Vildirect: IncomeTax-caselaws-1981-VIL-31-SC-DT

1981-VIL-31-SC-DT

Equivalent Citation: [1981] 130 ITR 186 (SC)

Supreme Court of India

Date: 15.04.1981

COMMISSIONER OF INCOME-TAX, NEW DELHI

FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTRY

BENCH

Judge(s) : E. S. VENKATARAMAIAH., R. S. PATHAK. and A. P. SEN.

JUDGMENT

" (i) Whether the assessee was liable to pay no tax on any income earned by it during the accounting year on the ground that the same was derived from property held under trust wholly for charitable or religious purposes within the meaning of section 11(1) of the I.T. Act, 1961 ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sole purpose of the Chambers was the advancement of such objects of general public utility as did not at all involve the carrying on of any activity for profit and, therefore, a ' charitable purpose ' within the meaning of section 2(15) of the I.T. Act, 1961 ?

(iii) Whether the Tribunal was right under the law in holding that the onus of proving that the income which the assessee claimed to be exempt was in fact not exempt lay on the department and assuming but not admitting that it was right in holding so, whether the Tribunal was correct in holding that the department had failed to discharge the onus placed on it under the law ? "

There is a conflict in the decisions of the High Courts in respect of questions of law as suggested by the applicant. The view expressed by the Calcutta High Court in the recent decision of CIT v. Indian Chamber of Commerce [1971] 81 ITR 147 is different from the view taken by the Kerala High Court in the case of CIT v. Indian Chamber of Commerce [1971] 80 ITR 645. The questions of law arising out of the order of the Tribunal are of great importance and as such we draw up a statement of the case and refer it direct to their Lordships of the Supreme Court through the President, Income-tax Appellate Tribunal, under s. 257 of the I.T. Act, 1961.

2. The statement of the case relates to the previous year ended on December 31, 1961, corresponding to the assessment year 1962-63. The assessee is the Federation of Indian Chambers of Commerce and Industry, hereinafter referred to as the Federation. The Federation was registered under the Companies Act as a company. In the immediately preceding years 1960-61 and 1961-62, its income was treated as exempt from tax under the provisions of S. 4(3)(i) of the Indian I.T. Act, 1922, following the decision of the Supreme Court in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722.

3. It is necessary for the Tribunal to refer to the object clauses of the Federation. Clause 3 of the memorandum of association of this Federation is in the following terms:

" 3. The objects of the Federation for which if is established and which shall extend to the whole of India are :

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

(b) To encourage friendly feeling and unanimity among business community and associations on all subjects connected with the common good of Indian business.

(d) To collect and disseminate statistical and other information and to make efforts for the spread of commercial and economic knowledge.

(e) To take all steps by lawful means which may be necessary for promoting, supporting or opposing legislation or other 'action affecting the aforesaid economic interests and in general to take the initiative to assist and promote trade, commerce and industry.

(f) To provide for arbitration in respect of disputes arising in the course of trade, industry or transport or other business matters, and to secure the services of expert, technical and other men to that end if necessary or desirable.

(g) To conduct, undertake the conduct of and participate in national and international exhibitions.

(h) To set up museums or show-rooms, to exhibit products of India and other countries and to participate in such activities.

(i) To secure the interest and well being of the Indian business communities abroad.

(j) And generally to do all that may be necessary in the interest of the realization of the above objects of the Federation directly or indirectly.

(k) To attain those advantages by united action which each member may not be able to accomplish in its separate capacity.

(l) To have power to establish offices or agencies within or outside India or appoint agents there in order to carry out the objects mentioned above.

(m) To help in the organisation of chambers of commerce or commercial association in different commercial centres of the country.

(n) To convene when thought necessary commercial conference at such place and at such time as may be determined.

(o) From time to time to borrow or raise moneys which may be required for the purpose of the Federation upon bonds, debentures, bills of exchange, promissory notes or other obligations for securities of the Federation or by mortgage or charge of the Federation's property.

(p) To accept receive, purchase, take on lease or hire or otherwise acquire any movable or immovable property or any rights or privileges necessary or convenient for the purposes of the Federation at such terms and conditions as may be though fit or expedient.

(q) To construct or alter or keep in repair any buildings required or used by or for the Federation and to pull down or demolish any buildings not so required.

(r) To invest the money of the Federation not immediately required in such securities as may, from time to time, be determined by the President of the Committee including any debentures issued by the Federation.

(s) To sell, improve, manage, develop, lease, mortgage, dispose of or otherwise deal with all or any part of the property of the Federation.

(t) To subscribe to, become a member of, or otherwise co-operate with any other association, whether incorporated or not, whose objects are altogether or in part similar to those of the Federation.

(u) To remunerate any person or company for service rendered or to be rendered in placing or assisting to place or guaranteeing placing of any debentures or other securities of the Federation.

(v) To establish and support or aid the establishment and support of associations, institutions, funds, trusts and convenience, calculated to benefit employees of the Federation or the dependants or connections of such persons, and grant pension and allowances, and to make payments towards insurance, and to subscribe or guarantee money for charitable or benevolent objects or for any exhibition for any public, general, useful object.

(w) To assign to any class of members any preferential, special or qualified rights or privileges over or as compared with any other members as regards voting or otherwise, howsoever.

(x) To enter into any arrangement with any Government or authority supreme, municipal, local or otherwise that may seem conducive to the Federation's objects or any of them, and to obtain from any such Government or authority all rights, concessions and privileges which the Federation may think it desirable to obtain and to carry out, exercise and comply with any such arrangements, rights, privileges and concessions.

(y) To sell or dispose of the undertaking of the Federation or any part thereof for such consideration as the Federation may think fit and in particular for shares, debentures or securities of any other association or company having objects altogether or in part similar to those of the Federation.

(z) To take or otherwise acquire and hold shares in any other association or company having objects altogether or in part similar to those of the Federation.

