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Commissioner of Income-tax Vs. South Indian Photographic and Allied Trades Association - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Cases Nos. 87 and 122 to 127 of 1978
Judge
Reported in[1987]166ITR166(Mad)
ActsIncome Tax Act, 1961 - Sections 2(15), 10, 10(3), 11, 11(1) and 28
AppellantCommissioner of Income-tax
RespondentSouth Indian Photographic and Allied Trades Association
Appellant AdvocateJ. Jayaraman and ;Nalini Chidambaram, Advs.
Respondent AdvocateR. Janakiraman, Adv.
Excerpt:
.....for promotion of objects - held, assessee company entitled to exemption under section 11 as activity of company was in advancement of public utility and carrying of activity for profit is not one of its objects. - - (2) whether any portion of the income of the assessee was liable to be taxed under section 28(iii) of the income-tax act, for the above assessment years ?' 3. for the subsequent assessment year 1969-70 to 1972-73 the company made a similar claim for exemption both under section 11 as also under section 10(3). the income-tax officer having rejected that claim, the matter were taken in appeal to the appellate assistant commissioner for without success. when the matters went before the tribunal the tribunal following its earlier decisions in respect of the earlier..........public utility and not accomplishment or carrying out which must not involve the carrying of any activity profit and not the inhibition of the exclusionary would be attracted if the purpose of the trust or institution of involves the carrying on of an activity for profit of in other awards or 'as a matter of advancement of the purpose'. the supreme court laid down the following tests to be applied in such cases. (1) whether predominant object of the activity involved in carrying out of the object general is to subject the charitable purpose of the earn profit. (2) where the profit-making is the predominant object of the activity, then the object of general public utility would cease to be a certain purpose. (3) where the predominate object of the activity is to carry out of the.....
Judgment:

Ramanujam, J.

1. The assessee who is the same in all these tax cases is as the South Indian Photographic Company and Allied Trades Association, Madras hereinafter referred to as the 'company'. In the assessment proceeding under the Income-tax Act, 1961, herein after referred to as 'the Act' for the assessment the 1963-64 to 1968-69, the company claimed exemption under section 11 on the ground that it is a non-profit making organization deactivated to the advancement of an object of general public utility. It also claimed exemption under section 10. The Income-tax officer however did not accept the said claims and the assessed its income holding that its receipt fork members and non-members should be taken to relate to the service rendered to them by the company. On appeal, the Appellate Assistant Commissioner held the the exemption under section 10(3) and 11 were not available. Ultimately the matters were taken to the Tribunal contending that its object are charitable and therefore its income should be exempt under section 11. It was also contained attracting the provision of section 10(3). It further contained that neither the provision of section 28(iii) nor any other provision of the Act allied to its case so as to render its income taxable. The Tribunal after going detail into the object of the company and after considering the nature of the receipt held that the provisions of section 28(iii) are not attracted that the exempts under section 11 was available for charitable purpose in India, the Tribunal directed the income-tax officer to ascertain the extent to the which the amount of income has been applied to charitable purpose for the each of the assessment year and give the company proper relief. Since the Tribunal held that the company is entitled to claim exemption under section 11, it did not consider the claim of the company for exemption under section 10(3).

2. Aggrieved by the decision of the Tribunal the revenue has sought and obtained a reference to this court on the following two question in Tax Cases Nos. 122 to 127 of 1978 :

'(1) Whether, on the facts and in the circumstances of the case the assessee was entitled to exemption on its income for the assessment year 1963-64 to 1968-69 under section 11 of the Income-tax Act?

(2) Whether any portion of the income of the assessee was liable to be taxed under section 28(iii) of the Income-tax Act, for the above assessment years ?'

3. For the subsequent assessment year 1969-70 to 1972-73 the company made a similar claim for exemption both under section 11 as also under section 10(3). The Income-tax Officer having rejected that claim, the matter were taken in appeal to the Appellate Assistant Commissioner for without success. When the matters went before the Tribunal the Tribunal following its earlier decisions in respect of the earlier assessment year referred to above, held that the assessee is entitled to the exemption under section 11 read with section 2(15) for these assessee year as well as directed the Income-tax office to ascertain to extent to which the income has applied to charitable purpose for each of the year and to the necessary relief to the company. Aggrieved by the said decisions of the Tribunal the revenue has sought and obtained a consolidated reference this court in Tax Case No. 87 of 1978 on the following two questions :

'(1) Whether on the facts and in the circumstances of the case assessee was entitled to exemption of its income for the assessment 1963-64 to 1968-69 (obviously a mistake for the assessment year 1969-70 to 1972-73) under section 11 of the Income-tax Act?

(2) Whether any portion of the income of the assessee was liable taxed under section 28(iii) of the Income-tax Act, for the above assessment years?'

