# DHARMAPOSHANAM CO. KERALA v. COMMISSIONER OF INCOME TAX, KERALA

- **Citation:** [1978] 3 S.C.R. 1030
- **Court:** Supreme Court of India
- **Decided:** 1978-07-24
- **Case number:** Civil Appeal Nos. 6-12 of 1975
- **Bench:** Y. V. Chandrachud, D. A. Desai, R. S. Pathak
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/dharmaposhanam-co-kerala-v-commissioner-of-income-tax-kerala-7451
- **Pages:** 8

## Headnote

lnco1ne Tax Act, 1961, Sections 2(15) and ll(l)(a)-Clause 3(b) of 1he
},femorandum of Association shows that one of the obiects of the co1119any lvas
I ~
"To do the needful for the promotion of charity education, industries etc. and
•
public good", which is reiterated by Art. 58-The said object clause and Art.
58 later on amended dropping the word "industries" and adding "1nedfcal relief"
1
-Whether the Kuries business its for charitable purposes and whether the income
1~
arising out of conducting business of kuries or Chit funds liable to exe1nption J
under Section ll(l)(a) of the Inconie Tax Act, 1961.
'J-.
The objects of the appellant company were "(a) to raise funds by conducting
kuries ............ and (b)
to do the needful for the promotion of charity,
\
education, industries, etc. and public good". Art. 58 of the Articles of Association provided that "the profit left after meeting the expenses of the company will
)Je utilised for promoting educa·tion, industry, social welfare and such other purposes of common good as are resolved by the general meeting."
On June 7,
1965 the appellant made certain alterations in its Memorandum of Association
and its Articles of Association, by which the words "medical relief and other
n1atters of public good" were substituted for the word "industries, etc. and
public good".
The appellant earned income from conducting kuries and money
lending.
He claimed exemption from tax under section 11 of the Income~tax
Act, 1961 for the assessment years 1962-63 to 1968~69. The claim was rejected
by the Income Tax Appellate Tribunal and the Kerala High Court also decided
the question against the appellant.
The appellant appealed.
Dismissing the appeals, the Court
HELD: I. It is not only clear from Sections 11(4) and 13(1) (bb) of
the Income Tax Act, 1961 but also well settled that business is 'property' within
the meaning of Section 11 (I )(a) of the Act.
[I033F]
Comn1issioner of lncome Tax v. Krishna Worrier, 53, I.T.R. 176 (SC);
referred to.
F
2. Section 2(15) of the Income Tax Act, 1961 defines the expression .. charit·
G
H
able purpose" as iP.:cluding relief r.f the poor, education and medical relief and
the advancement of any other object of general public utility noi involving-the ~
carrying of any activity for profit. The residual general head in the definition
of S. 2(15) viz. "the advancement of any other object
of
general
public
,_ ,
utility."
is qualified by the restrictive words "not involving the carrying on
.........
any activity for profit". [1034 C, DJ
3. Ordinarily profit is a normal incident of business activity and if the activity
of a trust consists of carrying on of a business and there are no restrictions on
its making profits, the Court would be well justified in assuming in the absence
of some indication to the contrary that the object of the trust involves the carry·
ing on of an activity for profit. [1034 H, 1035 A]
Sole Trustee, Loka Sikshana Trust v. Commissioner of Income Tax, 101,
J.T.R. 234(SC) and Commissioner of Income Tax, Kerala v. Cochin Chamber
of Commerce and lndustry, IOI I.T.R. 796; followed.
4. Whether a trust is for charitable purposes fa11s to be determined
by
reference to all the objects for which the trust has been brought into existerice.
If the settlor reserves to himself the power of appointment under which he might
appoint to non-ch&ritable purposes, the trust cannot claim exemption even though
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DHARMAPOSHANAM v. C.J.T. KER·\LA
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the power of appointment is in fact exe-rcised in favour of ~ charitabl~ obje~t.
lt would be a different c<isc where one er n1orc of the objects 111ent1oned tn
the Mcmorandutn of Association, although included therein \'!ere never intended
to be undertaken.
