INDIAN CHAMBERS OF COMMERCE versus C.I.T., WEST BENGAL-II, CALCUTTA

INDIAN CHAMBERS OF COMMERCE

C.I.T., WEST BENGAL-II, CALCUTTA September 17,. 1975

[V. R. KRISHNA !YEI<, A. C. GUPTA AND S. MURTAZA FAZAL Au, JJ.]

l!1come Tax Act (43 of 1961), s.2 (xv)-Charitable purpose, scope of-Burae11 of proof~Activitv for vrofit ~\!hat is.

. Under the Income-tax Act_ 1961 one of the items not includ"ed.in the total income of an assessee for purposes of tax is, under s.11 incon1e derived from . .property h~.ld under trust wholly for charitable purpose. Charitable purpose is defined 1n s.2 (xv). Chambers of commerce, promoting the trade interest of the c~m1?ercial con:imunity, have been regarded as pursuing charitable purposes w1th1n the n1ean1ng of s.2 (xv). But. under cover of charitable purposes they have been indulging in various activitie'S and deriving tax free profit. Therefore, s. 2 (xv) was amended by adding clause at the end. Under the an1ended definition, unless the context: otherwise 1-equires, charitable purpose includes the advancement of any object df general publi'c utility not i111·0/ving the carrying on of any acth·ity for profit.

HELD : The ·incon1e of the assessees, which are chambers of commerce. frorn three sources, namely, (a) arbitration fees levied by them; (b) fees collected for issuing certificates of origin; and (c) share of profit in another CGmpany for issue of certificates of weighmient and measurement, which ser-vices are extended to members and non-n1embers. that is, to be trade generally, is. not entitled to the exemption, and is liable to tax. [845E-G]

( 1) The teSt is to ask for answers to the following questions :-(a) Is the object of the assessee one of general public utility; (b) Does the advance-ment of the object involve activties bringing in money? (c) If so, arc· such activities undertaken (i) for profit or (ii) with.out profit. Even if (a) and (b) are answered affirmativ'elY, if (c) (i) is also answered affirmatively the claim for exemption collapses. [844B-Cl

(2) Section 2 (xv) n1ust be intoerpreted in such manner that every word is given meaning and not to treat any expression as redundant or miss the accent of the amendatory phrase. So viewed, an institution which carries out charitable purposes out of income 'derived from property held under trust \Vholly for charitable· purposes' may still· forfeit the claim to exemption in respect of such takings or incomes as n1ay come to it from pursuing any activity for profil By the new definition the benefit of exclusion from total income iSi taken away where~ in accomplishing charitable purpose, the institution engages itself in activities for profit. If' it wants immunity from taxation the moeans of fulfilling charitable purposes must be unsuUied by profit-mking ventures. The advancement of the object of general public utility must not involve the carrying on of any activity for profit. Otherwise. it will Jead to the absurd conclusion that Chamber of Cbmmerce may run printing press. advertisement bu~iness. market exploration activity or even exJ?Qrt pro-motion business and Jevy huge sums from itSi custimers. whether they are niembers of the organisation or not. and still c1ain1 blanket exemption from tax on the score that the objects of general public utility which it had set forth for itself implied these activi"t.~es even though profits or surpluses m>iy arise therefrom. If it runs special types of services for the benefit of manufacturers and charges remuneration from them. it i<> undontedlv an activity which. if carried on bv private agencies, would be- taxable. and there is no reason why Chamber Of Commerce should be exempt. The policy of the statute is to give tax relief for charitable purposes. An undertakin~ hv busine~s or~anisa­tion is ordinarily assumed to be for profit unless c-xpressly or bv necessarv implication. or by eloquent surrounding circumstances. the making of pro.fit o;;tands dearlv negatived. For example. if' there is restrictive provision in the hve-laws which insists that the charges levied for services of public utilit" re"ndered are to be on 'no profit' basis, that is, that it shall not charge more

than is actually needed for the rendering of the services, then it earns the benefit of •.2(xv). It may not be an exact equivalent--£uch mathematical precision being impossible in such case&-and there may be little surplus at the end of the year; but the broad inhibition against making profit is good guarantee that the carrying on of the activity is not for profit.

[839F-8400, G..S41C]

(3) The answer to the question whether an activity is one for or not for profit depends on. the facts. An activity which yields profit or gain in the ordinary course must be presumed to have been done for profit or gain. Thete may be activities, where, without intent or purpose the activity may yield profit. Even then it may\ Jegitimatiely be said that. the activity is for profit in the- sense that it is "appropriate or adapted to'' such profit. [844C, B-FJ

(4) If the activity is prone to yielding income and in fact results in profit the Reven~e will examine the reality or pretence of the condition that the activity is not for profit : But, if the broad basis that the activity is ndt for profit is made out, by the assessee, the Revenue will not be meticuloUs and charge every chance excess or random surplus. [844G.84SA] ·

(5) The asgessees' contention that the Revenue should only look at the 'dominant intent' or 'real object' of the assessee and that if its activity is wra_pped up, entangled or intertwined with public utility object, then any 'incid'ental profit' arising from it is not taxable, does not afford valid or satisfactory test. [841D-E]

