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The Tax Publishers1978 TaxPub(DT) 1013 (SC) : (1978) 114 ITR 0454 : (1978) 007 CTR 0120 DHARMADEEPTI v. COMMISSIONER OF INCOME-TAX, KERALA. Civil Appeal No. 82 of 1975, decided on July 24, 1978. JUDGMENT PATHAK J. - This appeal, by certificate under section 261 of the Income-tax Act, 1961, is directed againest the judgement of the High Court of Kerala disposing of a reference made to it by the Income-tax Appellate Tribunal under section 256(1) of the Act. The appellant is an association constituted under a licence granted under section 25 of the Companies Act, 1956, on January 5,1967. The relevant provisions of its memorandum of asscoiation are : '3. (a) The main objects to be pursued by the company on its incorporation are : (i) To give charity. (ii) To promote education. (iii) To establish or aid in the establishment of associations, insituttions, funds, trusts with the object of promoting charity and/or education provided that the company shall not support its funds or endeavour to impose on, or procure to be observed by, its members or others any regulation or restriction which, if an object of the company, would make it a trade union. (b) The objects incidential or ancillary to the attainment of the above main objects are; (i) To receive donations, subscriptions, or gifts for the furtherance of the purpose of the company. and to do all such other things as may be considered to be incidential or conductive to the attainment of its objects or any of them, by the directors... (iv) To run Chitties (Kuries) - ... (c) The other objects for which the company is established are : (i) To establish, promote and carry on any other business which may seem to the company profitable or advantageous and to establish offices and other places of business in this State or anywhere in India, as the directors deem necessary.' the appellant carries on the business of conducting kuries, and in respect of the income during the calender year 1968, form that business it was assessed to tax for the assessment year 1969-70. The Income-tax Officer rejected the claim that the kurie business was incidential to the main objects of charity and education and that the income proceeding from it was exempt under section 11(1)(a) of the Income-tax Act. The Appellate Assistant Commisioner reversed the order of the Income-tax Officer and held that education constituted the main objects of the appellant and, therefore, the income from the kurie business, even though a profit-making activity, being in aid of or incidental to the main object, was entitled to exemption. The Income-tax Appellant Tribunal, on further appeal, upheld the view taken by the Appellate Assistant Commissioner. At the instance of the Commissioner of Income-tax, the Tribunal referred the following question to the High Court of Kerala for its opinion : 'Whether, on the facts and in the circumstances of the case, the asseseee is entitled to exemption under section 11 of the Income-tax Act, 1961, for the assessment year 1969-70 ?' The High Court answered the question in the negative and in favour of the Income-tax department by its judgement dated June 12, 1974. According to sub-clause (a) of clause 3 of the memorandum of association the main objects for which the appellant was formed are 'to give charity' and 'to promote education'. The third sub-clause merely confers power to establish assoications and other bodies with the object of promoting the two main objects. Having regard to the language used and the context in which the two main objects are set forth, it would be reasonable to identify, the expressiom, 'to give charity' and 'to promote education' with the first two heads 'relief of the poor' and 'education' in the definition of 'charitable purpose' in section 2(15) of the income-tax Act. If the memorandum of association had referred to 'charity' as the sole object without any limitations, including those prescribed by the context, it may have been possible to extend it to all the four heads mentioned in section 2(15) as was done in Chatturbhuj Vallabhadas v. Commissioner of Income-tax [1946] 14 ITR (Bom). But the words are 'to give charity'; and then 'to promote education' is also specified. Obviously, the former must bear a limited meaning. To our mind, the most appropriate seems to be 'relief of the poor'. That being so, neither of the main objects can be classed under the residental general head 'The advancement of any other object of genergal public utility. Now, those words, are followed by the words' not involving the carying on of any activity for profit.' Do these restrictive words govern the residual general head only o also the preceding specific heads 'relief of the poor, education, and medicial relief' ? The specific heads 'relief of the poor' education, and medical relief ? 'define well-known charitable purposes. But the residual general head 'The advancement of any other object of general public utility' is of wide comprehension. This head was defined in the same terms in the definition of 'charitable pur-pose' in section 4(3) of the Indian Income-tax Act, 1922. The same words wwere used in English law to describe one of the heads of charitable purpose in Morcie v. Bhshop of Durham [1805] 10 Ves 522,532, Under the English law, they were regarded as words of sufficiently extensive import to warrnat the observation by the House of Lords in Willims Trust v. Inland revenue Commissioners [1947] 27 TC 409 [1948] 16 ITR (Supp). 41 (HL). that all objects of general public utility were not necessarily charitable, and that the while some may be so others may not. The law in India under the Indian Income-tax Act, 1922, was not in congruency with the English law of charity inasmuch as by including the those words in its statutory definition the Indian law extended the expression 'charitable purpose' to an area beyond that covered by the English law. In other words, while the words 'any other object of general public utility' in the Indian enactment included the purposes recognised as charitable purposes under the English law, they extended also to objects which were not accepted as charitable under the English law. Apparently, when framing the Income-tax Act, 1961, Parliament considered it appropriate to cut down the wide scope of these words by qualifying them with the restrictive words 'not involving the carryingon on of any activity for profit. This was done to emphasise that the residual general head was to be confined to objects which were essentially charitable in nature. It is, therefore, clear that the words, not involving the carrying onm of any activity for profit' givern the words 'the advancement of any other object of general public utility' and not the words 'relief the poor' education and medical relief' in section 2(15). The heads 'relief of the poor' education, and medical relief' remained unqualified by any express statutory restriction, and income atising from a profit-making activity linked with those heads enjoyed exemption without express limiation until section 13(1)(b) was inserted in the Act by the Taxation Laws (Amendement) Act, 1975, with effect from April 1, 1977. Now, the power to run the kurie business stems form the provision 'to run chitties (Kuries)' mentioned sub-clause (b) of clause 3 of the memorandum. From the decsription prefacing the enumeration of the objects, it is plain that the objects are really in the nature of powers incidental or ancillary to the attainment of the main objects mentioneed in sub-clauses (a) of clauses 3. Accordingly, we hold that the income from the kurie business is intended to be applied only to the charitable purposes of giving to charity or the promotion of education. That is the basis on which the licence was granted under section 25 of the Companies Act to the appellant. No question arises of applying the income from the kurie business to the other objects for which the appellant has been established, that is to say, the objects set forth in sub-clause (c) of clause 3 of the memorandum of association. In the circumstances, it is not necessary to consider the effect of the inclusion of those other objects in the memorandum and whether the apellant can embark on the realisation of those objects without complying with the statutory formalities mentioned under section 149 of the Comapanies Act. It is not disputed that the business of conducting kuries is held under trust. We are, therefore, of opinion that the income from that business is income derived from property held under trust for charitable purposes. In the circumstances, the appellant is entitled to exemption on the income form the kurie business for the assessment year 1969-70 under section 11(1)(a) of the Income-tax act, We are unable to agree with the opinion expressed by the High Court which, it seems, omitted to consider the significance of the fact that the business of conducting kuries is covered by a power conferred expressly only for the purpose of attainment of the main objects of giving charity and promoting education. The appeal is allowed, the judgement dated June 12,1974, of the High Court is set aside and the question referred by the Income-tax Appellate Tribunal is answered in the affirmative, in favour of the appellant and againest the commissioner of Income-tax. The appellnat is entitled to his costs of this appeal. Appeal allowed. OPEN SUBSCRIBE FOR FULL CONTENT