(z-1) To establish a trust or trusts and/or appoint trustees thereof from time to time and vest the funds or the surplus income or any property of the Federation in the trustees who shall hold and deal with the funds, surplus income or property in such manner as the committee may decide.

(z-2) To undertake and execute any trusts the undertaking of which may seem to the Federation desirable either gratuitously or otherwise.

(z-3) To draw, make, accept, discount, execute and issue bills of exchange, promissory notes, bills of lading, warrants, debentures and other negotiable instruments or securities.

(z-4) And generally to do all other things incidental to the attainment of the above objects : Provided that the company shall not support with its funds, or endeavour to impose on or procure to be observed by its members or others, any regulation or restriction which if any object of the company would make it a Trade Union.

According to cl. 4 of the memorandum of association, income and property of the Federation, whensoever derived, shall be applied solely towards the promotion of the objects of the Federation as set forth in this memorandum of association and no portion thereof shall be paid or transferred directly or indirectly, by way of dividend, bonus or otherwise by way of profit to the members of the Federation. According to cl. 5, no alteration shall be made to the memorandum of association or to the articles of association of the company which are for the time being in force unless the alteration has been previously submitted to and approved by the Central Government. According to cl. 7, the liability of the members' is limited. According to cl. 8, each member undertakes to contribute to the assets of the Federation in the event of its being wound up while he is a member or within one year afterwards, for payment of the debts or liabilities of the company contracted before he ceases to be a member and of the costs, charges and expenses of winding up, and for adjustment of the rights of the contributories among themselves such amount as may be required not exceeding a sum of fifty rupees. According to cl. 9 if upon winding up or dissolution of the Federation, there remains after the satisfaction of all its debts and liabilities any property whatsoever, the same shall not be distributed amongst the members of the Federation but shall be given or transferred to such other association or associations having objects similar to the objects of this Federation to be determined by the members of the Federation at or before the time of dissolution or in default thereof by the High Court of judicature that has or may acquire jurisdiction in the matter.

4. Income and expenditure account of the Federation for the year ending on December 31, 1961, thus disclosed that the assessee had excess income of Rs. 2,291.71 over the expenditure. Under the income head assessee had, inter alia, " share of profit on book on Company Law Rs. 265.50, " sale of publications ", Rs. 5,371.82 and " fee for arbitration Rs. 820.89. Under the head " Receipts and Payments " for the period from April, 1960, to 31st December, 1961 (vide pages 106, 107 of the report of the proceedings of the executive committee for the year 1961), the assessee recovered rent for space allotted, temporary stalls and storage, which amounted to Rs. 75,18,548. It received on sale of season tickets Rs. 20,750 and on sale of daily gate tickets Rs. 3,94,143. It also realised deposits and advance from contracts, advance from participants for hotel accommodation. For the period from September, 1959, to December, 1961, it realised advances for arbitration, Rs. 20,000, against which after expenses the assessee had a closing balance with the Bank of Baroda at Rs. 299.18. It received grant-in-aid from Government amounting to Rs. 3,00,000 in respect of the conference of Afro-Asian Organisation for Economic Co-operation for the period from September, 1961, to December 31, 1961, and after meeting expenses the Federation had a balance of Rs. 2,17,346.38.

5. In the proceedings for assessment of tax for the accounting year relevant to the assessment year 1962-63, the assessee claimed exemption of income under s. 11(1)(a) of the I.T. Act, 1961, and as such filed the income-tax return at nil figure. By relying upon the phrase " not involving the carrying on of any activity for profit " as contained in s. 2(15) of the I.T. Act, 1961, the ITO held that the principle decided by the Supreme Court in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 would no more govern in deciding the issue of the present case. She thus hold that the income of the assessee was not exempt from income-tax and determined the total income of the assessee at Rs. 84,436.

6. When the assessee went in appeal before the AAC, he, mainly relying upon the decision of the Income-tax Appellate Tribunal, A-Bench, Calcutta, in the case of the Indian Chamber of Commerce and also the decision of Indo-German Chambers of Commerce, Bombay, held that when the activities of the Federation result in some profits and gains in pursuance of the main objects of the institution, the change in the definition of charitable purpose could not lead to the finding of fact and law that the assessee was not exempt under the provisions of the I.T. Act, 1961.

7. Being dissatisfied with the order of the AAC, the revenue filed an appeal before the Tribunal. It was submitted by the departmental representative that the assessee was not entitled to get any exemption of income. The departmental representative vehemently contended that the principle of dominant intention was no more the law of the land in view of the amended definition of s. 2(15) of the I.T. Act, 1961. By referring to the income and expenditure account under various heads he pinpointed cl. 3(d), 3(g), 3(o), 3(p), 3(r), 3(s), 3(y), 3(z-1) and (z-2) of the memorandum of association and submitted that all these activities as could be found in the object clauses and which had been acted upon by the assessee, would lead to the finding of fact that though the assessee was involved in the advancement of general activity, its acts and conduct in the circumstances of the case did involve carrying on of an activity for profit and, as such, the activity of the assessee would not come within the meaning of charitable purpose. He also stated that all these activities resulted in an income. He further stated that they involved activities for profit. He referred to the meaning of " profit " as contained in Webster's New International Dictionary, Vol. 2. He thus contended that the activities of the assessee resulted in profit and the activities resulting in various receipts including receipts from sale of publications, fee for arbitration, exhibitions run by the assessee and industrial fairs conducted by the assessee and running of restaurants in industrial fairs would involve activities for profit and as such whether the activity resulted in a loss or not would be no criterion and when the activities spell out activity for profit, the assessee was not entitled to exemption of income. He further submitted that only those activities would not be included as profit or income which resulted in acquisition of capital asset as contemplated in s. 2(14) of the I.T. Act, 1961. He further urged that even if the whole property or income is held under charitable trust, so long as any of the objects vitiates the object of charitable purpose, the entire income attracts tax. He further submitted that under the provisions of the I.T. Act the onus lies upon the assessee to prove that it comes within the exempted provisions of the Act. Thus, the departmental representative led the Tribunal through the definition of charitable purpose as contained in s. 2(15) of the Act. It was also stated by him that the definition of " charitable purpose " is an inclusive one and it 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 ". He also stated that there is a comma after each of the first three purposes but under the residuary head of charitable purpose after the word " and " there is no comma and the clause is " the advancement of any other object of general public utility not involving the carrying on of any activity for profit". Thus, the argument of the revenue was that in an advancement of any object of general public utility if there is involvement of carrying on of activity for profit, the trust or institution or assessee would not qualify for exemption within the meaning of charitable purpose. The departmental representative also referred to the meaning of " involve " as found in the Concise Oxford Dictionary. According to the Concise Oxford Dictionary, the meaning of the word " involve " is to imply or entail and according to Chambers 20th Century Dictionary, 1964 Edn., the meaning of the word " involve " is " to entail or imply, bring as a consequence; to be bound up with ". Thus, by referring to the dictionary meaning the departmental representative contended that these meanings would suggest that in order that the assessee could come within the exemption, the advancement of object must not entail or bring in consequence of or be bound up with the carrying on of any activity for profit. Thus, according to him, profit from activity for the advancement of any general public utility would disentitle the assessee to exemption. Apart from these statements the departmental representative also sought support from the recent decision of the Mysore High Court in CIT v. Sole Trustee, Loka Shikshana Trust [1970] 77 ITR 61.

