause clearly show that the income from the property was to be utilised for the objects of the Sabha, for, while this clause empowers the working committee to collect and invest or borrow funds, acquire, hold, sell, mortgage or lease properties, movable or immovable, and sign necessary documents for and on behalf of the Sabha and for the objects of the Sabha, it prohibits these powers being exercised in respect of this property which, it is directed, should be held in trust by the working committee during its tenure of office for and on behalf of the Sabha. In other words, the Sabha Bhawan is intended to be utilised for the purpose of the Sabha. This can be and has been done not only by using the premises itself but also by deriving income therefrom by way of letting out. The objects, therefore, clearly imply, in our opinion, that the group of persons who constitute the Sabha have as one of their common purposes and objects the earning of income from the property and the utilisation of that income for the purposes of the association. The Sabha is ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litical party has in mind and which it intends to achieve in course of time. The other clauses of the constitution which outline its organisation and enumerate the powers of the several office bearers and committees also reinforce this view. They talk of resolutions on current topics and matters of general policy, public sessions from time to time in different States, tours and travels for organisational and propaganda purposes, negotiations with Government and other parties and cultivation of friendly relations with other countries. The document, read as a whole, leaves one in no doubt that it is the constitution of a political party which intends to outline its own social, economic and political policies, canvass for them, work for legislative and constitutional amendments to implement them and eventually establish in the country a Government and a political State of its choice. The following meaning given to the word " political " in Webster's New International Dictionary referred to by the Tribunal is quite apposite : " 1. Of, or pertaining to, polity, or politics, or the conduct of Government, referring in the widest application to the judicial, executive and legislative b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules and regulations under which the owner of the income functions. This is indeed a proposition well settled by the decision of the Privy Council in All India Spinners Association v. CIT [1944] 12 ITR 482. The second aspect is that, for the purposes of exemption, the assessee should prove either that all its objects are charitable within the meaning of s. 2(15) or that a specific or identifiable part of its income is obligatorily applicable for such purposes. It is not sufficient that some of the objects are charitable and some noncharitable. In that event, if the trustees have a discretion to apply the income to any of the objects charitable or non-charitable, they could legitimately utilise the income for the non-charitable purposes and so cannot be said to be under a legal obligation to apply the income wholly or in part for the charitable purposes. In a case where the objects are distributive, each and everyone of the objects must be charitable in order that the trust may be upheld as a valid charity. These propositions are well settled by the decisions of the Supreme Court in CIT v. Krishna Warriar [1964] 53 ITR 176, East India Industries (Madras) P. Ltd. v. CIT [1967] 65 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other subjects as the governing body (by whom the trust was administered) deemed desirable. The intention of the governing body, as stated in evidence, was to educate students in political principles and to exclude propaganda in support of a particular party. Some students were admitted to the college without any reference to their political beliefs or inclinations. It was at the same time admitted that the governors of the college and the education committee were wholly composed of members of the Conservative Party and included as ex officio members, the leader and the chairman of the party for the time being ; that lectures were given on the Conservative Party organisation but not on liberal or socialist organisation, that at vacation times there were courses exclusively for Conservative members of Parliament and their wives, and that conferences with the central office of the Conservative Association were held as to the courses to be included in the college syllabus. The claim of the trust for exemption was rejected by the Commissioners and the Special Commissioners. The Special Commissioners addressed themselves to the question " whether the Bonar Law Memorial Trust, under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere really nothing but propaganda of the Conservative Party. One could not doubt that the place was in fact being used as an educational centre for the Conservative Party, as a place where persons believing in the conservative principles may be trained in an intelligent appreciation of those principles, and where political candidates may learn, where agents may learn, and where those who are disposed to work in the interests of the Conservative Party may go, in order that they may learn, what are the principles of the party to which they adhere. He, therefore, confirmed the findings of the Special Commissioners. The above two illustrations show the two extreme situations. One was the case of a political party setting up an association or institution whose dominant purpose was charity. The other was an institution ostensibly for the purpose of education but in fact and truth nothing but an instrument of propagation of the principles of a political party. The former was held to be eligible for exemption despite its affiliation with the political party, while the latter was disentitled to exemption despite its ostensible object of education. What, therefore, matters is not the chara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dis-establishment of the Church, the secularisation of education, the alteration of the law