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TMI Blog1977 (8) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the assessee itself. This contention was rejected by the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal but, on a reference under section 66(1) of the Act of 1922, the High Court of Kerala in Dharmodayam Co. v. Commissioner of Income-tax [1962] 45 ITR 478 held that that the business of kuries was itself held by the assessee under a trust for religious or charitable purposes and that it could not be said that the business was conducted " on behalf of " the religious or charitable institution. Therefore, according to the Division Bench which decided that case, the proviso to section 4(3)(i) was not attracted and the income from kuries in so far as it was applied for religious or charitable purposes was exempt from tax. The revenue brought the matter in appeal to this court but it withdrew the appeal with the result that the decision of the High Court became final. The instant case arose after the Income-tax Act of 1961 came into force, the assessment year being 1968-69. The Income-tax Officer declined to grant exemption in respect of the income derived by the assessee from its kuri business but that order was set aside by the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied or finally set apart for application thereto : Provided that such income shall be included in the total income... (b) in the case of income derived from business carried on behalf of a religious or charitable institution, unless the income is applied wholly for the purposes of the institution and either--- (i) the business is carried on in the course of the actual carrying out of a primary purpose of the institution, or (ii) the work in connection with the business is mainly carried on by the beneficiaries of the institution. " Section 11(1)(a) of the Act of 19 61 reads thus : " 11. Income from Property held for charitable or religious purposes.--- (1) 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 or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's total income, if it involves carrying on of any activity for profit. Under the Act of 1922, income derived from a business carried on for the purpose of advancing an object of general public utility was excludible from the assessee's total income, even if such advancing involved the carrying on of an activity for profit, if the income was applied wholly for the purposes of the institution and either the business was carried on in the course of the actual carrying out of a primary purpose of the institution or the work in connection with the business was mainly carried on by the beneficiaries of the institution. This is the significant change brought about by the 1961 Act. But we are unable to accept the submission made by Mr. Ramamurthi on behalf of the revenue that by reason of the change brought about by the Act of 1961 in the definition of the expression " charitable purpose ", the judgment of the Kerala High Court in Dharmodayam's case [1962] 45 ITR 478 (Ker) is not good law and that the decision therein cannot any longer govern the question whether income received by the assessee by conducting the kuries is exempt from taxation. The entire argument is built ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent article 39 reads thus : "The profits of this company shall not be divided among the members. From the annual net profits from the working of the company, such proportion as the general meeting may deem fit may be set apart towards a reserve fund for the stability of the company and towards a reserve for bad debts and the balance of the profit may in accordance with the objects in the memorandum be spent on charity, education, industry and other purposes of public interest. " It is undisputed that the respondent-company, which was registered on January 21, 1959, under the Cochin Companies Act, has never engaged itself in any industry or in any other activity of public interest. It is notorious that the memoranda and articles of association of companies usually cover a variety of activities, only a few of which are in fact undertaken or intended to be undertaken. That obviates the necessity for applying for amendment of the articles from time to time and helps to rule out a possible challenge on the ground that the company has acted beyond its powers in undertaking a particular form of activity. The only activity in which the respondent is engaged over the years is the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered. This case arose out of identical facts as the decision of this court in Commissioner of Income-tax v. P. Krishna Warriar [1964] 53 ITR 176 (SC), which we have discussed above. After referring to the judgment of this court in the earlier case, the Kerala High Court took the view that the income in respect of which exemption was claimed was not excludible from the total income of the assessee since the assessee had commenced a business for the purpose of advancing an object of general public utility involving the carrying on of an activity for profit. The main argument advanced before the Kerala High Court was that the true purpose of the business, as gleaned from all the circumstances of the case, was to afford medical relief and not the advancement of an object of general public utility. The High Court rejected that argument and held that the preparation and sale of ayurvedic medicines cannot be said to be an activity in the nature of medical relief. As explained earlier, in the instant case the last clause of section 2(15) of the Act of 1961, which is described in various judgments as the fourth category falling within the terms of that section, has no application. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was specifically brought to the notice of the court in the case of Indian Chamber of Commerce [1975] 101 ITR 796 (SC) and was criticised therein on applying the wrong test. It is urged on behalf of the revenue that as the three-judge Bench having already overruled the judgment in appeal before us, there is nothing left for us to do save to allow this appeal filed by the revenue. Having given our most anxious and respectful consideration to the judgment in the case of Indian Chamber of Commerce [1975] 101 ITR 796 (SC) we find ourselves unable to accept this submission. The memorandum and articles of association of the assessee in that case, the Indian Chamber of Commerce, indisputably showed that the Chamber was to undertake activities for the purpose of advancing objects of general public utility (page 799). The Chamber received income, amongst other sources, from (a) arbitration fees, (b) fees collected for the certificates of origin, and (c) share in the profit made by issuing certificates of weighment and measurement. The bone of contention was whether this income was excludible under section 11(1)(a) read with section 2(15) of the Act of 196 1. As said by Krishna Iyer J. (page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case fell under the last clause of section 2(15) of the Act of 1961, which was the only part of section 2(15) relevant for deciding the case of Indian Chamber of Commerce [1975] 101 ITR 796 (SC). Considering further that the word " industry " has been italicised in the passage extracted above, it is plain that the court assumed that the assessee was engaged in running an industry. We have endeavoured to point out that, on the facts of the case, it is impossible to hold that the last clause of section 2(15) has any application and that, in the light of the activities of the respondent spread over the past several years, no importance can be attached to clause 39 of its articles of association which enables it " to do the needful for the promotion of ......... industry ". With great deference, therefore, we are unable to read the decision in the case of Indian Chamber of Commerce [ 1975] 101 ITR 796 (SC) as overruling the judgment which is under appeal before us. The court was not even apprised there that this appeal was pending against the decision of the Kerala High Court. We are, therefore, of the opinion, strictly limiting ourselves to the facts of the case and for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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