8. The counsel for the assessee argued that when the object of the Federation is of general public utility, the principal or dominant object would hold good in spite of the amended definition of " charitable purpose ". It was stated by him that the dominant objects of the Federation are laid down in cls. 3(a) and 3(b) and other clauses are purely ancillary or incidental for the fulfilment of the purposes adumbrated in cls. 3(a) and 3(b) of the memorandum of association. He thus argued that when the dominant object did not involve any activity for carrying on business, the assessee was entitled to exemption of income under s. 11 (1)(a) read with s. 2(15) of the I.T. Act, 1961. He also stated that on facts it was to be noted that the assessee did not undertake industrial fairs every year and in its long history of twenty-five years, industrial fairs were held only twice. It was submitted that during the accounting year the assessee received stall hires on account and unless adjustment of expenditure was made it could not be stated that there was any income of the assessee. He further submitted that there was no motive to make profit in the activities of the Federation and if profits arose, they were incidental or ancillary to the dominant object for the welfare and common good of the country's business and business communities and associations which were the members of the Federation. It was further stated that the restaurant was run not for the purpose of making profit but for the purpose of carrying on exhibition which itself was for the welfare of the business community. Secondly, he argued, that when the dominant object could not be fulfilled without the ancillary objects which were referred to by the departmental representative, the assessee was entitled to get exemption. It was further submitted by him that even assuming that the purpose was to earn profit, the profit was to be understood in a commercial sense, a sense which no commercial man would misunderstand. He referred to pages 727, 730 and 732 of the Supreme Court decision in the case of CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722. By referring to the observations, the learned counsel for the assessee contended that when the principal or dominant objects of the Federation are to promote and protect trade, commerce and industry in India, it could not be said that in administering an institution of the assessee's type, the assessee would not involve in any activities for its existence and unless the assessee carried on actual business, the assessee should not be disentitled to the exemption under the Act. The counsel for the assessee also referred to the commentary in the book " Income Tax " 6th Edn. by Kanga and Palkhivala at pages 264 and 265. He pinpointed the observation that what is essential to disentitle the assessee to exemption is that the purpose should involve carrying on of any activity for profit. Exemption is denied where profit is the object or an essential ingredient of the object but not where profit is merely a by-product of the activity of the institution or trust created.

9. The departmental representative rejoined and in reply stated that Sampath Iyengar in his book on Income Tax has commented that the words describing the fourth and last residuary head of charity as contained in s. 2(15) of the Act are very wide and that the words " object of general public utility " exclude the object of private gain, such as an undertaking for a commercial profit though all the same it might subserve general public utility. He also stated that this commentator further expressed his opinion that running a chamber of commerce, charging entrance fees and annual subscriptions from its members and rendering service to them by way of supply of trade information, arbitration fees realised from disputes, and making representations to the Government on matters relating to the State and conduct of trade, commerce and industry would cease to be regarded as charitable purpose as contemplated in s. 2(15) of the I.T. Act, 1961. Summing up, the contentions of the departmental representative in reply were as follows :

(1) The provisions of the Act being the will of Parliament are to be expounded according to the intention of those who made them and that intention has, to be necessarily gathered from the language used.

(2) There is a presumption that Parliament understands and appreciates the needs of its own people and laws are directed to problems made manifest by experience, and as such Parliament has enacted the provisions of s. 2(15) of the Act having regard to the implications in the decision of CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722- (SC).

(3) The Tribunal being a fact-finding authority and being a judicial body should take into consideration matters of common knowledge, matters of common report, history of the times and may assume every state of fact which can be conceived at the time of legislation.

(4) It is not only the phraseology of the provisions of the statute that governs the situation but the effect of law is the decisive factor.

10. The departmental representative also relied upon the punctuation mark for interpretation of " charitable purpose " as contained in s. 2(15) of the Act. The Tribunal, relying upon the observations of the Supreme Court in A. K. Ghose v. Arabinda Bose, AIR 1952 SC 369, 383, held that the punctuation mark is a minor element in the construction of a statute. It also held that the statement of objects and reasons attached to a Bill was to be excluded while construing the terms of a statute. Hence, it held that the objects of the Act cannot decide the principle in a statute. After considering the provisions of s. 2(15), charging ss. 4, 5 and 11 and sections dealing with the computation of income beginning from s. 15 up to s. 59, the Tribunal held that it would be appropriate to take a commonsense approach in interpreting the meaning of the word " profit " which has been used in s. 2(15) of the Act, as commonsense approach is not always to be abjured in the interpretation of a taxing statute. By relying upon the principle laid down by the Supreme Court in Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532, and after considering various cls. 3, 4, 5, 8 and 9 the Tribunal held that it could not be inferred that the activities of the assessee involved activity of profit from business, trade or adventure in the nature of trade and that its activity was that of a business undertaking. The observations of the Tribunal are extracted below.

