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Additional Commissioner of Income-tax, Gujarat Vs. Ahmedabad, Millowners' Association (14.11.1975 - GUJHC) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 38 of 1974
Judge
Reported in[1977]106ITR725(Guj)
ActsIncome Tax Act, 1961 - Sections 2(15), 11, 11(1) and 11(4)
AppellantAdditional Commissioner of Income-tax, Gujarat
RespondentAhmedabad, Millowners' Association
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredEast India Industries (Madras) Pvt. Ltd. v. Commissioner of Income
Excerpt:
direct taxation - charitable purpose - sections 2 (15), 11, 11 (1) and 11 (4) of income tax act, 1961 - rules and regulations of respondent-association do not reveal any charitable purpose under section 2 (15) - as rules vest wide discretion to apply funds of association for any objects association cannot be treated as trust - consequently tax exemption contemplated by section 11 denied - respondent-association not entitled to benefit under section 11 in view of mixed purposes for which it is expected to function. - - so far as the fourth question is concerned, with a view to bring out the point involved therein clearly, we have reframed it as under :whether, on the facts and in the circumstances of the case, the tribunal was justified in holding that the appellate assistant.....t.u. mehta, j.1. the main question which is involved in this reference is whether the respondent, m/s. ahmedabad mill owners association, ahmedabad, is a trust for a charitable purpose, as contemplated by section 11 read with section 2(15) of the income-tax act, 1961, hereinafter referred to as ' the act', and whether its income for the year 1963 is assessable to tax in view of the provisions of section 11 of the act. 2. short facts of the case are that the respondent is a commercial association which is not registered either under the co-operative societies act or under the societies registration act. its legal character is admittedly that of an association of persons. the administration of the respondent-association is governed by the rules and regulations found at annexure 'd'. 3......
Judgment:

T.U. Mehta, J.

1. The main question which is involved in this reference is whether the respondent, M/s. Ahmedabad Mill Owners Association, Ahmedabad, is a trust for a charitable purpose, as contemplated by section 11 read with section 2(15) of the Income-tax Act, 1961, hereinafter referred to as ' the Act', and whether its income for the year 1963 is assessable to tax in view of the provisions of section 11 of the Act.

2. Short facts of the case are that the respondent is a commercial association which is not registered either under the Co-operative Societies Act or under the Societies Registration Act. Its legal character is admittedly that of an association of persons. The administration of the respondent-association is governed by the rules and regulations found at annexure 'D'.

3. During the accounting period, which is the calendar year 1963, the respondent-association is found to have earned the following income :

Rs.Interest on securities 1,639Property income 2,976Business income 54,023Income from other sources 24,607-----------83,245------------

4. Out of this income, the amount of Rs. 54,023, which is described above as business income, was earned by the respondent-association in its dealings relating to the distribution of coal to various mills. It is necessary at this stage to state the facts with regard to this coal business.

5. It is found from the facts stated by the Tribunal that some time before the accounting year, there was an acute shortage of coal in Ahmedabad. The textile mills at Ahmedabad are mainly running on coal. Previous to the accounting year of 1963, all the textile mills in Ahmedabad had the individual monthly quota sanctioned by the Textile Com missioner and against this quota, the mills received their supply directly from the suppliers. However, in order to assist the mills at the time of short supply of coal, the Textile Commissioner granted periodically some coal wagons to the respondent-association and the association in its turn allocated some coal wagons out of the supply received by it to needy mills. For these services, the association used to charge 50 np. per metric tonne of coal supplied. It is further found that at the close of the accounting period, the surplus which was found in this account was being refunded to the mills on the basis of their purchases.