If there is evidence pointing to that conclusion clearly the
Courj \Vill ignore the object and proceed to consider the case as if it did not
exist in the 1'vie1norandum. In C.l.T .. Kera/a v. Dharn1odaya1n Co., 109 l.T.R.
527 (SC) it \vas that basis on which

## Text

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1030
DHARMAPOSHANAM CO. KERALA
v.
COMMISSIONER OF INCOME TAX, KERALA
July 24, 1978
•
[Y. V. CHANDRACHUD, C.J., D. A. DESAI AND R. S. PATHAK, JJ.]
lnco1ne Tax Act, 1961, Sections 2(15) and ll(l)(a)-Clause 3(b) of 1he
},femorandum of Association shows that one of the obiects of the co1119any lvas
I ~
"To do the needful for the promotion of charity education, industries etc. and
•
public good", which is reiterated by Art. 58-The said object clause and Art.
58 later on amended dropping the word "industries" and adding "1nedfcal relief"
1
-Whether the Kuries business its for charitable purposes and whether the income
1~
arising out of conducting business of kuries or Chit funds liable to exe1nption J
under Section ll(l)(a) of the Inconie Tax Act, 1961.
'J-.
The objects of the appellant company were "(a) to raise funds by conducting
kuries ............ and (b)
to do the needful for the promotion of charity,
\
education, industries, etc. and public good". Art. 58 of the Articles of Association provided that "the profit left after meeting the expenses of the company will
)Je utilised for promoting educa·tion, industry, social welfare and such other purposes of common good as are resolved by the general meeting."
On June 7,
1965 the appellant made certain alterations in its Memorandum of Association
and its Articles of Association, by which the words "medical relief and other
n1atters of public good" were substituted for the word "industries, etc. and
public good".
The appellant earned income from conducting kuries and money
lending.
He claimed exemption from tax under section 11 of the Income~tax
Act, 1961 for the assessment years 1962-63 to 1968~69. The claim was rejected
by the Income Tax Appellate Tribunal and the Kerala High Court also decided
the question against the appellant.
The appellant appealed.
Dismissing the appeals, the Court
HELD: I. It is not only clear from Sections 11(4) and 13(1) (bb) of
the Income Tax Act, 1961 but also well settled that business is 'property' within
the meaning of Section 11 (I )(a) of the Act.
[I033F]
Comn1issioner of lncome Tax v. Krishna Worrier, 53, I.T.R. 176 (SC);
referred to.
F
2. Section 2(15) of the Income Tax Act, 1961 defines the expression .. charit·
G
H
able purpose" as iP.:cluding relief r.f the poor, education and medical relief and
the advancement of any other object of general public utility noi involving-the ~
carrying of any activity for profit. The residual general head in the definition
of S. 2(15) viz. "the advancement of any other object
of
general
public
,_ ,
utility."
is qualified by the restrictive words "not involving the carrying on
.........
any activity for profit". [1034 C, DJ
3. Ordinarily profit is a normal incident of business activity and if the activity
of a trust consists of carrying on of a business and there are no restrictions on
its making profits, the Court would be well justified in assuming in the absence
of some indication to the contrary that the object of the trust involves the carry·
ing on of an activity for profit. [1034 H, 1035 A]
Sole Trustee, Loka Sikshana Trust v. Commissioner of Income Tax, 101,
J.T.R. 234(SC) and Commissioner of Income Tax, Kerala v. Cochin Chamber
of Commerce and lndustry, IOI I.T.R. 796; followed.
4. Whether a trust is for charitable purposes fa11s to be determined
by
reference to all the objects for which the trust has been brought into existerice.
If the settlor reserves to himself the power of appointment under which he might
appoint to non-ch&ritable purposes, the trust cannot claim exemption even though
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DHARMAPOSHANAM v. C.J.T. KER·\LA
l 0 3 l
the power of appointment is in fact exe-rcised in favour of ~ charitabl~ obje~t.
lt would be a different c<isc where one er n1orc of the objects 111ent1oned tn
the Mcmorandutn of Association, although included therein \'!ere never intended
to be undertaken.
