G. K. MITTER J. - This is a reference under section 66(1) of the Indian Income-tax Act for the opinion of the court on the following question :
'Whether in the facts and circumstances of this case and on a true construction of the memorandum of association of the assessee the income or any portion thereof was exempt from the levy of income-tax under section 4(3)(i) of the Indian Income-tax Ac ?'
The assessee is a society registered under the Societies Registration Act of 1860 on May 6, 1931. According to the statement of case it was getting subscription from persons belonging to the Kedia community scattered all over India. In addition thereto it had income from a house property which was assessed by the Income-tax Officer at Rs. 5,893. The claim of the assessee that it was entitled to exemption under section 4(3)(i) was negatived by the Income-tax Officer. In appeal to the Appellate Assistant Commissioner that order was varied and it was held that a part of the income from this house property was devoted to charitable objects only. As such, a portion of the income was exempt under section 4(3)(i). On a further appeal to the Income-tax Appellate Tribunal this claim to partial exemption was overruled. According the Tribunal whether the objects of the society were charitable or not, had to be gathered from the memorandum of association and if the association and its executive committee was entitled to spend amounts under any of the clauses of the objects clause, some of which were charitable in nature and others not, the only conclusion to come to was that the institution was not solely for the purpose of charity. Unfortunately it is recorded in the statement of case : 'that the income arising out of the said house property was to be spent amongst other activities of running dispensary, schools, etc., in the village Ked in Rajasthan, from which place all the Kedias came.' On a perusal of the memorandum of association this does not appear to be correct. The Tribunal did not think it necessary to go into the question as to whether the Kedia community could be taken to be a sufficient cross-section of the public so as to merit exemption under section 4(3)(i) in view of the various clauses given in the memorandum of association and although it appears prima facie that it would have been a serious objection if it had been pressed we do not think it necessary on the facts of the case to refer the matter back to the Tribunal for a finding on that point, namely, what was the meaning of the word 'Kedia community' as appearing in the memorandum of association.
Before referring to the said memorandum of association it is necessary to refer to the Societies Registration Act under which the association was registered. Under section 1 of this Act 'any seven or more persons associated for any literary, scientific or charitable purpose, or for any such purpose as is described in section 20 of this Act, may by subscribing their names to a memorandum of association and filing the same with the Registrar of Joint Stock Companies form themselves into a society under this Act'. Under section 2 of the Act 'the memorandum of association shall contain the following things (that is to say) - the name of the society; the objects of the society; the names, addresses, and occupations of the governors, council, directors, committee or other governing body to whom, by the rules of the society, the management of its affairs is entrusted'. Section 20 of the Act provides that 'the following societies may be registered under this Act :- charitable societies, the military orphan funds or societies established at the several Presidencies of India, societies established for the promotion of science, literature, or the fine arts, for instruction, the diffusion of useful knowledge, the diffusion of political education, the foundation or maintenance of libraries or reading-rooms for general use among the members or open to the public museums and galleries of painting and other works of art, collections of natural history, mechanical and philosophical inventions, instruments of designs.'
It should be noticed from the above that a society can be registered under this Act with a purpose which is not 'charitable', within the meaning of the expression in the Indian Income-tax Act. There has been some alteration in the Income-tax Act in the year 1952 and for our purpose the provision as it stood before that date governs the situation. Under section 4(3)(i) 'any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied, or finally set apart for application thereto' was to be exempt from taxation. Charitable purpose has been defined by the section itself. The definition is not exhaustive but provides as follows :
'In this sub-section charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act that part of the income from property held under a trust or other legal obligation for private religious purposes which does not enure for the benefit of the public.'
The objects of the society as given in clause (3) of the memorandum of association are as follows :
'(a) To promote the social, moral, religious, physical and material conditions of the Kedia community.
(b) To promote trade, commerce and industry and to remove the social drawbacks of the Kedia community.
(c) To established branches and sub-branches of the society in different parts of the country.
(d) To established funds for the maintenance, marriage and funeral ceremonies of the Kedia community.
(e) To curtail the unnecessary social luxuries in which the Kedia community indulge and to regulate them properly.
(f) To relieve the sufferings of the members of the Kedia community, their sisters, daughters and wives requiring relief by establishing and/or maintaining widow homes, orphanages, hospitals charitable dispensaries, boarding houses and aiding such existing institutions and helping deserving and needy persons by granting donations, monthly allowances.
(g) To encourage education amongst the Kedia community.
(h) To establish schools and colleges for the advancement of learning and education in different parts of the country for the Kedia community in particular and the public in general and to encourage and help the students of the above community who are reading in different parts of the country in every possible way, i.e., granting prizes and scholarships and rendering financial help to them.
(i) To purchase and maintain materials for use in marriages and other social and religious ceremonies of the Kedia community and to lend them to the members of the said community, if necessary to the members of the other community.
(j) To establish funds for the preservation and erection of monuments already existing or to be erected commemorating the memory of the great men of the community and celebrated events in the community.
(k) To do all other acts, deeds and things for the welfare of the Kedia community.'
The rules and regulations of the society to which attention need be drawn are rules 2, 29 and 40. Under rule 2 'any major male member of the Kedia community amongst the Marwari Agarwallas who are descendants of Sewramjee and who are described as Kedias of Chhaochharias, etc., wherever residing shall be entitled to become a member of the society. Under rule 29 'the income and property of the society shall be applied solely towards its objects and no portion shall be paid or divided amongst any of its members or invested in their interest.' Rule 40 provides : 'On dissolution of the society for any reason whatsoever no part of its funds and assets shall be divided amongst its members and the whole of it shall be given and made over to such charitable institutions as the society in its extraordinary general meeting specially called for the purpose may decide upon by 75 per cent. votes of the members present. On the clear understanding that all the funds and assets would be spent in the welfare of the Kedia community only according to rules and regulations of the society such meeting shall be called by giving one months notice to all the members of the society residing in Calcutta or outside Calcutta.'
