Karnataka High Court
Ecumenical Christian Centre vs Commissioner Of Income-Tax, ... on 4 March, 1980
Equivalent citations: [1983]139ITR226(KAR), [1983]139ITR226(KARN), [1982]8TAXMAN175(KAR)
JUDGMENT Srinivasa Iyengar, J.
1. In this writ petition the order of the Commissioner, refusing the recognition and issuing of a certificate under s. 80G of the I.T. Act, 1961, by his order dated March 15, 1975, is challenged. The petitioner is a company registered under the Companies Act. 1956, and it was incorporated on February 25, 1966. It had also been granted a licence under s. 25 of the Companies Act and permitted to get itself registered as a company with limited liability and without the addition of the word "limited" to its name. On March 23, 1966, the petitioner applied for exemption of its income under s. 88 of the I.T. Act (which later became s. 80G). This application was granted by an order dated November 10, 1969, for the year ending on March 31, 1970. The petitioner applied for renewal and an order was made by a succeeding commissioner on November 10, 1971, renewing the exemption granted up to December 31, 1973. At the expiry of that period, the petitioner sought for a renewal by an application dated April 17, 1974. There was a new incumbent as Commissioner and he refused the renewal by an order dated May 25, 1974, that order was not a speaking one and was challenged before this court in W.P. No. 2684 of 1974. The order of the Commissioner was set aside by this court with a direction to decide the question afresh in accordance with law. Thereafter the Commissioner issued a notice formulating the grounds on which he considered that the petitioner was not entitled to a certificate and the petitioner was asked to show cause why the recognition should not be refused, the notice issued by the Commissioner was dated November 4, 1974, and an exhaustive reply was filed on behalf the petitioner and arguments were also advanced before him in support of the contentions put forth. But the Commissioner refused to grant a certificate by his order dated March 15, 1975, which is marked as Ex. G to the writ petition.
2. It is contended by SriSantosh Hegde. Learned counsel for the petitioner, that the order of the Commissioner is vitiated as it is based on a wrong approach and untenable construction of the relevant clauses in the memorandum of association and the objects of the company and has ignored the relevant material on record. The principal contention on behalf of the petitioner was that its main object was education and, therefore, was a charitable purpose as contemplated under s. 11 of the I.T. Act. 1961, and in fact it was engaged in education, and the refusal of the Commissioner to recognise it as a charitable institution entitled to the benefit of s. 80G is untenable.Clause 3 of the memorandum of association of the company reads as follows :
"3. The main objects for which the company is established are :
3A. The main objects of the company and objects incidental or ancillary to the attainment of the main objects of the company :"
3. There are 20 sub-clauses. Clause 3(B) mentions other objects. Clause 4 mentions the objects of the company to extend to the whole of India and out side India. Clause 5, inter alia, provides that the income and property of the company shall be applied solely for the promotion of its objects as set forth in the memorandum of association and o portion of the income or property shall be paid to transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to persons who are or have been members of the company or to anyone claiming through those persons. It also provided that no remuneration or other benefit in money or money's worth shall be given by the company to any of its members whether to officers or servants except payment of out of pocket expenses and interest, if any,no money lent or rent for premises let to the company.
4. By the notice dated November 4, 1974 (Ex. E), the Commissioner was of the opinion that the objects mentioned in the following clauses were outside the purview of the expression 'charitable purpose' as defined in s. 2(15) of the I.T. Act.
"3A. (i) The promotion of search for truth and diffusion of useful knowledge, promotion of conferences and discussions, the foundation and maintenance of conference centers and reading rooms and publication of journals and books for general use among the members and others.....
(iv) To publish reports, periodicals, bulletins, pamphlets, tracts and hand-bills for use among the members and others.
(v) To undertake farming.
(vi) To run hostels, work centres and rehabilitation centres, guest houses and restaurants.
(vii) To take over as going institution, the Ecumenical Christian Centre, Bangalore,presently functioning as an unregistered society along with its functions, activities, responsibilities, commitments, assets and liabilities and any other matter incidental thereof.
