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Commissioner of Income-tax, Gujarat I Vs. Ahmedabad Rana Caste Association - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 4 of 1966
Judge
Reported in[1973]88ITR354(Guj)
ActsIncome Tax Act, 1961 - Sections 2(15), 4(3) and 11(1)
AppellantCommissioner of Income-tax, Gujarat I
RespondentAhmedabad Rana Caste Association
Appellant Advocate J.M. Thakore, Adv.
Respondent Advocate K.H. Kaji, Adv.
Cases ReferredInland Revenue Commissioners v. Baddeley and
Excerpt:
.....within the meaning of the definition of 'charitable purpose' contained in section 4(3)(i) of the indian income-tax act, 1922, and section 2(15) of the income-tax act, 1961, and that in any event the beneficiaries who were the objects of the bounty did not constitute the public or a section of the public and the necessary element of public benefit, was, therefore, lacking and on these two grounds, the revenue urged that the properties could not be said to be held by the assessee under legal obligation wholly for charitable purposes so as to qualify for exemption under section 4(3)(i) (1922 act) or section 11(1)(a) (1961 act). we were of the view that the second ground urged on behalf of the revenue was well-founded and since the beneficiaries were confined only to the members of the..........income derived from those properties was, therefore, exempt from tax under section 4(3)(i) of the indian income-tax act, 1922, for the assessment years 1960-61 and 1961-62 and under section 11(1)(a) of the income-tax act, 1961, for the assessment year 1962-63. this claim did not find favour with the income-tax officer and the income-tax officer rejected it on the ground that the purposes set out in sub-clauses (1), (4) and (5) of clause 3 and sub-clause (4) of clause 8 were not charitable purposes and the beneficiaries also did not constitute a section of the public and the assessee was, therefore, not entitled to exemption under section 4(3)(i) or section 11(1)(a). on appeal by the assessee, the appellate assistant commissioner disagreed with the view taken by the income-tax officer as.....
Judgment:

Bhagwati, C.J.

1. This reference arises out of assessments made on the assessee for the assessment years 1960-61, 1961-62 and 1962-63, the relevant accounting years being the financial years ending 31st March, 1960, 31st March, 1961, and 31st March, 1962. During the relevant accounting years the assessee which is an association of persons held diverse properties under legal obligation for the purposes set out in its constitution. The purposes, in so far as they are material for the present reference, were as follows and here we are giving an English translation of the relevant clauses of the constitution accepted by both parties :

'3. The objects and functions of this institution shall be as under :

(1) to manage the immovable and movable properties of the Rana community of the city of Ahmedabad;

(2) to do such acts as would spread education in the community and to render all possible help in that connection;

(3) to render medical assistance to the community;

(4) to do acts which would be useful to the community;

(5) to do all acts according to capacity which promote unity and brotherhood amongst the members of the community and bring about complete development of all aspects of life of each male and female member of the community...........

8. (4) The management and administration of the properties, etc., of the entire community shall be done as profitably as possible in the interest of the community and Havan and Bhandaro in the month of Chaitra, procession and Bhandaro in the month of Shravan every alternate year and the Sangh going to Bahucharaji Mata every third year and the Bhandaro taking place there - all these shall be prudently managed.'

2. The beneficiaries of these purposes were all male and female members of the Rana community of Ahmedabad as defined in the constitution. We had occasion to examine the true import of this definition at an earlier stage in the reference but now it is immaterial and we need not, therefore, dwell on it. The assessee claimed before the Income-tax Officer assessing it for the assessment years 1960-61, 1961-62 and 1962-63 that its properties were held by it under legal obligation for charitable purposes and the income derived from those properties was, therefore, exempt from tax under section 4(3)(i) of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62 and under section 11(1)(a) of the Income-tax Act, 1961, for the assessment year 1962-63. This claim did not find favour with the Income-tax Officer and the Income-tax Officer rejected it on the ground that the purposes set out in sub-clauses (1), (4) and (5) of clause 3 and sub-clause (4) of clause 8 were not charitable purposes and the beneficiaries also did not constitute a section of the public and the assessee was, therefore, not entitled to exemption under section 4(3)(i) or section 11(1)(a). On appeal by the assessee, the Appellate Assistant commissioner disagreed with the view taken by the Income-tax Officer as regards the purposes set out in sub-clause (1) of clause 3 and sub-clause (4) of clause 8 but he held that the purposes set out in sub-clauses (4) and (5) of clause 3 were not charitable purposes and the class of beneficiaries sought to be benefited was also vague and ill-defined and numerically negligible and did not, therefore, constitute a section of the public. The Appellate Assistant Commissioner, in this view, refused to accord exemption to the assessee under section 4(3)(i) or section 11(1)(a). The assessee, therefore, preferred appeal to the Tribunal. The Tribunal decided both the points in favour of the assessee and held that the purposes set out in sub-clauses (2), (3), (4) and (5) of clause 3 and sub-clause (4) of clause 8 were charitable and the beneficiaries intended to be benefited constituted a section of the public and section 4(3) was, therefore, applicable to exempt the income of the assessee for the assessment years 1960-61 and 1961-62 and section 11(1)(a) was applicable to exempt the income of the assessee for the assessment year 1962-63. This view taken by the Tribunal was challenged on behalf of the Commissioner by filing the present reference.

