Supreme Court of India
Indian Chambers Of Commerce vs C.I.T., West Bengal Ii, Calcutta on 17 September, 1975
Equivalent citations: 1976 AIR 348, 1976 SCR (1) 830, AIR 1976 SUPREME COURT 348, 1976 (1) SCC 324, 1976 TAX. L. R. 210, 1976 (1) SCR 830, 101 ITR 796, 1976 SCC (TAX) 41, 1976 UPTC 218
Author: V.R. Krishnaiyer
Bench: V.R. Krishnaiyer, A.C. Gupta, Syed Murtaza Fazalali
PETITIONER:
INDIAN CHAMBERS OF COMMERCE
Vs.
RESPONDENT:
C.I.T., WEST BENGAL II, CALCUTTA
DATE OF JUDGMENT17/09/1975
BENCH:
KRISHNAIYER, V.R.
BENCH:
KRISHNAIYER, V.R.
GUPTA, A.C.
FAZALALI, SYED MURTAZA
CITATION:
1976 AIR 348 1976 SCR (1) 830
1976 SCC (1) 324
CITATOR INFO :
F 1976 SC1016 (13)
RF 1977 SC2211 (13)
RF 1978 SC1443 (8)
O 1980 SC 387 (12,13,18,22,42,47,49)
RF 1981 SC1408 (9,10)
R 1981 SC1922 (8)
ACT:
Income Tax Act (43 of 1961 ), s.2 (xv)-Charitable
purposes scope of Burden of proof--Activity for profit what
is.
HEADNOTE:
Under the Income-tax Act 1961 one of the items
not included in the total income of an assessee for
purposes of tax is under s.11 income derived from
property held under trust wholly for charitable purpose.
Charitable purpose is defined in s.2 (xv). Chambers of
commerce, promoting the trade interest of the commercial
community, have been regarded as pursuing charitable
purposes within the meaning of s.2 (xv). But under cover of
charitable purposes C' they have been indulging in various
activities, and deriving tax free profit. Therefore, s. 2
(xv) was amended by adding a clause at the end. Under the
amended definition, unless the context` otherwise requires,
charitable purpose includes the advancement of any object
of general public utility not involving the carrying on of
any activity for profit.
^
HELD: The income of the assesses, which are chambers
of commerce, from three sources, namely, (a) arbitration
fees levied by them; (b) fees collected for issuing
certificates of origin; and (c) share of profit in another
company for issue of certificates of weighment and
measurement, which services are extended to members and
non-members. that is, to be trade generally, is not
entitled to the exemption, and is liable to tax.[845E-G]
(1) The test is to ask for answers to the
following questions:-(a) Is the object of the assessee
one of general public utility; (b) Does the advancement
of the object involve activities bringing in money? (c)
If so, are such activities undertaken (1) for profit or
(ii) without profit. Even if' (a) and (b) are answered
affirmatively, if (c) (1) is also answered affirmatively
the claim for exemption collapses. [844B-C]
(2) Section 2 (xv) must be interpreted in such a
manner that every word is given a meaning and not to treat
any expression as redundant or miss the accent of the
amendatory phrase. So viewed, an institution which carries
out charitable purposes out of income 'derived from
property held under trust wholly for charitable purposes'
may still forfeit the claim to exemption in respect of such
takings or incomes as may come to it from pursuing any
activity for profit. By the new definition the benefit of
exclusion from total income is taken away where, in
accomplishing a charitable purpose, the institution
engages itself in activities for profit If' it wants
immunity from taxation the means of fulfilling
charitable purposes must be unsullied by profit-making
ventures. The advancement of the object of general public
utility must not involve the carrying on of any activity
for profit. otherwise, it will lead to the absurd conclusion
that a Chamber of Commerce may run a printing press,
advertisement business, market exploration activity or even
export promotion business and levy huge sums from its
customer whether they are members of the organisation or
not and still claim a blanket exemption from tax on
the score that the objects of general public utility
which it had set forth for itself implied these activities
even though profits or surpluses may arise therefrom. If it
runs special types of services for the benefit of
manufacturers and charges remuneration from them. it us
undoubtedly an activity which. if carried on by private
agencies, would be taxable. and there is no reason why a
Chamber of Commerce should be exempt. The policy of the
statute is to give tax relief for charitable purposes. An
undertaking by a business organisation is ordinarily assumed
to be for profit unless expressly or by necessary
implication. Or by eloquent surrounding circumstances the
making of' profit stands clearly negatived. For example.
if' there is a restructure provision in the bye-laws which
insists that the charges levied for services of public
utility rendered are to be on a 'no profit' basis, that
is, that it shall not charge more
831
than is actually needed for the rendering of the services
then it earns the benefit of s.2(xv). It may not be an exact
equivalent such mathematical precision being impossible in
such case and there may be little surplus at the end of the
year; but the broad inhibition against making profit is a
good guarantee that the carrying on of the activity is not
for profit.[839F-840D. G-841C]
(3) The answer to the question whether an activity is
one for or not for profit depends on the facts. An activity
which yields profit or gain in the ordinary course must be
presumed to have been done for profit or gain There may be
activities, where` without intent or purpose the activity
may yield profit. Even then it may legitimately be said that
the activity is for profit in the sense that it is `
appropriate or adapted to such profit. [844C E-F]
(4) If The activity is prone to yielding income and in
fact results in profit the Revenue will examine the reality
or pretence of the condition that the activity is not for
profit But; if the broad basis that the activity is not for
profit is made out, by the assessee, the Revenue will not be
meticulous and charge every chance excess or random surplus.
