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Bar Council of Maharashtra Vs. Commissioner of Income-tax, Bombay City-ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 142
Judge
Reported in(1979)12CTR(Bom)45; [1980]126ITR27(Bom)
ActsIncome Tax Act, 1961 - Sections 2(15), 10(23A) and 11
AppellantBar Council of Maharashtra
RespondentCommissioner of Income-tax, Bombay City-ii
Excerpt:
.....6 of 1961 act shows that state bar council is constituted with view to advance object of general public utility - not necessary that object should benefit whole mankind - it is sufficient if intention was to benefit section of public as distinguished from specified individuals - held, functions of assessee as intended under section 6 are of general public utility and entitled to exemption under section 11. - - , charitable purpose' includes 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. he relied upon several cases with a view to show that in this country even bodies like andhra chamber of commerce, hyderabad stock exchange and textile manufacturers'..........held that it was not established that the investment was held under trust for objects of general public utility only. according to him, the investment was for discharging all the functions of the bar council which were not all charitable objects. he held that the main object of the bar council is to benefit the profession. accordingly, he confirmed the assessment orders passed by the ito and dismissed the appeal. 3. in a further appeal before the tribunal, it accepted the contention of the assessee for exemption in respect of items of other income, as an order of approval as contemplated by s. 10(23a) was obtained pursuant to a notification dated august 5, 1966, issued by the central government for purposes of the said clause with effect from december 28,1961. in view of this.....
Judgment:

Kantawala, C.J.

1. The Bar Council of Maharashtra, the assessee, is a body corporate established under the Advocates Act, 1961 (Act 25 of 1961) (hereinafter referred to as 'the Act'). The Act came into force on December 28, 1961. The assessment years concerned are 1962-63, 1963-64 and 1964-65, for which the relevant accounting periods are the period from December 28, 1961, to March 31, 1962, for the first year and the years ending March 31, 1963, and March 31, 1964, for the second and third years. The assessee derived income from securities and had also other income by way of enrolment fees. The relevant figures for the years in question are as follows :

Assessment year Interest on securities Other incomeRs. Rs.1962-63 3,779 28,0351963-64 8,629 3,04,1031964-65 9,356 96,322

2. The ITO subjected to income-tax the income under both the heads for all the three years. In an appeal preferred by the assessee before the AAC, exemption was claimed in respect of other income under the provisions of s. 10(23A) of the I.T. Act, 1961, while exemption was claimed in respect of interest on securities under the provisions of s. 11 of the I.T. Act, 1961. The AAC, howevsr, rejected both the contentions. As regards items of other income, he rejected the claim on the ground that the assessee was not an association approved under s. 10(23A) by the Central Government by general or special order and, therefore, was not entitled to the benefit of s. 10(23A). So far as the claim for exemption of interest on securities was concerned, he held that it was not established that the investment was held under trust for objects of general public utility only. According to him, the investment was for discharging all the functions of the Bar Council which were not all charitable objects. He held that the main object of the Bar Council is to benefit the profession. Accordingly, he confirmed the assessment orders passed by the ITO and dismissed the appeal.

3. In a further appeal before the Tribunal, it accepted the contention of the assessee for exemption in respect of items of other income, as an order of approval as contemplated by s. 10(23A) was obtained pursuant to a notification dated August 5, 1966, issued by the Central Government for purposes of the said clause with effect from December 28,1961. In view of this notification, the Tribunal held that the assessee was entitled to exemption in respect of its items of other income. So far as the items of interest on securities were concerned, it was urged on behalf of the assessee that they were eligible for exemption under s. 11 of the I.T. Act because the Council was established for a charitable purpose. The Tribunal rejected the said contention holding that safeguarding the interest of the advocates on the roll of the Council could not be said to be an object of general public utility and that what was really to be seen under s. 11 of the I.T. Act was whether the securities were held for charitable purposes. According to the Tribunal, the character of the body holding the securities is not by itself decisive of the claim under s. 11. Section 11 grants exemption if properties are held under trust for charitable purposes. The Tribunal found that there was no evidence or material on record on this aspect. It accordingly remitted the case to the AAC and directed him to examine the question as to the purposes for which the securities were held. It also indicated that if the said securities were held for educational purpose or for any other charitable purpose, then the exemption under s. 11 would be admissible to the extent available under the law. The AAC was directed to consider the claim of the assessee de novo in the light nf the observations in its order and in accordance with law.