6. The above referred scheme for distribution of coal lasted for about 3 months even during the accounting year 1963, but a new shame was put into force from 1st April, 1963, with the concurrence of the Textile Commissioner, Bombay, and the Deputy Coal Controller, Calcutta. Under this new scheme, the quota of individual mills was amalgamated and a single quota was issued in the name of the association, which in its turn was required to distribute this coal to different textile mills. This distribution was not confined to the members of the association but even those concerns which were not the members of the association were availing of this distribution of coal at the hands of the association. For these services, the association decided to take the work from middlemen, who were already working for different mills. During the course of hearing of this reference, the learned Advocate-General, who appeared on behalf of the association, produced with the agreement of the other side, a copy of a letter written by these middlemen to the president of the association of 18th September, 1963. Reference to this letter shows the terms and conditions on which these middlemen were working with the association. The point to be noted at this stage is that for the services rendered by them, each one of the middlemen was entitled to charge from the mills concerned, commission at a uniform rate of 98 nps. per metric tonne in respect of the coal supplied to such mills. It was further agreed that out of the middlemen's commission charged as above, each one of these middlemen agreed to reimburse the respondent-association by passing on 19 np. per metric tonne of coal received to enable to respondent-association to meet the expenses incurred by it for the services rendered. In short, therefore, by virtue of the new scheme, which came into force on April 1, 1963, the respondent-association got 19 np. per metric tonne from the middlemen in consideration of the services which it rendered for the purposes of distribution of coal. This new scheme remained in force during the accounting period only for 9 months, i.e., from April 1, 1963, to December 31, 1963. The above referred profit of Rs. 54,023 is net profit, which the respondent-association earned during these 9 months on account of this coal business.

7. Proceeding further with the arrangement with regard to the distribution of coal, it should be stated that from 1st January, 1964, the arrangement was again charged with the result that the respondent-association stopped dealing with the middlemen, agreed to supply the coal directly to the respective mills, and charged 7 np. per metric tonne directly from the mills for the services which it rendered. In this connection also, by agreement of the parties, the learned Advocate-General has produced a copy of the letter written by the secretary of the respondent-association to the manager of the Ahmedabad Mills Coal Pool. Thus, from 1st January, 1964, onwards, the association was charging 7 nps. per metric tonne for the services rendered by it in the distribution of coal. It is not in dispute that any surplus which remained at the rate of 7 nps. per metric tonne after January 1, 1964, was refunded by the respondent-association to the respective mills.

8. The above facts show that both before and after the accounting period, the surplus which had remained with the respondent-association on account of this coal business, was being refunded to the respective mills. But the disputed surplus of Rs. 54,023, which the respondent-association earned during the course of 9 months in the accounting year, has admittedly not been refunded at any stage to anybody. This was presumably on the ground that this amount was earned not from the consumers but from the middlemen who were working for the purposes of distribution of coal.

9. All these facts are required to be particularised because the contention between the parties is whether the business income of Rs. 54,023 which the respondent-association earned from coal business is taxable or not. Here it should be noted that during the course of assessment before the Income-tax Officer the respondent-assessee had offered this amount of Rs. 54,023 for assessment and had claimed that it was not liable to be taxed on the remaining amount of Rs. 29,223. The Income-tax Officer, however, assessed both the amounts to tax. The respondent-association, thereupon, approached the Appellate Assistant Commissioner in appeal. The Appellate Assistant Commissioner found that the respondent-association was a charitable trust and, therefore, the whole of the income during the accounting year was exempted under section 11 read with section 2(15) of the Act. The matter thereafter went to the Tribunal. A contention was raised on behalf of the revenue before the Tribunal that, since during the accounting period, the respondent is found to have carried on an activity for profit, even if it is believed that the object of the respondent-association is to serve the purpose of general public utility, it would not be entitled to exemption contemplated by section 11 of the Act. The Tribunal interpreted the expression 'charitable purpose' as given in section 2(15) of the Act, and came to the conclusion that the condition as regards the non-involvement in an activity for profit which is found attached to the fourth purpose of general public utility refers to the 'object' of the trust and not the 'advancement' of that object. For this proposition, the Tribunal relied upon two Kerala decisions given in Commissioner of Income-tax v. Indian Chamber of Commerce [1971] 80 ITR 645 and Commissioner of Income-tax v. Cochin Chamber of Commerce & Industry : [1973]87ITR83(Ker) in preference to the view taken by the Calcutta and Mysore High Courts in Commissioner of Income-tax v. Indian Chamber of Commerce : [1971]81ITR147(Cal) and Commissioner of Income-tax v. Sole Trustee, Loka Shikshana Trust : [1970]77ITR61(KAR) . This controversy about the interpretation of clause (15) of section 2 of the Act now does not remain to be decided in view of the recent decisions of the Supreme Court in appeal arising out of the above referred Mysore case, the decision of the Supreme Court being in Sole Trustee, Loka Shikshana Trust v. Commissioner of Income-tax : [1975]101ITR234(SC) and the decision given in Indian Chamber of Commerce v. Commissioner of Income-tax : [1975]101ITR796(SC) by the Supreme Court on 17th September, 1975. The learned Advocate-General has, however, tried to support the case of the respondent-assessee on different grounds.