3. When the reference first came before us the revenue challenged the view taken by the Tribunal on both the points on which the Tribunal decided in favour of the assessee. The revenue contended that the purposes set out in sub-clauses (4) and (5) of clause 3 and sub-clause (4) of clause 8 were not charitable purposes within the meaning of the definition of 'charitable purpose' contained in section 4(3)(i) of the Indian Income-tax Act, 1922, and section 2(15) of the Income-tax Act, 1961, and that in any event the beneficiaries who were the objects of the bounty did not constitute the public or a section of the public and the necessary element of public benefit, was, therefore, lacking and on these two grounds, the revenue urged that the properties could not be said to be held by the assessee under legal obligation wholly for charitable purposes so as to qualify for exemption under section 4(3)(i) (1922 Act) or section 11(1)(a) (1961 Act). We were of the view that the second ground urged on behalf of the revenue was well-founded and since the beneficiaries were confined only to the members of the Rana community in Ahmedabad, fulfilling one or the other conditions set out in the definition clause, they could not be said to constitute a section of the public. On this view as to the second ground, it became unnecessary for us to examine the validity of the first ground and we, therefore, did not embark upon a discussion of the first ground and disposed of the reference only on the second ground. The assessee being aggrieved by the view taken by us, preferred an appeal to the Supreme Court The Supreme Court reversed the view taken by us and held that the beneficiaries did constitute a section of the public and the claim of the assessee for exemption could not be rejected on the ground that the necessary element of public benefit was lacking. This view taken by the Supreme Court rendered it necessary to decide the first question and the Supreme Court, therefore, remitted the reference to the High Court for returning answer to the question referred by the Tribunal after determining the first ground. It has, therefore, now become necessary for us to consider whether the purposes set out in sub-clauses (4) and (5) of clause 3 and sub-clause (4) of clause 8 are charitable purposes so as to qualify the assessee for exemption under section 4(3)(i) of the Indian Income-tax Act, 1922, and section 11(1)(a) of the Income-tax Act, 1961.

4. Now section 4(3)(i) of the Indian Income-tax Act, 1922, in so far as it is material, reads as follows :

'(3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them :

(i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto : ......

In this sub-section 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility......'

5. The operative part of section 11(1)(a) of the Income-tax Act, 1961, is also in practically the same terms, barring some minor points of difference which are not material for our purpose. We will, therefore, examine the question before us with reference to section 4(3)(i) and whatever we say in regard to the interpretation and application of section 4(3)(i) will apply equally in relation to section 11(1)(a).

6. Before we proceed to examine the language of section 4(3)(i), we may clear the ground by pointing out that there is a fundamental difference between English and Indian law of charity and it would, therefore, be dangerous to accept blindly English decisions on the subject as authoritative in determining whether a particular purpose is charitable according to Indian law. The English law of charity has grown round the Statute of Elizabeth (43 Eliz. c. 4). This statute did not contain any definition of 'charity' but its preamble gave a varied and comprehensive list of objects which were then recognised as charitable. The court did not regard this list as exhaustive. It treated the objects enumerated in the preamble as particular instances to which additions might properly be made from time to time. It became the practice of the court to refer to the preamble 'as a sort of index or chart' in order to determine whether or not a given purpose was charitable. That which began as a rule of practice became in course of time a rule of law, and in the early part of the nineteenth century Sir William Grant M.R. was able to declare that 'those purposes are charitable which the statute enumerate or which by analogies are deemed within its spirit and intendment'. The court make liberal use of analogies for the purpose of developing the law and a mass of decisions grew up extending the original list of charitable purposes. The approach adopted by the court was, as stated by Chitty J. in In re Foveaux : Cross v. London Anti-Vivisection Society :

'..... to consider the enumeration of charities in the statute of Elizabeth, bearing in mind that the enumeration is not exhaustive. Institutions whose objects are analogous to those mentioned in the statute are admitted to be charities; and, again, institutions which are analogous to those already admitted by reported decisions are held to be charities.'

