ADDITIONAL COMMISSIONER OF INCOME-TAX GUJARAT, AHMEDABAD v. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION, SURAT (2)

Citation: [1980] 2 S.C.R. 77

Court: Supreme Court of India

Bench: P.N. BHAGWATI, N.L. UNTWALIA, V.D. TULZAPURKAR, R.S. PATHAK, A.P. SEN

Case summary

Oil the -other hand the Appellate Assistant Commissioner held that the ~ssessee's income was entitled to exemption under section 11 ( 1) because the activities carried on by the assessee were in fulfilment of the primary purposes \Vhich did not involve the carrying on of any...

Judgment text

, • I ADDITIONAL COMMISSIONER OF INCOME-TAX A. GUJARAT, AHMEDABAD v. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION, SURAT B November 19, 1979 ' [P. N. BHAGWATI, N. L. UNTWALIA, 'V. D. TULZAPURKAR R. S. PATHAK AND A. P. SEN, JJ. ] Income-tax Act 1961-Sections 2 (15), 11 and 13(1)' (bb)-Scope of- .. Advancement of any other objectr of general public utility not involving the c -carrying on oj any activity for profit" nzeaning. The assessee which was an incorporated company, carried on various activities for promotion of commerce and trade in art silk yarn, art silk cloth and silk cloth. Its other objects were to obtain licences for import of raw material needed by its members, to obtain licences for export of cloth manufactured by its members and to do all other lawful things as are incidental or conducive to the attainment of the objects.

Its income and property were to be applied solely for the promotion of its objects and no portion of the income or property was to be paid or transferred directly or indirectly by way of dividend, bonus or profits to its meinbers. In the event of its winding up or Vcn constitutes an equal component with the purpose of advancement of the object of general phblic utility, I)> then the definition in section 2(15) i~ not satisfied. [116-G-H] If the purpJOse is charitable in reality, the mode adopted n1ust be one which is directed tcr carrying out the charitable purpose. The carrying on of such a business does not detract from the purpose which permeates it, the end result of the business r:·~tivity being the effectuation of t'he charitable pu"pose. A. bri'llness activity carried on not with a view to carrying out the charitable purpose of the trust but which is related to a non·charitable purpose falls outside the scope of the trust.

If it is a business entered into for working out the purp1)se of the trust or institution with a vie\v to realisation of the chariable purpoSe, the income therefrom would be entitled to exemption under s. 11. Section 11(4) and section 13(1)(bb) represent the mode of finding llnance for working out the purpose of the trust or institution by deriving income from the c1rplls of the trust property and also from an activity carded on in the course of actual carrying out of the purpose of the· trust or institution_ [117 B-Ej A distinction must be maintained bet¥;reen what is n1erely a definition of "charitable purpose'' and the powers conferred for working out or fulfilling thnt 1 purpose. \Vhile the purpose and the powers must corr,~late they oonnot b~~ identified with each other.

[118 Bl In the instant case the purpose of the asses~ee falls within the definition of section 2(15)_ The object~ of the assessee were to promote commerce and trade, I which have been held to be an object of general public utility and, there i~ nothing to show that the reJe,·ant sub-clause of the ~1cmorandum of Association involves the carrying on of any activity for profit. The remaining sub-clauses enum~rate powers for which the company was constituted. [118 G·HJ The Trust~es of tht1_ Tribune, (1939) 7 I. T. R. 415, Co1nmissioner of Income Tax v. Andhra Cha111ber of Conunerce (1965) 55 I. T. R. , 722, referred to. . A Sale Trustct', Loka Shikshana Trust v. Commissioner of Incon1c-tax, ~Jysore (1975) 101 I:f. R. 234; Indian Chan1ber of Conimcrce v. Conunfssioner of Incon1e-tax, Wesr Bengal II (i975) 101 I. 1-. R. 796, not approved. Per Sen, J. (dissenting) The hvo decisions in Sole Trustee Lok Sikshana Trust v. C. I. T. (101 ITR 234) and Inclian Chambers of Commerce v. C. l. T.

(IOI ! TR 796) lay down the ·n la\v correctly and are still good law. [119 D] 1. The words "not involving the carrying on of any activity for profit'' occuring in section 2(15) of the A. ct qualify only the fourth head of charitable purpose namely "any other object of general utility" and not the first three heads. [119 El 2. It is the vagueness of the expression "any other object of general public ·c utility'' occuring in section 4(3)(i) of the 1922 Act \vhich impelled Parliament to insert the restrictive word "not involving the carrying on of any activity for profit. "' It is not pcrrnissiblr for the court to whittle down the plain la-nguage of the section. lt would be contrary to all rules of construction to ii;ncire the impact of the newly added \vords and to construe the definition as if the newly added \VOrds \\-\~re either not there or were intended to be otiose and redundant. Such a construction would frustr-ate the very object of the legislation.

The relative simplicity of the laJlguagc brings out the necessary legisJative intent to counteract t:ix riclvnntag~s rc~ulting from the ~-called chnrities in canlouflage. [I 19 fl; 120 A-CJ 3. The rc;triction introduced by the dcfiniti... 1n of the term . ·'ch hed was to promote commerce and trade in Art Silk and Silk , • Yarn and Cloth as set out in sub-clause (a) of Clause (3) of the Memorandum of Association f! nd the other subjects set out in subclause (b) to (e) of clause (3) were merely subsidiary objects and since the primary purpose was plainly advancement of an object of general public utility, the first part of the requirement for falling withiR the last head of "charitable purpose" in sec. 2 clause (15) was satisfied.

