1. At the instance of the Commissioner of Income-tax, Madras, the following two questions have been referred to this court :
'1. Whether the objects of the assessee constituted 'charitable purpose' as defined in Section 2(15) of the Income-tax Act, 1961, entitling it to exemption under Section 11 of the said Act, for the assessment years 1968-69, 1970-71 and 1971-72?
2. Whether, on the facts and in the circumstances of the case, the income derived by the assessee-chamber by way of services rendered by it to its members is not liable to be charged to tax under Section 28(iii) of the Income-tax Act, 1961, for the assessment years 1968-69, 1970-71 and 1971-72?'
2. The assessee-chamber is a society formed and registered under the Societies Registration Act, 21 of 1860. Film producers, studio owners, film exhibitors, film distributors and others connected with the film industry are the members of this assessee-chamber. Its objects as set out in para. 3 of the memorandum of association have been set out in the statement of the case. In brief, they are to encourage and develop the film industry in all its branches in South India and so far as possible to work in conjunction with other similar associations; to watch, protect and extend the rights and privileges of its members and of film trade in general; to encourage and facilitate film production, distribution and exhibition of films; and to do various other things for the purpose of assisting the persons in this line of activity. The assessee assisted its members by supplying them raw materials and carbon, keeping the films in vaults and safe custody, screening the pictures for preview in the theatre owned by it, etc. The building which it owns was let out. Thus, it derived income from property, distribution of raw films, cinema carbons, etc., and also income by way of remuneration for other services rendered to its members. There were also receipts as and by way of arbitration fees.
3. The assessee filed returns for each of these years showing the income as assessable under the head ' property ' and under the head ' business '. For instance, taking the assessment year 1968-69, the property income was Rs. 15,616 and the income under the head 'business' was Rs. 27,653, making up a total of Rs. 43,270. Similar amounts of income for the other years were returned for assessment. According to the assessee, the income derived by it was from properties held by it under trust, wholly for charitable purposes, and the income was exempt from tax.
4. The ITO rejected the claim on the ground that the objects of the assessee involved carrying on of an activity for profit and that, therefore,the objects could not be said to constitute ' charitable purpose ' within the meaning of the said expression as denned in Section 2(15) of the I.T. Act, 1961. The assessments were completed accepting the income shown in the returns filed as correct. The assessee appealed to the AAC. He held that the activity of the society could not be brought within the scope of 'charitable purpose'. He, however, accepted the contention of the assessee that it was entitled to the benefit under Section 44A of the I.T. Act. Section 44A is a special provision for deduction of expenditure in the case of trade, professional or similar associations, under certain conditions.
5. The assessee appealed to the Appellate Tribunal. It held that the income of the assessee-chamber was exempt under Section 11 of the I.T. Act, 1961, for the years under consideration. There was an alternative contention on behalf of the revenue that the income derived by way of service rendered to the members are liable to be charged to income-tax under Section 28(iii) of the Act. The Tribunal took the view that Section 28(iii) could not be pressed into service when once it was found that the income derived by the assessee-chamber was exempt from tax under Section 11 of the Act, and that Section 28(iii) could be applied only in respect of income derived from a trade, professional or similar association from specific services performed for its members, whose objects did not constitute ' charitable purposes ' as defined in Section 2(15) of the Act. Against this order of the Tribunal, the Commissioner has obtained a reference to this court of the questions mentioned already.
6. As far as the first question is concerned, in the case of this very assessee a similar matter came up to this court on reference CIT v. Madras Stock Exchange Ltd. : 105ITR546(Mad) . In that case also the question was whether the income of the assessee was exempt from tax. It was held that the case of the assessee was governed by the decision of the Supreme Court in CIT v. Andhra Chamber of Commerce : 55ITR722(SC) . In the course of the judgment in dealing with the present assessee it was observed (at p. 559) after referring to the judgment (in Andhra Chamber's case : 42ITR503(Mad) of this court and a certain passage from the judgment of the Supreme Court (in Indian Chamber's case : 101ITR796(SC) :
' The above passage appears to us to show that if the assessee itself indulges in an activity and that if profits arise from it, it could be legitimately said'that the activity was adapted to such profit. But that is not the case here. The assessee was an instrument of the Government for the purpose of ensuring certain standards in the matter of storage of films ordistribution thereof. We are unable to infer on the facts that these activities were for profit so as to be hit by the last portion of the definition in Section 2(15).'
7. Therefore, the question whether the assessee was entitled to exemption was answered in its favour. For the same reasons, we answer the first question in the affirmative and in favour of the assessee.
8. The second question is somewhat a new one. Section 28(iii) runs as follows :
' The following income shall be chargeable to income-tax under the head ' Profits and gains of business or profession',--......