[844G-845A]
(5) The assesses contention that the Revenue should
only look at the dominant intent or real object of the
assessee and that if its activity is wrapped up entangled or
intertwined with a public utility object then any incidental
profit arising from it is not taxable. does not afford a
valid or satisfactory test. [841D-F.]
(6) Equally The contention of the Revenue that all
activities which are prone to produce profits should be
excluded is not correct. [840E-F]
(7) In the present case the issuance of weighment and
measurement certificates the issuance of certificates of
origin and the settlement of disputes by arbitration are
great facilities for trader of general public utility. There
is however nothing in the memorandum or articles of
association of the assesses which provides for only nominal
fees and sets a limit on making large profits from the
services. [845B-E G-H]
Loka Shikshana Trust v. C.I.T. Mysore [1976] 1 S.C.R:
471. C.I.T. v. Andhra Chamber of Commerce [1965] 55 I.T.R.
722 applied.
C.I.T. v. Dharmodayam Co. [1974] 94 L.T.R. 113
overruled.
ARGUMENTS
For the appellant
l. The primary or dominant or real objects of the
Indian Chamber Of Commerce are to promote protect, aid and
stimulate trade, commerce and industry in India. (Clause 3
of the Memorandum of Association). The Income received was
to be applied solely for the promotion of the objects and
upon dissolution no property was to be paid or distributed
among the members but was to be given or transferred to some
other institution having similar objects. (Clauses 4 and 8
of the Memorandum of Association). It is well settled that
These objects which lead to economic prosperity and enure
for the benefit of the entire community are objects of
general public utility and as such as charitable.
See [1965] SC 55 ITR 722 Commissioner of Income
tax v. Andhra Chamber of Commerce.
2. The Indian Chamber of Commerce provides inter alia
for arbitration facilities so that trade disputes may be
speedily and efficiently settled. It further provides for
certificates of origin and certificates of weighment and
measurement to be issued under the Commercial Documents
Evidence Act, 1939 under Entry 18 Part I and Entry 6 Part II
of the Schedule to the said Act respectively These
certificates can only be issued by certain bodies such as
recognised chambers of commerce. The certificates are
necessary for facilitating trade.
5-L1127SCI/75
832
The carrying on of the activities of granting certificate of
origin and/or weighment and measurement and arbitration are
not activities for profit hut are in he nature of services
and/or facilities provided to the commercial community. As
fees are charged the result at the end of the year is
sometimes a loss and on times surplus. The dominant purpose
for these service is not profit making but rendering a
statutory service for trade and commerce generally. The
services cannot be gratuitous as the Chamber cannot be
expected to be a charitable institution like as Dharamsala.
The fees charged are related to the services rendered by way
of quid pro quo. Quid pro quo does not mean an equivalent
mathematically. If incidental to the advancement of the
objects of general public utility some services are rendered
for fees as a result of which income results it does not
means that the objects of the Chamber involves carrying on
Any activity for profit in the sense of that being.. the
dominent object. The dominant or real purpose is not to earn
profit or income but to serve trade and help the commercial
community. As such the above mentioned activities carried on
by the Chamber will not be activities for profit. involving
in the dominant object of the Chamber. In order to be
activities for profit the involvement of profit making
should be by the object and must be of such a degree or to
such an extent as to lead to the influence that profit
making is the real object. Since the real or dominant
objects of the Chamber are not for profit and profit is not
an essential ingredient but a mere bye-product of the
activities of the Chamber. The income must be held to be
exempt under S. 11(1) d with S. 2(15) of the Act.
See [1976] 1 S.C.R. 471 The Sole Trustee Loka
Shikshana Trust v. Commissioner of Income-tax, Mysore.
D
3. The purpose and/or dominant object must be
distinguished from the powers which are incidental to the
carrying out of the objects of The Trust.
See 27 ITR 279-Commissioner of Income-tax v. Breach
Candy Swimming Bath Trust.
[1918] Appeal Cases 514 Cotman v. Brougham [1970]
1 Ch. 199.
4. Under S. 2(15) of the Act the words carrying on of
any activity for profit must mean an activity whose dominant
object is profit making and not an activity which may
incidentally result in some profit as a bye-product. Of this
meaning is not given then there. will be no activity of any
institution doing work of general public utility which will
he exempt including activities like those of All India
Spinners Association.
5. If the primary and dominant purpose is charitable
then even if there are some incidental powers which are not
charitable it will not prevent the trust from being a valid
charity. The intention will have to be gleaned from the
Constitution of the Trust or the Memorandum of Association.
See 7 ITR 415-In Re: Trustees of The Tribune.
12 ITR 482 All India Spinners Association v.
Commissioner of Income tax
55 ITR 722-Commissioner of Income-tax v. And/1/a
Chamber of Commerce
100 ITR 392 Andhra Pradesh State Transport
Corporation v. Commissioner of Income tax.
6. Under Section 11 of the Income-tax Act 1961 it is
the income derived from property held under trust wholly for
charitable purposes which is not to be included in the total
income. The word property is . Of wide import and can
include a business or an undertaking or fees and restaurant
charges etc.
