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TMI Blog1969 (7) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... he association's income was exempt. Section 4(3)(i) of the Act of 1922 lays down, inter alia, that " income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such charitable or religious purposes as relate to anything done within the taxable territories, and in case of property so held in part only for such purposes, the income applied or finally set apart for application thereto " shall not be included in the total income of the person receiving it. The Appellate Assistant Commissioner, however, negatived the assessee's claim for exemption particularly in view of rule 5(a) of the association's regulations, which ran thus : " 5. (a) If, upon winding up or dissolution of the association there remains after the satisfaction of all its debts and liabilities any property whatsoever, the same shall be dealt with in accordance with the resolution of the association at a general meeting held for the purpose. " The matter then went up to the Tribunal which considered the association's rules and regulations and observed as follows : (1) The association was reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x under section 4(3)(i) of the Indian Income-tax Act, 1922 ? " Mr. B.L. Pal, learned counsel for the department, based his arguments principally on two decisions of English courts. In British Launderers' Research Association v. Central Middlesex Assessment Committee and Hendon Rating Authority the Court of Appeal had to construe the relevant provisions of the Scientific Societies Act, 1843. Section 1 of this Act provides : " No person or persons shall be assessed or rated, or liable to be assessed or rated, or liable to pay, to any county, borough, parochial, or other local rates or cesses, in respect of any land, houses, or buildings, or parts of houses or buildings, belonging to any society instituted for purposes of science, literature, or the fine arts exclusively, either as tenant or as owner, and occupied by it for the transaction of its business, and for carrying into effect its purposes, provided that such society shall be supported wholly or in part by annual voluntary contributions, and shall not, and by its laws may not, make any dividend, gift, division, or bonus in money unto or between any of its members, and provided also that such society shall obtain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orginally formed under the repealed Nurses Registration Act, 1919, existed under and for the objects declared in the Nurses Act, 1957. The functions of the council included the maintenance of a register of nurses, together with a roll of assistant nurses ; the regulation of the conditions of admission to and removal from the register and the roll, and, in connection therewith, the exercising of supervisory and directing powers in regard to training and examination ; and the exercising of other ancillary powers. The Act of 1957 also provided penalties for the false assumption of the title of registered or enrolled nurse ; and imposed restriction on the use of the titles of nurse or assistant nurse. On the question whether the council was an organisation " whose main objects are charitable or are otherwise concerned with the advancement of ... social welfare " within the meaning of Rating and Valuation (Miscellaneous Provisions) Act, 1955, section 8(1)(a), the House of Lords held, inter alia, that the council was not an organisation whose main objects were " charitable or are otherwise concerned with the advancement of ... social welfare " within section 8(1)(a) of the Act of 1955. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us that the instant association is not an association which was registered under section 26 of the Indian Companies Act, 1913 (the corresponding section of the Act of 1956 being section 25). Section 26 of the 1913 Act provided : " (1) Where it is proved to the satisfaction of the Central Government that an association capable of being formed as a limited company has been or is about to be formed for promoting commerce, art, science, religion, charity, or any other useful object, and applies or intends to apply its profits (if any) or other income in promoting its objects, and to prohibit the payment of any dividend to its members, the Central Government may, by licence under the hand of one of its secretaries, direct that the association be registered as a company with limited liability, without the addition of the word 'limited' to its name, and the association may be registered accordingly ... " The applicant, says learned counsel, is not also an association registered under the Societies Registration Act, 1860, the preamble whereof says : " Whereas it is expedient that provision should be made for improving the legal condition of societies established for the promotion of li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore such court, etc. " All these clauses, according to counsel for the revenue, are dominant clauses and they have nothing to do with any charitable purposes. In these premises, Mr. B. L. Pal invites us to hold that this is a trade union of sugar mill owners and manufacturers and has been constituted to serve the purposes of its members with at least as much energy and enthusiasm as the purposes of the sugar industry in general. He also said that clause 4(b) of the rules and regulations of the association provides that the general fund shall not be spent on any objects inconsistent with the provisions of section 15 of the Trade Unions Act. Now, section 15 of this Act enables a trade union to incur expenses with respect to various matters which are not at all charitable, e.g., compensation of members for loss arising out of trade disputes : section 15(e), allowances to members or their dependants on account of death, old age, sickness, accidents or unemployment of such members : section 15(f) and the conduct of trade disputes on behalf of the trade union or any member