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Ganga Prasad Varma Memorial Society Vs. Commissioner of Income-tax, Lucknow. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 228 of 1979
Reported in(1982)24CTR(All)110; [1982]134ITR421(All)
AppellantGanga Prasad Varma Memorial Society
RespondentCommissioner of Income-tax, Lucknow.
Excerpt:
.....the objects of raising the moral, intellectual, economic, social and political conditions of the people in general could, at best, be treated as objects of general public utility, but since the advancement of these objects was associated with activities for profit, namely, by the society indulging in money-lending business and letting out its immovable properties on hire, these objects as such fall outside the ambit of 'charitable purposes' as defined under s. this view was upheld by the aac as well as by the tribunal. it will thus appear that the phrase 'raising of political conditions of the people in general' was and object of advancement of the general condition of the people so as to make them better citizens morally, intellectually and socially. (2) and all other clauses clearly..........of the act because for purposes of achieving the objects the society has been characterised as a society carrying on an activity for profit. this view was upheld by the aac as well as by the tribunal. in addition, the tribunal held that one of the objects of the trust, inter alia, is 'raising the political conditions of the people in general'. under cl. (m) of r. 11, the trustees have an unfettered power to provide for establishing, maintaining and running institutions, libraries, reading rooms and for all other activities, which may be taken up by the society for achieving all or any of its objects. in terms of this clause, the management of the society could, if it is so decided, utilize all its income for achieving the object, namely, raising the political conditions of the people......
Judgment:

SATISH CHANDRA C.J. - The Income-tax Appellate Tribunal has submitted this statement of the case and has referred the following question of law for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-trust was not eligible for exemption under section 11 of the Income-tax Act, 1961 ?'

M/s. Ganga Prasad Varma Memorial Society, Lucknow, is the assessee. It is a society registered under the Societies Registration Act No. XXI of 1960. The society has been functioning since 1925. Clause 2 of its constitution lays down the objects as follows:

The Ganga Prasad Varma Memorial Society, which presently provided a memorial hall for public, a reading room and a public library, shall have as its objects the dissemination of knowledge to the people and the raising of the moral, intellectual, economic, social and political conditions of the people in general and with a view to the fulfilment of the above objects and to do the following amongst other things -

(a) to enlarge, remodel or recondition the existing hall, reading room and library and add to the existing number of rooms.

(b) to disseminate knowledge amongst the people by opening libraries and publication of suitable literature including periodicals.

(c) to promote education in all spheres including general, technical, social, economic and political education by opening school.

(d) to hold public meetings and study circles, seminars, exhibitions, social and cultural meets.

(e) to acquire by purchase or by lease, hire or transfer or take on licence or otherwise any lands, buildings, or other property, movable or immovable, or rights over connected with them.

(f) to lease or let out on hire, mortgage, sell, pledge or give on licence or otherwise any lands, buildings, or other property, movable or immovable.

(g) to erect building or buildings, workshops or other structures on the land acquired by the Society in any manner.

(h) to accept gifts, donations, etc., of any nature whatsoever on the condition, if necessary, of naming buildings, halls, etc., after the donors.

(i) to draw, make, accept, endorse, discount, execute and issue cheques, promissory notes, bills of exchange or other negotiable or transferable instruments.

(j) to take over, manage or combine with any institution if that will further the objects aforesaid.

(k) to lend or borrow money on such terms and conditions as it thinks fit.

(l) to grant scholarships or other help to deserving students and trainees.

(m) to acquire, finance or run technical and industrial institutions with a view to impart training in technical and vocational trades.

(n) to do all other things as are incidental to or may be conducive to the attainment of the above objects.'