12 ITR 482 All India Spinners Association v.
Commissioner of Income
833
27 ITR 279-Commissioner of Income-tax, Bombay City
v. Breach Candy Swimming Bath Trust.
32 ITR 535-J K Trust, Bombay v. Commissioner of
Income-tax, Excess profit Tax, Bombay.
53 ITR 176-Commissioner of Income-tax, Kerala &
Coimbatore v. P. Krishna Warriar.
7 In any event the activities of arbitration and
granting certificates of origin and weighment and/or
measurement are not activities "for profit".
80 ITR 645-Commissioner of Income-tax, Kerala v
Indian Chamber of Commerce.
87 ITR 83- Commissioner of Income-tax v. Kochin
Chamber of Commerce.
[1975] 40 Taxation (III) 15-Commissioner of Income
tax Kerala v. Ernakulam Chamber of Commerce.
As such the Chamber is entitled to exemption under
section 11 read with 2(15) of the Income-tax Act.
For the Respondent
1. The Appellant Chamber of commerce was deriving
income by performing three kinds of services namely
providing arbitration facilities for standard weights and
measurements to traders in general. This was in furtherance
of its objects clause 2(a); 2(b); 2(c); 2(d); 2(z); 3(h);
3(i); 3(p); 2(q); 3(v) The performance of such services for
remuneration clearly was an activity for profit and the said
activity was closely linked with. Or involved with the
advancement of the aforesaid objects of the Chamber. Such
close linking and involvement by itself rendered the object
non-charitable within the meaning of s. 2 (15) of the
Income-tax Act 1961.
2. If the Chamber of Commerce performed the same kind
of services for it members for remuneration the income so
derived was certainly liable to tax under s. 28(iii) of the
Income-tax Act, 1961. The position became worse if the
income was so derived by rendering such services to non
member traders in general.
3. It was assumed by the Tribunal and by the High Court
for which there was no warrant that the income from the said
three sources was income derived from property held under
trust and the case proceeded on such assumption although the
High Court doubted the validity of such an assumption as is
clear from the text of their judgment at pp. 76-77 of the
Paper Book. The High Court. therefore proceeded to consider
only whether the production of the income from the aforesaid
three sources was involved with the advancement of any
object of general public utility. The Tribunal had held that
such income was derived by carrying out the ancillary object
of the Trust and not the main object although it found as a
fact that the income was deriv d from; carrying on an
activity for profit. The High Court did not recognise such .
distinction and it was urged that the High Court was right.
4. No valid reason could be found for making a
distinction between any individual or any association of
persons on the one hand, and the appellant on the other hand
in respect of producing taxable income by carrying on
identical activities for profit. It was beyond any doubt
that ii an Individual or an association of persons had
carried on similar activities from profit they would not be
entitled to any exemption from tax. The appellant therefore
could not be placed at a better level especially when the
words of Statute themselves had debarred it from getting the
exemption. Prior to the introduction of the qualifying
clause in s. 2(15) of the Current Act such bodies or
834
Organisations were undoubtedly enjoying exemption by virtue
of the repealed Indian Income-tax Act of 1922. The
Legislature clearly intended to remove this unreasonable
distinction by adding the qualifying clause as it is found
in s. 2(15) of the Income-tax Act, 1961. The effect of such
amendment of the definition was that the institutions
otherwise regarded as charitable trusts have now been placed
at par with any private organisation or individual who would
render the same kind of services to the public for profit.
5. Unless the memorandum or articles governing a Trust
or any Institution prohibated the making of profit by
carrying on any activity or the earning of the profits was
not ruled out and in fact profit resulted, the Court would
assume that the activity was carried on for profit. In
support of this the Revenue counsel relied upon the
judgment of the Supreme Court recently delivered in the case
of Sole Trustee Loke Shikshana Trust [1976] 1 S.C.R. 471.
There was no such prohibition in the regulations governing
the activities of the Indian Chamber of Commerce and
therefore its case fell squarely within the principles valid
by the Supreme Court in the case of Loke Shikshana Trust.
6. In order that an activity might be called a business
activity or any other activity for profit it was not
necessary to show that it was an organised activity or that
it was indulged in with a motive on making profit. it was
well established that it was not the motive of a person
doing in act which decided whether the act done by him was
carrying on an activity for profit . If any activity.
business of otherwise in fact produced an income that was
taxable income and was none the less so because it was
carried on without the motive of producing an income.
Reference was invited in this connection to the observations
o the Supreme Court in the case of P. Krishna Menon v.
Commissioner of Income-tax, Mysore (35 I.T.R.-p. 48).
7. Even in the ease of classical charities such as
promotion of education and giving of medical relief no
exemption is available if these two activities of charitable
nature are carried on for purposes of profit. A fortiori,
the exemption will be denied in the case of advancement of
an object of general public utility howsoever charitable it
may otherwise be regarded in character if the advancement
involved the carrying on an activity for profit. The
intention of Legislature was fully vindicated in the
language employed ins. 2(15) of the Act.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2129 of 1970.
From the Judgment and order dated the 29th May, 1970 of the Calcutta High Court in Income Tax Reference No. I of 1967 and Civil Appeals Nos. 2455-2457 of 1972 Appeals by Special Leave from the judgment and order dated the 25th February, 1972 of the Kerala High Court in Income Tax Reference Nos. 9, to and 11 of 1970.
