judgement:
Appeals Nos.
946 of 1963.
Appeals from the judgment dated February 22, 1961 of the Madras High Court in Case Referred No. 121 of 1956.
K. N. Rajagopal Sastri, R. H. Dhebar and R. N. Sachthey, for the appellant (in all the appeals).
A. V. Viswanatha Sastri, K. Rajendra Chaudhuri and K. R. Chaudhuri, for the respondent (in all the appeals).
The Judgment of the Court was delivered by Shah J.
The Andhra Chamber of Commerce hereinafter called the assessee 's a Company incorporated under the Indian Companies Act 7 of 1913.
The assessee was permitted under section 26 of the Act to omit the word "Limited" from its name by order of the Government of Madras.
The following are the principal objects of the Memorandum of Association of the assessee : (a) To 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 567 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.
(y) 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.
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 collected from its members and rent received from the building.
The following table sets out in columns 3 & 4 the net annual value of the property less the statutory deductions permissible under section 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) (4) 1947 1948 49 3,400 7,431 1948 1949 50 6,154 7,139 1949 1950 51 6,928 5,266 1950 1951 52 5,740 10,173 1952 1953 54 8,072 13,672 1953 1954 55 8,072 17,397 In proceedings for assessment before the Second Additional Income tax Officer, City Circle 1, Madras, it was contended that Sup./65 11 568 the annual value of the building was not assessable in its hands as the assessee was a charitable institution within the meaning of section 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 assess,able.
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.
The assessee appealed to the Appellate Assistant Commis sioner against all the orders of assessments.
The Appellate Assistant Commissioner held that the assessee not being a charitable institution the income in question was not exempt under section 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.
Appeals were then taken to the Income tax Appellate Tribu nal.
The Tribunal held that the assessee was not exempt within the meaning of section 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".
At the instance of the assessee the Tribunal referred the following questions to the High Court : "(1) Whether the aforesaid income from property owned by the assessee is exempt under section 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 section 10 ?" The 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 certificate granted by the High Court under section 66A (2) of the Indian Income tax Act.
We are concerned in this group of appeals with the assess ment of income of the assessee in the years 1948 49 to 1954 55 569 with the omission of the assessment year 1952 53.
Between the years 1948 49 to 1952 53 there has been some change in section 4(3) (i) which before it was amended by Act 25 of 1953 with effect from April 1, 1952 read as follows : "Any income, profits or gains falling 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." By the last paragraph of sub section (3) "charitable purpose" was defined as including relief of the poor, education, medical relief, and the advancement of any other object of general public utility, but nothing contained in cl.
(i) or cl.
(i) or cl.(i.a)or cl.
(ii) shall operate to exempt from the provisions of the Act that part of the income of a private religious trust which does not enure for the benefit of the public.
By the amendment made by section 3 of the Indian Income tax (Amendment) Act 25 of 1953, cls.
(i) and (i a) as they originally stood were amalgamated.
It is common ground that by the amendment, no alteration which has a material bearing on the question to be decided in these appeals has been made.
Income from property qualifies for exemption under section 4(3) (i) if two conditions co exist (i) the property is held under trust or other legal obligation; and (ii) it is so held wholly or in part for religious or charitable purposes .
The building which the assessee owns is by virtue of cl. 4 of the Memorandum of Association held under a legal obligation to apply its income to purposes specified in the Memorandum of Association.
It is not the case of the assessee that the objects of incorporation are relief of the poor, education or medical relief, and the only question canvassed at the Bar is whether the purposes for which the assessee stands incorporated are objects of general public utility, within the meaning of the expression "charitable purpose" in section 4(3).
The principal 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 in India or any part thereof.
By the achievement of these objects, it is not intended to serve merely the interests of the members of 570 the assessee.
Advancement or promotion of trade, commerce and industry leading to economic prosperity enures for the benefit of the entire community.
That prosperity would be shared also by those who engage in trade, commerce and industry but on that account the purpose is not rendered any the less an object of general public utility.
It may be remembered that promotion and protection of trade, commerce and industry cannot be equated with promotion and protection of activities and interests merely of persons engaged in trade, commerce and industry.
In Commissioners of Inland Revenue vs Yorkshire Agricultural Society(1) an association called the Yorkshire Agricultural Society was formed with the object of holding annual meetings for the exhibition of farming stock, implements etc.
, and for the general promotion of agriculture.
All prizes were open to competition in the United Kingdom, but certain privileges were attached to membership of the Society.
The income of the Society was derived from entry fees and gate receipts, local subscriptions for prizes, interest on investments, and subscriptions of members.
It was held by the Court of Appeal that on the facts found by the Commissioners the Society was established for a charitable purpose and that purpose continued notwithstanding the incidental benefits enjoyed by members of the Society; and that those benefits did not prevent the.
Society from being established for a "charitable purpose only".
In Halsbury 's Laws of England, 3rd Edn., Vol. 4 at p. 236, Art 517, it is stated "An association or institution may benefit its members in the course of carrying out its main charitable purpose and this alone will not prevent it from being a charity.
It is a question of fact whether there is so much personal benefit, intellectual or professional, to the members of a society or body of persons as to be incapable of being disregarded." In The Institution of Civil Engineers vs The Commissioners of Inland Revenue (2) it was held that the Institution of Civil Engineers founded and incorporated by Royal Charter for the general advancement of mechanical science, and more particularly for promoting the acquisition of that species of knowledge which constitutes the profession of a civil engineer was a body of persons established for charitable purposes only.
The Special Commissioners having regard in particular to the provisions of the supplemental charter of 1922, by which the corporate members (1) (2) 571 of the Institution were authorised to use the title of member, or associate member, as the case might be, found that a substantial part of the objects of the Institution was to benefit the member & and rejected the claim of the Institution for exemption.
The Court of King 's Bench disagreeing with the Special Commisssioners held that the benefit of members was purely incidental to the main purpose of the Institution which was established for charitable purposes only.
The Court of Appeal found that the only purpose for which the Institution was established was the promotion of science and that purpose had never been added to or varied by any of the supplemental charters : it followed therefore that the Institution was established for charitable purposes only, notwithstanding that it is of advantage to a civil engineer in his profession to be a member of the Institution, this result not being a purpose for which the Institution was established, but being incidental to and consequent upon the way in which the Institution carries out the charitable purpose for which alone it was established.
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) (1) of the Act an 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 of mankind or even all persons living in a particular country or Province.
It is sufficient if the intention be 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 Presi 572 dency, Sind and Baluchistan vs The Grain Merchants ' Association of Bombay(1) 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 suffi ciently 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.
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 term,% of cl. 4 of the Memorandum of Association the property and its income are not liable to be utilised only for the purposes set out in the Memorandum of Association.
Counsel for the revenue submitted that the purposes of the assessee are vague and indefinite.
He submitted that if a competent Court were called upon, as it may be called upon to administer the obligation imposed by the Memorandum of Association, the Court would on account of vagueness of the objects decline to do so, and therefore the purposes cannot be regarded as charitable.