Clause 10 of the constitution confers power of management of the affairs and activities of the Society in a board of management. Clause 11 of the constitution lays down the powers of the board as follows:

'11. Without prejudice to the general powers conferred under rule 10, the board of management may exercise the following powers:

(a) to take over, establish, maintain and run institutions, libraries, reading rooms, museums, art galleries, etc.;

(b) to acquire lands, buildings and other movable and immovable properties by purchase or otherwise;

(c) to construct buildings or other structures for the purposes of or connected with the Society;

(d) to accept gifts, grants and subsidies, donations, etc., and to raise money for the purposes of the Society;

(e) to name buildings, halls, libraries, etc., after the names of donors;

(f) to lend or borrow money and to sell, lease or mortgage the property of the Society on such terms and conditions as it may think to be in the best interest the Society;

(g) to grant scholarships and to give other financial help to poor and deserving persons especially students;

(h) to employ such staff as it considers necessary, to fix the rates for the letting out of the memorial hall, shops, etc., and to make such rules and regulations as it may deem necessary;

(i) to enter into and to receive fulfilment of the contracts and other engagements entered into by or on behalf of the Society;

(j) to appoint, remove or suspend the servants of the Society and of the institutions or organizations maintained by it and to fix their salaries or remunerations;

(k) to institute, conduct, defend, compound or abandon any legal proceedings by or against the Society or the board of management through any of the members of the board of management or the honorary general secretary or any other person specially authorised on their behalf;

(l) to refer any claim by or against the Society to arbitration;

(m) to provide money for establishing, maintaining and running institutions, libraries, reading rooms, etc., and for all other activities, which may be taken up by the Society for achieving all or any of its objects;

(n) to invest and deal with the moneys of the Society, which is not immediately required, in such manner as it may think fit;

(o) to do all acts and things which may be necessary to further the aims and objects of the Society.'

The Society pleaded that its income was exempt under ss. 11 and 12 of the I.T. Act, 1961, for the assessment years 1962-63, 1971-72 and 1973-74, because the income derived by the Society was from property held under trust wholly for charitable purposes. The objects of the Society were within the definition of the term 'charitable purpose' as defined by cl. (15) of s. 2 of the Act. They were for the advancement of an object of general public utility not involving the carrying on of an activity for profit. The ITO repelled the claim. He held that the objects of raising the moral, intellectual, economic, social and political conditions of the people in general could, at best, be treated as objects of general public utility, but since the advancement of these objects was associated with activities for profit, namely, by the Society indulging in money-lending business and letting out its immovable properties on hire, these objects as such fall outside the ambit of 'charitable purposes' as defined under s. 2(15) of the Act, the Society was hence not entitled to any exemption under s. 11 of the Act because for purposes of achieving the objects the Society has been characterised as a society carrying on an activity for profit. This view was upheld by the AAC as well as by the Tribunal. In addition, the Tribunal held that one of the objects of the trust, inter alia, is 'raising the political conditions of the people in general'. Under cl. (m) of r. 11, the trustees have an unfettered power to provide for establishing, maintaining and running institutions, libraries, reading rooms and for all other activities, which may be taken up by the society for achieving all or any of its objects. In terms of this clause, the management of the society could, if it is so decided, utilize all its income for achieving the object, namely, raising the political conditions of the people. This was not a charitable object and since it was open to the trustees to spend the entire income of the trust on non-charitable objects, the trust was not entitled to exemption under s. 11 of the Act.

The first question that requires our consideration is what are the objects of the society. Clause 2 makes it clear that the object is the dis-semination of knowledge to the people and the raising of the moral, intellectual, economic, social and political conditions of the people in general. The various things mentioned in cls. (a) to (n) are the powers which the society can utilize in order to achieve the aforesaid objects. These clauses by themselves do not provide the main object of the society. These are the various activities or subjects through which the society expects to achieve the object.

The next question is whether the objects are objects of general public utility within the meaning of the definition of 'charitable purpose' given in s. 2(15) of the Act. The ITO held that the main objects are such (sic). The Appellate Tribunal, however, thought that the object of the raising of political conditions of the people in general was not such an object. The phrase 'political conditions' occurs in the phrase 'the raising of the moral, intellectual, economic, social and political conditions of the people in general'. This was sought to be achieved by dissemination of knowledge to the people. In the context, the term 'political conditions' do not imply the advancement of any political theory or ideology or thinking of any political party or political leader. The emphasis is on the raising of the tone of the people in general by raising their moral, intellectual, economic, social and political condition. The word 'political' is a word of board meaning. It includes the idea of pertaining to policy or the administration of Government or relating to the management of affairs of a State. In a generic sense, it means pertaining to the exercise of the rights and privileges or the influence by which individuals of a State seek to determine or control a public policy (vide Corpus Juris Secundum, Vol. 22, p. 222).