10. Being aggrieved by the decisions recorded by the Tribunal, the revenue has preferred this reference, in which the Tribunal has referred for our opinion the following four question :

'1. Whether, on the facts and in the circumstances of the case and particularly having regard to the rules and regulations of the Ahmedabad Millowners' Association including the objects, the income of the association for the year under reference was for charitable purposes within the meaning of section 2(15) of the Income-tax Act qualified for exemption under section 11 of the Act

2. Whether, on the facts and in the circumstances of the case, the income derived by the association in respect of its activity of procurement and distribution of coal is exempt under section 11 read with section 2(15) of the Income-tax Act, 1961

3. Whether, on the facts and in the circumstances of the case, the income of the association other than the income in question No. 2 above earned in the assessment year was rightly treated as exempt from tax by the Tribunal

4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the order of the Appellate Assistant Commissioner exempting the entire income of the assessee from liability to tax in spite of the fact that it was contended before the Income-tax Officer that only a part of the income should be exempt ?'

11. Out of these four questions, question No. 3 is covered by the first question. So far as the fourth question is concerned, with a view to bring out the point involved therein clearly, we have reframed it as under :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Appellate Assistant Commissioner had power to entertain the contention that the entire income of the assessee was exempt from liability to tax in spite of the fact that it was contended before the Income-tax Officer that only a part of the income should be exempt ?'

12. So far as the first two questions are concerned, the points of facts and law, which are involved, are the same and, therefore, they will be disposed of by us by a common discussion.

13. It was strongly contended by Shri Kaji, who appeared on behalf of the revenue, that looking to the objects of the respondent-association as found in its rules and regulations, it is evident that these objects, except perhaps one, do not reveal any charitable purposes, as defined by section 2(15) of the Act, and since the rules and regulation of the respondent-association vest a very wide discretion in the managing committee to apply the funds of the association for any of these objects, the association cannot be treated as a trust, which is entitled to any tax exemption contemplated by section 11 of the Act. In this connection, he drew our attention to the fact that the respondent-association exists only for its members, who are both the legal owners and beneficiaries of its income and property. He pointed out that unlike section 14 of the Societies Registration Act, it is not provided that the property of the association on its dissolution shall go to any other society having similar objects in view and, therefore, on the dissolution of the association, its property is liable to be disbursed amongst its members.

14. Shri Kaji further contended that the income, which is derived by the respondent-association during the accounting period from the coal business, was derived by it only by entering into business for profit and, therefore, even if it is held that the objects of the respondent-association are for the purpose of general public utility, this purpose does not fall within the meaning of the expression 'charitable purpose' as given in section 2(15) of the Act for the simple reason that during the accounting period, the association has advanced this purpose of general public utility by carrying on business activity for profit. Relying upon the above referred recent decisions of the Supreme Court in Sole Trustee, Loka Shikshana Trust v. Commissioner of Income-tax : [1975]101ITR234(SC) and Indian Chamber of Commerce v. Commissioner of Income-tax : [1975]101ITR796(SC) , Shri Kaji had contended that there is no question of the applicability of section 11 of the Act to the facts of the present case in view of the fact that the respondent-association has carried on the business of dealing in coal distribution for the purpose of earning profit of Rs. 54,023.

