Skip to content


Addl. Commissioner of Income-tax, Delhi-i Vs. Delhi Brick Kiln Owners Association - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 48 of 1974
Judge
Reported in[1981]130ITR55(Delhi)
Acts Income Tax Act, 1961 - Sections 2(15), 11(1) and 256(1)
AppellantAddl. Commissioner of Income-tax, Delhi-i
RespondentDelhi Brick Kiln Owners Association
Excerpt:
.....relating to the exemption of income from a trust, in the i. act, 1961. section 2(15) reads :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. ' 13. it is well settled that the words 'not involving the carrying on of any activity for profit' pertain only to the fourth limb of charitable purpose, i. andhra chamber of commerce [1965]55itr722(sc) ,observed that the court had held that the dominant or primary object of the andhra chamber of commerce, which was to promote and protect trade, commerce and industry and to aid, stimulate and promote the development of trade, commerce and industry and to watch over and protect the general..........entitled to exemption from tax under s. 11(1)(a) of the i. t. act, 1961, as it was formed for a charitable purpose, it objects being the advancement of general public utility. the ito, however, disallowed the claim. he observed that as the association was confined to brick kiln owners, it could not be said to have been formed for the benefit of the general public. it was, thereforee, not entitled to exemption. 8. on appeal, the aac, relying on cls. 3, 4 and 8 of the memorandum of association and on the decision of the supreme court in cit v. andhra chamber of commerce : [1965]55itr722(sc) and the decision of the kerala high court in cit v. indian chamber of commerce [1971] 80 itr 645, held that the assessed was entitled to exemption. the aac came to the conclusion that the assessed.....
Judgment:

Mrs. Leila Seth, J.

1. For the assessment year 1965-66, at the instance of the Additional Commissioner of Income-tax, New Delhi, a question of law has been referred for our opinion under s. 256(1) of the I. T. Act, 1961. The question is :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income of the assessed is exempt under section 11(1)(a) of the Income-tax Act, 1961 ?'

2. For the subsequent assessment years 1967-68 to 1973-74, a similar question has been posed, though worded slightly differently. It reads :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income of the assessed is exempt under section 11(1)(a) of the Income-tax Act, 1961 ?'

3. We propose to deal with the matter by a common order.

4. The respondent-assessed is M/s. Delhi Brick Kiln owners Association, Jhandewalan, New Delhi. The respondent obtained a license from the Central Govt. for its registration under s. 26 of the Indian Companies Act, 1913. The objects of the company are contained in clause 3 of the memorandum of association and are similar to those of the chambers of commerce in India. The main objects are stated to be :

(a) To promote, develop and protect the brick kiln trade, commerce and industries.

(b) To watch and protect the interest of brick kiln owners, contractors, customers and brick dealers, members of the association and the interest of persons engaged in brick trade, commerce or industries legally, morally and socially.

(c) To consider all questions connected with brick trade, commerce and industries and to initiate or support necessary action in connection therewith.

(d) To protect the trade, with the co-operation of the Government through legislative representation to get the grievances and difficulties of Brick Kiln Association redressed.

5. The other objects set out in clause 3 seem to be incidental to the paramount objects and are in the nature of powers to carry out the primary purpose.

6. The respondent-assessed derived its income from admission fee, membership subscription and rent realized by it from building belonging to it. In the assessment year 1965-66, the assessed had purchased coal of Rs. 33,983,58, which it sold at the very same price to its members. This was, however, only in this assessment year and did not recur.

7. The respondent asserted that is income was entitled to exemption from tax under s. 11(1)(a) of the I. T. Act, 1961, as it was formed for a charitable purpose, it objects being the advancement of general public utility. The ITO, however, disallowed the claim. He observed that as the association was confined to brick kiln owners, it could not be said to have been formed for the benefit of the general public. It was, thereforee, not entitled to exemption.

8. On appeal, the AAC, relying on cls. 3, 4 and 8 of the memorandum of association and on the decision of the Supreme Court in CIT v. Andhra Chamber of Commerce : [1965]55ITR722(SC) and the decision of the Kerala High Court in CIT v. Indian Chamber of Commerce [1971] 80 ITR 645, held that the assessed was entitled to exemption. The AAC came to the conclusion that the assessed fulfillled the conditions as required under s. 11(1)(a) of the Act.

9. The department went up in appeal to the Income-tax Appellate Tribunal. It contended, on the basis of the decision of the Mysore High Court in CIT v. Sole Trustee, Loka Shikshana Trust : [1970]77ITR61(KAR) and the decision of the Calcutta High Court in CIT v. Indian Chamber of Commerce : [1971]81ITR147(Cal) , that the conclusions of the AAC were erroneous. The respondent-assessed, however, relied on the decision of the Kerala High Court in CIT v. Cochin Chamber of Commerce and Industry : [1973]87ITR83(Ker) . It also contended that the decision of the Supreme Court in Andhra Chamber of Commerce : [1965]55ITR722(SC) , despite the fact that it pertained to the provisions of the Indian I. T. Act, 1922, was still good law, as there was no change in the substantive provisions relating to the exemption of income from a trust, in the I. T. Act, 1961.

