1. This is a reference under s. 256(1) of the I.T. Act, 1961. It relates to the assessment year 1963-64, the relevant previous year being the calendar year which ended on October 31, 1962.
2. The applicant-assessed, M/s. Truck Operators, Union is registered as a trade union under the Indian Trade Unions Act, 1926. It is a trade union of employers, being goods transport operators either in the capacity of owners to partners, directors and managing directors of firms or companies carrying on transport business. The objects of the union are set put in clause 2 of its constitution and are as follows :
(i) To organise the transporters (goods) and to promote the goodwill harmonious relations amongst them to deduct them to be useful members of the society.
(ii) To assist them and regularise their business of goods transport and bring about uniformity in their dealings.
(iii) To handle and undertake on behalf of members the booking and delivery of goods for their mutual benefit.
(iv) To secure amicable settlement of disputes of members referred to the Union.
(v) To raise funds for the betterment of the needy and deserving members and for the deduction and upliftment of their children.
(vi) To help the transporters in their trade by making representations to the Transport Authorities, Provincial and Central Governments and undertake all possible steps to redress their grievances.
Rule 16 of the constitution may also be here referred to which reads as follows :
'The executive committee shall call a meeting of the general body for dissolution of the union and if such action is approved by two-thirds majority of the members present the union shall be dissolved. The remaining funds after defraying all due expenditure and liabilities, shall be distributed and in the case of loss, the amount of loss is to be realised from all members of the union. The general body shall firsts appoint a committee of members to either distribute or to realise the loss from members before the dissolution takes place.'
For the assessment year 1963-64, the assessed claimed before the ITO that it was a mutual body and, thereforee, its income was not chargeable to income-tax. The ITO, however, negatived this claim of the assessed and assessed it on a total income of Rs. 28,462.
3. The assessed preferred an appeal to the AAC but at the stage of the appeal its claim was that its objects were entirely charitable and, thereforee it was entitled to exemption under s. 11 of the Act. This claim was based on the decision of the Supreme Court in the case of CIT v. Andhra Chamber of Commerce : 55ITR722(SC) . This claim was accepted by the AAC who held that the assessed was entitled to exemption as a charitable trust and allowed the assessed's appeal.
4. The department filed an appeal to the Income-tax Appellate Tribunal. At this stage, the assessed relied upon both its earlier contentions for obtaining relief but unfortunately both the contentions were rejected by the Tribunal. In regard to the assessed's claim to be treated as a mutual concern, the Tribunal observed :
'In our view the assessed could not be treated as a mutual concern. This is because there is no complete identity between the contributors and participants. The members who have not earned freight through the union and have, thereforee, not paid commission to the union will non the less be entitled to a share in the surplus in the event of the dissolution of the union. Moreover, the outsiders also contributed to the funds of the union by paying a percentage against goods arranged to be carried by a member transport carrier through the union. We do not find any warrant for the claim of the learned representative of the assessed that the amount received by the union from customers, was received as a trust money for the benefit of the members. The union was entitled to charge commission from the customers and the amount was to be accounted for and was duly accounted by the union in its profit and loss account. In the account for the year in question there was no entry to show that the amount received by way of commission from customers was either paid back to the transport carries or was held on trust in the account.'
So far as the claim that the income of the assessed was derived from the property held under trust for charitable purpose was concerned, the Tribunal held, relying on the decision of the Mysore High Court in the case of CIT v. Sole Trustee, Loka Shikshana Trust : 77ITR61(KAR) , that since the object of the trust provided for carrying on a business undertaking, it involved the carrying on of an activity for profit and, thereforee, ceased to be a charitable purpose under the Act. The Tribunal, thereforee, reversed the order of the AAC and restored the order of the ITO.