(6) Equally, the contention 1 of the Revenue that all activities which arc prone to produce profits should be excluded. is not correct. [840E-F]

(7) In the present case the issuance of weighment and measurement certi .. ficates, the issuance of certificates of origin, and the settlement of disputes by arbitration are great facilities for traders of general public utility. There is however, nothing in the memorandum or articles of association of the assessees which provides for only nominal fees and sets limit on making large profits from the smices. [845B-E. G·H]

Loka Shikshana Trust v. C.l.T,. Mysore, [1976] I S.C.R. 471; C.l.T. v. Andhra Chamber df Commerce [1965] 55 I.T.R. 722 applied.

C.l.T. v. Dharmodayam Co. [1974] 94 I.T.R. 113, overruled.

ARGUMENTS

For the appellant :_:___

1. The primary or dominant or real objects of the Indian Chamber of Commerce are to promote, protect, aid and stimulate trade, commerce and industry in India. (Clause 3 of the 1-.-Iemorandum of Association). The Income received was to be applied solely for the promotion of the objects and upon di&Solution n·o property was to be paid or distributed among the members but was to be given or transferred to some other institution having similar objects. (Clauses 4 and 8 of the Memorandum of Association). Jt is wen settled. that these objects which lead to e:.onomic prosperity and enure for the benefit of the entire community are objects of general public utility and as such, charitable.

See [1965] SC 55 !TR 722-Cdmmissioner of ·lncome-tax v, Andhra Cluunber of Co1n1nerce.

2. The Indian Chamber. of Commerce provides, inter alia for arbitration facilities so that trade disputes may be •peedily and efficiently settled. It further 'll:rovides fur certificates of origin and certificates of -wcighment and. measurement to be issued u.nder the Commercial Documents Evidence Act, 1939 under Entry 18 Part I P-nd Entry 6 Part II of the Schedule to the said Act respectively. Theo:;e certificates can only be issued by certain bodies such as· re<;ogniscd chambers of commerce. The certificates are necessary for facilitating trade. 5-L1127SCI/75

The carrying 011 of the activities of granting ,;:ertificatcs of origin and/or weigh-me.nt and me.isurement and arbitration are not activities for profit but are in the nature of sen'ices and/or facilities provided to the commercial community. As fees are charged the result at the end of the year i~ sometimes loss and sometimes surplus. The dominant purpos'C for these service is not profit making but rendering statutory service for trade and commerce generally. The services :annot be gra·tuitous as the Chamber cannot be exrected to be <.:haritable in~titv,tion like Dharamsala. The fees charged arc related to the services renered by way of quid pro quo. Quid pro quo does not mean an equivalent mathen1atically. If incidental to the advancement of the objects of general public utility some services are rendered for fees as r~sult of whkh income results if does not means that the objects of the Chamber involves carrying on any a;;tivity "f0r profit" in the ~ense of that being the dominant object. The dominant or real purpose is not to earn profit or income but to serve trade and help the commercial comnu1nity. As such the above1nentioned activities carried on by the Chamber will not be activities ''for profit" involving in the dominant object of the Chamber. In order to be activities "for profit" the involvement of profit making shouJd be by the objects and must be of such degree or to sureh an extent as to lead to the inference that profit ma·king is the real object. Since the real or don1inant objects of the Chamber are not for profit and profit is not an essential ingredient but mere hye-product of the activities of the Chan1ber. the income must be held to be exempt under S. 11 ( 1) read with S. 2 {15) of the Act.

See [1976} I S.C.R. 471-The Sole Trustee Loka Shikshana Commissioner of Income-tax, !i1ysore.

Trust v.

3. The purpose and/or <lon1inant object must be distinguished from the powers which are incidental to the carrying out of the objects cf the Trust.

See 27 ITR 279-Commissioner of lnco111e.fax v. Breach Candy Swi1nn1ing Bath Trust.

[1918] Appeal Cases 514-Cotman v. Brougham [1970} I Ch. 199.

4. Under S. 2(15) of the Act the words "carrying on of any a:tivity for profit'' must mean an activity whose dominant object is profit making and not an activity which m~y incidentally result in some profit as bye-product. If this meaning is not given then there will be .no activity of any institution, doing work of general public l.fility which will be exempt including activities like those of All India Spinners Association.

5. If the primacy and dominant purpose is .;;:haritable then even if there are ·some incidental powers which are not charitable it will not prevent the trust from being valid charity, The intention will have to be gleaned from the -Constitution of the Trust or the ¥emorandum of Association.

See 7 ITR 415-ln Re: Trustees of the Tribune. 12 ITR 482-All lndia Spinners Association v. Comniissioner of Inconze-tax 55 lTR 722-Commissioner of lilcome.tax v. Andhra Cha1nber of l'ommerce

100 ITR 392-Andhra Pradesh Stote Transport Corporation v. Con1mis-, stoner of Income-tax

6. Under Section 11 of the Income-tax Act, 1961 it is the income derived from property held, under trust wholly for obaritable purposes which is not to be included in the· total income. The word property is of wide import and .can il;iclude. busines!I! or an undertaking or fees and restaurant charges etc.

