Shri Sarafa Assoiation Vs Commissioner of Income Tax and Another

@JUDGMENTTAG-ORDER

Abhay M. Naik, J.@mdashThis petition has been preferred against the order contained in Annex. P-10 passed by the CIT, Bhopal rejecting thereby an application for registration of the association u/s 12A of the IT Act, 1961. The trust has been admittedly created on 17th May, 1976 and an application for registration of the trust u/s 12A of the IT Act was made on 2nd July, 1998. Memorandum of trust is contained in Annex. P-2. Learned CIT vide order dt. 28th Jan., 1999 contained in Annex. P-10 held that the claim of the petitioner for registration u/s 12A r/w Section 2(15) of the said Act was not found acceptable. Accordingly, the application u/s 12A has been rejected by the impugned order which has been assailed in the present writ petition.

2. Shri Sumit Nema, learned Counsel appearing for the petitioner contended that in view of the objects described in the memorandum of association contained in Annex. P-2, the petitioner is entitled to the registration u/s 12A of the Act. Per contra, Shri Rohit Arya, learned senior counsel (contended that) the impugned order contained in Annex. P-10 has been rightly passed and no interference is warranted.

3. Considered the submissions and perused the record.

4. Sees. 11 and 12 of the Act would be made applicable only if the trust or institution is registered u/s 12A of the Act. Section 11 deals with the income from property held for charitable or religious purposes and Section 12 deals with the income received by the trust or institutions from contributions. This Court is here concerned with the "charitable purpose", since, Shri Nema has contended that the petitioner-association is covered by this term as defined in Section 2(15) of the Act.

5. Definition of "charitable purpose" as contained in Section 2(15) is of inclusive nature as revealed from the language employed therein:

Section 2(15): ''charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility.

Earlier this definition was succeeded by the words "not involving the carrying on of any activity for profit." These words were omitted by the Finance Act, 1983 w.e.f. 1st April, 1984. Under cl. (a) of Section 12A the application for registration was to be made before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution. However, by virtue of the proviso to this clause, if an application is not submitted within the aforesaid period, and is made subsequently and is granted, the provision of ss. 11 and 12 would be made applicable in relation to the income of such trust or institution from the first day of the financial year in which the application is made. In the present case, the association was established on 17th May, 1976 whereas the application u/s 12A has been made on 2nd July, 1998 i.e. after the enforcement of the Finance Act, 1983. This Court is concerned with the definition as it stands after omission of the words "not involving the carrying on of any activity for profit". The definition of "charitable purpose" earlier to the Finance Act, 1983 was interpreted by the Hon''ble Supreme Court of India in the case of Commissioner of Income Tax, Bombay Vs. Bar Council of Maharashtra, :

Under Section 11 of the IT Act, 1961, subject to the conditions therein specified, income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India is exempt from the tax liability under the Act and Section 2(15) gives an inclusive definition of the expression ''charitable purpose'' thus:

Charitable purpose'' includes relief of the poor, education, medical relief and the advancement of any other objert of general public utility not involving the carrying on of any activity for profit. It may be notified that whereas any object of general public utility was included in the definition ''charitable purpose'' in the 1922 Act, the present definition has inserted the restrictive words ''not involving the carrying on of any activity for profit'' which qualify or govern the last head of charitable purpose. In Commissioner of Income Tax, Madras Vs. Andhra Chamber of Commerce, a case decided by this Court under the 1922 Act where the restrictive words were absenT--this Court laid down that if the primary or dominant purpose of a trust or institution was charitable, any other object which by itself might not be charitable but which was merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity. After the addition of the restrictive words in the definition in the 1961 Act, this Court in Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, affirmed that the aforesaid test of primary or dominant purpose of a trust or institution still holds good, that the restrictive words qualify "object" and not the advancement or accomplishment thereof and that the true meaning of the restrictive words was that when the purpose of a trust or institution was the advancement of an object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit. And applying these tests trading bodies like Andhra Chamber of Commerce and Surat Art Silk Cloth Manufacturers Association have been held to be institutions constituted with a view to advance an object of general public utility because their primary or dominant purpose was to promote and protect industry, trade and commerce either generally or in certain commodities, even though some benefit through some of their activities did accrue to their members which was regarded as incidental and this Court held that the income derived from diverse sources by these institutions [rental income from property in the case of Andhra Chamber of Commerce and income from annual subscriptions collected from its members and commission of a certain percentage of the value of licences for import of foreign yarn and quotas for purchase of indigenous yam obtained by the assessee from its members in the case of Surat Art Silk Cloth Manufacturers Association] was exempt from tax liability u/s 11 of the Act. Reliance on English decisions would not be of much avail because the definition of a charitable purposes as given in our Act since it embraces any other object of general public utility goes further than the definition of charity to be derived from the English cases. Under English law of charity a trust is charitable only if it is within the spirit and intendment of the Preamble to the Statute of Elizabeth (43 Eliz Ch. 4) and all objects of general public utility are not necessarily charitable, some may or some may not be depending upon whether they fall within the spirit and intendment of the Statute of Elizabeth. Under our definition every object of general public utility would be charitable subject only to the condition imposed by the restrictive words inserted in the 1961 Act. It is because of this basic difference between Indian Law and English Law of Charity that Lord Wright in AIR 1944 88 (Privy Council) uttered a warning against blind adherence to English decisions on the subject thus: ''The Indian Act gives a clear and succinct definition which must be construed according to its actual language and meaning. English decisions have no binding authority on its construction and though they may sometimes afford help or guidance, cannot relieve the Indian Courts from their responsibility of applying the language of the Act to the particular circumstances that emerge under conditions of Indian life.