In the alternative, counsel contended that the benefit which is contemplated by the Memorandum of Association was not the benefit to the public generally, but the benefit to its members to carry on their business more profitably.
In the further alternative, relying upon cl. 3(g) of the Memorandum of Association, counsel contended that the objects of the assessee were political, it being open to the assessee to appropriate the entire income for political purposes.
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 inde (1) 573 finite as objects of general public 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 or the steps by which the objects 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 Vandra wandas vs Parvati Bhai(1) 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 to enforce.
Observations by Lord Simonds in Commissioners of Inland Revenue vs National Anti Vivisection Society(2) that "One of the tests, and a crucial test, whether a trust is charitable lies in the competence of the Court to control and reform it. . . that it is the King as parens patriae who is the guardian of charity, and that it is the right and duty of his Attorney General to intervenue and to inform "the Court if the trustees of a charitable trust fall short of their duty.
So too it is his duty to assist the Court, if need be, in the formulation of a scheme for the execution of a charitable trust.
But. . is it for a moment to be supposed that it is the function of the Attorney General on behalf of the Crown to intervene and demand that a trust shall be established and administered by the Court, the object of which is to alter the law in a manner highly prejudicial, as he and His Majesty 's Government may think, to the welfare of the State ?" do not assist the case of the revenue.
In the view of Lord Simonds the object of the trust was political and, therefore, void, and not because it was vague or indefinite.
In Baddeley and others (Trustees of the Newtown Trust) vs Commissioners of Inland Revenue(") certain properties were conveyed to trustees by two conveyances, in one case on trust, inter alia, for the promotion of the religious, social and physical well being of persons resident in the County Boroughs of West Ham and Leyton by the provision of facilities for religious (1) L.R. 26 I.A. 71.
(2) , 367.
(3) 574 services and instruction and for the social and physical training and recreation of such aforementioned persons who were members or likely to become members of the Methodist Church and of insufficient means otherwise to enjoy the advantages provided and by promoting and encouraging all forms of such activities, as were calculated to contribute to the health and well being of such persons, and in the other case on similar trusts omitting reference to religious services and instruction and otherwise substituting "moral" for "religious".
These trusts were, it was held, not for charitable purposes only.
The case arose under the Stamp Act of 1891, and it was contended that the trusts being charitable stamp duty at a lower rate was chargeable.
The House of Lords held that the trust was not charitable.
It was observed by Lord Simonds that "the moral, social, and physical well being of the community or any part of it is a laudable object of benevolence and philanthropy, but its ambit is far too wide to include purposes which the law regards as charitable".
These cases have, in our judgment, no bearing on the inter pretation of the language used in the Memorandum of Associa tion of the assessee.
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 Andhra Desa.
Reliance was placed upon the membership clause in the Articles of Association and it was submitted that only persons speaking Telugu language and residing in Andhra Desa [as defined in cl. 1 (s) of the Articles of Association] could be members.
But that 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 Asso ciation 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 575 concern, or a Sole Proprietory 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 necessarily effected.
Clause 3(g) of the Memorandum of Association on which strong reliance was placed reads as follows : "To urge or oppose legislative and other measures affecting trade, commerce or manufactures and to procure change of law and practice affecting trade, commerce and manufactures and in particular those affecting trade, commerce and industries in which Andhras are concerned and obtain by all acknowledged means the removal, as far as possible, of all grievances affecting merchants as a body and mercantile interests in general.
" But cl. 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.
The expression "object of general public utility" in section 4(3) would prima facie include all objects which promote the welfare of the general public.
It cannot be said that merely a purpose would cease to be charitable even if public welfare is intended to be served thereby if it includes the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture.
If the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose e.g. promotion of or opposition to legislation concerning that purpose, is contemplated.
In In re The Trustees of the Tribune(1) the (1) 576 Judicial Committee of the Privy Council was called upon to consider whether a trust created under a will to maintain a printing press and newspaper in an efficient condition, and to keep up the liberal policy of the newspaper, devoting the surplus income of the press and newspaper after defraying all current expenses in improving the newspaper and placing it on a footing of permanency and further providing that in case the paper ceased to function or for any other reason the surplus of the income could not be applied to the object mentioned above, the same should be applied for the maintenance of a college which had been established out of the funds of another trust created by the same testator, was a charitable purpose within the meaning of section 4(3).
The Judicial Committee expressed the view that the object of the settler was to supply the province with an organ of educated public opinion and this was prima facie an object of general public utility, and observed "These English decisions are in point in so far only as they illustrate the manner in which political objects, in the wide sense which includes projects for legislation in the interests of particular causes, affect the question whether the Court can regard a trust as being one of general public utility.
In the original letter of reference it was not suggested by the Commissioner that the newspaper was intended by its founder to be a mere vehicle of political propaganda, and in the case of Sardar Dyal Singh it seems unrea sonable to doubt that his object was to benefit the people of Upper India by providing them with an English newspaper the dissemination of news and the ventilation of opinion upon all matters of public interest.
While not perhaps impossible it is difficult for a newspaper to avoid having or acquiring a particular political complexion unless indeed it avoids all reference to the activities of Governments or legislatures or treats of them in an eclectic or inconsistent manner.
The circumstances of Upper India in the last decade of the nineteenth century would doubtless make any paper published for Indian readers sympathetic to various movements for social and political reform.
But their Lordships having before them material which shows the character of the newspaper as it was in fact conducted in the testator 's lifetime, have arrived at the conclusion that questions of politics and legislation 577 were discussed only as many other matters were in this paper discussed and that it is not made out that a political purpose was the dominant purpose of the trust.
" In All India Spinners ' Association vs Commissioner of Incometax, Bombay(1) the assessee was formed as an unregistered association by a resolution of the All India Congress Committee for the development of village industry of hand spinning and hand weaving.
The Association was established as an integral part of the Congress Organisation, but it had independent existence and powers unaffected and uncontrolled by politics.
The objects of the Association, amongst others, were to give financial assistance to khaddar organisations by way of loans, gifts or bounties, to help or establish schools or institutions where handspinning is taught, to help and open khaddar stores, to establish a khaddar service, to act as agency on behalf of the Congress to receive self spun yarn as subscription to the Congress and to issue certificates and to do all the things that may be considered necessary for the furtherance of its objects, with power to make regulations for the conduct of affairs of the Association of the Council and to make such amendments in the present constitution, as may be considered from time to time.
The funds of the Association consisted mostly of donations and subscriptions, and out of the funds charkas and handlooms were purchased and supplied to the inhabitants free of charge.
Raw cotton was supplied to the poor people to be spun into yarn and the yam so spun along with the yam acquired by the Association were supplied to other poor people for hand weaving.
