Commissioner Of Income Tax, New Delhi vs Federation Of Indian Chambers Of Commerce And Industries, New Delhi

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1981 Supreme(SC) 266

SUPREME COURT OF INDIA
R.S. PATHAK, A.P. SEN AND E.S. VENKATARAMIAH, JJ.**
Commissioner of Income-tax, New Delhi, Appellant
Versus
Federation of Indian Chambers of Commerce and Industries, New Delhi, Respondent.
Tax Reference Case No. 17 of 1975, D/- 15-4-1981.
Advocates appeared
Mr. B.B. Ahuja and Miss A. Subhashini, Advocates, for Appellant; M/s A.K. Sanghi and Narayana Nettar, Advocates, for Respondent.

Advocates:
A.K.Sanghi, A.Subhashini, B.B.Ahuja, Nerayana Nettaar

Headnote:
Income-tax Act, 1961 – Sections 11,11(1)(a),2(15),257 - During assessment year 1962-63 relevant accounting year for which was year ended December 31, 1961, assessee submitted a return showing its total income as nil claiming that all its income was exempt under S. 11 (1) (a) read with S. 2 (15) of Act - During assessment year in question assessee held Indian Trade Fair at New Delhi and derived receipts totalling from rent for space allotted temporary stalls and storage - It also received by sale of season tickets and by daily gate tickets - It realised deposits and advances from participants for hotel accommodation - In relevant accounting year Conference of Afro-Asian Organisation for Economic Co-operation sponsored by assessee was held at New Delhi - For organising Conference, assessee received from Government of India as grant-in-aid and after meeting the expenses was left with a balance of - Further assessee received as share of profits on sale of a book on Company Law as fee for arbitration - It realised advances from its members for arbitration amounting from out of which a balance of was left - Balance-sheet for accounting year shows that assessee had an excess income of over expenditure under head income - Whether words "not involving the carrying on of any activity for profit" in definition of charitable purpose contained in S. 2 (15) of Actgovern word advancement and not the words object of general public utility - Whether having regard to the definition of charitable purpose as contained in Section 2 (15) read with Sections 11 (1) and 11 (4), charging sections and sections dealing with computation of income assessee was liable to be taxed in respect of income relating to assessment year 1962-63?Whether on facts and in circumstances of case Tribunal was right in law in holding that income earned by assessee would not come within provisions of Section 2 (15) read with Section 11 of Income-tax Act, 1961 and the onus that this profit was not exempt from tax would be on the Revenue?Whether on facts and in circumstances of case purpose of Federation of Indian Chambers of Commerce and Industry was advancement of objects of general public utility not involving carrying on of any activity for profit? - Whether or not employees constitute a "section of the public - Whether as a member of the public he can also use a thing thus dedicated for the public. But in any event, he would no longer have any control ever the thing dedicated – Held, Legislature to give encouragement to objects which it considers to be laudable by means of fiscal exemptions At same time it takes care to enact fresh provisions from time to time to suppress any mischief which may have resulted from misuse of existing law - Parliament deliberately stepped in by adding the words not involving the carrying on of any activity for profit" in definition of charitable purpose in S. 2 (15) of Act when the tax exemptions available to charitable and religious trusts came to be misused by some for the unworthy purposes of tax avoidance law had been so restructured to prevent allergy to taxation masquerading as charity - It must also be within the spirit and intendment of Preamble to Statute of Elizabeth if it is to be regarded as charitable - There is no such limitation so far as Indian Law is concerned even if a purpose is not within the spirit and intendment of Preamble to Statute of Elizabeth, it would be charitable if it falls within the definition of "charitable purpose" given in Statute - Every object of general public utility would therefore be charitable under the Indian Law subject only to the condition imposed by restrictive words "not involving carrying on of any activity for profit" added in present Act – Court should go back to our ancient treatises to find out true meaning of charity which may be either dana or utsarga - In case of dana the donor gives up his ownership over a thing makes another owner of it and cannot thereafter use it nor has he any control over it - When a man makes an utsarga, he no doubt gives up his ownership but gives up the thing for benefit of all - Opinion is however divided whether as a member of public he can also use a thing thus dedicated for public - But in any event he would no longer have any control ever the thing dedicated - How many of so-called charitable trusts satisfy rigours of Indian concept of charity? Are there any measures by which misuse of funds belonging to charities can be effectively checked? - Ordered accordingly

