TMI Blog1976 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... at Act to omit the word "limited" from its name by an order of the appropriate Government. The principal objects of the assessee were: (a) To promote and protect trade, commerce and industries of India, in the Province of Madras and in particular in the Andhra country ; (b) To aid, stimulate and promote the development of trade, commerce and industries in India or any part thereof with capital principally provided by Indians or under the management of Indians ; (c) To watch over and protect the general commercial interests of India or any part thereof and the interests of the Andhras in particular engaged in trade, commerce or manufacture in India and in particular the Andhra Desa; and (d) To lo all such other things as may be conducive to the preservation and extension of trade, commerce, industries and manufactures or incidental to that attainment of the above objects or any of them. There are any other incidental objects. By clause 4 of the memorandum of association it was provided that the income and the property of the assessee was to be applied solely towards the promotion of its objects as set forth therein and no portion thereof was to be paid or transferred, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table purpose" was highlighted and it was argued for the revenue that the amendment withdrew the exemption that was previously available to the assessee. The Tribunal did not agree with the submission of the revenue. It was of the view that if the dominant purpose was advancement of an object of general public utility, it could not be said that such object involved the carrying on by the trust of an activity for profit merely because its ancillary activities produced some income. In the view of the Tribunal, this was a case in which the dominant purpose was advancement of objects of general public utility and the earning of income was merely incidental thereto. According to the department the expression "not involving the carrying on of any activity for profit " occurring in section 2(15) need not be read as referring only to the assessee and if the purpose of the chamber facilitated the carrying on of any activity for profit by anyone else also, then the exemption was not available under the amended definition. The Tribunal negatived this contention also. At the instance of the revenue, the following two questions have been referred in so far as this case is concerned : "(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant provisions may now be extracted: "11(1)...... the following income shall not be included in the total income of the previous year of the person in receipt of the income-- (a) income derived from property held under trust wholly for charitable or religious 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, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India,.......... (4) For the purposes of this section 'property held under trust' includes a business undertaking so held,........." Section 2(15)........... "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. (Underlining ours). The words underlined above are the only additions to the definition of "charitable purpose " found in section 4(3) of the Indian Income-tax Act, 1922. There is no dispute that, in the present case, the assessee fulfilled the "charitable purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on of an activity for profit." The fact that the assets of the trust in that case rose from Rs. 1,73,000 in 1947 to Rs. 22,55,000 in 1961 was emphasised as clearly showing that the company was not spending the income on any charitable purpose. Beg J., in a separate but concurring judgment, observed at page 255 as follows: " As a rule, if the terms of the trust permit its operation 'for profit', they became, prima facie, evidence of a purpose falling outside charity. They would indicate the object of profit making unless and until it is shown that the terms of the trust compel the trustee to utilise the profits of business also for charity. This means that the test introduced by the amendment is : Does the purpose of a trust restrict spending the income of a profitable activity exclusively or primarily upon what is 'charity' in law ? If the profits must necessarily feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome is taken away where in accomplishing a charitable purpose the institution engaged itself in activities for profit". The Calcutta decisions were held to be right in linking activities for prof it with advancement of the object. Therefore, the emphasis is on accomplishing its objects by carrying on an activity for profit. In other words, if in the advancement of its objects, the Chamber resorts to carrying on of activities for profit, then necessarily section 2(15) cannot confer cover. The advancement of charitable objects must not involve profit making activities. That is considered to be the mandate of the new amendment. At page 805 the position was summed up as follows: " To sum up, section 2(15) excludes from exemption the carrying on of activities for profit even if they are linked with the objectives of general public utility, because the statute interdicts, for purposes of tax relief, the advancement of such objects by involvement in the carrying on of activities for profit." The dictionary meaning of the word "involve" is "to envelop, to entangle, to include, to contain, to imply". (See the Shorter Oxford Dictionary, 3rd edition, page 1042). The word "involve" thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly to promote trade and industry. The construction of a building was for the purpose of locating its office. The Chamber fulfils many functions like arranging periodical meetings of its members in promotion of its objects, receiving officials and ministers so as to make representations in order to ensure smooth flow of trade, commerce and manufacture and helping the members in other ways conceived by it. It has necessarily to keep a house in which all these functions could be carried on. When the space avilable in the building was found to be surplus, it naturally made it available for rent by letting out part of it. By doing so, it was not carrying on any activity for profit as conceived by the provision. A person who lets out a property and enjoys the income therefrom, is more passive than active. It is not, therefore, reasonable to call it an activity for profit. As rightly pointed out by the learned counsel for the assessee, the whole of section 11 would be rendered useless if the construction sought to be placed for the revenue is to be accepted. If merely because there is an income either from the property or from other investments it should be held that