A. K. Sen, Mrs. Leila Seth, o. P. Khaitalz and B. P Maheshwari for the appellant in C.A. No. 2129 of 1970.
G. C. Sharma, B. B. Ahuja and S. P. Nayar for the respondents in C.A. 2129 of 1970.
J. Ramamurthy and D. N. Gupta for intervener No. I, in C.A. No. 2129 of 1970.
A. K. Sen and D. N. Gupta for Intervener No. 2 in C.A. No. 2129 of 1970.
835J. Ramamurthi and D. N. Gupta for Intervener No.3 in C.A. No. 2129 of 1970.
G. C. Sharma B. B. Ahuja and S. P. Nayar for the appellants in C.AS. NOS.2455-2457/72.
A K Sen and D. N. Gupta for respondent in C.As. Nos. 2455- 57/72.
The Judgment of the Court was delivered by KRISHNA IYER, J. These four appeals raise but one question, turning on the meaning of charitable purpose', as defined in s. 2(15) of` the Income Tax Act, 1961 (Act No. XLIII of 1961) (for short. the Act) . They may be disposed of by one common judgment, although the two High Courts (Calcutta and Kerala) from where the appeals have come have taken contrary views on the single point in issue.
What are the words set for earning exemption by a combined application of s. 11(1) read with s. 2(15) of the Act? What is the para meter of the legal concept of charitable purpose ? Are the triune activities, which have yielded income and have been assessed to tax, eligible for exemption as falling within the scope of s. 2(15) as it now stands ? These points of law, in the conspectus of facts presented in the case, have been argued in the light of conflicting decisions of the High Courts and illumined in part by a very recent pronouncement of this Court in Loka Shikshana Trust v. C.I.T.., Mysore.(1) The assesses are the Indian Chambers of Commerce and the Cochin Chambers of Commerce. their memoranda and articles of association are substantially similar and so the facts in the first case alone need be slated and the question of law discussed with reference to that case only. Hardly any distinction on facts or law which desiderata a separate consideration exists.
The Indian Chamber of Commerce is a company registered under s. 26 of the Indian Companies Act, 1913. Its memorandum and articles of association spell out the broad objects and there is no doubt that they fall within the sweep of the expression 'the advancement of any . . . Object of general public utility' as set down in s. 2 (15) of the Act. Briefly put, they are primarily promotional and protective of Indian trade interests and other allied service operations. A general concluding clause authorizes it 'to do all other things as may be Conducive to the development o trade, commerce and industries or incidental to attainment of the above objects or any of them'. It is clear from clauses 4 and 8 of the Memorandum of Association that the Members of the Chamber do not and cannot stand to gain personally since no portion of 'income and property of the association' shall be paid . . . directly or indirectly, by way of dividend or bonus or otherwise howsoever by way of profit to the persons who at any time are . . . Members of the Association . . . '. Even on the dissolution of the Association the Members cannot claim any share in the assets. These highlight the fundamental fact that the Chamber, by and large, strives to advance the general trade interests of India and Indians without [916] 1 S.C.R. 471 836 seeking to make profits for its Members. In the light of this Court's decision in C.I.T v., Andhra Chamber of Commerce(1) one may readily state that the Chambers advance objects of general public utility and, prima facie more into the exclusionary area of charitable purpose. However, the bone of contention in this case is as to whether the three source of income, viz., (a) arbitration fees levied by the Chamber; (b) fees collected for the certificates of origin; and (c) share of profit in M/s. Calcutta Licensed Measures for issue of certificates of weighment and Measurement fall within the exclusion. It may be mentioned that all these three services were extended to Members and non-Members or, rather, to the trade generally. Had the law bearing on 'charitable purpose' been what it was prior to 1961, the Chamber would have won hands down may be. But then there is a significant change in the definition of 'charitable purpose' by the addition of nine new words which cut back on the amplitude of the expression in the prior Act. The straight question to be answered here is whether in plan English the there activities which have yielded profits to the chamber involve 'the carrying on of any activity for profit', uncomplicated by casuistic, nicetics, semantic nuances and case-law conflicts. Unfortunately, legislative simplicity has not been accomplished by the draftsman in the amended definition and, consequently, interpretative complexity persists. The Judges of the Andhra Pradesh High Court in A. P. State Road Transport Corporation v. C.I.T.(2) observed, while considering the import of s. 2(15) of the 1961 Act:
"It is one of the fundamental principles in legislation and the drafting of statutes that the provisions contained therein should be clear and cogent and, more so, with regard to the fiscal statutes which impose a burden on the public. But, in this case, what we find is that the amendment, instead of being clear and cogent, is complicated and courts have taken different views in interpreting the same."
