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Indian Sugar Mills Association Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 213 of 1966
Judge
Reported in[1970]77ITR90(Cal)
ActsIncome Tax Act, 1922 - Sections 4(3) and 66(1); ;Trade Union Act - Section 15; ;Indian Companies Act - Section 26; ;Trade Union Rules - Rules 4, 5 and 64
AppellantIndian Sugar Mills Association
RespondentCommissioner of Income-tax
Appellant AdvocateD. Pal and ;Seth, Advs.
Respondent AdvocateB.L. Pal and ;Suhas Sen, Advs.
Cases ReferredAssociation v. Commissioner of Income
Excerpt:
- sankar prasad mitra, j.1. the assessment years in this reference under section 66( 1) of the indian income-tax act, 1922, are the years 1958-59, 1959-60, 1960-61 and 1961-62, the previous years are the calendar years 1957, 1958, 1959 and 1960, respectively.2. for all these assessment years the applicant named the indian sugar mills association, calcutta, claimed before the income-tax officer that the income arising from the sugar export division should not be subjected to tax. the income-tax officer did not accept this contention.3. before the appellate assistant commissioner the assessee submitted that the business which the association carried on in the relevant assessment years was in the nature of property held under trust or other legal obligation to apply the income for general.....
Judgment:

Sankar Prasad Mitra, J.

1. The assessment years in this reference under Section 66( 1) of the Indian Income-tax Act, 1922, are the years 1958-59, 1959-60, 1960-61 and 1961-62, The previous years are the calendar years 1957, 1958, 1959 and 1960, respectively.

2. For all these assessment years the applicant named the Indian Sugar Mills Association, Calcutta, claimed before the Income-tax Officer that the income arising from the sugar export division should not be subjected to tax. The Income-tax Officer did not accept this contention.

3. Before the Appellate Assistant Commissioner the assessee submitted that the business which the association carried on in the relevant assessment years was in the nature of property held under trust or other legal obligation to apply the income for general public utility within the meaning of Section 4(3)(i) of the Indian Income-tax Act, 1922, and, as such, the association's income was exempt. Section 4(3)(i) of the Act of 1922 lays down, inter alia, that '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 charitable or religious purposes as relate to anything done within the taxable territories, and in case of property so held in part only for such purposes, the income applied or finally set apart for application thereto' shall not be included in the total income of the person receiving it. The Appellate Assistant Commissioner, however, negatived the assessee's claim for exemption particularly in view of Rule 5(a) of the association's regulations, which ran thus :

'5. (a) If, upon winding up or dissolution of the association there remains after the satisfaction of all its debts and liabilities any propertywhatsoever, the same shall be dealt with in accordance with the resolution of the association at a general meeting held for the purpose.'

4. The matter then went up to the Tribunal which considered the association's rules and regulations and observed as follows :

(1) The association was registered under the Trade Unions Act (Act 16 of 1926);

(2) The dominant objects of the association, as enumerated in Article 3 were, no doubt, those which attracted the provisions of Section 4(3)(i) of the Indian Income-tax Act, 1922;

(3) But under Rule 4(b) the general funds of the association could be spent on any object consistent with Section 15 of the Trade Unions Act and under that section it was permissible to utilise the general funds for payments of compensation to members for loss arising out of trade disputes, allowances to members or their dependants on account of death, old age, sickness, accidents or unemployment of such members, and for the issue of, or the undertaking of, liability under policies of assurance on the lives of members or under policies insuring members against sickness, accident or unemployment.

5. The Tribunal said that though Rule 4(a) prohibited the distribution of profits, Rule 64 permitted the distribution of profits amongst the members if sanctioned by a resolution, at a general meeting. The Tribunal, however, held that Rule 4 would prevail over Rule 64 and that the provision therein permitting distribution of dividends contrary to the provisions of Rule 4 should be ignored. With regard to Rule 5, the Tribunal held that it was applicable when the question of distribution of surplus arose in the event of winding up of the association and that under Rule 5 there was no prohibition on distribution to the members nor was there any restriction that the assets should be transferred to other institutions with similar objects.