Judgment

PATHAK, J.:- In view of the majority opinion of this Court in Additional Commissioner of Income-tax, Gujarat v. Surat Art Silk Cloth manufacturers Association, (1980) 121 ITR 1: ( AIR 1980 SC 387) the reference must be answered against the Revenue and in favour of the assessee.

SEN, J.:- 2. This direct reference under S. 257 of the Income-tax Act, 1961 (hereinafter referred to as the Act) made by the Income-tax Appellate Tribunal, Delhi Bench B at the instance of the Commissioner of Income-tax, Delhi II, New Delhi, raises the much vexed question as to whether the words "not involving the carrying on of any activity for profit" in the definition of charitable purpose contained in S. 2 (15) of the Act, govern the word advancement and not the words object of general public utility,

3. The facts giving rise to the reference are as follows : The Federation of Indian Chambers of Commerce and Industry, New Delhi - hereinafter referred to as the assessee - is an existing company under the Companies Act, 1956. It was registered under S. 26 of that Act and permitted to omit the word Limited from its name. It has neither any share capital nor does it distribute any dividends to its members. The entire income is expended for the fulfilment of its objects. The main object of the assessee is the promotion, protection and development of trade, commerce and industry in India.

4. The main objects for which the Federation has come into existence are set out 0in cl. 3 of the Memorandum of Association which, insofar as material, reads :

"3 (a). To promote Indian business in matters of inland and foreign trade, transport, industry and manufactures, finance and all other economic subjects and to encourage Indian banking, shipping and insurance."

While clause 3 (a) defines the primary purpose of the trust i e. to promote trade and industry which undoubtedly being an object of general public utility engaged in carrying on activities without any profit motive, the subsidiary objects set out in sub-cls. (b) to (z2) of cl. 3 are merely incidental or ancillary thereof.

5. During the assessment year 1962-63, the relevant accounting year for which was the year ended December 31, 1961, the assessee submitted a return showing its total income as nil claiming that all its income was exempt under S. 11 (1) (a) read with S. 2 (15) of the Act. During the assessment year in question, the assessee held the Indian Trade Fair at New Delhi and derived receipts totalling Rs. 75,18,548/- from rent for space allotted, temporary stalls and storage. It also received Rs. 20,750/- by sale of season tickets and Rs. 3,94,143/- by daily gate tickets. It realised deposits and advances from the participants for hotel accommodation. In the relevant accounting year, the Conference of the Afro-Asian Organisation for Economic Co-operation, sponsored by the assessee, was held at New Delhi. For organising the Conference, the assessee received Rs. 3,00,000/- from the Government of India as grant-in-aid and after meeting the expenses, was left with a balance of Rs. 2,17,346.38. Further, the assessee received Rs. 265.50 as the share of profits on the sale of a book on Company Law, Rs. 5,371.82 as fee for arbitration. It realised advances from its members for arbitration amounting to Rs. 20,000/- from out of which a balance of Rupees 299.18 was left. The balance-sheet for the accounting year shows that the assessee had an excess income of Rs. 2291.71 over the expenditure under the head income.

6. The contention of the assessee before the Income-tax Officer was that the activities carried on by the Federation were not with the motive of earning profits, but they were carried on with the object of promotion, protection and development of trade, commerce and industry in India and abroad. Its contention was that the dominant object for which the Federation was constituted was for promotion, protection and development of the countrys trade, commerce and industry and the activities carried on

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1981 Supreme(SC) 266

Cases Referred (6)