We dare say that achieving greater simplicity and clarity in statute law will be taken up by the draftsmen of the legislative bills to avoid playing linguistic games in Court and promotion of interpretative litigation Lawyers and legislators must stop confusing each other and start talking to their real audience the people-so that communication problems may not lead to prolific forensic battles. We must confess to having been hard put to it to get at the controlling distinction between activities which fall on one side or the other of 'charitable purpose'. The assesses the Indian Chamber of Commerce,, was assessed for the accounting year 1963-64 on the income which arose from the three heads of arbitration fees, fees for certificates of origin and the share of profits in the firm M/s. Calcutta Licensed Measurers which issued weighment and measurement certificates charging a fee therefore the return for the assessment year showed a profit of Rs. 1,58,690/- made up of a small amount from arbitration fees, and a similar sum from fees for issue of certificates of origin but a substantial sum by way of share of income from the fees charged for weighment and measurement. Although the Income-tax officer repelled the claim OF (1) [1965] 55 I.T.R. 722. (2) [1975] 100 I.T.R. 392, 397.
837charitable purpose' on the view that these activities were for profit the Appellate Tribunal took a contrary view reversing the concurrent findings of the Income-tax officer and the Appellate Assistant Commissioner. The conclusion of the Tribunal was that s. 2(15) applied but the High Court on a reference under s. 256(1) of the Act, answered the question in favour of the Revenue.
We have indicated earlier that the various High Courts have taken contrary views. Kerala has consistently held on facts substantially identical that s. 2(15) is attracted. Andhra Pradesh has concurred, while Calcutta and Mysore have ranged themselves on the opposite side. A recent decision of this Court earlier mentioned has given some telling guidelines although the precise facet pressed before us may not be said to have been wholly covered by it.
The scheme of the Act may be briefly indicated to the extent it is relevant, before entering on the discussion. 'Income' is taxable, but certain incomes shall not be included in the total incomes of the previous years of the person in receipt of the income. Section 11 excludes from the computation income derived from property held under trust wholly for charitable purpose. The Chamber of Commerce is a trade association which renders specific services to its members and there fore s. 28 will ordinarily apply to its income, unless s. 11 read with s. 2(15) excludes it from taxability. The income drawn from non members by the Chamber will clearly be taxable unless s. 2(15) comes to its rescue. Thus the pivotal issue is as to whether the three channel of income may be treated as charitable purposes and therefore eschewed by s. 11 from the charging provision.
At this stage we may read s. 2(15):
"2(15) In this Act, unless the context otherwise requires, charitable purpose' includes 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 obvious change as between the old and the new definitions is the exclusionary provision introduced in the last few words. The history which compelled this definitional modification was the abuse to which the charitable disposition of the statute to charitable purposes was subjected by exploiting businessmen. You create a charity, earn exemption from the taxing provision and run big industries virtually enjoying the profits with a seeming veneer of charity a situation which exsus-citated Parliament and constrained it to engraft a clause deprivatory of the exemption if the institution fulfilling charitable purposes undertook activities for profit and thus sought to hoodwink the statute. The Finance Minister's speech in the House explicates the reason for the restrictive condition. He stated in the House;(l) (1) Lok Sabha Dabates, Vol.LVl.1961, p.3073 (Aug.18,1961) 838 The definition of 'charitable purpose in that clause is it present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving a public purpose, get fully paid for the benefits provided by them, namely, the newspaper industry which while running its concern on commercial lines can claim that by circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that the words 'not involving the carrying on or and activity for profit' should be added to the definition.
Beg J., in Lok Shikshana Trust (supra) has adverted to this statement as throwing light on the new provision. The evil sought to be abolished is thus clear. The interpretation of the provision must naturally fall in line with the advancement of the object. Of course, there are borderline cases where it becomes difficult to decide at first sight whether the undertaking which yields profit is a deceptive device or a bonafide adventure which results in nominal surplus although substantially intended only to advance the charitable object.
Chambers of Commerce dot this country and, by and large, they have the same complex of objects. They exist to promote the trading interests of the Commercial community and, after the Andhra Chamber of Commerce Case (supra) have been regarded as pursuing charitable purposes. This expression, defined in s. 2(15), is a term of art and embraces objects of general public utility. But, under cover of charitable purposes, a crop of camouflaged organisations sprung up. The mask was charitable, but the heart was hunger for tax free profit. When Parliament found this dubious growth of charitable chameleons, the definition in s. 2(15) was altered to suppress the mischief by qualifying the broad object of 'general 'public utility' with the additive 'not involving the carrying on of any activity for profit'. The core of the dispute before us is whether this intentional addition of a 'cut back' clause expels the Chamber from the tax exemption zone in respect of the triune profit fetching sub-enterprises undertakes by way of service or facility for the trading community.
The rival constructions put forward by counsel at the bar may now be noticed. Shri A. K. Sen's argument for the Chamber is that the controlling distinction between what is 'charitable purpose' and what is not lies in discovering the dominant intent as distinguished from the subsidiary consequence, the principal object" not the incidental inflow, the profit motive of the operation as against the service oriented activity which may or may not en passant yield an income His stress, a la the Kerala cases, is on whether the activity is wrapped up, entangled and intertwined with the public utility object. If it is, the resultant surplus is not an exigible income. Such, certainly, are the passwords and touch-stones used in several Kerala decisions. If this be the parameter, he argues, the three activities are saved because 839 they render service, promote trade and facilitate the wheels of business to move. They do not form activities for making profit; they are in fulfillment of the objects of the Chamber.