The Tribunal also agreed with the Appellate Assistant Commissioner that this primary purpose for which the assessee was constituted did not involve the carrying on of any activity for profit, because whatever activity was carried on by the assessee in fulfil- 7-868SCI/79 ment of the primary purpose was for advancement of an object of general public utility and not for profit. The Tribunal pointed out that there wa5 no dispute in regard to the fulfilment of the other conditions mentioned in section 11 and held that, in the circumstances, the income of the assessee was entitled to exemption under sub-section (1) of section 11. The Revenue, bein: aigrieved by the decision of the Tribunal, made an application for a reference and since there was a conflict of decisions between the Calcutta and • Mysore Hi'1J.

Courts on the one hand a'nd Kerala and Andhra Pradooh High Courts on the other in regard to the true interpretation of the words "not involving the carrying on of any activity for profit'', the Tribunal referred the question "whether on the facts and in the circumstances of the case, the assessee is entitled to exemption under sec. 11 (1) (a) of the Income-tax Act, 1961" directly to this Court. So far as the asse! ism. ent years 1963-64 to 1967-68 are concerned, the assessment proceedings followed the same pattern and the Tribunal, following its earlier decision for the assessment years 1962-63, held the assessee to be exempt from tax in respect of its income under section 11 sub-section (1) a'nd thereupon, at the instance of the Revenue an identical question of law for each assessment year was ref«rred by the Tribunal directly to this Court.

Now before we proceed to consider the true meaning and connotation of the words "not involving the carrying on of auy activity for profit" occurring at the end of the definition of "charitable purpose" in section 2 clause (15), it will be convenient to dispose of a short contention raised on behalf of the Revenue in Tax Reference Nos. 10 to 14 of 1975. The Revenue urged that the objects for which the assessee was incorporated did uot fall within the category denoted by the words "advancement of any other object of general public utility" since the objects set out in sub-clauses (b) to (e) of clause (3) of Memorandum of Association were for the benefit only of the members of the assessee and not for the benefit • of a section of the public. It was contended that in order that a • purpose may qualify for being regarded as an object of general public utility, iit must be intended to benefit a section of the public as distingnished from specified individuals.

The section of the coml munity sought to be benefitted must be sufficiently defined and • identifiable by ~ame common quality of a public or impersonal nature and where there is no such common quality uniting the potential beneficiaries into a class, the purpose would not be liable to be regarded as a "charitable purpose". The argument was that since the members of the assessee did not constitute a section of the (Bhagwati, J. ) public, but were merely specified individuals, the objects set out A in sub-clauses (b) to (e) of clause (3) which were meant to benefit only the members of the assessee could not be regarded as objects of general public utility and hence the assessee could not be said to be an institution for a "charitable purpose" within the meaning of section 2 clause (15). B We do not think it is open to the Revenue to urge this contention in the present References.

These References having been made under section 257 on account of a conflict of decisions amongst different High Courts in regard to the true interpretation of the words "not involving the carrying on of any activity for profit" in section 2 clause (15), it is only that particular question which can c be decided by this Court in these References. Section 257 provides that iif, on an application made under section 256, the Tribunal is of the opinion that, on account of a conflict in the decisions of High Courts in respect of any particular question of law, it is expedient that a reference should be made direct to tire Supreme Court, the Tribunal may draw up a statement of the case and refer it D through its President direct to the Supreme Court. It i6 only the particular question of law on which there is a conflict of decisions in the High Courts that can be referred by the Tribunal directly to this Court.

Here in the present case the conflict of decisions amongst the different High Courts was as to what is the true scope and meaning of the words "not involving the carrying on of any activity for profit" in section 2 clause (15) and whether on account of the presence of these words, the purpose for which the assessee was constituted, though falling within the words "advancement of an object of general public utility" would not be a charitable purpose within the meaning of section 2 clause (15) and it was on account of conflict of decisions on this question that a direct reference was made to this Court by the Tribunal. This Court cannot travel beyond the particular question of law which has been referred to ·it by the Tribunal on account of conflict in the decisions of the High • Courts.

It cannot in a direct reference deal with a question of law on which there is no conflict of decisions amongst the High Courts because such a question would be outside the jurisdiction r of the Tribunal to refer under section 257. It is possible that a ' situation may arise where there may be two questions of law arising from the order of the Tribunal, one in respect of which there is a conflict of decisions amongst different High Courts and the other in respect of which there is no such conflict of decisions and in such a situation it may become necessary to consider whether \ one single reference comprising both questions should be made to the High Court or two refep. ;nces can be IUade, one to the High Court and the other to this Court.

We do not wish to express any opinion on this rather intriguing question but one thing is clear that a question of law in respect of which there is no conflict of decisions amongst different High Courts cannot be referred to this Court under section 257. The contention that the objects of the B assessee did not fall within the category "advancement of any other object of general public ufility" and were, therefore, not charitable within the meaning of section 2 clause (15) cannot, in the circumstances, be allowed to be raised in these References. But even if such a contention were permissible, we do not think there is any substance in it.

The law is well settled that if IC there are several objects of a trust or rnstitution, some of which are charitable and some non-charitable and the trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be D exempt from tax. In other words, where the main or primary objects arc distributive, each and everyone of the objects must be charitable ih order that the trust or institution might be upheld as a valid charity Vide Mohd. Ibrahim v. Commissioner of Income-tax(') and East India Industries (Madras) Ltd. v. Commissioner of Income-tax(').