If there is evidence pointing to that conclusion clearly the
Courj \Vill ignore the object and proceed to consider the case as if it did not
exist in the 1'vie1norandum. In C.l.T .. Kera/a v. Dharn1odaya1n Co., 109 l.T.R.
527 (SC) it \vas that basis on which this Couit proceeded when it observe~
that the asscssee had never engaged itself in any industry or in any other act1·
vity of public interest.
[1036 F,G, 1037 A-BJ
A
B
Tennent Plays Ltd., v. Conunissioner of Inland Revenue 30, Tax Cases 107,
fncorporated Council of Law Reporting for England and JtVales v. Attorney·
General and Con1111issioners vf Inland Re1·e11ue, 47 Tax Cases 321 and Rex v.
-.
The Special Cvn1111issioners of !11co111e Tax, 8 Tax Cases 286; followed.
{
/
Con1missiont'r of /ncon1e Tax, Kerala v. Dharmodayan1 Co. 109, I.1'.R.
527 (SC) and Dharmadayam Co. v. C.l.T. 45, l.T.R. 478 (Kerala); explained
and distinguished.
5. In the instant case
(a) The objects "industries" and "con1mon good" cannot be described as
"Charitable purposes'' within the meaning of S. 2(15) of the Act. Among the
objects contained in the original unamended sub-clause (b) of clause (3) of the
c
Memorandun1 are objects which, while referable to the residual general head
D
in the definition of "charitable purpose" in section 2(15) of the Act, nonetheless
do not satisfy the condition that they should not involve "the carrying on of any
activity for profit".
Sub clause (b) of clause 3 contains some objects v.·hich are
charitable and others which are non.charitable.
They are all objects \Vhich
appear to enjoy an equal status. It is open to the appellant in its discretion,
to apply the income derived from conducting kurles and fron1 money lending
to any of the ob.iccts.
No definite nart of the business or of its income is
related to charitable purposes only.
Consequently the position in regard to the
assessment years 1962·63 to 1965·66 is that the entire clai1n to exemption fails
E
and no part of the income is exempt from tax. [1035 E·G]
(b) In the amended Memorandum of Association and Articles of Association
no doubt the word "industries" has been dropped and tl1e words "medical relief"
have been added.
And as regards "common good", Article 58 now likens it to
"charity, education and medical relief". Nonetheless, it is clear from the amended sub-clause (b) of clause (3) of the Memorandum that it forn1s a distinct
object from. them.
The \\'01-ds are "other matters of public good".
Conse·
quently, the object still falls under the residual general bead
mentioried in
section 2(15). The same considerations apply, and the same conclusion fo11ows,
as under the original provisions of the Memorandum and Articles of Association.
[1036 A-CJ
Mohd. Ibrahim Riza v. Commr. of lnrome Tax, (1930) L.R. 57 J.1\. 260
and East India Industries (Mad.) P. Ltd. v. Com1nissioner
of [11.come
7ax,
Madras, 65 T.T.R. 611, applied.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos.
6-12
of
1975.
From the Judgment and Order dated 12-6-197 4 of the
Kerala
High Conrt in Income Tax Reference Nos. 51-56 and 79 of 1972.
S. T. Desai and N. Sudhakaran for the Appellant.
V. S. Desai and Miss A. Subhashini for the Respondent.
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1032
SUPREME COURT REPORTS
i 19'/8] 3 S.l'.R.
The Judgment of the Court was delivered by
PATHAK, J.
These appeal<; have been preferred by the assessee
against the judgment of the High Court of Kerala in references disposed of by it under section 25 6 of the Act.
The appellant is the Dharmaposhanam Company Irinjalakuda. It
is an association constituted under a licence issued in January, 1931 by
the then Government of Cochin and registered with limited
liability
under section 26 (1) of the Indian Companies Act 1913 as applied to
Cochin.
The appellant was governed by a Memorandum of Association, Clause (3) of which provided :-
"3. The objects of the company are :
(a) To raise funds by conducting kuries with company as
foreman, receiving donations and
subscription, by
lending money on interest and by such other means
as the company deem fit.
(b) To do the needful for the promotion of charity, education, industries etc. and public good.