The income of the Association was treated by the Commissioner of Incometax as not exempt under section 4(3) (i) of the Indian Income tax Act inasmuch as (i) the dominant purpose of the Association was political, (ii) even assuming it was not political, the dominant purpose was not in any event a valid charitable purpose in law, and (iii) some of the objects were not clearly charitable objects.
The Judicial Committee held that the income of the Association was derived from property held under trust or other legal obligation wholly for charitable purposes and the English decisions on the law of charities not based upon any definite and precise statutory provisions were not helpful in construing the provisions of section 4(3) (i) of the Indian Income tax Act.
The words of section 4(3) were largely influenced by Lord Macnaghten 's definition of charity in Pemsel vs Commissioners for Special Purposes of Income Tax (2) , but that definition had no statutory (1) (2) 578 authority and was not precisely followed in the most material particulars; the words of the section being "for the advancement of any other object of general public utility" and not as Lord Macnaghten said "other purposes beneficial to the community".
The Judicial Committee observed that the primary object of the Association was relief of the poor and apart from that ground there was good ground for holding that the purposes of the Association included advancement of other purposes of general public utility.
The Judicial Committee then held : "These words, their Lordships think, would exclude the object of private gain, such as an undertaking for commercial profit though all the same it would sub , serve general public utility.
But private profit was eliminated in this case.
Though the connexion in one sense of the Association with Congress was relied on as not consistent with 'general public utility ' because it might be for the advancement primarily of a particular party, it is sufficiently clear in this case that the Association 's purposes were independent of and were not affected by the purposes or propaganda of Congress." The Indian legislature has evolved a definition of the ex pression "charitable purpose" which departs in its material clause from the definition judicially supplied in Pemsel 's case(1), and decisions of English Courts, which proceed upon interpretation of language different from the Indian statute have little value.
We, therefore, do not propose to deal with the large number of English cases cited at the Bar, except to mention three, which declared trusts for political purposes invalid.
In Rex vs The Special Commissioners of Income tax (ex parte The Headmasters ' Conference) and Rex vs The Special Com missioners of Income Tax (ex parte) The Incorporated Association of Preparatory School(1) it was held that a conference of Headmasters incorporated under the Companies Act as an Association limited by guarantee, of which under the Memorandum of Association income was to be applied towards the promotion of its expressed objects, one of which was the promotion of or opposition to, legislative or administrative educational measures, the holding of examinations, etc.
was not a body of persons established for charitable purposes only within the meaning of the Income Tax Acts.
Similarly an incorporated Association of Preparatory Schools incorporated under the Companies Act as an Association limited by guarantee, income (1) ; (2) 579 whereof was to be applied solely towards the promotion of its expressed objects which included the advancement and promotion of, or opposition to, legislative or administrative educational measures etc.
was not an association whose income was applicable to charitable purposes only.
The Court of King 's Bench held in the case of each of the two trusts that because the income could be utilised for promotion of, or opposition to, legislative or administrative educational measures, and those being the primary objects, the income was not liable to be applied solely to charitable purposes.
In The Commissioners of Inland Revenue vs The Temperance Council of the Christian Churches of England and Wales (1) a Council constituted by resolution at a meeting of representatives of the temperance Organisation of the Christian Churches of England and Wales, the purpose of which being united action to secure legislative and other temperance reform was held not to be a council established for charitable purposes only, nor was its income applicable to charitable purposes only, and that it was therefore not entitled to the exemption sought.
In Bowman vs Secular Society Ltd.(2) Lord Parker observed: "A trust for the attainment of political objects has always been held invalid, not because it is illegal but because the Court has no means of judging whether a proposed change in the law will or will not be for the public benefit." This Court in a recent judgment, Laxman Balwant Bhopatkar by Dr. Dhananjaya Ramchandra Gadgil vs Charity Commissioner, Bombay (3) considered whether for the purposes of the Bombay Public Trust Act 29 of 1950 a trust to educate public opinion and to make people conscious of political rights was a trust for a charitable purpose.
The Court held (Subba Rao J., dissenting) that the object for which the trust was founded was political, and political purpose being not a charitable purpose did not come within the meaning of the expression "for the advancement of any other object of general public utility" in section 9(4) of the Bombay Public Trusts Act, 1950.
The definition of "Charitable purpose" in section 9 of the Bombay Public Trusts Act closely follows the language used in the definition given under the Income tax Act section 4(3).
But in Laxman Balwant Bhopatkar 's case(1), as in the cases of the Courts in England which we (1) (2) , 442.
(3) ; 580 have referred to, it was held that the primary or the principal object was political and therefore the trust was not charitable.
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 interests 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.
The appeals therefore fail and are dismissed with costs.
One hearing fee.
Appeals dismissed.

summary/full:
The assessee company Me Andhra Chamber of Commerce had as its main object the promotion, protection, and development of trade, commerce and industry in India.
It owned a building where it had its offices, and those parts of it not in the company 's own use were let out to tenants.
In income tax proceedings the company claimed exemption in respect of the rental income under s.4(3) (i) of the Indian Income tax Act, 1922.
The claim was negatived by the assessing and appellate authorities.
The High Court, however, held that the company was a charitable institution and its income from property was exempt under section 4(3) (i).
The Revenue appealed to the Supreme Court by special leave.
It was contended by the appellant that the property was not held by the company for a charitable purpose within the meaning of section 4(3) (i), that the objects of the company were vague, that the benefit contemplated by the Memorandum of Association was not to the public generally but to the members of the company only, and that the objects of the company were political it being open to it to appropriate the entire income for political purposes.
HELD: (i) The term charitable purpose as defined in the Act was inclusive and not exclusive.
It included objects of general public utility.
The object of the assessee company promotion of trade and commerce in the country was an object of general public utility, as not only the trading class but the whole country would benefit by it.
It is not necessary that the benefit must include all mankind.
It is sufficient if the intention be to benefit a section of the public as distinguished from specified individuals.
[571 F H].
Commissioners of Inland Revenue vs Yorkshire Agricultural Society, and The institution of Civil Engineers vs Commissioners of Inland Revenue, , relied on.
Commissioner of Income tax Bombay Presidency, Sind and Baluchistan vs The Grain Merchants ' Association of Bombay, , disapproved.
(ii) There was nothing vague about the company of general public utility such as promotion, protection, aiding and stimulation of trade, commerce need not to be valid, specify the modus or the steps by which the objects may be achieved or secured.
[573 A B].
Runchordas Vandrawandas vs Parvati Bai L.R. 26 I.A. 71, Commissioners of Inland Revenue vs National Anti Vivisection Society, and Baddeley and others (Trustees of the Newtown Trust) vs Commissioners of Inland Revenue, , distinguished.
(iii) The argument that it was only for the benefit of the trading classes ,in Andhra Desa that the funds of the company could be utilised did not stand scrutiny.
[574 D E].
566 (iv) It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be secured thereby if it includes the taking of steps to urge or oppose legislation affecting commerce, trade or manufacture.
