Skip to content


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. 301 of 1981
Judge
Reported in(1984)40CTR(Cal)382,[1984]150ITR593(Cal)
ActsIncome Tax Act, 1961 - Sections 10(24) and 11; ;Trade Unions Act, 1926
AppellantIndian Sugar Mills Association
RespondentCommissioner of Income-tax
Advocates:R. Murarka, Adv.
Excerpt:
- .....temporary or permanent,, formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business and includes any federation of two or more trade unions. 'there is a proviso which is not relevant for our present purpose.9. section 10, i.t. act, 1961, provides that in computing the total income of a previous year of any person, any income falling within any of the clauses set out therein shall not be included. clause (24) is to the following effect:'any income chargeable under the heads 'interest on securities', 'income from house property' and 'income from other sources' of a registered union within the meaning of the.....
Judgment:

Suhas Chandra Sen, J.

1. The Tribunal has referred the following two questions of law to this court under Section 256(1) of the Income-tax Act, 1961 :

' 1. Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that some of the objects of the Association were not objects of general public utility and the income of the Association from interest was not exempt from tax under Section 11, Income-tax Act, 1961 ?

2. Whether the Tribunal was right in law in holding that the income of the Association was not exempt from tax either under Section 11 or under Section 10(24) or both '

2. The Indian Sugar Mills Association is a trade union registered under the Trade Unions Act, 1926 ; any individual, firm or company owning or managing a sugar mill or a factory is eligible for membership of the Association. The objects of the Association have been set out in Rule 3 and there are as many as 31 objects. The object Clause of the Association came up for consideration before the Supreme Court in the case of CIT v. Indian Sugar Mills Association : [1974]97ITR486(SC) . In that case, the Supreme Court held that Clauses (a), (b), (c), (d), (1) and (n) of Rule 3 fell in the category of primary purposes of the Association and it was not possible to treat any one of them as ancillary or incidental to another. The Supreme Court, in that case, held that the income of the Association derived from its business of export of sugar and interest from current and fixed deposits were not exempt from taxation under Section 4(3)(i), Indian I.T. Act, 1922. The Supreme Court, after referring to the various objects of the Association, held (at p. 493 of 97 ITR):

' These are all primary purposes of a trade union. Rule 3(b) also may possibly be taken as a trade union object. Assuming Rule 3(a) could be the primary object of a trade union, the other objects named in Clauses (c), (d), (1) and (n) of Rule (3) also fell in the same category, and it is not possible to speak of one of them as ancillary or incidental to another. These other objects cannot also be called charitable purposes within the meaning of Section 4(3)(i) even assuming that in some remote and indirect manner they might be of some public utility. It is not, therefore, possible to agree that the association held the income derived from its business wholly for charitable purposes. '

3. In view of this judgment of the Supreme Court, the first question referred by the Tribunal has to be answered in the negative and in favour of the Revenue.

4. The judgment of the Supreme Court was in respect of the assessment years 1958-59, 1959.60, 1960-61 and 1961-62. The assessee's case for the assessment year 1965-66 also came up on a reference before this court. There the assessee sought to argue that since the assessee is a registered trade union, it was entitled to exemption under Section 10(24), I.T. Act, 1961. A Division Bench of this court declined to go into that question because that question had not been raised before the Tribunal or the revenue authorities.

5. The case before us relates to the assessment years 1973-74 and 1975-76, the relevant accounting periods being years ending on December 31, 1972, and December 31, 1974. The assessee, in this case, made an alternative argument before the Tribunal that even if the income was not exempt under Section 11, I.T. Act, 1961, the case of the assessee fell under Section 10(24). It was argued that even if some of the objects were not objects of general public utility, the assessee would come within the ambit of Section 10(24) and the whole of its income would be exempt from taxation. The Tribunal held, inter alia, that unless it was a pure trade union registered under the Trade Unions Act and did not have any other object of general public utility, the exemption under Section 10(24) would not be available. The Tribunal further held that registration under the Trade Unions Act did not confer exemption from tax to the Association, unless the other conditions were satisfied.

6. Mr. Murarka, appearing on behalf of the assessee, has contended that the question that has now been raised arises out of the order of the Tribunal and the question will now have to be answered. Mr. Murarka's contention is that all the conditions laid down in Section 10(24) have been fulfilled by the Association and there is no reason to deny the exemption granted by the statute to the assessee.

7. We shall now examine how far the assessee's claim for exemption under Section 10(24), I.T. Act, is tenable.

8. The association was registered under the Trade Unions Act ; Section 2(h), Trade Unions Act, 1926, has defined ' Trade Union ' as follows :

' ' Trade Union ' means any combination, whether temporary or permanent,, formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business and includes any federation of two or more Trade Unions. '

There is a proviso which is not relevant for our present purpose.

9. Section 10, I.T. Act, 1961, provides that in computing the total income of a previous year of any person, any income falling within any of the clauses set out therein shall not be included. Clause (24) is to the following effect:

'any income chargeable under the heads 'Interest on securities', 'Income from house property' and 'Income from other sources' of a registered union within the meaning of the Indian Trade Unions Act, 1926 (16 of 1926), formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen.'

10. It has been contended before us that the Indian Sugar Mills Association is a trade union registered under the Indian Trade Unions Act, 1926, and its income is entitled to the benefit of Section 10 and is not liable to be included in the computation of the total income.

11. We are unable to accept the assessee's contention that the assessee was an association formed primarily for the purpose of regulating the regulations between workmen and employers or between workmen and workmen. It is true that the Association is registered under the Trade Unions Act; but the ' Trade Union ' under the Trade Unions Act has been defined to include any combination, whether temporary or permanent, formed primarily for the purpose of regulating the relations between (1) workmen and employers, or (2) between workmen and workmen, or (3) between employers and employers, or (4) for imposing restrictive conditions on the conduct of any trade or business. The Indian Sugar Mills Association, as will be evident from its rules and regulations, is an association of employers only. It has got a number of objects for regulating the relations between the employers inter se and also for the promotion of trade and commerce relating to sugar industry. There are also a number of objects relating to imposing restrictive conditions on the conduct of trade or business. Clause 3(n) specifically sets out this as one of the objects of the association.

12. Section 10(24), I.T. Act, grants immunity only to those trade unions which are formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen. It is significant that the associations which are formed for the purpose of regulating the relations between employers and employers or for imposing restrictive conditions on the conduct of any trade or business or federation of two or more trade unions have been excluded from the benefit of Section 10(24). Reading the rules and the regulations, there cannot be any doubt that the Indian Sugar Mills Association is an Association of employers, set up, inter alia, for protection of the interest of its members.

13. The workmen are not entitled to be members of this association at all. Apart from the objects that have been set out earlier in the judgment, there are various other clauses under Rule 3. The objects of the association, as set out in Rule 3, include education of public opinion, dissemination of information about the working of the industry, establishment of market for sale of sugar and setting up of a board or syndicate. Sub-clause (i) provides for opposition to legislation and other measures and to procure change of law and practice affecting the trade, commerce and industries in India in general and sugar industries in particular. There are provisions for arbitration of disputes among the members and also for establishment of just and equitable principles of trade and imposition of restrictive conditions on conduct of sugar trade and business. Sub-clauses (o) and (p) deal with formation of a code or codes on practice and maintenance of uniformity in rules, regulations and usages in the various branches of trade. Sub-clause (c) provides for formation of a trust, combination or syndicate between its members or outsiders engaged in similar trade for the protection of industries in general and sugar industries in particular. In view of these clauses which have been set out as objects of the association, it is not possible to hold that it is an association 'formed primarily for the purpose of regulating the relations between workmen and employers, or between workmen and workmen'. It is true that there are some objects dealing with regulation of terms and conditions of employment and also promotion of good relations between the employers and employees; but it cannot be said that the association was formed primarily for those purposes. There is nothing in the rules and the regulations to indicate that those were the primary objects of the association and the other objects set out in Rule 3 were incidental or ancillary purposes. In fact, the Supreme Court has categorically held in the case of the assessee that objects in Rule 3(a), (b), (c), (d), (l) and (n) are all primary objects of the association.

14. It was sought to be argued by Mr. Murarka that the Tribunal has not found out whether the assessee was actually engaged primarily in regulating the relations between workmen and employers or between workmen and workmen. This argument is misconceived. It is for the assessee to establish facts to show that it was entitled to exemption under Section 10(24). The facts were all within the knowledge of the assessee. No endeavour was made on behalf of the assessee to lay the factual basis for this argument before the Tribunal.

15. Moreover, how the money was being actually spent will not really be determinative of the issue. Can the assessee be described as having been formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen Reading the 31 objects that have been set out in Rule 3, the inescapable conclusion is that it was formed for the purpose of regulating the relations between employers and employers. Regulation of relations between workmen and employers may have been one of the objects of the association. But it cannot be said that it was formed primarily for that purpose.

16. Strong reliance was placed on the case of CIT v. Calcutta Hydraulic Press Association : [1980]121ITR414(Cal) . In that case, the Tribunal found that the primary object of the assessee was the regulation of the relationship of its members and their employees, the other objects were ancillary or incidental objects. The Tribunal also found that the assessee was administering a welfare fund utilised only for the benefit of the employees. The Tribunal held in that case that the assessee came within the purview of Section 10(24) of the Act. A Division Bench of this court held that it could not be said that such conclusion of the Tribunal was erroneous or perverse. It was pointed out that the facts found on which the decision of the Tribunal was based had not been challenged in that case.

17. The finding of the Tribunal in the case before us is quite different. The case of the assessee before the Tribunal was that the objects of the association were of general public utility. It was further argued that even if it was assumed that some of the objects were not of general public utility, the association still came within Section 10(24) and the whole of the income was entitled to exemption. The Tribunal has pointed out that one of the objects of the association was promotion and protection of trade interest. The Tribunal has also emphasised that Rules 3(a), (b), (c), (d), (l) and (n) were all primary objects of the association.

18. It was also not argued before the Tribunal that the main activity of the Association was, and the income of the Association was being actually spent for the purpose of, promoting good relationship between workmen and workmen or good relationship between workmen and employers.

19. On an overall view of the rules and regulations framed and bearing in mind the type and the nature of the membership of the association, it cannot be said that the association was formed primarily for the purpose, of promoting good relationship between employees and employees or between employers and workmen.

20. In that view of the matter, question No. 2 is answered in the affirmative and in favour of the Revenue. The question No. 1 is concluded by the decision of the Supreme Court in the case of CIT v. Indian Sugar Mills Association : [1974]97ITR486(SC) and is also answered in the negative and in favour of the Revenue.

21. Each party will pay and bear its own costs.

Satish Chandra, C.J.

22. I agree.


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