But if the primary or dominent purpose of E a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity : Vide Commissioner of Income-tax, Madras v. Andhra Chamber of Commerce(') The test which has, therefore, to be applied is whether the object which is F said to be non-charitable is a main or primary object of the trust or institution or it is ancillary_ or incidental to the dominant or primary object which is charitable. It was on an application of this test that in Commissioner of Income-tax v. Andhra Chamber of Commerce (supra), the A"ndhra Chamber of Commerce was held to be a \G valid charity entitled to exemption from tax.

Th•e Court held that the dominant or primary object of the Andhra Chamber of Commerce was to promote and project trade, commerce and industry and to aid stimulate and promote the development of trade, commerce and industry and to watch over and protect the general commercial interests of India or any part thereof a\1d this was clearly an object of general H (1) 57 Indian Appeals 260. (2) 65 l. T. R. 611. (3) 65 l. T. R. 722. COMMISSIONER OF INCOME-TAX V. SURAT . \RT SILK 9 3 (Bhagwati, !. ) public utility and though one of the objects included the taking of steps A to urge or oppose legislation affecting trade, commerce or manufacture, which, standing by itself, may be liable to be condemned as noncharitable, it was merely incidental to the dominant or primary object and did not prevent the Andhra Chamber of Commerce from being a valid charity. The Court pointed out that if "the primary pnrpose be advancement of objects of general public utility, it would B .

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. " The Court also held that the Andhra Chamber of Commerce did not cease to be charitable merely because the members of the chamber c were incidentally benefitted in carrying out its main charitable purpose. The Court relied very strongly on the decisions in Commissioner of Inland Revenue v. Yorkshire Agricultural Society(') and f11stitutio1~ -0f Civil Engineers v. Commissioner of Inland Revenue(') for reaching the conclusion that merely because some benefits incidentally arose to the members of the society or institution in the course o~ carrying out its main charitable purpose, it would not by itself prevent the association or institution from being a charity.

JJ would be a question of fact in each case "whether there is so much personal benefit, intellectual or professional, to the members of the society or body of persons as to be incapable of being disregarded". It is this criterion which has to be applied in the present case and if we do so, it is clear that the dominant or primary purpose of the assessee was to promote commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth and Cotton Cloth as set out in sub-clause (a) of clause (3) of the Memorandum and the objects specified in sub-clauses (b) to (e) of clause (3) were merely incidental to the carrying out of this dominant or primary purpose. The objects set out in sub-clauses (b) to (e) of clause (3) were, in fact, in the nature of powers conferred upon the assessee for the purpose of securing the fulfilment of the dominant or primary purpose.

The Revenue, it may be conceded, is right in contending that these objects or powers in sub-clauses (b) to (e) of clause (3) would benefit the members of the assessee, but this benefit would be incidental in carrying out the main or primary purpose forming the basis of incorporation of the assessee. If, therefore, the dominant or primary purpose qf the assesscc was charitable, the sub. sidiary objects set out in syb-clauses (! ) [1928] 1K. B. 611; 13 Tax Cas. 58 (2) [19311 6 Tax Cas. 158 (C. A. ). A (b) to (e) of clause (3) would not militate against its charitable character and the purpose of the assessee would not be any the Jess charitable. Now haviug regard to the decision of this Court in Commissioner of lncome"tax v.

Andhra Chamber of Commerce (supra), there can be no doubt that the dominant or primary purpose to promote commerce and trade in Art Silk Yarn, Raw Silk, B Cotton Yarn, Art Silk Cloth, Silk Cloth and Cotton Cloth foll within the category of adva'ncement of an object of general public utility. It is true that according to the decision of the Judicial Committee of th·~ Privy Council in All India Spim1ers Association v. Commis- ~ sioner of Income-tax,(') the words "advancement of any other object ,J of general public utility" would exclude objects of private gain, but c this requirement was also satisfied in the case of the assessee, because the object of private profit was eleminated by the recognition of the asscssee under section 25 of the Companies Act, 1956 and clauses 5 and 10 of its Memorandum.

It must, therefore, be held that the income and property of the assessee were held under a legal obligation for the purpose of advancement of an object of D general public utility within the meaning of section 2 clause (15). But the question still remains whether this primary purpose of the assessee, namely, to promote commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth, and E Cotton Cloth could be said to be "not involving the carrying on of any activity for profit. " This question arises on the terms of section 2 clause (15) which gives an inclusive definition of "charitable purpose". It provides that "charitable purpose" includes "relief of the poor, education, medical relief and the advancement of any other F object of general public utility not involving the carrying on of any activity for profit. " It is now well settled as a result of the decision of this Court in M/s. Dharamdipti v.

Commissioner of lncome-tax(') that the words "not involvin~ the carrying on of any activity for profit" qualify or govern only the last head of charitable purpose and not the earlier three heads. Where therefore the purpose of a trust or G institution is relief of the poor, education or medical relief, the requirement of the definition of "charitable purpose" would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution. But if the purpose of the trust or institution is such that it cannot be iegarded as covered by the heads of "relief of the poor, H (1) 12 I. T. R. 482. (2) C. A. No. 82/75 decided on 24th July, 978. COMMISSIONER OF INCOME-TAX V. SURAT ART SILK 9 5 (Bhagwatl, !.