15. Last contention of Shri Kaji was that, at any rate, there is no scope for the applicability of section 11(1)(a) of the Act, because the said clause contemplates an income derived from property held under trust wholly for charitable purposes and obviously the income, which is derived from the coal business, done by the respondent-association, cannot be said to be income derived from property held under trust as, according to Shri Kaji, the coal business was not trust property.

16. So far as Shri Kaji's contention as regards the objects of the respondent-association is concerned, the learned Advocate-General contented that all the objects of the association which are set out in rule 3 should be considered cumulatively, and the court should make an attempt to find out the dominant objects for which the activities of the respondent-association are run. According to the learned Advocate-General, therefore, if it is found that the dominant object of the respondent-association is to carry out an activity of public utility, then even if other objects which are incidental or ancillary are found to be not falling within the meaning of the expression 'charitable purpose' as given in section 2(15) of the Act, the respondent-association would, none the less, be entitled to get exception under section 11 of the Act.

17. In view of the above-stated rival contentions, it would be first necessary to refer to the relevant provisions contained in the rules and regulations by which the respondent-associations is governed. We find that at the end relevant time the following were the objects of the association as mentioned in rule 3 :

'The objects of the association are :

(a) The protection of interests of millowners and users of motive power of any description in this part of the country and of those connected with them;

(b) The promotion of good relations between the person and bodies using such power;

(c) The doing of all those act things by which these objects may be attained;

(d) The promotion and protection of the trade, commerce and manufacturers of India in general and of the cotton trade in particular;

(e) To establish or aid in the creation of funds to benefit employees of the association or the dependents of such persons and to subscribe, donate or guarantee for charitable or benevolent purposes at the discretion of the association;

(f) The promotion of good relations between; the employers and the employees.'

18. In order to understand these objects, and the manner in which they are to be implemented, it is also necessary to make reference to three other rules, which are rules 15,22 and 22(a). So far as rule 15 is concerned, it primarily refers to the mode of election of office bearers, managing committee and its functions. It is, therefore, not necessary to quote the whole of this rule, but it would be sufficient to note that this rule specifically provides that the affairs and funds and property of the association shall be managed by a committed which shall be called the managing committee. Rules 22 and 22(a) prescribe the powers of this managing committee in the following words :

'22. A committee for the time being shall have the control of funds of the association and pay all the necessary expenses and generally manage its affairs. The committee shall also the powers to borrow or raise monies by pledging or hypothecating Government or municipal securities, commodities or other assets held by the association or selling off Government and municipal securities, treasury bonds, promissory notes, belonging to the association. The committee shall also have power to raise or borrow monies by loans subject to the sanction of the general board from time to time and provided that the same is done for any of the objects of the association which has been notified to the general board on each occasion, and the liability of the members shall be in proportion in such cases to the number of miles and spindles set up in their lists.

22(a). They may disburse money from the association's fund either by way of loan or gift for the purpose of furthering any of the objects for the carrying out of which the association is formed. They may advance money either by way of loan or gift to any member of the association to assist him in conducting or defending a law suit or carrying on an arbitration if, in their opinion, the principles involved in the said suit or arbitration affect the interests of the members as a body and they may do all other things calculate to promote the general objects of the association, provided always that no one sum exceeding Rs. 2,500 shall be advanced by way of loan or gift by the committee, without the sanction of the majority of the members present at a general meeting called to sanction such a gift or loan. The committee may also appoint legal advisers to the association who may advise them, when necessary.'

