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PETITIONER: ADDITIONAL COMMISSIONER OF INCOME-TAX GUJARAT, AHMEDABAD

       Vs.

RESPONDENT: SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION, SURAT

DATE OF JUDGMENT19/11/1979

BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. UNTWALIA, N.L. TULZAPURKAR, V.D. PATHAK, R.S. SEN, A.P. (J)

CITATION:  1980 AIR  387            1980 SCR  (2)  77  1980 SCC  (2)  31  CITATOR INFO :  R          1981 SC1408  (1,10,12)  R          1981 SC1462  (9)  APL        1981 SC1765  (1)  R          1981 SC1922  (8)  R          1986 SC1054  (6,7,10)  R          1992 SC1456  (20,73)

ACT:      Income-tax Act 1961-Sections 2 (15), 11 and 13(1) (bb)- Scope of- "Advancement of any other object of general public utility not  involving the  carrying on  of any activity for profit" meaning.

HEADNOTE:      The assessee which was an incorporated company, carried on various activities for promotion of commerce and trade in art silk  yarn, art  silk cloth  and silk  cloth. Its  other objects were  to obtain  licences for import of raw material needed by  its members,  to obtain  licences for  export  of cloth manufactured by its members and to do all other lawful things as  are incidental  or conducive to the attainment of the objects.  Its income  and property  were to  be  applied solely for  the promotion  of its  objects and no portion of the income  or  property  was  to  be  paid  or  transferred directly or  indirectly by way of dividend, bonus or profits to  its   members.  In  the  event  of  its  winding  up  or dissolution, surplus  of assets  over liabilities,  if  any, could not  be distributed amongst the members but was liable to be  given or transferred to some other company having the same objects  as the  assessee,  to  be  determined  by  the members of  the assessee  or by  the High  Court  which  has jurisdiction in the matter.      The  assessee   received  income   by  way   of  annual subscription from  its members  (the revenue  conceded  that this amount was exempt from tax) and commission on the basis of certain percentage of the value of licences for import of foreign yarn and quotas for the purchase of indigenous yarn. The assessee  constructed a  building  out  of  the  amounts received and  the rent  received from  the  tenants  was  an

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additional source of its income.      The assessee’s  claim for exemption under section 11(1) of the Income Tax Act was rejected by the Income-Tax Officer on the  ground that  its objects  were not charitable within the meaning  of section  2(15) of the Act. On the other hand the  Appellate   Assistant  Commissioner   held   that   the assessee’s income was entitled to exemption under section 11 (1) because  the activities  carried on by the assessee were in fulfillment of the primary purposes which did not involve the carrying on of any activity for profit. This view of the Appellate  Assistant   Commissioner  was   affirmed  by  the Appellate Tribunal in appeal by the revenue.      In view  of the conflicting decisions amongst different High  Courts   on  the  interpretation  of  the  words  "not involving the carrying on of any activity for profit" in the definition of  charitable purpose  in section  2(15) of  the 1961 Act  the Appellate  Tribunal referred  to  this  Court, under section 257 of the Act. 78 the question  whether the assessee was entitled to exemption under section 11(1) of the Act.      It was  contended on  behalf of the revenue that if the means to  achieve or  carry out the object of general public utility involve  the carrying on of any activity for profit, the  purpose   of  the  trust,  though  falling  within  the description "any  other object  of general  public utility", would not  be a  charitable  purpose  and  the  income  from business would not be exempt from tax.      Dismissing the appeal, ^      HELD: (Per majority Bhagwati, Untwalia and Tulzapurkar, JJ)      1. The  contention that the objects of the assessee did not fall  within the  category of  "advancement of any other object of  general public  utility" and  were not charitable within the meaning of section 2(15) in that its members were merely  specified  individuals  who  did  not  constitute  a section of the public cannot be allowed to be raised in this reference. In  a reference  under s.  257 of the Income Tax, Act, 1961  the Tribunal is not competent to refer    to this Court a question in respect of which there is no conflict of decisions amongst  different High  Courts nor can this Court travel beyond  the particular question of law referred to it by the  Tribunal on  account of conflict in the decisions of the High Courts. [92 A-B]      2. (a)  It is  well-settled  that  where  the  main  or primary objects  are distributive, each and every one of the objects must  be charitable  in  order  that  the  trust  of institution may  be upheld  as a  valid charity.  But if the primary or dominant purpose of a trust is charitable another object which  by itself  may not  be charitable but which is merely ancillary  or incidental  to the  primary or dominant purpose would  not prevent  it from being valid charity. [92 D-E]      (b) The  test which  has to  be applied  is whether the object which  is said  to   be non-charitable is the main or primary  object  of  the  trust  or  institution  or  it  is ancillary or  incidental to  the dominant  or primary object which is charitable.[92 F]      Mohd. Ibrahim  v. Commissioner  of Income-tax 57 Indian Appeal  260;   East  India   Industries  (Madras)   Ltd.  v. Commissioner of  Income-tax, 65  ITR 611=  [1967]3 SCR  356; Commissioner of  Income-tax, Madras  v.  Andhra  Chamber  of Commerce, 65  ITR 722=[1965]  1  SCR  565,  Commissioner  of Inland Revenue  v. Yorkshire  Agricultural Society  [1928] 1

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K.B. 611; 13 Tax Case. 58; Institution of Civil Engineers v. Commissioner of  Inland  Revenue  [1931]  16  Tax  Cas.  158 (C.A.); referred to.      In the  instant case  the income  and property  of  the assessee are  held under  a legal obligation for the purpose of advancement of an object of general public utility within the meaning  of s. 2(15) of the Act. The dominant or primary purpose of  the assessee is to promote commerce and trade in art silk  yarn etc.,  which  is  charitable  and  the  other objects are  in the  nature of  powers  conferred  upon  the assessee for  the purpose  of securing  fulfillment  of  the dominant or primary purpose. They would no doubt benefit the members of the assessee but this benefit would be incidental in carrying out the main or primary purpose of the assessee. If  therefore   the  dominant  or  primary  purpose  of  the assessee. 79 was charitable  the subsidiary  objects would  not  militate against its  charitable character  and the  purpose  of  the assessee would not be any the less charitable. [93 E-G]      3. It is settled law that the words "advancement of any other  object  of  general  public  utility"  would  exclude objects of  private  gain;  but  this  requirement  is  also satisfied in  the present case because the object of private profit is  eliminated by  the recognition  of  the  assessee under s.  25 of  the Companies Act. 1956 and the objects set out in clauses 5 and 10 of its Memorandum of Association [94 C-D]      4. Where  the purpose  of a  trust  or  institution  is relief  of  the  poor,  education  or  medical  relief,  the requirement of  the definition of "charitable purpose" would be fully satisfied even if an activity for profit is carried on in  the course  of the actual carrying out of the primary purpose of  the trust  or institution. But if the purpose of the trust  or institution is such That it cannot be regarded as covered  by the  heads of  "relief of the poor, education and medical relief" but its claim to be a charitable purpose rests only on the last head "advancement of any other object of  general  public  utility"  then  it  requires,  for  its applicability, fulfillment  of two  conditions, namely,  (i) the purpose  of the trust or institution must be advancement of an object of general public utility; and (ii) the purpose must not involve the carrying on of any activity for profit. [94 G-H]      M/s. Dharamdipti  v. Commissioner of Income-Tax, [1978] 3 S.C.R. 1038, referred to.      5. The  words "not  involving the  carrying on  of  any activity for profit" qualify or govern only the last head of charitable purpose and not the earlier three heads. [94 G]      6. The meaning of the words "not involving the carrying on of any activity for profit" added in s. 2(15) of the 1961 Act is  that when  the purpose  of a trust or institution is the advancement of an object of general public utility it is that  object   of  general   public  utility   and  not  its accomplishment which must not involve the carrying on of any activity for profit. [94 H]      7. If  the argument of the Revenue that if the means to achieve the  object of  general public  utility involve  the carrying on  of any  activity for profit, the purpose of the trust though  falling  within  the  description  "any  other object of  general public utility" would not be a charitable purpose and  the income  from business  would not  be exempt from tax  it right it would not be possible for a charitable trust whose  purpose is  promotion of  an object  of general public utility  to carry  on any activity for profit at all.

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[97 F-H]      8. The  consequence would be that even if a business is carried on  by a  trust or  institution for  the purpose  of accomplishing or  carrying out  an object  of general public utility and the income from such business is applicable only for achieving  that object,  the purpose  of the trust would cease to  be  charitable  and  not  only  income  from  such business but  also income  derived from  other sources would lose the  exemption. Such a far-reaching consequence was not intended to  be brought  about by  the legislature  when  it introduced the  words "not  involving the carrying on of any activity for profit" in s. 2(15). [98 B-C] 80      9. What  is inhibited  by the  words "not involving the carrying on of any activity for profit" is the linking of an activity for  profit  with  the  object  of  general  public utility and  not its  linking  with  the  accomplishment  or carrying out  of the  object. It  is not  necessary that the accomplishment of  the object  or the means to carry out the object should  not involve  an activity  for profit. That is not the  mandate of  the newly added words. What these words require is  that the  object should not involve the carrying on of any activity for profit. The emphasis is on the object of general  public utility  and not on its accomplishment or attainment. [98 E-G]      Commissioner  of   Income-tax  v.   Cochin  Chamber  of Commerce and Industry, 87 I.T.R. 83 and Andhra Pradesh State Road Transport  Corporation v.  Commissioner of  Income-tax, 100 I.T.R. 392 approved.      10.  If  the  intention  of  the  legislature  were  to prohibit trusts of this nature from carrying on any activity for profit  it would  have made  such  a  provision  in  the clearest terms that no such trust or institution shall carry on any activity for profit. [99 E-F]      11. Section 13(1)(bb) introduced in the Act with effect from April 1, 1977 provides that in the case of a charitable trust for  the relief  of the  poor,  education  or  medical relief which  carries on  any business,  income derived from such business  would not  be  exempt  from  tax  unless  the business is  carried on in the course of the actual carrying out of a primary purpose of the trust or institution. Where, therefore, a  charitable trust  falling within  any  of  the first three  categories of  charitable purpose  set  out  in section 2(15) carries on business which is held in trust for the charitable  purpose, income from such business would not be exempt  by reason  of section 13(1)(bb) and section 11(4) would, therefore,  have no  application in  the  case  of  a charitable trust falling within any of the first three-heads of  charitable   purpose.  Similarly,  on  the  construction contended for  by the Revenue it would have no applicability in the  case of  a charitable  trust falling  under the last head of  charitable purpose,  because in  such a case income from business  would not  be exempt  since the purpose would cease to  be charitable.  The construction  contended for by Revenue would  have the effect of rendering s. 11(4) totally redundant after  the enactment  of  section  13(1)  (bb).  A construction  which   renders  a   provision  of   the   Act superfluous and  reduces it  to silence  cannot be accepted. [100 C-F]      12.  If  the  language  of  a  statutory  provision  is ambiguous  and   is  capable   of  two   constructions  that construction must  be adopted  which will  give meaning  and effect to  the other Provisions of the enactment rather than that which will none. [100 G]      13.  If  a  business  is  held  under  trust  or  legal

