ADDITIONAL COMMISSIONER OF INCOME TAX GUJARAT AHMEDABAD COMMISSIONER OF INCOME TAX GUJARAT II AHMEDABAD Vs. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION SURAT:SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION SURAT

JUDGEMENT

(1.) These tax references have been made by the tribunal directly to this court under S. 257 of the Income Tax Act, 1961 (hereinafter referred to as the Act) , since there is aconflict of opinion amongst different High courts as to the interpretation of the words "not involving the carrying on of any activity for profit" occurring at the end of the definition of "charitable purpose" in clause (15) of S. 2. Originally these references came up for hearing before a bench of three judges but having regard to the great importance of the question involved and the serious repercussions, which an adverse decision might have on a large number of public trusts in the country, the bench thought it desirable to refer the cases to a larger bench and that is how these references have now come before us.

(2.) Though the references are six, in number, they relate to the same assessee and raise the same question, only the assessment years being different. The assessee is the Surat Art Silk Cloth Manufacturers Association, a company incorporated under the Indian Companies Act, 1913. The original Memorandum of Association set out the objects for which the assessee was incorporated, but we are not concerned with it since vital amendments were made in the Memorandum with effect from 14/07/1961 at the time when the assessee was permitted under S. 25 of the Companies Act, 1956 to omit the word "limited" from its name by order of the central government and it is the amended Memorandum which governed the assessee during the relevant assessment years. The amended objects, so far as material, were as follows:

(3.) The assessee carried on various activities for promotion of commerce and trade in Art Silk Yam. Silk Yarn, Art Silk Cloth and Silk Cloth. The inconic of the assessee was derived primarily from two sources. One was ar (r) nual subscription at the rate of Rs. 3. 00 per power loom collected by the assessee from its members and the other was commission calculated on the basis of a certain percentage of the value of licences for import of foreign yarn and quotas for purchase of indigenous yarn obtained by the assessee for the members. There was no dispute between the parties in regard to the first category of income derived from annual subscription collected from the members and it was conceded by the Revenue to be exempt from tax but the real controversy centred round the taxability of the second category of income. The amount collected by the assessee from the members in respect of licences for import of foreign yarn was credited in an account styled "vahivati Kharach" while the amount collected in respect of quotas of indigenous yarn was credited in another account called "building Fund". The assessee constructed a building out of the amount credited to the "building Fund" during the accounting year relevant to the assessment year 1965-66 and it was let out to various tenants and the rent received from them. augmented the income of the assessee. The assessee claimed in the course of assessment to income tax for the assessment year J 962-63 that it was an institution for a charitable purpose and ils income was, therefore, exempt from tax under S. 11, Ss. (1) of the Act. I his claim was rejected by the Income Tax Officer on the ground that the objects of the assessee were not charitable within the meaning of S. 2 clause (15). The assessee carried the matter in appeal and, in the appeal, the view taken by the Appellate Assistant Commissioner was that the purpose of the assessee was predominantly development of Art Silk Industry which was an object of general public utility, but since the Income Tax Officer had not examined whether this object involved the carrying on of an activity for profit and had also not considered whether the other conditions of S. 11 Ss. (1) were satisfied, the Appellate Assistant Commissioner set aside the order of assessment and remanded the case to the Income Tax Officer with a direction to make a fresh assessment after considering these issues. The tribunal on further appeal at the instance of the Revenue did not agree with the procedure adopted by the Appellate Assistant Commissioner and taking the view that the Appellate Assistant Commissioner should not have set aside the order of assessment and made an order of remand for making a fresh assessment but instead, if he wanted any further facts, he should have called for a remand report from the Income Tax Officer and then disposed of the appeal by deciding whether the assessee was entitled to exemption from tax under S. 11, Ss. (1). the tribunal directed the Appellate Assistant Commissioner to submit a remand report on the question "whether the objects for which the assessce-company has been established are for charitable purposeswithin the meaning of S. 2 (15) and whether it satisfies the other conditions laid down under S. 11". The Appellate Assistant Commissioner in his remand report found in favour of the assessee on both the points referred to him and after considering the remand report, the tribunal confirmed the view taken by the Appellate Assistant Commissioner that the primary purpose for which the assessee was established was to promote commerce and trade in Art Silk and Silk Yarn and Cloth as set out in sub-clause (a) of Clause 3 of the Memorandum of Association and the other objects set out in subclauses (b) to (e) of Clause 3 were merely subsidiary objects and since the primary purpose was plainly advancement of an object of general public utility, the first part of the requirement for falling within the last head of "charitable purpose" in S. 2, clause (15) was satisfied. The tribunal also agreed with the Appellate Assistant Commissioner that this primary purpose for which the assessee was constituted did not involve the carrying on of any activity for profit, because whatever activity was carried on by the assessee in fulfilment of the primary purpose was for advancement of an object of general public utility and not for profit. The tribunal pointed out that there was no dispute in regard to the fulfilment of the other conditions mentioned in S. 11 and held that, in the circumstances, the income of the assessee was entitled to exemption under Ss. (1) of S. 11. The Revenue, being aggrieved by the decision of the tribunal, made an application for a reference and since there was a conflict of decisions between the Calcutta and Mysore High courts on the one hand and Kerala and Andhra Pradesh High courts on the other in regard to the true interpretation of the words "not involving the carrying on of any activity for profit", the tribunal referred the question "whether on the facts and in the circumstances of the case, the assessee is entitled to exemption under S. 11 (1) (a) of the Income Tax Act, 1961" directly to this court. So far as the assessment years 1963-64 to 1967-68 are concerned, the assessment proceedings followed the same pattern and the tribunal, following its earlier decision for the assessment years 1962-63, held the assessee to be exempt from tax in respect of its income under S. 11, Ss. (1) and thereupon, at the instance of the Revenue, an identical question of law for each assessment year was referred by the tribunal directly to this court.