) education aQd medical relief', but its claim to be a charitable purpose rests only on the last head "advancement of any other object of general public utility", then the question would straight arise whether the purpose of the trust or institution involves the carrying on of any activity for profit. The last head of "charitable purpose" thus requires for its applicability, fulfilment of two conditions (i) the purpose of the trust or institution must be advancement of an object of general public utility; and (ii) that purpose must not involve the carrying on of any activity for profit. The first condition does not present any difficulty and, as we have already pointed out above, it is fulfilled in the present case, because the primary purpose of the assessee, namely, promotion of commerce and trade in Art Silk Yarn, Raw Silk Cotton Yarn, Art Silk Cloth, Silk Cloth and Cotton Cloth is clearly advancement of an object of general public utility.

But the real difficulty arises when we turn to consider the applicability of the second condition. What do the words "not involving the carrying on of any activity for profit" mean and what is the nature of the limitation they imply, so far as the purpose of advuncement of an object of general public utility is concerned ? It would be convenient at this stage to rerer briefly to the legislative history of the definition of "charitable purpose" 111 the fncometax law of this country, as that would help us to understand the true meaning and import of ihe words "not involving the carrying on of any activity for profit''. These restrictive words, it may be noted, were not to be found in the definition of "charitable purpose" given in sub-section (3) of section 4 of the Indian Income-tax Act, 1922 and they were added for the first time when the present Act was enacted.

What were the reasons which impelled the legislature to add these words of limitation in the definition of "charitable purpose" is a matter to which we shall presently advert, but before we do so, we may usefully take a look at the definition of "charitable purpose" in Section 4 sub-section (3) of the Act of 1922. There, "Charitable purpose" was defined as including "relief of the poor, education, medical relief and the advancement of any other object of general public utility" without the additive words "not involving the carrying on of any activity for profit''. Now it is interesting to compare this definition of "charitable purpose" with the concept of "charity" m1der English Law. The English Law of charity has grown round the Statute of Elizabeth, the Preamble to which contained a list of purpose re2arded as worthy of protection as being charitable.

These purposes have from an early stage bee'n regarded merely ) as examples and have through the centuries been considered as guide posts for the courts in the differing circumstances of a developing and fast changing civilization and economy. Whenever a question has arisen whether a particular purpose is charitable, the test has always lieen whether it is or is not within the spirit and intendment of the Preamble to the Elizabeth Statute. The law has been developed by analogy upon analogy and it is to be found in the large case of case-law that has been built up by the courts in over the years. Tho result is that the concept of charity in English Law is as vague and undefined as it is wide and elastic and every time there has to be a search for analogy from the Preamble to the Statute of Elizabeth or from decided cases.

An early attempt to simplify this problem by a classification under main heads was made by Sir Samuel Romilly when he tried to subsume charitable purposes under four heads in the following summary submitted by him in the course of arguments in Morice v. Bishop of Durham(') "reief of the indigent, the advancement of learning, the advancement of religion and the advancement of objects of general public utility". This () classification was adopted in substance by Lord Macnaghten in hiS classic list of charitable purposes in Special Commissioners v. Pemsel(') where the learned Law Lord pointed out that charity in its legal sense comprises four principal divisions : trusts for the relief of poverty, trusts for the advancement of education, trusts for the advancement of religion and trusts for other purposes beneficial £ to the community not falling under any of the preceding heads.

" It will be noticed that the first head i"n the definition of "charitable purpose" both in the Act of 1922 and in the pursuant Act is taken from the summary of Sir Samuel Romilly; the second from the classification of Lord Macnaghten after omitting the word "advancement"; the third is a new head not to be found either in the summary of Sir Samuel Romilly or in the classification of Lord Macnaghten while the fourth is drawn from the last head in the summary of Sir Samuel Romilly. The definition of "charitable purpose" in Indian Law thus goes much further than the definition of charity to be derived from the English cases, because it specifically • includes medical relief and embraces all objects of general public utility. In English Law it is not enough that a purpose falls within , one of the four divisions of charity set out in Lord Macnaghten's \ classification.

It must also be within the spirit and intendment of " the Preamble to the Statute of Elizabeth if it is to be regarded as charitable. There is no such limitation so far as Indian Law is concerned even if a purpose is not within the spirit and inte"ndment t (! ) 1805 10 Yes. Jr. 522. (2) 3 Tax Casts 53. . :OMMISSIONER OF INCOME-TA,'C v. SURAT ART SILK 97 (Bhagwati, J. ) of the Preamble to the Statute of Elizabeth, it would be charitable if it falls within the definition of "charitable purpose" given in the Statute. Every object of general public utility would, therefore, be charitable under the Indian Law, subject only to the condition imposed by the restrictive words "not involving the carrying on of any activity for profit" added in the present Act. It is on account • of this basic difference between the Indian and English Law of charity that Lord Wright uttered a word of caution in All India Spinners' Association v.

Commissioner of Income-tax (supra) against blind adherence to English decisions on the subject. The definition of "charitable purpose" in the Indian Statute must be construed according to the language used there and against the background of Indian life. Tihe English decision may be referred to [or help or guidance but they cannot be regarded as having any binding authority on the interpretation of the definition in the Indian Act. With these prefatory observations, we may now turn . to examine the crucial words "not involving the carrying on of any activity for profit". One question of semantics that was posed before us was-and that is a question which we must first resolve before we can arrive at the f true meaning and effect of these words-whether these words qualify "advancement" or "object of general public utility".

What is it that must not involve the carrying on of any activity for profit in order to satisfy the requirement of the definition; "advancement" or "object of general public utility? The Revenue contended that it was the former and urged that whatever be the object of general public utility, its 'advancement' or achievement must not involve the carrying on of any activity for profit, or in other words, no activity for profit must be carried on for the purpose of achieving or attaining the object of general public utility. The argument was that if the means to achieve or carry out the object of general public utility involve the carrying on of any activity for profit, the purpose of the trust or institution, though falling within the description "any other object of general public utility" would not be a charitable purpose and the income from business would not be exempt from tax.