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obligation to apply its income for promotion of an object of general public  utility or  it is carried on for the purpose of earning  profit to  be utilised  exclusively for carrying out such  charitable purpose,  the last  concluding words in section 2(15)  would have  no application and they would not deprive  the   trust  or   institution  of   its  charitable character. What  these last  concluding words require is not that the  trust or  institution whose purpose is advancement of an  object of  general public utility should not carry on any activity  for profit  at all but that the purpose of the trust or  institution should  not involve the carrying on of any activity  for profit.  So long  as the  purpose does not involve the carrying on of any activity for 81 profit, the  requirement of  the definition would be met and it  is   immaterial  how   the  monies   for  achieving   or implementing such  purpose are found, whether by carrying on an activity for profit or not. [104 D-G]      Commissioner of  Income-tax v. Dharmodayan Company, 109 I.T.R. 527 followed.      Indian Chamber  of Commerce  v. Commissioner of Income- tax (1975) 101 I.T.R. 796 wrongly decided.      The Trustees  of the  Tribune,  (1939)  7  I.T.R.  415; Commissioner of  Income-tax v.  Krishna Warrier;  53  I.T.R. 176, J.K.  Trust v. Commissioner of Income-tax 32 I.T.R. 535 and Sole  Trustees Lokshikshana  Trust  v.  Commissioner  of Income-tax (1975) 101 I.T.R. 234 (S.C.) referred to.      14. It  has therefore to be seen whether the purpose of the trust or institution in fact involves the carrying on of an activity for profit or in other words whether an activity for profit is actually carried on as an integral part of the purpose "as a matter of advancement of the purpose". There e Must be  an activity  for profit  and it must be involved in carrying out  the purpose  of the  trust or institution that is, it  must be  carrying on in order to advance the purpose or in the course of carrying out the purpose of the trust or institution. It  is then  that the  inhibition  of  the  ex. Exclusionary clause would be attracted. [105 G-H]      15. Every  trust or institution must have a purpose for which it  is established  and every  purpose  must  for  its accomplishment involve  the carrying  on of an activity. The activity  must  be  for  profit  in  order  to  attract  the exclusionary clause. [106 D]      16. The  preposition "for"  in the phrase "activity for profit" has  many shades  of meaning  but when used with the active principle of a verb it means "for the purpose of" and connotes the  end with reference to which something is done. [106 E]      17. Where  an activity is not pervaded by profit motive but is  carried on  primarily  for  serving  the  charitable purpose, it  would not  be collect  to  describe  it  as  an activity for  profit. But  where an  activity is  carried on with the  predominant object  of earning profit, it would be an activity  for profit,  though it  may be  carried  on  in advancement of  the  charitable  purpose  of  the  trust  or institution. Where  an activity is carried on as a matter of advancement of  the charitable  purpose,  it  would  not  be incorrect to  say as  a matter of plain English grammar that the  charitable   purpose  involves  the  carrying  on  such activity, but  the predominant  object of such activity must be to  subserve the  charitable  purpose  and  not  to  earn profit. [106 F-H]      Dharamdipti  v.  Commissioner  of  Income-tax,  Kerala, [1978] 3 S.C.R. 1038 referred to.      18. The  test to  be applied is whether the predominant

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object of  the activity  involved in carrying out the object of general  public utility  is to  subserve  the  charitable purpose or  to earn  profit. Where the predominant object of the activity  is to carry out the charitable purpose and not to earn  profit, it  would  not  lose  its  character  of  a charitable purpose m-rely because some profit arises 82 from the  activity. The exclusionary clause does not require that the  activity must  be carried on in such a manner that it does  not result in any profit. The restrictive condition that the  purpose should  not involve the carrying on of any activity for  profit would  he satisfied if profit making is not the real object.[107 G-H]      19. (a)  The observations  in Lok  Shikshana Trust  and Indian  Chamber   of  Commerce  that  activity  involved  in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose are correct.  But  the  further  observation  that  whenever  an activity is  carried on  which yields  profit, the inference must necessarily be drawn. in the absence of some indication to the  contrary, that  the activity  is for  profit and the charitable purpose  involves the  carrying on of an activity for profit is not correct. [109 H; li) A-Bl      (b) It  is not necessary that there must be a provision in the  constitution of  the trust  or institution  that the activity shall  be carried on a "no profit no loss" basis or that the  profit shall  proscribed. Even if there is no such express provision. the nature of the charitable purpose, the manner in  which the  activity for  advancing the charitable purpose  is   being  carried   on,   and   the   surrounding circumstances may  clearly indicate that the activity is not propelled by  a dominant profit motive. What is necessary to be considered  is whether having regard to all the facts and circumstances of  the  case,  the  dominant  object  of  the activity is  profit making  or  carrying  out  a  charitable purpose. If  it is  the former  the purpose  would not  he a charitable purpose  but if  it is  the latter the charitable character of the purpose would not be lost. [110 C-D]      In the instant case, the activity of obtaining licences for import  of foreign  yarn  and  quotas  for  purchase  of indigenous  yarn   was  not  an  activity  for  profit.  The predominant object  of the  activity was  the  promotion  of commerce and trade in those commodities which was clearly an object of general public utility and profit was merely a by- product  which  resulted  incidentally  in  the  process  of carrying out charitable purpose. The assessee’s profit could he utilized  only for  feeding this  charitable purpose. The dominant  and   real  object   of  the  activity  being  the advancement of the charitable purpose the mere fact that the activity  yielded   profit  did  not  alter  the  charitable character of the assessee . Per Pathak J. (concurring)      In the  scheme  under  the  Income-tax  Act.  1961  for exemption from  income tax  of income  derived from property held under  trust for  charitable purposes,  two  safeguards have been  provided. One  arises from the limited definition of "charitable  purpose" by  s. 2(15), Income-tax Act, 1961. and the  other is  provided by  the controls  imposed on the utilisation  of   accumulated  income   derived   from   the charitable trust  or institution.  The first  relates to the very purpose  of the trust or institution, the second to the application of the resulting income. In construing what is a "charitable  purpose"   under  s.   2(15)  of  purpose  Act, considerations  pertinent   to  the   application   of   the

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accumulated income  should  not  ordinarily  be  taken  into account. [114 F-G]      The first  three heads  of "charitable  purpose" in  s. 2(15) of  the Act  arc defined  in specific  terms.  namely, relief of the poor, education and medical relief. The fourth head is described generally as a residuary head. The 83 definition of  "charitable purpose"  with reference  to  the fourth head  shows that  the purpose  is the "advancement of any  other   object  of  general  public  utility..  ".  The charitable purpose  is not  the "object  of  general  public utility",  it   is  the   advancement  of  the  object.  The definition defines  "charitable  purpose"  in  terms  of  an activity. An object by itself cannot connote an activity. It represents a goal towards which, or in relation to which. an activity is  propelled.  The  element  of  the  activity  is embodied in  the word "advancement". If "charitable purpose" is defined  in terms  of an activity, the restrictive clause "not involving  the carrying  on of any activity for profit" must necessarily  relate to  "the advancement" of the object contemplated. [115 B-C]      The words  "activity for  profit" should  be  taken  as descriptive of the nature of the activity. It is an activity of a kind intended of yield profit. Conversely if profit has resulted from  an  activity,  that  has  does  not,  without anything more, classify it as an "activity for profit". [116 B-C]      The requirement  of section  2(15) is  satisfied  where there is  either a  total absence  of the purpose of profit- making or  it is so insignificant compared to the purpose of advancement of the object of general public utility that the dominating role of the latter renders the former unworthy of account. If  the profit-making  purpose holds  a  dominating role or even constitutes an equal component with the purpose of advancement of the object of general public utility, then the definition in section 2(15) is not satisfied. [116-G-H]      If the  purpose is  charitable  in  reality,  the  mode adopted must  be one  which is  directed to carrying out the charitable purpose.  The carrying on of such a business does not detract act from the purpose which permeates it, the end result of  the business  activity being  the effectuation of the charitable  purpose. A  business activity carried on not with a  view to  carrying out  the charitable purpose of the trust but which is related to a non-charitable purpose falls outside the  scope of the trust. If it is a business entered into for  working out be purpose of the trust or institution with a  view to  realisation of  the charitable purpose, the income therefrom would be entitled to exemption under s. 11. Section 11(4)  and section  13(1)(bb) represent  the mode of finding finance  for working out the purpose of the trust or institution by  deriving income from the corpus of the trust property and  also from an activity carried on in the course of actual  carrying out  of the  purpose  or  the  trust  or institution. [117 B-E]      A distinction must be maintained between what is merely a  definition   of  "charitable   purpose"  and  the  powers conferred for  working out or fulfilling that purpose. While the purpose  and the  powers must  correlate they  cannot be identified with each other. [118 B]      In the  instant case  the purpose of the assessee falls within the  definition of  section 2(15). The objects of the assessee were to promote commerce and trade, which have been held to be an object of general public utility and, there is nothing  to   show  that  the  relevant  sub-clause  of  the Memorandum of  Association involves  the carrying  on of any

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activity for  profit. The  remaining  sub-clauses  enumerate powers for which the company was constituted. [118 G-H]      The Trustees  of the  Tribune,  (1939)  7  I.T.R.  415, Commissioner of  Income-tax v.  Andhra Chamber  of  Commerce (1965) 55 I.T.R. 722, referred 84 Sale Trustees,  Loka  Shikshana  Trust  v.  Commissioner  of Income-tax, Mysore  (1975) 101 I.T.R. 234; Indian Chamber of Commerce v.  Commissioner  of  Income-tax,  West  Bengal  II (1975) 101 I.T.R. 796 not approved.      Per Sen, J. (dissenting)      The two decisions in Sole Trustees  Lok Shikshana Trust v. C.I.T.  (101 ITR  234) and  Indian Chamber of Commerce v. C.I.T. (101  ITR 796)  lay down  the law  correctly and  are still good law. [119 D]      1. The  words "not  involving the  carrying on  of  any activity for  profit" occurring  in section 2(15) of the Act quality only  the fourth  head of  charitable purpose namely "any other  object of  general utility"  and not  the  first three heads. [119 E]      2. It  is the  vagueness of  the expression  "any other object of  general  public  utility"  occurring  in  section 4(3)(i) of  the 1922 Act which impelled Parliament to insert the restrictive  word "not  involving the carrying on of any activity for profit.’ It is not permissible for the court to whittle down  the plain language of the section. It would be contrary to  all rules  of construction to ignore the impact of the  newly added  words and to construe the definition as it the  newly added  words were  either not  there  or  were intended to  be otiose  and redundant.  Such a  construction would frustrate  the very  object of  the  legislation.  The relative simplicity of the language brings out the necessary legislative intent  to counteract  tax advantages  resulting from the  ’so-called charities in camouflage. [119 H; 120 A- C]      3 . The restriction introduced by the definition of the term "charitable  purpose" in  section  2(15)  is  that  the advancement of  objects of general public utility should not involve the  carrying on  of any  activity for profit. If it involved any  such activity  the charity  would fall outside the definition. [120 D-E]      4. There  is no  statutory bar  to  earn  exemption  in respect of  income derived  from a  business undertaking  if such business  undertaking is  held  under  a  trust  for  a charitable purpose.    The  first  essential  condition  for exemption under  section 11(1)  is that  the  property  from which the  income is  derived must  be held  under trust  or other legal  obligation.   Section 11(4)  gives a  statutory recognition to  the principle  that the business is property and if  a business  is held in trust wholly for a charitable purpose, the  income therefrom would be exempt under section 11(1) [121 B-D]      In re.  The Trustees  of the  Tribune (1939) 7 ITR 415; All India Spinner’s Association v. C.I.T. (1944) 12 ITR 482; C.I.T. v.  P. Krishna  Warriar (1964)  53 ITR  176 C.I.T. v. Andhra Chamber  of Commerce (1965) 56 ITR 722; J.K. Trust v. C.I.T. (1957) 32 ITR 535 referred to.      5. The restrictive words "not involving the carrying on of any  activity for profit" were deliberately introduced in the definition to cut down the wide ambit of the fourth head as a  measure to  check avoidance  of tax.  Engagement in an activity  for  profit  by  religious  or  charitable  trusts provides scope for manipulation for tax evasion. [121 F-G]      6 Even  assuming that the dominant object of a trust is the promotion or ’advancement of any other object of general