The Surpeme Court in many decisions had accepted the principle as laid down in Heydon's case [1584] 3 Rep. 7b. The aim, scope and object according to Heydon's case is that, to arrive at the real object of an Act, it is necessary to consider as observed by Lord Coke :

(i) what was the law before the Act was passed;

(ii) what was the mischief or defect for which law had not provided;

(iii) what remedy Parliament had done and the reasons for the remedy.

In Craies on Statute Law, 6th Edn., at p. 96, it was observed:

" These rules are still in full force and effect, with the addition that regard must now be had, not only to the common law, but also to prior legislation and to the judicial interpretation thereof. "

The rules in Heydon's case [1584] 3 Rep. 7b were adopted by the Supreme Court and cited with approval in Bengal Immunity Co. Ltd. v. State of Bihar [1955] 6 STC 446, 467; AIR 1955 SC 661, 674. In Shivanarayan Kabra v. State of Madras, AIR 1967 SC 986, the Supreme Court held that in construing the section of an Act and in determining its true scope, it is permissible to have regard to all such factors, as can legitimately be taken into account in ascertaining the intention of the Legislature, such as history of the statute, the reason which lead to its being passed, the mischief which it intended to suppress and the remedy provided by the statute for curing the mischief. In the recent decision of the Mysore High Court in CIT v. Sole Trustee, Loka Shikshana Trust [1970] 77 ITR 61, their Lordships have held that when a trust is involved in the carrying on of a commercial activity for profit, it ceases to be a trust for charitable purpose under the Act. In that case the object of the trust was for educating the people in India in general and of Karnatak in particular by establishing, conducting and helping directly or indirectly institutions calculated to educate the people by spread of knowledge on all matters of general interest and welfare, founding and running reading rooms and libraries and keeping and conducting printing houses and publishing or aiding the publication of books, leaflets, pamphlets, magazines and other objects with the object of educating the people. Yet as this trust conducted the printing press and published a daily paper, their Lordships held that though the main object of the trust is supplying the Karnatak people with an organ of educated public opinion, yet as the income of the trust is largely from newspaper, the trust involved a commercial activity for profit and as such the trust would not be entitled to the benefit of s. 11(1)(a) read with s. 2(15) of the Act. In other words the Mysore High Court did not accept the principle of dominant object of a trust in interpreting the provisions of ss. 2(15) and I I of the Act. The result is that if the ancillary object involves an activity for profit, then the income of the trust is not exempt from incometax. In Konstam's Income Tax, 12th Edn., it is stated at p. 80, that certain decisions as to charities illustrate the proposition that there may be trade for whatever motive it is carried on, provided that the methods employed are commercial. The business of selling a hymn book is a trade, although the profits are distributed among widows and orphans of ministers and missionaries. It would be found therein that a society for the advancement of agriculture which makes profits by an annual show, is not exempt from payment of income-tax: vide Royal Agricultural Society v. Wilson [1924] 40 TLR 763 ; 9 TC 62 (KB). But this decision was followed by the enactment of a specific exemption, now s. 452 of the U.K. Income Tax Act, 1952. The Companies (Amendment) Act, 1965, requires that in the case of companies in existence before this amendment, the object clauses have simply to state the object of the company. But in the case of a company to be registered after the amendment, the object clauses must be divided into two sub-clauses, namely:

(i) Main objects.-In this sub-clause must be stated the main objects to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects.

(ii) Other objects.-In this sub-clause must be stated other objects which are not included in the above clause. [Sec. 13(1)(d)].

Thus, we could not be persuaded to hold that the principle decided in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) will hold good, while interpreting s. 2(15) of the Act of 1961. Besides, in the case of CIT v. Andhra Chamber of Commerce, we find the Tribunal referred two questions before their Lordships of the Madras High Court and they were as follows :

" (1) Whether the aforesaid income from property owned by the assessee is exempt under section 4(3)(i) for the aforesaid six years of assessment ?

(2) If the answer to the above question is in the negative whether the activities of the assessee amount to a trade or business the profit or loss from which is assessable under section 10 ? "

The High Court answered the first question against the assessee and did not give a formal answer to the second question. The Supreme Court decided the first question which was answered against the assessee in its favour and their Lordships had to interpret the meaning of " charitable purpose " as contained in the Act of 1922. Their Lordships had no occasion to discuss whether the activities of the assessee amounted to trade, business or profit or loss in activities involving profit.

The object clause of the memorandum of association is based on the doctrine of ultra vires. The object clause requires that the company should devote itself only to the objects set out in the memorandum to delimit and identify the objects in such plain and unambiguous manner as that the reader can identify the field of activities within which the corporate activities are to be confined. And it is the function of the courts to see that the company does not move in a direction away from that field. The object clauses state the powers of the company and they state negatively that nothing shall be done beyond that ambit and that no attempt shall be made for any other purpose than that which is so specified. The theory of ultra vires thus confines the corporate action within narrow limits. In order to avoid the rigour of the doctrine, there has grown up a practice of registering the memorandum of association containing a profusion of object and powers.

It is well settled that the words of the statute are the best guide and the tax cannot be levied by implication and the tax must be clearly brought home without equivocation to the assessee and tax by implication is not encouraged by interpretation unless certain implication is necessary and compelling. There is no equitable consideration about tax but as held in Sargaison (Inspector of Taxes) v. Roberts [1970] 76 ITR 269 at p. 278 (Ch D) even though where there is no equitable consideration in the taxing statute, yet the commonsense approach is not a quality wholly to be abjured in the construction of a taxing statute.

