Case: Indian Chamber of Commerce Vs. Commissioner of Income Tax, West Bengal II, Calcutta

(i) for profit or (ii) without profit ? Even if (a) and (b) are answered affirmatively, if (c) (i) is answered affirmatively, the claim for exemption collapses. The solution to the problem of an activity being one for or irrespective of profit is gathered on a footing or facts. What is the real nature of the activity? one which is ordinarily carried on by ordinary people for gain? Is there a built in prescription in the constitution against making a profit? Has there been in practice, profit from this venture ? Although this last is a weak test. The mere fact that a service is rendered is no answer to chargeability because all income is often derived by rendering some service or other.21. Further, what is an activity for profit depends on the correct connotation of the preposition. For used with the active participle of a verb means for the purpose of (Sec judgment of Westbury C., 1127) For has many shades of meaning. It connotes the end with reference to which anything is done. It also bears the sense of appropriate or adopted to: suitable to purpose vide Blacks Legal Dictionary. An activity which yields a profit or gain in the ordinary course must be presumed to have been done for profit or gain. Of course, an extreme case could be imagined where without intent or purpose an activity may yield profit. Even so, it may legitimately be said that the activity is appropriate or adapted to such profit.22. We may wind up with a brief rounding off and indication on the approach. A pragmatic condition, written or unwritten, proved by. a prescription of profits or by long years of invariable practice or spelt from strong surrounding circumstances indicative of anti-profit motivation such a condition will qualify for charitable purposes and legitimately get round the fiscal hook. Short of it, the tax tackle holds you fast. A word about the burden of proof is necessary here. Income. Ordinarily chargeable, can be free from exigibility only if the assessee discharges the onus of bringing himself within s. 2(15). In so doing, he has to attract and repel attract the condition that his objects are of general public utility and repel the charge that he is advancing these objects by involvement in activities f or profit. Once this broad dual basis is made out, the Revenue will not go into meticulous mathematics and charge every chance excess or random surplus; If the activity is Prone to yielding income and in fact results in profits, the Revenue will examine the reality or pretence of the condition, that the activity is not for profit. Here, one may well say: Suit the action to the word, the word to the action. If such be the legal criteria for fixing charitable purpose, low does the Indian Chamber fare? The substantial item of income comes from the share of profits in the firm called M/s. Calcutta Licensed Measurers. True, the issuance of weighment and measurement certificates is a great facility for traders and under the Commercial Documents Evidence Act only recognised institutions arc permitted to issue such certificates. Recognition be speaks the status, integrity and efficiency of the institution but does not transmute a service for profit in to non-profitable activity. It is irrelevant whether this service is in implementation of or interwoven with trade promotion. What is partinent is whether the advancement of trade promotion by issuing such certificates is done for a nominal fee conditioned by the cost of the operation, and profit making by this means is tabooed. For there is nothing in the memorandum or articles of association which sets any limit on making a large profit this way. And, after all, any institution or individual m ay set up a weighment and measurement business as a source of income and if it is of sufficient probity and competence recognition to may well be accorded under the Commercial Documents Evidence Act. We cannot mix up or confuse the two concept. The activity of charging fees and issuing certificates of origin valuable as a service though it be, is in not different position. Both these activities are amenable to tax as being carried on for profit, there being nothing to show that the Chamber was undertaking this job on a no profit basis. The presumption, if at all, is that a businessman association does a business of it. more so when the facility is available to members and non members. Not infrequently one comes across weighment stations where loaded trucks are weighed for payment as a business. So also approved valuers value property as business and charge for that service. Merely because it is carried on by a Chamber of Commerce no difference in incidents a rises and tax incidence can be repelled only if the work is done explicitly on a no profit basis. Such is not shown to be the case here.The objects of the Chamber include settlement of disputes among traders by arbitration. This is undoubtedly a service of general public utility preventing protracted commercial litigation. If the fee charged for doing so is more or less commensurate with the expense the Chamber has to incur, a minor surplus will not attract tax. But no such restriction is written into the rules governing the Chamber. It may charge a heavy sum and spend much less for hiring experts to decide the dispute. There is no magna carta hiding the Indian or Cochin or Bengal Chamber of Commerce not to sell arbitral justice. Suppose specialist in mercantile law and practice of reputable integrity offers himself regularly for arbitration of commercial disputes for a high fee, is he not making an income? The difference between the two is as between Tweedledum and Tweedledee. Surely, if an innate, articulated, restraint on the levy for these undoubted services to Trade existed as a fact, so as to remove the slur of activity for profit, then the umbrella of charitable purpose would protect small surpluses.