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public utility,  if it involves any activity for profit i.e. any business  or commercial activity, then it ceases to be a charitable purpose  within the  meaning of section 2(15). In that event  the profits  derived from  such business are not liable to exemption under section 11(1) 85 read with  section 2(15). The concept of profits to feed the charity is  also of no avail. That is because the concept of ’profits to feed the charity’ can only arise under the first three heads  of ’charitable  purpose’ as  defined in section 2(15) of  the Act, that is, "relief of the poor" "education" and "medical  relief" but  they are not germane in so far as the fourth  head is  concerned. If  the  fulfillment  of  an object of  general public  utility  is  dependant  upon  any activity for profit, it ceases to be a charitable purpose. A reading of  section 2(15) and section 11 together shows that what is  frowned upon is an activity for profit by a charity established for  advancement of  an object of general public utility in  the course of accomplishing its objects. [126 H; 127 A-B]      7. It would be clearly inconsistent to hold that if the dominant or  primary  purpose  was  ’charity’  it  would  be permissible for  such an object of general public utility to augment its  income by  engaging in  trading  or  commercial activity. [131 F]      8. If  the object  of the  trust is  advancement of  an object of  general public  utility  and  it  carried  on  an activity for  profit, it  is  excluded  from  the  ambit  of charitable purpose defined in section 2(15). The distinction is clearly brought out by the provision contained in section 13(1)(bb) which  provides that in case of a charitable trust or institution  for the  relief of  the poor,  education  or medical relief  which carries  on any  business, any  income derived from  such business,  unless the business is carried on in  the course  of the  actual carrying  out of a primary purpose of  the trust  or institution, shall not be excluded from the total income of the previous year. [132 G-H]      9. If  the advancement  of an  object of general public utility involves  the carrying on of an activity for profit, it ceases  to be  a charitable  purpose and,  therefore, the income is  not exempt  under section  ll(l)(a). In case of a trust falling under any of the first three heads of charity, namely,  ’relief  of  the  poor’  ’education’  and  ’medical relief’ it  may engage  in any  activity for  profit and the profits would  not taxable  if they  were utilized  for  the primary object  of the  trust. In  other words  the business carried on by them is incidental or ancillary to the primary object namely  relief of  the poor,  education  and  medical relief.  The  concept  of  ’profits  to  feed  the  charity’ therefore is  applicable only  to the  first three  heads of charity and  not the  fourth. It would be illogical to apply the same consideration to institutions which are established for charitable  purposes of  any object  of  general  public utility. Any profit-making activity linked with an object of general public  utility would  be taxable. The theory of the dominant or  primary object  of the trust cannot. therefore, be projected  into the  fourth  head  of  charity,  namely,, ’advancement of  any other object of general public utility’ so as  to make  the carrying  on of  any  business  activity merely ancillary or incidental to the main object. [134 A-E]      10. The  restrictive words  ’not involving the carrying on  of  any  activity  for  profit’  in  the  definition  of "charitable purpose"  in s.  2(15) must  be given  their due weight. Otherwise,  it would have the effect of admitting to the benefits of’ exemption the fourth in

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determinate class, namely, objects of general public utility engaged in  activity for  profit contrary to the plain words of s. 2(15). [134 G]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Tax  Reference No. 1A of 73.      Tax Reference  under section  257 of the Income Tax Act 1961 made by the Income Tax Appellate Tribunal, Ahmedabad in R.A. No.  66 (AHD) of 1971-72 arising out of I.T.A. No. 1697 of 1967-68 decided on 10-9-71 Assessment year 1962-63. 86                             AND               Tax Reference Nos. 10-14 of 1975      Tax Reference  under section 257 of the Income Tax Act, 19(1 made by the Income Tax Appellate Tribunal, Ahmedabad in R.A. Nos. 140-144/AHD/73-74 arising out of I.T.A. Nos. 2098- 2102/AHD/7172 for assessment years 1963-64 to ]97-68.      V.S. Desai  (in T.R. No. 1A/73), B.B. Ahuja and Miss A. Subhashini for the Appellant.      Sanat P.  Mehta, Ravinder  Narain, A.N. Haskar and Shri Narain for the Respondent.      Dr. Devi  Pal, P.V.  Kapur, S.R. Agarwal, Praveen Kumar and R.K. Chaudhary for the Intervener (Indian Sugar Mills).      Dr. Devi  Pal and D.N. Gupta for the Intervener (Bengal Chamber).      R.N. Bajoria,  S.R. Agarwal  and Praveen  Kumar for the Intervener (Indian Chamber, Calcutta).      F.S. Nariman, N. Nettar, A.K. Sanghi and O.P. Vaish for the Intervener (Indian Chamber, New Delhi).      The Judgment of P.N. Bhagwati, N. L. Untwalia and V. D. Tulzapurkar, JJ. was delivered by Bhagwati, J.  R.S. Pathak, J.  gave  a  separate  opinion  and  A.P.  Sen,  J.  gave  a dissenting opinion.      BHAGWATI, J. These tax references have been made by the Tribunal directly  to this  Court under  Section 257  of the Income Tax  Act, 1961  (hereinafter referred to as the Act), since there  is a conflict 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 Section  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.      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. 87 Companies Act,  19]3. 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 14th July, 1961 at the time when the assessee was permitted under section 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

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material, were as follows:      (a)  To promote commerce and trade in Art ilk Yarn, Raw           Silk, Cotton  Yarn, Art Silk Cloth. Silk Cloth and           Cotton Cloth.      (b)  To carry  on all  and any  of the  business of Art           Silk Yarn,  Raw Silk,  Cotton Yarn  as well as Art           Silk f loth, Silk Cloth and Cotton Cloth belonging           to and on behalf of the members.      (c)   To obtain  import Licences for import of Art Silk           Yarn, Raw  Silk, Cotton  Yarn and  other Raw  Mate           rials as  well  as  accessories  required  by  the           members for  the manufacture of Art Silk, Silk and           Cotton Fabrics.      (d)   To obtain  Export Licences and export cloth manu-           factured by the members      (e)  To buy and sell and deal in all kinds of cloth and           other goods and fabrics belonging to and on behalf           of the Members.      (f)            X          X          X      (g)            X          X          X      (h)            X          X          X      (i)            X          X          X      (j)            X          X          X      (k)            X          X          X      (l)            X          X          X      (m)            X          X          X      (n)  To do all other lawful things as are incidental or           conducive to the attainment of the above objects. Clause 5  of the  Memorandum provided in sub-clause (1) that the income  and property of the assessee wheresoever derived shall be  applied solely for the promotion of its objects as set forth in the 88 Memorandum and  sub-clause (2)  directed that  no portion of the  income  or  property  shall  be  paid  or  transferred, directly  or  indirectly,  by  way  of  dividend,  bonus  or otherwise by  way of profit, to persons, who at any time are or have  been members  of the assessee or to any one or more of them  or to any person claiming through anyone or more of them. What should happen to the assets in case of winding up or dissolution  of the assessee, was set out in clause 10 of the memorandum  and it  provided that the property remaining after satisfaction  of all  the debts  and liabilities shall not be  distributed amongst  the members of the assessee but shall be  given or  transferred to such other company having the same  objects as  the assessee,  to be determined by the members of  the assessee  at  or  before  the  time  of  the dissolution or  in default?  by the High Court of Judicature that has  or may  acquire jurisdiction  in the  matter.  The income and  property of  the assessee were thus liable to be applied solely  and exclusively  for the  promotion  of  the objects set out in the memorandum and no part of such income cr property  could be distributed amongst the members in any form or under any guise or utilised for their benefit either during the  operational existence of the assessee or on its. winding up and dissolution.      The  assessee   carried  on   various  activities   for promotion of commerce and trade in Art Silk Yarn, Silk Yarn, Art Silk  Cloth and  Silk Cloth.  The income of the assessee was h  derived primarily  from two  sources. One  was annual subscription at the rate of Rs. 3/- 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

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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 centered 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 1962-63 that it was an 89 institution for  a charitable  purpose and  its income  was, therefore, exempt  from tax under Section 11 sub-section ( 1 ) of  the Act.  This claim  was rejected  by the  Income-tax officer on  the ground that the objects of the assessee were not charitable within the meaning of sec. 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  pre-dominantly development of  Art Silk  Industry which  was an  object  of general public utility, but since the Income-tax officer had not examined  whether the object involved the carrying on of an activity  for profit  and had also not considered whether the other  conditions of  section 11  sub-section  (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 section  11  sub-section  (1),  the  Tribunal  directed  the Appellate Assistant  Commissioner to  submit a remand report on the  question "whether the objects for which the assessee company has  been established  are for  charitable  purposes within the meaning of section 2(15) and whether it satisfies the other  conditions  laid  down  under  section  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 subjects set  out in  sub- clause  (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  sec.  2 clause (15) was satisfied. The Tribunal also agreed with the Appellate Assistant  Commissioner that  this primary purpose

