# 8 30 INDIAN CHAMBERS OF COMMERCE v. C.I.T., WEST BENGAL-II, CALCUTTA September 17,. 1975

- **Citation:** [1976] 1 S.C.R. 830
- **Court:** Supreme Court of India
- **Decided:** 1976
- **Case number:** Civil Appeal No. 2129 of 1970
- **Bench:** V. R. Krishna !Yei<, A. C. Gupta, S. MURTAZA FAZAL Au
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/8-30-indian-chambers-of-commerce-v-c-i-t-west-bengal-ii-calcutta-september-17-6681
- **Pages:** 17

## Headnote

l!1come Tax Act (43 of 1961), s.2 (xv)-Charitable purpose, scope ofBurae11 of proof~Activitv for vrofit ~\!hat is.
.
Under the Income-tax Act_ 1961 one of the items not includ"ed.in the total
income of an assessee for purposes of tax is, under s.11 incon1e derived from .
.property h~.ld under trust wholly for charitable purpose.
Charitable purpose
is defined 1n s.2 (xv).
Chambers of commerce, promoting the trade interest
of the
c~m1?ercial con:imunity, have been regarded as pursuing charitable
purposes w1th1n the n1ean1ng of s.2 (xv). But. under cover of charitable purposes
they
have
been
indulging
in
various
activitie'S
and
deriving tax
free
profit.
Therefore, s. 2 (xv) was amended by adding a clause at the end.
Under the an1ended definition, unless the context: otherwise 1-equires, charitable
purpose includes the advancement of any object df general
publi'c
utility
not i111·0/ving the carrying on of any acth·ity for profit.
HELD : The ·incon1e of the assessees, which are
chambers of commerce.
frorn three sources, namely, (a) arbitration fees levied by them;
(b) fees
collected for issuing certificates of origin; and (c) share of profit in another
CGmpany for issue of certificates of weighmient and measurement, which services are extended to members and non-n1embers. that is, to be trade generally,
is. not entitled to the exemption, and is liable to tax.
[845E-G]
( 1) The teSt is to ask for answers to the following questions :-(a)
Is
the object of the assessee one of general public utility; (b) Does the advancement of the object involve activties bringing in money? (c) If so, arc· such
activities undertaken (i) for profit or (ii) with.out profit. Even if (a) and (b)
A
B
c
D
are answered affirmativ'elY, if (c) (i) is also answered affirmatively the claim for
E
exemption collapses.
[844B-Cl
(2) Section 2 (xv) n1ust be intoerpreted in such a manner that every word
is given a meaning and not to treat any expression as redundant or miss the
accent of the amendatory phrase.
So viewed, an institution which carries
out charitable purposes out of income 'derived from property held under trust
\Vholly for charitable· purposes' may still· forfeit the claim to exemption
in
respect of such takings or incomes as n1ay come to it from pursuing any activity
for profil
By the new definition the benefit of exclusion from total income
iSi taken away where~ in accomplishing a charitable purpose, the institution
engages itself in activities for profit.
If' it wants immunity from taxation the
moeans of fulfilling charitable purposes must be
unsuUied by profit-mking
ventures.
The advancement of the object of general public utility must not
involve the carrying on of any activity for profit.
Otherwise. it will Jead
to the absurd conclusion that a Chamber of Cbmmerce may run a printing
press. advertisement bu~iness. market exploration activity or even exJ?Qrt promotion business and Jevy huge sums from itSi custimers. whether they
are
niembers of the organisation or not. and still c1ain1 a blanket exemption from
tax on the score that the objects of general public utility which it had set forth
for itself implied these
activi"t.~es even though profits or surpluses m>iy arise
therefrom.
If it runs special types of services for the benefit of manufacturers
and charges remuneration from them. it i<> undontedlv an activity which. if
carried on bv private agencies, would be- taxable. and there is no reason why
a Chamber Of Commerce should be exempt.
The policy of the statute is to
give tax relief for charitable purposes.
An undertakin~ hv a busine~s or~anisa
tion is ordinarily assumed to be for profit unless c-xpressly or bv necessarv
implication. or by eloquent surrounding circumstances. the making of pro.fit
o;;tands dearlv negatived. For example. if' there is a restrictive provision in the
hve-laws which insists that the charges levied for services of public utilit"
re"ndered are to be on a 'no profit' basis, that is, that it shall not charge more
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## Text

_Characters 0–39,869 of 53,445. This is a partial read: ask again with offset=39869 for what follows._

8 30
INDIAN CHAMBERS OF COMMERCE
v.
C.I.T., WEST BENGAL-II, CALCUTTA
September 17,. 1975
[V. R. KRISHNA !YEI<, A. C. GUPTA AND S. MURTAZA FAZAL Au, JJ.]
l!1come Tax Act (43 of 1961), s.2 (xv)-Charitable purpose, scope ofBurae11 of proof~Activitv for vrofit ~\!hat is.
.
Under the Income-tax Act_ 1961 one of the items not includ"ed.in the total
income of an assessee for purposes of tax is, under s.11 incon1e derived from .