(iii) income derived by a trade, professional or similar association from specific services performed for its members.'
9. In the present case, the only activity of the assessee was earning income from property, distribution of raw films, cinema carbons, letting out vaults for storage of films, letting out the theatre for screening pictures for preview, etc. The question is, whether these can be taken to be activities falling within the scope of Section 28(iii) of the Act. The underlying idea behind Section 28(iii) is that there must be a business from which income is derived 'and that in the course of such business specific services must be rendered for its members. The concept behind Section 28(iii) is to cut at the mutuality principle being relied on in support of a claim for exemption, when the assessee was actually deriving income or making profits as a result of rendering specific services for its members in a commercial way.
10. Under the Indian I.T. Act, 1922, Section 10(6) provided :
' A trade, professional or similar association performing specific services for its members, for remuneration definitely related to those services shall be deemed for the purpose of this section to carry on business in respect of those services, and the profits and gains therefrom shall be liable to tax accordingly. '
11. It may be seen that under this section, a statutory fiction is attributedto remuneration received in consideration of specific services rendered toits members so as to treat it as business income. Such remunerationwould, in other words, be deemed to have been derived from a business.There is no such deeming provision in the present Act.
12. We may consider the claim of the revenue even on the basis that attribution of statutory fiction was unnecessary, and that Section 28(iii) brings into charge any income derived by a trade, professional or other association from specific services rendered for its members.
13. Section 2(24)(v) of the Act provides that income includes any sum chargeable to income-tax under Clause (iii) of Section 28. The definition would apply so as to bring to tax the income as a business income, only if theincome was not covered by any exemption available tinder the Act. Section 28(iii) cannot be read in isolation, but has to be read with the other provisions of the Act. In the case of activity carried on by an entity like the present assessee, which, as it is now well settled exists for a charitable purpose, the impact of Section 11 read with s, 28(iii) has to be taken into account. Section 28(iii) provides that ' charitable purpose ' includes ' relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit '. Wherever there is no activity designed for making profit it would not fall within the scope of this definition and the exemption under Section 11 in its full force would apply. It was already seen that this case was held to be brought within the scope of exemption from assessment in the light of the decision of the Supreme Court in CIT v. Andhra Chamber of Commerce : 55ITR722(SC) , As pointed out in the judgment in CIT v. Madras Stock Exchange Ltd. : 105ITR546(Mad) , the question of taxing the income would arise if the profit-making activity was the means by which the object of public utility was sought to be achieved. This is not a case where the object of public utility is sought to be achieved by these activities. Therefore, the fact that there was income does not by itself solve the problem. The profit-making was only an incident and not the means of achieving the object of public utility. So long as the object was charitable and so long as the income was not earned from an activity which was by itself designed to achieve the object of general public utility, the exemption cannot be denied. As the facts show, the assessee was actually required by the Government to take up some of the activities as a result of which it had received certain amounts from the members. In such a case, we do not consider that there can be any scope for the view that there is any activity for profit. This view of ours is reinforced by a reference to Section 10(23A). Section 10 is also an exemption provision so that any income covered by that provision is excluded from the scope of assessment under the I.T. Act. Section 10(23A) provides:
' Any income (other than income chargeable under the head ' Interest on securities ' or 'Income from house property' or any income received for rendering any specific services or income by way of interest or dividends derived from its investments) of an association or institution established in India having as its object the control, supervision, regulation or encouragement of the profession of law, medicine, accountancy, engineering or architecture or such other profession as the Central Government may specify in this behalf, from time to time, by notification in the Official Gazette......... '
14. In the above provision, there is an exclusion from assessment of the income falling under certain categories. One of the categories is incomederived from rendering any specific services. It is true that this provision deals only with institutions or associations having as their object the control, supervision, regulation or encouragement of certain professions. But we are here concerned with the same question whether receipts in consideration of services are taxable. This provision is relevant to show that Parliament does not always conceive such receipts to be taxable and that such receipts may be exempt under certain conditions. It is not, therefore, enough if there are receipts. Such receipts must be considered in the context of all the provisions of the Act.
15. Section 11(4) provides that for the purpose of this section ' Property held under trust' includes a business undertaking so held. Therefore, even if there is a business, which yields income, so long as the business is held under trust, its income would be exempt from tax. It is not suggested that the properties were held otherwise than under trust. Section 28(iii) would not apply, to tax income from such a business, as otherwise, the benefit sought to be conferred under Section 11 would be destroyed, and the exemption provision would be stultified.
16. Having regard to all these aspects, we consider that the assessee was rightly held by the Tribunal as not being liable to tax with reference to the income under consideration. The second question is also answered in the affirmative and in favour of the assessee. The assessee will be entitled to its costs. Counsel fee Rs. 500.