12 lTR 482-Alt India Spinners Assoclatio11 v. Commissioner of l11come-ta.r

IND!'~ (HA:\IBERS OF COMMERCE v. C.l.T. (Kdshna Iyer, J.,833

27 JTR 27~Conunissioner of Income .. fa.'<, Bo1nbay City v. Breoch ('andy S1ri1nrni11g Bath Trust

32_ ITR 535-J K, Trust, Bdn-1bay v. Conunissioner of Income-tax, Excess Profit Tax,, Ro111bay

53 ITR 176-Conunissioner of Inc(nne-tax, Kera/a & Coi1nbatore v.

P. Kri'slina IVarriar

7. In any C\'~nt, the activities of <trbitration and grunting certificate& of origin and wcighrnent and/or measurement are not activities "for profit".

80 ITR 645-Conunissioner of Jnconzd-tax, Kera.la v. Indian Chamber of Conunerce

87 ITR 83--Conunissioner of !11Con1e-tax v. Kochin Cha111br:r of Commerce

ll975J 40 Taxa1ion (Ill) 15-Coniniissivnrr of lncon1e-tc•x. Kerolc. v Ernakulanz Cha1nber of Commerce.

As such the Chamber is entitled to exemption under section 11 read with 2(15) of the Income-tax Act.

For the .Respdndent.-

1. The Appellant/Chamber of commerce was deriving in::omc by performin~ three .kinds of services namely, providing arbitration facilities, for standard weights and measurements to traders in general. "This was in furtherance of its objects clause 2(a); 2(b); 2(c); 2(d); 2(z); 3(h); 3(i); 3(p); 2(q); 3(v) The performance of such services. for remuneration clearly was an activity fo1 profit and the 5aid activity was ,closely linked with, or involved with the advance-n1ent of the aforesaid objects of the Chamber. Such close-linking and involve-ment, by itself, rendered the object non-charitable within the meaning of 's. 2 ( 15) of the Income~tax Act, 1961.

2. If ·the Chan1ber of Commerce performed the ~ame kind of services for iN members for remuneration the income so derived \Vas certainly liable to tax under s. 28(iii) of the Income-tax Act, 1961. The position became worse if the income was so derived by rendering such services to non~member traders in general.

3. It was assumed by the Tribl1Ilal and by the High Court, for which there wa·s no warrant, that the income from the said three sources was income derived from property held under trust and the case proC'eeded on such assumption although the High Court doubted the validity of such an assumption as is clear from the text of their judgment at pp. 76-77 of the Paper Book. The High Court. therefore, proceeded to consider only \vhether the production of the income from the aforesaid three source":J was involved \Vith the advance'-ment of any object of general public utili(f. The Tribunal had held that such income was derived by carrying out the ancillary object of the Trust and not the main object, although it found as fact that the income \\'as derived fron1 carrying on an activity for profit. The High Court did not. recognise such u distinction and it was urged that the High Court \Vas right.

4. No valid reason could be .found for making distinction between an\ "individual" or any '"association of persons" on the one hand, and tl1e appellant on the other hand in respect of producing taxable income by carrying on identical activities for profit. It was beyond any doubt that if an Individual or an "association of persons" had 1carried on similar activities for profit thev would not be entitled to any exemption from tax. The appelJant, tbefefore. could not be placed at better level, especially when the words of Statute themselves had debari'ed it from getting the exemption: Prior to the introduc· tion of the qualifying clause in •. 2(15) of the Current Act sucli bodies ororganisations were undoubtedly enjoying exemption by virtue of the repealed Indian Income·tax Act, of 1922. The Legislature clearly intended to rerno\'e this unreasonable distinction by adding the qualifying cla-use as it is found in s. 2(15) of the Income-tax Act, 1961. The effect of such amendment of the definition was that the in'Stitutions otherwise regarded as charitable tn1sts have ·now been placed at par with any private organisa-tion or individual who wovld render the same kind of services to the public for profit.

5. Unless the n1en1orandum or articles governing Trust or any Institution prohibited the making of profit by carrying on any activity or the earning of the profits was not ruled out and in fact profit resulted, the Court would assume that the activity was carried on for profit. In support of this the Revenue's counsel relied upon the judgment of the Supreme Court recently delivered in the caso· of Sole Trustee Loke Shiksha11a Trust [1976) 1 S.C.R. 471. Thero was no such prohibition in the regulations governing the activitie'.i of the Indian Chamber of Commerce and therefore, its case fell squarely within the principles laid by the Supreme Court in the case of Loke Shiksliana Trust.