6. The Tribunal ultimately held that the income of the association was not held under trust for application wholly or partly for charitable purposes and that the association was not entitled to exemption from taxation under Section 4(3)(i) of the Indian Income-tax Act, 1922.

7. The Tribunal further held that the profits derived from export of sugar and the interest derived from fixed and current deposits were chargeable to tax.

8. The following question of law has been referred to this court:

'Whether, on the facts and in the circumstances of the case and on a proper construction of the rules and regulations of the association the Tribunal was justified in holding that the income of the association derived from the business of export of sugar and interest from current and fixed deposits were not exempt from tax under Section 4(3)(i) of the Indian Income-tax Act, 1922 ?'

9. Mr. B.L. Pal, learned counsel for the department, based his arguments principally on two decisions of English courts. In British Launderers' Research Association v. Central Middlesex Assessment Committee and Hendon Rating Authority, [1949] 1 All E.R. 21 the Court of Appeal had to construe the relevant provisions of the Scientific Societies Act, 1843. Section 1 of this Act provides :

'No person or persons shall be assessed or rated, or liable to be assessed or rated, or liable to pay, to any county, borough, parochial, or other local rates or cesses, in respect of any land, houses, or buildings, or parts of houses or buildings, belonging to any society instituted for purposes of science, literature, or the fine arts exclusively, either as tenant or as owner, and occupied by it for the transaction of its business, and for carrying into effect its purposes, provided that such society shall be supported wholly or in part by annual voluntary contributions, and shall not, and by its laws may not, make any dividend, gift, division, or bonus in money unto or between any of its members, and provided also that such society shall obtain the certificate of the barrister-at-law or lord advocate, as hereinafter mentioned.'

10. The association above-named, according to its memorandum and articles, was instituted, inter alia, for the purpose of encouraging and improving the education of persons who were engaged in the laundry industry, of disseminating information by the giving of advice, and of making known the nature and merits of processes. It carried on research into matters connected with the laundry industry and to that end was in receipt of a Government grant. The association was a company limited by guarantee, and its members, who paid subscriptions according to the size of their business, were entitled to, and did, put the results of the association's researches to practical advantage in their business. Lectures and demonstrations to students intending to enter the laundry industry were given, and on request, experts were sent to advise launderers in their business in return for fees. The association claimed to be exempt from the payment of rates by virtue of Section 1 of the Act of 1843. The Court of Appeal held, inter alia, that according to its memorandum and articles, which was the best evidence of its purposes, the association was instituted for purposes other than those incidental to the purposes of science ; even if there were any doubt as to the construction of the stated objects, the purposes which it, in fact, pursued, in particular, the purposes of its members, were not so incidental; and therefore, it was not a society instituted for the purposes of science exclusively. Mr. B.L. Pal places strong reliance on an observation of Denning L.J., at page 25. Lord Denning has said:

'The brochures about its activities (such as courses for students, development visits, and technical advice at members' laundries, and so forth) show that it pursues the purposes of its members with as much zeal as it pursues the purposes of science.'

11. Mr. Pal's contention is that an analysis of the objects of the association in the instant reference would show that it pursues the purposes of its members at least in the same manner as it pursues the purposes of general public utility.