Now, ~ if this argument is right it would not be possible· for a charitable / trust or institution whose purpose is promotion of an object of general public utility to carry on any activity for profit at all. Not only would it be precluded from carrying on a business in the course of th~ actual carrying out of the primary purp0Se of the trust or mstitution, out it would also be unable to carry on any business even though the business is held under uust or legal obligation to• apply its income wholly to the charitable purpose or is carried on by the trust or institution by way of investment of its monies for the purpose of earning profit which, under the terms of its constitution, is applicable solely for feeding the charitable purpose. The consequence would be that even if a business is carried on by a trns!

or institution for the purpose of accomplishing or carrying out an object of general public utility and the income from such business is applicable only for achieving that object, the purpose of the trust or institution would cease to be charitable and not only income from such business but also income derived from other j sources would lose the exemption. This would indeed be a far reaching consequence but we do not think that such a consequence was intended to be brought about by the leJ:islature when it introduced the words ''not involving the carrying on of any activity for profit" in section 2 clause (15). Our reasons for saying so are as follows : It is clear on a plain natural construction of the language used by the Legislature that the ten crucial words "not involving the carrying on of any activity for profit" go with "object of general public utility" and not with "advancement".

It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by these last ten words is the linking of activity for profit with the object of general utility and not its linking with the accomplishment or wrrying out of the object. It is not ne~ssary that the accomplisnment of the object or the means to carry out the object should not involve an activity for profit. That is not the mJndate ol the newly ddded words. What these words requi;c is that lhe object should not involve the carrying on of any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. The decisions of the Kerala and Andhra Pradesh High Courts in Commissioner of Income-tax v. Cochin Chamber of Commerce and Industry(') and Andhra Pradesh State Road Transport Corporation v.

Commissioner of Income-tax(') in our opinion lay down the correct interpretation of the last ten words, in section 2 clause (15) . The true meaning of these last ten words is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is ,that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit. II (1) 87 I. T. R. 83. (2) 108 I. T. R. 392. (Bhagwati, !. ) It is ·true that the consequences of a suggested construction cannot alter the meaning of a statutory provision where such meaning is plain and unambiguous, but they can certainly help to fix its meaning in case of doubt or ambiguity. Let us examine that would be the consequence of the construction contended for on behalf of the Revenue.

If the construction put forward on behalf of the Revenue were accepted, then, as already pointed out above, no trust or institution whose purpose is promotion of an object of general public utility, would be able to carry on any business, even though such business is held under trust or legal obligation to apply its income wholly to the charitable purpose or is carried on by the trust or institution for the purpose of earning profit to be utilised exclusively for feeding the charitable purpose. If any such business is carried on, the purpose of the trust or institution would cease to be charitable and not only the income from such business but the entire income of the trust or institution from whatever sonrce derived, would lose the tax exemption.

The resnlt would be that no trust or institution established for promotion of an object of general public utility would be able to engage in business for fear that it might Jose the tax exemption altogether and a major source of income for promoting objects of general public utility would be dried up. It is difficult to believe that the legislature could have intended to bring ' about a result so drastic in its consequence. If the intention of the legislature were to prohibit a trust or institution established for promotion of an object of general public utility from carrying 'Jn any activity for profit, it would have provided in the clearest terms that 'not such trust or institution shall carry on any activity for profit, instead of using involved and obscure language giving rise to linguistic problems and promoting interpretative litigation.

The legislature would have used language leaving no doubt as to what was intended and not left its intention to be gathered by doubtful implication from an amendment made in the definition clause and that too in language far from clear. • Moreover, another consequence of the construction canvassed· on behalf of the Revenue would be that section 11 sub-section (4) would be rendered wholly superfluous and meaningless. Section 11 subsection (4) declares that for the purpose of section 11 "property held under trust" shall include a business undertaking and, therefore, a business can also be held under trust for a charitable purpose and where it is so held, its income would be exempt from tax, provided, of course, the other requisite conditions for exemption are satisfied. It may be pointed out faat section 11 sub-section (4) where it provi,l.

cs that a bl}siness may also be properly held l}nder trust, docs not bring about any change in the law, because even prior to the enactment of that provision, it was held by the Judicial Committee of the Privy Council in the Tribune's case(') that property in the corresponding section 4(3) (i) of the Act of 1922 included business and this principle was affirmed by the pronouncements of this Court in J. K. Tru't v. Commissioner of Income-Tax(') and Commissioner of Income-Tax v. • Krishna Warrier. (') Section 11 sub-section (4) merely gave statutory recogni:ion to this principle. Now section 13(1) (bb), introdl}ced in the Act of 1961 with effect from 1st April, 1977, provides that in the case Gf a charitable trust or institution for the relief of the poor, education or medical relief which carries on any business, income derived from such business would not be exempt from tax unless the business is.

carried on in the course of the actual carrying out of a primary purpose of the trust or institution. Where therefore, there is a charitabl~ trust or ins·titution falling within any of the first three categories of charitable purpose set out in section 2 clause ( 15) and it carries on business which is held by it under trust for its charitable purpose, income from such business would not be exempt by reason of section 13 (1 )(bb) . Section 11 sub-section (4) would, therefore, have no application in case of a charitable trust or institution falling within any of the first three heads of 'charitable purpose'.