.property h~.ld under trust wholly for charitable purpose.
Charitable purpose
is defined 1n s.2 (xv).
Chambers of commerce, promoting the trade interest
of the
c~m1?ercial con:imunity, have been regarded as pursuing charitable
purposes w1th1n the n1ean1ng of s.2 (xv). But. under cover of charitable purposes
they
have
been
indulging
in
various
activitie'S
and
deriving tax
free
profit.
Therefore, s. 2 (xv) was amended by adding a clause at the end.
Under the an1ended definition, unless the context: otherwise 1-equires, charitable
purpose includes the advancement of any object df general
publi'c
utility
not i111·0/ving the carrying on of any acth·ity for profit.
HELD : The ·incon1e of the assessees, which are
chambers of commerce.
frorn three sources, namely, (a) arbitration fees levied by them;
(b) fees
collected for issuing certificates of origin; and (c) share of profit in another
CGmpany for issue of certificates of weighmient and measurement, which services are extended to members and non-n1embers. that is, to be trade generally,
is. not entitled to the exemption, and is liable to tax.
[845E-G]
( 1) The teSt is to ask for answers to the following questions :-(a)
Is
the object of the assessee one of general public utility; (b) Does the advancement of the object involve activties bringing in money? (c) If so, arc· such
activities undertaken (i) for profit or (ii) with.out profit. Even if (a) and (b)
A
B
c
D
are answered affirmativ'elY, if (c) (i) is also answered affirmatively the claim for
E
exemption collapses.
[844B-Cl
(2) Section 2 (xv) n1ust be intoerpreted in such a manner that every word
is given a meaning and not to treat any expression as redundant or miss the
accent of the amendatory phrase.
So viewed, an institution which carries
out charitable purposes out of income 'derived from property held under trust
\Vholly for charitable· purposes' may still· forfeit the claim to exemption
in
respect of such takings or incomes as n1ay come to it from pursuing any activity
for profil
By the new definition the benefit of exclusion from total income
iSi taken away where~ in accomplishing a charitable purpose, the institution
engages itself in activities for profit.
If' it wants immunity from taxation the
moeans of fulfilling charitable purposes must be
unsuUied by profit-mking
ventures.
The advancement of the object of general public utility must not
involve the carrying on of any activity for profit.
Otherwise. it will Jead
to the absurd conclusion that a Chamber of Cbmmerce may run a printing
press. advertisement bu~iness. market exploration activity or even exJ?Qrt promotion business and Jevy huge sums from itSi custimers. whether they
are
niembers of the organisation or not. and still c1ain1 a blanket exemption from
tax on the score that the objects of general public utility which it had set forth
for itself implied these
activi"t.~es even though profits or surpluses m>iy arise
therefrom.
If it runs special types of services for the benefit of manufacturers
and charges remuneration from them. it i<> undontedlv an activity which. if
carried on bv private agencies, would be- taxable. and there is no reason why
a Chamber Of Commerce should be exempt.
The policy of the statute is to
give tax relief for charitable purposes.
An undertakin~ hv a busine~s or~anisa
tion is ordinarily assumed to be for profit unless c-xpressly or bv necessarv
implication. or by eloquent surrounding circumstances. the making of pro.fit
o;;tands dearlv negatived. For example. if' there is a restrictive provision in the
hve-laws which insists that the charges levied for services of public utilit"
re"ndered are to be on a 'no profit' basis, that is, that it shall not charge more
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A
B
c
D
E
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INDIAN CHAMBERS OF COMMERCE V. C.J.T.
831
than is actually needed for the rendering of the services, then it earns the
benefit of •.2(xv). It may not be an exact equivalent--£uch mathematical
precision being impossible in such case&-and there may be little surplus at the
end of the year; but the broad inhibition against making profit is a good
guarantee that the carrying on of the activity is not for profit.
[839F-8400, G..S41C]
(3) The answer to the question whether an activity is one for or not for
profit depends on. the facts.
An activity which yields profit or gain in the
ordinary course must be presumed to have been done for profit or gain. Thete
may be activities, where, without intent or purpose the activity may yield profit.
Even then it may\ Jegitimatiely be said that. the activity is for profit in the- sense
that it is "appropriate or adapted to'' such profit. [844C, B-FJ
(4) If the activity is prone to yielding income and in fact results in profit
the
Reven~e will examine the reality or pretence of the condition that the
activity is not for profit : But, if the broad basis that the activity is ndt for
profit is made out, by the assessee, the Revenue will not be meticuloUs and
charge every chance excess or random surplus.
[844G.84SA]
·
(5) The asgessees' contention that the Revenue should only look at
the
'dominant intent' or 'real object' of the assessee and that if its
activity is
wra_pped up, entangled or intertwined with a public utility object, then any
'incid'ental profit' arising from it is not taxable, does not afford a valid or
satisfactory test. [841D-E]
(6) Equally, the contention 1 of the Revenue that all activities which arc
prone to produce profits should be excluded. is not correct.