6. In view of the amendment in the definition of "charitable purpose" w.e.f. 1st April, 1984 I do not find it proper to burden this decision unnecessarily by discussing various authorities like Dharmaposhanam Company, Kerala Vs. The Commissioner of Income Tax, Kerala, , Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, wherein the interpretation of "charitable purpose" was made in the light of the definition as it stood prior to 1st April, 1984. In the case of Commissioner of Income Tax, Madras Vs. Andhra Chamber of Commerce, it has been held that:

In the promotion of trade, commerce and industries of India the public is vitally interested and if by the activities of the assessee that object is achieved, it would be within the meaning of Section 4(3)(i) of the Act and advancement of an object of general public utility. In enacting the last paragraph of Section 4(3) the legislature has used language of great amplitude. ''Charitable purpose'' includes not only relief of the poor, education and medical relief alone, but advancement of other objects of general public utility as well. The clause is intended to serve as a special definition of the expression ''charitable purpose'' for the Act; it is again inclusive and not exhaustive or exclusive. Even if the object or purpose may not be regarded as charitable in its popular signification as not tending to give relief to the poor or for advancement of education or medical relief, it would still be included in the expression ''charitable purpose'' if it advances an object of general public utility. The expression ''object of general public utility'' however is not restricted to objects beneficial to the whole mankind. An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object should be to benefit the whole mankind or even all persons living in a particular country or province. It is sufficient if the intention to benefit a section of the public as distinguished from specified individuals. Observations to the contrary made by Beaumont, C.J., in COMMISSIONER OF Income Tax, BOMBAY PRESIDENCY, SIND AND BALUCHISTAN Vs. THE GRAIN MERCHANTS ASSOCIATION OF BOMBAY., that ''an object of general public utility means an object of public utility which is available to the general public as distinct from any section of the public'' and that objects of an association ''to benefit works of public utility confined to a section of the public, i.e. those interested in commerce'' are not objects of general public utility, do not correctly interpret the expression ''objects of general public utility''. The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature: where there is no common quality uniting the potential beneficiaries into a class, it may not be regarded as valid.

7. Aforesaid principles have been applied by the Hon''ble Supreme Court of India [sic-Madras High Court] in the case of Addl. Commissioner of Income Tax Vs. South India Hire Purchase Association, . In the case of Ahmedabad Rana Caste Association Vs. The Commissioner of Income Tax, Gujarat, it has been held as well settled by the Hon''ble Supreme Court that an object beneficial to a section of public is an object of the general public utility and to serve a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or all persons in a country or State. It is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. In the case of Commissioner of Income Tax, West Bengal Vs. Sardar Bahadur Sardar Indra Singh Trust, it was held that the trust would be treated for charitable purpose even though the choice of the particular charitable purpose or purposes was left to the discretion of the trustees.

8. Object of the petitioner-association has been mentioned in cl. 3 of the memorandum of association as well as rules of association contained in Annex. P-3. They being identical are described hereunder:

(i) Promotion of local business of silver, gold and ornaments.

(ii) Protection of legitimate rights of the businessman and to relieve them from the problems arising from the Government or third party and to make endeavour for maintaining unity between silver and gold brokers, manufacturers and businessmen and to fulfil the object by passing resolution of general body of association to enable them to fulfil the objects concerning the Sarafa businessmen.

9. However, it may be seen that a provision for weighment facility has been made in the rules which is obviously a facility of general public utility as has been so held by Madras High Court in the case of Addl. CIT v. Madias Jewellers & Diamond Merchants Association (1980) 16 CTR (Mad) 230 : (1981) Tax LR 580 . This coupled with the object of promoting the local business of silver, gold and ornaments cannot be necessarily termed as not falling within the scope of "advancement of any other object of general public utility". Promotion of commerce and trade is a predominant object of the activity and has been held by the Hon''ble Supreme Court of India in the case of Addl. CIT v. Surat Ark Silk Cloth Manufacturers Association (supra) as an object of public utility. Learned CIT has denied the registration on the ground that the claim of the petitioner that this case falls within the ambit of Section 2(15) of the IT Act is not justified. This finding is given for want of any factual material on record. This is not found to be sustainable without affording the petitioner an opportunity to establish the same. Moreover, the learned CIT was required to examine the deed as a whole and further ought to have considered the effect of various balance-sheets on record. Reference may also be made to Section 12A(a) of IT Act which obliges the CIT on receipt of the application u/s 12A to call for such document or information from the applicant as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust or institution. He may also make an enquiry as he may deem necessary in this behalf. Since, the learned CIT has found the claim of the petitioner unjustified in absence of any factual material on record, it was obligatory on his part to exercise the power u/s 12A(a) by calling the requisite information and making the necessary enquiry. This power having not been exercised, the impugned order is not sustainable in law.

10. Accordingly, the petitioner succeeds in part. The impugned order contained in Annex. P-10 is hereby quashed. Respondent No. 1 is directed to re-decide the application u/s 12A submitted by the petitioner by providing opportunity to the petitioner as well as the Department of Income Tax to place the relevant material on record in support of their respective contentions. This exercise may be made within three months from receipt of certified copy of this order.

11. Petition stands disposed of in the aforesaid terms.