The Federation of Indian Chambers of Commerce and Industry is an assessee in terms of the language of s. 2(7) of the Act and as such when the assessee claims exemption under a statute, we should bear in mind the following interpretation given by Crawford, in art, 258, on Construction of Statutes (see [1970] 76 ITR 160, 172 (Cal)):

" Provisions providing for an exemption may be properly construed strictly against the person who makes the claim for exemption."

The reasons for the aforesaid rules of interpretation are as follows (p. 172),

"(a) The obligation to pay taxes is coextensive with the protection received. An exemption from taxation is a release from this obligation. It is the receiving of protection without contributing to the support of the authority which protects.

(b) The exemption laws are in derogation of equal right, and this is an equally important reason for construing them strictly.

(c) As given in Bank of Commerce v. Tennessee (161 US 134), no implication will be indulged in for the purpose of construing the language used as giving the claim for exemption, where such claim is not founded upon the plain and clearly express intention of the taxing power."

This has been referred to with approval by the Calcutta High Court in Gillanders Arbuthnot and Co. v. CIT [1970] 76 ITR 160.

After bearing in mind all these principles, let us consider the provisions of the Act. The expression " charitable purpose " as contended in Chap. I of the I.T. Act, 1961, has been defined in cl. (15) of s 2 of the Act. Section 2 begins with the words " In this Act, unless the context otherwise requires " and this is applicable to all definitions therein. 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. Sub-section (1) of s.11 states:

" Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated for application to such purposes in India, to the extent to which the income so accumulated is not in excess of twenty-five per cent. of the income from the property or rupees ten thousand, whichever is higher ;

(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India ; and where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty-five per cent. of the income from the property held under trust in part."

According to s. 11(4):

" For the purposes of this section 'property held under trust ' includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Income-tax Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes and accordingly chargeable to tax within the meaning of sub-section (3)."

Section 4(1) of the Act charges total income. Section 5 defines the charge. Section 14 classifies it under different heads of income. Sections 15 to 59 of the Act quantify it. Sections 15 to 59 determine how the levy is to be made on the total income of the assessable entity, computed in accordance with and subject to the provisions of the Act. Except in ss. 28 and 29, which deal with computation of income from business, profession or vocation, the word that has been used is income and not profit. It is only for the computation of business income that the word " profit has been used, as s. 28 states that income shall be chargeable to income-tax under the head " Profits and gains of business or profession ". Shri S. P. Mehta, learned counsel for the assessee, stated that income is a genus of which profit is a species. In s. 11(4) of the Act, Parliament has used the words " business undertaking ". Halsbury J. in Gresham Life Assurance Society v. Styles [1892] 3 TC 185, 188 (HL) held that the word " profit " is to be understood in its natural and proper sense in a sense which no commercial man would misunderstand. The main question for consideration is whether we can address ourselves to take the view that the assessee did not undertake any activity for profit.. The learned departmental representative strongly relied upon the dictionary meaning of the word " profit ". Maxwell in his book (Interpretation of Statutes) (9th Edn.) at p. 34 states that definitions in dictionaries are to be deprecated. As per Asquith J., in Kerr v. Kennedy [1942] 1 KB 409, 413 (KB):

" In the absence of any judicial guidance or authority, dictionaries can be consulted. "

At p. 35 of his book, it has been stated that for technical terms reference may be made to technical words. As stated by P. B. Mukharji J. (as he then was) in the case of Consolidated Tea & Land Co. (India) Ltd. v. CWT [1970] 76 ITR 589 (Cal), words like ideas have a certain association which is provided by the context, the object and purpose of the statute in which they were used. These lines of thought as stated above do appear to be appropriate in considering the meaning of the word " profit " in the commercial sense. It has been stated by the learned counsel for the assessee that holding of industrial fair by the Federation is not the annual feature as in the course of 25 years only twice it held such fairs., It was stated that income from books on company law is not a commercial feature and it is for the purpose of carrying out other ancillary objects of the Federation. The articles and memorandum of association of this Federation do not authorise it to carry on canteens nor do they authorise it to carry on business of publishing books and magazines for the purpose of trade. Object clauses as relied upon by the revenue do not smack of any activity which is carried on by any business undertaking. Left to such articles and memorandum, the Federation would have engaged in unauthorised and illegal activities because an ultra vires contract of act being void ab initio cannot become intra vires by reason of estoppel, lapse of time, ratification or acquiescence. The starting of exhibition is a progressive policy for accelaration of the business conditions of the members and traders at large. This is a social welfare activity by all the tests that we can think of. There is no business or trade in starting exhibitions on two occasions and running restaurants for that purpose in the commercial sense for the purpose of earning profit. The true test of trade, commerce or an adventure in the nature of trade must be satisfied before income-tax is attracted. If this basic test is not satisfied the assessee would not come within those provisions of the charging sections of the Act.

None the less, the important consideration is whether, in the circumstances of the case, the assessee has discharged the onus that it is entitled to exemption under s. 11(i)(a) read with s. 2(15) of the Act or that the revenue has been able to satisfy the test that the assessee would come under the charging sections of the Act. Craies on Statute Law, 6th Edn., at P. 159, observed that in approaching the question of interpreting words in statutes, it is necessary to keep in mind that words in a statute are strictly and exactly used. The proper way of ascertainment of the use of words is that the words cannot be construed effectively without reference to their context. Parliament has used this expression in s. 2 of the Act, which deals with different definitions in the Act and the expression is " In this Act unless the context otherwise requires ". Lord Hewart C.J., in Spillers v. Cardiff Assessment Committee [1931] 2 KB 21, pointed out that upon those who assert that the rule has been broken, the burden of establishing the proposition lies heavily upon them and they can discharge it by pointing something in the context which goes to show that the loose and inexact meaning is to be preferred. If we take this view of the matter, it is the department which has to prove that the dictionary meaning of " profit has been used by Parliament in s. 2(15) of the Act. But on a close reading of the charging ss. 4 and 5, s. 11(4), definitions parts and ss. 15 and 59, we cannot hold that Parliament has used the loose dictionary meaning of profit which has have canvassed by the departmental representative before us. We are to take a commonsense approach in interpreting the meaning of the word " profit " in which it has been used in s 2(15) of the Act, as commonsense approach is not always to be abjured in the interpretation of a taxing statute. Thus, in the language of Shah J., in Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC), it can be stated that when the I.T. Act does not provide that whatever is received by an assessee must be regarded as income liable to tax and when the receipt is sought to be taxed as income the burden lies upon the department to prove that it is within the taxing provision and the department has not been able to prove this in the instant case. Besides cl. 3 of the memorandum of association, we are to consider all other clauses of the memorandum of association, viz., clauses 4, 5, 8 and 9, each clause throwing light on the other and reading the clauses as a whole we cannot infer that the activity of the assessee involves activity for profit of business, trade or adventure in the nature of trade and that its activity is that of a business undertaking.