[840E-F]
(7) In the present case the issuance of weighment and measurement certi ..
ficates, the issuance of certificates of origin, and the settlement of disputes by
arbitration are great facilities for traders of general public utility. There is
however, nothing in the memorandum or articles of association of the assessees
which provides for only nominal fees and sets a limit on making large profits
from the smices. [845B-E. G·H]
Loka Shikshana Trust v. C.l.T,. Mysore, [1976] I S.C.R. 471; C.l.T. v. Andhra
Chamber df Commerce [1965] 55 I.T.R. 722 applied.
C.l.T. v. Dharmodayam Co. [1974] 94 I.T.R. 113, overruled.
ARGUMENTS
For the appellant :_:___
1. The primary or dominant or real objects of the Indian Chamber of
Commerce are to promote, protect, aid and stimulate trade, commerce
and
industry in India.
(Clause 3 of the 1-.-Iemorandum of Association). The Income
received was to be applied solely for the promotion of the objects and upon
di&Solution n·o property was to be paid or distributed among the members but
was to be given or transferred to some other institution having similar objects.
(Clauses 4 and 8 of the Memorandum of Association).
Jt is wen settled. that
these objects which lead to e:.onomic prosperity and enure for the benefit of the
entire community are objects of general public utility and as such, charitable.
See [1965] SC 55 !TR 722-Cdmmissioner of ·lncome-tax v, Andhra
Cluunber of Co1n1nerce.
2. The Indian Chamber. of Commerce provides, inter alia for arbitration
facilities so that trade disputes may be •peedily and efficiently settled. It further
'll:rovides fur certificates of origin and certificates of -wcighment and. measurement
H
to be issued u.nder the Commercial Documents Evidence Act, 1939 under Entry
18 Part I P-nd Entry 6 Part II of the Schedule to the said Act respectively.
Theo:;e certificates can only be issued by certain bodies such as· re<;ogniscd
chambers of commerce. The certificates are
necessary for facilitating trade.
5-L1127SCI/75
832
SUPREME COURT REPORTS
[1976] 1 s.c.R.
The carrying 011 of the activities of granting ,;:ertificatcs of origin and/or weighme.nt and me.isurement and arbitration are not activities for profit but are in
the nature of sen'ices and/or facilities provided to the commercial community.
As fees are charged the result at the end of the year i~ sometimes a loss and
sometimes a surplus. The dominant purpos'C for these service is
not profit
making but rendering a statutory service for trade and commerce generally.
The services :annot be gra·tuitous as the Chamber cannot be exrected to be a
<.:haritable
in~titv,tion like a Dharamsala. The fees charged arc related to the
services renered by way of quid pro quo.
Quid pro quo does not mean an
equivalent mathen1atically. If incidental to the advancement of the objects of
general public utility some services are rendered for fees as a r~sult of whkh
income results if does not means that the objects of the Chamber involves carrying
on any a;;tivity "f0r profit" in the ~ense of that being the dominant object. The
dominant or real purpose is not to earn profit or income but to serve trade
and help the commercial comnu1nity.
As such the above1nentioned activities
carried on by the Chamber will not be activities ''for profit" involving in the
dominant object of the Chamber. In order to be activities "for profit"
the
involvement of profit making shouJd be by the objects and must be of such a
degree or to sureh an extent as to lead to the inference that profit ma·king is
the real object.
Since the real or don1inant objects of the Chamber are not
for profit and profit is not an essential ingredient but a mere hye-product of the
activities of the Chan1ber. the income must be held to be exempt under S. 11 ( 1)
read with S. 2 {15) of the Act.
See [1976} I S.C.R. 471-The Sole Trustee Loka Shikshana
Trust v.
Commissioner of Income-tax, !i1ysore.
3. The purpose and/or <lon1inant object must be distinguished from the
powers which are incidental to the carrying out of the objects cf the Trust.
See 27 ITR 279-Commissioner of lnco111e.fax v. Breach Candy Swi1nn1ing
Bath Trust.
[1918] Appeal Cases 514-Cotman v. Brougham [1970} I Ch. 199.
4. Under S. 2(15) of the Act the words "carrying on of any a:tivity for
profit'' must mean an activity whose dominant object is profit making and not
an activity which m~y incidentally result in some profit as a bye-product. If
this meaning is not given then there will be .no activity of any institution,
doing work of general public l.fility which will be exempt including activities
like those of All India Spinners Association.
5. If the primacy and dominant purpose is .;;:haritable then even if there are
·some incidental powers which are not charitable it will not prevent the trust
from being a valid charity, The intention will have to be gleaned from the
-Constitution of the Trust or the ¥emorandum of Association.
See 7 ITR 415-ln Re: Trustees of the Tribune.
12 ITR 482-All lndia Spinners Association v. Comniissioner of Inconzetax
55 lTR 722-Commissioner of lilcome.tax v.