If the primary Purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose e.g. promotion of or opposition to legislation concerning that purpose is contemplated.
The object mentioned in the Memorandum of Association was that the assessee may take steps to urge or oppose legislative or other measures affecting trade, commerce, or manufacture.
Such an object must be regarded as purely ancillary or subsidiary and not the primary object.
[575 G H; 580 B C].
In re the Trustees of the Tribune, and All India Spinnere Association vs Commissioners of Income tax, Bombay, , relied on.
Pemsel vs Commissioner for special Purposes of Income Tax; , and Bowman vs Secular Society Ltd., , referred to.
Rex vs The Special Commissioners of Income tax (ex parte The Incorporated .Association of preparatory schools) , The Commissioners of Inland Revenue vs
The temporance council of the Christian Churches of England and Wales, , and Laxman Balwant Bhopatkar by Dr. Dhananjaya Ramachndra Charity commissioner, Bombay; , ,


judgement:
ivil Appeal No. 161 of 1952.
Appeal from the Judgment and Order dated the 18th May, 1951, of the High Court of Judicature at Calcutta (Chakravartti and Das Gupta JJ.) in its Special Jurisdiction (Income tax) in Income tax Reference No. 63 of 1950.
N. C. Chatterjee (section N. Mukherjee, with him) for the appellant.
C. K. Daphtary, Solicitor General for India (O. N. Joshi, with him) for the respondent.
October 8.
The Judgment of the Court was delivered by BHAGWATI J.
This is an appeal from the judgment and order of the High Court of Judicature at Calcutta on a reference made by the Income tax Appellate Tribunal under Section 66(1) of the Indian Incometax Act (XI of 1922).
197 The appellant is a banking company carrying on business at, among other places, Calcutta and Allahabad.
On the 15th March, 1946, the appellant executed a deed by which it purported to create a trust for the payment of pensions to the members of its staff.
The deed declared that a pension fund had been constituted and established.
It then recited that a sum of Rs. 2,00,000 had already been made over to three persons who were referred to as the "present trustees" and proceeded to state that the fund would consist in the first instance of the said sum of Rs. 2,00,000, and that there would be added to it such further contributions that the bank might make from time to time, though it would not be bound to make such contributions.
In the course of the accounting year 1946 47, the bank made a further payment of Rs. 2,00,000 to this fund.
In its assessment for the assessment year 1947 48 the appellant claimed deduction of that sum of Rs. 2,00,000 under section 10 (2) (xv) of the Act on the ground that it was an item of expenditure laid out or expended wholly and exclusively for the purposes of its business.
The Income tax Officer, the Appellate Assistant commissioner and the Income tax Appellate Tribunal rejected this claim of the appellant and the Income tax Appellate Tribunal at the instance of the appellant stated a case and referred for the consideration of the High Court the following question : "Whether in the facts and circumstances of this case, the Income tax Appellate Tribunal was right in disallowing Rs. 2,00,000 as a deduction under section 10 (2) (xv) of the Indian Income tax Act.
" The High Court answered the question in the affirmative and hence this appeal.
Though several contentions were sought to be raised by the appellant as well as the Income tax authorities before the High Court as arising from the question, the only contention which was canvassed before the High Court and was held to be determinative of the enquiry before it was whether the deed of trust dated 27 198 the 15th March, 1946, was valid.
On the construction of the several provisions of the deed of trust the High Court held : "I am of opinion that in view of these provisions of the trust deed coupled with the uncertainty as regards the beneficiaries and the absence of any obligation to grant any pension, no legal and effective trust was created, and the so called trust must be held to be void," It further held that even if the ownership of the money had passed over to the trustees, still the further provision regarding the application of the money to the payment of pensions being entirely ineffective and void, the money cannot be said to have been expended for the purpose of the business, and that therefore was not an expenditure or an expenditure for the purposes of the business within the meaning of section 10(2)(xv) of the Act.
This was also the only contention urged before us by Shri N. C. Chatterjee appearing on behalf of the appellant.
Section 3 of the Indian Trusts Act (II of 1882) defines a trust as an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.
The person for whose benefit the confidence is accepted is called the "beneficiary".
Section 5 in so far as it is material for the purpose of this appeal says that no trust in relation to movable property is valid unless declared as aforesaid (i.e., by a non testamentary instrument in writing signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee) or unless the ownership of the property is transferred to the trustee.
Section 6 of the Act provides that subject to the provisions of section 5, a trust is created when the author of the trust indicates with reasonable certainty by any words or acts. . . (c) the beneficiary. .
The validity or otherwise of the trust in question has got to be determined with reference to the above sections of the Indian Trusts Act, 199 The deed of trust provided in clause 5 that the income of the fund if sufficient and if the income of the fund shall not be sufficient then the capital of the fund shall be applied in paying or if insufficient in contributing towards the payment of such pensions and in such manner as the bank or such officers thereof as shall be duly authorised by the bank in that behalf shall direct to be paid out of the fund.
Clause 7 stated that the fund was established for the benefit of retiring employees on the European and Indian staff of the bank to whom pensions shall have been granted by the bank.
Clause 8 provided that any officer on the European staff of the bank who had been in the service of the bank for at least twenty five years and any officer or other employee on the Indian staff of the bank who had been in the service of the bank for at least thirty years might apply to the bank for a pension, and that in special circumstances the bank might grant pensions to employees who had not completed the respective periods of service above mentioned.
Clause 9 provided for the withdrawal, modification or determination by the bank of any pension payable thereunder when in its opinion the conduct of the recipient or the circumstances of the case justified it in so doing and the trustees were bound forthwith to act upon any directions of the bank or of any officers thereof duly authorised by the bank in that behalf.
Clause 11 invested the bank with discretion in fixing the amount of each pension and in making any modification therein but without prejudice to such discretion declared what were the pensions which it was contemplating would be payable to recipients qualified under the provisions of clause 8 of the deed.
Clause 18 authorised the bank from time to time by instrument in writing under its common seal with the assent in writing of the trustees to alter all or any of the regulations contained in the deed for the time being relating to the fund and make new regulations to the exclusion of or in addition to all or any of the regulations for the time being relating to the fund and for the purposes of that clause all the provisions contained in the deed were deemed to be the regulations in relation to the fund. ' 200 On a consideration of the provisions of the deed of trust above set out it is clear that the bank or its officers duly authorised in that behalf were constituted the sole authorities to determine what pensions and in what manner the same should be paid out of the income of the fund.
The fund was declared to have been established for the benefit of the retiring employees to whom pensions shall have been granted by the bank.
Officers of the staff who were qualified under clause 8 were declared entitled to apply to the bank for a pension.
But there was nothing in the terms of the deed which imposed any obligation on the bank or its officers duly authorised in that behalf to grant any pension to any such applicant.
The pension if granted could also be withdrawn, modified or determined under the directions of the bank or any officer of the bank duly authorised in that behalf and such directions were binding on the trustees.