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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 fulfil- 90 ment of the primary purpose was for advancement of an object of general  public utility  and not for profit. The Tribunal pointed 1  out that  there was  no dispute  in regard to the fulfillment of  the other conditions mentioned in section 11 and held  that, in  the circumstances,  the  income  of  the assessee was  entitled to exemption under sub-section (1) of section 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 y 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 sec. 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  section 11  sub- section (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.      Now before  we proceed to consider the true meaning and connotation of  the words  "not involving the carrying on of any activity  for  profit"  occurring  at  the  end  of  the definition of "charitable purpose" in section 2 clause (15), it will  be convenient  to dispose  of  a  short  contention raised on  behalf of the Revenue in Tax Reference Nos. 10 to 14 of 1975. The Revenue urged that the objects for which the assessee was  incorporated did  not fall within the Category denoted by  the words  "advancement of  any other  object of general public  utility" since  the objects  set out in sub- clauses  (b)   to  (e)   of  clause  (3)  of  Memorandum  of Association were  for the benefit only of the members of the assessee and not for the benefit of a section of the public. It was  contended that  in order  that a Purpose may qualify for being  regarded as  an object of general public utility, it must  be intended  to benefit  a section of the public as distinguished from specified individuals. The section of the community sought  to  be  benefitted  must  be  sufficiently defined and  identifiable by same common quality of a public or impersonal  nature and  where there  is  no  such  common quality uniting  the potential  beneficiaries into  a class, the purpose  would  not  be  liable  to  be  regarded  as  a "charitable  purpose".  The  argument  was  that  since  the members of the assessee did not constitute a section of the 91 public, but  were merely  specified individuals, the objects set out  in sub-clauses  (b) to (e) of clause (3) which were meant to  benefit only the members of the assessee could not be regarded  as objects  of general public utility and hence the assessee  could not  be said  to be an institution for a "charitable purpose"  within the meaning of section 2 clause (15).      We do  not think it is open to the Revenue to urge this contention  in  the  present  References.  These  References having been  made under section 257 on account of a conflict of decisions  amongst different High Courts in regard to the true interpretation of the words "not involving the carrying

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on of  any activity for profit" in section 2 clause (15), it is only  that particular  question which  can be  decided by this Court  in these  References. Section  257 provides that if, on  an application made under section 256, the Tribunals of the  opinion that,  on  account  of  a  conflict  in  the decisions of  High  Courts  in  respect  of  any  particular question of  law, it is expedient that a reference should be made direct to the Supreme Court, the Tribunal may draw up a statement of  the case  and refer  it through  its President direct to  the Supreme  Court. It  is  only  the  particular question of law on which there is a conflict of decisions in the High  Courts  that  can  be  referred  by  the  Tribunal directly to  this  Court.  Here  in  the  present  case  the conflict of  decisions amongst the different High Courts was as to  what is  the true scope and meaning of the words "not involving the  carrying on  of any  activity for  profit" in section 2 clause (15) and whether on account of the presence of these  words, the  purpose for  which  the  assessee  was constituted, though falling within the words "advancement of an  object  of  general  public  utility"  would  not  be  a charitable purpose  within the  meaning of  section 2 clause (15) and  it was on account of conflict of decisions on this question that a direct reference was k made to this Court by the Tribunal. This Court cannot travel beyond the particular question of  law which  has  been  referred  to  it  by  the Tribunal on account of conflict in the decisions of the High Courts. It cannot in a direct reference deal with a question of law  on which  there is  no conflict of decisions amongst the High Courts because such a question would be outside the jurisdiction of  the Tribunal to refer under section 257. It is possible  that a  situation may  arise where there may be two questions of law arising from the order of the Tribunal, one in  respect of  which there  is a  conflict of decisions amongst different  High Courts  and the  other in respect of which there  is no  such conflict of decisions and in such a situation it  may become  necessary to  consider whether one single reference comprising both questions should be made to 92 the High  Court or  two references  can be  made, one to the High Court  and the  other to  this Court. We do not wish to express any  opinion on  this rather intriguing question but one thing  is clear  that a  question of  law in  respect of which there  is no  conflict of  decisions amongst different High Courts  cannot be  referred to this Court under section 257. The contention that the objects of the assessee did not fall within the category "advancement of any other object of general public  utility" and were, therefore, not charitable within the  meaning of  section 2 clause (15) cannot, in the circumstances, be allowed to be raised in these References.      But even  if such  a contention were permissible, we do not think  there is  any substance  in it.  The law  is well settled that  if there  are several  objects of  a trust  or institution, some  of which  are charitable  and  some  non- charitable and  the  trustees  or  the.  managers  in  their discretion are  to apply  the income  or property  to any of those objects,  the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempt  from tax.  In other  words,  where  the  main  or primary objects  are distributive,  each and everyone of the objects must  be charitable  in  order  that  the  trust  or institution might  be upheld  as a  valid charity Vide Mohd. Ibrahim  v.   Commissioner  of  Income-tax  and  East  India Industries (Madras)  Ltd. v. Commissioner of Income-tax. But if the primary or dominant purpose of a trust or institution is charitable,  another object  which by  itself may  not be

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charitable but  which is  merely ancillary  or incidental to the primary  or dominant purpose would not prevent the trust or institution from being a valid charity: Vide Commissioner of Income-tax,  Madras v.  Andhra Chamber of Commerce(3) The test which  has, therefore,  to be  applied is  whether  the object which  is said  to be  non-charitable is  a  main  or primary  object  of  the  trust  or  institution  or  it  is ancillary or  incidental to  the dominant  or primary object which is  charitable. It  was on an application of this test that in  Commissioner of  Income-tax v.  Andhra  Chamber  of Commerce (supra), the Andhra Chamber of Commerce was held to be a valid charity entitled to exemption from tax. The Court held that  the dominant  or primary  object  of  the  Andhra Chamber of  Commerce  was  to  promote  and  project  trade, commerce and  industry and  to aid stimulate and promote the development of  trade, commerce  and industry  and to  watch over and  protect the  general commercial interests of India or any  part thereof  and this  was  clearly  an  object  of general 93 public utility  and though  one of  the objects included the taking of  steps to  urge or  oppose  legislation  affecting trade, commerce  or manufacture,  which, standing by itself, May be  liable to  be condemned  as non-charitable,  it  was merely incidental  to the dominant or primary object and did not prevent  the Andhra  Chamber of  Commerce from  being  a valid charity.  The Court  pointed out  that 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, was  contemplated." The  Court also  held that  the Andhra Chamber  of Commerce  did not  cease to be charitable merely because  the members of the chamber were incidentally benefitted in  carrying out its main charitable purpose. The Court relied  very strongly on the decisions in Commissioner of Inland  Revenue v.  Yorkshire, Agricultural  Society  and Institution of  Civil Engineers  v. Commissioner  of  Inland Revenue for reaching the conclusion that merely because some benefits incidentally arose to the members of the society or institution  in   the  course   of  carrying  out  its  main charitable purpose,  it would  not  by  itself  prevent  the association or institution from being a charity. lt would be a question  of fact  in each  case "whether there is so much personal  benefit,  intellectual  or  professional,  to  the members of the society or body of persons as to be incapable of being disregarded".      It is  this criterion  which has  to be  applied in the present case  and if we do so, it is clear that the dominant or primary  purpose of  the assessee was to promote commerce and trade  in Art Silk Yarn, law Silk, Cotton Yarn, Art Silk Cloth, Silk  Cloth and Cotton Cloth as set out in sub-clause (a)  of  clause  (3)  of  the  Memorandum  and  the  objects specified in  sub-clauses (b)  to (e)  of  clause  (3)  were merely incidental  to the  carrying out  of this dominant or primary purpose.  The objects  set out in sub-clauses (b) to (e) of  clause (3)  were, in  fact, in  the nature of powers conferred upon the assessee. for the purpose of securing the fulfillment of the dominant or primary purpose. The Revenue, it may  be conceded,  is  right  in  contending  that  these objects or  powers in  sub-clauses (b)  to (e) or clause (3) would benefit  the members of the assessee, but this benefit would be  incidental in  carrying out  the main  or  primary purpose forming  the basis of incorporation of the assessee. If, therefore,  the  dominant  or  primary  purpose  of  the

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assessee was  charitable, the  subsidiary objects set out in sub-clauses 94 (b) to  (e) of  clause (3)  would not  militate against  its charitable character  and the  purpose of the assessee would not be  any the  less charitable.  Now having  regard to the decision of  this Court  in Commissioner  of  Income-tax  v. Andhra Chamber  of Commerce  (supra), there  can be no doubt that the dominant or primary purpose to promote commerce and trade in  Art Silk  Yarn, Raw  Silk, Cotton  Yarn, Art  Silk Cloth, Silk  Cloth and Cotton Cloth fell within the category of advancement of an object of general public utility. It is true  that   according  to  the  decision  of  the  Judicial Committee  of  the  Privy  Council  in  All  India  Spinners Association  v.   Commissioner  of   Income-tax,  the  words "advancement of  any other object of general public utility" would exclude  objects of private gain, but this requirement was also  satisfied in the case of the assessee, because the object of  private profit  was eliminated by the recognition of the  assessee under section 25 of the Companies Act, 1956 and clauses  5 and 10 of its Memorandum. It must, therefore, be held  that the  income and  property of the assessee were held under a legal obligation for the purpose of advancement of an object of general public utility within the meaning of section 2 clause (15) .      But the  question still  remains whether  this  primary purpose of  the assessee,  namely, to  promote commerce  and trade in  Art Silk  ; Yarn,  Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth, and Cotton Cloth could be said to be "not involving the  carrying on of any activity for profit." This question arises  on the terms of section 2 clause (15) which gives an  inclusive definition  of "charitable  purpose". It provides that  "charitable purpose"  includes "relief of the poor, education,  medical relief  and the advancement of any other object  of general  public utility  not involving  the carrying on  of any  activity for  profit." It  is now  well settled as  a result  of the  decision of this Court in M/s. Dharamdipti v.  Commissioner of  Income-tax that  the  words "not involving  the carrying  on of any activity for profit" qualify or  govern only  the last head of charitable purpose and not the earlier three heads. Where therefore the purpose of a  trust or  institution is relief of the poor, education or medical  relief, the  requirement of  the  definition  of "charitable purpose"  would be  fully satisfied,  even if an activity for  profit is  carried on  in the  course  of  the actual carrying  out of  the primary purpose of the trust or institution. But  if the purpose of the trust or institution is such  that it  cannot be regarded as covered by the heads of "relief of the poor, 95 education and  medical  relief",  but  its  claim  to  be  a charitable purpose  rests only on the last head "advancement of any  other object  of general  public utility",  then the question would  straight arise  whether the  purpose of  the trust  or  institution  involves  the  carrying  on  of  any activity for  profit. The  last head of "charitable purpose" thus requires  for its  applicability,  fulfillment  of  two conditions (i)  the purpose of the trust or institution must be advancement  of an  object of general public utility; and (ii) that  purpose must  not involve  the carrying on of any activity for  profit. The  first condition  does not present any difficulty and, as we have already pointed out above, it is fulfilled  in  the  present  case,  because  the  primary purpose of  the assessee,  namely, promotion of commerce and trade in  Art Silk  Yarn, Raw  Silk Cotton  Yarn,  Art  Silk