11. On these facts the following questions of law are referred to the Supreme Court:

" 1. 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, the assessee was liable to be taxed in respect of income relating to the assessment year 1962-63 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income earned by the assessee would not come within the provisions of section 2(15) read with section 11 of the Income-tax Act, 1961, and the onus that this profit was not exempt from tax would be on the revenue ?

3. Whether, on the facts and in the circumstances of the case, the purpose of the Federation of Indian Chambers of Commerce and Industry was the advancement of objects of general public utility not involving the carrying on of any activity for profit ? "

B. B. Ahuja and Miss A. Subhashini, Advocates, for the Commissioner.

A. K. Sanghi and Narayana Nettar, Advocates, for the assessee.

JUDGMENT

PATHAK J.-In view of the majority opinion of this court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Assn. [1980] 121 ITR 1, the reference must be answered against the revenue and in favour of the assessee.

SEN J.-This direct reference under s. 257 of the I.T. Act, 1961 (hereinafter referred to as " the Act "), made by the I.T. 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 ".

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.

The main objects for which the Federation has come into existence are set out in cl. 3 of the memorandum of association which, in so far 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 cl. 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 (z-2) of cl. 3 are merely incidental or ancillary thereof.

During the assessment year 1962-63, the relevant accounting year for which was the year ended December 31, 1961, the assessee submitted 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 Govt. 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 and 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 balance of Rs. 299.18 was left. The balance-sheet for the accounting year shows that the assessee had an excess of income of Rs. 2,291.71 over the expenditure under the head "Income".

The contention of the assessee before the ITO 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 country's trade, commerce and industry and the activities carried on during the assessment year in question, namely, the holding of the Indian Trade Fair and of sponsoring the conference of the Afro-Asian Organisation for Economic Co-operation were incidental or ancillary to the main object, and, therefore, the income derived therefrom was exempt under s. 11(1)(a) of the Act. Reliance in support of this contention was placed on the decision of this court in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722; [1965] 1 SCR 565 (SC). In the immediately preceding assessment years 1960-61 and 1961-62, the income of the assessee was treated as exempt from tax under s. 4(3)(i) of the Indian I.T. Act, 1922.

The ITO, however, felt that the decision of this court in the Andhra Chamber of Commerce case [1965] 55 ITR 722 (SC) was no longer good law due to the addition of the words " not involving the carrying on of any activity for profit " in the definition of " charitable purpose in s. 2(15) of the Act which qualify the fourth head of charity, viz., any other object of general public utility ", and, therefore, must be read subject to the additional statutory requirement that the object of general public utility should not involve the carrying on of any activity for profit. He accordingly raised a demand of Rs. 49,818 on a total income of Rs. 84,430. On appeal, the AAC disagreed with the view of the ITO and held that the activities carried on by the assessee were not profit oriented and, therefore, its income was exempt. The Commissioner appealed to the Appellate Tribunal without any success. The Tribunal upheld the view of the AAC and held that the dominant object with which the Federation was constituted being a charitable purpose, viz., promotion, protection and development of trade, commerce and industry, there being no motive to earn profits, it was not engaged in any activity in the nature of business or trade, and, if any income arose from such activity, it was only incidental or ancillary to the dominant object for the welfare and common good of the country's trade, commerce and industry.

Thereupon, the Commissioner applied to the Appellate Tribunal to make a reference to the High Court under sub-s. (1) of s. 256 of the Act, but the Tribunal, in view of the conflict in the decisions of the High Courts on the construction of the expression " charitable purpose " as defined in s. 2(15) of the Act, has made a reference of the following questions to this court under s. 257 of the Act, for its opinion, namely :

" 1. 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, the assessee was liable to be taxed in respect of income relating to assessment year 1962-63 ?

3. Whether, on the facts and in the circumstances of the case, the purpose of the Federation of Indian Chambers of Commerce and Industry, was advancement of objects of general public utility not involving the carrying on of any activity for profit ?

There had been a sharp conflict of opinion between the different High Courts as to the construction of the ten crucial words " not involving the carrying on of any activity for profit " qualifying the fourth head of charity " advancement of any other object of general public utility ". This court resolved the conflict in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 and Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 by holding that the words " not involving the carrying on of any activity for profit " govern the word " advancement " and observed that if the advancement or attainment of the object involves an activity for profit, tax exemption would not be available.

Unfortunately, for the revenue, the court has, in a five judges Bench, by a majority of 4 to 1, in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) reversed these two decisions in Loka Shikshana Trust case [1975] 101 ITR 234 (SC) and the Indian Chamber of Commerce case [1975] 101 ITR 796 (SC). The court has approved of the observations of Beg J. in his separate but concurring judgment in the Loka Shikshana Trust case that (p. 256) " if the profit must necessarily feed charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust". In other words, the majority view in the Surat Art Silk case was that the condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is not the real object. The theory of dominant or primary object of the trust has, therefore, been treated to be the determining factor, even in regard to the fourth head of charity, viz., the advancement of any other object of general public utility, so as to make the carrying on of the business activity merely ancillary or incidental to the main object.