12. The other decision on which Mr. B.L. Pal relied was a decision of the House of Lords in General Nursing Council for England and Wales v. St. Marylebone Borough Council, [1959] A.C. 540, [1959] 1 All E.R. 325. The General Nursing Council for England and Wales, originally formed under the repealed Nurses Registration Act, 1919, existed under and for the objects declared in the Nurses Act, 1957. The functions of the council included the maintenance of a register of nurses, together with a roll of assistant nurses; the regulation of the conditions of admission to and removal from the register and the roll, and, in connection therewith, the exercising of supervisory and directing powers in regard to training and examination; and the exercising of other ancillary powers. The Act of 1957 also provided penalties for the false assumption of the title of registered or enrolled nurse ; and imposed restrictions on the use of the titles of nurse or assistant nurse. On the question whether the council was an organisation 'whose main objects are charitable or are otherwise concerned with the advancement of ... social welfare' within the meaning of Rating and Valuation (Miscellaneous Provisions) Act, 1955, Section 8(1)(a), the House of Lords held, inter alia, that the council was not an organisation whose main objects were 'charitable or are otherwise concerned with the advancement of... social welfare' within Section 8(1)(a) of the Act of 1955.

13. Mr. B. L. Pal specially referred us to the observations of Lord Keith of Avonholm at page 333. Lord Keith has said :

'The question is whether the two objects to which I referred at the outset 'are charitable or are otherwise concerned with the advancement of religion, education or social welfare'. The first of these main objects, the registration of nurses, if considered by itself, clearly could not, in my opinion, be regarded as either charitable or concerned with social welfare. But, it is said, the conditions as to training and experience imposed as a pre-requisite of registration make the council a charitable organisation, because these conduce to the advancement of the nursing of sick persons, which is a charitable object. But assuming for the moment that this is a consequence of imposing these conditions, that cannot, in my opinion, be said to be the reason why they were imposed. The reason was to secure that only properly qualified persons should be registered. That clearly was the direct object indicated by the Act... So far as the Nurses Act, 1957, guides us, the council was created to provide a register and roll of nurses and impose rules to secure that they were properly qualified for admission...The test of the matter, in my opinion, is to consider the content, or character, of the functions discharged by the council and ask, are these charitable. I cannot hold that they are.'

14. Mr. Pal's point is that in construing the objects clause of the rules and regulations of the applicant-association one should be guided by the provisions of the Trade Unions Act, 1926, under which the association is registered and then consider the content or character of the functions the association discharges to come to the conclusion whether it can be said to be a charitable association.

15. We may say at once that there can be no dispute as to the legal propositions of Mr. B. L. Pal. It is quite true that if it be found that an association is pursuing the interests of its individual members with as much zeal as it is pursuing the interests of the general public it would not be a charitable association. It is also true that if the association is registered under a particular statute the provisions of that statute are relevant in construing the objects of the association.

16. In view of these well-settled principles, counsel for the department has argued before us that the instant association is not an association which was registered under Section 26 of the Indian Companies Act, 1913 (the corresponding section of the Act of 1956 being Section 25). Section 26 of the 1913 Act provided:

'(1) Where it is proved to the satisfaction of the Central Government that an association capable of being formed as a limited company has been or is about to be formed for promoting commerce, art, science, religion, charity, or any other useful object, and applies or intends to apply its profits (if any) or other income in promoting its objects, and to prohibit the payment of any dividend to its members, the Central Government may, by licence under the hand of one of its secretaries, direct that the association be registered as a company with limited liability, without the addition of the word 'limited' to its name, and the association may be registered accordingly... '

17. The applicant, says learned counsel, is not also an association registered under the Societies Registration Act, 1860, the preamble whereof says :

'Whereas it is expedient that provision should be made for improving the legal condition of societies established for the promotion of literature, science, or the fine arts, or for the diffusion of useful knowledge, the diffusion of political education or for charitable purpose ;...'

18. The department's counsel submits that it is an association under the Trade Unions Act which allows, under Section 2(h), a trade union between employers and employers 'by imposing restrictive conditions on the conduct of any trade or business. In the instant case, according to him, an association of employers of sugar trade and industry has been formed for imposing restrictive conditions on the conduct of sugar trade and business. From this point of view, he says, all objects in Clause 3 of the Association's rules and regulations which have a direct bearing on any of the purposes of such a trade union are dominant objects. He referred particularly to Clauses 3(f), 3(i), 3(n), 2(zc) and 2(zd). Clause (f) provides that one of the objects of this association is :

'To start organisations for the sale of sugar and establish markets, syndicate or board with such powers as may be thought fit.'