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Cloth, Silk Cloth and Cotton Cloth is clearly advancement of an object of general public utility. But the real difficulty arises when  we turn  to consider  the applicability  of the second condition.  What do  the  words  "not  involving  the carrying on of any activity for profit" mean and what is the nature of  the limitation  they imply, so far as the purpose of advancement  of an  object of  general public  utility is concerned ?      It would  be convenient  at this stage to refer briefly to the  legislative history of the definition of "charitable purpose in the Income-tax law of this country, as that would help us  to understand  the true  meaning and  import of the words "not  involving the  carrying on  of any  activity for profit". These  restrictive words, it may be noted, were not to be  found in the definition of "charitable purpose" given in sub-section  (3) of  section 4  of the  Indian Income-tax Act, 1922  and they  were added  for the first time when the present  Act  was  enacted.  What  were  the  reasons  which impelled the legislature to add these words of limitation in the definition  of "charitable purpose" is a matter to which we shall  presently advert.  but before  we do  so,  we  may usefully take  a  look  at  the  definition  of  "charitable purpose" in  Section 4  sub-section (3)  of the Act of 1922. There, "Charitable purpose" was defined as including "relief of the  poor, education,  medical relief and the advancement of any  other object  of general public utility" without the additive  words  "not  involving  the  carrying  on  of  any activity for  profit". Now it is interesting to compare this definition of  "charitable  purpose"  with  the  concept  of "charity" under  English Law. The English Law of charity has grown round  the Statute of Elizabeth, the Preamble to which contained a list of purpose regarded as worthy of protection as being charitable. These purposes have from an early stage been regarded  merely  as  examples  and  have  through  the centuries been considered as guide 96 posts for  the courts  in the  differing circumstances  of a developing  and  fast  changing  civilization  and  economy. Whenever a  question has arisen whether a particular purpose is charitable,  the test has always been whether it is or is not within  the spirit and intendment of the Preamble to the Elizabeth Statute.  The law  has been  developed by  analogy upon analogy  and it  is to  be found  in the  large case of case-law that  has been  built up  by the courts in over the years. The  result is that the concept of charity in English Law is  as vague and undefined as it is wide and elastic and every time  there has  to be  a search  for analogy from the Preamble to  the Statute of Elizabeth or from decided cases. An  early   attempt  to   simplify   this   problem   by   a classification under  main heads  was  made  by  Sir  Samuel Romilly when  he tried  to subsume charitable purposes under four heads  in the following summary submitted by him in the course of arguments in Morice v. Bishop of Durham "relief of the indigent,  the advancement  of learning, the advancement of religion and the advancement of objects of general public utility". This  classification was  adopted in  substance by Lord Macnaghten  in his  classic list of charitable purposes in Special  Commissioners v.  Pemsel where  the learned  Law Lord pointed  out that  charity in its legal sense comprises four principal  divisions: trusts for the relief of poverty, trusts for  the advancement  of education,  trusts  for  the advancement  of  religion  and  trusts  for  other  purposes beneficial to  the community  not falling  under any  of the preceding heads." It will be noticed that the first head inn the definition  of "charitable  purpose" both  in the Act of

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1922 and  in the  pursuant Act  is taken from the summary of Sir Samuel  Romilly; the  second from  the classification of Lord Macnaghten  after omitting  the word "advancement"; the third is a new head not to be found either in the summary of Sir  Samuel   Romilly  or  in  the  classification  of  Lord Macnaghten while  the fourth  is drawn from the last head in the  summary  of  Sir  Samuel  Romilly.  The  definition  of "charitable purpose"  in Indian  Law thus  goes much further than the definition of charity t be derived from the English cases, because  it specifically  includes medical relief and embraces all  objects of  general public utility. In English Law it  is not enough that a purpose falls within one of the four divisions  of charity  set  out  in  Lord  Macnaghten’s classification. It  must  also  be  within  the  spirit  and intendment of the Preamble to the Statute of Elizabeth if it is to be regarded as charitable. There is no such limitation so far  as Indian  Law is concerned even if a purpose is not within the spirit and intendment 97 of the  Preamble to  the Statute  of Elizabeth,  it would be charitable if  it falls within the definition of "charitable purpose" given  in the  Statute.  Every  object  of  general public utility  would, therefore,  be charitable  under  the Indian Law,  subject only  to the  condition imposed  by the restrictive words  "not involving  the carrying  on  of  any activity for  profit" added  in the  present Act.  It is  on account of  this basic  difference between  the  Indian  and English law  of charity  that Lord  Wright uttered a word of caution in  All India  Spinners’ Association v. Commissioner of Income-tax  (supra) against  blind adherence  to  English decisions on  the subject.  The  definition  of  "charitable purpose" in  the Indian  Statute must be construed according to the  language used  there and  against the  background of Indian life.  The English  decision may  be referred  to for help or  guidance but  they cannot be regarded as having any binding authority on the interpretation of the definition in the Indian Act.      With these  prefatory observations,  we may now turn to examine the  crucial words "not involving the carrying on of any activity for profit". One question of semantics that was posed before  us was-and  that is  a question  which we must first resolve  before we  can arrive at the true meaning and effect  of   these   words-whether   these   words   qualify "advancement" or "object of general public utility". What is it that must not involve the carrying on of any activity for profit  in   order  to   satisfy  the   requirement  of  the definition;  "advancement"  or  "object  of  general  public utility ?  The Revenue  contended that it was the former and urged that whatever be the object of general public utility, its  ’advancement’  or  achievement  must  not  involve  the carrying on  of any  activity for profit, or in other words, no activity for profit must be carried on for the purpose of achieving or attaining the object of general public utility. The argument  was that  if the means to achieve or carry out the object of general public utility involve the carrying on of any  activity for  profit, the  purpose of  the trust  or institution, though  falling  within  the  description  "any other object  of general  public utility"  would  not  be  a charitable purpose and the income from business would not be exempt from tax. Now, if this argument is right it would not be possible  for a  charitable trust  or  institution  whose purpose is  promotion of an object of general public utility to carry  on any  activity for profit at all. Not only would it be precluded from carrying on a business in the course of the actual  carrying out of the primary purpose of the trust

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or institution,  out it would also be unable to carry on any business even  though the  business is  held under  trust or legal obligation to 98 apply its  income wholly  to the  charitable purpose  or  is carried on  by the trust or institution by way of investment of its monies for the purpose of earning profit which, under the terms  of its  constitution, is  applicable  solely  for feeding the  charitable purpose.  The consequence  would  be that even  if a  business  is  carried  on  by  a  trust  or institution for the purpose of accomplishing or carrying out an object of general public utility and the income from such business is  applicable only  for achieving that object, the purpose of  the trust  or  institution  would  cease  to  be charitable and  not only  income from such business but also income derived  from other sources would lose the exemption. This would  indeed be  a far  reaching consequence but we do not think that such a consequence was intended to be brought about by  the legislature  when it introduced the words ’not involving the  carrying on  of any  activity for  profit" in section 2  clause (15).  Our reasons  for saying  so are  as follows:      It is  clear on  a plain  natural construction  of  the language used  by the Legislature that the ten crucial words "not involving  the carrying  on of any activity for profit" go with  "object of  general public  utility" and  not  with "advancement". It  is the  object of  general public utility which must  not involve  the carrying on of any activity for profit and  not  its  advancement  or  attainment.  What  is inhibited by these last ten words is the linking of activity for profit  with the  object of  general utility and not its linking with  the accomplishment  or  carrying  out  of  the object. It  is not  necessary that the accomplishment of the object or  the means  to carry  out the  object  should  not involve an  activity for  profit. That is not the mandate of the newly  added words.  What these  words require  that The object should  not involve  the carrying  on of any activity for profit.  The emphasis is on the object of general public utility and  not on  its accomplishment  or attainment.  The decisions of  the Kerala  and Andhra  Pradesh High Courts in Commissioner of Income-tax v. Cochin Chamber of Commerce and Industry and Andhra Pradesh State Road Transport Corporation v. Commissioner  of Income-tax  in our  opinion lay down the correct interpretation  of the  last ten words, in section 2 clause (15).  The true  meaning of  these last  ten words is that when  the purpose  of a  trust or  institution  is  the advancement of  an object  of general  public utility, it is that  object   of  general   public  utility   and  not  its accomplishment or carrying out which must not ll involve the carrying on of any activity for profit. 99      It  is  true  that  the  consequences  of  a  suggested construction  cannot   alter  the  meaning  of  a  statutory provision where  such meaning  is plain and unambiguous, but they can  certainly help to fix its meaning in case of doubt or ambiguity.  Let us  examine that would be the consequence of the  construction contended for on behalf of the Revenue. If the  construction put  forward on  behalf of  the Revenue were accepted,  then, as already pointed out above, no trust or institution  whose purpose  is promotion  of an object of general public  utility, would  be  able  to  carry  on  any business, even  though such  business is held under trust or legal  obligation   to  apply   its  income  wholly  to  the charitable  purpose  or  is  carried  on  by  the  trust  or institution for the purpose of earning profit to be utilised

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exclusively for  feeding the charitable purpose. If any such business  is  carried  on,  the  purpose  of  the  trust  or institution would  cease to  be charitable  and not only the income from such business but the entire income of the trust or institution  from whatever source derived, would lose the tax  exemption.  The  result  would  be  that  no  trust  or institution  established  for  promotion  of  an  object  of general public  utility would  be able to engage in business for fear that it might lose the tax exemption altogether and a major  source of  income for  promoting objects of general public utility would be dried up. It is difficult to believe that the  legislature could  have intended  to bring about a result so  drastic in  its consequence.  If the intention of the legislature  were to  prohibit a  trust  or  institution established for  promotion of  an object  of general  public utility from  carrying on  any activity for profit, it would have provided  in the  clearest terms that not such trust or institution shall  carry on any activity for profit, instead of using  involved  and  obscure  language  giving  rise  to linguistic problems and promoting interpretative litigation. The legislature would have used language leaving no doubt as to what  was intended  and not  left  its  intention  to  be gathered by  doubtful implication  from an amendment made in the definition  clause and  that too  in language  far  from clear.      Moreover,  another   consequence  of  the  construction convassed on  behalf of the Revenue would be that section 11 sub-section (4)  would be  rendered wholly  superfluous  and meaningless. Section  11 sub  section (4)  declares that for the purpose  of section 11 ’property held under trust" shall include a  business undertaking  and, therefore,  a business can also  be held  under trust  for a charitable purpose and where it  is so  held, its  income would be exempt from tax, provided of  course,  the  other  requisite  conditions  for exemption are  satisfied. It may be pointed out that section 11 sub-section (4) where it provides that a 100 business may  also be  properly held  under trust,  does not bring about any change in the law, because even prior to the enactment of  that provision,  it was  held by  the Judicial Committee of  the Privy  Council in  the Tribune’s case that property in the corresponding section 4(3) (i) of the Act of 1922 included  business and  this principle  was affirmed by the  pronouncements   of  this  Court  in  J.  K.  Trust  v. Commissioner of Income-Tax and Commissioner of Income-Tax v. Krishna Warrier.  (3) Section 11 sub-section (4) merely gave statutory recognition  to this  principle. Now section 13(1) (bb), introduced in the Act 1961 with effect from 1st April, 1977, provides  that in  the case  of a  charitable trust or institution for the relief of the poor, education or medical relief which  carries on  any business,  income derived from such business  would not  be  exempt  from  tax  unless  the business is  carried on in the course of the actual carrying out of  a primary purpose of the trust or institution. Where therefore,  there  is  a  charitable  trust  or  institution falling  within   any  of  the  first  three  categories  of charitable purpose  set out  in section 2 clause (15) and it carries on  business which is held by it under trust for its charitable purpose,  income from  such business would not be exempt by  reason of  section  13(1)(bb).  Section  11  sub- section (4) would, therefore, have no application in case of a charitable  trust or institution falling within any of the first three heads of ’charitable purpose’. Similarly, on the construction contended  for on  behalf of  the  Revenue,  it would have  no applicability  also in  case of  a charitable