6. In order that an activity might be called business-activity or any other activity for profit, it was not necessary to show that it was an organised act_ivity or that it was indulged in with n1otive of' making profit; it was well estabh9hed that it was not the motive of person doing an act which decided whether the a.::t done by him was carrying on an activity for profl~. If any activity. business or otherwise, in fact, produced an income, that v,.:a·3 taxable income and was none-the-less so becau3C it was carried on without the motive of produc-of ing the Suprcmean income. 1 Court Reference was invited in the case of P. in Krishna Merion this connection v. to the Co1nn1issioner observations df Income-tax. Mysore (35 l.T.R.-p. 48).

7. Even in the case of classical charities, such ·as promotiou of educa.tion and giving of medical relief, no exemption is available if these two activities of charitable nature are carried on for purposes of profit. fdrtiori, the exemp--tion will be denied in the case of advancement of an object of general public utility, howsoever charitable it n1ay otherwise be regarded in character, if the advancement involved the carrying on an activity for profit. The intention of Legislature was fully vindicated in the language employed in s. 2(15) of the Act.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2129 of 1970.

From the Judgment and Order dated the 29th May, 1970 of the Calcutta High Court in Income Tax Reference No. 1 of 1967 and

Civil Appeals Nos. 2455-2457 of 1972

Appeals by Special Leave from the Judgment and Order dated the 25th February, 1972 of the Kerala High Court in Income Tax Refer-ence Nos. 9, 10 and 11 of 1970.

A. K. Sen, Mrs. Leila Seth, 0. P. Khaitan and B. P. Mahesliwari for the appellant in C.A. No. 2129 of 1970.

G. C. Sharma, B. B, Ahuja and S. P. Nayar for the respondents in

C.A. 2129 of 1970.

J. Ramamurthy and D. N. Gupta for intervener No. I iu C.A. No. 2129 of 1970. '

A. K. Sen and D. N. Gupta for Intervener No. 2 in C.A. No. 2129

or 1970.

INDIAN CHAMBERS OF COMMERCE v. C.I.T. (Krishna Iyer, J.) 835

J. Ramamurthi and D. N. Gupta for Intervener No. 3 in C.A. No. 2129 of 1970.

G. C. Shanna, fl. B. Ahuja and S. P. Nayar for the appellants in C.As. Nos. 2455-2457 /72.

A. K. Sen and D. N. G,upta for respondent in C.As. 4\os. 2455-57 /72.

The Judgment of the Court was delivered by

KRISHNA.IYER, J. These four appeals raise but one question, turn-ing on the meaning of 'charitable purpose', as defined ins. 2(15) of the Income Tax Act, 1961 (Act No. XLIII of 1961) (for short, the Act). They may be disposed of by one common judgment, although the two High Courts (Calcutta and Kerala) from where the appeals have come have taken contrary views on the single point in issue.

What are the.words set for earning exemption by combined appli" cation of s. 11(1) read withs. 2(15) of the Act? What is the para-meter of the legal concept of charitable purpose ? Are the triune activities, which have yielded income and have been assessed to tax, eligible for exemption as falling within the scope of s. 2(15) as it now stands ? These points of law, in the conspectus of facts presented in the case, have been argued in the light of conflicting decisions of the High Courts and illumined in part hy very recent pronouncement of this Court in Loka Shikshana Trust v. C,l.T., Mysore.([1])

The assessees are the Indan Chambers of Commerce and the Cochin Chambers of Commerce. Their memoranda and articles of association are substantially similar and so the facts in the first case alone need be stated and the question of law discussed with reference to that case only. Hardly any distinction on facts or law which desi-derate separate consideration exists.

The Indian Chamber of Commerce is company registered under . s. 26 of the Indian Companies Act, 1913. Its memorandum and articles of association spell out the broad objects and there is no doubt that they fall within the sweep of the expression 'the advancement of any ... object of general public utility' as set down ins. 2(15) of the Act. Briefly put, they are primarily promotional and protective of Indian trade interests and other allied service operations. general concluding clause authorizes it 'to do all other things as may be con-ducive to the development of trade, commerce and industries or inci-dental to attainment of the above objects or any of them'. It is clear from clauses 4 and 8 of the Memorandum of Association that the Jl:iembers of the Chamber do not and cannot stand to gain personally smce no portion of 'income and property of the association' shall be paid . . . directly ·or indirectly, by way of dividend or bonus or other-. wise howsoever by way of profit to the persons who at any time are . . . Members of the Association ... '. Even on the dissolution of the .~ss~iation the Members cannot claim any share in the assets. These highlight the fundamental fact t.hat the Chamber, by and large, strives to advance the general trade mterests of India and Indians without