(c) For carrying on the business of the company and for
the advancement of the purpose mentioned above
in so far as is appropriate, to construct buildings or
to purchase or take on lease or for hire movable or
immovable properties.
( d) To encourage others to form other institution with
the purpose of acting in accordance with the objects
of the company.
(e) To do all such things as are conducive to t!1e fulfilment of the above objects.
( [) To lend money on interest to one or more solvent
persons individually or severally on the security of
ornaments, landed properties or other forms of
security fixed by the Directors and to borrow money
to meet the need of the company and to run other
industries.''
Article 58 of the Articles of Association read:-
"The profit of the company shall not be divided among
the members.
The profit left after meeting the expenses of
the company will be utilised for promoting education, industry, social welfare and such other purposes of common good
as are resolved by the general meeting."
During the assessment years 1962-63 to 1965-66, the
~ppellant
derived income from property, money lending and business in kuries
or chit funds.
The assessee claimed exemption from
tax of the
income from kuries and money lending under section
11
of the
Income-Tax Act, 1961 with varying success before the Income-tax
authorities. It is sufficient to point out that the Income-Tax Appellate
Tribunal held that the assessee was not entitled to exemption. At the
instance of the appellant, the Tribunal made a reference to the High
Conrt for its opinion on the following question of law :-
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DHARMAPOSHANAM v. C.l.T. KERALA (Pathak, ].)
"Whether on the facts in the circumstances of the case,
the income of the assessee for the assessment years 1962··63
to 1965-66 was exempt under the provisions of section 11
of the Income-Tax Act 7
A
On June 7, 1965, the appellant made certain alterations in
ils
Memorandum of Association and its Articles of Associat101i.
Subclauses (b) and (f) of clause 3 of the Memorandum now 1ead :
B
"(b) To do the needful for the promotion of charity, cdu··
cation, medical relief and other matters of
public
good.
(f) To lend money in the security of ornaments, landed
property or on such other securities, as determined
by the Directors, or on the personal securities of one
C
or more solvent person or persons and also to borrow
funds for the purposes of the company."
The amended Article 58 of the Articles of· Association now provided:-
"The profit of the company shall not be divided among
the members. The profit left after meeting the expenses of
D
the company will be utilised for purposes of common good
like charity, educatiqn and medical relief as are resolved by
the general meeting."
The appellant pressed its claim for exemption under section 11 of
the Act before the Income-Tax authorities for the assessment yea!'
1966-67 to 1968-69 also, and the claim was allowed by the Tnbunal
in view of the aforesaid alterations.
At the instance of the lncomeTax Department, the Tribunal referred a question of law to the High
Court for the three assessment years in tern1s identical with the question referred for the earlier assessment years.
By its judgment dated
June 12, 1974, the High Court answered the question referred for the
several assessment years in the negative and in favour of the Income·
Tax Department.
On a consideration of the rival contentions of the parties, the position appears to be this.
The appelant can succeed in his
claim to
exemption under section 11 (I)( a) of the Act if the income from the
business of conducting kuries and of money lending can be said to be
income derived from property held under trust wholly for charitable
purposes. It is well settled that business is "property" within the
meaning of section 11(1) (e). C.l.T. v. Krishna Warrier(I).
That
is also evident from the provisions of section 11 ( 4), and
reierencc
may be made also to section 13(1) (bb). Further, it is apparent from
the terms of the Memorandum of Association and the Articles
of
Association that the business of conducting kuries
and
of
money
lending is held under trust.
The question is : Is the business
belu
nnder trust for charitable purposes ?
There can be little doubt that when sub-clause (a) of clause 3 of
the Memorandum says :
(1) 53 I.T.R. 176 (SC).
15-,..399 SCI/78
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1034
SUPREME COURT REPORTS
(1978] 3 S.C.R.
"To raise funds by conducting kuries, with company as
foreman, receiving donations and subscriptions by lending
money on interest and by such other means as the company
deem fit".
it refers to powers conferred on the appellant to raise money in aid of,
and for the purpose of accomplishing, the objects mentioned in subclause (b) of clanse 3 of the Memorandum. Upto June 6, 1965
sub-clause (b) read :
"To do the needful for the promotion of charity, education, industries, etc. and public good".