Similarly, on the construction contended for on behalf of the Revenue, it would have no applicability also in case of a charitable trust or institution falling under tho last head of 'charitable purpose' becal}se according to the co'ntention of the Revenue, even if a business is held under trust by a charitable trust or institution for promotion of an object of general public utility, income from such business would not be exempt since the purpose would cease to be charitable. The construction contended for on } ~ charitable and the income from these activties could not be held to be exempt from tax. These rival contentions raised the same question of interpretation of section 2 clause (15), which has arisen in the present case. Krishna Iyer, J.

speaki'ng on behalf of the Court lamented the obscurity and complexity of the language employed in section 2 clause (15) a sentiment with which we completely agree>-and after referring; to the history of the provision the learned Judge proceeded to explain what accnrding to him was the true interpretation of the last concluding words in section 2 clause (15). The learned Judge said : "So viewed, an institution which carries out charitable purposes out of income "derived from property held under trust wholly for charitable purposes" may still forfeit the claim ' • to exemption in respect of such takings or incomes as may I come to it from pu! suing any activity for profit. Notwithstanding the possibility of obscurity and of dual meanings when the emphasis is shifted from "advancement" to "object" used in section 2(15) ,we are clear in our minds that by the ) (1) 101 l. T. R. 196.

new definition the benefit of exclusion from total income is taken away wherein accomplishing a charitable purpose the institution engages itself in activities for profit. The Calcutta decisions are right in linking activities for profit with advancement of the object. If you want immunity from taxation, your means of fulfilling charitable purposes, must be unsullied by profit-making ventures. The advancement of the object of general public utility must not involve the carrying on of any activity for profit. If it does, you forfeit. The Kerala decisions fall into the fallacy of emphasizing the linkage between the objects of public utility and the activity carried on. According to that view, whatever the activity, if it is interwined with, wrapped in or entangled with the object of charitable purpose even if profit results, therefrom, the immunity from taxation is still available. This will result in absurd conclusions.

Let us take this very case of a chamber of commerce which strives to promote the general interests of the trading community. If it runs certain special types of services for the benefit of manufacturers and charges remuneration from them, it is undoubtedly an activity which, if carried on by private agencies, would be taxable. Why should the · Chamber be granted exemption for making income by methcds wbich in the hands of other people would have been exigible to tax ? This would and up in the conclusion that a chamber of commerce may run a printing press, advertisement business, market exploration activity or even export promotion business and levy huge sums from its customers whether they are members of the organisation or not and still claim a blanket exemption from tax on the score that the objects cf general public utility which it has set for itself implied these activities even though profits or surpluses may arise therefrom.

Therefore, the emphasis is not on the object of public utility and the carrying on of related activity for profit. On the other hand, if in the advancement of these objects the chamber resorts to carrying on of activities for profit, then necessarily section 2(15) cannot confer cover. The advancement of charitable objects must not involve profit making activities. That is the mandate of the new amendment". It will thus be seen that Krishna Iyer, J. accepted the contention of II the Revenue that the means of accomplishing or carrying out an object of general public utility must not involve the carrying on of any activity t for profit or to use the words of the learned Judge "must be unsullied C:OMMISSIONBR OF INCOME-TAX V. SURAT ART SILK 103 (Bhagwati, J.

) by profit-making ventures" and even if a business is carried on by a trust or institution for earning profit to be applied wholly for an object of general public utility, the trust or institution would forfeit the claim for exemption from tax. The view taken by him was that the benefit of the e: income deriwd can be measured by standards usually applicable to ' a commercial activity. TI1e quantum of income ls no test in itsdf. It may be the resnlt of an activity permissible under a truly charitable purpose for, as has been observed, a profi' able activity in working out • th" charitable purpose is not exc'. nded. I am unable to agree, with ' respect, with all that has fallen from H. R. Khanna and A. C. Gnpta, JJ. in Sole Trustee, Loka Shikshana Trust v. Commis! 'ion"' of /ncometax, Mysore(! ) that the terms of the trust must impose restrictions on, making profits othe~wise tl1c purpose of the trust must be regarded !! ) (1975) 101 T. T. R.

2)4 -~- as involving the carrying on of a profit making activity. On the con·rary, 1 find myself in agreement with Beg, J. t" tk extent that he says, ih the same case, that it is tho genuineness of the purpose, that it is truly charitable, which determines the issue. le s•oems necessary 0 to me that a dis inction must constantly be maintained b. :twecn what is merely a definition of "charitable purpose,. 'mu ~he powers con- 11 ferred for working out or fulfilling that purpose. While the purpose and the powers mUBt correlate, they cannot be identified with each o'. her. Refereiic. 2 may, of course, be made to the nature and width of the powers as evidence of the charitable or non-charitable nature of the purpose. For the sam~ reason, 1 am compelled, with Pcspcct, to hold that the observations of Krishna Iyer, J. speaking for the Court in Indian Chamber of Commerce v. Commissioner of Incometax, West Bengal-II(') do not accord with what I believe to be a true construction of s. 2(15).

]f that decision can be justified, it ca'n be only on the basis that in the opinion of the court the true purpose of the trust or institntion was not essentially charitable. I am unable to accept the proposition that if th•2 purpose is truly charitabk, the attainment of the purpose must rigorously exclude any ac'ivity for profit. I am also unable to e'ndorse the position that by permit! ing , the trust or insti'. ution to carry on an activity which brings in profit, although that activity is carried on in the course of the working out of the purpo&o of the trust or insti'. ution, "busit~css men have a high- ' road to tax avoidance". It was apparently not brought to the notice of the learned judges that a carefu;\y e'nac'. ed scheme has been incorporated in the Act which c! o&2ly controls the utilisation of the trust income, and that the tax exemp'. ion is conditional on the observance of the statutory conditions stipulated in that scheme.