4. From this order of the Tribunal, the following question has been referred to us for our determination at the instance of the assessee :

'Whether, on the facts and in the circumstances of the case, the assesses-Council could be taken to be a body intended to advance any object of general public utility ?'

5. Mr. Patil on behalf of the assessee submitted that the securities, interest income of which is sought to be taxed by the taxing authorities, were held only for charitable purposes, as the assessee itself is a body intended to advance the object of general public utility. He urged that the concept of charity as understood in England is more narrower than the definition of the expression 'charitable purpose' under the Act. Under s. (15) the expression 'charitable purpose' contains merely an inclusive definition, viz., 'charitable purpose' includes 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. He submitted that if regard be had to the relevant provisions of the Act, then it is quite clear that the assessee is a body corporate constituted under the Act simply with the object of general public utility and all income of such body including the income from securities which is being subjected to tax in the assessment years will be exempt from taxation. He relied upon several cases with a view to show that in this country even bodies like Andhra Chamber of Commerce, Hyderabad Stock Exchange and Textile Manufacturers' Association are regarded as having been constituted for charitable purpose and the income of such bodies has been treated as exempt from income-tax. In short, his submission was, bearing in mind the functions and duties of the assessee under the Act, it is wholly for charitable purpose and the entire income derived from its property was exempt from income-tax under s. 11 of the I.T. Act. Mr. Joshi, on the other hand, on behalf of the revenue submitted that the assessee is constituted under the Act with the primary object of regulating the profession of law and while considering the question whether any income of such body is subjected to income-tax, one is not concerned with the ultimate benefit which may result to the public by reason of the Act. According to his submission, the benefit to the public is either remote or indirect or incidental. The body is primarily constituted for the benefit of advocates and the primary purpose of the assessee is not charitable within the meaning of that expression as understood in law. He, therefore, submitted that the assessee can not be regarded as a body intended to advance any object of general public utility.

6. Under the relevant provisions of s. 11, as existing during the assessment years, income derived from property held under trust wholly for charitable or religious purposes was not to be included in the total income of the previous year of the person in receipt of the income. The expression 'charitable purpose' is defined in s. 2(15) of the I.T. Act. It is an inclusive definition. Under this section, 'charitable purpose' includes 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. Having regard to the provisions of the Act, we have to consider whether the assessee is constituted with a purpose of advancement of the object of general public utility. It is not controverted that it is not indulging in any activity for profit. As the preamble of the Act shows, it was enacted with a view to amend and consolidate the law relating to legal practitioners and to provide for the constitution of Bar Councils and an All India Bar. Under s. 3 of the Act, Bar Councils are constituted for various States. Maharashtra State is one such State for which the Bar Council is constituted thereunder. Section 5 of the Act provides that every Bar Council shall be a body corporate having perpetual succession and a common seal, with power to acquire and hold property, both movable and immovable, and to contract, and may by the name by which it is known sue and be sued. Section 6 of the Act enumerates the functions of the State Bar Council and its provisions are as under :

'6. (1) The functions of a State Bar Council shall be -

(a) to admit persons as advocates on its roll;

(b) to prepare and maintain such roll;

(c) to entertain and determine cases of misconduct against advocateson its roll;

(d) to safeguard the rights, privileges and interests of advocates onits roll;

(e) to promote and support law reform;

(f) to manage and invest the funds of the Bar Council;

(g) to provide for the election of its members;

(h) to perform all other functions conferred on it by or under thisAct;

(i) to do all other things necessary for discharging the aforesaid functions. (2) A State Bar Council may constitute a fund in the prescribed manner for the purpose of giving financial assistance to indigent or disabled advocates.'

7. Sections 9 and 10 of the Act provide for the constitution of the various committees for the purposes therein mentioned. Section 15 confers power upon the Bar Council to make rules to carry out the purposes of this chapter.