Andhra
Cha1nber
of
l'ommerce
100 ITR 392-Andhra Pradesh Stote Transport Corporation v. Con1mis-,
stoner of Income-tax
6. Under Section 11 of the Income-tax Act, 1961 it is the income derived
from property held, under trust wholly for obaritable purposes which is not to
be included in the· total income. The word property is of wide import and
.can il;iclude. a busines!I! or an undertaking or fees and restaurant charges etc.
12 lTR 482-Alt India Spinners Assoclatio11 v. Commissioner of l11cometa.r
A
B
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A
IND!'~ (HA:\IBERS OF COMMERCE v. C.l.T. (Kdshna Iyer, J.,833
27 JTR
27~Conunissioner of Income .. fa.'<, Bo1nbay
City v.
Breoch
('andy S1ri1nrni11g Bath Trust
32_ ITR 535-J K, Trust, Bdn-1bay v. Conunissioner of Income-tax, Excess
Profit Tax,, Ro111bay
53 ITR 176-Conunissioner of Inc(nne-tax, Kera/a
&
Coi1nbatore v.
P. Kri'slina IVarriar
B
7. In any C\'~nt, the activities of <trbitration and grunting certificate& of origin
and wcighrnent and/or measurement are not activities "for profit".
80 ITR 645-Conunissioner of Jnconzd-tax, Kera.la v. Indian Chamber
~
of Conunerce
c
D
E
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87 ITR 83--Conunissioner of !11Con1e-tax
v.
Kochin
Cha111br:r
of
Commerce
ll975J 40 Taxa1ion (Ill) 15-Coniniissivnrr of lncon1e-tc•x. Kerolc. v
Ernakulanz Cha1nber of Commerce.
As such the Chamber is entitled to exemption under section 11 read with
2(15) of the Income-tax Act.
For the .Respdndent.-
1. The Appellant/Chamber of commerce was deriving in::omc by performin~
three .kinds of services namely, providing arbitration facilities, for
standard
weights and measurements to traders in general. "This was in furtherance of
its objects clause 2(a); 2(b); 2(c); 2(d); 2(z); 3(h); 3(i); 3(p); 2(q); 3(v)
The performance of such services. for remuneration clearly was an activity fo1
profit and the 5aid activity was ,closely linked with, or involved with the advancen1ent of the aforesaid objects of the Chamber. Such close-linking and involvement, by itself, rendered the object non-charitable within the meaning of 's. 2 ( 15)
of the Income~tax Act, 1961.
2. If ·the Chan1ber of Commerce performed the ~ame kind of services for iN
members for remuneration the income so derived \Vas certainly liable to tax
under s. 28(iii) of the Income-tax Act, 1961. The position became worse if
the income was so derived by rendering such services to non~member traders
in general.
3. It was assumed by the Tribl1Ilal and by the High Court, for which there
wa·s no warrant, that the income from the said three sources was income derived
from property held under trust and the case proC'eeded on such assumption
although the High Court doubted the validity of such an assumption
as
is
clear from the text of their judgment at pp. 76-77 of the Paper Book. The
High Court. therefore, proceeded to consider only \vhether the production of
the income from the aforesaid three source":J was involved \Vith the advance'-
ment of any object of general public utili(f. The Tribunal had held that such
income was derived by carrying out the ancillary object of the Trust and not
the main object, although it found as a fact that the income \\'as derived fron1
carrying on an activity for profit. The High Court did not. recognise such u
distinction and it was urged that the High Court \Vas right.
4. No valid reason could be .found for making a distinction between an\
"individual" or any '"association of persons" on the one hand, and tl1e appellant
on the other hand in respect of producing taxable income by carrying on
identical activities for profit.
It was beyond any doubt that if an Individual
or an "association of persons" had 1carried on similar activities for profit thev
would not be entitled to any exemption from tax.
The appelJant, tbefefore.
could not be placed at a better level, especially when the words of Statute
themselves had debari'ed it from getting the exemption: Prior to the introduc·
tion of the qualifying clause in •. 2(15) of the Current Act sucli bodies or
834
SUPREME COURT REPORTS
[1976] 1 s.c.R.
organisations were undoubtedly enjoying exemption by virtue of the repealed
Indian Income·tax Act, of 1922. The Legislature clearly intended to rerno\'e
this unreasonable distinction by adding the qualifying cla-use as it is found in
s. 2(15) of the Income-tax Act, 1961. The effect of such amendment of the
definition was that the in'Stitutions otherwise regarded as charitable tn1sts have
·now been placed at par with any private organisa-tion or individual who wovld
render the same kind of services to the public for profit.
5. Unless the n1en1orandum or articles governing a Trust or any Institution
prohibited the making of profit by carrying on any activity or the earning of the
profits was not ruled out and in fact profit resulted, the Court would assume
that the activity was carried on for profit.
In support of this the Revenue's
counsel relied upon the judgment of the Supreme Court recently delivered in
the caso· of Sole Trustee Loke Shiksha11a Trust [1976) 1 S.C.R. 471. Thero
was no such prohibition in the regulations governing the activitie'.i of the Indian
Chamber of Commerce and therefore, its case fell squarely within the principles
laid by the Supreme Court in the case of Loke Shiksliana Trust.