Shri Sharma for the Revenue reads into the amended definition a total exclusion from the charmed circle of charitable purposes all activities which are prone to produce profits. The telling test, according to this view, is to see that the means, like the ends, are charitable, untainted by gainful stimulus and purged of the potential for profit in reality By this canon the Chamber's desire to serve businessmen by offering arbitral or certificate facilities in return for a price is prima, facie an 'activity for profit' unless the circumstances, express or necessarily implicit eloquently proclaim a 'no profit' foundation for the undertaking. The linkage is not between object of public utility and the challenged activity but between the methodology adopted for the advancement of such objects and proneness for profit flowing from such method or activity. If this standpoint be sound, the three services which have yielded profits, although wrapped in, entangled or inter-twined with the object of promoting trade interests, are still liable to tax, there being no visible limitation on the revenues that Any arise from them and these precise activities could be carried on by private individuals for profit The legal break-through lies along a realistic line of reasoning taking care to avoid the extreme position of Shri Sharma which will render the last limb of s. 2(15) illusory or ineffectual and as serviceable for tax exemption of charities as the appendix to the human physiology. In our view the key to the problem is furnished not merely by a careful ,. Took at the history of the evil and the Parliamentary debate at least the Finance Minister's speech on the new change but the language of s. 2(15) itself read in the light of the guidelines in Lok Shikshana Trust (supra) .
Taking a close-up of s. 2(15) with special emphasis on the last concluding words, we have to interpret 'charitable purpose' in such manner that we do not burke any word, treat any expression as redundant or miss the accent of the amendatory phrase. So viewed, an institution which carries out charitable purpose out of income 'derived from property held under trust wholly for charitable purposes' may still forfeit the claim to exemption in respect of such takings or incomes as may come to it from pursuing any activity for profit. Notwithstanding the possibility of obscurity and of dual meanings when the emphasis is shifted from 'advancement' to 'object' used in s. 2(15), we are clear in our minds that by the new definition the benefit of exclusion from total income is taken away where in accomplishing a charitable purpose the institution engages itself in activities for profit. The Calcutta decisions are right in linking; activities for profit with advancement of the object. If you want immunity from taxation, your means of fulfilling charitable purposes must be unsullied by profit making ventures. The 11 advancement of the object of general public utility must not involve the carrying on of any activity for profit If it does, you forfeit. The Kerala decisions fall into the fallacy of emphasizing the linkage between the objects of public utility and the activity carried on.
840According to that view,. whatever the activity, if it is intertwined with, A wrapped in or entangled with the object of charitable purpose even if profit results therefrom, the immunity from taxation is still available. This will result in absurd conclusions. Let us take this very case of a Chamber of Commerce which strives to promote the general interests of the trading community. If it runs certain special types of services for the benefit of manufacturers and charges remuneration from them, it is undoubtedly an activity which, if carried on by private agencies, would be taxable. Why should the Chamber be granted exemption for making income by methods which in the hands of other people would have been exigible to tax ? This would end up in the conclusion that a Chamber of Commerce may run a printing press, advertisement business market exploration activity or even export promotion business and levy huge sums from its customers whether they are members of the organisation or not and still claim a blanket exemption from tax on the score that the objects of general public utility which it has set for itself implied these activities even though profits or surpluses may arise therefrom. Therefore, the emphasis is not on the object of public utility and the carrying on of related activity for profit. On the other hand, if in the advancement of these objects the Chamber resorts to carrying on of activities for profit, then necessarily s. 2(15) cannot confer cover. The advancement of charitable objects must not involve profit making activites. That is the mandate of the new amendment.
The opposite position in its extreme form is equally untenable. While Shri Sharma is right that merely because service is rendered to traders escapement from tax liability does not follow. Every type of service-oriented activity, where some charge is levied from the beneficiary and at the end of the year some surplus is left behind, does not lose the benefit of s. 2(15). For, then., one cannot conceive of any object of general public utility which can be advanced by the Chamber of Commerce. For every such activity some fee will have to be levied if the Chamber is not to turn bankrupt and merely because a fee is levied one cannot castigate the activity as one for profit. Therefore it is a false dilemma to talk of activity for profit as against activity rendered free. The true demarcating line lies in between.
In our view, the ingredients essential to earn freedom from tax are discernible from the definition, if insightfully read against the brooding presence of the evil to be suppressed and the beneficial object to be served. The policy of the statute is to give tax relief for charitable purpose, but what falls outside the pale of charitable purpose ? The institution must confine itself to the carrying on of activities which are not for profit. It is not enough if the object be one of general public utility. The attainment of that object shall not involve activities for profit. What then is an activity for profit ? An undertaking by a business organisation is ordinarily assumed to be for profit unless expressly or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly negatived. We will illustrate to illumine. If there is a restrictive provision in the bye- laws of 841 the charitable organisation which insists that the charges levied for services of public utility rendered are to be on a 'no profit' basis, it . clearly earns the benefit of s. 2(15). For instance, a funeral home, an S.P.C.A. Or a cooperative may render services to the public but write a condition into its constitution that it shall not charge more than is actually needed for the rendering of the services,may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables,may be a little surplus is left over at the end of the year the broad inhibition against making profit is a good guarantee that the carrying on of the activity is not for pro fit. As an antithesis, take a funeral home or an animal welfare organisation or a super bazaar run for general public utility by an institution which charges large sums and makes huge profits. Indubitably they render services of general public utility. Their objects are charitable but their activities are for profit Take the case of a blood bank which collects blood on payment and supplies blood for a higher price thereby making profit Undoubtedly the blood bank may be said to be a general public utility but if it advances its public utility by sale of blood as an activity for (making) profit, it is difficult to call its purposes charitable. It is just blood business ! In the United States, for instance, there are many funeral homes which make considerable profits. There are super bazaars and animal welfare institutions in many countries which may be run on a profit motive. Inevitably these activities are caught in the meshes of the tax law. Readymade nostrums like 'dominant intent'" 'incidental profits', 'real object' as against 'ostensible purpose', 'entangled', 'wrapped in,' 'inter-twined' and the like fail as criteria in critical cases, although they have been liberally used in judicial vocabulary. In this branch of law verbal labels are convenient but not infallible. We have to be careful not to be victimised by adjectives and appellations which mislead, if pressed too far, although they may loosely serve in the ordinary run of case.