8. It is urged by Mr. Joshi on behalf of the revenue that the primary object with which the Bar Council of a State is constituted is to benefit the profession of law. He urged that promotion of law reform is one of the incidental objects and the benefit to the public is remote or indirect or incidental. Primarily, the body is constituted for the benefit of advocates s,nd, therefore, the Council cannot be regarded as a body intended to advance the object of general public utility. If regard be had to the preamble of the Act as will as the functions of the Bar Council as stated in s. 6, there can be no doubt that a State Bar Council is constituted with a view to advance an object of general public utility. As section 6 shows among the objects for which the State Bar Council is constituted is to enrol as advocates persons with particular qualifications who are fit or proper to be advocates on the roll of advocates. Its further object is to see that persons who are enrolled as advocates if they misbehave or misconduct themselves, they are taken to task. It is also one of the essential functions of the Bar Council to support measures for promotion of law reform. It has also to safeguard the rights, privileges and interests of advocates on its roll. It may also take measures for giving financial assistance to indigent or disabled advocates. If these functions, which are the primary functions of a State Bar Council, are objects of general public utility, then natural there would be no difficulty in taking the view that the State Bar Council is a body constituted only for a charitable purpose as understood under the I.T. Act, 1961. We are unable to accept the contention of Mr. Joshi that the ultimate benefit to the public is remote or indirect or incidental or that this body is constituted mainly for the benefit of the advocates. The primary object with which the body is constituted is to benefit the public at large by having on its roll advocates who are not only competent so far as the law is concerned but who are respsetable, fit and proper persons to belong to the noble profession of lawyers. Thus, bearing in mind the preamble of the Act as well as the functions of the State Bar Council, it is constituted primarily with the object of general public utility.

9. Our attention has been drawn to a number of cases on either side some of the courts in India and others of the English courts, wherein questions have arisen whether certain associations constituted for particular purposes can be regarded as bodies constituted wholly for charitable purposes or not. In CIT v. Andhra Chamber of Commerce : [1965]55ITR722(SC) , the Supreme Court had occasion to consider whether a body like chamber of commerce can be regarded as having been constituted for charitable purposes and the income of such body will be exempt from income-tax under s. 4(3)(i) of the Indian I.T. Act, 1922. The Andhra Chamber of Commerce was a company registered under s. 26 of the Indian Companies Act, 1913, and was permitted by the Government to omit the worked 'Limited' from its name. Its primary objects were to promote and protect trade, commerce and industries, to aid, stimulate and promote development of trade, commerce and industries, and to watch over and protect the general commercial interests of India or any part thereof. In any of the many incidental clauses of the memorandum was specified the object of promotion of or opposition to legislation and to procure change of the law and practice affecting trade, commerce and manufactures. Under clause 4 of its memorandum of association, it was provided that the income and property of the chamber of commerce shall be applied solely towards the promotion of its objects as set forth therein. The chamber of commerce purchased a building which it altered and improved, moved its offices into that building and let out portions not required for its use to tenants. The question was whether the building was properly held under a trust or other legal obligation, wholly for charitable purposes, and the income from the building was exempt from tax under s. 4(3)(i) of the Indian I.T. Act, 1922. The Supreme Court took the view that the advancement or promotion of trade, commerce and industry leading to economic prosperity enured for the benefit of the entire community. That prosperity would be shared also by those who engaged in trade, commerce and industry, but on that account the purpose was not rendered any the less an object of general public utility. It was also pointed out by the Supreme Court that the Legislature had used language of great amplitude in defining. 'charitable purpose', that the definition was inclusive and not exhaustive ' or exclusive. It also held that the expression 'object of general public utility' was not restricted to objects beneficial to the whole of mankind. An object beneficial to a section of the public was an object of general public utility. To serve as a charitable purpose, it was not necessary that the object should be to benefit the whole of mankind or even all persons living in a particular country or province. It was sufficient if the intention was to benefit a section of the public as distinguished from specified individuals. The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature; where there was no common quality uniting the potential beneficiaries into a class, it might not be regarded as valid. The Supreme Court also held that an object of general. public utility, such as promotion, protection, aiding and stimulation of trade, commerce and industries, need not, to be valid, specify the modus or the steps by which the object might be achieved or secured. If the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, was contemplated. It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the chambers might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures. Such object ought to be regarded as purely ancillary or subsidiary and not the primary, object. The Supreme Court took the view that the income of the chamber of commerce from its building was exempt from tax under s. 4(3)(i) of the Indian I.T. Act, 1922, as the building was held under a legal obligation wholly for charitable purposes. At page 727, the Supreme Court points out :

'The principal objects of the assessee are to promote and protect trade, commerce and industries and to aid, stimulate and promote the development of trade, commerce and industries in India or any part thereof. By the achievement of these objects, it is not intended to serve merely the interests of the members of the assessee. Advancement or promotion of trade, commerce and industry leading to economic prosperity enures for the benefit of the entire community. That prosperity would be shared also by those who engage in trade, commerce and industry but on that account the purpose is not rendered any the less an object of general public utility. It may be remembered that promotion and protection of trade, commerce and industry cannot be equated with promotion an protection of activities and interests merely of persons engaged in trade, commerce and industry.'