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trust  or   institution  falling  under  the  last  head  of ’charitable purpose’  because according to the contention of the Revenue,  even if  a business  is held  under trust by a charitable trust  or institution  for promotion of an object of general  public utility,  income from such business would not  be   exempt  since   the  purpose  would  cease  to  be charitable. The  construction contended for on behalf of the Revenue would  thus, have the effect of rendering section 11 sub-section (4)  totally redundant  after the  enactment  of sec. 13(1)(bb).  We do  not think,  we  can  accept  such  a construction  which   renders  a   provision  of   the   Act superfluous and  reduces it to silence. If there is one rule of interpretation  more well  settled than  any other, it is that if  the language  of a statutory provision is ambiguous and capable  of two constructions, that construction must be adopted which  will give  meaning and  effect to  the  other provisions of the enactment rather than that which will give none. The  construction which  we are  placing of  section 2 clause (15)  leaves a  certain area o’; operation to section 11 sub-section (4) notwithstanding the enactment of section 101 13(i) (bb)  and we must, therefore, in any event prefer that construction to the one submitted on behalf of the Revenue.       We  must, however, refer to the decision of this Court in Indian  Chamber of Commerce v. Commissioner of Income-tax because that is the decision on which the strongest reliance was placed  on behalf  of the  Revenue. The  question  which arose for decision in that case n was whether income derived by the  Indian Chamber  or Commerce  from  arbitration  fees levied  by   the  Chamber,   fees  collected   for   issuing certificates of  origin and  share of  profit for  issue  of certificates of  weighment and  measurement was  exempt from tax under  section 11 read with section 2 clause (15) of the Act.  The   argument  of  the  Indian  Chamber  of  Commerce (hereinafter referred  as the assessee) was that its objects were primarily  promotional and  protective of  Indian trade interests and  other allied service operations and they fell within the broad sweep of the expression "advancement of any other object of general public utility" and its purpose was, therefore, charitable within the meaning of section 2 clause (15) and  its income  was exempt  from tax under section 11. The Revenue,  on the  other hand,  contended that though the objects of  the assessee  were  covered  by  the  expression "advancement of  any other object of general public utility" the activities  of the  assessee which  yielded income  were carried on  for profit and the advancement of accomplishment of  these  objects  of  the  assessee,  therefore,  involved carrying on  of activities  for profit and hence the purpose could not be said to be charitable and the income from these activisms could  not be  held to  be exempt  from tax. These rival contentions raised the same question of interpretation of section  2 clause  (15), which  has arisen in the present case. Krishna  Iyer, J.  speaking on  behalf  of  the  Court lamented  the  obscurity  and  complexity  of  the  language employed in  section 2 clause (15) a sentiment with which we completely agree-and  after referring, to the history of the provision  the  learned  Judge  proceeded  to  explain  what according to  him was  the true  interpretation of  the last concluding words in section 2 clause (15). The learned Judge said:           "So  viewed,  an  institution  which  carries  out      charitable  purposes   out  of   income  "derived  from      property  held   under  trust   wholly  for  charitable      purposes" may  still forfeit  the claim to exemption in      respect of  such takings  or incomes  as may come to it

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    from pursuing  any activity for profit. Notwithstanding      the possibility  of obscurity and of dual meanings when      the emphasis  is shifted from "advancement" to "object"      used in  section 2(15),  we are clear in our minds that      by the 102      new definition  the benefit  of  exclusion  from  total      income is taken away wherein accomplishing a charitable      purpose the  institution engages  itself in  activities      for profit. The Calcutta decisions are right in linking      activities for  profit with  advancement of the object.      If you  want immunity  from  taxation,  your  means  of      fulfilling charitable  purposes, must  be unsullied  by      profit-making ventures.  The advancement  of the object      of general public utility must not involve the carrying      on of any activity for profit. If it does, you forfeit.      The  Kerala   decisions  fall   into  the   fallacy  of      emphasizing the  linkage between  the objects of public      utility and  the activity carried on. According to that      view, whatever the activity, if it is inter wined with,      wrapped in  or entangled  with the object of charitable      purpose even if profit results, therefrom, the immunity      from taxation  is still  available. This will result in      absurd conclusions.  Let us  take this  very case  of a      chamber  of  commerce  which  strives  to  promote  the      general interests  of the trading community. If it runs      certain special  types of  services for  the benefit of      manufacturers and charges remuneration from them, it is      undoubtedly an activity which, if carried on by private      agencies, would be taxable. Why should the . Chamber be      granted exemption for making income by methods which in      the hands  of other  people would have been exigible to      tax ?  This would  and up  in  the  conclusion  that  a      chamber  of   commerce  may   run  a   printing  press,      advertisement business,  market exploration activity or      even export  promotion business and levy huge sums from      its  customers   whether  they   are  members   of  the      organisation or not and still claim a blanket exemption      from tax  on the  score that  the  objects  cf  general      public utility  which it  has set  for  itself  implied      these activities  even though  profits or surpluses may      arise therefrom.  Therefore, the emphasis is not on the      object of public utility and the carrying on of related      activity for  profit. On  the other  hand,  if  in  the      advancement of  these objects  the chamber  resorts  to      carrying on  of activities for profit, then necessarily      section 2(15)  cannot confer  cover. The advancement of      charitable  objects  must  not  involve  profit  making      activities. That is the mandate of the new amendment". It will  thus be  seen that  Krishna Iyer,  J. accepted  the contention of the Revenue that the means of accomplishing or carrying out  an object  of general  public utility must not involve the carrying on of any activity for profit or to use the words of the learned Judge "must be unsullied 103 by profit-making ventures" and even if a business is carried on by  n A  trust or  institution for  earning profit  to be applied wholly  for an object of general public utility, the trust or  institution would  forfeit the claim for exemption from tax.  The view taken by him was that the benefit of the exemption would  be taken  away where  in  accomplishing  or carrying out  an object of general public utility, the trust or institution  engages itself  in activity for profit or in other words,  the trust  or institution should not resort to carrying on  of an  activity for  profit for  the purpose of

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accomplishment or attainment of the object of general public utility.  This   view  clearly   supports  the  construction canvassed on  behalf of the Revenue for our acceptance, but, with the  greatest respect to the learned Judges who decided the Indian  Chamber of  Commerce case, we think, for reasons already discussed, that this view is incorrect and we cannot accept the same.      We have  already examined  the language  of  section  2 clause (15) and pointed out how the plain natural meaning of the words  used by  the  Legislature  in  that  definitional clause does  not accord  with the contention of the Revenue. We have  said enough on the subject and nothing more need be said about  it.  It  is  enough  to  point  out  that  in  a subsequent  decision   in  Commissioner  of  Income-tax  vs. Dharmodayan Company  which came by way of an appeal from the judgment of the Kerala High Court, this Court itself has, in effect and  substance, departed  from this  view and adopted the same  construction which has commended itself to us. The question which  arose in  this case  was whether  the income from business  of  conducting  kurries  carried  on  by  the assessee was  exempt from tax. The contention of the Revenue was that  since the  assessee was an institution established for promoting  an object  of general public utility and this purpose was  sought to  be achieved out of the income of the business of conducting kurries, the last concluding words of section 2  clause (15)  were attracted and the income of the assessee  was   disentitled  to  exemption  from  tax.  This contention was,  however, rejected  by the Kerala High Court which took  the view that the business of conducting Kurries was held  under trust to apply its income for the charitable purpose of  the assessee  and was rot carried on as a matter of advancement  of that  charitable purpose and hence it was not possible  to  say  that  the  purpose  of  the  assessee involved the  carrying on of an activity for profit so as to attract the  mischief of  the last  few words  in section  2 clause (15).  Krishna Iyer,  J., in  the Indian  Chamber  of Commerce case,  while discussing  the judgment of the Kerala High Court  in the  Dharmodayan case, observed, consistently with the interpretation placed by him on the last concluding words in section 2 clause (15), that the decision 104 of the  Kerala High  Court in this case proceeded on a wrong test and  impliedly, therefore, was incorrectly decided. But this court  while disposing  of the appeal from the decision of the  Kerala High  Court differed  from the  view taken by Krishna Iyer,  J. and upheld the Judgment of the Kerala High Court. This  Court pointed out that the facts of Dharmodayan case were  not before  Krishna Iyer,  J. and  that the  test applied by  Kerala High Court was held by him to be wrong on the assumption  that the  case fell under the last clause of section 2  clause (15)  but, in  fact, this  assumption  was invalid, as  Dharmodayan case  was not one falling under the last part  of the  definitional clause.  The finding  of the Kerala High  Court  was  that  the  business  of  conducting kurries was  a business  held under  trust for  applying its income to  the charitable  purpose and it was not carried on as a  matter of  advancement of  the primary  purpose of the trust or  in the  course of carrying out such purpose and it could not,  therefore, be  said that  the primary purpose of the trust involved the carrying on of an activity for profit within the meaning of the last concluding words in section 2 clause (15). This Court thus held in no uncertain terms that if a  business is  held under  trust or  legal obligation to apply its  income for  promotion of  an  object  of  general public utility  or it  is carried  on  for  the  purpose  of

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earning profit  to be  utilised exclusively for carrying out such  charitable  purpose,  the  last  concluding  words  in section 2  clause (15)  would have  no application  and they would not deprive the trust or institution of its charitable character. What  these last  concluding words require is not that the  trust or  institution whose purpose is advancement of an  object of  general public utility should not carry on any activity  for profit  at all but that the purpose of the trust or  institution should  not involve the carrying on of any activity  for profit.  So long  as the  purpose does not involve the  carrying on  of any  activity for  profit,  the requirement of  the  definition  would  be  net  and  it  is immaterial how the monies for achieving or implementing such purpose ’  are found, whether by carrying on an activity for profit or  not. We  may point out that even in Sole Trustees Lokshikshan Trust  v. Commissioner of Income Tax, a decision which, as  we shall  presently point  out, does  not commend itself to  us on  another point, the same interpretation has been accepted by this Court.      We must then proceed to consider what is the meaning of the requirement  that  where  the  purpose  of  a  trust  or institution is  advancement of  an object  of general public utility, such  purpose must  not involve  the carrying on of any activity  for profit.  The question that is necessary to be asked for this purpose is as to when can the purpose of a trust or  institution be  said to involve the carrying on of any activity 105 for profit.  The word  "involve" according  to  the  Sherter Oxford Dictionary  "to enwrap  in  anything,  to  enfold  or envelop; to contain or imply". The activity for profit must, therefore, be  interwined or  wrapped up  with or implied in the purpose of the trust or institution or in other words it must be  an integral  part of such purpose. But the question again is  what to do we understand by these verbal labels or formulae what is it precisely that they mean ? Now there are Two  possible   ways  of   looking  at   this   problem   of construction. One  interpretation is  that according  to the definition what  is necessary is that the purpose must be of such a  nature that  it involves  the  carrying  on  of  any activity for  profit in the sense that it cannot be achieved without carrying on an activity for profit. On this view, if the purpose can be achieved without the trust or institution engaging itself in an activity for profit, it cannot be said that the purpose involves the carrying on of an activity for profit. Take for example a case where a trust or institution is established  for promotion  of sports without setting out any specific  mode by  which this  purpose is intended to be achieved. Now  obviously promotion of sports can be achieved by organising cricket matches on free admission or no profit no loss  basis and  equally it can be achieved by organising cricket matches  with  the  predominant  object  of  earning profit. Can  it be  said in  such a case that the purpose of the trust or institution does not involve the carrying on of an activity  for profit,  because promotion of sports can be done without  engaging in  an activity  for profit.  If this interpretation were  correct, it  would be the easiest thing for  a   trust  or   institution  not  to,  mention  in  its constitution  as   to  how  the  purpose  for  which  it  is established shall  be carried  out and then engage itself in an activity  for profit  in the  course of actually carrying out of such purpose and thereby avoid liability to tax. That would be too narrow an interpretation which would defeat the object of  introducing the  words "not in the carrying on of any  activity   for  profit".   We  cannot   accept  such  a