The Tax Publishers1978 TaxPub(DT) 1013 (SC) : (1978) 114 ITR 0454 : (1978) 007 CTR 0120

DHARMADEEPTI v. COMMISSIONER OF INCOME-TAX, KERALA.

Civil Appeal No. 82 of 1975, decided on July 24, 1978.

JUDGMENT

PATHAK J. - This appeal, by certificate under section 261 of the Income-tax Act, 1961, is directed againest the judgement of the High Court of Kerala disposing of a reference made to it by the Income-tax Appellate Tribunal under section 256(1) of the Act.

The appellant is an association constituted under a licence granted under section 25 of the Companies Act, 1956, on January 5,1967. The relevant provisions of its memorandum of asscoiation are :

'3. (a) The main objects to be pursued by the company on its incorporation are :

(i) To give charity. (ii) To promote education. (iii) To establish or aid in the establishment of associations, insituttions, funds, trusts with the object of promoting charity and/or education provided that the company shall not support its funds or endeavour to impose on, or procure to be observed by, its members or others any regulation or restriction which, if an object of the company, would make it a trade union.

(b) The objects incidential or ancillary to the attainment of the above main objects are;

(i) To receive donations, subscriptions, or gifts for the furtherance of the purpose of the company. and to do all such other things as may be considered to be incidential or conductive to the attainment of its objects or any of them, by the directors...

(iv) To run Chitties (Kuries) - ...

(i) To establish, promote and carry on any other business which may seem to the company profitable or advantageous and to establish offices and other places of business in this State or anywhere in India, as the directors deem necessary.'

the appellant carries on the business of conducting kuries, and in respect of the income during the calender year 1968, form that business it was assessed to tax for the assessment year 1969-70. The Income-tax Officer rejected the claim that the kurie business was incidential to the main objects of charity and education and that the income proceeding from it was exempt under section 11(1)(a) of the Income-tax Act. The Appellate Assistant Commisioner reversed the order of the Income-tax Officer and held that education constituted the main objects of the appellant and, therefore, the income from the kurie business, even though a profit-making activity, being in aid of or incidental to the main object, was entitled to exemption. The Income-tax Appellant Tribunal, on further appeal, upheld the view taken by the Appellate Assistant Commissioner. At the instance of the Commissioner of Income-tax, the Tribunal referred the following question to the High Court of Kerala for its opinion :

'Whether, on the facts and in the circumstances of the case, the asseseee is entitled to exemption under section 11 of the Income-tax Act, 1961, for the assessment year 1969-70 ?'