4. Section 11 provides for exemption of income for proper under a circumstances. Section 2(15) defines a to what is 'charitable purpose' 'Charitable purpose' has been defined in that provision so include relief of the portion education medical relief and the advancement any other object of general public utility not involving the carrying any activity of profit. It has been claimed by the company in this that it subject are clearly for the advancement of the general public not involving the carrying on of any activity for profit and, therefore, should be taken to be an organization formed for a charitable purpose and, therefore, its income has to be exempted under section 11 read with section 2(15). Thus we have to see as to whether the object of the company are for advancement of general public utility not involving the carrying of any activity for profit.

5. The object for which the company has been established as per the memorandum of association are inter alia (1) To promote commerce are, science or any other useful object connected with photographic and allied trades. (2) to promote and protect the interest of photographic and allied traders in every manner possible (3) To formulate and carry out plans designed to place the trade on a sound and remunerative basis. (4) To make representation to authorities both Governmental and non-governmental in India or abroad on behalf of photographers and allied traders. (5) To arrange for equitable distribution at reasonable price of all goods imported into India and manufactured in India necessary for carrying on the basis of Photographic and allied trades (6) To collaborate with other similar association in the interest of the science of photographic and allied trades......... (10) To promote schemes calculated to increase and business. (11) To correlate and help the members to heap each other to the betterment of the business of all and to increase general trade.

6. The following persons are eligible for the membership of the association :

(a) Any persons or person who in the opinion of the executive committee is fit to be classified as earning directly by the traders o photography arts of any other trade where the use of sensitive materials is essential.

(b) Dealers in photographic goods.

(c) Professional photographers.

(d) Press photographers.

(e) Journalist photographers.

(f) process engravers.

(g) Person or per who undertake offset, the progressive or other printing where the use of the photographic sensitive material is essential.

(h) Any other person who earns a living by use, conversion and sale of photographic sensitive materials.'

7. Clause V of the memorandum relating to the income and profit of the companies under :

'(1) The income and property of the income, whenever derived, shall be applied solely for the remission of its object as set forth in this memorandum.

(2) No portion of the income or property aforesaid shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to person who at any time or have been, members of the company or to any been or more of them or to any person claiming though any one or more of them.'

8. The company had income by way of receipt for members donations rents secretarial charges, service charges and receipts from the souvenirs. Taking note of the object of the company and to the nature of the receipt the tribunal held that the company is a non-profit making body run with the object of generally public utility involving the carrying of any rectify for profit. Before the Tribunal it was conceded by the Revenue that the receipt by way of receipt of secretary charges and by way of advertisement in sevens would indicate that the company carries on an activity for profit and that is sufficient to exclude the company from the purview of the definition in section 2(15). The Tribunal, however, r held that having regard to the object of the company which not contemplated the distribution of profit under any circumstances as between its members the company cannot be said to be carrying on an activity for profit and therefore it should be taken by the Tribunal that the object of the company are charitable as defined in section 2(15) is correct.

9. In re The Trustees of the Tribune [1939] 7 ITR 415 , the Judicature Committee had held that a trust the object of which was described 'supplying the proving with an organ of educated public opinion' was entitled to exemption on the ground that it was trust establish for the purpose of general public duty. It Sole Trustee, Loka Shikshana Trust's case : [1975]101ITR234(SC) :

'It seems clear to us that the handed provisions section 2(15) of the in Act of 1961, was directed at a change of law as it was declared by the Privy Council in the Tribune case.'

10. In that case the assessee-press carried on publication of the daily news paper Samyukta Karnatak. The object of the trust was to education the people of India in general and of Karnataka in particular by (a) establishing and conducting institutions and calculated to educate the people by spread of knowledge on all matter of general interest and welfare, (b) supplying the and running reading room and libraries etc., and (c) supply and Kannada speaking people with an organ of educated public opinion and conducting journals. The Income-tax Officer brought to tax the huge profit earned further publication of the newspaper holding of the object of the trust, though of the general public utility, involved the carrying of an activity for profit. When the matter was ultimately taken to the Supreme Court it held the trust was carrying only one of its object namely supplying public with an organ or organs of educated public opinion of that both the conditions set out in section 2(15) are fulfilled in that case that the company is engaged in the business of the which is one of its object and that it is carrying on any activity for profit.