19. Before completing our reference to the rules of the association, it should be noted that previously, any individual, partnership or company, was eligible for the membership of the association, as per old rule 4. But this old rule 4 has been substituted by the present rule 4 on December 11, 1962. As per this substitution, only a limited company having a cotton or synthetic fibre spinning mill or weaving mill, whose paid up capital is not less than Rs. 10 lakhs, is eligible for the membership of the association.

20. It is in the context of these rules that we have to find out whether the objects of the association fall within the meaning of the expression 'charitable purpose' as given by section 2(15) of the Act. On behalf of the revenue, Shri Kaji discussed each of the objects mentioned in rule 3 separately and pointed out how, except the object mentioned in clause (d), the rest of the objects cannot be treated as objects of public utility. He made a special reference to the object mentioned in each of the clause (a), (b), (c), (e) and (f) and pointed out how each one of them aims at serving the personal interests of individuals, and contended that protection of such individual and personal interests cannot fall within the purpose of general public utility. Shri Kaji admitted that clause (d) undoubtedly contemplates an object of public utility, but this only shows that the objects of the association reveal mixed purposes - charitable as well as non-charitable - and since the managing committee has wide discretion to carry on the activities of the association for any of the objects mentioned in rule 3, the association cannot take the advantage of the exemption contemplated by section 11. As against this, the learned Advocate-General contended that this approach is not correct. According to him, all the objects should be cumulatively treated with a view to find out the dominant object of the association. It was urged by him that the dominant object of the association is found to be in clause (d) of rule 3, which speaks about 'the promotion and protection of trade, commerce and manufactures of India in general, and of cotton trade in particular.' He contended that the court should treat this object as dominant object and should treat the rest of the objects as ancillary to this dominant object. According to him, once the promotion of trade and commerce and manufacture is adopted by association as its main objective, the protection of personal interests of those who are in the said trade is merely an ancillary object, and even if such ancillary objects are found to be outside the scope of section 2(15), exemption contemplated by section 11 is not lost.

21. We do not find any material, except rule 3 itself, which would go to show which of the objects mentioned in the different clauses of rule 3 is a dominant object. We have gone through all the rules by which the respondent-association is governed, and none of the rules has shown to us that a particular object out of the different objects mentioned in rule 3 is a dominant object of the respondent-association. It is no doubt true that the object, which is mentioned in clause (d), is the object of general public utility, because it cannot be disputed that the public in general is interested in promotion and protection of trade, commerce and manufacturers of India in general and of cotton trade in particular. But then the question is whether this object can be considered as a dominant object, and whether three would be any justification for holding that other objects are merely ancillary to this object. In search of a satisfactory reply to this question, we do not find anything either in the rules or in the record of the case to suggest that the object mentioned in clause (d) is the only object which is dominant. As a matter of fact, if a reference is made to those parts of rules 22 and 22(a) which are underlined by us, it will be found that the members of the managing committee can spend the funds of the association for any of the objects mentioned in rule 3. In our opinion, therefore, all the objects, which are mentioned in rule 3, are of equal importance and, hence, it is not possible to say that any one of these objects is primary and others are merely incidental to it. A bare reference to these objects shows that the objects mentioned in clauses (a), (b) and (c) are quite independent of the object mentioned in clause (d). Objects mentioned in clauses (a), (b) and (c) operate in a sphere which is altogether different and distinct from the sphere in which the object mentioned in clause (d) operates. Persons working in 'trade, commerce and manufacturers' constitute a group which is much wider and varied than the persons who are 'millowners and users of motive power'. It is, therefore, not possible to say that clauses (a), (b) and (c) are consequential to the object mentioned in clause (d). If this be so, objects mentioned in clauses (a), (b) and (c) should be treated as independent of the object mentioned in clause (d). On a bare reading of clause (a), (b) and (c), it is evident that they seek to protect the interest of 'person' and not the 'activities' which they carry on. It would, therefore, follow that the association would not be infringing its rules if it prefers to spend its revenue in protecting the personal interests of its members who happen to be 'millowners and users of motive power'. As held by the Supreme Court in Commissioner of Income-tax v. Indian Sugar Mills Association [1974] 97 ITR , this aspect of the case would destroy the object of general public utility evidenced by clause (d). In the case of Indian Sugar Mills Association : [1974]97ITR486(SC) , most of the objects were of general public utility but the rule 64 permitted the distribution of profits among the members and hence the Supreme Court held that this introduced an element of private gain which was inconsistent with the object of general public utility. The fact that that association was registered as a trade union makes no difference to the above principle as contended by learned Advocate-General.