7. The result of this approach has been that the English law is strewn with numerous decisions which are often difficult to reconcile or explain and it can hardly be otherwise 'when its guiding principle is so vaguely stated and is liable to be so differently interpreted in different ages'. So bewildering indeed is the mass of authorities that it is not possible to discern any principle amongst them and it is no wonder that Lord Sterndale M.R. in In re Tetley : National Provincial and Union Bank of England Ltd. v. Tetley lamented the absence of 'any principle which will guide one easily, and safely, through the tangle of cases as to what is and what is not a charitable gift'. He observed that 'the whole subject is in an artificial atmosphere altogether'.

8. While examining the English law of charity, it is also necessary to refer to one other line of development which has considerably influenced the growth of the law. Since the Statute of Elizabeth was enacted, for more than two hundred years, no attempt was made to classify the objects or purposes which were enumerated in the preamble to the Statute of Elizabeth or which were held to be charitable as being within its spirit and intendment. In 1805 for the first time Sir Samuel Romilly in the course of his arguments in Morice v. Bishop of Durham, attempted to classify these objects or purposes under four heads. Those heads were, first, relief of the indigent; secondly, advancement of learning; third, advancement of religion; and fourth, 'which is the most difficult', advancement of objects of general public utility. This classification was substantially accepted by Lord Macnaghten in Commissioners for Special Purposes of Income Tax v. Pemsel, with two significant variations. The learned Law Lord in a justly celebrated speech gave the following classification of charitable purposes which has now become classical :

''Charity' in its legal sense comprises four principal divisions : trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads.'

9. The first significant variation he made was the substitution of 'advancement of education' for 'advancement of learning' and the second was the substitution of 'other purposes beneficial to the community' for 'advancement of objects of general public utility'. This classification of Lord Macnaghten has almost acquired the sanctity of a definition over the years and whenever a problem arises in English law whether a particular purpose is a charitable purpose, the question is immediately asked, does it fall within one of the four heads given by Lord Macnaghten. If it does not, it cannot qualify to be a charitable purpose.

10. It will, therefore, be seen that under English law there are two tests which must be satisfied before a trust can be regarded as a trust for a charitable purpose. The first is that the purpose of the trust must be either within the letter or within the spirit and intendment of the preamble to the Statute of Elizabeth and the second is that it must fall within one of the four heads of Lord Macnaghten. Both these tests must be satisfied in order to qualify a trust for privileges which the law confers on charity. If either of them is not satisfied, a trust would not be a charitable trust. The result is that in English law every purpose beneficial to the community is not necessarily charitable. It would be charitable only if it is within the spirit and intendment of the preamble to the Statute of Elizabeth. This was emphasised by Lindley L.J. in In re Macduff where the learned Lord Justice said :

'Now Sir Samuel Romilly did not mean, and I am certain Lord Macnaghten did not mean, to say that every object of public general utility must necessarily be a charity. Some may be, and some may not be.'

11. Lord Cave L.C. in Attorney-General v. National Provincial and Union Bank of England , extended these observations in the House of Lords by saying :

'So here it is not enough to say that the trust in question is for public purposes beneficial to the community or for the public welfare; you must also show it to be a charitable trust.'

12. It is not sufficient that the purpose is beneficial to the community but it must also be beneficial in a way which the law regards as charitable, i.e., it must be within the spirit and intendment of the preamble to the Statute of Elizabeth.

13. But, the law in India is different. We have a definition of 'charitable purpose' in section 4(3)(i) and there is also a similar definition in section 2(15) of the Income-tax Act, 1961. This definition has been largely influenced by Lord Macnaghten's classification, but as regards the last class which is the most important, the definition, following Sir Samuel Romilly, provides for 'the advancement of any other object of general public utility...', whereas Lord Macnaghten's words were 'other purpose beneficial to the community'.