One should have thought that the correct way to approach this question of interpretation was to give the words used by Parliament their ordinary meaning in the English language and if, consistently with the ordinary meaning, there was a choice between two alternative interpretations, then to prefer the construction that maintains a reasonable and consistent scheme of taxation without distorting the language. When the Government did not accept the recommendation of the Direct Taxes Laws Committee in Chap. 2 (Interim Report, December, 1977) for the deletion of the words " not involving the carrying on of any activity for profit " occurring in s. 2(15) of the Act, the court has by a process of judicial construction achieved the same result.

Whatever reservations one may have regarding the correctness of this interpretation of the exclusionary clause in the definition of " charitable purpose " in s. 2(15) of the Act, there can be no doubt that the majority decision in Surat Art Silk case [1980] 121 ITR 1 (SC) is binding on us. With respect, I venture to say that the majority decision has the effect of neutralising the radical changes brought about by Parliament in the system of taxation of income and profits of charities, with particular reference to " objects of general public utility " to prevent tax evasion, by diversion of business profits to charities. It is the vagueness of the fourth head of charity " any other object of general public utility " that impelled Parliament to insert the restrictive words " not involving the carrying on of any activity for profit ". In my minority opinion in the Surat Art Silk case, I had endeavoured to give reasons why the correctness of the majority decision was open to question. There is no point in traversing the same ground over again. It was clearly inconsistent with the settled principles to hold that if the dominant or primary object of a trust was " charity " under the fourth head " any other object of general public utility ", it was permissible for such an object of general public utility, to augment its income by engaging in trading or commercial activities.

In retrospect, it seems that it would have been better for Parliament to have deleted the fourth head of charity " any other object of general public utility " from the ambit of the definition of " charitable purpose " while enacting s. 2(15) of the Act rather than inserted the words " not involving the carrying on of any other activity for profit ", thereby creating all this legal conundrum. In England, the Radcliffe Commission on Taxation of Profits and Income 1 recommended in 1955, that for purposes of taxation, charity should be restricted to relief of poverty, advancement of education and advancement of religion and that the fourth category mentioned in the dictum of Lord Macnaghten, namely, " trusts for other purposes beneficial to the community " should be cut out entirely.

The majority in the Surat Art Silk case [1980] 121 ITR 1 (SC) has evolved the doctrine of dominant or primary object and there is little that we can do about it. Faced with this difficulty, learned counsel for the revenue advanced no submissions with regard to the questions referred and indeed in view of the majority decision in Surat Art Silk case [1980] 121 ITR 1 (SC), the answers to the questions are self-evident. The doctrine of dominant or primary object must, as laid down in Surat Art Silk case, hold the field till there is a change in the law. Undoubtedly, the activities of the assessee in regard to holding of the Indian Trade Fair and sponsoring the Conference of the Afro-Asian Organisation in the relevant accounting year were for the advancement of the dominant object and purpose of the trust, viz., promotion, protection and development of trade, commerce and industry in India. Learned counsel for the revenue, with his usual fairness, conceded that the income derived by the assessee from such activities was exempt under s. 11(1)(a) read with s. 2(15) of the Act.

It was, however, urged that the objects set out in sub-cls. (v), (z-1) and (z-2) of cl. 3 of the memorandum of association of the Federation were not incidental or ancillary to the main object of the trust. The relevant subclauses are set out below :

(v) To establish and support, or aid the establishment and support of associations, institutions, funds, trusts and convenience, calculated to benefit employees of the Federation or the dependants or connections of such persons, and grant pension and allowances, and to make payments towards insurance, and to subscribe or guarantee money for charitable or benevolent objects or for any exhibition for any public, general, useful object.

(z- 1) To establish a trust or trusts and/or appoint trustees thereof from time to time and vest the funds or the surplus income or any property of the Federation in the trustees who shall hold and deal with the funds, surplus income or property in such manner as the Committee may decide.

(z-2) To undertake and execute any trusts the undertaking of which may seem to the. Federation desirable either gratuitously or otherwise.

The contention advanced cannot be accepted, for the reason that no such, point was ever raised at any stage of the proceedings, much less before the Appellate Tribunal. Even otherwise, there appears to be no substance in the contention. There is a distinction between the " purpose of a trust and the " powers " conferred upon the trustees as incidental to the carrying out of the purpose. For instance, cl. 3(v) enables the establishment and support of associations, institutions, funds, trusts and convenience calculated to benefit the employees and their dependants, for making provisions for grant of pension and allowances, etc. The framing of such employee benefit schemes is essential and necessary for the proper functioning of the organisation and is incidental to the carrying out of the purpose for which it is constituted. I refrain from expressing any opinion whether or not the employees constitute a " section of the public ". For, if the primary or dominant purpose of a trust or institution is charitable, any other object which is merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or the institution from being a valid charity. Likewise, cls. 3(z-1) and (z-2) which permit the establishment of a trust or trusts, appointment of trustees thereof from time to time and the vesting of funds or surplus income or any property of the assessee in the trustees, are nothing but powers conferred on them for the proper financial management of the affairs of the trust which are incidental or ancillary to the main purpose of the trust. The contention must, therefore, fail.

In the result, the reference under s. 257 of the I.T. Act, 1961, made by the I.T. Appellate Tribunal, Delhi-B New Delhi, must be answered against the revenue and in favour of the assessee. There shall be no order as to costs.

VENKATARAMIAH J.-I have had the advantage of reading the judgment prepared by my learned brother, A. P. Sen J., and I respectfully agree with his reasoning and conclusion. I share with him my doubts about the correctness of the decision in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC). I would like to say few words of my own on the subject.