22. We now proceed to consider whether an object which serves personal interest would fall within the scope of section 2(15) of the Act. There is no dispute that the charitable purposes of relief to poor and educational and medical relief have no relevance to the facts of the present case. It is, therefore, the fourth category of the charitable purpose, namely, the object of general public utility, with which we are concerned in this case. The expression 'object of general public utility ' appearing in section 2(15) would include only those objects which promote the welfare of general public and not the personal and individual interests of some persons. It is not uncommon to find the objects of general public utility being in conflict with the object of personal welfare of some specified individuals. It is true, as held by the Supreme Court in the case of Andhra Chamber of Commerce : [1965]55ITR722(SC) , that personal welfare of specified individuals would be incidental or consequential to the main purpose of general public utility, but a converse of this proposition is not always true. Now, if we examine the objects contained in clauses (a), (b) and (c) from this point of view, it will be at once noticed that these objects seek to protect the interest of 'millowners and users of motive power' and also of those concerned with them. Clause (b) contemplates the promotion of good relations between the persons and bodies using such powers and clause (c), which is consequential to clause (a) and (b), contemplates doing of those acts and things by which the objects covered by clause (a) and (b) may be attained. Thus, all these three clause aim at protecting personal interest and not public interests. If this is so, the respondent-association is bound to carry on its activity keeping in mind the narrower concept of promoting the personal and self-serving interests of individuals who are consider 'millowners and users of motive power' even when their interest are in conflict with the interests of their own trade or industry. If and when this happens, how can it be said that the respondent-association has carried out an object of general public utility General public is undoubtedly interested in trade, commerce or industry conducted by individuals, but it is surely not interested in protecting the personal interests of these individuals if they are in conflict with the interests of trade, commerce and industry. Therefore, when an object seeks to promote or protect the interests of a particular trade or industry, that object becomes an object of public utility, but not so, if it seeks to promote the interests of those who conduct the said trade or industry.

23. This distinction between the protection of the interests of individuals and the protection of interests of an activity, which is of general public utility, goes to the root of the whole problem, and, hence, the Supreme Court has pointedly referred to this problem in Commissioner of Income-tax v. Andhra Chamber of Commerce : [1965]55ITR722(SC) of the report by observing as under :

'It may be remembered that promotion and protection of trade, commerce and industry cannot be equated with promotion and protection of activities and interests merely of persons engaged in trade, commerce and industry.'

24. In this case, the Supreme Court has pointed out that even an object beneficial to a section of the public is an object of public utility and that to serve a charitable purpose, it is not necessary that the object should be to benefit the whole mankind or person living in a particular country or province. But, while making these observations, the Supreme Court has been careful in pointing out the distinction between ' a section of the public ' and specified individuals. Even so far as 'a section of the public' is concerned, the Supreme Court has been particular in identifying it in the following terms (page 729) :

'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.'

25. These observations are repeated by the Supreme Court in the subsequent decision in Ahmedabad Rana Caste Association v. Commissioner of Income-tax : [1971]82ITR704(SC) .