11. The interpretation of section 2(15) against came up for consideration before the Supreme Court in Indian Chamber of Commerce v. CIT : [1975]101ITR796(SC) . It was found that the in that case the broad object as spelt out from the memorandum and articles of association were primarily promoting and protective of Indian trade interest and the allied service operations and those were found to fall clearly within the sweep of the expression 'the advancement of any object of general public utility' as set down in section 2(15) and that no portion of the income or property of the association was to be paid directly or indirectly by way of dividends or bonus or otherwise how so ever by way profit to the raising who at any time were member of the association The Chamber of Commerce derived income (1) by way of arbitration fees levied by it, (2) by way of fees collected for the certificate acts or origin, and (3) by way of receipt for issue of certificates of weight and measurement. The supreme Court in that case and down the test as under (at p. 808) :

'The truest test is to ask for answer to the following question : (a) Is the object of the assessee one of the general public utility (b) Does the advancement of the object involve activities bring in movies (c) if so are as such activities undertaken, (i) for the profit or (ii) without profit Even if (a) and (b) are answered affirmatively if clause (i) is answered affirmative the claim for exemption collapses. The solution to the problem of an activity being one for or irrespective of profit is gather on a footing of facts. What is real nature of the activity One which is ordinarily carried on by ordinary people or gain Is there a built-in-prescription of the constitution against making a profit Has there been in practice that the service is rendered is no answer to chargebility because all the income is often derived by rendering some service or other'

12. This court in CIT v. Madras Stock Exchange Ltd. : [1976]105ITR546(Mad) , dealt with the claim for exempt under section 11 of the Andhra Pradesh of Commerce the South Indian Film Chamber of Commerce and at Madras Stock Exchange Association Private Ltd., and held (at p. 555) :

'In the Loka Shikshana Trust's case : [1975]101ITR234(SC) , the object of the trust could not be achieved without carrying on the business publication of newspapers. If the profit-making activity is thus for appointed thus mean of achieving a charitable object of general public utility then the profit would be taxable. One cannot carry on a business and claim exemption on the income therefrom by merely saying that it is for a charitable purpose. There is a distinction between : (a) a business besides held under trust whose profit feed a charity; and (b) the carrying on of the business is carrying out what is conceived as charitable purpose. In the former case, the income clear exempt. In the latter, the income may be taxable. The distinction is somewhat fine, but it has to be kept mind. The proposition that one must run the activity of on a 'no profit loss basis' is applicable to a case where in the course of carrying of the charitable purpose the is an activity. In such a case if the aim was to render the service on 'no profit no loss basis ' the profit would be taxable Similarly the test that the profit from a business which is taxable if carried on by a businessmen does sent cease to be taxable charity indulging in it is also applicable primarily to a case where profit-making activity is embarked upon as the appointed means of achieved in the purpose of the trust.'

13. In Addl. CIT v. Surat Art Silk Cloth Manufacturers Association : [1980]121ITR1(SC) , dealing with the claim for exemption under section 11 by the Surat Art Silk Manufacturers Association the Supreme Court held that the expression 'not involving the carrying on of any activity of profit' qualification governs only the last head of charitable purpose and not the earlier heads and that therefore where the purpose of trust or institution relief of the poor education or medical relief, the requirement of the petition of 'charitable purpose' would be fully satisfied even if an of profit is carried on it the course of the actual carrying out of the primary rise of the trust or institution. The Supreme Court further observed that the true meaning of the last ten words in section 2(15) viz., 'not involving the carrying been of any activity of profit' is that the purpose of a trust or institution is the advancement of the object generally public utility, it is that the object of general public utility and not accomplishment or carrying out which must not involve the carrying of any activity profit and not the inhibition of the exclusionary would be attracted if the purpose of the trust or institution of involves the carrying on of an activity for profit of in other awards or 'as a matter of advancement of the purpose'. The supreme Court laid down the following tests to be applied in such cases. (1) Whether predominant object of the activity involved in carrying out of the object general is to subject the charitable purpose of the earn profit. (2) Where the profit-making is the predominant object of the activity, then the object of general public utility would cease to be a certain purpose. (3) Where the predominate object of the activity is to carry out of the charitable purpose and not to earn profit it would not lose its character of a charitable purse merely because some profit arises of the activity is to charitable purpose and not to earn profit it would not lose its character of a charitable purpose merely beaus some profit arises from the activity. In this case, the decision in Indian Chamber of Commerce v. CIT : [1975]101ITR796(SC) holding that the Chamber will not be entitled to the benefit of section 11 was specifically overruled. In CIT v. South Indian Film Chamber of Commerce : [1981]129ITR22(Mad) , the question arose whether the South Indian Film Chamber of commerce was entitled to exemption under section 11. A Division Bench of this court held that the object of the fill chamber inter alia, being to encourage and develop the film industry in all its branches in South India, namely to watch to protect and extend the right and privileges of its members and the film trade in general to encourage and facilitate film production distribution exhibition of films and to do various things for the purpose of assessing the person in this line of activity, it should be taken to be an object of generally public utility and, the for the income received by it form various source was exempt from tax under section 11, and that the income derived by the Film Chamber from service rendered to its members was not liable top be charged to tax under section 28(iii). The said decision is applicable fours to the facts of this case. The object referred to in that case are similar to the object of the company save the difference that the Film Chamber was interest in the advancement of the fill industry while the object of the company before us is the advancement of the photographic industry.