10. In the case of Hyderabad Stock Exchange Ltd. v. CIT : [1967]66ITR195(AP) , the Andhra Pradesh High Court took the view that even a body like a stock exchange was beneficial to a section of the public and had as its object general public utility. The Andhra Pradesh High Court pointed out that the aims and objects of the assessee, a stock exchange, were not only to further the interests of brokers and dealers but also to assist, regulate and control the trade in securities, to maintain high standards of commercial honour and integrity, to promote and inculcate honourable practices, discourage and suppress malpractices, to settle disputes and decide all questions of usage, custom or courtesy in the conduct of trade and business. The profits were not to be distributed between the members but were to be utilised for the promotion of the objects of the exchange. The question arose before the Andhra Pradesh High Court whether the income of such an exchange was exempt from income-tax. It took the view that an object beneficial to a section of the public is an object of general public utility if the section of the community sought to be benefited is sufficiently defined and identifiable by some common quality of a public or impersonal nature. According to the High Court, this test was satisfied by the stock exchange and, hence, its income was exempt from tax under s. 4(3)(i) of the Indian I.T. Act, 1922.

11. In the case of CIT v. Textile Manufacturers' Association , the Punjab and Haryana High Court took the view that the income of a body like the Textile Manufacturers' Association was exempt under s. 4(3)(i) of the Indian I.T. Act, 1922. It held that advancement of trade, commerce and industry leading to economic prosperity enures for the, benefit of the entire community. That prosperity would be shared also by those engaged in trade, commerce and industry but on that account the purpose is not rendered any the less an object of general public utility. The expression 'general public utility' is not restricted to objects beneficial to the whole of mankind. It is sufficient if the intention is to benefit a section of the public as distinguished from specified individuals.