26. These observations supply a complete answer to the contention of the learned Advocate-General that the category of persons covered by the expression 'millowners and users of motive power' constitutes a section of the public, which can legitimately form the object of a charitable purpose. The observations make it clear that the section of the public which is to be benefited to make the purpose a charitable one should have a common quality of either a 'public' nature or an 'impersonal' nature. Can it be said that 'millowners and users of motive power' have a common quality of a 'public nature' If they have any common quality the same is obviously of a 'private' nature, as each one of them is concerned with his own interest and shares nothing in common with the public. It was contended that their common quality is the fact that each one of them is either a millowner or a user of motive power. Granting that this is their common quality, it cannot be said that the said common quality possesses the attributes of a public or impersonal nature. If individuals, whose only common quality is their profession or vocation, can legitimately be invested with the attributes of a public nature, then every partnership, company or an association of persons can be an object of charity, and the trusts created for the benefit of such partnerships, companies and associations would be charitable trusts earning exemption under section 11. Absurdity of such a situation cannot be over-emphasised.

27. What is the exact nature of 'section of the public' which can legitimately become an object of a charity, is considered by Lord Greene M.R. in Powell v. Compton [1945] 1 Ch 123. In that case a bequest was made for the education of a small number of individual relatives of a testatrix. The question which arose was whether these individuals formed a 'section of the public' so as to make the trust a charitable trust. Lord Greene M. R. held that the trust was not a valid trust, making the following observations :

'No definition of what is meant by a section of the public has, so far as I am aware, been laid down, and I certainly do not propose to be the first to make the attempt to define it. In the case of many charitable gifts it is possible to identify the individuals who are to benefit, or who at any given moment constitute the class from which the beneficiaries are to be selected. This circumstance does not, however, deprive the gift of its public character. Thus, if there is a gift to relieve the poor inhabitants of a parish the class to benefit is readily ascertainable. But they do not enjoy the benefit, when they receive it, by virtue of their character as individuals but by virtue of their membership of the specified class. In such case the common quality which unites the potential beneficiaries into a class is essentially an impersonal one. It is definable by reference to what each has in common with the others, and that is something into which their status as individuals does not enter.'

28. Our Supreme Court has approved of this principle in Ahmedabad Rana Caste Association's case : [1971]82ITR704(SC) and has held that members of Rana caste has a relationship which was an impersonal one dependent upon their status a members of that caste. No such relationship of impersonal nature can be found amongst the millowners and users of motive power, and, hence, none of the objects mentioned in clause (a), (b) and (c) can be treated as objects of public utility.

29. We have already dealt with the object found in clause (d). So far as the object contained in clause (e) is concerned it consists of two parts. This first part contemplates establishment or the creation of funds to benefit employees of the association or the dependents of such persons while the second part contemplates subscriptions, donations or guarantees or 'charitable or benevolent' purposes at the discretion of the association. Now, so far as the first part is concerned, it is covered by the decision in Oppenheim v. Tobacco Securities Trust Co. Ltd. [1951] AC 297, to which reference is made by the Supreme Court in Ahmedabad Rana Caste Association's case : [1971]82ITR704(SC) of the report. The facts of that English decision were that the trustees were directed to apply certain income in providing for the education of children of employees or 'former employees' of a British limited company or any of its subsidiary or allied companies. The House of Lords held in this case by majority that though the group of persons indicated was numerous, the nexus between them was employment by particular employers and, accordingly, the trust did not satisfy the test of a public benefit requisite to establish it as charitable. This principle has been approved by our Supreme Court and, therefore, the first part of the object clause (e) is also not found to be for general public utility within the meaning of section of section 2(15) of the Act. So far as the second part is concerned, Shri Kaji's contention was that a benevolent purpose is not necessarily a charitable purpose but if this clause is constructed liberally, it may be said that it embodies within it the object of public utility. Now, proceeding to clause (f) it contemplates promotion of good relation between the employers and the employees. So far as this object is concerned, the matter is concluded by the decision of the Supreme Court in the above referred case of Commissioner of Income-tax v. Indian Sugar Mills Association : [1974]97ITR486(SC) , wherein the relevant clause which the court considered was 'to promote good relations between the employers and the employees'. This clause was exactly similar to clause (f) with which we are concerned in this reference. With regard to such a clause, the Supreme Court has observed that even assuming that in some remote and indirect manner such an object might be some public utility, it cannot be called a charitable purpose within the meaning of section 4(3)(i) of the Indian Income-tax Act, 1922. In view of this decision, even the object mentioned in clause (f) cannot be considered as the object serving any public utility.

