Skip to content


Additional Commissioner of Income-tax, Madras-i and anr. Vs. Madras Jewellers and Diamond Merchants Association - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 359 of 1974 and 282 of 1975 (Reference Nos. 172 of 1974 and 240 of 1975)
Judge
Reported in(1980)16CTR(Mad)230; [1981]129ITR214(Mad)
ActsIncome Tax Act 1961 - Sections 2(15), 11, 147 and 148
AppellantAdditional Commissioner of Income-tax, Madras-i and anr.
RespondentMadras Jewellers and Diamond Merchants Association
Appellant AdvocateJ. Jayaraman and ;Nalini Chidambaram, Advs.
Respondent AdvocateS.V. Subramaniam, Adv.
Excerpt:
.....the jewellery and diamond trade and that if any charges were received for services, it was only incidental and not with a view to make any profit. ' 6. after pointing out the several objects that have been extracted, the tribunal added :all these would show that these are wider aspects intended to benefit ultimately the cross section of the public as well as the merchants engaged in the jewellery and diamond trade. such services is really handy and beneficial to the public, because it serves as a safeguard against malpractices alleged in the weighment of such precious items like gold, jewellery, etc. the promotion of standards of behaviour of the bullion merchants towards the general public also subserves the public good......tribunal has pointed out as follows : '...... we are of the view that the dominant object of the assessee-association, as seen from the object clause, is that it is to protect, safeguard, guide and further the interest and welfare of merchants dealing in diamonds, bullion, manufactured gold and silverware and jewellery and also to create and encourage friendly feeling and unity amongst the merchants engaged in the aforesaid trades in madras and further to remove as far as it might be within the powers of the association the difficulties of business represented by the above trades and to frame such rules of conduct as would facilitate smooth transaction of business.' 6. after pointing out the several objects that have been extracted, the tribunal added : 'all these would show that these.....
Judgment:

Sethuraman, J.

1. These two references arise out of an order of the Income-tax Appellate Tribunal for the assessment years 1967-68 and 1968-69 and 1970-71 to 1973-74. T. C. No. 359 of 1974 deals with the first two years and T. C. No. 282 of 1975 deals with the other three years. In both these references the question is common one, though slightly differently worded.

2. In T. C. No. 359 of 1974 of the question referred runs as follows :

'Whether, on the facts and in the circumstances of the case, it has been rightly held that the assessee was entitled to exemption under section 11 of the Income-tax Act, 1961 ?'

3. In T. C. No. 282 of 1975 the question referred runs as follows :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was entitled to exemption under section 11 of the Income-tax Act, 1961 ?'

4. The assessee was incorporated under the Indian Companies Act, 1913, and was exempted for, adding the suffix 'Limited' under s. 26 of the said Act. The association was started for protecting, safeguarding, guiding and furthering the interest and welfare of merchants dealing in diamonds, bullion, manufactured gold and silverware and jewellery, and to create and encourage friendly feeling and unity amongst the merchants engaged in the abovementioned trades in Madras. There are other objects, which are more in the nature of powers and which are incidental to the objects mentioned above. For the assessment years 1967-68 and 1968-69, the assessee, in response to a notice under s. 148 of the Act, submitted a return showing the income assessable as 'nil'. The assessee claimed exemption in respect of its income as, according to it, it was an association for promotion of commerce. The claim for exemption was not accepted by the ITO as, according to him, the objects were only to promote the interest of the members and to benefit them. In his view, there was no advancement of any object of general public utility served by the association. He brought to tax a sum of Rs. 340 for the assessment year 1967-68 and Rs. 3,810 for 1968-69. The assessee appealed to the AAC. The assessee objected before the AAC to s. 147(b) being invoked and also to the rejection of the claim for exemption under s. 11. The AAC was of the view that the ITO had merely changed his opinion and brought to tax the amount in dispute, even though he had exempted them earlier, that this was bad in law, and that even on merits the assessee's activities were of general public utility and that the income, therefore, was exempt under s. 11. The revenue appealed to the Tribunal. The Tribunal accepted the department's contention that the reopening had been validly done particularly in the context of information which emanated from the internal auditor's report. It further held that the assessee's claim for exemption under s. 11 was well founded. In the opinion of the Tribunal, the dominant object of the assessee was intended to benefit the cross-section of the public, as well as the merchants engaged in the jewellery and diamond trade and that if any charges were received for services, it was only incidental and not with a view to make any profit. The result was that the assessee's claim for exemption succeeded. The assessee did not file any reference application against the finding of the Tribunal relating to the applicability of s. 147(b). The only question that arises for consideration is whether the assessee was entitled to exemption under s. 11 of the I. T. Act, 1961

5. The receipts of the assessee are from survey charges, weighment charges and charges for arbitration. in the course of the order, the Tribunal has pointed out as follows :

'...... we are of the view that the dominant object of the assessee-association, as seen from the object clause, is that it is to protect, safeguard, guide and further the interest and welfare of merchants dealing in diamonds, bullion, manufactured gold and silverware and jewellery and also to create and encourage friendly feeling and unity amongst the merchants engaged in the aforesaid trades in Madras and further to remove as far as it might be within the powers of the association the difficulties of business represented by the above trades and to frame such rules of conduct as would facilitate smooth transaction of business.'

6. After pointing out the several objects that have been extracted, the Tribunal added :

'All these would show that these are wider aspects intended to benefit ultimately the cross section of the public as well as the merchants engaged in the jewellery and diamond trade. On illustration regarding such services is the provision for common weighing facility to all public whoever intended to purchase or sell jewellery or other connected articles. Such services is really handy and beneficial to the public, because it serves as a safeguard against malpractices alleged in the weighment of such precious items like gold, jewellery, etc., if the weighment is done elsewhere. Further m if any charges are charged, it is only incidental and not to make any profit.'

7. We have already examined the claim for exemption of the automobile Association of Southern India under s. 11 in T. C. No. 352 of 1974 [Addl. CIT v. Automobile Association of Southern India : [1981]127ITR730(Mad) ] in the light of the judgment of the Supreme Court in Tax Reference No. 1A of 1973 and 10 to 14 of 1975 dated November 19, 1979, in the case of Addl.CIT v. Surat Art Silk Cloth Manufacturers Association : [1980]121ITR1(SC) . The principles laid down in the said judgment have all been set out in our judgment pronounced today (See : [1981]127ITR730(Mad) ). We do not think it necessary to go over the same ground in the present case also. The finding of the Tribunal that the assessee is not conducting any activity for profit is clear from the passage reproduced above. When the assessee is not pursuing any activity for profit, any surplus received cannot be said to be assessable to tax by reason of the word 'excluded' in s. 2(15). The case of the assessee falls within the scope of the decision in CIT v. Andhara Chamber of Commerce : [1965]55ITR722(SC) , as the activities of an association of this kind would reach the cross section of the public. In fact, as pointed out by the Tribunal, the facility for authoritative weighment of bullion had jewellery for a nominal charge of Re. 1 is a great benefit to the general public. The promotion of standards of behaviour of the bullion merchants towards the general public also subserves the public good. Thus, the activities of the assessee fall within the scope of the main part of the definition of s. 2(15). It is not a case where the assessee can be brought within the scope of the words 'not involving the carrying on of any activity for profit'. There is no profit motive and whatever profit has been derived is only incidental. In the light of these findings of the Tribunal, which are not in dispute, the claim for exemption by the assessee has to succeed. THe question referred in both the references are answered in the affirmative and in favour of the assessee. There will be no order as to costs.


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