6. In order that an activity might be called a business-activity or any other
activity for profit, it was not necessary to show that it was an organised act_ivity
or that it was indulged in with a n1otive of' making profit; it was well estabh9hed
that it was not the motive of a person doing an act which decided whether
the a.::t done by him was carrying on an activity for profl~. If any activity.
business or otherwise, in fact, produced an income, that v,.:a·3 taxable income
and was none-the-less so becau3C it was carried on without the motive of producing an income.
Reference was invited in this connection to the observations
of the Suprcme
1 Court in the case of P. Krishna Merion v.
Co1nn1issioner df
Income-tax. Mysore (35 l.T.R.-p. 48).
7. Even in the case of classical charities, such ·as promotiou of educa.tion
and giving of medical relief, no exemption is available if these two activities of
charitable nature are carried on for purposes of profit.
A fdrtiori, the exemp--
tion will be denied in the case of advancement of an object of general public
utility, howsoever charitable it n1ay otherwise be regarded in character, if the
A
B
c
D
advancement involved the carrying on an activity for profit.
The intention of
E
Legislature was fully vindicated in the language employed in s. 2(15) of the
Act.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2129 of 1970.
From the Judgment and Order dated the 29th May, 1970 of the
Calcutta High Court in Income Tax Reference No. 1 of 1967 and
Civil Appeals Nos. 2455-2457 of 1972
Appeals by Special Leave from the Judgment and Order dated the
25th February, 1972 of the Kerala High Court in Income Tax Reference Nos. 9, 10 and 11 of 1970.
F
A. K. Sen, Mrs. Leila Seth, 0. P. Khaitan and B. P. Mahesliwari
G
for the appellant in C.A. No. 2129 of 1970.
G. C. Sharma, B. B, Ahuja and S. P. Nayar for the respondents in
C.A. 2129 of 1970.
J. Ramamurthy and D. N. Gupta for intervener No. I iu C.A. No.
2129 of 1970.
'
A. K. Sen and D. N. Gupta for Intervener No. 2 in C.A. No. 2129
or 1970.
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INDIAN CHAMBERS OF COMMERCE v. C.I.T. (Krishna Iyer, J.) 835
J. Ramamurthi and D. N. Gupta for Intervener No. 3 in C.A. No.
2129 of 1970.
G. C. Shanna, fl. B. Ahuja and S. P. Nayar for the appellants in
C.As. Nos. 2455-2457 /72.
A. K. Sen and D. N. G,upta for respondent in C.As. 4\os. 245557 /72.
The Judgment of the Court was delivered by
KRISHNA.IYER, J. These four appeals raise but one question, turning on the meaning of 'charitable purpose', as defined ins. 2(15) of
the Income Tax Act, 1961 (Act No. XLIII of 1961) (for short, the
Act). They may be disposed of by one common judgment, although
the two High Courts (Calcutta and Kerala) from where the appeals
have come have taken contrary views on the single point in issue.
What are the.words set for earning exemption by a combined appli"
cation of s. 11(1) read withs. 2(15) of the Act? What is the parameter of the legal concept of charitable purpose ? Are the triune
activities, which have yielded income and have been assessed to tax,
eligible for exemption as falling within the scope of s. 2(15) as it
now stands ? These points of law, in the conspectus of facts presented
in the case, have been argued in the light of conflicting decisions of the
High Courts and illumined in part hy a very recent pronouncement of
this Court in Loka Shikshana Trust v. C,l.T., Mysore.( 1)
The assessees are the Indan Chambers of Commerce
and
the
Cochin Chambers of Commerce.
Their memoranda and articles of
association are substantially similar and so the facts in the first case
alone need be stated and the question of law discussed with reference
to that case only. Hardly any distinction on facts or law which desiderate a separate consideration exists.
The Indian Chamber of Commerce is a company registered under .
s. 26 of the Indian Companies Act, 1913.
Its memorandum and
articles of association spell out the broad objects and there is no doubt
that they fall within the sweep of the expression 'the advancement of
any ... object of general public utility' as set down ins. 2(15) of the
Act.
Briefly put, they are primarily promotional and protective of
Indian trade interests and other allied service operations.
A general
concluding clause authorizes it 'to do all other things as may be conducive to the development of trade, commerce and industries or incidental to attainment of the above objects or any of them'. It is clear
from clauses 4 and 8 of the Memorandum of Association that the
Jl:iembers of the Chamber do not and cannot stand to gain personally
smce no portion of 'income and property of the association' shall be
paid . . . directly ·or indirectly, by way of dividend or bonus or other-.
wise howsoever by way of profit to the persons who at any time are
. . . Members of the Association ... '. Even on the dissolution of the
.~ss~iation the Members cannot claim any share in the assets. These
highlight the fundamental fact t.hat the Chamber, by and large, strives
to advance the general trade mterests of India and Indians without
(I) 119761-ts-:C.R. 411
I
836
SUPREME C9URT REPORTS
(1976] l s.c.R.
seeking to make profits for its Members.