There can be no objection to a person spending his money on charity. But can he be charitable at the expense of others ? This is a question which necessarily arises when we read s. 11 of the I.T. Act, 1961. Section 11, as it stands now, grants exemption from payment of tax on any income, which would have otherwise been taxable, provided (1) the property yielding income is held under trust or such other legal obligation which is brought into existence by an act of party and not by an act of law, (2) the purpose of the trust is charitable which may enure to the benefit of the public or a section of the public, and (3) the other conditions prescribed by the Act are satisfied. It means that if there is a diversion of property or income earning apparatus by an act of party into a charitable trust and the prescribed conditions are satisfied, the income derived from it (including the portion which would have gone to the public exchequer but for the trust) may be spent by a person in charge of the affairs of the trust on objects indicated in the trust which is a creature of its author. In effect what does it mean ? It means that the author of the trust is able to divert by his own will to a purpose of his own choice, though charitable, a large part of the income which would have been, but for the trust, at the disposal of the Legislature which alone has the power over the national exchequer. Whatever may have been the position in those days when the State was just a police State performing minimum functions of Government, today when the State is a welfare State, would it be right either morally or constitutionally to allow amounts which should legitimately form part of the revenue of the State to be dealt with by non-governmental agencies, administering trusts, is a question which requires examination in an appropriate case. This, however, is a larger question which, if logically pursued, may justify total deletion of the exemption accorded in the case of charitable and religious trusts.

But even as the provisions now stand, I feel that while construing them, this court has enlarged the meaning of " charitable purpose " in s. 2(15) beyond what it legitimately should mean in Surat Art Silk Cloth Manufacturers Association case[1980] 121 ITR 1 (SC).

I would like to adopt the words in the dissenting judgment of my learned brother, A. P. Sen J., in the Surat Art Silk Cloth Manufacturers Association case (See [1980] 121 ITR 1, 54):

" The judicial attitudes cannot be formed in isolation from legislative processes, particularly in connection with tax avoidance provisions.

It is true that it is open to the Legislature to give encouragement to objects which it considers to be laudable by means of fiscal exemptions. At the same time it takes care to enact fresh provisions from time to time to suppress any mischief which may have resulted from the misuse of the existing law. Parliament deliberately stepped in by adding the words " not involving the carrying on of any activity for profit " in the definition of charitable purpose in s. 2(15) of the Act, when the tax exemptions available to charitable and religious trusts came to be misused by some for the unworthy purposes of tax avoidance. The law had been so re-structured to prevent allergy to taxation masquerading as charity. The law was thus designed by Parliament to prevent this misuse of tax exemption in the name of charity. The majority decision in Surat Art Silk Cloth Manufacturers Association case [1980] 121 ITR 1 (SC), if I may say so without meaning any disrespect, has virtually wiped off the restrictive words " not involving the carrying on of any activity for profit " occurring in s. 2(15), thereby defeating the very object and purpose of the legislation. It is not the function of a court of law to give the words a strained and unnatural meaning.

When the Government had not accepted the recommendation of the Direct Taxes Laws Committee in Chap. 2 (Interim Report, December, 1977) for the deletion of the words " not involving the carrying on of any activity for profit ", by suitable legislation, it was impermissible for this court by a process of judicial construction to achieve the same result. If I may adopt the words of Lord Reid in Greenberg v. IRC [1972] AC 109, (HL) quoted in the minority decision in Surat Art Silk Cloth Manufacturers Association case [1980] 121 ITR 1 (SC) displaying the court's concern about the prevailing attitude of tax statutes :

" ' Parliament is very properly determined to prevent this kind of tax evasion and, if the courts find it impossible to give very wide meanings to general phrases, the only alternative may be for Parliament to do as some other countries have done, and introduce legislation of a more sweeping character ....... ..' "

Modern legislation has changed in pattern towards re-casting provisions of taxation with very wide language, while at the same time dealing in much more detail with some areas of law judges while responding to general trends of law, but also reacting to the form of modern tax legislation, must be prepared to take account of the context and purposes of the change brought about.

It is relevant to refer to one other aspect arising out of an observation made in the course of the majority judgment in Surat Art Silk Cloth Manufacturers Association case [1980] 121 ITR 1 (SC), suggesting that the area of exemption under Indian law is much wider than what is available under English law. The relevant part of the majority judgment reads :

" The definition of 'charitable purpose' in Indian law thus goes much further than the definition of charity to be derived from the English cases, because it specifically includes medical relief and embraces all objects of general public utility. In English law it is not enough that a purpose falls within one of the four divisions of charity set out in Lord Macnaghten's classification. It must also be within the spirit and intendment of the preamble to the 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 the preamble to the Statute of Elizabeth, it would be charitable if it falls within the definition of 'charitable purpose ' given in the statute. Every object of general public utility would, therefore, be charitable under the Indian law, subject only to the condition imposed by the restrictive words 'not involving the carrying on of any activity for profit' added in the present Act. It is on account of this basic difference between the Indian and English law of charity that Lord Wright uttered a word of caution in, All India Spinners' Association v. CIT [1944] 12 ITR 482 (PC) against blind adherence to English decisions on the subject. The definition of 'charitable purpose' in 'the Indian statute must be construed according to the language used there and against the background of Indian life. "

If Indian life should be a true guide for the determination of questions arising in court, then we should go back to our ancient treatises to find out the true meaning of charity which may be either dana or utsarga. In the case of dana the donor gives up his ownership over a thing, makes another the 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 the benefit of all. Opinion is, however, divided 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 over the thing dedicated. How many of the so-called charitable trusts satisfy the rigours of the Indian concept of charity ? Are there any measures by which misuse of funds belonging to charities can be effectively checked ?

It is wrong to think that all springs of charity in India will dry up if true effect is given to s. 2(15) of the Act in accordance with the minority judgment in Surat Art Silk Cloth Manufacturers Association case [1980] 121 ITR 1 (SC). People who are truly charitable do not think of the tax benefits while making charities. One must realise that even the poor who do not pay income-tax can be charitable and their charities made at great personal inconvenience are commendable indeed. One need not go in search of charitable persons amongst the taxpayers only. Still the majority view has got to be followed now.

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