19. According to the learned counsel this is not a charitable purpose at all. Clause (i) provides :

Clause (i):

'To urge or oppose legislation and other measures and to procure change of law and practice affecting trade, commerce and industries in India in general, and the sugar industry in particular.' Learned counsel says that this is a political purpose and not an incidental purpose. Clause (m) provides :

Clause (m):

'To arbitrate in the settlement of disputes arising out of commercial transactions between parties willing or agreeing to abide by the judgment and decision of the tribunal of the association.' Clause (n) provides:

'To establish just and equitable principles in trade and impose restrictive conditions on the conduct of sugar trade and business.' Clause (zc) provides:

'To form trusts, combinations or syndicates between its members or outsiders engaged in similar trade for the protection of industries in general and sugar industries in particular.' Clause (zd) prescribes : 'To institute, prosecute, defend, continue or present on behalf of any or all of the members of the association any suit, appeal, revision, review or petition before any civil, criminal, appellate court, or labour tribunal, income-tax or sales tax authorities and to represent all or any of the members of the association before such court, etc.'

20. All these clauses, according to counsel for the revenue, are dominant clauses and they have nothing to do with any charitable purposes.

21. In these premises, Mr. B.L. Pal invites us to hold that this is a trade union of sugar mill owners and manufacturers and has been constituted to serve the purposes of its members with at least as much energy and enthusiasm as the purposes of the sugar industry in general. He also said that Clause 4(b) of the rules and regulations of the association provides that the general fund shall not be spent on any objects inconsistent with the provisions of Section 15 of the Trade Unions Act. Now, Section 15 of this Act enables a trade union to incur expenses with respect to various matters which are not at all charitable, e.g., compensation of members for loss arising out of trade disputes : Section 15(e), allowances to members or their dependants on account of death, old age, sickness, accidents or unemployment of such members : Section 15(f) and the conduct of trade disputes on behalf of the trade union or any member thereof: Section 18(d). Moreover, under Section 16(2)(e) a registered trade union may have as one of its objects the holding of political meetings of any kind, or the distribution of political literature or political documents of any kind. This is a provision which enables the applicant-association, submits the department's counsel, to promote the political interests of its members as well. And inasmuch as all these objects are objects which are permitted by the Trade Unions Act under which the present association is registered, they cannot be described as merely incidental objects. In fact, they are also, says Mr. Pal, dominant objects.

22. Mr. B. L. Pal also advanced detailed arguments on Clause 5(a) quoted above, and wanted to convince us especially with reference to the provisions of Section 27(2) of the Trade Unions Act that it is possible for members of this association upon dissolution to divide the association's funds amongst themselves. Such a clause, states Mr. Pal, completely takes this association out of the concept of charitable institutions. He also referred us to Halsbury's Laws of England, third edition, volume 38, page 367, Article 638 and page 349, Article 603, footnote (b), as well as to volume 4, page 237, Article 517 (paragraph 2) to contend that a trade union is not a charitable organisation and a contribution to a trade union is not a contribution to charity and in cases of trade unions, upon dissolution, there is a resulting trust in favour of its members.