10. The Tribunal dismissed the appeal of the department. It did not consider the matter relating to dominant intention but construed the words 'not involving the carrying on of any activity for profit' which had been added by the 1961 Act of the definition of 'charitable purpose'. It held that an activity for profit would imply that there should be a profit motive in the activities of the assessed. In other words, the activities should be commercial in nature. Further, the motive to make profit should be in the integrated activity of the buying and disposal.

11. On considering the profit and loss accounts of the assessed, it held that the assessed had not engaged itself in any activity for profit for the years 1967-68 to 1973-74 as its income only consisted of admission fee, membership subscription and rent. With regard to the year 1965-66, it considered the object clauses and examined whether the purposes and sale of coal was the business of the assessed. It held that the fact that the assessed had purchased the coal and sold it at the same price to its member was an indication that there were no rational activities or reasonable connection with the nature of business. There was no intention to earn profit. Further, the object clauses did not suggest that the assessed wanted to engage itself in activities involving profit or business. The objects indicated that the assessed only wanted to do such things as would be conducive to the development of the brick kiln trade. The Tribunal, having regard to the circumstances, held that the assessed was not engaged in the carrying on of any activity for profit in the commercial sense and was entitled to be exempted from taxation.

12. The question referred for our opinion is dependent on the construction and interpretation of 'charitable purpose' as defined in s. 2(15) of the I. T. Act, 1961. Section 2(15) reads :

''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.'

13. It is well settled that the words 'not involving the carrying on of any activity for profit' pertain only to the fourth limb of charitable purpose, i.e., the advancement of any other object of general public utility.

14. However, there has been a conflict of opinion with regard to the meaning of these words. This conflict appears to have been set at rest in view of a recent decision of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturing Association : [1980]121ITR1(SC) . The assessed therein was a company incorporated under the Indian Companies Act, 1913, and registered under s. 25 of the Companies Act, 1956; its objects were, inter alia, to promote commerce and trade, in art silk, raw silk, cotton yarn, art silk cloth, silk cloth and cotton and to carry on all and any business of art silk, etc., belonging to and on behalf of its members. The court held, inter alia, that where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust or institution be upheld as a valid charity. But if the primary or dominant purpose of a trust or institution is charitable, another object, which by itself may not be charitable, but is merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or institution from being or valid charity.

15. The fact that the members of the assessed benefited was merely incidental to the carrying out of the main or primary purpose and if the primary purpose was charitable, the subsidiary objects would not militate against its charitable character not would it make the purpose any the less charitable.

16. The Supreme Court referring to its earlier decision in CIT v. Andhra Chamber of Commerce : [1965]55ITR722(SC) , observed that the court had held that the dominant or primary object of the Andhra Chamber of Commerce, which was to promote and protect trade, commerce and industry and to aid, stimulate and promote the development of trade, commerce and industry and to watch over and protect the general commercial interests of India or any part thereof was clearly an object of general public utility. This was despite the fact that one of the objects included in the memorandum was the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture, which by itself, might be considered non-charitable. However, as it was merely incidental to the dominant or primary object, it did not prevent the Andhra Chamber of Commerce from being a valid charity. thereforee, if the primary purpose was the advancement of an object of general public utility, it would remain charitable, even if an incidental entry into the political domain for achieving that purpose, such as promotion of or opposition to legislation concerning that purpose, was contemplated. Applying that very test, the Supreme Court held that the Surat Art Silk Cloth Manufacturers Association was also a valid charity.

17. The true meaning of the ten words 'not involving the carrying on of any activity for profit' was held to be, 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 definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not. The decision of the Supreme Court in Indian Chamber of Commerce v. CIT : [1975]101ITR796(SC) was overruled. It was observed that the decisions of the Kerala High Court in CIT v. Cochin Chamber of Commerce and Industry : [1973]87ITR83(Ker) and the Andhra Pradesh High Court in Andhra Pradesh State Road Transport Corporation v. CIT : [1975]100ITR392(AP) laid down the correct interpretation.

18. Applying these principles, it is clear that the dominant intention of the assessed was to promote the brick kiln trade. This purpose did not involve the carrying on of any activity for profit, though its advancement might have. It is thus a valid charity. For the relevant years, however, it appears that even the advancement of the purpose did not involve the carrying on of any activity for profit. The assessed is clearly entitled to the exemption under s. 11(1)(a) of the Act.

19. For the reasons outline above, we answer the question in the affirmative and in favor of the assessed, but make no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //