Case: Commissioner Of Income-Tax, Madras Vs. Andhra Chamber Of Commerce

1. The Andhta Chamber of Commerce- hereinafter called the assessee - is a Company incorporated under the Indian Companies Act 7 of 1913. The assessee was permitted under S. 26 of the Act to omit the word "limited" from its name by order of the Government of Madras.2. The following are the principal objects of the Memorandum of Association of theTo promote and protect trade, commerce and industries of India, in the Province of Madras and in particular in the Andhra country.(b) To aid-stimulate and promote the development of trade, commerce and industries in India or any part thereof with capital principally provided by Indians or under the management of Indians.(c) To watch over and protect the general commercial interests of India or any part thereof and the interests of the Andhras in particular engaged in trade, commerce or manufacture in India and in particular the Andhra Desa.(d) To do all such other things as may be conducive to the preservation and extension of trade, commerce, industries and manufactures or incidental to the attainment of the above objects or any of them. Clauses (d) to (x) are incidental to the principal objects.By cl.4 of the Memorandum of Association it was provided that the income and property of the assessee shall be applied solely towards the promotion of its objects as set forth therein and no portion thereof shall be paid or transferred, directly or indirectly, by way of dividends, bonuses or otherwise howsoever by way of profit to its members.4. On December 2, 1944 the assessee purchased a building and made substantial alterations, additions and improvements therein. The assessee then moved its offices into that building on May 14, 1947 and let out to tenants the portion not required for its use. The income of the assessee is obtained from subscriptions and donations collectdd from its members and rent received from the building. The following table, sets out in columns 3 and 4 the net annual value of the property less the statutory deductions permissible under S. 9 of the Income-tax Act, 1922 and the net excess of expenditure over the income of the assessee (other than the rental income) incurred in connection with all its activities for the assessment years relating to which dispute arises in this group of appeals.Previous year Assessment Amount Net excess(calendar year) year Rs. Rs.1 2 3 41947 1948-49 3,405 7,4311948 1949-50 6,154 7,1391949 1950-51 6,928 5,2661950 1951-52 5,740 10,1781952 1953-54 8,072 18,6721953 1954-55 8,072 17,3975. In proceedings for assessment before the Second Additional Income-tax Officer, City Circle I, Madras it was contended that the annual value of the building was not assessable in its hands as the assessee was a charitable institution within the meaning of S. 4(3)(i) of the Income-tax Act, 1922. In the alternative, it was contended that the excess of expenditure over income should be set off against such, income if the annual value is held assessable. The Income-tax Officer rejected the contentions of the assessee and assessed its income from property on the basis of net annual value in the six assessment years without debiting the expenditure in excess of income (other than rent) against the net annual value.6. The assessee appealed to the Appellate Assistant Commissioner against all the orders of assessments. The Appellate Assistant Commissioner held that the assessee was not being a charitable institution the income in question was not exempt under S. 4 (3) (i). He also rejected the alternative contention, for in his view, there was no specific profit-making activity of the assessee the loss from which could be set off against its other income.7. Appeals were then taken to the Income-tax Appellate Tribunal. The Tribunal held that the assessee was not exempt within the meaning of S. 4(3) (i) from liability to pay income-tax, because the activities of the assessee were intended for the benefit primarily of its members and "embraced only collective action on behalf of all its constituent members" which "could not be said to be the result of any trade or business or vocation carried on by it"8. At the instance of the assessee the Tribunal referred the following questions to the HighWhether the aforesaid income from property owned by the assessee is exempt under S. 4 (3) (i) for the aforesaid six years of assessment?(2) If the answer to the above question is in the negative whether the activities of the assessee amount to a trade or business, the profit or loss from which is assessable under S.High Court answered the first question in the affirmative and did not record a formal answer on the second question. Against the order of the High Court, these appeals are preferred by the Commissioner of Income-tax, with certificates granted by the High Court under S. 66A (2) of the Indian Income-tax Act.9. We are concerned in this group of appeals with the assessment of income of the assessee in the year 1948-49 to 1954-55 with the omission of the assessment year 1952-53. Between the years 194849 to 1952-53 there has been some change in S. 4(3)(i) which before it was amended by Act 25 of 1953 with effect from April 1, 1952 read as followsincome, profits or pains failing within the following classes shall not be included in the total income of the person receiving them :(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".