23. It seems to us that this case has to be decided with reference to the principles enunciated by the Judicial Committee and the Supreme Court in some of the well-known cases. The Privy Council in In re the Trustees of the Tribune, [1939] 7 I.T.R. 415 (P.C.) dealt with a similar case. A person, who owned a press and a newspaper, by his will, created a trust: his property in the stock and goodwill of the press and newspaper was made to vest permanently in a committee of certain members. It was the duty of this committee of trustees 'to maintain the said press and newspaper in an efficient condition, and to keep up the liberal policy of the said newspaper, devoting the surplus income of the said press and newspaper after defraying all current expenses in improving the said newspaper and placing it on a footing of permanancy'. It was also provided by an arrangement made subsequently that in case the paper ceased to function or for any other reason the surplus of the income could not be applied to the object mentioned above, the same should be applied for the maintenance of a college which had been established out of the funds of another trust that the testator had created. There was a surplus income in the hands of the trustees, after defraying the expenses of the press and the newspaper and on a reference by the Commissioner of Income-tax as to whether this income was liable to be assessed in the hands of the trustees, the Lahore High Court held that the income in question was not income derived from property held under trust for charitable purposes under Section 4(3)(i) of the Indian Income-tax Act, 1922. The Privy Council reversed the High Court's judgment. It, inter alia, held :

(1) that the object of the settlor was to supply the province with an organ of educated public opinion and this was, prima facie, an object of general public, utility. Though a trust for conducting a newspaper as a mere vehicle for the promotion of a particular political or fiscal opinion may not be within the exemption, where the object is to disseminate news and ventilate opinion on matters of public interest, the fact that the paper may have, or may acquire, a particular political complexion would not take away its exemption ;

(2) that the admissibility of a claim to exemption from income-tax must be determined by the language of the special provision made by the Indian Income-tax Act in that behalf (and not with reference to English statutes);

(3) that the fact that the settlor thought that the object of the trust was beneficial to the public would not by itself make the object one of general public utility and discharge the court of its responsibility in coming to a finding as to the character of the object of the trust;

(4) that under the Indian Act the test of general public utility is applicable not only to trusts in the English sense but is to be applied to property held under trust 'or other legal obligation', a phrase which would include Moslem wakfs and Hindu endowments ; and

(5) that in determining whether an object is of general public utility in countries to which English ideas may be inapplicable the standard of the customary law and common opinion amongst the community to which the parties interested belong must be applied.

24. For our purposes in this reference it is important to bear in mind that Section 4(3)(i) is of wider amplitude than what is known as religious or charitable purposes in English law and a purpose of general public utility has to be ascertained with reference to conceptions prevailing in our country.

25. The Privy Council's next decision we intend to refer to is the decision in All India Spinners' Association v. Commissioner of Income-tax, [1944] 12 I.T.R. 482. The assessee was the All India Spinners' Association. It was formed as an unregistered association by a resolution of the All India Congress Committee passed in 1925. Its object was to develop the village industry of hand-spinning and hand-weaving. Though the association was established as an integral part of the Indian National Congress, it had independent existence and powers unaffected and uncontrolled by politics, One of the clauses of the document containing the constitution of the association stated that: 'The council shall have the right to raise loans, to collect subscriptions, to hold immovable property, to invest funds under proper security, to give and take mortgage for the furtherance of hand-spinning and khaddar, to give financial assistance to khaddar organisations by way of loans, gifts or bounties, to help or establish schools or institutions where hand-spinning is taught, to help and open khaddar stores, to establish a khaddar service, to act as agency on behalf of the Congress to receive self-spun yarn as subscription to the Congress, and to issue certificates and to do all the things that may be considered necessary for the furtherance of its objects, with power to make regulations for the conduct of affairs of the association of the council and to make such amendments in the present constitution, as may be considered from time to time. 'Out of the funds of the association which consisted mostly of donations and subscriptions, charkas and handlooms were purchased and supplied to the inhabitants of villages free of charge. Raw cotton was supplied to the poor people to be spun into yarn and the yarn so spun along with the yarn acquired by the association were supplied to other poor people for hand-weaving. The wages paid to them for spinning and weaving were not based on the current wages for similar work but were fixed on the basis of giving to the said persons as far as possible an income sufficient to enable them to support their families- The price charged to the public for such cloth was calculated on the basis of the cost price incurred by the association plus a certain percentage for shop and overhead charges without any reference to or connection with the demand for the same and the price of similar mill cloth sold in the market. When there was a surplus in the amount realised by the sale of cloth such surplus was utilised in the same manner as other funds of the association. The Commissioner of Income-tax held that the income of the association was not exempt under Section 4(3)(i) of the Indian Income-tax Act inasmuch as, (i) the dominant purpose of the association was a political one, (ii) even assuming it was not political, the dominant purpose was not in any event a valid charitable purpose in law, and (iii) some of the objects were not clearly charitable objects. The High Court held that assuming that the object was relief of the poor, it still did not fall within Section 4(3)(i) because the income was not derived from property held under trust or other legal obligation for religious or charitable purposes. The Privy Council has held that the property of the association consisted of the organisation and the undertaking as well as the fluctuating stock of yarn, that it was held under trust or at least under a legal obligation and as the primary object of the association was the relief of the poor and the purposes of the association included the advancement of other purposes of general public utility, the income of the association was exempt under Section 4(3)(i) of the Act.'