(I) 119761-ts-:C.R. 411

seeking to make profits for its Members. In the light of this Court's decision in C.l.1'. v. Andhra Chamber of Commerce(") one may readily state that the Chambers advance objects of general public utility and, prima facie mow into the exclusionary area of charitable puv• pose. However, the bone of contention in this case is as to whether the three seurces of income, viz., (a) arbitration fees levied by the Chamber; (b) fees· collected for the certificates of origin; and (c) share of profit in M./ s. Calcutta Licensed Measures for issue of certificates of weighment and measurement fall within the exclusion. It may be mentioned that all these three services were extended to Members and non-Members or, rather, to the trade generally. Had the law bearing on 'charitable purpose' been what it was prior to 1961, the Chamber would have won, hands down may be. But then there is significant change in the definition of 'charitable purpose' by the addition of nine new words which cut back on the amplitude of the expression in the prior Act. The straight question to be answered here is whether in ;plain English the three activities which have yielded profits to the Chamber involve 'the carrying on of any activity for profit', un-complicated by casuistic niceties, semantic nuances and case-Jaw con-flicts. Unfortunately, legislative simplicity has not been accomplished by the draftsman in the amended definition and, consequently, inter-pretative complexity persists. The Judges of the Andhra Pradesh High Court in A. P. State Road Tran~port Corporation v. C.l.T.(") observed, while considering the import of s. 2(15) of the 1961 Act: "It is one of the fundamental principles in legislation and the drafting of statutes that the provisions contained therein should be clear and cogent and, more so, with regard to the fucal statutes which impose burden on the public. But, in this case, what we find is that the amendment, instead of being clear and cogent, is complicated and courts have taken different views in interpreting the same."

We dare say that achieving greater simplicity and clarity in statute law will be taken up by the draftsmen of the legislative bills to avoid play-ing linguistic games in Court and promotion of interpretative litigation. Lawyers and legislators must stop confusing each other and start talking to their real audience-th~ people-so that communication problems may not lead to prolific forensic battles. We must confess to having been hard put to it to get at the controlling distinction between activities which fall on one side or the other of 'charitable purpose'. The assessee the Indian Chamber of Commerce,_ was assessed for the accounting year 1963-64 on 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 fee therefor. The '.return for the assessment year showed profit of Rs. 1,58,690/-madc up of small amount from arbitration fees, and similar sum from fees for issue of certificates of origin but substantial sum by way of share of income from the fees charged for weighment and measurement. Although the Income-tax Officer repelled the claim of

(I) [1965] 55 l.T. R. 722.

(2) [1975] 100 l.T.R. 392, 397.

INDIA.'! CHAMBERS OF COMMERCE v. C.I.T. (Krishna Iyer, J.) 837

'charitable purpose' on the view that these activities were for profit the Appellate Tribunal took contrary view reversing the concurrent find-ings of the Income-tax Officer and the Appellate Assistant Commi&· sioner. The conclusion of the Tribunal was that s. 2( 15) applied but the High Court on 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. recent dedsion 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 by it.

The scheme of the Act may be briefly indicated to the extent it is relevant, before entering on the discussion. 'Income' is taxable, but certain incomes shall not be included in the total incomes of the pre-vious years of the person in receipt of the income. Section 11 excludes from the computation income derived from property held under trust wholly for charitable purpose. The Chamber of Commerce is trade association which renders specific services to its members and there-fore s. 28 will ordinarily apply to its income, unless s. 11 read with s. 2(15) excludes it from taxability. The income drawn from non-members by the Chamber will clearly be taxable unless s. 2(15) comes to its rescue. Thus the pivotal issue is as to whether the three channels of income may be treated as charitable purposes and therefore eschew-ed by s. 11 from the charging provision.

At this stage we may read s. 2(15) :

"2( 15) In this Act, unless the context otherwise requires,!_

'charitable purpose' includes relief of the poor, education medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit.'

The obvious change as between the old and the new definitions is the exclusionary provision introduced in the last few words. The history which compelled this definitional modification was the abuse to which the charitable disposition of the statute to charitable purposes was subr jected by exploiting businessmen. You create charity, earn exemp-tion from the taxing provision and run big industries virtually enjoying the profits with seeming veneer of charity situation which exsus-citated Parliament and constrained it to engraft clause deprivatory of the. exemption if the institution fulfilling charitable _purposes undertook activities for profit and thus sought to hoodwink the statute. The Finance Minister's speech in the House explicates the reason fot the restrictive condition. He stated in the House;(')

(1) Lok Sabha Dabates, Vol. LV!. 1961, p. 3073 (Aug. 18, 196))

[1976] 1 s.c.R.

·'·1 he definition of 'charitable purpose' in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving public purpose, get fully paid for the benefits provided by them, namely, the newspaper industry which while running its concern on conu;nercial Jines can claim that by circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that the words 'not involving the carrying on of any activity for profit' should be added to the definition."Beg J., in Lok Shikshana Trust (supra) has adverted to this statement as throwing light on the new provision. The evil sought to be abolish-ed is thus clear. The interpretation of the provision must naturally fall in line with the advancement of the object. Of course, there are borderline cases where it becomes difficult to decide at first sight whether the undertaking which yields profit is deceptive device or bonafide adventure which results in nominal surplus although substan-tially intended only to advance the charitable object.