touching religion or marriage, or the observation of the Sabbath, are purely political objects. Equity has always refused to recognize such objects as charitable. It is true that a gift to an association formed for their attainment may, if the association be un-incorporated, be upheld as an absolute gift to its members, or, if the association be incorporated, as an absolute gift to the corporate body: but a trust for the attainment of political objects has always been held invalid, not because it is illegal, for every one is at liberty to advocate or promote by any lawful means a change in the law, but because the court has no means of judging whether a proposed change in the law will or will not be for the public benefit, and, therefore, cannot say that a gift to secure the change is a charitable gift. The same considerations apply when there is a trust for the publication of a book. The court will examine the book, and if its objects be charitable in the legal sense it will give effect to the trust as a good charity : Thornton v. Howe [1862] 31 Beav. 14; but if its object be political it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnection at all. Any purpose of influencing legislation is political purpose in this connection. Under these circumstances, this is mainly a trust to secure a certain line of legislation, and if that is so, I do not understand it to be disputed that that would not be a charitable trust. I think the authorities are clear upon it and I am not going to say anything more about it. " and rejected the argument that legislation came in only in a subsidiary way in their object of promoting temperance. On the strength of the above decisions, the position in England is well settled that a " political purpose " using the word in a wider sense is not a charitable purpose and has been summed up in Halsbury, 3rd Edn., Vol. 4, p. 523 (article contributed by Danckwerts J.) in the words of Lord Parker extracted earlier. Turning now to the Indian decisions, the question how far a political purpose would be a charitable purpose came up for consideration in the context of the will of Subhash Chandra Bose in Subhash Chandra Bose v. Gordhandas Patel, ILR 1940 Bom 254; AIR 1940, Bom 76, and in respect of the trust created to give effect to the aspirations and will of Late Lokamanya Bal Gangadhar Ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust in honour of Lokamanya Tilak and this has to be referred to in some detail. In the above case Laxman Balwant Bhopatkar v. Charity Commissioner, Bombay [1963] 2 SCR 625; AIR 1962 SC 1589, the question raised for the consideration of the Supreme Court was whether " the Kesari and Mahratta Trust " was or was not public trust within the meaning of the Bombay Public Trusts Act (Bombay Act XXIX of 1950). Section 2 of the Act defined a public trust in s. 2(13) as " an express or constructive trust for either public, religious or charitable purpose or both...... " Section 9 of the Act defined " charitable purpose " as including " relief of poverty or distress, education, medical relief.. and the advancement of any other object of general public utility " the last head not including purposes related exclusively to sports or to religious teaching or worship. The trust in question had been created by a deed dated August 16, 1920, by three persons, the first two of whom were the sons of Lokamanya Bal Gangadhar Tilak and the third was the executor under the will of the Lokamanya dated April 5, 1918. The trust deed referred, in its preamble, to the execution of the will and its acceptan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned that this judgment (quoted at pp. 634-635 of [1963] 2 SCR; AIR 1962 SC at p. 1593), is perhaps unreported and is different from the decision of the Bombay High Court in Lokamanya Tilak jubilee National Trust Fund, In re [1942] 10 ITR 26, referred to earlier and also decided under s. 66(2) of the Indian I.T. Act, 1922, by Beaumont C.J. and Kania J. which has also been referred to by the Supreme Court in Laxman Balwant Bhopatkar v. Charity Commissioner [1963] 2 SCR 625 ; AIR 1962 SC 1589, and also earlier referred to in this judgment. When the same question arose in the context of Bombay Act No. 29 of 1920, in the matter that was under appeal before the Supreme Court, the learned judges of the High Court came to a different conclusion. The learned judges observed that the activities contemplated by cl. I of the objects of the trust were two in number: (1) the awakening in the minds of the people a consciousness of their political rights by spreading the knowledge of politics through the newspapers Kesari and Maratha; and (2) organising various public movements calculated to promote the national ideal; and held that while the second of these purposes could not be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose in taking over and conducting the newspapers was clearly political in the sense of seeking to achieve by means of rousing the consciousness of the people to their condition, political awareness, by which adjustment of a political character would be demanded and enforced by the persons who imbibed those truths or were influenced by such writings. Having come to this conclusion the court addressed itself to the next question: " whether a political purpose, i. e., for educating people not on theories of political or social sciences as a subject of academic study, but for moving them to practical action to achieve governmental changes is or is not a charitable purpose." After a survey of the English decisions and the two decisions of the Privy Council earlier referred to, the Supreme Court expressed its conclusion in the following words (p. 1602 of AIR 1962 SC 1589): " We consider that these two decisions of the Privy Council in so far as they hold that a political purpose, in the sense of a propaganda for the achievement of a political objective, is not a charitable purpose, i. e., not one for the advancement of an object of general public utility correctly interpret the Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olume of English decisions. (2) Under the Act, unlike in England, the advancement