26. The Privy Council has said that:

'If an association is set on foot by a political organisation and is connected with it but still has for its real object the relief of poverty, its connection with the political organisation does not make its real object any the less charitable.'

27. Their Lordships of the Judicial Committee have said that:

'Section 4(3) of the Indian Income-tax Act gives a clear and succinct definition of 'charitable purposes' which must be construed according to its actual language and meaning. Lord Macnaghten's definition of charity and English decisions on the law of charities have no binding authority on its construction and though they 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 difference in language, particularly the inclusion in the Indian Act of the word 'public', is of importance.'

28. The Privy Council observed that:

'The words 'general public utility' in Section 4(3) are very wide words. They would, however, exclude the object of private gain, such as an undertaking for commercial profit though all the same it would subserve general public utility.'

29. We have said that Section 4(3)(i) should not be confined to English dicta on religious or charitable trusts. And while construing the object clause bf an association which seeks to come under Section 4(3)(i) the court has first to determine the primary object of the association and if this primary object be of general public utility and the association has actually functioned to fulfil that object it should be held to be entitled to exemption under Section 4(3)(i).

30. We would now refer to the Supreme Court decision in the case of Commissioner of Income-tax v. Andhra Chamber of Commerce, : [1965]55ITR722(SC) . The primary objects of the Andhra Chamber of Commerce, a company registered under Section 26 of the Indian Companies Act, 1913, and permitted by the Government to omit the word 'limited' from its name, were to promote and protect trade, commerce and industries, to aid, stimulate and promote the development of trade, commerce and industries, and to watch over and protect the general commercial interests of India or any part thereof. In one of the many incidental clauses of the memorandum was specified the object of promotion of or opposition to legislation and to procure change of law and practice affecting trade, commerce and manufacture. Under Clause 4 of its memorandum of association it was provided that the income and property of the Chamber of Commerce shall be applied solely towards the promotion of its objects as set forth therein. The Chamber of Commerce purchased a building which it altered and improved, moved its offices into that building and let out portions not required for its use to tenants. The question was whether the building was properly held under a trust or other legal obligation, wholly for charitable purposes and the income from the building was exempt from tax under Section 4(3)(i) of the Indian Income-tax Act, 1922. The Supreme Court has held, inter alia:

'(i) That the advancement or promotion of trade, commerce and industry leading to economic prosperity enured for the benefit of the entire community ; that prosperity would be shared also by those who engaged in trade, commerce and industry, but on that account the purpose was not rendered any the less an object of general public utility;

(ii) that the legislature had used language of great amplitude in defining 'charitable purpose' and the definition was inclusive and not exhaustive or exclusive;

(iii) that the expression 'object of general public utility' was not restricted to objects beneficial to the whole of mankind. An object beneficial to a section of the public was an object of general public utility, To serve as a charitable purpose, it. was not necessary that the object should be to benefit the whole of mankind or even all persons living in a particular country or province. It was sufficient if the intention was to benefit a section of the public as distinguished from specified individuals. 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;