Chambers of Co=erce dot this country and, by and large, they have the same complex of objects. They exist to promote the trading interests of the commercial community and, after the Andhra Chaniber of Commerce Case (supra) have been regarded as pursuing charitable purposes. This expression, defined in s. 2(15), is term of art and embraces objects of general public utility. Ilut, under cover of charit-able purposes, crop of camouflaged organisations sprung up. The mask was charitable, but the heart was hunger for tax free profit. When Parliament found this dubious growth of charitable chameleons, the definition in s. 2( 15) was altered to suppress the mischief by qualify-ing the broad object of 'general public utility' with the additive 'not involving the carrying on of any activity for profit'. The core of the dispute before us is whether this intentional addition of 'cut back' clause expels the Chamber from the tax exemption zone in respect of the triune profit-fetching sub-enterprises undertaken by way of service or facility for the trading community.

The rival constructions put forward by counsel at the bar may now be noticed. Shri A. K. Sen's argument for the Chamber is that the controlling distinction between what is 'charitable purpose' and what is not lies in discovering the dominant intent as distinguished from the subsidiary consequence, the principal object,, not the incidental inflow, the profit motive of the operation as against the service-oriented activity which may or may not en passa1it yield an income. His stress, la the Kerala cases, is on whether the activity is wrapped up, en-tangled and intertwined with the public utility object. If it is, the resultant surplus is not an exigible income. Such, certainly, are the passwords and touch-stones used in several Kerala decisions. If this be the parameter, he argues, the three activities are saved because

IND!AN CHAMUERS OF COMMERCE v. C.l.T. (Krishna Iyer, J.)839

they render service, promote trade and facilitate the wheels of business to move. They do not form activities for making profit; they are in fulfilment of the objects of the Chamber.

Shri Sharma for the Revenue reads into the amended definition total exclusion from the charmed circle of charitable purposes all activities which are prone to produce profits. The telling test, acc?rding to this view, is to see that the means, like the ends, are charitable, untainted by gainful stimulus and purged of the potential for profit in reality. By this canon the Chamber's desire to serve businessmen by offering arbitral or certificate facilities in return for price is prima facie an 'activity for profit' unless the circumstances, express or necessanly implicit eloquently proclaim 'no profit' foundation for the under-taking. ' The linkage is not between object of public utility anff the challenged activity, but between the methodology adopted . for the advancement of such objects and proneness for profit flowmg from such method or activity. If this standpoint be sound, the three ser,-vices which have yielded profits, although wrapped in, entangled or inter-twined with the object of promoting trade interests, are still liable to tax, there being no visible limitation on the revenues that may arise from them and these precise activities could be carried on by private individuals for profit.

The legal break-through lies along 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 hnman physiology. In our view the key to the problem is furnished not merely by careful look at the history of the evil and the Parliamentary debate-at least the Finance Minister's 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).

Ta~ing close-up of 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 redun-F dant or miss the accent of the amendatory phrase. So viewed, an institu-tion which carries out charitable purposes out 0£ income 'derived from property held under trnst wholly for charitable purposes' may still for-feit 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), wc are clear in our minds that by the new definition the benefit of exclusion from total income is taken away where in accomplishing charitable purpose the institution engages itself in activities for profit. The Calcutta deci-sions are right in linking activities for profit with advancement of the obj~t. If you want immunity from taxation, your means of fulfilling chantable purposes must be unsullied by profit-making ventures. The advancement of the object of general public utility must not involve the carryinJ! ?n of any_ activity for profit. If it does, you forfeit. The Kerala dec1s10ns. fall mto the fallacy of emphasizing the linkage betweeen the obiects of public utility and the activity carried on.

According to that view, whatever the activity, if it is intertwined with, wrapped in or entangled with the object of charitaJ:le l'.UrJJl?SC cv~n if profit results therefrom, the immunity from taxation JS still. avail-able. This will result in absurd conclusions. Let us take this very case of 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 Chamber of Commerce may run printing press, advertisement business,, market exploration activity or even export pro-motion busineS> and levy huge sums from its customers whetl1er they are members of the organisation or not and still claim blanket exemp-tion from tax on the score that the objects of 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 11ublic utility and the can-ying 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 neces-sarily s. 2(15) cannot confer cover. The advancement of charitable objects must not involve profit making activites. That is the mandate of the new amendment.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 of service-oriented activity, where some charge is levied from the benefi-ciary 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 lhe Chamber of Commerce. For every such activity some fee will have to be levied ii the Chamber is not to turn bankrupt and merely because fee is l.evied one cannot castigate the activity as one for profit. Therefore it is false dilemma to talk of activity .for profit as against activity rendered free. The true demarcating line lies in between.