30. If we closely scrutinise the objects contained in rule 3, we find that a substantial part of these objects benefit the association's own members, those connected with them, and their employees. It is no doubt true that the beneficiaries of these objects are also who are non-members but who happen to be millowners or users of motive power. But that aspect of the matter does not detract from the fact all the members, and their employees, and 'those who are connected' with members, from the substantial part of the recipients of the benefits contemplated by the objects. In Commissioner of Inland Revenue v. City of Glasgow Police Athletic Association [1953] 34 TC 76 (HL) Lord Cohen has summarised the legal position in such cases as under at page 105 of the report :

'(1) If the main purpose of the body of persons is charitable and the only elements in its constitution and operations which are non-charitable are merely incidental to that main purpose, that body of persons is a charity notwithstanding the presence of those elements - Royal College of Surgeons of England v. National Provincial Bank [1952] AC 631 (HL).

(2) If, however, a non-charitable object is itself one of the purposes of the body of persons and is not merely incidental to the charitable purposes, the body of persons is not a body of persons formed for charitable purposes only, within the meaning of the Income Tax Acts - Oxford Group v. Inland Revenue Commissioner [1949] 2 All ER 537; 31 TC 221 .

(3) If a substantial part of the objects of the body of person is to benefit its own members, the body of persons is not established for charitable purposes only - Inland Revenue Commissioner v. Yorkshire Agricultural Society [1928] 1 KB 611.'

31. In our opinion, the present case falls within the second and third categories mentioned by Lord Cohen. Even otherwise it is apparent that different objects contained in rule 3 are mixed objects and it is further clear by reference to rules 22 and 22(a) that the funds of the association can be spent on any of these objects at the discretion of the managing committed. Hence, the present case is fully covered by the ratio of the Privy Council decision in Mohammad Ibrahim Riza v. Commissioner of Income-tax AIR 1930 PC 226, where it is held that where the property is vested in the head of community under deeds of trust, but the trust property is applicable to purposes, many of which are neither religious nor charitable, and it is not suggested that any part of the property is set aside for any charitable or religious purposes, so that it can be identified as appropriate exclusively for such purposes, then the income of the whole of the property is assessable to income-tax. This principle is approved by the Supreme Court in East India Industries (Madras) Pvt. Ltd. v. Commissioner of Income-tax : [1967]65ITR611(SC) .

32. Considering all these facts we conclude that the respondent-association is not entitled to the benefit contemplated by section 11 in view of the mixed purposes for which the respondent-association is expected to function.

33. Shri Kaji's next argument was that since the exemption contemplated by clause (a) of section 11(1) is earned only with regard to that income, which is derived from property held under trust and since the coal business done by the respondent-association was not the property of the trust, section 11 has no application so far as profit from coal business is concerned. But here we find that, according to section 11(4), a property held under trust includes even a business undertaking so held. Now, if it is found from the facts of the case that the coal business which the respondent-association had undertaken during the accounting period, was an undertaking held by the respondent-association in trust for others, then the said business can be legitimately considered to be a property held in trust. Therefore, the income which the respondent-association has derived from this coal business can be legitimately dealt with as per the provisions contained in section 11 if that business is found to be a trust property. Therefore, the contention of Shri Kaji, that income from coal business cannot be a subject-matter of treatment under section 11, cannot be accepted.

34. [The rest of the judgment is not to be reported.]


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