Can all the purposes, mentioned in snb•clanse (b)
be described as .__
charitable purposes?
Section 2(15) of the Act defines the expres-
-_;
sion "charitable purpose" as including "relief of the poor, education,
medical relief and the advancement of any
other object of general
.·
public utility not involving the carrying on of any activity for profit."
\
Two objects in sub-clause (b) of clanse (3) of the Memorandum need
to be considered,
"industries" and "public good". As regards the
latter, the decision on what should be the "purposes of common good"
was left to the general meeting by Article 5 8 of the Articles of Association.
Having regard to the context in which these words appear
in the Memorandum and the Articles, they mnst evidently be referred
to the residue general head in the definition in section 2(15) of the
Act, that is to say, "the advancement of any other object of general
public utility. . ....... "
But this head is qualified by the restrictive words "not involving the carrying on of any activity for profit."
The operation of an industry ordinarily envisages a profit making
activity, and so far as the advancement of public good is concerned, it
is open to the appellant to pursue a profit making activity in the course
of carrying out that purpose, which of course depends on the nature
and purpose of the "public good". Nowhere do we find in the material before us any limiting provision that if the appellant carries
on
any activity in the course of actually carrying out those purposes of
the trust it should refrain from adopting and pursuing a profit making
activity.
In Sole Trustee, Loka Shikshana Trust v. Commissioner of
Income-Tax, Mysore( 1), Khanna and Gupta, JJ., dealing with a case
in which the assessee carried on a business in the course of the actual
carryin~ out of a primary purpose of the trust, rejected the claim to
exemption and declared :-
"The fact that the appellant trust is engaged
in
the
business of printing and publication
of newspaper
and
journals and the further fact that the aforesaid activity yields
or is one likely to yield profit and there are no restrictions on
the appellant-trust earning profits in the course of its business would go to show that the purpose of the appellant-trust
does not satisfy the requirement that it should be one 'not
involving the carrying on of any activity for profit.'_ .....
Ordinarily profit is a normal incident of business activity
------- --
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\1) IOI I.T.R. 234.
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DHARMAPOSHANAM v. C.I.T. KERALA (Pathak, J.)
1035
and if the activity of a trust consists of carrying on of a
business and there are no restrictions on its making profit,
the Court would be well justified in assuming in the ab-
·sence of some indication to the contrary that the object
of the trust involves the carrying on of an activity for
profit."
Beg, J., in the same case, observed :-·
"The deed pnts no condition upon the conduct of the
newspaper and publishing business from which we could
infer that it was to be on "no profit and no loss" basis ....
Tbat character (i.e. of the deed) is determined far more
certainly and convincingly by the absence of terms which
co4ld eliminate or prevent profit making from becoming the
real or dominant purpose of the trust. It is what the provisions of the trust make possible or permit coupled with what
had been actually done without any illegality in the way ot
profit making, in the case before us, under the cover of the
provisions of the deed, which enable us to decipher the
predominantly profit making character of the trust."
In a subsequent case,
Commissioner of Income-Tax,
Kerala v.
Cochin Chamber of Commerce and Industry('), this Court extended
the test to income derived from activities carried on in aid of, and
incidental to, the primary object of the trust. We may note that no
attempt has been made by the appellant before us to cast doubt on
the validity of the observations made in those two cases, and we proceed on the footing that they convey the true content of the Jaw.
It is, therefore, apparent that among the objects contained in tbe
original unamended sub-clause (b) of clause (3) of the Memorandum
are objects which, while referable to the residual general head in the
definition of "charitable purpose" in section 2(15) of the Act, nonetheless do not satisfy the condition that they should not involve "the
carrying on of any activity for profit." The result is that the objects
"industries" and "common good" cannot be described as "charitable
purposes". What follows then is this, that the said sub-clause
(b)
can be said to contain some objects which are charitable and others
which are non-charitable. They are all objects which
appear
to
enjoy an equal status. It is open to the appellant, in its discretion, to
apply the income derived from conducting kuries
and from money
lending, to any of the objects. No definite part of the business or of its
income is related to charitable purposes only.