(iv) that the primary objects of the Chamber of Commerce were not vague or indefinite ;

(v) that an object of general public utility, such as promotion, protection, aiding and stimulation of trade, commerce and industries, need not, to be valid, specify the modus or the steps by which the object might be achieved or secured;

(vi) that if the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, was contemplated. It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures ; and such an object ought to be regarded as purely ancillary or subsidiary and not the primary object; and

(vii) that, therefore, the income of the chamber of commerce from its building was exempt from tax under Section 4(3)(i) of the Income-tax Act as the building was held under a legal obligation wholly for charitable purposes.'

31. In our opinion, the question referred to us herein should be approached particularly in the light of the principles discussed in this judgment of the Supreme Court. When we examine the objects of the applicant-association it appears that Clauses 3(a) and 3(b) are the primary or dominant objects. These clauses are as follows :

Clause 3(a).-

'To promote and protect the trade, commerce and industries of India and in particular the trade, commerce and industries connected with sugar.' Clause 5(6).- 'To encourge friendly feeling and good relations amongst the sugar mills in general and the members in particular and also between producers of sugar and cane-growers, distributors of sugar and others dealing with sugar mills and connected with sugar industry.'

32. All the other sub-clauses in Clause 3, particularly those to which ourattention has been drawn by learned counsel for the department, appear tous to be subsidiary or incidental clauses. The primary or dominant objects,(in the context of the Supreme Court's decision in the case of AndhraChamber of Commerce) being objects of general public utility, Section 4(3)(i)of the Indian Income-tax Act, 1922, it appears to us, would be attracted tothis case. But we ought to deal with two of the principal contentions onbehalf of the department. It may be that Clause 5(a) does not specificallyprovide that upon winding up or dissolution the funds of the companywould be transferred to institutions or associations having the same orsimilar objects. But reading the judgments referred to above, particularlythe Privy Council's judgment in the case of the All India Spinners'Association, our impression is that what is important is to ascertain thepurpose for which properties of the association were held in the relevantaccounting year. If it be found that in the accounting year concerned theassociation was holding its properties for objects or purposes of general public utility including promotion or advancement of trade and commerce, the association can claim exemption from taxation under Section 4(3)(i) provided, however, that those objects or purposes are the association's constituent and dominant objects. In our case, apart from the primary or dominant objects indicated above, we find from Clause 4(a) of the rules and regulations that 'the income and property of the association, whensoever derived, shall be applied solely towards the promotion of the association as set forth in these rules and regulations and no portion thereof shall be paid or transferred, directly or indirectly, by way of dividend or bonus or otherwise howsoever by way of profit, to the persons who at any time are, or have been members of the association or to any of them or to any person claiming through any of them.' This sub-clause gives the clearest indication that at least so long as the association is alive and functioning the income and property of the association cannot be used or utilised for the benefit of individual members or group of members, past or present, of the association. In this context, although Sub-clause (b) of Clause 4 provides that the general funds of the association 'shall not be spent on any objects inconsistent with the provisions of Section 15 of the Trade Unions Act' it does not mean that the association's moneys can be spent for purposes other than purposes of general public utility, even though such expenditures are permitted by Section 15 of the said Act.

33. We have in this reference been referred to decisions of other High Courts in India. But since the matter appears to us to be concluded by the judgments of the Judicial Committee and the Supreme Court in the above cited cases, we do not consider it necessary to refer to any other decision.

34. In our opinion, upon construction of the relevant rules and regulations of the applicant-association, it should be held that in the assessment years with which we are concerned in this reference the association was entitled to exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922.

35. Our answer to the question in this reference is, therefore, in the negative and in favour of the assessee. The Commissioner will pay to the assessee the costs of this reference.

Sabyasachi Mukharji, J.

36. I agree.


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