On the facts of the present ref~rences which are set out in the judgment prepared by my brother Bhagwati, I have no hesitation in holding that ·the purpose of the respondent company falls within the definition of s. 2(15) of tho Income Tax Act, 1961. Sub-claus•2 (a) of clause 3 of the Memor::! _ndum of Association declares that the purpose ', for which the company has been established is "to promote commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth. Silk Cloth and Co'toh Cloth. " The promotion of commerce and trade has be2n held bv this Court in Commissioner of Income Tax v. • Andhra Chamber of Commerce(') to be an object of general public ' ntility. and there is nothing to show that, viewed as the "purpose" for which the company was incorporated, the sub-clause involves the (! ) [! 975] 101 l. T. R. 796 (2) [1965] 55 I. T. R. 722 COMMISSIONER OF INCOME-TAX V. SURAT ART SILK I 19 (Sen, J. ) carrying on of any activity for vrofit.

Th·o remaini'ng snb-elauses A enumerate the powers for which it has been constituted. Having regard to the interpretation placed by me on the words defining the Fourth head of "charitab1e purpose" in s. 2(15) of th•o Act, I answer the question referred in each of the references i'n the n affirmative, in favour of the ass•ossee and against the Revenue. The • Revenue will pay the costs of the assessee in two sets, one in Tax Reference Case No. IA of 1973 and the other in Tax Refo"rence Cas'" Nos. 10 to 14 of 1975. SEN J. I have had the advantage of reading the judgment prepared by my leamod brother Bhagwati J. I regpo: my inability to share the views expressed by him as to the construction of the expression "charitable purpose" as defined in s. 2(15) of the Income-tax Act, 1961. I am of the opinion that the two decisions in Sole Trustee, Loka Shikshana Trust v. C. I. T. (') and Indian Chamber of Commerce v. C. I. T. (') lay down the correct law and still hold good.

• In the definition of "charitable purpose", contained in s. 2(15) of the Act of 1961, the words "not involving the carrying on of any activity for profit'', which did not find place in the Act of 1922, qualify only the fourth bead of charitable purpose viz. , "any other object of general public utility'', a'nd not any of the first three heads. The definition of "cbari'. able purpose" in s. 2(15) is in these terms : "2(15) 'charitable purpose' includes rdief of the poor, education, medical re:ief, and the advancement of any other object of general public utility not involvi'ng the carrying on of any activity for profit;" It has brought about radical changes in the system of taxation of income and profits of charities, with particular reference to 'objects of general public utility' to prevent tax evasion, by diversion of ) business profits to charities.

After th·~ experience gained in the 39 ' years that followed the e'nactment of the Act of 1922, it came to be realised that many activities for profit were not subject to tax on income merely because they could be regarded as objects of general r public utility. What was amiss under the Act of 1922 was not the " idea of giving income-tax relief in njpect of charity, but undue width o! the range of what ranks as a charity for that purpose. It is the vagueness of the expression "any other object of general public utility (I) (1975) 101 I. T. R. 234. t (2) (1975) 101 I. T. R. 196. A "that impelled Parliament to i'nsert the restrictive words "not involving the carrying on of any aciivity for profrt". It is not permissible for the Court to whittle down the plain language of the section. "It would be contrary to all ruks of construction", in the words of Khanna J. , speaking for himself and Gupta J.

B in Loka Shikshana Trust "to ignore the impact of the newly added • words 'not involving the carrying on of any activity for profit' and to construe the definition as if the newly added words were either not there or were intended to be o'. iose and ! 'odundant, i. e. , as qnalifying a·nd affirming the position under the Act of 1922". Such a construction wonld, I am afraid, frustrat•o the very object of the legis:ation. c The section is self-explanatory. The relative simplicity of tho language brings out the necessary legislative intent to counter-act tax advantages resulting from so-called 'chariti•"s in camouflage'. No distinction had been made by the Act of 1922 b>~twecn the well·known charities of relief to tl!. I' poor, education and medical relief D on th~ ane hand and cha1ities resulting from the advancement of any other object of general pub:ic utility, on 1he other hand. But such a distinction has been introduced by the definition of the term "charitable purpose" in s.

2(15) though the defi'nition is an inclusive one. The restriction is that the advancement of objects of geno~ral public utility should not involve the carrying on of any activity for profrt. E If it involved any such activity, the charity will fall outside the definition of charitable purpose in s. '2(15). This change has radically altered the law and whenever the adva'ncem~nt of an object of general public utility involved an activity for profit that object will cease to be a charitable purpose. So, in such cases, the income from ~he activity for profit cannot be exempted from tax under s. 11 of the F Act. The object of this addition of the restrictive words "not involving the carrying on of any activity for profi'c'' was to clearly overcome the decisio"n in In re The Trusr·ces of the Tribune('), All India Spinners' Association v. C. l. T. ('), and !. K. Trust v. C. l. T. (3) All these cases arose umbr s.