In our vie\v, the ingredients essential to earn frec<lo1n from tax arc 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 business organisation is ordinarily assumed to be for profit unless ex-pressly or by necessary implication or by eloquent surrounding circum-stances the making of profit stands loudly negatived. We will illus-. trate to illumine. If there is restrictive provision in the bye-laws of

INDIAN CHAMBERS OF COMMERCE v. C.I.T. (Krishna Iyer, l.) 841

the charitable organisation which insists that the charges levied: f~r services of public utility rendered are to be on 'no profit' basis, 1t clearly earns the benefit of s. 2(15). For instance, funeral home, an S.P.C.A. or cooperative may render services to the public but write condition into its. constitution that it shall not charge more than is actually needed for the rendering of the s~rvices,--:-1:11ay b~ it may not be an exact equivalent, such mathematcrnl prec1s10n bemg impossible in the case of variables,-may be little surplus is left over at the end of the year-the broad inhibition against making profit is good guarantee that the carrying on of the activity is not for pr~­fit. As an antithesis, take funeral home or an animal welfare orgam-sation or super bazar 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 blood bank which collects blood on payment and supplies blood for higher price thereby making profit. Undoubtedly the blood bank may be said to be 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 arc many funeral homes which make considerable profits. There are super bazars and animal welfare institutions in many countries which may be run on profit motive. Inevitably these activites are caught in the meshes of the tax law. Readymade nostrums like 'dominant intent',, 'incidental profits', 'real object' as against 'ostensible purpose', 'entangled',, 'wrapped .in,'. 'inter-twined' 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 cases.

To sum up, s. 2(15) excludes from exemption the carrying on of activities for profit even if they are linked. with the objectives of general public utility, because the statute interdicts, for pur,poses of tax relief, the advancement of such objects by involvement iu 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 judicial necessity.

Lok Shikshana Trust (supra) is the latest-perhaps the only case· of this Court-dealing directly withs. 2(15) of the Act. Khanna J.,. speaking on behalf of himself and Gupta J., observed :

"As result of the addition of the words 'not involving the carrying on of any activity for profit' at the end of the definition in section 2(15) of the Act even if the purpose of the trust is 'advancement of any other object of general public utility', it would not be considered to be 'charitable purpose' unless it is shown that the above purpose does not involve the carrying on of any activity .for profit. The result

thus of the change in the definition is that in order to bring case within the fourth category of charitable purpose, it would be necessary to show that (I) the purpose of the trust is the advancement of any other object of general public utility, and (2) the above purpose docs not involve the carrying on of any activity for profit. Both the above condi-tions must be fulfilled before the purpose of the trust can be held to be charitable purpose."

"lt is true that there arc so1nc business activities like mutual insurance and cooperative stores of which profit mak-ing 1s not an essential: ingredient, but that is so because of self imposed and innate restriction on making profit in the carrying on of that particular type of business. Ordinarily profit motive is normal incidence of business activity and .if the activity of trust consists of carrying on of lmsines.v and there are no restrictions on its 1naking profit, the court would be well justified in assuming in the absence of some indicatio11 to the contrary that the object of the trust i11vo/ves the carryinR on of an activity for profit.';

(emphasis, ours)

"By the use of the expression 'profit motive· it is not intended that profit must in fact be earned. Nor docs the expression cover mere desire to make some monetary gain uut of transaction or even series of transactions. It pre-dicates motive which pervades the whole series of transac-tions effected by the person in the course of his activity."

"We are not impressed by the submission of the learned counsel for the appellant that profit under section 2 (I 5 J of the Act means private profit. The word used in the definition given in the above provision is profit and not private profit and it would not be permissible to read in the above definition the word 'private' as qualifying profit even though such word is not there."

Beg J., spoke on the subject with different accent but drew pointed attention to one aspect :

"The deed puts no condition upon the conduct of the newspaper and publishing business from which we ca,uld infer that it w_as to be on 'no profit and no loss' basis. I mention this as learned counsel for the appellant repeatedly asserted that this was the really basic purpose and principle for the conduct of the business of the trust before us. This assertion seems to be based on nothing more substantial than 1hat the trust deed itself does not expressly make profit

making the object of the trust. But, as I have already indi-cated, the absence of such condition from the trust deed would not determine its true character. That character is ' determined for more certainly and convincingly by the absence of terni' which could eliminate or prevent profit making from becoming the real or dominant purpose of the trust. ft is what the provisio11s of the trust make possible or permit coupled with what had been actually do11e without any illegality in the way of profit nwking, in the case before us, under the cover of the provisions of the deed, whic/1 enable us to decipher the meaning and determine the predomi11a11tly profit maki11g character of the trust."

(emphasis, ours)

We do not think it necessary to discuss the various decisions· of. the High Courts cited before us nor need we seek light from the English Cases either. After all, Indian law must bear Indian impress derived from Indian life.

In All India Spinners' Association v. Commr. of Income-tax, Bombay,([1 ]) Lord Wright, speaking for the Judicial Committee, and considering the subject of 'charitable purposes' as justifying exemption from Income-tax, observed :

"It is now recpgnised that the Indian Act must be con .. strued on its actual words and is not to be governed by English decisions on the topic."

"The lndian Act gives clear and succinct definition which must be construed according to its actual language and meaning. English decisions have no bindin~ authority on its construction and though they may sometimes afford help or guidance, cannot relieve the Indian Courts from their respon-sibility of applying the language of the Act to the particular circumstances that emerge under conditions of Indian life."

* * * * *

Crypto-<.:o]onial inclinations have sometimes induced Indian draftsmen and jurists to draw inspiration from' English law but, for reasons felici-tously expressed by Lord Wright, we arc adopting interpretation of s. 2(15) according to the language used there and against the back-G ground of Indian life.

