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TMI Blog1967 (7) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1922, and what we say in regard to section 4(3)(i) of the Income-tax Act, 1922, will apply equally in regard to section 11 of the Income-tax Act, 1961. The reference relates to the assessment years 1960-61, 1961-62 and 1962-63, the relevant accounting years being the financial years ending 31st March, 1960, 31st March, 1961, and 31st March, 1962. During the relevant account years the assessee, which is an association of persons, held diverse properties under legal obligation for the purposes set out in its constitution. The purposes, in so far as they are material for the purpose of the present reference, were as follows and here we are giving an English translation of the relevant clauses of the constitution : "3. The objects and purposes of this institution are as under : (1) To manage the immovable and movable properties of the Rana community of the City of Ahmedabad. (2) To do such acts so that the education be increased in the community and to give necessary help for that. (3) To give medical help to the community. (4) To do other acts beneficial to the community. (5) To do all acts, according to the capacity, so that unity and brotherhood is increased in the communit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the purposes set out in sub-clauses (4) and (5) of clause 3 were not charitable purposes and the class of beneficiaries sought to be benefited was also vague and ill-defined and was numerically negligible and did not, therefore, constitute a section of the public. The Appellate Assistant Commissioner in this view refused to accord exemption to the assessee under section 4(3)(i). The assessee thereupon preferred appeals to the Tribunal. The Tribunal decided both the points in favour of the assessee and held that the purposes set out in sub-clauses (2), (3), (4), and (5) of clause 3 and sub-clause (4) of clause 8 were charitable and the beneficiaries intended to be benefited constituted a section of the public and section 4(3)(i) was, therefore, applicable to exempt the income of the assessee. This view taken by the Tribunal is challenged in the present reference. The view taken by the Tribunal is challenged before us on behalf of the revenue on both the points on which the Tribunal decided in favour of the assessee. The revenue contended that the purposes set out in sub-clauses (4) and (5) of clause 3 are not charitable purposes within the meaning of the definition of " ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit of the public." The section, it will be noticed, consisted of two parts : the first exempting income derived from properties held under trust or other legal obligation wholly for charitable purposes on the basis of the statutory definition that " charitable purpose " includes relief of the poor, education, medical relief and advancement of any other objects of general public utility and the second, exempting income derived from property held under trust or other legal obligation wholly for religious purposes with this qualification that that part of the income of a private religious trust which does not enure for the benefit of the public would not be entitled to exemption. We are concerned in this reference only with the first part of the section, for it is only under that part that the claim for exemption has been formulated on behalf of the assessee. That part raises the question whether the income sought to be assessed could be said to be derived by the assessee from properties held wholly for charitable purposes, keeping in view the statutory definition of " charitable purposes " contained in the last paragraph of the section. Now it is well-settled as a result of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , be forgotton that charitable institutions enjoy rare and increasing privileges, and that the claim to come within that privileged class should be clearly established." The proposition is true of all charitable gifts and is not confined to the fourth class in Lord Macnaghten's well-known statement in Pemsel's case. The element of public benefit must exist whatever be the class in Lord Macnaghten's statement to which the charitable purpose may belong. The only exception is to be found in the case of trusts for the relief of poverty where the element of public benefit is dispensed with as a result of the historical development of the law of charity. There is ancient authority for supporting a gift for the relief of poor relations and recently the Court of Appeal in England held valid a gift to relieve the poverty of employees of a particular employer : Gibson v. South American Stores (Gath and Chaves) Ltd. These however constitute an anomalous line of cases which serve more to emphasize the rule rather than to detract from it. When we turn to the words of section 4(3)(i), we find that the overriding test of general public benefit is insisted upon also in India and the reason is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit of the community or a section of the community and not to the benefit of particular private individuals or a fluctuating body of private individuals. That is the plain meaning of the words "general public utility ", and it is clearly supported by the observations of Subba Rao J., as he then was, in Laxman Balwant v. Charity Commissioner. The decision of Subba Rao J. in this case was of course a dissenting judgment but on the point as to the true connotation of the words " general public utility " the majority judges did not take a different view and it would not, therefore, be improper for us to find support for our view from the observations made in the judgment of the learned judge. The question which, therefore, requires to be considered is whether the purpose for which the properties are held in the present case have the public character which the income-tax law requires of the charities it recognizes and favours ? Are the purposes directed to the benefit of the community or a section of the community as distinguished from private individuals or a fluctuating body of private individuals? The contention of the revenue was that the beneficiaries were not the community nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is present however long the chain and the claimant cannot avoid basing his claim upon it. " This principle which was laid down in Compton's case was applied by the Court of Appeal in the subsequent decision in In re Hobourn Aero Components Ltd. and it was approved by the House of Lords in Oppenhein v. Tobacco Securities Trust Co. In the last mentioned case the trust was for the education of the children of employees or ex-employees of a British company or any of its subsidiary or allied companies. The number of such limited employees exceeded 1,10,000 and yet Lord Simonds held that the children of the employees who were the beneficiaries under the trust did not constitute a section of the public so as to satisfy the test of public benefit. He observed : "These words, 'section of the community', have no special sacuetity, but they conveniently indicate (i) that the possible (I emphasise the word ' possible') beneficiaries must not be numerically negligible, and (ii) that the quality which distinguishes them from other members of the community, so that they form by themselves a section of it, must be a quality which does not depend on their relationship to a particular indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that it had validity only in so far as the question of existence of the public benefit was involved in any of the first three classes of charitable purposes, namely, relief of the poor, education, medical relief. Where the charitable purpose was sought to be supported under the last head, namely, "advancement of any other object of general public utility ", the test could not be relied upon as yielding a satisfactory solution to the question as to whether the charitable purpose was invested with a public character. The argument of the revenue was that in a case falling under the last head, namely, " advancement of any other object of general public utility ", it was necessary that the beneficiaries should comprise all those who are equally willing and able to take advantage of the benefit and " if the form, which the purporting charity takes, is something of generally utility which is nevertheless made available not to the whole public capable of taking it but only to a selected body of the public--an important class of the public it may be ", it would not be a trust of general public utility within the last head. This argument was sought to be supported by reference to the speec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common quality or characteristic. It is no doubt true that two characteristics are common to the members belonging to the two sections of the class. One is that they are members of the Rana sect and the other is that they are residing in Ahmedabad. But there is a third characteristic or quality which is not common amongst them. In the first section the third characteristic or quality is that the members must be natives of Ahmedabad while in the second section, it is that they should have been accepted by the caste according to its old custom or usage. It is, therefore, not possible to say that all the beneficiaries comprised in this class are united by a common characteristic or attribute. Moreover the requirement that the members must have been accepted by the community according to its old custom or usage in order to fall within the class destroys the public character of the class. There is nothing on record to show what was the old custom or usage of the caste which regulated the admission of the other members of the caste residing in Ahmedabad into this class. If the entrance of members of the caste residing in Ahmedabad into this class is dependent on the decision of the cast ..... X X X X Extracts X X X X X X X X Extracts X X X X
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