The regulations in relation to the fund could also be altered and new regulations could be made to the exclusion of or in addition to all or any of the regulations contained in the deed of trust.
It was open under the above provisions for the bank or its officers duly authorised in that behalf to grant no pension at all to any officer of the staff who made an application to them for a pension and also to withdraw, modify or determine any pension payable to such officer if in their opinion the conduct of the recipient or the circumstances of the case should justify them in so doing.
The whole scheme of the deed invested the bank or its officers duly authorised in that behalf with the sole discretion of granting or of withdrawing, modifying or determining the pension and it was not at all obligatory on them at any time to grant any pension or to continue the same for any period whatever.
The beneficiaries therefore could not be said to have been indicated with reasonable certainty.
What is more it could also be validly urged that there being no obligation imposed upon the trustees no trust in fact was created, even though the moneys had been trans ferred to the trustees.
Shri N. C. Chatterjee however urged that the power conferred upon the bank or its officers duly authorised 201 in that behalf was a power in the nature of a trust, that there was a general intention in favour of a class and a particular intention in favour of individuals of a class to be selected by them and even though the particular intention failed from the selection not being made the court could carry into effect the general intention in favour of the class and that therefore the trust was valid.
He relied in support of this contention on Brown vs Higgs(1) and Burrough vs Philcox(2).
The position in law as it emerges from these authorities is thus summarised by Lewin on Trusts, Fifteenth fxEdition, page 324 : "Powers, in the sense in which the term is commonly used, may be distributed into mere powers, and powers in the nature of a trust.
The former are powers in the proper sense of the word that is not imperative, but purely discretionary; powers which the trustee cannot be compelled to execute, and which, on failure of the trustee, cannot be executed vicariously by the court.
The latter, on the other hand, are not discretionary, but imperative, have all the nature and substance of a trust, and ought rather, as Lord Hardwicke observed, to be designated by the name of trusts. 'It is perfectly clear, ' said Lord Eldon, 'that where there is a mere power, and that power is not executed, the court cannot execute it.
It is equally clear, that wherever a trust is created, and the execution of the trust fails by the death of the trustee or by accident, this court will execute the trust.
But there are not only a mere trust and a mere power, but there is also known to this court a power which the party to whom it is given is intrusted with and required to execute; and with regard to that species of power, the court considers it as partaking so much of the nature and qualities of a trust, that if the person who has the duty imposed upon him does not discharge it, the court will, to a certain extent, discharge the duty in his room and place '.
Thus, if there is a power to appoint among certain objects but no gift to those objects and no gift over in default of appointment, the court implies a trust for or gift to (1) 8 ves.
Junior 561 ; (2) 5 Mylne & Graig 72; 41 E.R. 299.
202 those objects equally if the power be not exercised.
But for the principle to operate there must be a clear indication that the settlor intended the power to be regarded in the nature of a trust.
" This position however does not avail the appellant.
As already stated there is no clear indication in the deed of trust that the bank intended the power to be regarded in the nature of a trust, inasmuch as there was no obligation imposed on the bank or its officers duly authorised in that behalf to grant any pension to any applicant.
There was no duty to grant any pension at all and the pension, if granted, could be withdrawn, modified or determined by the bank or its officers duly authorised in that behalf as therein mentioned.
Under the circumstances it could not be said that there was a power in the nature of a trust which could be exercised by the court if the donee of the power for some reason or other did not exercise the same.
It will be appropriate at this stage to consider whether any beneficiary claiming to be entitled to a pension under the terms of the deed could approach the court for the enforcement of any provision purporting to have been made for his benefit Even though he may be qualified under clause 8 to apply for the grant of a pension he could not certainly enforce that provision because there was no obligation imposed at all on the bank or its officers duly authorised in that behalf to grant any pension to him and in the absence of any such obligation imposed upon anybody it would be futile to urge that a valid trust was created in the manner contended on behalf of the appellant.
In our opinion therefore the High Court was right in the conclusion to which it came that there was uncertainty as regards the beneficiaries and there was an absence of any obligation to grant any pension with the result that no legal and effective trust could be said to have been created and further that the provision of Rs. 2,00,000 in the accounting year 1946 47 was not an expenditure or an expenditure for the purposes of the business within the meaning of section 10 (2) (xv) of the Indian Income tax Act.
203 In view of the above we do not think it necessary to into the interesting questions which were sought to toe raised by the appellant, viz., what was the scope of the reference, and by the respondent, viz., whether the expenditure was a capital expenditure or revenue expenditure and if the latter whether the deduction could still not be allowed in view of the provisions of section 10 (4) (c) of the Act.
The result therefore is that the appeal fails and must be dismissed with costs.
Appeal dismissed.

dataset_name: IN-Abs

summary/full:
A banking company executed a deed whereby it purported to create a trust for the payment of pensions to the retiring members of its staff.
A certain sum of money was made over to three persons who were called trustees and the deed provided that the company may make further contributions to the fund.
Under the terms of the deed, however, the company was not bound to pay any pension to any of the members of the staff, the payment itself and the amount payable being entirely at the discretion of the company, and the company had also the power to withdraw or modify any pension and to alter the rules relating to the granting of the pension at its will.
In the accounting year the company paid a further contribution of Rs. 2 lacs to the fund and claimed deduction of this amount under section 10 (2) (xv) of the Income tax Act as expenditure laid out wholly and exclusively for the purposes of the business: Held, that, as the deed did not impose any obligation on the bank or the trustees to grant any pension to any employee, and the pension, even if granted, could be withdrawn and even the rules could be completely altered at will by the company, no valid trust was created even though moneys had been transferred to the trustees, and the sum in question could not be said to have been spent for the purposes of the business and allowed as a deduction under section 10 (2) (xv).
Brown vs Higgs and Burrough vs Philcox (41 E.R. 299) distinguished.


judgement:
Appeals Nos. 415 to 419 of 1964.
Appeals from the judgment and decree dated April 12, 1961, of the Kerala High Court in O.P. Nos. 88 of 56, 240 of 1956E, 117 of 1957, 50 of 1958 and 156 of 1958.
C. K. Daphtary, Attorney General and V. A. Syeid Muhammad, for the appellants (in all the appeals).
G. B. Pai, J. B. Dadachanji, O. C. Mathur and Ravinder Narain for the respondents (in all appeals).
583 The Judgment of the Court was delivered by Mudholkar J.
The only point which arises for decision before us in this group of five appeals from a common judgment delivered by the High Court of Kerala in six writ petitions, five of which were preferred by the respondents and one by M/s. Brooke Bond (India) Ltd., is whether section 2 of the Kerala Profession Tax (Validation and Reassessment) Act, 1958 (Act No. XIV of 1958) is invalid on the ground that it violates the provisions of ' article 276 of the Constitution.