14. The Supreme Court in CIT v. Bar Council of Maharashtra : [1981]130ITR28(SC) , had to consider the question whether the Bar Council of Maharashtra can claim exemption under section 11 in respect of its income The supreme court has held the income by way of interest from securities held by the bar Council is exempt from tax liability under section 11 as the securities are held by the Bar Council on trust wholly for charitable purpose viz., for the advancement of an object of public utility within the meaning of section 2(15) and as such the income from the securities held it was exempt from tax liability under section 11.

15. In Addl. CIT v. Delhi Brick Kiln Owner Association : [1981]130ITR55(Delhi) , the Delhi High Court held that where the purpose of an institution is the advancement an object of generally public utility, it is the object of general public utility and it not its accomplishment or carrying out, which must no involve the carrying on any activity for profit, that so long as the purpose does not involve the carrying of any activity of profit the requirement of the definition in section 2(15) would stand satisfied. In that case, the object of an association were (1) to promote, developed and protect the brick kiln trade, commerce and industries, (2) to which and protect the interest of brick kiln owner a contractors customers and brick dealers members of the association and interest of person engaged in bricks in brick trade commerce or industries legally morally and socially, (3) to consider all question connected with brick trade, commerce and industries and to initiate or support necessary action in connection the with, and (4) to protect the brick trade with the co-operation of the Government through legislative representation to getting grievance and difficulties of Brick Kiln Owners Association redressed. These object were held to promote the brick kiln trade, that is an object of general public utility. The dominant intention of the association being to remote the brick kiln trade and since that purpose did not involve the carrying of an activity the profit the income of the association was entitled to exemption under section 11(1)(a).

16. The Supreme Court in CIT v. Federation of Indian Chambers of Commerce and Industry : [1981]130ITR186(SC) , dealt with a claim for exemption under section 11 by the Federation of Indian Chambers of Commerce and Industry. The Supreme Court that the Federate is company without share capita and does not distributed any dividend to its member that its entire income is being expended for the fulfillment of its object that it main object as set out in the memorandum of association was promote Indian business in matters of inland and foreign trade, transport industries and manufacture, finance and all other economic subjects to encourage Indian banking shipping and insurance. The said Federation held the Indian Trade Fair at New Delhi in the year 1962-63 derived receipts from rent for space allotted temporary stalls and storage and sold season tickets and daily gate tickets for enter to the fair. It also realized deposits and advances from participates for hotel accommodation. During that year also, the represented sponsored the Afro-Asian Conference for Economic Co-operation and for organising the Conference it received Rs. 3 lakes from the Government of India as grant-in-aid, of which meeting the expenses it was left with a balance a of Rs. 2,17,346. It is received a share of profit and from sale of a books on a company advances and fees for arbitration. On those fact, the Supreme Court that the activities of the Federation such as holding the Indian Trade Fair and sponsoring the Conference of the Afro-Asian Organisation were advancement of the dominant object and purpose of the Federation, viz., promotion protection and development of trade commerce and in India and, therefore, they were exempt tax under section 11(1)(a) read either section 2(15). The said decision of the Supreme Court clearly applies to the facts of this case. Here the activities of the company mainly are to promote commerce, art, science or any other useful object connected with photographic and allied trade and to promote and protect the interest of photographic denied trade and to promote and protect possible and to formulate and carry out plans designed to place the trade on a sound and remunerative basis and to correlation and help in members to help each other to ten betterment of the business to increase general trade. As already the memorandum of associate does not contain any provision for division profit or property as amongst the members. As a matter of fact, clause 5 of the memorandum of association clearly shows than the income and the property of the company when so ever derived shall be applied solely for the promotion of its object as set of for the in the memorandum of association and it clearly says that no portion of the income or property shall be paid or transferred directly or indirectly by way of dividend, bonus and otherwise by way of profit to persons who at any item are, or have been members of the company. Therefore the dominant activity of the company is advancement of public utility and carrying of an activity for profit is not one of its objects.

17. Having regards to the principles laid down in the various decisions of the Supreme Courts referred to above as well as the decision of this court, we have to hold that the company is entitled to exemption under section 11 read with section 2(15) of the Act and that income of the company is not liable to be taxed under section 28(iii) as has been held by this court in CIT v. South Indian Film Chamber of Commerce : [1981]129ITR22(Mad) .

18. The first question is therefore, answered in the affirmative and against the Revenue and the second question is also answered in the negative and against the Revenue. The Revenue will pay the cots of the assessee-company. Counsel fee Rs. 500 (one set).


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