1975 (9) TMI 4 - SC - Income Tax

Meaning of charitable purpose , as defined in section 2(15) - Are the triune activities, which have yielded income and have been assessed to tax, eligible for exemption as falling within the scope of section 2(15) as it now stands - Whether the profits derived by a Chamber of Commerce from arbitration fees, weighment fees, etc. are exempt from Income-Tax

Issues Involved:
1. Definition of "charitable purpose" under section 2(15) of the Income-tax Act, 1961.
2. Eligibility for tax exemption under section 11(1) read with section 2(15).
3. Interpretation of activities yielding income as "activities for profit."
4. Conflicting views of High Courts on the interpretation of "charitable purpose."

Issue-wise Detailed Analysis:

1. Definition of "charitable purpose" under section 2(15) of the Income-tax Act, 1961:
The primary question in these appeals revolves around the interpretation of "charitable purpose" as defined in section 2(15) of the Income-tax Act, 1961. The term includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility, provided it does not involve the carrying on of any activity for profit. The judgment emphasizes the legislative intent behind the amendment to section 2(15), which was to prevent the misuse of tax exemptions by commercial concerns masquerading as charitable organizations.

2. Eligibility for tax exemption under section 11(1) read with section 2(15):
The judgment examines whether the activities of the Indian Chamber of Commerce and the Cochin Chamber of Commerce qualify for tax exemption under section 11(1) read with section 2(15). The court notes that the chambers' memoranda and articles of association aim to advance general trade interests without distributing profits to members. However, the core issue is whether the income-generating activities (arbitration fees, fees for certificates of origin, and share of profits from weighment and measurement certificates) fall within the exclusionary clause of section 2(15).

3. Interpretation of activities yielding income as "activities for profit":
The judgment scrutinizes whether the three sources of income involve "the carrying on of any activity for profit." It highlights that the legislative change in 1961 added a restrictive clause to the definition of "charitable purpose" to curb the exploitation of tax exemptions. The court reasons that activities yielding profits, even if intertwined with charitable objectives, do not qualify for exemption if they are carried out with a profit motive. The judgment underscores that the means of fulfilling charitable purposes must be free from profit-making ventures to claim tax exemption.

4. Conflicting views of High Courts on the interpretation of "charitable purpose":
The judgment acknowledges the conflicting views of various High Courts on this issue. While Kerala and Andhra Pradesh High Courts have held that section 2(15) is attracted in similar cases, Calcutta and Mysore High Courts have taken an opposite stance. The Supreme Court aligns with the Calcutta High Court's interpretation, emphasizing that the advancement of charitable objects must not involve profit-making activities. The judgment clarifies that the mere fact that services are rendered does not exempt the income from taxation if the activities are carried out for profit.

Conclusion:
The Supreme Court concludes that the Indian Chamber of Commerce and the Cochin Chamber of Commerce do not qualify for tax exemption under section 11(1) read with section 2(15) of the Income-tax Act, 1961. The court holds that the activities yielding arbitration fees, fees for certificates of origin, and profits from weighment and measurement certificates are carried out for profit and, therefore, do not fall within the definition of "charitable purpose." Consequently, Civil Appeal No. 2129 of 1970 is dismissed, and Civil Appeals Nos. 2455 to 2457 of 1972 are allowed, with parties bearing their respective costs.

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