The relevant part of article 276 of the Constitution runs thus: "276(1) Notwithstanding anything in Article 246 no law of the Legislature of a State relating to taxes for the benefit of the State or of a municipality district board, local board or other local authority therein in respect of professions, trades, callings, or employments shall be invalid on the ground that it relates to a tax on income.
Provided that if in the financial year immediately preceding the commencement of this Constitution there was in force in the case of any State or any such municipality, board or authority a tax on professions, trades, callings or employments the rate, or the maximum rate, of which exceeded two hundred and fifty rupees per annum, such tax may continue to be levied until provision ' to the contrary is made by Parliament by law, and any law so made by Parliament may be made either generally or in relation to any specified States, municipalities, boards or authorities.
" It is common ground that before the Constitution came into force the Quilon Municipality had, in exercise of the power conferred by section 91 of the Travancore District Municipalities Act, 23 of 1116 M.E. corresponding to the year 1940 (hereafter referred to as the Act) imposed a profession tax upon every company and every person who, among other things, transacts business within the limits of the municipality for not less than a certain period during a year.
Sub section (1) of section 91 further provides that a company or person liable to pay the tax shall pay a half yearly tax assessed in accordance with the rules mentioned in Schedule H. 'Me Schedule contains, amongst other things, rules, and rules 16 and 18 are the only rules relevant for consideration in these appeals.
Rule 16 sets out slabs of half yearly income for the purpose of assessment of companies and persons to the LlSup./65 12 584 tax.
In this rule the assesees are divided into 12 classes.
In the first class come assessees whose half yearly income exceeds Rs. 21,000 who have to pay a tax of Rs. 275 per half year.
Next below it is cl.
(2) which provides that those whose half yearly income exceeds Rs. 18,000 but does not exceed Rs. 21,000 shall pay a tax of Rs. 225 every half year.
The liability of assessees whose incomes are below Rs. 18,000 goes on diminishing in each lower slab.
Then there is a proviso to sub r.
(1) which runs thus "Provided that a company whose half yearly income is more than twenty one thousand rupees shall, notwithstanding anything contained in this or any other rule, pay in addition to the maximum half yearly tax of rupees two hundred and seventy five and additional half yearly tax on such excess calculated at the rate of one rupee per one hundred rupees or part thereof." With respect to assessees falling within the first slab the proviso thus imposes an additional tax over and above Rs. 275 every half year.
We are not concerned with the remaining sub rules of r. 16.
Rule 18 contains three sub rules but we are concerned ,only with sub rr.
(1) and (2) and they are as follows : "(1) Where a company or person transacts busi ness in any half year exclusively in the area of a single municipality, the income of such company or person from the transaction of such business shall, for the purpose of levying profession tax under this Act during the half year, be deemed to be (a) where income tax is assessed on such company or person under the Travancore Income tax Act for the year, comprising the half year, one half of the amount at which the profits and gains of such business are computed under Section 8 of the Travancore Income tax Act for the purpose of assessing the income tax; and (b) where the amount of the said profits and gains is not ascertainable or where such company or person is not assessed to income tax, such percentage as our Government may prescribe, of the turn over of the business transacted in the area of the municipality during the half year or where this is also unascertainable during the corresponding half year of the previous year.
585 (2) Where a company or person transacts business partly in the area of a municipality and partly outside such area, the income of such company or person from the transaction of business in the area of the municipality shall, for the purpose of levying profession tax under this Act, be deemed to be the percentage prescribed under clause (b) of sub rule (1) of the turnover of the business transacted in such area during the half year or the corresponding half year of the previous year, as the case may be." By a notification of August 28, 1947 the appropriate authority empowered by section 325 of the Act to frame rules added the following proviso to sub r.
(2) : "Provided that in the case of a company or person assessable to income tax, the total profits earned by the company or person as disclosed by the Income tax assessment for the whole State for the year comprising the half year for which the profession tax is to be levied, shall be divided in the proportion of the turn over of the business of the company or person in the Municipality and outside, for purposes of assessment to profession tax.
" By the operation of section 3 of the Indian Finance Act, 25 of 1950 the Travancore Income tax Act stood repealed and the municipal authorities construed the reference to the Travancore Income tax Act in sub r.
(1) of r. 18 as reference to the Indian Income tax Act.
They also construed the reference to the Travancore Income tax Act in the proviso to sub r.
(2) in the same way.
In Harrisons and Crosfield Ltd. vs Commissioner of Quilon Municipality(1) the Travancore Cochin High Court held that the proviso had only provided for the adoption of certain figures representing the total profits as disclosed by the Income tax assessment for a particular year in which the emphasis was upon the assessable area, which, after the coming into force of the Indian Income tax Act in the State of Travancore became impossible of ascertainment and that, therefore, the entire proviso was rendered obsolete.
Thereafter, the appropriate authortiy amended sub rr.
(1) and (2) of r. 18 by notification dated February 15, 1956 as follows : "(1) In clause (a) of sub rule (1) of rule T.C. 1003.
586 .lm15 (a) for the words 'Travancore Income Tax Act ' wherever they occur, the words and figures 'Indian Income Tax Act, 1922 ' shall be substituted.
(b) for the word and figure 'Section 8 ' the word and figure 'Section 10 ' shall be substituted.
(2) In the proviso to sub rule (2) of Rule 18 for the words 'whole State ' the words 'whole of the Indian Union ' shall be substituted.
These amendments shall be deemed to have come into effect from 1st April 1950.
" The validity of the amendments was challenged before the High Court in Highland Produce Co. Ltd. vs The Commissioner, Alleppey Municipal Council(1) on the ground that the power conferred by section 325 of the Act to frame rules could not be exercised so as to give retrospective operation to any rule.
The High Court accepted the contention add thereupon Act 14 of 1958, the validity of section 2 of which is challenged before us, was enacted by the Kerala Legislature.
That provision reads thus "Validation of the levy or collection of profession tax under the Travancore District Municipalities Act, 1116 : Notwithstanding any judgment, decree or order of any court, the amendments to the Taxation and Finance Rules contained in Schedule It to, the Travancore District Municipalities Act, 1116 (XXIII of, 1116) made by Notification No. LS.
11 13975/55/ DD dated 15th February, 1956 of the Government of the former State of Travancore Cochin, shall be deemed to have come into force with effect from the first day of April, 1950 and the validity of the levy or collec tion of profession tax made under the said Act and Rules shall not be called in question on the ground that the amendments made by the notification aforesaid cannot have any retrospective operation, and any profession tax so levied but not collected may be collected as if the said amendment had been validly made with effect from the first day of April, 1950.
" It will be clear from the language of this provision that the legislature purported to validate the levy and collection of the tax under the amended proviso by validating the amendment of the proviso.
The High Court struck down this section and now the (1) O.P. Nos. 196 to 202 of 1955 decided in October, 1956.
587 Quilon Municipality and its Commissioner have come up before us in appeal.
The learned Attorney General who appears for the appellants contends that what the Act does is merely to adapt the machinery for the assessment and levy of the tax to a situation arising out of the repeal of the Travancore Income Tax Act by section 3 of the Indian Finance Act, 1950 and replacing that Act by the Indian Income tax Act.