To sum up, s. 2(15) excludes from exemption the carrying on of activities for profit even i they are linked with the objectives of general public utility, because the statute interdicts, for purposes of tax relief, the advancement of such objects by involvement in the carrying on of activities for profit. We appreciate the involved language we use but when legislative draftsmanship declines to be simple, interpretative complexity becomes a judicial necessity.
Lok Shikshana Trust (supra) is the latest-perhaps the only case of this Court-dealing directly with s. 2(15) of the Act. Khanna J., speaking on behalf of himself and Gupta J.. Observed:
"As a result of the addition of the words 'not involving the carrying on of any activity for profit' at the end of the definition in section 2(15) of the Act even if the purpose of the trust is 'advancement of any other object of general public utility', it would not be considered to be 'charitable purpose' unless it is shown that the above purpose does not involve the carrying on of any activity for profit. The result 842 thus of the change in the definition is that in order to bring A a case within the fourth category of charitable purpose, it would be necessary to show that ( 1 ) the purpose of the trust is the advancement of any other object of general public utility, and ( 2 ) the above purpose does not involve the carrying on of any activity for profit. Both the above conditions must be fulfilled before the purpose of the trust can be held to be charitable purpose."
* *: * "It is true that there are some business activities like mutual insurance and cooperative stores of which profit making is not an essential, ingredient, but that is so because of a self imposed and innate restriction on making profit in the carrying on of that particular type of business. Ordinarily profit motive is a normal incidence of business activity and if the activity of a trust consists of carrying on of a business and there are no restrictions on its making profit, the court would be well justified on assuming in the absence of some indication that the contrary that the object of the trust involves the carrying on of an activity for profit."
(emphasis. ours) "By the use of the expression 'profit motive' it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity."
* * * * "We are not impressed by the submission of the learned counsel for the appellant that profit under section 2(15) of the Act means private profit. The word used in the definition given in the above provision is profit and not private profit and it would not be permissible to read in the above definition the word 'private' as qualifying profit even though such word is not there."
Beg J., spoke on the subject with different accent but drew pointed attention to one aspect:
"The deed puts no condition upon the conduct of the .1 newspaper and publishing business from which we co infer that it was to be on 'no profit and no loss' basis. I mention this as learned counsel for the appellant repeatedly asserted that this was the really basic purpose and principle for the conduct of the business of the trust before us. This assertion seems to be based on nothing more substantial than that the trust deed itself does not expressly make profit 843 making the object of the trust. But, as I have already indicated, the absence of such a condition from the trust deed would not determine its true character. That character is determined for more certainly and convincingly by the absence of terms which could eliminate or prevent profit making from becoming the real or dominant purpose of the trust. It is what the provisions of the trust make possible or permit coupled with what had been actually done without a illegality in the way of profit making, in the case before us, under the cover of the provisions of the deed, which enable us to decipher the meaning and determine the predominantly profit making character of the trust."
(emphasis, ours) We do not think it necessary to discuss the various decisions of the High Courts cited before us nor need we seek light from the English Cases either. After all, Indian law must bear Indian impress derived from Indian life.
In All India Spinners' Association v. Commr. Of Income- tax Bombay, (1) Lord Wright, speaking for the Judicial Committee d considering the subject of 'charitable purposes' as justifying exemption from Income-tax, observed:
`It is now recognised that the Indian Act must be construed on its actual words and is not to be governed by English decisions on the topic."
* . : * *: * "The Indian Act gives a clear and succinct definition which must be construed according to its actual language and meaning. English decisions have no binding authority on its construction and though they may sometimes afford help or guidance, cannot relieve the Indian Courts from their responsibility of applying the language of the Act to the particular circumstances that emerge under conditions of Indian life."
* * * Crypto-colonial inclinations have sometimes induced Indian draftsmen and jurists to draw inspiration from English law but, for reasons felicitously expressed by Lord Wright, we are adopting interpretation of s. 2(15) according to the language used there and against the background of Indian life.
Coming to the facts of the present case, the criteria we have evolved have to be applied.
Among the Kerala Cases which went on the wrong test we wish lo mention one" Dharmodayam.( 2). The assessee company was conducting a profitable business of running chit funds and its memorandum (1) [1944] 12 1. T. R. 482. 486.
(2) C. 1. T. v. Dharmodayam Co. [1974] 941. T. R. 113.844
of association had as one of its objects to do the needful for the promotion of charity, education and industry. The court found it possible on these facts to (grant the benefit of s. 2(15) by a recondite reasoning. If this ratio were to hold good businessmen have a highroad to tax avoidance Dharmodayam (supra) shows how dangerous the consequence can be if the provisions were misconstrued.