In the light of this Court's
decision in C.l.1'. v. Andhra Chamber of Commerce(")
one
may
readily state that the Chambers advance objects of general public utility
and, prima facie mow into the exclusionary area of charitable puv•
pose. However, the bone of contention in this case is as to whether
the three seurces of income, viz., (a) arbitration fees levied by the
Chamber; (b) fees· collected for the certificates of origin; and (c) share
of profit in M./ s. Calcutta Licensed Measures for issue of certificates
of weighment and measurement fall within the exclusion. It may be
mentioned that all these three services were extended to Members and
non-Members or, rather, to the trade generally. Had the law bearing
on 'charitable purpose' been what it was prior to 1961, the Chamber
would have won, hands down may be. But then there is a significant
change in the definition of 'charitable purpose' by the addition of nine
new words which cut back on the amplitude of the expression in the
prior Act. The straight question to be answered here is whether in
;plain English the three activities which have yielded profits to the
Chamber involve 'the carrying on of any activity for profit', uncomplicated by casuistic niceties, semantic nuances and case-Jaw conflicts.
Unfortunately, legislative simplicity has not been accomplished
by the draftsman in the amended definition and, consequently, interpretative complexity persists.
The Judges of the Andhra Pradesh
High Court in A. P. State Road Tran~port Corporation v. C.l.T.(")
observed, while considering the import of s. 2(15) of the 1961 Act:
"It is one of the fundamental principles in legislation and
the drafting of statutes that the provisions contained therein
should be clear and cogent and, more so, with regard to the
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fucal statutes which impose a burden on the public. But,
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in this case, what we find is that the amendment, instead of
being clear and cogent, is complicated and courts have taken
different views in interpreting the same."
We dare say that achieving greater simplicity and clarity in statute law
will be taken up by the draftsmen of the legislative bills to avoid playing linguistic games in Court and promotion of interpretative litigation.
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Lawyers and legislators must stop confusing each other and
start
talking to their real audience-th~ people-so that communication
problems may not lead to prolific forensic battles.
We must confess to
having been hard put to it to get at the controlling distinction between
activities which fall on one side or the other of 'charitable purpose'.
The assessee the Indian Chamber of Commerce,_ was
assessed for
the accounting year 1963-64 on the income which arose from the three
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heads of arbitration fees, fees for certificates of origin and the share
of profits in the firm M/s. Calcutta Licensed Measurers which issued
weighment and measurement certificates charging a fee therefor. The
'.return for the assessment year showed a profit of Rs. 1,58,690/-
madc up of a small amount from arbitration fees, and a similar sum
from fees for issue of certificates of origin but a substantial sum by
way of share of income from the fees charged for weighment and
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measurement.
Although the Income-tax Officer repelled the claim of
(I) [1965] 55 l.T. R. 722.
(2) [1975] 100 l.T.R. 392, 397.
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INDIA.'! CHAMBERS OF COMMERCE v. C.I.T. (Krishna Iyer, J.) 837
'charitable purpose' on the view that these activities were for profit the
Appellate Tribunal took a contrary view reversing the concurrent findings of the Income-tax Officer and the Appellate Assistant Commi&·
sioner. The conclusion of the Tribunal was that s. 2( 15) applied but
the High Court on a reference under s. 256(1) of the Act, answered
the question in favour of the Revenue.
We have indicated earlier that the various High Courts have taken
contrary views.
Kerala has consistently held on facts
substantially
identical that s. 2(15) is attracted. Andhra Pradesh has concurred,
while Calcutta and Mysore have ranged themselves on the opposite
side.
A recent dedsion of this Court earlier mentioned has given
some telling guidelines although the precise facet pressed before us
may not be said to have been wholly covered by it.
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The scheme of the Act may be briefly indicated to the extent it is
relevant, before entering on the discussion.
'Income' is taxable, but
certain incomes shall not be included in the total incomes of the previous years of the person in receipt of the income. Section 11 excludes
from the computation income derived from property held under trust
wholly for charitable purpose.
The Chamber of Commerce is a trade
association which renders specific services to its members and therefore s. 28 will ordinarily apply to its income, unless s. 11 read with
s. 2(15) excludes it from taxability.
The income drawn from nonmembers by the Chamber will clearly be taxable unless s. 2(15) comes
to its rescue. Thus the pivotal issue is as to whether the three channels
of income may be treated as charitable purposes and therefore eschewed by s. 11 from the charging provision.
At this stage we may read s. 2(15) :
"2( 15) In this
Act,
unless the context
otherwise
requires,!_
'charitable purpose' includes relief of the poor, education
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medical relief, and the advancement of any other object of
general public utility not involving the carrying on of any
activity for profit.'