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The assesses the Indian Chamber of Commerce, , was assessed for the accounting yearon the income which arose from the three heads of arbitration fees, fees for certificates of origin and the share of profits in the firm M/s. Calcutta Licensed Measurers which issued weighment and measurement certificates charging a fee therefore the return for the assessment year showed a profit of Rs. 1, 58, 690/made up of a small amount from arbitration fees, and a similar sum from fees for issue of certificates of origin but a substantial sum by way of share of income from the fees charged for weighment and measurement. Although theofficer repelled the claim of charitable purpose on the view that these activities were for profit the Appellate Tribunal took a contrary view reversing the concurrent findings of theofficer and the Appellate Assistant Commissioner. The conclusion of the Tribunal was that s. 2(15) applied but the High Court on a reference under s. 256(1) of the Act, answered the question in favour of the Revenue.We have indicated earlier that the various High Courts have taken contrary views. Kerala has consistently held on facts substantially identical that s. 2(15) is attracted. Andhra Pradesh has concurred, while Calcutta and Mysore have ranged themselves on the opposite side. A recent decision of this Court earlier mentioned has given some telling guidelines although the precise facet pressed before us may not be said to have been wholly covered bythis standpoint be sound, the three services which have yielded profits, although wrapped in, ent angled orintertwined with theobject of promoting trade interests, are still liable to tax, there being no visible limitation on the revenues that Any arise from them and these precise activities could be carried on by private individuals for profitThe legallies along a realistic line of reasoning taking care to avoid the extreme position of Shri Sharma which will render the last limb of s. 2(15) illusory or ineffectual and as serviceable for tax exemption of charities as the appendix to the human physiology. In our view the key to the problem is furnished not merely by a careful , . Took at the history of the evil and the Parliamentary debate at least the Finance Ministers speech on the new change but the language of s. 2(15) itself read in the light of the guidelines in Lok Shikshana Trust (supra) .12. Taking aof s. 2(15) with special emphasis on the last concluding words, we have to interpret charitable purpose in such manner that we do not burke any word, treat any expression as redundant or miss the accent of the amendatory phrase. So viewed, an institution which carries out charitable purpose 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 come to it from pursuing any activity for profit. Notwithstanding the possibility of obscurity and of dual meanings when the emphasis is shifted from advancement to object used in s. 2(15), we are clear in our minds that by the new definition the benefit of exclusion from total income is taken away where in 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 11 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 intertwined with, A wrapped in or entangled with the object of charitable purpose even if profit results there from, 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 methods which in the hands of other people would have been exigible to tax ? This would end 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 of general public utility which it has set for itself implied these activities eve n though profits or surpluses may arise there from. 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 re sorts to carrying on of activities for profit, then necessarily s. 2(15) cannot confer cover. The advancement of charitable objects must not involve profit making activities. That is the mandate of the new amendment.13. The opposite position in its extreme form is equally untenable. While Shri Sharma is right that merely because service is rendered to traders escapement from tax liability does not follow. Every type ofactivity, where some charge is levied from the beneficiary and at the end of the year some surplus is left behind, does not lose the benefit of s. 2(15). For, then., one cannot conceive of any object of general public utility which can be advanced by the Chamber of Commerce. For every such activity some fee will have to be levied if the Chamber is not to turn bankrupt and merely because a fee is levied one cannot castigate the activity as one for profit. Therefore it is a false dilemma to talk of activity for profit as against activity rendered free. The true demarcating line lies in between.In our view, the ingredients essential to earn freedom from tax are discernible from the definition, if insightfully read against the brooding presence of the evil to be suppressed and the beneficial object to be served. The policy of the statute is to give tax relief for charitable purpose, but what falls outside the pale of charitable purpose ? The institution must confine itself to the carrying on of activities which are not for profit. It is not enough if the object be one of general public utility. The attainment of that object shall not involve activities for profit. What then is an activity for profit ? An undertaking by a business organisation is ordinarily assumed to be for profit unless expressly or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly negatived. We will illustrate to illumine. If there is a restrictive provision in theof the charitable organisation which insists that the charges levied for services of public utility rendered are to be on a no profit basis, it . clearly earns the benefit of s. 2(15). For instance, a funeral home, an S. P.C.A. Or a cooperative may render services to the public but write a condition into its constitution that it shall not charge more than is actually needed for the rendering of the services, may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables, may be a little surplus is left over at the end of the year the broad inhibition against making profit is a good guarantee that the carrying on of the activity is not for pro f it. As an antithesis, take a funeral home or an animal welfare organisation or a super bazaar run for general public utility by an institution which