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TMI Blog1977 (3) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... 961, read with section 2(15) thereof. Article IV of the memorandum stated that the objects of the chamber extended to the whole of India and West Bengal in particular. Articles V and IX of the memorandum stated that the income and property were to be applied solely for the promotion of the objects set forth in the memorandum and no portion thereof even on the winding up or dissolution was to go to any of its members. The articles of association providing for the qualifications of the members, etc., were also adopted at a meeting held on June 17, 1940. There were to be five classes of members. On August 13, 1946, a deed of trust was executed between the chamber and the assessees, namely, trustees of the Bengal National Chamber of Commerce Industry. By this deed certain properties, which fell under the Calcutta Improvement Trust Scheme in Mission Row Extension, were to be held in trust for advancing the purposes of the chamber. Under clause 7 of the deed the assessees could let out any portion of the building which would be constructed on the property. According to clause 14, the assessees were to make over to the chamber ordinarily 75 per cent. of the net collection from the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking 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). " The Kerala High Court in the decision cited above has held that in order to take an object of general public utility outside the scope of the definition in section 2(15) of the Income-tax Act, 1961, on the ground that it involves carrying on of an activity for profit, that object must involve the carrying on of an activity for profit. "Involve", according to the Kerala High Court, means comprise or imply and the object must, therefore, imply carrying on of any activity for profit. It is not sufficient if there is some activity carried on which results in profit. There must be an activity in the form of business because the activity must be for profit and that activity fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the incomes from such activities are not exempt from tax under section 11 of the Act. It is to be noted that this court's view aforesaid was expressed upon consideration of the provisions of both the sections, viz., section 2(15) and section 11. Before the Tribunal the assessees' counsel submitted that the assessees only derived income under the head " property " and had no income from business and, as such, they did not carry on any activity for profit and their case fell outside the purview of the restriction in the amended definition in section 2(15) of the Income-tax Act, 1961. The assessee's counsel relied on the Kerala High Court's judgment ([1971] 80 ITR 645) in support of his contention. The Tribunal observed that it was clear that the qualifying words " not involving the carrying on of any activity for profit " referred only to the charitable purpose which is " advancement of any other object of general public utility " and not other charitable purposes such as relief of the poor, education or medical relief. The Tribunal further observed that in the appeals before it the qualifying words were applicable as the objects of the chamber were for the advancement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the deed of trust executed on the 13th August, 1946, the Tribunal was right in holding that the assessee was carrying on an activity for profit ? (2) If the answer to question No. 1 is in the affirmative then, whether, on the facts and in the circumstances of the case and on a correct interpretation of the memorandum and articles of association of the Bengal National Chamber of Commerce and Industry and the deed of trust executed on the 13th August, 1946, the property was held under trust wholly for charitable purposes within the meaning of section 2(15) and section 11(1) of the Income-tax Act, 1961, and exemption from tax could be claimed in respect of the income from the said property ? " We should observe at the outset that the Income-tax Officer accepted the assessee's contention that the principal object of the assessees was the advancement of the objects of general public utility. The question for determination, therefore, is whether the assessees, despite the above finding, can come within the definition of " charitable purpose " in section 2(15) of the Income-tax Act, 1961. Learned counsel for the assessees has argued before us that in order to bring a case within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that the words 'not involving the carrying on of any activity for profit' should be added to the definition. " Learned counsel for the assessees has argued that the construction aforesaid which he has suggested fits in with the object for which the amendment was made. The whole purpose of the amended definition, according to learned counsel, was to restrict exemption to a genuine public charitable trust. Learned counsel for the assessees argues further that the test is that if the income of the trust feeds charitable purposes only then even if the activities of the trust yield an income such activities are without any profit motive because the trust is a genuine public charitable trust. It is not the intention of the legislature that a charitable trust cannot earn any income from business or property. Section 11(1)(a) read with section 11(4) specifically provides that an income of a charitable trust from a business undertaking is allowed exemption provided that such income is applied only for such charitable pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to infer it to be the real object. As a rule, if the terms of the trust permit its operation ' for profit ', they become, prima facie, evidence of a purpose falling outside charity. They would indicate the object of profit making unless and until it is shown that terms of the trust compel the trustee to utilise the profits of business also for charity. This means that the test introduced by the amendment is : Does the purpose of a trust restrict spending the income of a profitable activity exclusively or primarily upon what is 'charity ' in law ? If the profits must necessary feed a 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. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on 'charity '. If that obligation is there, the income becomes entitled to exemption. That, in our opinion, is the most reliable test. " Learned counsel for the assessees before us has placed strong reliance on the above observation of Beg J. He has submitted to us that in every ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity, if it is intertwined with, wrapped in or entangled with the object of charitable purpose even if profit results therefrom, the immunity from taxation is still available. This will result in absurd conclusions. " At page 805 Mr. justice Krishna Iyer observes : " We will illustrate to illumine. If there is a restrictive provision in the bye-laws of the charitable organisation which insists that the charges levied for services of public utility rendered are to be on a 'no profit' basis, it clearly earns the benefit of section 2(15). For instance, a funeral home, an S.P.C.A. or a co-operative may render services to the public but write a condition into its constitution that it shall not charge more than is actually needed for the rendering of the services,--may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables,--may be a little surplus is left over at the end of the year--the broad inhibition against making profit is a good guarantee that the carrying on of the activity is not for profit. As an antithesis, take a funeral home or an animal welfare organisation or a super-bazar run for general public utility by an in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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