5. The assessed filed a miscellaneous application before the Tribunal, some time after its claim was rejected. In this application, inter alia, the assessed contended that the observations of the learned Tribunal that outsiders also contributed to the funds of the union by paying a percentage against goods arranged to be carried by a member transport carrier through the union were absolutely erroneous in point of fact and that there was no evidence, data or material on the record to prove these assertions of the departmental representative. The Tribunal dismissed this application. It pointed out that it had given its finding on the basis of the statement made by the departmental representative at the time of the hearing which has not been challenged by any supporting evidence at the time of the hearing. ON the other had, when the customers paid certain amounts to the union for arranging carriage through its members, clearly there was contribution from outsider. There was, thereforee, no mistake in regard to this finding in the order of the Tribunal and the miscellaneous application was rejected.
6. Aggrieved by the order of the Tribunal accepting the departmental appeal, the assessed sought a reference to this court and the following two questions have been referred to us :
'1. Whether, on the facts and in the circumstances of the case, the assessed-union was a mutual concern whose income was exempt from tax
2. If the answer to question No. 1 is in the negative, whether, on the facts and in the circumstances of the case, the income of the assessed was exempt under section 11 of the Income-tax Act by reason of its income being derived from property held under trust wholly for charitable purposes ?'
7. We are unable to accept the contention that the assessed is a mutual concern and so its income should be exempt from tax. The Tribunal has pointed out that the essential condition for considering an assessed to be mutual concern, namely, that there should be an identity between the contributors and the participants has not been fulfillled in the present case. Shri Ahuja learned counsel for the assessed, contended that this finding of the Tribunal is based on a mistaken impression that outsiders were also making contribution to the funds of the assessed which was erroneous in point of fact. But the difficulty in accepting the contention of Mr. Ahuja is that this is a finding of fact arrived at by the Tribunal and the assessed has not taken appropriate steps to raise this question before us by way of reference. On the other hand, the assessed sought to challenge the correctness of the above finding of fact by means of an application apparently under s. 254 and has failed therein. If the assessed was aggrieved by the Tribunal finding of act in this regard it should have sought for a reference to this court on that question either from the original appellate order itself or from the order passed by the Tribunal dismissing the miscellaneous application. It is now well settled that in a reference it is not open to the assessed to seek to challenge statement of fact unless a question to that effect has been specifically asked for a or referred. In the result, we uphold the finding of the Tribunal that this was a concern where there was no identity between the participants and the contributors to the common funds. The Tribunal, thereforee, was right in holding that it was not a mutual corner, and so the income was not exempt from tax. The first question is thereforee, answered in the negatives and against the assessed.
8. In regard to the claim under s. 11 of the Act, Shri Ahuja challenges the finding of the Tribunal that the objects of the present union involve an activity for profit. He contended that the observation of the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT : 101ITR234(SC) , have been disapproved by a larger Bench of the Supreme Court in the recent decision in the case of Addl. CIT v. Surat Art Silk Cloth Manufactures Association : 121ITR1(SC) . He contended that the facts of the present case and particularly the object of the present Trade Union are on all fours with those considered by the Supreme Court in Surat Art Silk Cloth Manufacturers Association's case : 121ITR1(SC) . He, thereforee, urged that the Tribunal finding that the assessed was not entitled to exemption under s. 11 is erroneous and should not be accepted.