(viii) To purchase, take on lease or in exchange, hire or otherwise acquire, any real or personal property or any rights or privileges, which the company may think necessary or convenient for the purpose of its business and in particular any lands, buildings or easements.
(ix) To invest and deal with the moneys of the company not immediately required upon such real properties, preference shares and debentures and in such manner as may from time to time be determined.
(x) To carry on any other business which may seem to the company capable of being conveniently carried on in connection with the above or calculated directly or indirectly to enhance the value of or render profitable any of the properties or rights of the company."
5. He also referred to the provision inclause 4 of the memorandum of association. The petitioner, as stated earlier, sent an exhaustive reply. The licence that was granted under s. 25(1) of the Companies Act, details of the educational programmes undertaken by the institution, the prospects of Vhicharodaya College and a copy of the letter dated March 18, 1968, that had been sent to the Commissioner on an earlier occasion to the effect that it was not spending any amount outside India and if and when any amount was sought to be spent outside India necessary permission would be obtained from the Central Board of Direct Taxes, were also enclosed with the reply. The Commissioner considered only the provisions in the memorandum of association and he observed that it was not necessary for him to look into the various documents that had been filed before him, reflecting the actual activities carried on by the company. Failure to take into account the materials that had been placed by the petition in regard to its activities is not proper. If, as has been contended for the petitioner, the activities carried on were in pursuance of the objects of the company. The materials in regard to the activities carried on could not be ignored. The activities should have been taken note of in order to find out whether they would be in implementation of the objects of the company. In a way, they would also have explained the objects of the company, as, necessarily, such objects would have been mentioned in general or wide terms and not always loaded with details.
6. The Commissioner did not give any importance to the order that had already been made in 1969 by one of his predecessors and that it had been renewed by another predecessor of his. The objects of the company remained the same as in earlier years. It may be that the certificate is granted year after year or periodically and. Therefore, the matter is open for consideration every time an application is made but all the same the fact that an order had already been made earlier, accepting the contention of the petitioner, should be taken note of and should not be lightly interfered with, there may be circumstances justifying a reconsideration of an earlier order, if the objects of the company had changed or the activities were not in consonance with the objects or other relevant circumstances which disentitle the grant of the benefit to the company. It appears to me that the approach made by the Commissioner in ignoring altogether the previous order that had been made in favour of the company was not justified.
7. Reference had been made by the petitioner, in particular, to the licence that had been granted under s. 25 of the Companies Act. The Commissioner ignored that circumstances altogether, observing that merely because a permission had been granted under s. 25 of the Companies Act, it did not ipso facto mean that the objects of the company were of a charitable nature. This observation cannot be accepted as quite accurate or correct. The licence would be granted under s. 25 of the Companies Act only if the company was promoted with the objects of the nature specified in s. 25 and it intended to apply its profit or other income in promoting those objects and payment of any dividend to its members was prohibited. This is a relevant circumstance to be taken into consideration as another branch of the Government would have applied its mind in regard to the objects of the company and the purpose for which it was being promoted, It appears to me, therefore that the initial approach made by the Commissioner to the problem was defective.
8. The contention on behalf the petitioner was that clause 3A(i) of the memorandum of association defined its main object and the other provisions were only powers incidental or ancillary to the main object.
9. The Commissioner rejected this contention on the ground that the expression used was not "main object" but "main objects" and, therefore, all the objects should be considered as main objects. This construction is untenable. Clause 3A(i) itself mentions several objects and that is why a plural is used and in fact the preamble ofclause 3A specified objects incidental or ancillary to the attainment of the main objects of the company.
10. The Commissioner did not accept the contention of the petitioner that the objects, as specified in clause 3A(i), amounted to the object of education coming within the ambit of s. 2(15) of the I.T. Act, 1961. In the reply given by the company to the showcase notice, the expression "search for truth" has been explained. The plea on behalf of the petitioner was. Inter alia, as follows :
"The term 'search for truth' appears in conjunction with other terms such as 'diffusion of useful knowledge, promotion of conferences and discussions, publication of journals and books' and has purely educational connotation."