14. 'The difference in language', said Lord Wright in All India Spinners' Association v. Commissioner of Income-tax particularly the inclusion in the Indian Act of the word 'public' is of importance. The Indian Act gives a clear and succinct definition which must be construed according to its actual language and meaning. English decisions have no binding authority on its construction and though they may sometimes afford help or guidance, cannot relieve the Indian courts from their responsibility of applying the language of the Act to the particular circumstances that emerge under conditions of Indian life.' The definition of 'charitable purpose' in the Indian statute goes further than the definition of 'charity' in English law; whereas in the English law it is not enough that the purpose is beneficial to the community but it must also be within the spirit and intendment of the preamble to the Statute of Elizabeth, it is sufficient, according to the definition in the Indian statutes, that the purpose is for advancement of an object of general public utility. Every object of general public utility is, therefore, a charitable object according to the definition in the Indian statute even though it does not fall within the spirit and intendment of the preamble to the Statute of Elizabeth. The concept of charitable purpose, according to the Indian, law, is, therefore, definitely much wider than that which is recognised in English law. It is for this reason that the Supreme Court as well as the Judicial Committee of the Privy Council have uttered a note of warning against blind and indiscriminate acceptance of English decisions on the law of charity in construing the Indian statute : vide All India Spinners' Association v. Commissioner of Income-tax and Commissioner of Income-tax v. Andhra Chamber of Commerce

15. We have been at pains to point out this fundamental difference between the English law and the Indian law on charity, because very strong reliance was placed on behalf of the revenue on a decision of the House of Lords in Inland Revenue Commissioners v. Baddeley and there can be no doubt, that, if the ratio of this decision were applicable under Indian law, the revenue must succeed in its contention that the purpose set out in the second part of sub-clause (5) of clause 3 is not charitable. There were two trusts which came up for consideration before the House of Lords in this case. The properties settled under the first trust were directed to be held :

'.... for the promotion of the religious social and physical well-being of persons resident in the County Boroughs of West Ham and Leyton.... by the provision of facilities for religious services and instruction and for the social and physical training and recreation of such aforementioned persons who for the time being are in the opinion of such leaders members or likely to become members of the Methodist Church and of insufficient means otherwise to enjoy the advantages provided by these presents and by the provision of facilities for religious social and physical training and recreation and by promoting and encouraging all forms of such activities as are calculated to contribute to the health and well-being of such persons....'

16. The purposes for which the properties were directed to be held under the second trust were substantially similar, with only some minor differences which are not very material. The question arose whether these purposes were charitable purposes. If they were, the conveyances of the properties to the trustees would be exempt from stamp duty. The House of Lords held by a majority of four to one that the purposes of the trust were not charitable. They did not fall within the first three heads of charities set out in Commissioners for Special Purposes of Income-tax v. Pemsel, nor did they fall within the fourth head 'other purposes beneficial to the community', since they were expressed in language so vague as to permit the properties to be used for purposes which the law did not regard as charitable and which did not satisfy the necessary element of public benefit. This decision would seem to suggest that promotion of religious, social and physical well-being of members belonging to a section of the public is not a charitable purpose and if that be so, the purpose, set out in the second part of sub-clause (5) of clause 3, would not be a charitable purpose, because complete development of all aspects of life of each member of the community contemplated there means the same thing as promotion of religious, social and physical well-being of members belonging to the community. But, we cannot regard this decision as furnishing any help or guidance in the determination of the question whether the purpose set out in the second part of sub-clause (5) of clause 3 is charitable within the meaning of the definition in the Indian statute. This decision was based on the English law of charity which requires that a purpose to be regarded as charitable must not only be a purpose beneficial to the public or a section of the public but it must also be within the spirit and intendment of the preamble to the Statute of Elizabeth. The purposes of the trusts were held to be not charitable because they did not fall within the spirit and intendment of the preamble to the Statute of Elizabeth, though they were clearly intended for the benefit of a section of the public. There is, as we have pointed out above, no such requirement under the Indian law of charity that the purpose of the trust must be within the spirit and intendment of the preamble to the Statute of Elizabeth. This decision of the House of Lords cannot, therefore, be regarded as authoritative in the determination of the question before us, which has to be decided on the language of the definition in the Indian statute.

17. We must, therefore, proceed to examine the question before us in the light of the definition of 'charitable purpose' in the Indian statute uninfluenced by considerations of English law on the subject. The question which we must ask ourselves is whether the purposes set out in sub-clause (4) and (5) of clause 3 and sub-clause (4) of clause 8 are purposes which fall within the definition of 'charitable purpose' given in the Indian statute. Now, admittedly, none of these purposes can be said to be for relief of the poor, education or medical relief and, therefore, the only question would be whether they are purposes covered by the expression '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 'utility' means usefulness. Therefore, the advancement of any object of benefit to the public or a section of the public as distinguished from an individual or group of individuals, would be a charitable purpose. Applying this test, can it be said that the purposes set out in sub-clauses (4) and (5) of clause 3 and sub-clause (4) of clause 8 are charitable purposes. Are they purposes which are useful and beneficial to the Rana community or which promote the welfare of the Rana community If they are, they would be objects of general public utility and would be covered by the statutory definition.