The true test is to ask for answers to the following question (a), Is the object of the assessee one of general public utility? (b) Does the advancement of the object involve activities bringing in moneys ? (c) If so, are such activities undertaken (i) for profit or (ii) without profit ? Even if (a) and (b) are answered affirmatively, if (c) (i) is answered affirmatively, the claim for exemption collapses. The solution to the problem of an activity being one for or irrespective of profit is gathered on a footing or facts. What is the real nature of the activity? one which is ordinarily carried on by ordinary people for gain'? Is there a built in prescription in the constitution against making a profit? Has there been in practice, profit from this venture ? Although this last is a weak test. The mere fact that a service is rendered is no answer to chargeability because all income is often derived by rendering some service or other.
Further, what is an activity for profit depends on the correct connotation of the preposition. 'For' used with the active participle of a verb means 'for the purpose of (Sec judgment of Westbury C., 1127) 'For' has many shades of meaning. It connotes the end with reference to which anything is done. It also bears the sense of 'appropriate or 'adopted to': 'suitable to purpose' vide Black's Legal Dictionary. An activity which yields a profit or.gain in the ordinary course must be presumed to have been done for profit or gain. Of course, an extreme case could be imagined where without intent or purpose an activity may yield profit. Even so, it may legitimately be said that the activity is 'appropriate or adapted to such profit'.
We may wind up with a brief rounding off and indication on the approach. A pragmatic condition, written or un- written, proved by. a prescription of profits or by long years of invariable practice or spelt from strong surrounding circumstances indicative of anti-profit motivation such a condition will qualify for 'charitable purposes' and legitimately get round the fiscal hook. Short of it, the tax tackle holds you fast. A word about the burden of proof is necessary here. Income. Ordinarily chargeable, can be free from exigibility only if the assessee discharges the onus of bringing himself within s. 2(15). In so doing, he has to attract and repel attract the condition that his objects are of 'general public utility' and repel the charge that he is advancing these objects by involvement in activities for profit. Once this broad dual basis is made out, the Revenue will not go into meticulous mathematics and charge every chance excess or random surplus; If the activity is Prone to yielding income and in fact results in profits, the 845 Revenue will examine the reality or pretence of the condition, that the activity is not for profit. Here, one may well say: 'Suit the action to the word, the word to the action'.
If such be the legal criteria for fixing charitable purpose, low does the Indian Chamber fare ? The substantial item of income comes from the share of profits in the firm called M/s. Calcutta Licensed Measurers. True, the issuance of weighment and measurement certificates is a great facility for traders and under the Commercial Documents Evidence Act only recognised institutions arc permitted to issue such certificates. Recognition be speaks the status, integrity and efficiency of the institution but does not transmute a service for profit into nonprofitable activity. It is irrelevant whether this service is in implementation of or interwoven with trade promotion. What is partinent is whether the advancement of trade promotion by issuing such certificates is done for a nominal fee conditioned by the cost of the operation, and profit making by this means is tabooed. For there is nothing in the memorandum or articles of association which sets any limit on making a large profit this way. And, after all, any institution.or individual may set up a weighment and measurement business as a source of income and if it is of sufficient probity and competence recognition to may well be accorded under the Commercial Documents Evidence Act. We cannot mix up or confuse the two concept. The activity of charging fees and issuing certificates of origin valuable as a service though it be, is in not different position. Both these activities are amenable to tax as being carried on for profit, there being nothing to show that the Chamber was undertaking this job on a 'no profit' basis. The presumption, if at all, is that a businessman association does a business of it. more so when the facility is available to members and non members. Not infrequently one comes across weighment stations where loaded trucks are weighed for payment as a business. So also approved valuers value property as business and charge for that service. Merely because it is carried on by a Chamber of Commerce no difference in incidents arises and tax incidence can be repelled only if the work is done explicitly on a 'no profit' basis. Such is not shown to be the case here.
The objects of the Chamber include settlement of disputes among traders by arbitration. This is undoubtedly a service of general public utility preventing protracted commercial litigation. If the fee charged for doing so is more or less commensurate with the expense the Chamber has to incur, a minor surplus will not attract tax. But no such restriction is written into the rules governing the Chamber. It may charge a heavy sum and spend much less for hiring experts to decide the dispute. There is no magna carta hiding the Indian or Cochin or Bengal Chamber of Commerce not to sell arbitral justice. Suppose ; specialist in mercantile law and practice of reputable integrity offers himself regularly for arbitration of commercial disputes for a high fee, is he not making an income? The difference between the two is as between Tweedledum and Tweedledee. Surely, if an innate, articulated, restraint on the levy for these undoubted services to Trade existed as a fact, so as to remove the slur of activity for profit, then the umbrella of charitable purpose would protect small surpluses.
846We hold that the incomes of the Chambers sought to be taxed are taxable. Civil Appeal No. 2129 of 1970 is dismissed and civil Appeals Nos. 2455 to 2457 of 1972 are allowed. Parties will bear their respective costs.
Before parting with the case we may as well make it clear that our conclusion would have been the same even without reference to or reliance on the speech of the Finance Minister we have excerpted earlier.
V.P.S. Appeals partly allowed.
847