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construction which  emasculates these  last concluding words and renders  them meaningless  and  ineffectual.  The  other interpretation is to see whether the purpose of the Trust or institution in  fact involves the carrying on of an activity for profit  or in other words whether an activity for profit is actually carried on as an integral part of the purpose or to use  the words  of Chandrachud,  J. as  he  then  was  in Dharmodayan  case,  "as  a  matter  of  advancement  of  the purpose". There  must be and activity for profit and it must be involved  in carrying  out the  purpose of  the trust  or institution or  to put it differently, it must be carried on in order to advance the purpose or in the course of carrying out the purpose of the trust or institution. It is then that the inhibition of the 8-868SCI/79 106 exclusionary clause  would be  attracted. This appears to us to be  a more plausible construction which gives meaning and effect to the last concluding words added by the legislature and we  prefer  to  accept  it.  Of  course,  there  is  one qualification which must be mentioned here and it is that if the  constitution   of  a  trust  or  institution  expressly provides that  the purpose  shall be carried out by engaging in an  activity which  has a  predominant profit motive, as, for example,  where the purpose is specifically stated to be promotion of sports by holding cricket matches on commercial lines with  a view to making profit, there would be no scope for controversy,  because the  purpose would, on the face of it, involve  carrying on  of an  activity for  profit and it would be  non-charitable even  though no activity for profit is actually  carried on or, in the example given, no cricket matches are in fact organised.      The next  question that  arises is  as to  what is  the meaning of the expression "activity for profit". Every trust or  institution   must  have  a  purpose  for  which  it  is established and  every purpose  must for  its accomplishment involve the  carrying on  of an  activity. The activity must however, be  for profit in order to attract the exclusionary clause and the question therefore is when can an activity be said to  be one  for profit?  The  answer  to  the  question obviously  depends   on  the   correct  connotation  of  the proposition "for".  This  proposition  has  many  shades  of meaning but  when used  with the active participle of a verb it means  "for the  purpose of"  and connotes  the end  with reference to  which something  is done.  It is not therefore enough that  as a  matter of  fact an  activity  results  in profit but  it must we carried on with the object of earning profit. Profit-making  must be the end to which the activity must be  directed or  in other words, the predominant object of the activity must be making of profit. Where the activity is not pervaded by profit motive but is carried on primarily for serving  the charitable purpose, it would not be correct to describe  it as an activity for profit. But where, on the other hand,  an activity  is carried on with the predominant object of  earning profit,  it  would  be  an  activity  for profit, though  it may be carried on in advancement a of the charitable purpose  of the  trust or  institution. Where  an activity is  carried on  as a  matter of  advancement of the charitable purpose  or for  the purpose  of carrying out the charitable purpose,  it would  not be  incorrect to say as a matter of  plain English grammar that the charitable purpose involves  the   carrying  on   of  such  activity,  but  the predominant object  of such activity must be to subserve the charitable purpose  and not  to earn  profit. The charitable purpose should not be submerged by the profit making motive; the latter  should not  masquerade under  the guise  of  the

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former. The purpose the 107 trust, as  pointed out  by one  of us  (Pathak, J.)  in  M/s Dharmodipti   v. Commissioner  of Income Tax, Kerala (supra) must be  "essentially charitable  in nature" and it must not be a  cover for  carrying on  an activity  which has  profit making as its predominant object. This interpretation of the exclusionary  clause   in  section  2  clause  (15)  derives considerable support  from the  speech made  by the  Finance Minister  while  introducing  that  provision.  The  Finance Minister  explained   the  reason   for   introducing   this exclusionary clause in the following words;           ’The definition  of "charitable  purpose" in  that      clause is  at present  so widely  worded that it can be      taken advantage  of even  by commercial concerns which,      while ostensibly  severing a  public purpose, get fully      paid for  the benefits  provided by  them  namely,  the      newspaper industry  which while  running its concern on      commercial  lines   can  claim   that  by   circulating      newspapers it  was improving  the general  knowledge of      the public.  In order  to prevent  the misuse  of  this      definition in  such cases,  the Select  Committee  felt      that the  1 words "not involving the carrying on of any      activity for profit" should be added to the definition. It is  obvious that the exclusionary clause was added with a view to over-coming the decision of the Privy in the Tribune cases where  it was  held that  the object  of supplying the community  with  an  organ  of  educated  public  option  by publication of  a newspaper  was an object of general public utility and  hence charitable  in character, even though the activity of  publication of  the newspaper  was  carried  on commercial lines  with the  object of  earning  profit.  The publication of  the newspaper  was an activity engaged in by the trust  for the  purpose of  carrying out  its charitable purpose and  on the  facts it  was clearly an activity which had profit-making  as its predominant object, but even so it was held  by the  Judicial Committee  that since the purpose served was  an object  of general  public utility,  it was a charitable purpose.  It is  clear from  the  speech  of  the Finance Minister  that it  was with  a view  to  setting  at naught this  decision that the exclusionary clause was added in the  definition of  ’charitable purpose’.  The test which has, therefore, now to be applied is whether the predominant object of  the activity  involved in carrying out the object of general  public utility  is to  subserve  the  charitable purpose or  to  earn  profit.  Where  profit-making  is  the predominant object  of the  activity, the purpose, though an object of  general public  utility,  would  cease  to  be  a charitable purpose.  But where the predominant object of the activity is  to carry  out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because 108 some profit  arises from  the activity.  The  exclusion  any clause does not require that the activity must be carried on in such  a manner  that it does not result in any profit. It would indeed  be difficult for persons in charge, of a trust or  institution  to  so  carry  on  the  activity  that  the expenditure balances  the income  and there is not resulting profit. That  would  not  only  be  difficult  of  practical realisation but  would also  reflect  unsound  principle  of management. We therefore, agree with Beg. J. when he said in Sole Trustee,  Lok Sikshana  Trust case (supra) that "if the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the

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trust yield  profit will  not alter the charitable character of the  trust. The  test now  is, more  clearly than  in the past,  the   genuineness  of   the  purpose  tested  by  the obligation  created   to  spend  the  money  exclusively  or essentially on  charity." The  learned Judge also added that the restrictive  condition  "that  the  purpose  should  not involve the  carrying on of any activity for profit would be satisfied if profit-making is rot the real object" (emphasis supplied). We wholly endorse these observations.      The application  of this  test may  be  illustrated  by taking a simple example. Suppose the Gandhi Peace Foundation which has  been  established  for  propagation  of  Gandhian thought and  philosophy, which would admittedly be an object of general  public  utility,  undertakes  publication  of  a monthly journal  for the  purpose of carrying out charitable object and charges a small price which is more than the cost of the  publication and  leaves a  little profit,  would  it deprive  the  Gandhi  Peace  Foundation  of  its  charitable character  ?  The  pricing  of  the  monthly  journal  would undoubtedly be  made in  such a  manner that  it leases some profit for the Gandhi Peace Foundation, as, indeed, would be done any  prudent and  wise management, but that cannot have the effect  of polluting  the charitable  character  of  the purpose, because  the predominant  object of the activity of publication of the monthly journal would be to carry out the charitable  purpose  by  propagating  Gandhian  thought  and philosophy and not to make profit or in other words, profit- making would  not be the driving force behind this activity. But it is possible that in a given case the degree or extent of profit-making  may be  of such  a nature as to reasonable lead lo  the  interference  that  the  real  object  of  the activity is  profit-making and  not serving  the  charitable purpose. If,  for example,  in the illustration given by us, it is  found that  the publication of the monthly journal is carried on wholly on commercial lines and the pricing of the monthly journal  is made on the same basis on which it would be made  by a commercial organisation leaving a large margin of profit. 109 it might  be difficult  to resist  the  inference  that  the activity of  publication of  the journal  is carried  on for profit and the purpose is non-charitable. We may take by way of illustration another example given by Krishna Iyer, J. in the Indian  Chamber of  Commerce case  where  a  blood  bank collects blood  on payment  and supplies  blood for a higher price on  commercial basis. Undoubtedly, in such a case, the blood bank  would be  serving an  object of  general  public utility but  since it advances the charitable object by sale of blood as an activity carried on with the object of making profit,  it   would  be   difficult  to   call  its  purpose charitable. Ordinarily  there should  be  no  difficulty  in determining whether the predominant object of an activity is advancement of  a charitable  purpose or  profit-making. But cases arc  round to  arise in  practice which  may be on the border line  and in  such cases  the solution or the problem whether the  purpose is  charitable or  not may involve much refinement and present real difficulty.       There  is, however,  one comment which is necessary to be made  whilst we  are on this point and that arises out of certain observations  made by this Court in Sole Trustee Lok Sikshana Trust  case (supra)  as well  as Indian  Chamber of Commerce case. It was said by Khanna, J. in Sole Trustee Lok Sikshana Trust cases; "..................           .......... if  the activity of a trust consists of      carrying on a business and there are no restrictions on