18. So far as sub-clause (4) of clause 3 is concerned, there can be no doubt that it embodies an object of general public utility. It speaks of acts useful to the community and by its very terms, falls within the definition. When the object is to do acts beneficial to the community, it is plainly an object of general public utility. This much indeed was not disputed on behalf of the revenue but the real controversy between the parties centred round the question whether the purposes set out in sub-clause (5) of clause 3 could be said to be charitable purposes. Sub-clause (5) of clause 3 consists of two parts. The first part sets out the object of doing acts which would promote unity and brotherhood amongst the members of the community. Now there can be no doubt that if there is strife and disharmony amongst the members of a community, that would seriously affect the happiness and well-being of the community. The community can flourish as a community only if its members are living in peace and harmony with one another and there is a deep and abiding sense of unity and fraternity amongst them. That alone can secure to them the benefit of a healthy communal life. It is, therefore, clear that a purpose calculated to promote unity and brotherhood amongst the members of a community would normally be a purpose beneficial to the community and the purpose set out in the first part of sub-clause (5) of clause 3 must be held to be within the statutory definition. Turning to the second part of sub-clause (5) of clause 3, the purpose there set is to do all acts which bring about complete development of all aspects of life of the male and female members of the community. It is difficult to see how, having regard to modern concepts and ideas, complete development of all aspects of life of each member of the community can be regarded as anything other than an object of general public utility. It is axiomatic to say that a complete integrated development of every member of the community would certainly be beneficial to the community. The community is after all nothing but a conglomeration of the members and a purpose which is calculated to bring about complete development of all aspects of life of every member of the community would certainly be of immense benefit to the community. It was suggested during the course of the arguments that this second part of the clause is so vague and indefinite that any conceivable benefit, monetary or otherwise, could be provided to the members of the community under it and that would be within the scope of 'complete development of all aspects of life.' It was said by way of illustration that even a refrigerator or a scooter could be provided to each member of the community and that would fall within the second part of this clause. We do not think that this apprehension on the part of the revenue is justified. When a question arises as to whether a particular act done by the assessee is an act falling within the second part of sub-clause (5) of clause 3, what we have to consider is what is the direct or primary purpose of doing such act. is the direct or primary purpose, development of some aspect of life of each member of the community or is it amusement as in the case of a picnic or is it providing a comfort or luxury as in a case where a scooter or refrigerator may be given If it is the former, it would be covered by the second part of sub-clause (5) of clause 3, but not so, if it is the latter. The purpose of bringing about complete development of all aspects of life would comprise economic, physical, intellectual as well as spiritual well-being and would normally be a purpose beneficial to the public and the purpose set out in the second part of sub-clause (5) of clause 3 must also, therefore, be held to be a charitable purpose within the meaning of the statutory definition.

19. That leaves only sub-clause (4) of clause 8. Now, admittedly, exemption under section 4(3)(i) or section 11(1)(a) is available even if the purposes for which property is held under legal obligation by the assessee are not charitable but religious. It would, therefore, not be sufficient to deny the benefit of the exemption to the assessee merely by saying that the purposes set out in sub-clause (4) of clause 8 are not charitable. The question would still remain to be examined whether the purposes are religious, and if they are, the assessee would qualify for exemption under section 4(3)(i) and section 11(1)(a). The only objection taken against the purposes set out in sub-clause (4) of clause 8 was in regard to Bhandaro. It was not disputed before us that performance of Havan, procession in the month of Shravan and going of the Sangh to Bhahucharaji Mata would be religious, if not charitable purposes and would qualify for exemption. But the only controversy was as to whether arranging Bhandaro could be said to be a religious or charitable purpose. Now, Bhandaro, according to its ordinary connotation, can mean either dinner of the community or dinner of the Brahmins. Here, in the context in which the word Bhandaro occurs, it can only mean dinner of the Brahmins on the occasion of Havan or Shravan procession or the going of the Sangh to Bhahucharaji Mata. That would normally be a religious if not charitable purpose. We are, therefore, of the view that the purposes set out in sub clause (4) of clause 8 are, if not charitable, at least religious purposes and they do not have the effect of depriving the assessee of exemption under section 4(3)(i) or section 11(1)(a).

20. We, accordingly, reach the conclusion that the properties belonging to the assessee were held by it under legal obligation wholly for charitable or religious purposes and the income derived from those properties was exempt from tax under section 4(3)(i) of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62 and under section 11(1)(a) of the Income-tax Act, 1961, for the assessment year 1962-63. The question referred to us for our opinion must, therefore, be answered in the affirmative. The Commissioner will pay the costs of the reference to the assessee.


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