Madras High Court
Addl. Commissioner Of Income-Tax vs South India Hire Purchase Association on 17 February, 1978
Equivalent citations: [1979]116ITR793(MAD)
JUDGMENT Sethuraman, J.
1. In this reference under the I.T. Act, 1961, hereinafter called "the Act", the following question has been referred for the opinion of this court:
"Whether, on the facts and in the circumstances of, the case, it has been rightly held that the assessee-association was one constituted for charitable purposes and, therefore, the income from subscriptions, entrance fees and donations would not fall for inclusion in the total assessable income ?"
2. The assessee is an association registered under Section 25 of the Companies Act, 1956. The main objects of the association are :
"(i) To promote, aid, help, encourage and develop hire purchase business.
(ii) To promote and protect the interests of persons, firms, associations and other bodies corporate engaged in hire purchase business.
(iii) To secure organised and concerted action, direct and indirect, on all matters connected with or having a bearing on the business of hire purchase financing.
(iv) To obtain or to promote any order of the Government (both Central and States), any Act of the Legislature, either of the Union or any State, for furthering the interests of hire purchase financiers, and to oppose any legislative or other measures that may seem calculated directly or indirectly to prejudice their interests."
3. The assessee filed a "nil" return for the assessment year 1968-69 and contended before the ITO that it was formed as an association for general public utility coming within the definition of Section 2(15) of the Act and thus was exempt from tax in accordance with the decision of the Supreme Court in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722. There was also a contention that the association was a mutual one. It is unnecessary for our present purpose to go into this aspect, as the question before us does not relate to the problem of mutuality. The ITO negatived the assessee's contention holding that it was formed to promote the welfare of its members and that, therefore, its objects could not be held as advancement of general public utility. The AAC,, on appeal, while agreeing with the ITO held that the assessee would not be entitled to 'exemption provided under Section 11 read with Section 2(15) of the Act. But he gave reduction in the assessment with reference to a part of the income assessed by the ITO. At the instance of the revenue, there was an appeal to the Tribunal. The Tribunal comparing the objects of this association with those considered by the Supreme Court in CITv. Andhra Chamber of Commerce [1965] 55 ITR 722, found that they were similar and that the decision of the Supreme Court was, therefore, applicable. The question is whether this decision of the Tribunal is in accordance with law.
4. Section 2(15) defines "charitable purpose" as including 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. The Tribunal has pointed out in its order on the appeal that it was not the department's case that the object of the association had any involvement of carrying on of any activity for profit. The only point put against the assessee was that the association was open to only members and that the benefits thereof did not enure to the public. As pointed out by the Tribunal the real question in issue is whether there is benefit to the public in such a case.
5. In CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722, the Supreme Court held that the Chamber of Commerce with similar objects was eligible for the exemption. The learned counsel for the CIT sought to point out that the main activity of this association is only to render mutual help to those carrying on the business of hire purchase and that this object could not be construed as enuring for the benefit of the general public. We do not agree. In order to constitute a valid charity, it is not necessary that the object should be to benefit the whole of mankind or all the persons living in a particular Country or Province or State. It is enough if the intention is to benefit a sufficiently large section of the public ascer-tainable by a common characteristic of an impersonal nature, as distinguished from specified individual. This principle is well established by several decisions including that of CIT v. Andhra, Chamber of Commerce . It is a matter of common knowledge that economically advanced countries have been able to develop a demand for the goods manufactured by them by promoting the system of hire purchase.
6. Any association can have its own formula, test or qualification for admission as members. It is not the formula, test or qualification which determines the eligibility for exemption, as otherwise, the case of Andhra Chamber of Commerce would have been decided differently. Thus though the members of the association may relate to this type of business, still the hire purchase activity as such has got a great significance in industrial and trade development. ' The benefit of the activities of an association like this has an impact in the general economic activity of trade and manufacture. Though the chamber of commerce like the Andhra Chamber of Commerce may have in its fold members belonging to different trades and industries and the membership of the present association is open only to those in this class of business, we do not find any essential difference on the basis of which we can distinguish and decline to apply the decision in CIT v. Andhra Chamber of Commerce .
7. The learned counsel for the revenue drew our attention to a decision in South Indian Athletic Association Ltd. v. CIT . But that was a case where there was nothing preventing the members from utilising the surplus in any manner they liked. There were also clauses in the memorandum of association, which could not be construed to be objects of general public utility coming within the scope of Section 2(15) of the Act. It was also pointed out that the promotion and encouragement of mere entertainment, which was one of the objects, could not be called a charitable purpose. That decision cannot have any scope for application to the case before us. The decision in Madras Hotels Association v. CIT [1978] 111 ITR 241 (Mad), proceeded on a construction of the objects clauses in that case and lays down no different principle.
8. As indicated earlier, the activity of this association is such as to enure for the benefit of the public in the sense that it promotes the development of trade and commerce and industry in a part of this country. Taking into account the facts relating to this association, we answer the question referred to us in the affirmative and against the revenue. The assessee will be entitled to its costs. Counsel's fee Rs. 500.