9. IN the present case, we find that is is not necessary to go into this aspect of the matter because the question can be answered against the assessed on other grounds on a simple construction of the constitution of the assessed which is placed on record. We have referred to the fact that under r. 16 of the constitution the funds of the trade union remaining with it after defraying all its dues and liabilities can be distributed among, the members at the time when the association is dissolved. IN other words, the ruled and regulations of the assessed envisage a distribution of all surplus funds remaining with the assessed in due course among its members. It is true that the distribution can take place only at the time of dissolution but there is nothing preventing the assessed from accumulating the funds and also distributing the entire amount among the members and dissolution, after all, is also a, matter which will be decided upon by the members of the association themselves. To put it differently, the rules and regulations of the Trade Union do not impose a legal obligation on the assessed or its members to hold the income of the assessed only for charitable purpose and thus the element for exemption under s. 11. This conclusion of ours derives support from, the decision of the Supreme Court in CIT v. Indian Sugar Mills Association : 97ITR486(SC) . In that case, the respondent association was register as a trade union under the Trade Unions Act. The various objects of the association were specified in r. 3 and were similar to those in the present case. Rule 4(a) provided that the income and property of the assessed should be applied sorely towards the promotion of the objects of the association and no portion thereof should be paid or transferred directly or indirectly by way of dividend, bonuses or otherwise to its members. Rule 64 provided that subject to rules framed by the general meeting for declaration of dividends and distribution of profit, m the profit shall be applies in such manner as the committee may in their discretion think fit, provided that no distribution of profit amongst the members will be made, unless sanctioned y a resolution at a general meeting of the association held for the purpose. The claim for exemption of the Indian Sugar Mills Association from tax under s. 4(3)(i) of the Indian I.T. Act, 1922, was upheld by the Calcutta High Court (vide Indian Sugar Mills Association v. CIT : 77ITR90(Cal) ) but was rejected by the Supreme Court in the decision above referred to. The Supreme Court rejected the claim on two primary consideration : (i) the r. 54, which permitted distribution of profits among the members on a resolution being passed for the purpose, introduced an element of private gain which was inconsistent with the object of general public utility and it could not be said that the association of the said assessed fell in the category of primary purposes of the association and it was not possible to treat some of them as ancillary or incidental to the, main objects set out in cls. (a) and (b) of r. 3 as contended by the assessed. It is sufficient for the present case to refer to the first ground on which the claim of the assessed was rejected.
10. Shri B.B. Ahuja contended that the decision in the Indian Sugar Mills Association's case : 97ITR486(SC) will not apply to the present case because the assessed, in that case, envisaged by its rules and regulations, the distribution of profits to members, whereas, in the present case, the assessed was bound by the statutory requirements of s. 15 of the Indian Trade Unions Act which obliged the assessed to utilise its funds only for the purpose of the association and the profits can be distributed only in thee even of winding up. We are, m however, of point that there is no distinction in principle between the decision of the Supreme Court In the case of the Indian Sugar Mills Association (1974) 97 ITR 486 and the present case. In point of fact, we find on a reference to the decision of the Calcutta High Court in the case of Indian Sugar Mills Association (1970) 77 ITR 90 where the rules and regulations are set out in existence, that, apart from r. 4, which prohibited the distribution of profits, r. 5 contemplated that only upon a winding-up or dissolution of the association, the surplus assets should be dealt with in accordance with the resolution of the association at a general meeting, m held for the purpose, and it is in this context that r. 64 provided for the distribution of the profits and surplus funds amongst the members. In fact, even in that case the argument advanced on behalf of the department was (as is seen from page 100 of 77 ITR) that the assessed was not entitled to be treated as charitable because it was possible for members of the association upon dissolution to divide the remaining funds among themselves. That is the position here also. But, this apart, we are unable to see any distinction in principle whether the assessed is in a position to distribute its profits immediately from year to year or only at the end of its period of existence. So long as the profits could be divided or distributed among the members at any time, it cannot be said that there is an obligation on the part of the assessed to hold its income for charitable purposes only. It is permissible for the assessed, within the four corners of its rules and regulations, to so arrange its affairs that the profits can be distributed among the members themselves. Where such a possibility exists is it did in the very difficult to say that the element of a charitable organisation exists. We are, thereforee, of opinion that the present case is directly governed by the diction of the Supreme Court in CIT v. Indian Sugar Mills Association : 97ITR486(SC) .
11. We may also mention that though the Indian Sugar Mills Association was one of the interveners before in in Surat Art Silk's case : 121ITR1(SC) , the decision in the Indian Sugar Mills Associations case : 97ITR486(SC) was not one of the numerous decisions considered and referred to by the Supreme Court in Surat Art Silk, s case : 121ITR1(SC) . It has not been disapproved, nor its authority in any way shaken, as suggested by Shri Ahuja.
12. In the result the second question referred to us is also answered in the negative and in favor of the department. As the assessed has failed, it will pay costs to the respondent. Counsel's fee Rs. 200.