The main argument before us on behalf of the assessee was that clause (a) of the objects clause must be taken to be the primary object of the society and the other objects must be treated as if they were ancillary or subsidiary to the first clause. Reference was made to certain English decisions bearing on the objects clause of the memorandum of association of a company where it had been held by the learned judges that where a company had a primary object to which the others were subsidiary the substratum of the company could be said to have gone once it was found that the primary object had failed or could not be achieved and it was just and proper that a winding-up order should be made. In my view this argument cannot hold good in the case of a society having more than one object and registered under the Societies Registration Act. Under section 20 of this Act a society having many objects, may be registered and some of these objects may not be charitable. Further, there is nothing in the objects clause of the memorandum of association of the society to indicate that clause (a) was the dominant or the primary object of the society. Both under the memorandum and under the rules it would be open to the society or the executive committee thereof to spend its income on any of the objects not necessarily confined to sub-clause (a) or sub-clause (b) or sub-clause (f) It seems difficult to hold that the various objects enumerated in (a) to (k) with the exception of a few can be said to be charitable in nature. To take for instance clause (a), 'to promote the social, moral, religious, physical and material condition of the Kedia community : leaving aside the religious aspect of it, I cannot see how promoting the social or the material condition of a community can be said to be charitable in nature to attract section 4(3)(i) of the Indian Income-tax Act. A clause very much similar to clause (a) came up for consideration by the House of Lords in the case of Inland Revenue Commissioners v. Baddeley. There, property was conveyed on trust and the trustees were directed to permit the property to be appropriated and used by the leaders for the time being of the Stratford Newtown Methodist Mission for the promotion of the religious, social and physical will-being of persons resident in the County Boroughs of West Ham and Leyton in the County of Essex by the provision of facilities for religious services and instructions and for the social and physical training and recreation of such aforementioned persons who for the time being were in the opinion of such leaders members or likely to become members of the Methodist Church. In that case Viscount Simonds observed :
'The moral, social and physical well-being of the community or any part of it is a laudable object of benevolence and philanthropy, but its ambit is far too wide to include only purposes which the law regards as charitable.'
Lord Somervell said :
'The word well-being, though qualified by religious as well as social and physical, means primarily in my opinion, a happy or contented state. Social well-being would be promoted when people were happy together - an important factor in institutional life. Physical well-being is promoted by exercise or recreation and the health and contentment which normally follow. Social training is an ambiguous expression and may well be too vague. Its meaning to me is training in social behaviour, in manners... On this view the trust, limited as it is, is plainly not a charity, ....'
In my opinion, it is difficult to distinguish portions of clause (a) from the clause as given in the House of Lords case. The relevant portion of clause (a) in our case is 'to promote the social, moral, physical and material condition of the Kedia community.' The word 'material condition' does not find a place in the judgment of the House of Lords. How improving the material condition of a community can be a charitable object, I fail to understand.
With regard to sub-clause (b) learned counsel for the assessee drew our attention to the case of Andhra Chamber of Commerce v. Commissioner of Income-tax. In that case it was held that the object of promoting trade, commerce and industry was an object of general public utility within the meaning of section 4(3)(i) of the Indian Income-tax Act. It is not necessary to express any opinion of this clause in view of the other clauses of the memorandum of association.
Under sub-clause (d) the society can establish funds for the maintenance, marriage and funeral ceremonies of the needy persons of the Kedia community. Parts of this clause certainly savour of relief of poverty but I cannot hold that contributing towards the marriage expenses of a needy person of the community would be a charitable purpose. In Trustees of Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax, Chagla C.J. said : 'It is difficult to see how giving marriage expenses to specific individuals can never be a charitable object whether it involves general public utility or not. When you relieve poverty you supply a person with the bare necessities of life. You give him what he cannot possibly do without... it is not possible to say that a poor man cannot do without matrimony and that matrimony is a bare necessity of life and you must provide funds which may help him to get married.'
On of the objects of the association as appearing in sub-clause (e) of the memorandum is to curtail the unnecessary social luxuries in which the Kedia community indulge and to regulate them properly. It was argued that this was an object of general public utility. In the first place, I cannot see how this can be an object within the meaning of section 20 of the Societies Registration Act. It might be an object of social reform but that by itself would not certainly be one of general public utility.
Under sub-clause (i) of the memorandum the society can purchase and maintain materials for use in marriages and other social and religious ceremonies of the Kedia community and to lend them to the members of the said community, and also if necessary to the members of the said community, and also if necessary to the members of the other community. If contribution towards marriage expenses be not a charitable object, maintaining materials for use in marriages and other social and religious ceremonies a fortiori cannot be so.
Under sub-clause (j) the society can establish funds for preservation and erection of monuments already existing or to be erected commemorating the memory of the great men of the community and celebrated events in the community. Certainly these objects may be laudable in themselves as cherishing memories of people whom the public ought to remember. But the establishment of funds for preservation and erection of monuments would not be a charitable purpose within the meaning of the expression used in the Income-tax Act.
Lastly, doing acts, deeds and things for the welfare of the Kedia community would not necessarily be charitable.
In the result, as the income derived from the property is not held under a trust or other legal obligation wholly for religious or charitable purposes, it cannot be exempt under the provisions of section 4(3)(i) mentioned above. Learned counsel for the assessee did not press his case with regard to the second portion of section 4(3)(i) and in this view of the matter, the answer to the question must be in the negative. The assessee must pay the costs of this reference.
LAIK J. - I agree.
Question answered in the negative.