it is an activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 11(1) is the income derived from the property held under trust wholly for charitable or religious purposes. The purpose here would be the purpose of the trust. The activities of the members who promoted the trust are not relevant for the purpose of considering the exemption under section 11(1)(a). The concentration of attention must be on the assessee as such and not on those who either promoted it or were benefited by o from it. Therefore, merely because the members who constituted the Chamber were businessmen, it did not follow that their activity tainted the assessee as such. We have, therefore, to answer the first question also in the affirmative and in favour of the assessee. We now turn to the reference in the case of South Indian Film Chamber of Commerce. With reference to this assessee, the assessment years involved are 1962-63 and 1963-64. The assessment years 1964-65 to 1967-68 are covered by a different reference in Tax Case No. 87 of 1971. The assessee is a body registered under the Societies Registration Act, 1860. It was formed with the object of : (a) encouraging and developing the film industry in South India; (b) watching, protecting and extending the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt from tax. There is no discussion in the assessment order for these two years, but it is stated that the matter had been discussed in the orders for 1960-61 and 1961-62, which are not before us. On appeal, the Appellate Assistant Commissioner came to the conclusion that the object for which the institution was created was to render service to film producers and the public and that if the assessee had earned any profit, it was only incidental to the primary object of its existence. He was of the view that the earning of profit would not detract from its character as an institution engaged in charitable activities. The department appealed to the Tribunal, which in its common order covering this and other assessees, held that the income was exempt from tax under section 11(1) of the Act of 1961. At the instance of the revenue the following question has been referred "Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the objects of the South Indian Film Chamber of Commerce constitute 'charitable purpose' as defined in section 2(15) of the Income-tax Act, 196 1, entitling it to exemption under section 11(1) of the Income-tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, it may legitimately be said that the activity is 'appropriate or adapted to such profit'." The above passage appears to us to show that if the assessee itself indulges in an activity and that if profits arise from it, it could be legitimately said that the activity was adapted to such profit. But that is not the case here. The assessee was an instrument of the Government for the purpose of ensuring certain standards in the matter of storage of films or distribution thereof. We are unable to infer on the facts that these activities were for profit so as to be hit by the last portion of the definition in section 2(15). This question is answered in the affirmative and in favour of the assessee. The Southern India Chamber of Commerce is the next of the assessees before us. The assessment year under consideration is 1962-63. The income derived by this assessee is as follows: Rs. Rs. Interest on securities 5,357 Property 41,271 Other sources (a) Exhibition 3,77,428 (b) Interest 120 ----------------------- 3,77,548 ----------------------- Total 4,24,176 ----------------------- There was a loss of Rs. 2,805 under the head "Business" which was acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case, the Tribunal is right in holding that the objects of the Southern India Chamber of Commerce constitute 'charitable purpose' as defined in section 2(15) of the Income-tax Act, 1961, entitling it to exemption under section 11(1) of the Income-tax Act, 1961, for the assessment year 1962-63 ?" As mentioned earlier, question No. 1 considered in the case of Andhra Chamber of Commerce is also relevant to this assessee and we have already answered the question. The income of this assessee falls into two parts, viz., (1) interest derived from securities, income from property and sundry interest, and (2) income from exhibition. The assessee owns a building part of which is occupied by itself and part is let out to tenants as in the case of Andhra Chamber of Commerce. We have earlier come to the conclusion that holding of property or making of investments and deriving income therefrom cannot be construed as an activity for profit. Therefore, with reference to the first category of income whatever we have said in the case of Andhra Chamber of Commerce in answering question No. 2 would apply to this case also. The assessee conducted an exhibition at the time of its golden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Such services to non-members would stand on an a fortiori footing. There is no such service here. The organising of the exhibition does not on the facts appear to be an activity for profit. On this point also, we are satisfied that the assessee's claim for exemption has to be upheld. The result is that the question extracted above is answered in the affirmative and in favour of the assessee. The Madras Stock Exchange is the last of the assessees in this batch, whose case is before us. On August 12, 1937, the Madras Stock Exchange Association (Private) Limited was registered under the Indian Companies Act, 1913. The Securities Contracts (Regulation) Act, 1956. was passed to prevent undesirable transactions in securities by regulating the business of dealing therein, by prohibiting options and by providing for certain other matters connected therewith. "Securities" included shares, scrips, stocks, bonds, Government securities, etc. Section 13 of that Act provides that if the Central Government was satisfied, having regard to the nature or volume of transactions in securities in any State or area, that it was necessary so to do, it might, by notification in the Official G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tenth annual general meeting held on June 23, 1967, long after the relevant year, article 167 of the articles was amended to provide for the way in which the income and property of the exchange and the surplus on dissolution were to be dealt with. It was provided that the income and property of the exchange was to be applied solely for the promotion of its objects set forth in the memorandum and that no portion of the income or property must be paid directly or indirectly by way of dividends to the members of the exchange. The stock exchange derived income from the following sources : Sources 1962-63 1963-64 