The obvious change as between the old and the new definitions is the
exclusionary provision introduced in the last few words. The history
which compelled this definitional modification was the abuse to which
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the charitable disposition of the statute to charitable purposes was subr
jected by exploiting businessmen. You create a charity, earn exemption from the taxing provision and run big industries virtually enjoying
the profits with a seeming veneer of charity a situation which exsuscitated Parliament and constrained it to engraft a clause deprivatory of
the. exemption if the institution fulfilling charitable _purposes undertook
activities for profit and thus sought to hoodwink the
statute. The
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Finance Minister's speech in the House explicates the reason fot the
restrictive condition. He stated in the House;(')
(1) Lok Sabha Dabates, Vol. LV!. 1961, p. 3073 (Aug. 18, 196))
838
SUPREME COURT REPORTS
[1976] 1 s.c.R.
·'·1 he definition of 'charitable purpose' in that clause is
at present so widely worded that it can be taken advantage
of even by commercial concerns which, while ostensibly
serving a public purpose, get fully paid for
the
benefits
provided by them, namely, the newspaper industry which
while running its concern on conu;nercial Jines can claim that
by 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."
Beg J., in Lok Shikshana Trust (supra) has adverted to this statement
as throwing light on the new provision. The evil sought to be abolished is thus clear.
The interpretation of the provision must naturally
fall in line with the advancement of the object. Of course, there are
borderline cases where it becomes difficult to decide at first
sight
whether the undertaking which yields profit is a deceptive device or a
bonafide adventure which results in nominal surplus although substantially intended only to advance the charitable object.
Chambers of Co=erce dot this country and, by and large, they
have the same complex of objects. They exist to promote the trading
interests of the commercial community and, after the Andhra Chaniber
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of Commerce Case (supra) have been regarded as pursuing charitable
purposes.
This expression, defined in s. 2(15), is a term of art and
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embraces objects of general public utility. Ilut, under cover of charitable purposes, a crop of camouflaged organisations sprung up.
The
mask was charitable, but the heart was hunger for tax free profit. When
Parliament found this dubious growth of charitable chameleons, the
definition in s. 2( 15) was altered to suppress the mischief by qualifying the broad object of 'general public utility' with the additive 'not
involving the carrying on of any activity for profit'. The core of the
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dispute before us is whether this intentional addition of a 'cut back'
clause expels the Chamber from the tax exemption zone in respect of
the triune profit-fetching sub-enterprises undertaken by way of service
or facility for the trading community.
The rival constructions put forward by counsel at the bar may now
be noticed.
Shri A. K. Sen's argument for the Chamber is that the
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controlling distinction between what is 'charitable purpose' and what is
not lies in discovering the dominant intent as distinguished from the
subsidiary consequence, the principal object,, not the incidental inflow,
the profit motive of the operation as against
the service-oriented
activity which may or may not en passa1it yield an income. His stress,
a la the Kerala cases, is on whether the activity is wrapped up, entangled and intertwined with the public utility object. If it is, the
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resultant surplus is not an exigible income.
Such, certainly, are the
passwords and touch-stones
used
in
several Kerala decisions.
If this be the parameter, he argues, the three activities are saved because
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IND!AN CHAMUERS OF COMMERCE v. C.l.T. (Krishna Iyer, J.)839
they render service, promote trade and facilitate the wheels of business
to move.
They do not form activities for making profit; they are in
fulfilment of the objects of the Chamber.
Shri Sharma for the Revenue reads into the amended definition a
total exclusion from the charmed circle of charitable purposes
all
activities which are prone to produce profits.
The telling test, acc?rding
to this view, is to see that the means, like the ends, are charitable,
untainted by gainful stimulus and purged of the potential for profit in
reality. By this canon the Chamber's desire to serve businessmen by
offering arbitral or certificate facilities in return for a price is prima facie
an 'activity for profit' unless the circumstances, express or necessanly
implicit eloquently proclaim a 'no profit' foundation for the undertaking. ' The linkage is not between object of public utility anff the
challenged activity, but between the methodology adopted
. for the
advancement of such objects and proneness for profit flowmg from
such method or activity. If this standpoint be sound, the three ser,-
vices which have yielded profits, although wrapped in, entangled or
inter-twined with the object of promoting trade interests, are still liable
to tax, there being no visible limitation on the revenues that may arise
from them and these precise activities could be carried on by private
individuals for profit.
The legal break-through lies along a realistic line of reasoning, taking
care to avoid the extreme position of Shri Sharma which will render
the last limb of s. 2(15) illusory or ineffectual and as serviceable for
tax exemption of charities as the appendix to the hnman physiology. In
our view the key to the problem is furnished not merely by a careful
look at the history of the evil and the Parliamentary debate-at least
the Finance Minister's speech on the new change-but the language of
s. 2(15) itself read in the light of the guidelines in Lok Shikshana
Trust.(supra).
Ta~ing a close-up of s. 2(15) with special emphasis on the last
concluding words, we have to interpret . 'charitable purpose' in such
manner that we do not burke any word, treat any expression as redundant or miss the accent of the amendatory phrase. So viewed, an institution which carries out charitable purposes out 0£ income 'derived from
property held under trnst wholly for charitable purposes' may still forfeit the claim to exemption in respect of such takings or incomes as
may come to it from pursuing any activity for profit. Notwithstanding
the possibility of obscurity and of dual meanings when the emphasis is
shifted from 'advancement' to 'object' used in s.- 2(15), wc are clear
in our minds that by the new definition the benefit of exclusion from
total income is taken away where in accomplishing a charitable purpose
the institution engages itself in activities for profit.