Coming to the facts of the present case, the criteria we have evolv-ed have to be applied .

Among the Kerala Cases which went on the wrong test we wish to mention one,, Dharmodayam. ([2]). The assessee company was conduct-11 ing profitable business of running chit funds and its memorandum

(l) [1944] 12 I. T. R. 482, 486.

(2) C. l. T. v. Dbarmodayam Co.-[1974] 941. T. R. 113.

. [1976) 1 s.c.R.

.of association had as one of its objects 'to do the ncedfuUor the pro-.motion of charity, education and i1ulustry. The court found it possible on these facts to.grant the benefit of s. 2(15) by recondite reasoning. If this ratio were to hold good busin·~ssmen have highroad to tax ..'.lVoidance. Dharmodayam (supra) shows how dangerous the consc-quence .can be ]f the provisions we.re misconstrued.

The true test is to ask for answers to the following questions : (a) lo tho object of the assessee one of general public utility? (b) Docs .the advancement of the object involve activities bringing in moneys ? (c) If so, are'such activities undertaken (i} for profit or (ii) without profit? Even if (a) and (b) are answered afftrmativcly, if (cl (i} is answered affirmatively, the claim for exemption collapses. The solution to the. problem of an activity being one for or irrespective of pro!it is gathered on footing of facts. What is the real nature of the activity? One which is ordinarily carried on by ordinary people for gam ? Is there built-in prescription in the constitution against makii1g profit? Has there been in practice, profit from this venture ? Although this last is weak test. The mere fact that service is rendered is no ..answer to chargeability because all income is often derived by rendfr-ing some service or other. ·

Further, what is an activity for profit depends on the correct con-.notation of the preposition. 'For' used with the active participle of ·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 purposc'-vide Black's Legal Dictionary. · An activity which yields 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 oactivity is 'appropriate or adapted to such profit'.

We may wind up with brief rounding off and indication on the oapproach. pragmatic condition, written or un-written, proved by prescription of profits or by Jong years of invariable practice or spelt from strong surrounding circumstances indicative of anti-profit motiva-tjon-such condition will qualify for 'charitable purposes' and legiti-·matcly get ronllii the fiscal hook. Short of it, the tax tackle holds you fast. 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 doin". he ,has to attrac~ and. ~epcl-::-attract the condition that his objects a;c •·Of general public utility' and repel the charge that he is advancin" ·these objects by involvement in actiVities for profit. Once this broad ·dual basis is made out, the Revenue will not go into meticulous ma the--matics and charge every chance excess or random surplus.c If the :activity is prone to yielding income and~~ fact results in profits, the

~ .. -G t

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, how does the Indian Chamber fare ? The substantial item of income comes from the share of profits in the firm called M/s. Calcutta Licensed Measu-rers. True, the issuance of wcighment and measurement certificates is great facility for traders and under the Commercial Documents Eviden.· ~ Act only recognised institutions are permitted to issue such certificales. Recognition be speaks the status, integrity and efficiency of the institution but doei not transmute service for profit into non-profitable activity. 1t is irrelevant whether this service is in implemen-tation of or interwoven with trade promotion. What is partinent is whether the advancement of trade promotion by issuing such certifi-cates is done for nominal fee conditioned by the cost of the opera-tion, and profit-making by this !)leans is tabooccl. For there is nothing in the memorandum or articles of association which sets any limil on making large profit this way. And, after all, any institution or indi-vidual may set up weighment and measurement business as source of income and if it is of sufficient probity and competence recognition ·may well be accorded under the Commercial Documents Evidence Act. We cannot mix up or confuse the two concepts. The activity of charg-ing fees and issuing certificates of origin, valuable as service though it be,. is in no 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 'no profit' basis. The presump-tion, if at all, is that businessman's association ddes 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 business. So also approved valuers value property as business and charge for that service. Merely because it is carried on by Chamber of Commerce no dif-ference in incidents arises and tax incidence can be repelled only if the work is done explicitly on 'no profit' basis. Such is not shown to be the case here.

The ob_jects of the Chamber include settlement of disputes among traders by arbitration. This is undoubtedly 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 Cham-ber bas to incur, minor surplus will not attract tax. But no such restriction is written into the rules governing the Chamber. It may charge heavy sum and spend much less for hiring experts to decide the dispute. There is no magna carta binding 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 high fee, is be not making an income? The difference between the two is a~ H. between Tweedledum and Tweedledee. Surely, if an innate articu-· lated, restraint on the levy for these undoubted services to Trade existed as fact; so as to remove the slur of activity for profit tl1en the umbrella of charitable purpose would protect small surplus~s.

We hold that the incomes of the Chambers sought to be taxed are taxable. Civil Appeal No. 2129 of 1970 is dismissed and Civil Appeals Nos. 2455 to 2457 of 1972 are allowed. Parties will bear their res-pective costs.

Before parting with the case wc may as well make it clear that our conclusion would have been the same even without reference to or reliance on the speech of the Finance Minister we have excerpted earlier. ·

A[lpea/s f!CTr//r allowed.