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SUPREME COURT OF INDIA
lst October 1964
K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.
The Commissioner of Income-tax, Madras, (in all the appeals), Appellant
Versus
Andhra Chamber of Commerce, Madras (in all the appeals), Respondent.
Civil Appeals Nos. 941 to 946 of 1963,
Advocates appeared
Mr. K. N. Rajagopal Sastri, Senior Advocate (Messrs. R. H. Dhebar and R. N. Sachthey, Advocates, with him), for Appellant (in all the appeals); Mr. A. V. Viswanatha Sastri, Senior Advocate (M/s. K. Rajendra Chaudhuri and K. R. Chaudhuri, Advocates, with him), for Respondent (In all the appeals).
INCOME TAX - Charitable purpose - Whether the assessee's activities amount to a trade or business, the profit or loss from which is assessable under S. 10 of the Income-tax Act, 1922.
Fact of the Case:
The assessee, a company incorporated under the Indian Companies Act, 7 of 1913, was permitted to omit the word "limited" from its name by order of the Government of Madras. The assessee's principal objects were to promote and protect trade, commerce and industries in India, and to aid, stimulate and promote the development of trade, commerce and industries in India or any part thereof. The assessee's income was obtained from subscriptions and donations collected from its members and rent received from a building owned by the assessee. The assessee claimed that its income was exempt from tax under S. 4(3)(i) of the Income-tax Act, 1922, as it was a charitable institution. Alternatively, the assessee contended that the excess of expenditure over income should be set off against such income if the annual value is held assessable.
Finding of the Court:
The High Court answered the first question in the affirmative and did not record a formal answer on the second question. Against the order of the High Court, these appeals are preferred by the Commissioner of Income-tax, with certificates granted by the High Court under S. 66A (2) of the Indian Income-tax Act.
Issues: 1. Whether the assessee's income from property is exempt under S. 4 (3) (i) for the aforesaid six years of assessment? 2. If the answer to the above question is in the negative whether the activities of the assessee amount to a trade or business, the profit or loss from which is assessable under S. 10?
Ratio Decidendi: 1. The expression "charitable purpose" in S. 4(3) would prima facie include all objects which promote the welfare of the general public. 2. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served thereby if it includes the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture. 3. If the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose e.g. promotion of or opposition to legislation concerning that purpose, is contemplated.
Final Decision: The appeals were dismissed with costs.
Judgment
SHAH, J.- The Andhta Chamber of Commerce- hereinafter called the assessee - is a Company incorporated under the Indian Companies Act 7 of 1913. The assessee was permitted under S. 26 of the Act to omit the word "limited" from its name by order of the Government of Madras.
2. The following are the principal objects of the Memorandum of Association of the assessee :
(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.
(d) To do all such other things as may be conducive to the preservation and extension of trade, commerce, industries and manufactures or incidental to the attainment of the above objects or any of them. Clauses (d) to (x) are incidental to the principal objects.
3. By cl.4 of the Memorandum of Association it was provided that the income and property of the assessee shall be applied solely towards the promotion of its objects as set forth therein and no portion thereof shall be paid or transferred, directly or indirectly, by way of dividends, bonuses or otherwise howsoever by way of profit to its members.
4. On December 2, 1944 the assessee purchased a building and made substantial alterations, additions and improvements therein. The assessee then moved its offices into that building on May 14, 1947 and let out to tenants the portion not required for its use. The income of the assessee is obtained from subscriptions and donations collectdd from its members and rent received from the building. The following table, sets out in columns 3 and 4 the net annual value of the property less the statutory deductions permissible under S. 9 of the Income-tax Act, 1922 and the net excess of expenditure over the income of the assessee (other than the rental income) incurred in connection with all its activities for the assessment years relating to which dispute arises in this group of appeals.
Previous year Assessment Amount Net excess
(calendar year) year Rs. Rs.
1 2 3 4
1947 1948-49 3,405 7,431
1948 1949-50 6,154 7,139
1949 1950-51 6,928 5,266
1950 1951-52 5,740 10,178
1952 1953-54 8,072 18,672
1953 1954-55 8,072 17,397
5. In proceedings for assessment before the Second Additional Income-tax Officer, City Circle I, Madras it was contended that the annual value of the building was not assessable in its hands as the assessee was a charitable institution within the meaning of S. 4(3)(i) of the Income-tax Act, 1922. In the alternative, it was contended that the excess of expenditure over income should be set off against such, income if the annual value is held assessable. The Income-tax Officer rejected the contentions of the assessee and assessed its income from property on the basis of net annual value in the six assessment years without debiting the expenditure in excess of income (other than rent) against the net annual value.
6. The assessee appealed to the Appellate Assistant Commissioner against all the orders of assessments. The Appellate Assistant Commissioner held that the assessee was not being a charitable institution the income in question was not exempt under S. 4 (3) (i). He also rejected the alternative contention, for in his view, there was no specific profit-making activity of the assessee the loss from which could be set off against its other income.
7. Appeals were then taken to the Income-tax Appellate Tribunal. The Tribunal held that the assessee was not exempt within the meaning of S. 4(3) (i) from liability to pay income-tax, because the activities of the assessee were intended for the benefit primarily of its members
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