The Calcutta decisions are right in linking activities for profit with advancement of the
obj~t. If you want immunity from taxation, your means of fulfilling
chantable purposes must be unsullied by profit-making ventures. The
advancement of the object of general public utility must not involve
the carryinJ! ?n of any_ activity for profit. If it does, you forfeit. The
Kerala dec1s10ns. fall mto the fallacy of emphasizing the linkage
betweeen the obiects of public utility and the activity
carried
on.
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SUPREME COURT REPORTS
(1976] 1 S.C.R.
According to that view, whatever the activity, if it is intertwined with,
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wrapped in or entangled with the object of charitaJ:le l'.UrJJl?SC cv~n
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if profit results therefrom, the immunity from taxation JS still. available.
This will result in absurd conclusions.
Let us take this very
case of a Chamber of Commerce which strives to promote the general
interests of the trading community. If it runs certain special types
of services for the benefit of manufacturers and charges remuneration
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from them, it is undoubtedly an activity which, if carried on by private
agencies, would be taxable.
Why should the Chamber be granted
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exemption for making income by methods which in the hands of other
people would have been exigible to tax ? This would end up in the
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conclusion that a Chamber of Commerce may run a printing press,
advertisement business,, market exploration activity or even export promotion busineS> and levy huge sums from its customers whetl1er they
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are members of the organisation or not and still claim a blanket exemp-
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tion from tax on the score that the objects of general public utility
which it has set for itself
implied these activities even though profits
or surpluses may arise therefrom. · Therefore, the emphasis is not on
the object of 11ublic utility and the can-ying on of related activity for
....
profit; On the other hand, if in the advancement of these objects
the Chamber resorts to carrying on of activities for profit, then necesD
sarily s. 2(15) cannot confer cover. The advancement of charitable
objects must not involve profit making activites. That is the mandate
of the new amendment.
The opposite position in its extreme form is equally untenable.
While Shri Sharma is right that merely because service is rendered to
traders escapement from tax liability does not follow.
Every type of
service-oriented activity, where some charge is levied from the benefiE
ciary and at the end of the year some surplus is left behind, does not
...
lose the benefit of s. 2(15). For, then,, one cannot conceive of any
object of general public utility which can be advanced by lhe Chamber
of Commerce. For every such activity some fee will have to be levied
ii the Chamber is not to turn bankrupt and merely because a fee is
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l.evied one cannot castigate the activity as one for profit. Therefore it
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is a false dilemma to talk of activity .for profit as
against
activity
rendered free.
The true demarcating line lies in between.
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In our vie\v, the ingredients essential to earn frec<lo1n from tax arc
discernible from the definition, if insightfully read against the brooding
presence of the evil to be suppressed and the beneficial object to
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be served.
The policy of the statute is to give tax relief for charitable
purpose, but what falls outside the pale of charitable purpose ? The
institution must confine itself to the carrying on of activities which
are not for profit.
It is not enough if the object be one of general public
utility.
The attainment of that object shall not involve activities for
profit.
What then is an activity for profit ?
An undertaking by a
business organisation is ordinarily assumed to be for profit unless expressly or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly negatived. We will illusH
. trate to illumine. If there is a restrictive provision in the bye-laws of
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INDIAN CHAMBERS OF COMMERCE v. C.I.T. (Krishna Iyer, l.) 841
the charitable organisation which insists that the charges levied: f~r
services of public utility rendered are to be on a 'no profit' basis, 1t
clearly earns the benefit of s. 2(15). For instance, a funeral home,
an S.P.C.A. or a cooperative 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 s~rvices,--:-1:11ay b~ it
may not be an exact equivalent, such mathematcrnl prec1s10n bemg
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 pr~
fit.
As an antithesis, take a funeral home or an animal welfare orgamsation or a super bazar run for general public utility by an institution
which charges large sums and makes huge profits.
Indubitably they
render services of general public utility.
Their objects are charitable
but their activities are for profit.
Take the case of a blood bank which
collects blood on payment and supplies blood for a higher price thereby
making profit.
Undoubtedly the blood bank may be said to be a
general public utility but if it advances its public utility by sale of
blood as an activity for (making) profit. it is difficult to call its purposes
charitable. It is just blood business !
In the United States, for instance, there arc many funeral homes
which make considerable profits.
There are super bazars and animal
welfare institutions in many countries which may be run on a profit
motive. Inevitably these activites are caught in the meshes of the tax
law.
Readymade nostrums like 'dominant intent',, 'incidental profits',
'real object' as against 'ostensible purpose', 'entangled',, 'wrapped .in,'.
'inter-twined' and the like fail as criteria in critical cases, although they
have been liberally used in judicial vocabulary. In this branch of law
verbal labels are convenient but not infallible ..