The High Court answered the question in the negative and in favour of the Income-tax department by its judgement dated June 12, 1974.

According to sub-clause (a) of clause 3 of the memorandum of association the main objects for which the appellant was formed are 'to give charity' and 'to promote education'. The third sub-clause merely confers power to establish assoications and other bodies with the object of promoting the two main objects. Having regard to the language used and the context in which the two main objects are set forth, it would be reasonable to identify, the expressiom, 'to give charity' and 'to promote education' with the first two heads 'relief of the poor' and 'education' in the definition of 'charitable purpose' in section 2(15) of the income-tax Act. If the memorandum of association had referred to 'charity' as the sole object without any limitations, including those prescribed by the context, it may have been possible to extend it to all the four heads mentioned in section 2(15) as was done in Chatturbhuj Vallabhadas v. Commissioner of Income-tax [1946] 14 ITR (Bom). But the words are 'to give charity'; and then 'to promote education' is also specified. Obviously, the former must bear a limited meaning. To our mind, the most appropriate seems to be 'relief of the poor'. That being so, neither of the main objects can be classed under the residental general head 'The advancement of any other object of genergal public utility. Now, those words, are followed by the words' not involving the carying on of any activity for profit.' Do these restrictive words govern the residual general head only o also the preceding specific heads 'relief of the poor, education, and medicial relief' ? The specific heads 'relief of the poor' education, and medical relief ? 'define well-known charitable purposes. But the residual general head 'The advancement of any other object of general public utility' is of wide comprehension. This head was defined in the same terms in the definition of 'charitable pur-pose' in section 4(3) of the Indian Income-tax Act, 1922. The same words wwere used in English law to describe one of the heads of charitable purpose in Morcie v. Bhshop of Durham [1805] 10 Ves 522,532, Under the English law, they were regarded as words of sufficiently extensive import to warrnat the observation by the House of Lords in Willims Trust v. Inland revenue Commissioners [1947] 27 TC 409 [1948] 16 ITR (Supp). 41 (HL). that all objects of general public utility were not necessarily charitable, and that the while some may be so others may not. The law in India under the Indian Income-tax Act, 1922, was not in congruency with the English law of charity inasmuch as by including the those words in its statutory definition the Indian law extended the expression 'charitable purpose' to an area beyond that covered by the English law. In other words, while the words 'any other object of general public utility' in the Indian enactment included the purposes recognised as charitable purposes under the English law, they extended also to objects which were not accepted as charitable under the English law. Apparently, when framing the Income-tax Act, 1961, Parliament considered it appropriate to cut down the wide scope of these words by qualifying them with the restrictive words 'not involving the carryingon on of any activity for profit. This was done to emphasise that the residual general head was to be confined to objects which were essentially charitable in nature. It is, therefore, clear that the words, not involving the carrying onm of any activity for profit' givern the words 'the advancement of any other object of general public utility' and not the words 'relief the poor' education and medical relief' in section 2(15). The heads 'relief of the poor' education, and medical relief' remained unqualified by any express statutory restriction, and income atising from a profit-making activity linked with those heads enjoyed exemption without express limiation until section 13(1)(b) was inserted in the Act by the Taxation Laws (Amendement) Act, 1975, with effect from April 1, 1977.

Now, the power to run the kurie business stems form the provision 'to run chitties (Kuries)' mentioned sub-clause (b) of clause 3 of the memorandum. From the decsription prefacing the enumeration of the objects, it is plain that the objects are really in the nature of powers incidental or ancillary to the attainment of the main objects mentioneed in sub-clauses (a) of clauses 3. Accordingly, we hold that the income from the kurie business is intended to be applied only to the charitable purposes of giving to charity or the promotion of education. That is the basis on which the licence was granted under section 25 of the Companies Act to the appellant. No question arises of applying the income from the kurie business to the other objects for which the appellant has been established, that is to say, the objects set forth in sub-clause (c) of clause 3 of the memorandum of association. In the circumstances, it is not necessary to consider the effect of the inclusion of those other objects in the memorandum and whether the apellant can embark on the realisation of those objects without complying with the statutory formalities mentioned under section 149 of the Comapanies Act.

It is not disputed that the business of conducting kuries is held under trust. We are, therefore, of opinion that the income from that business is income derived from property held under trust for charitable purposes. In the circumstances, the appellant is entitled to exemption on the income form the kurie business for the assessment year 1969-70 under section 11(1)(a) of the Income-tax act, We are unable to agree with the opinion expressed by the High Court which, it seems, omitted to consider the significance of the fact that the business of conducting kuries is covered by a power conferred expressly only for the purpose of attainment of the main objects of giving charity and promoting education.

The appeal is allowed, the judgement dated June 12,1974, of the High Court is set aside and the question referred by the Income-tax Appellate Tribunal is answered in the affirmative, in favour of the appellant and againest the commissioner of Income-tax. The appellnat is entitled to his costs of this appeal.

Appeal allowed.

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