charges large sums and makes huge profits. Indubitably they render services of general public utility. Their objects are charitable but their activities are for profit Take the case of a blood bank which collects blood on payment and supplies blood for a higher price thereby making profit Undoubtedly the blood bank may b e said to be a general public utility but if it advances its public utility by sale of blood as an activity for (making) profit, it is difficult to call its purposes charitable. It is just blood business !In the United States, for instance, there are many funeral homes which make considerable profits. There are super bazaars and animal welfare institutions in many countries which may be run on a profit motive. Inevitably these activities are caught in the meshes of the tax la w. Readymade nostrums like dominant intent" incidental profits, real object as against ostensible purpose, entangled, wrapped in, and the like fail as criteria in critical cases, although they have been liberally used in judicial vocabulary. In this branch of law verbal labels are convenient but not infallible. We have to be careful not to be victimised by adjectives and appellations which mislead, if pressed too far, although they may loosely serve in the ordinary run of case.14. To sum up, s. 2(15) excludes from exemption the carrying on of activities for profit even they are linked with the objectives of general public utility, because the statute interdicts, for purposes of tax relief, the advancement of such objects by involvement in the carrying on of activities for profit. We appreciate the involved language we use but when legislative draftsmanship declines to be simple, interpretative complexity becomes a judicial necessity.We may wind up with a brief rounding off and indication on the approach. A pragmatic condition, written or unwritten, proved by. a prescription of profits or by long years of invariable practice or spelt from strong surrounding circumstances indicative ofmotivation such a condition will qualify for charitable purposes and legitimately get round the fiscal hook. Short of it, the tax tackle holds you fast. A word about the burden of proof is necessary here. Income. Ordinarily chargeable, can be free from exigibility only if the assessee discharges the onus of bringing himself within s. 2(15). In so doing, he has to attract and repel attract the condition that his objects are of general public utility and repel the charge that he is advancing these objects by involvement in activities f or profit. Once this broad dual basis is made out, the Revenue will not go into meticulous mathematics and charge every chance excess or random surplus; If the activity is Prone to yielding income and in fact results in profits, the Revenue will examine the reality or pretence of the condition, that the activity is not for profit. Here, one may well say: Suit the action to the word, the word to the action. If such be the legal criteria for fixing charitable purpose, low does the Indian Chamber fare? The substantial item of income comes from the share of profits in the firm called M/s. Calcutta Licensed Measurers. True, the issuance of weighment and measurement certificates is a great facility for traders and under the Commercial Documents Evidence Act only recognised institutions arc permitted to issue such certificates. Recognition be speaks the status, integrity and efficiency of the institution but does not transmute a service for profit in toactivity. It is irrelevant whether this service is in implementation of or interwoven with trade promotion. What is partinent is whether the advancement of trade promotion by issuing such certificates is done for a nominal fee conditioned by the cost of the operation, and profit making by this means is tabooed. For there is nothing in the memorandum or articles of association which sets any limit on making a large profit this way. And, after all, any institution or individual m ay set up a weighment and measurement business as a source of income and if it is of sufficient probity and competence recognition to may well be accorded under the Commercial Documents Evidence Act. We cannot mix up or confuse the two concept. The activity of charging fees and issuing certificates of origin valuable as a service though it be, is in not different position. Both these activities are amenable to tax as being carried on for profit, there being nothing to show that the Chamber was undertaking this job on a no profit basis. The presumption, if at all, is that a businessman association does a business of it. more so when the facility is available to members and non members. Not infrequently one comes across weighment stations where loaded trucks are weighed for payment as a business. So also approved valuers value property as business and charge for that service. Merely because it is carried on by a Chamber of Commerce no difference in incidents a rises and tax incidence can be repelled only if the work is done explicitly on a no profit basis. Such is not shown to be the case here.The objects of the Chamber include settlement of disputes among traders by arbitration. This is undoubtedly a service of general public utility preventing protracted commercial litigation. If the fee charged for doing so is more or less commensurate with the expense the Chamber has to incur, a minor surplus will not attract tax. But no such restriction is written into the rules governing the Chamber. It may charge a heavy sum and spend much less for hiring experts to decide the dispute. There is no magna carta hiding the Indian or Cochin or Bengal Chamber of Commerce not to sell arbitral justice. Suppose specialist in mercantile law and practice of reputable integrity offers himself regularly for arbitration of commercial disputes for a high fee, is he not making an income? The difference between the two is as between Tweedledum and Tweedledee. Surely, if an innate, articulated, restraint on the levy for these undoubted services to Trade existed as a fact, so as to remove the slur of activity for profit, then the umbrella of charitable purpose would protect small surpluses.