1964 (10) TMI 19 - SC - Income Tax

Court dismisses appeals, income from property exempt under Income-tax Act, activities aim at public utility

Commissioner Of Income-Tax, Madras Versus Andhra Chamber Of Commerce

The court dismissed the appeals, holding that the income from the property owned by the assessee is exempt under section 4(3)(i) of the Income-tax Act, ... Whether the income from property owned by the assessee is exempt under section 4(3)(i) for the aforesaid six years of assessment ? Whether the activities of the assessee amount to a trade or business, the profit or loss from which is assessable under section 10 ? Held that:- 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 clause 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. In the 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 interest of India or any part 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. Appeal dismissed. Issues Involved:1. Whether the income from property owned by the assessee is exempt under section 4(3)(i) of the Income-tax Act, 1922.2. Whether the activities of the assessee amount to a trade or business, the profit or loss from which is assessable under section 10 of the Income-tax Act, 1922.Issue-Wise Detailed Analysis:1. Exemption under Section 4(3)(i) of the Income-tax Act, 1922:The primary issue was whether the income from the property owned by the assessee is exempt under section 4(3)(i) of the Income-tax Act, 1922. The assessee, a company incorporated under the Indian Companies Act, 1913, argued that it was a charitable institution and thus its income should be exempt. The court examined the principal objects of the assessee, which included promoting and protecting trade, commerce, and industries in India, particularly in the Andhra region. The court noted that the income and property of the assessee were to be applied solely towards the promotion of its objects, and no portion thereof was to be paid or transferred for profit to its members.The court referenced several precedents, including Commissioners of Inland Revenue v. Yorkshire Agricultural Society and Institution of Civil Engineers v. Commissioners of Inland Revenue, to conclude that the promotion and protection of trade, commerce, and industries serve the general public interest and thus qualify as 'charitable purposes' under section 4(3)(i). The court emphasized that the advancement of trade, commerce, and industry leads to economic prosperity, benefiting the entire community, not just the members of the assessee. The court held that the purposes of the assessee were objects of general public utility and thus qualified for exemption under section 4(3)(i).2. Activities Amounting to Trade or Business:The second issue was whether the activities of the assessee amounted to a trade or business, the profit or loss from which is assessable under section 10 of the Income-tax Act, 1922. The court noted that the assessee's income was derived from subscriptions, donations, and rent from a building it owned. The Income-tax Officer and the Appellate Assistant Commissioner had rejected the assessee's claim for exemption, arguing that the activities were intended primarily for the benefit of its members and did not qualify as a trade or business.The court, however, found that the primary objects of the assessee were not vague or indefinite. It stated that the promotion and protection of trade, commerce, and industries are objects of general public utility and that any incidental benefit to members does not disqualify the institution from being considered charitable. The court dismissed the argument that the purposes were political, noting that the primary objects were economic and commercial, aimed at benefiting the general public.The court also rejected the revenue's argument that the purposes were vague and indefinite. It held that the objects were sufficiently clear and that the court would not decline to administer them merely because the methods to achieve these objects were not specified. The court concluded that the primary purpose of the assessee was charitable and that any incidental political activity did not alter this primary purpose.Conclusion:The court dismissed the appeals, holding that the income from the property owned by the assessee is exempt under section 4(3)(i) of the Income-tax Act, 1922, as the assessee's activities were aimed at promoting and protecting trade, commerce, and industries, which are objects of general public utility. The court also held that the activities of the assessee did not amount to a trade or business assessable under section 10 of the Act. The appeals were dismissed with costs.