The main legal point established in the judgment is the interpretation of S.11 of the Income-tax Act, 1961, and its applicability to the exemption claimed by the assessee. The judgment also emphasizes the need to consider the connection or link between the advancement of an object of general public utility and an activity for profit, as clarified by the Supreme Court.

1. These references relate to the assessment of M/s. India Pepper and Spice Trade Association, for the assessment years 1959-70,1970-71 and 971-72. The appeals before the Tribunal relating to the assessment for the above years were disposed of by a common order and it was found by the Tribunal that the assessee was entitled to exemption under S.11 of the Income-tax Act, 1961, for short the Act, in regard to certain disputed items of income. The view of the Tribunal was contended by the department to be erroneous in law and applications were made before the Tribunal for a reference to this Court and the Tribunal has stated a case and referred the following questions:

1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the income of the assessee is exempt under S.11 of the Income-Tax Act 1961?

2. Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in law in holding that the provisions of S.28 (iii) are not applicable to the facts of the case?"

2. The order of the Tribunal is Annexure D' and Para.6, 7 and 8 have dealt with the particular aspects which arose for consideration regarding the exemption claimed under S.11 of the Act. We shall extract those paragraphs:

"6. Now it is necessary to see whether these objects satisfy the definition given in the Income-tax Act in S.2 (15). Where an object is a matter of general public utility, the object should not involve the carrying on of an activity for profit. We are of opinion that none of the objects involve perse any activity for profit. Certain activities carried on in furtherance of the objects of the Association had resulted in an excess of income over expenditure but that does not mean that the object itself involves the carrying on of an activity for profit. Thus, the Kerala High Court has pointed out in the case of C.I.T. v. Indian Chamber of Commerce 60 ITR 645 that in order to be disentitled from exemption, the object must involve the carrying of any activity for profit. The object must imply the carrying on of such activity. It is not sufficient if there is some activity carried on which results in profit. There must be an activity in the form of business because the activity must be for profit and that activity for profit must be involved in the objects of general public utility. Even when an activity is in furtherance of the objects of a trust and even if such activity results in profits, the definition will not be attracted unless the objects involve such activity. The same ruling will apply to the assessee here. We, therefore, have to hold that the Appellate Asst. Commissioner was correct in his conclusion that the assessee is entitled to be considered as a charitable institution.

7. We will now consider the items which have led to the excess of income over expenditure. The first to be considered is the subscription which is payable by the members. The second item to be considered is laga which is collected under bye-law 207. As per this bye-law, a contribution at the rate of 50 paise per unit of 25 quintals of pepper shall be paid to the Association by the Seller as well as by the purchaser on all

contracts. Now, this laga is being levied to enable the Association to carry on its activities. This is not in. the objects and it does not involve an activity for profit. The next item which has resulted in some income is interest from banks. This interest has arisen out of the time and call deposit in banks. Now, the rules of the Association require that the members deposit with them certain amount of the contract which they have entered for purchase or sale of pepper. These amounts instead of allowing to be idle are deposited with the bank for short durations. It has resulted in interest. This is merely incidental to holding the funds.

8 The next item is rent-from building owned by the Association. Another item is contributions from the brokers for licensing