Rs. Rs. Property 4,357 6,815 Interest on securities 399 399 Other sources 76,400 --- Business --- 58,722 -------------- ------------- 81,156 65,936 -------------- ------------- The income which was derived under the head "Other sources" for 1962-63, and under the head "Business" for the assessment year 1963-64, was derived from (a) preparation and sale of year book, (b) market reports and (c) listing fees. Every year the assessee prepared what is called the year book in which the detailed particulars of the companies whose shares were dealt wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Andhra Chamber of Commerce is also relevant here and our answer to that question would apply here also. With reference to the question given above, the learned counsel for the revenue submitted that there is no prohibition from distribution of profits in the relevant year and that, therefore, the assessee was in the same position as any other commercial concern which could make and distribute its profits. The amendment in 1967 was, in the submission of the counsel, ineffective as far as these years are concerned. For the assessee the submission was that this being a company limited by guarantee, there could be no distribution of profit at all to its members. His further submission was that the amendment in 1967 was merely clarificatory. Section 37 of the Companies Act, 1956, relates to companies limited by guarantee. Section 37(1) to the extent material runs as follows: "Section 37(1).-In the case of a company limited by guarantee and not having a share capital ...... every provision in the memorandum or articles or in any resolution of the company purporting to give any person a right to participate in the divisible profits of the company otherwise than as a me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear. Profits could have been distributed to the members. However, even if the property held under trust was held only in part for such charitable purposes, exemption is available as contemplated by section 11(1)(b). As this aspect has not been considered and decided by the Tribunal, it is necessary to leave it to the Tribunal to go into the point as to whether the assessee can be brought within the scope of section 11(1)(b). In the event of the assessee being found to be eligible for the exemption under section 11(1)(b) to the extent given therein, it would be necessary to go into the question as to whether the assessee's claim for exemption is lost by the words added in section 2(15) as constrasted with the definition of "charitable purposes" indicated in section 4(3) of the 1922 Act. We proceed to discuss this point only on the hypothesis of there being scope for exemption under section 11(1)(b). We should not be understood as having expressed any opinion on the said point in the present judgment. As far as the property income and interest from securities are concerned, whatever we have stated in the case of Andhra Chamber of Commerce and other cases earlier would apply wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a stock exchange in Bombay under the name and style of "The Bombay Native Share and Stock Brokers' Association ". At a meeting held on April 9, 1957, it was resolved by the said association to make an application to the Central Government for its recognition under the Securities Contracts (Regulation) Act, 1956. The Central Government granted the recognition. The Bombay Stock Exchange had not, however, registered itself under the Companies Act. The contention for the constituent was that it was an illegal body not having been registered under the Companies Act. The question for consideration before the Bombay High Court was whether the Bombay Stock Exchange was carrying on any business. At page 582 the learned judge held as follows: "Mere owning of immovable property, however, can at the highest be an investment and not a business. It would be a business in immovable property only if there is buying and selling." The ownership of immovable property in that particular case was held to be incidental to its main object of regulating and controlling transaction in securities. The Bombay Stock Exchange maintained a clearing house and the receipt of clearing house charges and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock exchange. It is a kind of an amenity for the benefit of the brokers and the public, so that they could decide on a rational basis the value of the shares so as to deal in them. The publication of market reports is also a beneficial activity so as to enable the public to know the price at which the shares were being dealt with in the stock exchange. There is nothing to show that these activities were undertaken with a view to making gain. We have now to deal with the facts relating to listing fees. Companies applied for inclusion in the list of companies whose shares were dealt with in the stock exchange. At the time of such application, they have to pay a prescribed fee, which is fixed by the governing body of the stock exchange. It may be mentioned that the governing body of the stock exchange includes a member nominated by the Government. The principal object of this listing is to provide ready marketability and impart liquidity and free negotiability to the stocks and shares. This would ensure proper supervision and control on the dealings therein and protect the interest of the shareholders as well as of the general public. A company derives also some advantage by gett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The questions referred in this reference are as follows: "1. Whether the Tribunal is right in law in holding that the test laid down in the expression 'not involving the carrying on of an activity for profit' in section 2(15) of the Income-tax Act, 1961, is to be applied with reference to the carrying on of an activity by the assessee who claims the exemption under section 11(1) of the Income-tax Act, 1961, and not with reference to any other person who is not a party to such claim for exemption under section 11(1)? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the objects of the South Indian Film Chamber of Commerce constitute 'charitable purpose' as defined in section 2(15) of the Income tax Act, 1961, entitling it to exemption under section 11(1) of the Income-tax. Act, 1961, for the assessment years 1964-65 to 1967-68 ? We have discussed the facts of this assessee in our judgment in Tax Case No. 281 of 1970. The facts are identical. For the same reasons as those given therein, the questions are answered in the affirmative and in favour of the assessee. There will be no separate order as to costs. - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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