4(3) (i) of the Act of 1922, which did not include the words "not involving the carrying on of trdly say that, if the altered definition of 'charitable purpose' llJi s. 2(15) were to be applied, according to the well-known canons of constructioi;, no such point would for a moment be arguable. There can be no doubt that Parliament wanted to bring about a. change in the law to prevent tax avoidance by diversion of business profits to pseudo charities. Surely, it cannot be said that Parliament did not mean, what it intended to achieve, by introducing the restrictive words "not involving tlic carrying on of any activity for profit": It clearly meant to prevent bx-free profits from being ploughed back in business. Bu~ it is said that the law is different; and the point upon which the case must turn cannot be more di•tinctly put than was put by Beg J. in his judgment in Loka Shikshana Trust. The observations of Beg J.

have given rise to a controversy that tile conditi0i1 that the purpose should not involve the carrying on of any activity Ior prefit would be satisfied if profit-making is not the real object; and that if the terms of the trust permit the carrying Olll of business activity for profit it would prima facie indicate the object of profit-making unks The report of the Public Accounis Committee made a comprehensive study of the problem and indicated the magnitude of avoidance of tax through formation of charitable trusts, and considered whether· the words 'not illlvolving the carrying on of any activity for profit' should be deleted, but reco=ended against its deletion.

The Direct Taxes Enquiry Committee (otherwise known as the Wanchoo Committee) considered the question whether the restriction of trusts in the matter of engaging in activities for profit should be removed and made the following recommendations : "It is in this background that we address ourselves to the question as to whether religious or charitable trusts enjoying tax exemption should be permitted to carry on any activity for profit. Indubitably, engagement in activity for profit by such trusts provides scope for manipulations for tax avoidance. We, however, consider that it will not be desirable to ban an activity for profit which arises in the pursuit of ff the primary pmpose of a trust created with the object of relief of the poor, education or medical relief. For instance, 10-868SCI/79 138 SUPREME COUllT REPORTS [1980) 2 S. C. R. in the case of a trust for vocational training, it would be essential for . the trust to carry on its vocation.

We, there·· fore, recommend that law should be suitably amended to provide that where a trust for the religion of the poor, educa· tion or medical relief derives income from any activity for profit, its income would be exempt from income-tax only if • the said activity for profit is carried on in the course of the actual carrying out of a primary purpose of the institution. We wish to make it abundantly clear that even where a business is settled in trust, the trust should fulfil this condition if it is to enjoy tax exemption in respect of the incQ! Ile from such business. So far as trusts for any other object of general public utility are concerned, pursuit of any activity for profit should continue to render them ineligible for tax exemption. " The Direct Taxes Laws Committee in Chapter 2 (Interim Report, Decr.

mber 1977) on charitable trusts considered the question whether the above expression in the definition should be deleted and recommended the deletion of the above expression stating : ( i "We have received a large number of representations on the hardship caused as a result of the total banning of activity for profit so far as trusts having the fourth category objects are concerned. It has been pointed out that activities for profit are essentially fund-raising in nature, without which charities cannot exist. We find considerable substance in these representations. We are aware that some trusts have abused the provisions enabling them to carry on business and that, sometimes, expansion or consolidation of business is by itself, sought to be justified as furtherance of charity. such abuses would particularly arise where a business is merely held by a charitable trust as property unconnected with the objects of charity.

The remedy, in our opinion, lies in the direction of proper enforcement of the provisions relating to application of trust funds for charitable purposes and not of totally banning all activities for profit. Moreover, it is noticed that charitable trusts generally have objects falling under alJ the four categories. , Very often, a trust has come into difficulties on account of a single object under the fourth category, even though all the important objects fall under the first three categories. We, therefore, (Sen, J. ) ·recommend deletion of the words "not involving the carrying i\ on of any actilvity for profit" occurring in section 2(15) . " The Government, however, has not accepted the recommendation. [ fail to comprehend when the recommendation has not been acted upon by the Government by suitable legislation, how can this Court by a process of judicial construction achieve the same result.

Fears expressed at the Bar that this harsh measure enacted by, Parliament has shrivelled and dried up many genuine charities, does not take into account that it had to step in when the tax exemptions . available to charitable and religious trusts started being misused for the unworthy purposes of tax avoidance. The law has been so re- 1itructnred to prevent allergy to taxation masquerading as charity. It cannot be disputed that many business houses have abused the provision relating to exemption from tax by carrying on activities for profit as a means for expansion and consolidation of business, which was sought to be justified as in furtherance of charity, i. e. , charity became a big business. Now, the law is designed to prevent this misuse of tax exemption in the name of charity. It is not the function of a court of law to give the words a strained and unnatural meaning.

It may be that many genuine charitable trusts promoting objects of general public utility are severely affected and are caught in-between the two extremes. But this call for a change in the law. I am -0nly reiterating What has been said over and over again in deal with taxing Acts. In Cape Brandy Syndicate v. Inland Revenue Commissioner(') the principle was formulated and stated by Rowlat J. in his own terse language : "In a taxing Act one has merely to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no p~esumption as to a tax. Nothing is to be read in, nothing is to be implied. :One can only look fairly at the language used. " In Inland Revenue Commissioner v. Rass & Coulter(') Lord 1hanketro in describing 'the harsh consequences of a taxing provi- Bion' said : " .. If the meaning of the provision is reasonably clear, the courts have no jurisdiction to mitigate such harshness. " (1) [1921] 1 J:C. B. 64at p, 71.

(2) [1945]1AUE. R. 616atp. 625, 140 SUPREME COUR,T REPORTS [1980] 2 s. c. R. A The judicial attitudes cannot be formed in isolation from Legisliitlve processes, particularly in connection with Tax avoidance provisions. I would, accordingly, answer the references in favour of the Revenue and against the assessee. The Commissioner will be en- 8 titled to his CO! ts. P. B. R.