It, therefore, according to him, does not infringe the provisions of article 276 of the Constitution.
He also contends that the retrospectivity given to the provision does not infringe the aforesaid constitutional provision.
In support of the contention he has relied upon the decision in Mst.
Jadao Bahuji vs Municipal Committee Khandwa(1).
Before dealing with the effect of the amendment made to the proviso added in the year 1947 we must first consider whether the proviso merely purported to create a machinery for implementing the tax.
We will assume that under section 325 of the Act it was competent to the State Government of Travancore to enact the proviso which it did in the year 1947.
If we look at r. 18 (2) as it stands it is clear that it did provide the means of assessing profession tax upon a company or person transacting business partly in the area of the municipality and partly outside such area.
Under sub r.
(2) what the assessing authority had to do was to ascertain what was the turnover of the business transacted by the assessee within the municipal area and calculate the profits which the assessee will be deemed to have earned on the basis of the percentage prescribed by the Government under cl.
(b) of sub r.
Thus, the basis for taxation was the amount of profits deduced in this manner.
Now, if we look at the proviso as it stood when it was first enacted in February, 1947 it would be clear that it contemplates the division of the profits earned by the assessee in the whole State between the turn over of the business within the municipal area and the turn over of the business outside the area.
The total profits would, under the proviso, be the amount disclosed by the income tax assessment for the whole State and their division was to be in the proportion of the turnover of the business within the municipality and outside it.
Obviously, therefore, what the proviso did was to introduce a new basis for assessment of the taxable income.
We say so because the assessment of profits in this way links up their computation with the income assessed for levying income tax.
Under the Travancore Income tax Act only a certain set of deductions (1) 588 were permissible.
Now, if an assessee has in fact expended money for certain purposes but such expenses are not allowable deductions under the Travancore Income tax Act, it would follow that the profits calculated by reference to the income tax assessment may work out higher than those actually earned by the assessee.
We do not know what was the percentage prescribed by the Government of Travancore under cl.
(b) of sub r.
(1) of r. 18.
But it is possible that the assessable profits determined with reference to that provision may have been less than those determined under the proviso.
In any case it cannot be said with certainty that the profits arrived at would have been iden tical in the two cases.
From the fact that the State enacted the proviso it would not be unreasonable to assume that the State thereby expected that the municipality would earn more income than under a computation made under sub r.
(2) of r. 18 read with cl.
(b) of sub r.
(1) of r. 18.
Another thing which the proviso of 1947 did was to take out of the category of assessees dealt with by sub r.
(2) of r. 18 such companies or persons as were assessable to income tax.
Sub rule (2) as it stood, treated companies and persons transacting business partly in the area of the municipality and partly outside such area on a uniform footing irrespective of the question whether a company or a person was assessed to income tax or not.
For the first time the proviso put in a separate class those who were assessed to income tax.
The proviso thus affected the basis of assessment of tax and did not merely deal with the procedure for assessing the tax.
In the circumstances we cannot accept the contention of the learned Attorney General that the proviso did not affect either the basis or the incidence of the tax but merely provided a machinery for implementing the tax.
Therefore, while dealing with the amendment made in the year 1956 we have to bear in mind that it was made in a provision concerning the basis of taxation.
The question then would be whether the amended proviso was likely to enhance an assessee 's liability.
No doubt, the object was to adapt the earlier proviso to the situation created by the repeal of the Travancore Income tax Act.
But whatever was its object, we have to ascertain its effect on an assessee 's liability to pay the profession tax.
The proviso as it originally stood had linked up the deter mination of the profits liable to tax under the rules with the Travancore Income tax Act.
The amendment of sub r.
(1) of 589 r. 18 has the effect of linking it up with the Indian Income tax Act.
By the amendment of the proviso the words "the whole of Indian Union" are now to be read therein for the words "the whole State".
Mr. Pai for the respondent contended that in consequence of the amendment the total profits earned by a company or person as disclosed by the income tax statement for the whole of India will now have to be divided in the same proportion as the turnover of the business of the company or person within the municipality bore to the turn over outside the municipality, 'or the purpose of assessment of the tax.
The result of this, according to him, may sometimes be that a much larger amount of profits will have to be taken into account for assessing the tax than under the unmended proviso.
He says that the amount of assessable profits would depend upon the permissible deductions under the Indian Income tax Act and that if they are fewerthan before the result would be that assessable profits determine( under the Indian Income tax Act would be higher than those under the Travancore Income tax Act.
As no detailed comparison of the provisions of the Travancore Income tax Act as it force at the date of the amendment with those of the Indian Income tax Act was made during the argument, we are not in a position to say whether in fact the assessable profits under the Indian Income tax Act would have been larger than those under the Travancore Act at that time.
We cannot, however, deny the Possibility of the permissible deductions under the Indian Income tax Act being fewer than those under the Travancore Act as it stood at the date of its repeal.
Again, since the amendment introduces a different statute with reference to which assessable profits are to be ascertained it is possible that the amended proviso may enhance the tax liability not only of assesees falling within the first slab but also of assessees falling in the lower slabs.
Mr. Pai has sought to demonstrate by reference to actual figures that in respect of certain periods the present assessee 's liability to pay the tax as ascertained under the amended proviso would be higher than what it would have been under the amended proviso.
These figures are to be found in three statements filed in the High Court by the respondents and marked as Ex 4, 13 and 23.
The statements are identical and we would on refer to the first of them.
In column 1 of exhibit 4 is mentioned the year of assessment; in the second column the turnover within the Quilon Municipality is set out; in the third column the turn over relating to profits 590 assessable to Travancore income tax Act is set out; in the fourth column the turnover in India is set out; in the fifth column income assessable under the Travancore Income tax Act, had it been in force, is set out; in the sixth column income assessed under the Indian Income tax Act is set out.
From these figures income computed as per proviso to r. 18(2) before its amendment has been set out.
If 'X ' is the figure in col. 5, 'Y ' is the figure in col. 3 and 'Z ' the figure in col. 2, the amount of Income before the amendment of the proviso would then be x/y x Z.
We might call it 'The(1) [i.e. 'taxable income (1) '].
In tie last column of the statement the taxable income computed as per the proviso after its amendment is set out.
This is arrived at by ,dividing the income assessed under the Indian Income tax.
Act which we will call 'A ' by the turn over in India which we will call 'B ' and multiplying it by the turnover within the Quilon Municipality i.e. 'Z '.
The taxable income thus arrived at i.e. A x Z might be called 'TI (2) '.
It would appear by the comparison of the figures in col. 7 with those in col. 8 that in respect of the periods ending on June 30, 1949; June 30, 1950; June 30, 1951; June 30, 1954 and June 30, 1955 TI(2) is lower than TI(1).