of the object of common public utility is declared to be a charitable purpose, and it is not permissible to curtail its scope with reference to English decisions. (3) The expression 'object of general public utility' is very comprehensive and it includes all purposes, whether political or otherwise, provided it is an object of general public utility. " But, in view of the conclusion arrived at by the majority of the judges, it has to, be held that a political purpose cannot be said to be charitable purpose. This takes us on to the second aspect referred to earlier. The assessee contends that, in the . present case, the purpose of the assessee, Sabha, was not political at all. Learned counsel seeks to make a distinction between the " aim " of the Sabha (which may be political in character), on the one hand and its objects on the other. He contends that the aim of the Sabha is the ultimate and distant goal for which it was founded but that the immediate objects and the purposes for which its funds were to be utilised are as set out in cl. 3. According to him, everyone of the objects mentioned in cl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside the purview of the immediate objects and purposes of the Sabha. That part, on a reading of the constitution as a whole, we are also unable to agree with the construction sought to be placed on behalf of the assessee that cls. 2 and 3 should be read totally independent of each other. The attempt of the learned counsel for the assessee is to construe cl. 3 as if it sets out for the Sabha certain objects of general public utility which have nothing to do with the political character and aim of the Hindu Mahasabha. But we are unable to accept this as a proper interpretation of the document. It appears to us that cl. 3 only further explains the aim set out in cl. 2. A little consideration would show that cl. 3 only elaborates the ingredients and the steps necessary for the establishment of State of the nature aimed at. To rapidly industrialise the country, to secure to workers and peasants their rightful share in the country's economy, to remove all forms of inequality and disabilities including those in the matter of wealth, to assure full freedom of thought, expression, association and worship to all nationals and to assure decent standards of living to all nationals (cl. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tends to achieve as a step-in-aid to achieve its object or goal set out in cl. 2. They are not independent objects envisaging acts of charity such as the giving of relief in cases of famine or earthquake or giving succour to the poor, the suppressed and the disabled though even such works can and, in all probability, will be undertaken in the process of obtaining popular support and as incidental to the objects sought to be achieved just as the Supreme Court, while dealing with the Lokamanya Trust, disapproved the attempt of the learned judges of the Bombay High Court to read two separate purposes for the trust and interpreted the entire trust deed as one integral whole with the sole object of fulfilling the aims and aspirations of the late Lokamanya, which were of a political character, so also here, we do not think it would be a correct, fair or just construction of the constitution of the Hindu Mahasabha to read the two clauses independently and to project the Sabha as an essentially charitable Organisation with its political aim only subordinate or subsidiary to these charitable objects. On the other hand, logically and naturally, cl. 3 occurs in the constitution of the Sabha a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal purpose set out in cl. 2 that is the dominant purpose of the institution. To be eligible for exemption, it should be established that the charitable purpose clearly has the dominating role. It is not sufficient to merely say that the Constitution envisages both kinds of purposes. Even if, to borrow a phrase used by Pathak J., in a slightly different context in Surat Art case [1980] 121 ITR I at p. 33 (SC), even if the political and charitable purposes are " equal components " of the trust deed, the claim for exemption will not be satisfied. For, as has been pointed out by us earlier, a trust will not be eligible for exemption if it has both charitable and non-charitable objects and there is nothing compelling the trustees to earmark any part of the income for the charitable as distinct from the non-charitable purpose. To give an illustration there is nothing to prevent the executive committee of the Sabha from spending all the income from the property for conducting election meetings, for carrying out election propaganda and for achieving strength as a political party in the country. The expenditure on such objects would be clearly intra vires and so long as it is open to the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Tribunal. The Tribunal clearly observed that the mere affidavit of the secretary was not sufficient and that the manner in which and the purpose for which the income had been spent must be proved by relevant details in the accounts in respect of each item of the expenses and not by mere affidavit. But, in spite of that, the Tribunal confirmed the estimate of the AAC regarding the extent to which exemption could be granted. The contention of the learned Solicitor-General is that when there was nothing to show the manner in which the expenditure had been incurred or the nature of the expenditure or the purposes thereof the question of allowing something on the basis of an estimate does not arise. The question of an estimate can arise only if there is material to show that some expenditure was incurred on objects of general public utility but the assessee is unable to establish the full extent of such expenditure by tangible or satisfactory evidence. But where the accounts do not at all give any details, it was argued, the question of making any allowance on the basis of an estimate also could not arise. The AAC and the Tribunal proceeded on a misapprehension in granting an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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