11. It also referred to several definitions from the dictionary and it was also stated that the world-renowned scientists such as Dr. Albert Einstein, Dr. Robert Oppenheimer and Dr. Homi Bhabha in their writings and major speeches referred to search for truth as part of the quest of knowledge and its ultimate purpose and it was in that context that the expression "search for truth" had been used. As stated earlier, the educational programme in which the petitioner was engaged in and the prospectus of the institution which had been established were sent as annexures to the reply. The Commissioner observed that it was not necessary to consider these facts as, in his opinion, the matter was concluded by a decision of this court in the case of CIT v. Sole Trustee,Lokashikshana Trust [1970] 77 ITR 61. In my opinion, the Commissioner was in error in brushing aside the material that had been placed before him by the company as irrelevant. The view had taken by him on the basis of the decision above mentioned cannot also be said to be accurate. The facts in that case lay in a narrow compass. The matter had been taken up in further appeal to the Supreme Court and the decision thereof is . Actually in the memorandum of association the express "Education" had been used. One of the judges, Justice Beg, was of the opinion that the use of that expression was only a camouflage and the only object was of a commercial nature. Mr. Justice Khanna and Justice Gupta delivered a separate judgment. They were also unable to uphold the contention on behalf of the trust that its main object was education. After discussing what education would comprise, the learned judges stated thus (p. 241) :
"What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling."
12. Justice Beg stated as follows (p. 258) : "Although the term 'education', as used in section 2(15) of the Act. Seems wider and more comprehensive than education through educational institutions, such as universities, whose income is given an exemption from income-tax separately under section 10(22) provided the educational institution concerned does not exist 'for purposes of profit'. Yet it seems to me that the educational effects of a newspaper or publishing business are only indirect, problematical, and quite incidental so that, without imposing any condition or qualification upon the nature of information to be disseminated or material to be published. The mere publication of news or views cannot be said to serve a purely or even a predominantly educational purpose in its ordinary and usual sense."
13. Clause 3A(i) specifically mentions diffusion of useful knowledge. Promotion of conferences and discussions and publication of journals and books for general use among the members and others. It appears to me that the objects mentioned directly relate to education. Expressions of a wide and general character have been used apparently with a view not to restrict its scope such as merely to start an educational school or college. Merely because an expression such as "search for truth" is used, such user being of a hyperbolical nature, its meaning need not be restricted so as to exclude the notion of education. It appears to me that clause 3A(iv) was only incidental to clause 3A(i) and ancillary to it. In regard to hostels, etc., it was mentioned in the reply that the company was running residential schools and they were meant for the students or the members of the staff who were imparting the education. The Commissioner laid some stress on the use of the expression "restaurants" in clause 3A(vi) and that no specific reply had been given in that behalf. There was no restaurant as such which was being run by the company and in the reply it has been stated that whatever facilities wers given were only to benefit the inmates of the institution and cater to their needs for food, etc. Clause 3A(iv) specified an object to undertake farming. This was also explained in the reply stating that the company had about 30 acres of land and what it was doing was only by way of kitchen gardening and to educate the pupils in that behalf and even the gardening was being carried on in between the buildings and only in a small way, the Commissioner accepted the explanation in regard to clause 3A(vii). The other three clauses which had been specified by the Commissioner were clauses that are to be found generally in all memoranda of association enabling to acquire property for the purpose of carrying out the objects thereof. They do not provide for the company engaging itself in trade or business of acquiring property, etc. But they are only incidental powers to carry out its objects effectively or in a convenient manner. The view taken by the Commissioner in regard to the nature of these clauses other than clause 3A(i) cannot be said to be reasonable or justified on the material on record.
14. The memorandum of association does not give any indication that the company was engaged in any business or trade as such. There was no other material on record suggesting any such inference, the information given in regard to the activities that are being carried on and the prospectus of the institution which was being run by the company clearly indicate that no fees was being charged and scholarships were being given to cover up expenses regarding food, accommodation, etc.
15. In the light of the above, discussion, it must be stated that the conclusions reached by the Commissioner are vitiated and, accordingly, the order made by him cannot be supported. It is, accordingly, quashed with a direction that the application of the petitioner shall be disposed of by the Commissioner afresh in accordance with law and in the light of the observations made above.