The term 'political condition' may refer to the legal or political status of the people. In 'Words and phrases' Permanent Edition, Vol. 32A, p. 522, it has been stated that the law of England and almost all civilized countries ascribe to each individual at his birth two distinct legal status or conditions, one by virtue of which he becomes the subject of some particular country, binding him by the tie of natural allegiance, and which may be called his political status, another by virtue of which he has ascribed to him the character of a citizen of some particular country, and, as such, is possessed of certain municipal rights, and subject to certain obligations, which latter character is the civil status or condition of the individual.

It will thus appear that the phrase 'raising of political conditions of the people in general' was and object of advancement of the general condition of the people so as to make them better citizens morally, intellectually and socially. In our view, the entire object including the one which refers to the political conditions of the people in general was an object of general public utility within meaning of cl. (15) of s. 2.

The next question which arises is whether the assessee fulfils the requirements of cl. (15) of s. 2. This clause refers to an object of general public utility not involving the carrying on of any activity for profit. All the revenue authorities below have held that by cl. 2(f), the society is permitted to lease or let out on hire any land, building or other property-movable or immovable, and by cl. (k) of r. 2 to lend or borrow money on such terms and conditions as it thinks fit. Thus, the society was empowerd to carry on activities for profit. Since such activities for profit were permissible in order to achieve the objects of the society, it was a case where the object of general public utility involved the carrying on of any activity for profit and hence was outside the purview of cl. (15). The reading of cl. (2) and all other clauses clearly shows that the society or its board of management was empowered to carry on activities which may yield income, but it was not empowered to carry on such activities which would themselves promote the objects of the society. The idea was to empower the society to earn income by carrying on, inter alia, activities of profit so that the income may be utilised in order to achieve the objects which were objects of general public utility.

In Yogiraj Charity Trust v. CIT : [1976]103ITR777(SC) , Chief Justice Ray pointed out thus (p. 782):

'A clear distinction must be drawn between the object of a trust and the powers conferred upon the trustees as incidental to the carrying out of the object. If the only object of a trust is the construction and maintenance of a swimming bath which is a purpose of general public utility, the fact that the trustees are given the power to supply or sell refreshments to persons who resort to the bath would not make the trust any the less charitable.'

The matter has been put beyond doubt by a recent decision of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association : [1980]121ITR1(SC) . In that case, it was held that the true meaning of the last ten words in s. 2(15) , viz., 'not involving the carrying on of any activity for profit' is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the the definition would be met and it is immaterial how the moneys for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not.

It was ruled that the inhibition of the exclusionary clause would be attracted if the purpose of the trust or institution in fact involves the carrying on of an activity for profit, or, in another words, if an activity for profit is actually carried on as an integral part of the purpose or as a matter of advancement of the purpose. There must be an activity for profit and it must be involved in carrying out the purpose of the trust or institution or, to put it differently, it must be carried on in order to advance the purpose or in the course of carrying out the purpose of the trust or institution. The test which has to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The test is the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity.

The assessee-society receives income by way of rent from its buildings which have been let out, by way of interest from its fixed deposits, etc. These incomes are spent on carrying out its objects, namely, the maintenance of the library and the reading rooms where newspapers and periodicals are provided and printing and purchase of books, etc. It is thus obvious that the society earns income from an activity for profit but the income is utilised exclusively for promotion of its objects. The assessee hence falls within purview of cl. (15) of s. 2 , namely, it exists for the 'advancement of any other object of general public utility not involving the carrying on of any activity for profit.' In this view, the objects are charitable purposes within the meaning of s. 2(15) and hence the income is entitled to exemption under ss. 11 and 12 of the Act.

We, therefore, answer the question referred to us in the negative, in favour of the assessee and against the department. The assessee will be entitled to costs which are assessed at Rs. 200.


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