But in respect of periods ending on June 30, 1152; June 30, 1953 and June 30, 1956 TI(2) is higher than TI (1).
Since the Attorney General does not accept the correctness of the figures in columns 2 to 5 we will regard them as merely hypothetical.
But even on the basis of these hypothetical figure it is apparent that by applying the amended proviso the quantum of liability to pay tax on the same turn over with respect to the same period would, in certain cases, be higher than what it would have been by applying the unmended proviso.
The burden of tax is thus liable to be increased in certain circumstances.
We have already pointed out that the amendment of 1956 was to operate as from April, 1950, that is, from a point of time coinciding with the repeal of the Travancore Income tax ct.
But then the proviso is given operation subsequent to the commencement of the Constitution, and the provisions of article 276 would stand in the way of the legislature which validated it.
The learned Attorney General relying upon the decision of this Court in Mst.
Jadao Bahuji 's case(1) contended that he Kerala legislature was competent to give retrospectivity to a validating law and that since the legislature has validated he amendment to the proviso as from April, 1950, the amendment is valid and took effect from that date.
The decision upon (1) 591 which he has relied is distinguishable.
That was a case in which the Validating Act had validated the imposition of a tax in excess of Rs. 50 not for a period subsequent to March 31, 1939 but for a period prior to that date.
The contention of the assessee was that as the Validating Act was passed subsequent to the coming into force of section 142 A of the Government of India Act, 1935 it was beyond the competence of the provincial legislature.
This contention was rejected by this Court.
The case before us.
however, is different because the Validating Act purported to validate a profession tax to an extent above Rs. 250 subsequent to the commencement of the Constitution.
The following obser vations of this Court in that case in fact militate against the contention of the learned Attorney General : "There can be no doubt that if a law was passed after the amendment and sought to impose taxes on professions etc., for any period after March 31, 1939, it had to conform to the limit prescribed by section 142 A(2).
The prohibition in the second subsection operated to circumscribe the legislative power by putting a date line after which a tax in excess of Rs. 50 per annum per person for a period after the date line could not be collected unless it came within the proviso." (p. 642).
For all these reasons the amendment must, therefore, be regarded as violating the provisions of article 276 and we hold that the Kerala Legislature was incompetent to enact section 2 of the Validating Act.
We accordingly dismiss the appeals with costs.
There will be one set of hearing fees.
Appeals dismissed.

summary/full:
The Quilon Municipality levied, in the pre Constitution period, a profession tax under powers conferred by the Travancore District Municipalities Act (Act 23 of 11 16 M.E., corresponding to 1940 A.D.).
The tax was leviable on a half yearly basis on companies and persons transacting busi ness in the municipal area for not less than a certain period in a year.
The rates were laid down in rule 16 of the Second Schedule to the aforesaid Act, and were on a graduated scale varying with the income of the assessee.
Under Rule 18(2), as it originally stood the income of an assessee transacting business inside as well as outside the area of the Municipality was to be deemed to be a prescribed percentage of the turnover of the business inside the Municipality.
A proviso was however added to Rule 18(2) in 1947 which laid down that in the case of the assessees who were assessed to income tax under the Travancore Income tax Act, the income for the purpose of levying the profession tax would be computed in the following manner i.e. the profits earned by the assessee in the whole State as disclosed by the assessment under the said Act would be divided in the proportion of the turnover of the business inside and outside the Municipality and the portion thus found attributable to the business in the Municipal area would be subjected to profession tax.
In 1950, after the promulgation of the Constitution, section 3 of the Finance Act (Act 25 of 1950) repealed the Travancore Income tax Act and replaced it by the Indian Income tax Act, 1922.
Thereafter Municipalities in Travancore began to construe the re ferences to the Travancore Income tax Act in rule 18 as references to the Income tax Act, but this procedure was held to be illegal by the Travancore Cochin High Court by a judgment delivered in 1955.
The appropriate authority, thereupon by Notification dated 15th February 1956, amended rule 18 to provide, Inter alia, that, with effect from 1 4 50 references to the Travancore Income tax Act in that rule would be read as references to the Indian Income tax Act, and income under the proviso to sub rule (2) would be computed with reference to the income in the whole of the Indian Union instead of the income in the whole of Travancore State.
The amended proviso was also struck down by the High Court, on the ground that it was retrospective in operation.
Thereupon the Kerala Legislature passed the Kerala Profession Tax (Validation and Reassessment) Act, 1958 (Act 14 of 1958) which in section 2 provided that the levy of the tax under the aforesaid amendment would remain valid and would not be open to challenge on the ground that it had retrospective operation. 'Me respondents who were taxed by the Quilon Municipality under the amended proviso challenged the Validating Act before the Kerala High Court contending that it was a post Constitution law which in imposing a profession 582 tax of more than Rs. 250 per year on certain classes of assessees contravened the terms of article 276(2) of the Constitution.
This contention was upheld by the High Court.
Aggrieved thereby, the Quilon Municipality appealed to the Supreme Court.
It was contended on behalf of the appellants that what the impugned Act did was merely to adapt the machinery for the assessment and levy of the tax to a situation arising out of the repeal of the Travancore Income tax Act and its replacement by the Indian Income tax Act in 1950, and therefore there was no contravention of article 276(2).
Nor was the Article contravened by the retrospective given to the provision in question.
HELD: (i) The proviso to rule 18(2) introduced in 1947 was not a mere machinery provision.
Under rule 18(2) as it originally stood the income of all assessees transacting business both inside and outside the Municipality was, for the purpose of levying profession tax, computed on the basis of a percentage of the turn over inside the municipality.
The proviso created a different procedure in the case of those who were assessed to income tax by linking up their income for the purpose of the profession tax with their profits in the whole State as assessed under the Travancore Income tax Act.
Thus a new class of assessees came into being which had not existed before the proviso was enacted.
The method of computing income laid down in the proviso was also likely to result in a different incidence of tax liability in the case of those covered by it.
Considering all this, the argument that the proviso did not affect either the basis or the incidence of the tax, could not be accepted.
[588 F].
(ii) The amendment of 1956 linked up the determination of the profits liable to profession tax with the Indian Income tax Act instead of the Travancore Income tax Act.
Also, under the amended proviso to rule 18(2), the profits in the whole of the Indian Union and not merely in the State of Travancore, would be the basis of computing income for the purpose of levying profession tax.
The provisions of the Indian and Travancore Income tax Acts were different and the territory of the Indian Union was much larger than that of Travancore, and these differences were likely to affect the tax liability of those covered by the said amendment.
[590 E F].
(iii) The argument that the Kerala Legislature was competent to give retrospectivity to a validating law and that since the legislature had validated the amendment to the proviso as from April 1950, the amendment was valid, could not be accepted.
The proviso had been given operation subsequent to the commencement of the Constitution and the provisions of article 276 would therefore stand in the way of the legislature which validated it.
[590 F H].
Jaclao Bahuji vs Municipal Committee, Khandwa, , distinguished.