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TMI Blog1975 (11) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent-association is found to have earned the following income : Rs. Interest on securities 1,639 Property income 2,976 Business income 54,023 Income from other sources 24,607 ------------ 83,245 ------------ Out of this income, the amount of Rs. 54,023, which is described above as business income, was earned by the respondent-association in its dealings relating to the distribution of coal to various mills. It is necessary at this stage to state the facts with regard to this coal business. It is found from the facts stated by the Tribunal that some time before the accounting year, there was an acute shortage of coal in Ahmedabad. The textile mills at Ahmedabad are mainly running on coal. Previous to the accounting year of 1963, all the textile mills in Ahmedabad had the individual monthly quota sanctioned by the Textile Commissioner and against this quota, the mills received their supply directly from the suppliers. However, in order to assist the mills at the time of short supply of coal, the Textile Commissioner granted periodically some coal wagons to the respondent-association and the association in its turn allocated some coal wagons out of the supply re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only for 9 months, i.e., from April 1, 1963, to December 31, 1963. The above referred profit of Rs. 54,023 is net profit, which the respondent-association earned during these 9 months on account of this coal business. Proceeding further with the arrangement with regard to the distribution of coal, it should be stated that from 1st January, 1964, the arrangement was again changed with the result that the respondent-association stopped dealing with the middlemen, agreed to supply the coal directly to the respective mills, and charged 7 np. per metric tonne directly from the mills for the services which it rendered. In this connection also, by agreement of the parties, the learned Advocate-General has produced a copy of the letter written by the secretary of the respondent-association to the manager of the Ahmedabad Mills Coal Pool. Thus, from 1st January, 1964, onwards, the association was charging 7 nps. per metric tonne for the services rendered by it in the distribution of coal. It is not in dispute that any surplus which remained at the rate of 7 nps. per metric. tonne after January 1, 1964, was refunded by the respondent-association to the respective mills. The above facts s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chamber of Commerce Industry [1973] 87 ITR 83 (Ker) in preference to the view taken by the Calcutta and Mysore High Courts in Commissioner of Income-tax v. Indian Chamber of Commerce [1971] 81 ITR 147 (Cal) and Commissioner of Income-tax v. Sole Trustee, Loka Shikshana Trust [1970] 77 ITR 61 (Mys). This controversy about the interpretation of clause (15) of section 2 of the Act now does not remain to be decided in view of the recent decisions of the Supreme Court in appeal arising out of the above referred Mysore case, the decision of the Supreme Court being in Sole Trustee, Loka Shikshana Trust v. Commissioner of Income-tax [1975] 101 ITR 234 (SC) and the decision given in Indian Chamber of Commerce v. Commissioner of Income-tax [1975] 101 ITR 796 (SC) by the Supreme Court on 17th September, 1975. The learned Advocate-General has, however, tried to support the case of the respondent- assessee on different grounds. Being aggrieved by the decision recorded by the Tribunal, the revenue has preferred this reference, in which the Tribunal has referred for our opinion the following four questions : " 1. Whether on the facts and in the circumstances of the case and particularly ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects, the association cannot be treated as a trust, which is entitled to any tax exemption contemplated by section 11 of the Act. In this connection, he drew our attention to the fact that the respondent-association exists only for its members, who are both the legal owners and beneficiaries of its income and property. He pointed out that unlike section 14 of the Societies Registration Act, it is not provided that the property of the association on its dissolution shall go to any other society having similar objects in view and, therefore, on the dissolution of the association, its property is liable to be disbursed amongst its members. Shri Kaji further contended that the income, which is derived by the respondent-association during the accounting period from the coal business, was derived by it only by entering into business for profit and, therefore, even if it is held that the objects of the respondent-association are for the purpose of general public utility, this purpose does not fall within the meaning of the expression " charitable purpose " as given in section 2(15) of the Act for the simple reason that during the accounting period, the association has advanced this pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he country and of those connected with them ; (b) The promotion of good relations between the persons and bodies using such power ; (c) The doing of all those acts and things by which these objects may be attained ; (d) The promotion and protection of the trade, commerce and manufactures of India in general and of the cotton trade in particular ; (e) To establish or aid in the creation of funds to benefit employees of the association or the dependents of such persons and to subscribe, donate or guarantee for charitable or benevolent purposes at the discretion of the association ; (f) The promotion of good relations between the employers and the employees. " In order to understand these objects, and the manner in which they are to be implemented, it is also necessary to make reference to three other rules, which are rules 15, 22 and 22(a). So far as rule 15 is concerned, it primarily refers to the mode of election of office bearers, managing committee and its functions. It is, therefore, not necessary to quote the whole of this rule, but it would be sufficient to note that this rule specifically provides that the affairs and funds and property of the association shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not less than Rs. 10 lakhs, is eligible for the membership of the association. It is in the context of these rules that we have to find out whether the objects of the association fall within the meaning of the expression " charitable purpose " as given by section 2(15) of the Act. On behalf of the revenue, Shri Kaji discussed each of the objects mentioned in rule 3 separately and pointed out how, except the object mentioned in clause (d), the rest of the objects cannot be treated as objects of public utility. He made a special reference to the objects mentioned in each of the clauses (a), (b), (c), (e) and (f) and pointed out how each one of them aims at serving the personal interests of individuals, and contended that protection of such individual and personal interests cannot fall within the purpose of general public utility. Shri Kaji admitted that clause (d) undoubtedly contemplates an object of public utility, but this only shows that the objects of the association reveal mixed purposes--charitable as well as non-charitable--and since the managing committee has wide discretion to carry on the activities of the association for any of the objects mentioned in rule 3, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any of the objects mentioned in rule 3. In our opinion, therefore, all the objects, which are mentioned in rule 3, are of equal importance and, hence, it is not possible to say that any one of these objects is primary and others are merely incidental to it. A bare reference to these objects shows that the objects mentioned in clauses (a), (b) and (c) are quite independent of the object mentioned in clause (d). Objects mentioned in clauses (a), (b) and (c) operate in a sphere which is altogether different and distinct from the sphere in which the object mentioned in clause (d) operates. Persons working in " trade, commerce and manufactures " constitute a group which is much wider and varied than the persons who are " millowners and users of motive power ". It is, therefore, not possible to say that clauses (a), (b) and (c) are consequential to the object mentioned in clause (d). If this be so, objects mentioned in clauses (a), (b) and (c) should be treated as independent of the object mentioned in clauses (d). On a bare reading of clauses (a), (b) and (c), it is evident that they seek to protect the interests of " persons " and not the " activities " which they carry on. It woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c), which is consequential to clauses (a) and (b), contemplates doing of those acts and things by which the objects covered by clause (a) and (b) may be attained. Thus, all these three clauses aim at protecting personal interests and not public interests. If this is so, the respondent-association is bound to carry on its activity keeping in mind the narrower concept of promoting the personal and self-serving interests of individuals who are considered " millowners and users of motive power " even when their interests are in conflict with the interests of their own trade or industry. If and when this happens, how can it be said that the respondent-association has carried out an object of general public utility ? General public is undoubtedly interested in trade, commerce or industry conducted by individuals, but it is surely not interested in protecting the personal interests of these individuals if they are in conflict with the interests of trade, commerce and industry. Therefore, when an object seeks to promote or protect the interests of a particular trade or industry, that object becomes an object of public utility, but not so, if it seeks to promote the interests of those who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quality the same is obviously of a " private " nature, as each one of them is concerned with his own interest and shares nothing in common with the public. It was contended that their common quality is the fact that each one of them is either a millowner or a user of motive power. Granting that this is their common quality it cannot be said that the said common quality possesses the attributes of a public or impersonal nature. If individuals, whose only common quality is their profession or vocation, can legitimately be invested with the attributes of a public nature, then every partnership, company or an association of persons can be an object of charity and the trusts created for the benefit of such partnerships, companies and associations would be charitable trusts earning exemption under section 11. Absurdity of such a situation cannot be over-emphasised. What is the exact nature of " section of the public " which can legitimately become an object of a charity, is considered by Lord Greene M.R. in Powell v. Compton [1945] 1 Ch 123, 129 (CA). In that case a bequest was made for the education of a small number of individual relatives of a testatrix. The question which arose was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 of the report. The facts of that English decision were that the trustees were directed to apply certain income in providing for the education of children of employees or " former employees " of a British limited company or any of its subsidiary or allied companies. The House of Lords held in this case by majority that though the group of persons indicated was numerous, the nexus between them was employment by particular employers and, accordingly, the trust did not satisfy the test of a public benefit requisite to establish it as charitable. This principle has been approved by our Supreme Court and, therefore, the first part of the object clause (e) is also not found to be for general public utility within the meaning of section 2(15) of the Act. So far as the second part is concerned, Shri Kaji's contention was that a benevolent purpose is not necessarily a charitable purpose but if this clause is construed liberally, it may be said that it embodies within it the object of public utility. Now, proceeding to clause (f) it contemplates promotion of good relations between the employers and the employees. So far as this object is concerned, the matter is concluded by the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established for charitable purposes only--Inland Revenue Commissioners v. Yorkshire Agricultural Society [1928] 1 KB 611 (CA). " In our opinion, the present case falls within the second and third categories mentioned by Lord Cohen. Even otherwise it is apparent that different objects contained in rule 3 are mixed objects and it is further clear by reference to rules 22 and 22(a) that the funds of the association can be spent on any of these objects at the discretion of the managing committee. Hence, the present case is fully covered by the ratio of the Privy Council decision in Mohammad Ibrahim Riza Malak v. Commissioner of Income-tax AIR 1930 PC 226, where it is held that where the property is vested in the head of a community under deeds of trust, but the trust property is applicable to purposes, many of which are neither religious nor charitable, and it is not suggested that any part of the property is set aside for any charitable or religious purposes, so that it can be identified as appropriated exclusively for such purposes, then the income of the whole of the property is assessable to income-tax. This principle is approved by the Supreme Court in East India Industries (Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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