Consequently, in view
of Mohammed Ibrahim Raza v. Commissioner of Income-Tax(') and
East India Industries (Madras) Private Limited v. Commissioner of
Income-Tax, Madras( 3), the entire claim to exemption must fail and
it cannot be said that any part of the income under consideration is
exempt from tax.
That is the position in regard to the assessment
years 1962-63 to 1965-66 before us.
(I) IOI l.T.R. 796.
(2) (1930) L.R. 57 I.A. 260
(3) 65 l.T.R. 611.
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1036
SUPREME COURT REPORTS
[J 978) 3 S.C.R.
It has been seriously urged for the appellant that in regard to the
assessment year 1966-67 to 1968-69, the position has been radically
altered by reason of the amendments made in the Memorandum and
the Articles of Association.
The word "industries" has been dropped
and the words "medical relief" have been added.
And as regards
"common good", Article 58 now likens it to "charity, education and
medical relief".
Nonetheless, it is clear from the amended sub-clause
(b) of clause (3) of the Memorandum that it forms a distinct object
from them.
The words are "other matters of public good".
Consequently, the object still falls under the residual general head mentioned
""
in section 2(15). The same considerations apply, and the same conclusion follows, as under the original provisions of the Memorandum
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and Articles of Association.
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Great reliance has been placed on behalf of the appellant on Commissioner of Income-Tax, Kerala v. Dharmodayam Co.(') and it has
been seriously urged that the decision of this Court in that case concludes the point raised in these appeals.
We find it not possible to
(
accept this.
In that case, the income derived by the assessee from
kuries was held by this Court to be exempt under section 11 (I )(a)
of the Act, but the decision proceeded almost entirely on the assumption that the Kerala High Court had found in Dharmodayam Co. v.
C.l.T. (') in a case between the
same
parties
that the
Kuries
business was itself held under trust for charitable purpose, and from
that the Court inferred that the business activity was not undertaken by
the assessee in order to advance any object of general public utility.
No such finding has been rendered by any High Court in a case to
which the appellant is a party.
It will be noticed that the Court cautioned in its judgment in C.l.T., Kerala v. Dharmodayam Co. (Supra)
that the decision was strictly limited to the facts of that case.
It has been urged on behalf of the appellant that what should be
taken into consideration is the activity actually
conducted by the
assessee, and not what is open to it under th« provisions of its Memorandum of Association.
We do not agree.- Whether a trust is for
charitable purposes fall~ to be determined by reference to all the objects
for which the trust has been brought into existence. See Tennent Plays,
111(
Ltd" v. Commissioner of Inland Revenue(8 ) and Incorporated Council
""
of Law Reporting for England and Wales v. Attorney-General and
Commissioners of Inland Revenue('). In Rex v. The Special Com-
•
nissioners of Income-Tax('), it was pointed out by the Court of
Appeal in England that if the settlor reserves to himself the power of
appointment under which he might appoint to non-charitable purposes,
" t
the trust cannot claim exemption even though the power of appointment is in fact exercised in favour of a charitable object. It would
(!) 109 U.R" 527 (SC)
(2) 45 LT"R. 478 (Ker") .•
(3) 30 Tax Cases 107.
(4) 47 Tax Cases 321.
(5) 8 Tax Cases 286.
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DHARMAPOSHANAM V. C.I.T. KERALA (Pathak, J.)
1037
be a different C"dse where one or more of the objects mentioned in the
A
Memorandum of Association although included therein were never
intended to be undertaken. If there is evidence pointing to that conclusion clearly the Court will ignore the object and proceed to con'sider
the case as if it did not exist in the Memorandum. In C.l.T. Kera/ti
v. Dharmodayam Co. (Supra), it was that basis on which this Court
proceeded when it observed that the assessee had never engaged itself
in any industry or in any other activity of public interest.
B
On the aforesaid considerations, we endorse the final conclusion of
tl1e High Court and hold that it rightly answered the question referred
to it in the seyeral references in the negative, in favour of the respondent and against the appellant.
These appeals are dismissed with costs, limited to one set only.
S.R.
Appears dismissed.
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