Court's reasoning:
16. It is true that in this case there is in fact no trust in respect of the income derived from the building owned by the assessee. But the property and the income therefrom is held under a legal obligation, for by the terms of the permission granted by the Government to the assessee to exclude from its name the use of the word "limited" and by the express terms of cl. 4 of the Memorandum of Association the property and its income are liable to be utilised solely for the purposes set out in the Memorandum of Association.The argument that it is only for the benefit of the members or the trading classes in Andhra Desa that the funds of the assessee could be utilised does not stand scrutiny. It is clear from the diverse clauses in paragraph 3 of the Memorandum of Association that the objects were not merely to benefit the members of the assessee or even the trading community of Andhrathat argument is wholly unfounded. By sub-cl. (iii) of cl. 5 a Chamber of Commerce or Trade Association protecting and promoting Indian trade, commerce and industry is eligible for election as a member of the Chamber and the representative of such a Chamber of Commerce or Trade Association need not necessarily be able to speak and write Telugu. Similarly by sub-cl. (iv) a Company or Corporation having its principal office or registered office in Andhra Desa or a branch in Andhra Desa is eligible to become a member in its conventional or corporate name and the representative of such a Company or Corporation need not necessarily be able to speak or write Telugu. Again under sub-cl. (v) a Partner of a Firm of a "Private Partnership Concern or a Joint Family Business concern, or a Sole Proprietary concern having its principal office or registered office in Andhra Desa or a branch in Andhra Desa is eligible for membership of the Chamber and the representative of such a member need not necessarily be able to speak or write Telugu. Finally by sub-cl. (vi) an individual residing anywhere in India and connected in any manner with trade, industry and commerce is eligible for membership of the Chamber provided his mother tongue is Telugu or he can both speak and write Telugu. There is no geographical limitation upon the membership qualification, nor is there limitation about the capacity to speak or write Telugu. We should not be taken as holding that if there were such restrictions, the character of the assessee as an institution for promotion of charitable objects would thereby be necessarilythe present case the primary purpose of the assessee was not to urge or oppose legislative and other measures affecting trade, commerce or manufactures. The primary purpose of the assessee is, as we have already observed, to promote and protect trade, commerce and industries, to aid, stimulate and promote the development of trade, commerce and industries and to watch over and protect the general commercial interests of India or any party thereof. It is only for the purpose of securing these primary aims that it was one of the objects mentioned in the Memorandum of Association that the assessee may take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures. Such an object must be regarded as purely ancillary or subsidiary and not the primary object.But the primary objects of the assessee are to promote and protect trade, commerce and industries and to aid, stimulate and promote the development of trade, commerce and industries and to watch over and protect the general commercial interests of India or any part thereof. These objects are not vague or indefinite as objects of general pubic utility. An object of general public utility, such as promotion, protection, aiding and stimulation of trade commerce and industries need not, to be valid, specify the modus of the steps by which the object may be achieved or secured. It cannot be said that if called upon to administer an institution of which the objects are of the nature set out, the Court would decline to do so merely on the ground that the method by which trade, commerce or industry is to be promoted or protected, aided or stimulated or the general commercial interests of India are to be watched over or protected are not specified. Analogy of cases like Runchordas Vandrawandas v. Parvati Bai 26 Ind App 71 (PC) in which the Privy Council declared a devise under a will in favour of "dharam void, is misleading. In that case the devise was declared void, because the expression "dharam in the view of the Judicial Committee being law, virtue, legal or moral duty was too general and too indefinite for the Courts tocl. 3(g) is not the primary object of the assessee; it is merely incidental to the primary objects of promotion or protection of trade commerce and industries, or to aid, stimulate and promote the development of trade, commerce and industries or to watch over and protect the general commercial interests.