12. Mr. Joshi on behalf of the revenue invited our attention to two decisions of the English courts. But before referring to the said decisions, we would like to point out the difference that exists between India and England on the question of concept of charity or charitable purpose. As pointed out by the Supreme Court in Andhra Chamber of Commerce's case : [1965]55ITR722(SC) , the Indian Legislature has evolved a definition of the expression 'charitable purpose' which departs in its material clause from the definition judicially supplied in Pemsel's case [1891] AC 531 (HL) and the decisions of English courts, which proceed upon the interpretation of the language different from the Indian statute, have little value. Same difference between English law and Indian law was emphasised by the Gujarat High Court in the case of CIT v. Ahmedabad Rana Caste Association : [1973]88ITR354(Guj) . The Gujarat High Court points out that there is a fundamental difference between English law and Indian law regarding charity. Under the English law, it is not sufficient if a purpose is beneficial to the community. It must also fall within the spirit and intendment of the preamble to the Statute of Elizabeth (43 Eliz. c. 4). In India 'charitable purpose' has been defined in s. 4(3)(i) of the Indian I.T. Act of 1922 and s. 2(15) of the I.T. Act of 1961. The concept of charitable purpose, according to Indian law, is much wider than that recognised in English law. The Indian Acts give a clear and succinct definition which must be construed according to its actual meaning. English decisions have no binding authority on its construction though they may afford help and guidance. The Gujarat High Court took the view that a purpose would be charitable if it is for the 'advancement of any other object of general public utility'. 'General' means pertaining to a whole class. 'Public' means the body of people at large including any class of the public and 'utility' means usefulness. Therefore, the advancement of any object beneficial to the public or a section of the public as distinguished from an individual or group of individuals would be a charitable purpose. Coming to the decisions cited by Mr. Joshi, reliance was placed by him on the decision of the House of Lords in General Nursing Council for England and Wales v. St. Marylebone Borough Council [1959] AC 540. The question that arose for consideration before the House of Lords was whether a Nursing Council regulated by the Nurses Act, 1957, was entitled to the benefit of the rating relief afforded by the appropriate provisions of the Rating and Valuation (Miscellaneous Provisions) Act, 1955. Under the appropriate provisions of the said Act rating relief was granted to organisation 'not conducted for profit and whose main objects are charitable or are otherwise concerned with the advancement of religion, education or social welfare'. By a majority of three to two, the House of Lords took the view that the organisation was not entitled to the benefit of the rating relief. That view was taken by the majority of the law Lords depending upon the question that they had to consider; but there are clear observations in the judgment of the law Lords which do go to show that under the English Law an organisation of nurses regulated by the Nurses Act, 1957, was a body which had the object of advancement of general public interest. Three of the law Lords (majority) took the view that the object of the organisation to regulate the profession of nursing in the manner and to the extent set out in the Nurses Act, 1957, was neither charitable nor otherwise concerned with the advancement of social welfare. Lord Cohen took the view that the organisation had two main objects, the enhancement of the quality and status of nurses and the protection of the public, particularly the sick; the former, which was a main object and not merely ancillary, was not charitable. But both objects were otherwise concerned with the advancement of social welfare. Lord Somervell of Harrow took the view that both the advancement of the care of the sick and the enhancement of the status of nurses as provided by the Act were the advancement of social welfare. One thing is, however, clear that the majority of the law Lords have clearly stated that the organisation was for the purpose of benefiting the public. Lord Morton of Henryton did not express any opinion on the question whether it was for the purpose of benefiting the public. He took the view that having regard to the meaning of the word 'charitable' as given in English decisions, the object of the organisation was not a charitable object. So far as the question of advancement of social welfare was concerned, he frankly stated that he was in great doubt and he found it difficult to choose between the two lines of argument that were advanced before the House. Ultimately, he agreed with the views which were about to be expressed on thc point by Lord Keith of Avonholm. Lord Tucker also agreed with the views which were to be expressed by Lord Keith of Avonholm. So far as Lord Cohen was Concerned, as we have stated earlier, according to him both the objects which were mentioned above were the main objects for which the organisation was formed and they were for advancement of social welfare. Lord Keith of Avonholm, with whom the two other law Lords agreed, clearly stated in his judgment that the Nurses Act, 1957, was an Act enacted for public benefit; but he felt that he was unable to accept public benefit as the test of social welfare, though social welfare may be a public benefit. Thus, in his opinion also, the Act was for public benefit. As stated earlier, Lord Somervell of Harrow also took the view that the Act was for the advancement of social welfare. Thus, it appears that so far as the purpose of benefiting the public is concerned, practically all the law Lords were agreed that that was the object of the legislation. In India, the expression 'charitable purpose' has been so defined as to include within its scope any object of general public utility. Thus, even on the basis of the views expressed by the learned law Lords in the above case, practically all the law Lords were of the view that the provisions of the Nurses Act were for advancement of the object of general public benefit. This decision, therefore, instead of assisting Mr. Joshi to contend that the object of the Advocates Act is not to advance general public utility, is against his submission. Even though the concepts of charity in India and England are quite different, it is quite clear from the various observations made by the law Lords that undoubtedly the provisions of the Nurses Act were treated as for the benefit of the general public.

13. Reference was made by Mr. Joshi to a decision of the King's Bench Division in the case of General Medical Council v. IRC [1927] 13 TC 819 (CA). The question that arose for consideration before the court was whether a General Medical Council established by the Medical Act, 1958, can be said to have been constituted for charitable purposes as understood in England. Rowlatt J., who gave the decision in the trial court, clearly expressed the view that it was fair to say that the main interest, the main object of the council, was to protect the public, and it was only through the fact that the public know they were protected against bad doctors that good doctors got any benefit. With this view of Rowlatt J. Lord Hanworth M.R. concurred in appeal. Sargant L.J. expressed a doubt about the correctness of this view, while Lawrence L.J., did not express any opinion thereon. Thus, this decision does not assist us in deciding the question before us more so when the definition of the expression 'charitable purpose' in India is entirely distinct from that understood in England having regard to its historical origin.

14. Reference was also made by Mr. Joshi to a decision of the Supreme Court in the case of CIT v. Indian Sugar Mills Association : [1974]97ITR486(SC) . This case, in our opinion, is of no assistance to Mr. Joshi because the object with which the respondent-association was formed permitted, inter alia, to declare dividends and distribute profits. We are not concerned with a case of this type and there is no similarity whatsoever between the facts of that case and the facts with which we are concerned.

15. In our opinion, the functions of the Bar Council as intended in s. 6 of the Advocates Act, 1961, are such that it is clearly a body constituted for general public utility and the entire income of such a body will be exempt from tax for the relevant assessment years with which we are concerned, in view of the provisions of s. 11 of the I.T. Act, 1961. Accordingly, our answer to the question referred to us is in the affirmative and in favour of the assessee. The revenue shall pay the costs of the assessee.


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