thereof : section 15(d). Moreover, under section 16(2)(e) a registered trade union may have as one of its object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same should be applied for the maintenance of a college which had been established out of the funds of another trust that the testator had created. There was a surplus income in the hands of the trustees, after defraying the expenses of the press and the newspaper and on a reference by the Commissioner of Income-tax as to whether this income was liable to be assessed in the hands of the trustees, the Lahore High Court held that the income in question was not income derived from property held under trust for charitable purposes under section 4(3)(i) of the Indian Income-tax Act, 1922. The Privy Council reversed the High Court's judgment. It, inter alia held : (1) that the object of the settlor was to supply the province with an organ of educated public opinion and this was, prima facie, an object of general public utility. Though a trust for conducting a newspaper as a mere vehicle for the promotion of a particular political or fiscal opinion may not be within the exemption, where the object is to disseminate news and ventilate opinion on matters of public interest, the fact that the paper may have, or may acquire, a particular political complexion would not take away its exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd open khaddar stores, to establish a khaddar service, to act as agency on behalf of the Congress to receive self-spun yarn as subscription to the Congress, and to issue certificates and to do all the things that may be considered necessary for the furtherance of its objects, with power to make regulations for the conduct of affairs of the association of the council and to make such amendments in the present constitution, as may be considered from time to time. " Out of the funds of the association which consisted mostly of donations and subscriptions, charkas and handlooms were purchased and supplied to the inhabitants of villages free of charge. Raw cotton was supplied to the poor people to be spun into yarn and the yarn so spun along with the yarn acquired by the association were supplied to other poor people for hand-weaving. The wages paid to them for spinning and weaving were not based on the current wages for similar work but were fixed on the basis of giving to the said persons as far as possible an income sufficient to enable them to support their families. The price charged to the public for such cloth was calculated on the basis of the cost price incurred by the associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian Act of the word 'public', is of importance. " The Privy Council observed that : " The words 'general public utility' in section 4(3) are very wide words. They would, however, exclude the object of private gain, such as an undertaking for commercial profit though all the same it would subserve general public utility. " We have said that section 4(3)(i) should not be confined to English dicta on religious or charitable trusts. And while construing the object clause of an association which seeks to come under section 4(3)(i) the court has first to determine the primary object of the association and if this primary object be of general public utility and the association has actually functioned to fulfil that object it should be held to be entitled to exemption under section 4(3)(i). We would now refer to the Supreme Court decision in the case of Commissioner of Income-tax v. Andhra Chamber of Commerce. The primary objects of the Andhra Chamber of commerce, a Company registered under section 26 of the Indian Companies Act, 1913, and permitted by the Government to omit the word " limited " from its name, were to promote and protect trade, commerce and industries, to aid, stimul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t vague or indefinite ; (v) that an object of general public utility, such as promotion, protection, aiding and stimulation of trade, commerce and industries, need not, to be valid, specify the modus or the steps by which the object might be achieved or secured ; (vi) that if the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, was contemplated. It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures ; and such an object ought to be regarded as purely ancillary or subsidiary and not the primary object ; and (vii) that, therefore, the income of the chamber of commerce from its building was exempt from tax under section 4(3)(i) of the Income-tax Act as the building was held under a legal obligation wholly for charitable purposes. " In our opinion, the question referred to us herein should be approached pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these rules and regulations and no portion thereof shall be paid or transferred, directly or indirectly, by way of dividend or bonus or otherwise howsoever by way of profit, to the persons who at any time are, or have been members of the association or to any of them or to any person claiming through any of them." This sub-clause gives the clearest indication that at least so long as the association is alive and functioning the income and property of the association cannot be used or utilised for the benefit of individual members or group of members, past or present, of the association. In this context, although sub-clause (b) of clause 4 provides that the general funds of the association " shall not be spent on any objects inconsistent with the provisions of section 15 of the Trade Unions Act " it does not mean that the association's moneys can be spent for purposes other than purposes of general public utility, even though such expenditures are permitted by section 15 of the said Act. We have in this reference been referred to decisions of other High Courts in India. But since the matter appears to us to be concluded by the judgments of the Judicial Committee and the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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