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    its making profit, the court would be well justified in      assuming in  the absence  of  some  indication  to  the      contrary that  the object  of the  trust  involves  the      carrying on of an activity for profit." And to  the same  effect, observed  Krishna Iyer,  J. in the Indian Chamber of Commerce case when he said:           "An undertaking  for a  business  organisation  is      ordinarily assumed  for profit  unless expressly  or by      necessary implication  or  by  development  surrounding      circumstances  the   making  of  profit  stands  loudly      negatived a  pragmatic condition,  written or unwritten      proved by a prescription of profits or by long years of      invariable  practices   or  spirit   from  some  strong      surrounding  circumstances  indicative  of  anti-profit      motivation such a condition will nullify for charitable      purpose." Now we  entirely agree  with the  learned Judges who decided these two  cases that  activity involved in carrying out the charitable  purpose  must  not  be  motivated  by  a  profit objective but  it must  be undertaken  for  the  purpose  or advancement or carrying out of the charitable purpose. 110 But we  find  it  difficult  to  accept  their  thesis  that whenever an  activity is carried on which yields profit, the inference must  necessarily be drawn, in the absence of some indication to  the contrary, that the activity is for profit and the  charitable purpose  involves the  carrying on of an activity for  profit. We  do not  think the  Court would  be Justified in  drawing any  such inference merely because the activity results  in profit. It is in our opinion not at all necessary that there must be a provision in the constitution of the  trust or  institution that  the  activity  shall  be carried on  profit no  loss basis  or that  profit shall  be prescribed. Even  if there is no such express provision, the nature of  the charitable  purpose, the  manner in which the activity for  advancing  the  charitable  purpose  is  being carried on  and the  surrounding circumstances  may  clearly indicate that  the activity  is not  propelled by a dominant profit motive. What is necessary to be considered is whether having regard  to all  the facts  and circumstances  of  the case, the  dominant object  of the activity is profit-making or carrying  out a  charitable purpose. If it is the former, the purpose.  would not  be a charitable purpose, but, if it is the latter, the charitable character of the purpose would not be lost.      If we apply this test ill the present case, it is clear that the  activity  of  obtaining  licences  for  import  of foreign yarn  and quotas  for purchase  of indigenous  yarn, which was  carried on by the assessee, was k not an activity for profit.  The predominant  object of  this  activity  was promotion of  commerce and  trade in Art Silk Yarn, Raw Silk Cotton Yarn,  Art Silk  Cloth, Silk  Cloth and Cotton Cloth, which was  clearly an  object of general public utility an(l profit was  merely a bye-product which resulted incidentally in the process of carrying out the charitable purpose. It is significant  to   note  that  the  aSsessee  was  a  Company recognised by the Central Government under Section 25 of the Companies Act, 1956 and under its Memorandum of Association, the profit  arising from  any activity  carried  on  by  the assssee was  liable to be applied solely and exclusively for the promotion  of trade  and commerce in various commodities which we  have mentioned  above and  no part  of such profit could be  distributed amongst  the members  in any  form  or under any  guise.  The  profit  of  the  assessee  could  be utilised only  for the  purpose of  feeding this  charitable

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purpose and  the dominant and real object of the activity of the  assessee   being  the  advancement  of  the  charitable purpose, the  mere fact that the activity yielded profit did not alter  the charitable  character of the assessee. We are or the  view that  the Tribunal was right in taking the view that the  purpose for which the assessee was established was a charitable  purpose within the meaning of section 2 clause (15) and 111 the income  of the  assessee was  exempt from tax under sec. ll.  The  A  question  referred  to  us  in  each  of  these references must,  therefore, be  answered in  favour of  the assessee and against the Revenue.      The Revenue  will pay  the costs of the assessee in two sets; one  in one  Reference Case No. 1A/73 and the other in Reference Cases Nos. 10-14 of 1975.      PATHAK, J.-To  the  judgment  prepared  by  my  learned brother Bhagwati,  I propose  to add  a  separate  judgment, Persuaded by  the considerable  importance of  the  question which arises and because of a somewhat different perspective in which the point appears to me.      The controversy in these references centres on the true interpretation of  the words  "not involving the carrying on of any  activity  for  profit"  in  the  definition  of  the expression "charitable  purpose" by  s. 2(15)  of the Income Tax Act, 1961.      The preceding  enactment, the  Indian Income  Tax  Act, 1922 provided,  by s.  4(3)(i), for  the exclusion  from the total income  of an  assessee of  any  income  derived  from property held  under trust  or other legal obligation wholly for charitable purposes. The words "charitable purpose" were defined as including "relief of the poor, education, medical relief and  the advancement  of any  other object of general public utility."      The terms  in which  the benefit was conferred were not sufficient, it  appears, to  provide against its misuse by a certain class  of tax  payer. Advantage  was  taken  of  the judicial construction  given by the courts to the content of the provision.  As long  ago as l 939, the Privy Council had in The  Trustees of the ‘Tribune’(1) held that the object of a trust  of supplying  the public  with an organ of educated public opinion  constituted  an  object  of  general  public utility and  was a  charitable object. It was found that the newspaper and press had not been established for the private profit  of   the  testator  or  any  other  individual.  The circumstance that  the purpose  of  the  trust  envisaged  a commercial activity,  the newspaper charging its readers and advertises at  ordinary commercial  rates, was  held not  to detract from the conclusion that it was an object of general public utility.  While enacting  the Income  Tax Act,  1961, Parliament added  a  new  dimension  to  the  definition  of "charitable  purpose".   A  restrictive   clause  has   been inserted, and  s.  2(15)  of  the  Act  defines  "charitable purpose"  as  including  "relief  of  the  poor,  education, medical relief,  and the advancement of ally other object of general public utility y not 112 involving the  carrying on  of any activity for profit." The Finance Minister explained in Parliament:-           "The other  objective  of  the  Select  Committee,      limiting the  exemption only to trusts and institutions      whose object  is a  genuine charitable purpose has been      achieved by  amending the  definition in  clause 2(15).      The definition  of ’charitable  purpose’ in that clause      is at  present so  widely worded  that it  can be taken

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    advantage of  even by  commercial concerns which, while      ostensibly serving a public purpose, get fully paid for      the benefits  provided by  them, namely,  the newspaper      industry, which while running its concern on commercial      lines can  claim that  by circulating newspapers it was      improving the general knowledge of the public. In order      to prevent the misuse of this definition in such cases,      the Select Committee felt that the words ’not involving      the carrying  on of  any activity for profit’ should be      added to the definition. 1) The new  scheme, besides  redefining  "charitable  purpose", added a second safeguard directed to protecting the grant of the tax  benefit at  another point.  A new set of provisions controlled the utilisation of the accumulated income derived from the charitable trust or institution.      Section 11  of the  Act, in its material provisions, as originally framed declared:           "(1) Subject  to the  provisions of sections 60 to      63, the  following income  shall not be included in the      total income  of the  previous year  of the  person  in      receipt of the income-           (a) income  derived from property held under trust      wholly for  charitable.. purposes,  to  the  extent  to      which such income is applied to such purposes in India;      and,  where   any  such   income  is   accumulated  for      application to such purposes in India, to the extent to      which the  income so  accumulated is  not in  excess of      twenty-five per cent of the income from the property or      rupees ten thousand, whichever is higher;           (b) income  derived from property held under trust      in part  only for  such purposes, the trust having been      created before  the commencement  of this  Act, to  the      extent to which such income is applied to such purposes      in India;  and where  any such  income is  finally  set      apart for  application to such purpose in India, to the      extent to which the income so set 113      apart is  not in excess of twenty-five per cent, of the      income. A from the property held under trust in part;           (c)...........................           (2) Where  the persons  in receipt  of the  income      have  complied   with  the  following  conditions,  the      restriction specified  in clause  (a) or  clause (b) of      sub-section (1)  as respects  accumulation  or  setting      apart shall  not apply  for the period during which the      said conditions remain complied with-           (a) such  persons have, by no ice in writing given      to the  Income-tax officer  in the  prescribed  manner,      specified the  purpose for  which the  income is  being      accumulated or  set apart  and the period for which the      income is  to be  accumulated or set apart, which shall      in no case exceed ten years;           (b) the  money so  accumulated  or  set  apart  is      invested in  any  Government  security  as  defined  in      clause (2)  of section  2 of  the Public Debt Act, 1944      (XVIII of  1944), or in any other security which may be      approved by the Central Government in this behalf.           (3) Any  income referred  to in sub-section (1) or      sub- section  (2) as  is applied to purposes other than      charitable ................  as aforesaid  or ceases to      be accumulated  or set apart for application thereto or      is not  utilised for  the purpose  for which  it is  so      accumulated  in  the  year  immediately  following  the      expiry of  the period  allowed in  this behalf shall be      deemed to  be the income of such person of the previous

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    year in  which it  is so  applied, or  ceases to  be so      accumulated or  so set apart or, as the case may be, of      the previous  year immediately  following the expiry of      the period aforesaid." Further restrictions  were imposed  by s.  12A  and  s.  13. Section 13  barred the  exemption in the case of a trust for charitable purposes  or a charitable institution, created or established after  the commencement of the Act, if the trust or institution was created or established for the benefit of any particular  religious community  or caste. The exemption was also  barred, subject  to certain  modifications, if any part of  the income,  or  any  property  of  such  trust  or institution, was  M used  or applied  for the benefit of the author of  the trust  or founder  of the institution or of a person who had made a substantial contribu- 114 tion to  such trust  or institution or of a relative of such author, founder or contributor.      The net  of restrictive  provisions in relations to the utilisation of  the income  of the  trust or institution was tightened still further by successive amendments to the Act. It was relaxed in one particular, that to earn the exemption the money  accumulated or  set apart  could alternatively be deposited in a Post office Savings Bank account or a banking company to which the Banking Regulation Act, 194 applies, or a banking  co-operative society,  or was  deposited  with  a financial  corporation  providing  long,  term  finance  for industrial development  in India and approved by the Central Government for the purposes of s. 36(1)(viii).      A notable  amendment, inserted as cl. (bb) in s. 13(1), provided that  the exclusion  of the income derived from any business carried on by a charitable trust or institution for the relief of the poor, education or medical relief, was not permissible unless "the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution." This amendment, brought in with effect from April 1,  1977, was  pertinent to  the first three heads set forth in the definition of "charitable purpose" and affected the operation  of s.  11 with  reference to that part of the definition. Simultaneously,  cl. (d) was also inserted in s. 13 (l)  which, operating  subject to cl. (bb), insisted that to earn  the exemption on income the funds of the charitable trust or  institution should  be invested o deposited in the forms or modes specified in s. 13(5).      The scheme  embodied in  the statute  protected the tax benefit from  misuse by  reference to  two principle vantage points, (a)  a cautiously  worded definition  of "charitable purpose",   which   intended   that   trusts   created   and institutions established for purposes not "charitable within that definition  should not  be entitled to the benefit, and (b) provisions  which carefully  control the  application of the accumulated  income flowing from the property held under trust or  owned by the institution. The first relates to the very purpose  of the trust or institution, the second to the manner in  which the  resulting income  is employed.  We are concerned in  these references  with the former.. an(l it is therefore necessary  to avoid  resting the  construction  of section 2(15) on considerations pertinent to the latter.      While  construing   the  definition   of   ’’charitable purpose" in s. 2(15), it is imperative to remember that what we are  considering is  a definition. It is a definition and nothing more.  The operative  provision is enacted elsewhere in the  Act. Viewed  in  that  light,  the  meaning  of  the definition is capable of clearer resolution. 115

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    Section 2(15)  says that  "charitable purpose" includes relief of  the poor,  education,  medical  relief,  and  the advancement of  any other  object of  general public utility not involving  the carrying  on of  any activity for profit. The first three heads of "charitable purpose" are defined in specific and  clearly disclosed  terms. Relief  of the poor, education and  medical relief.  The fourth head is described generally as  a residuary  head (although  that  description appears  inapt   to  what  finds  place  in  an  "inclusive" definition). Now,  it is  important to note that the purpose described is "the advancement of any other object of general public utility....  ". The  object is  not the  purpose. The advancement of  the object  is the  purpose. Harking back to the first  three heads of charitable purpose, the definition defines purpose  in terms  of an  activity. When  Sir Samuel Romilly, in  the course  of his argument in Morice v. Bishop of Durham(l)  summarised the  main heads  of  charity,  they included  "relief   of  the  indigent,  the  advancement  of learning, the  advancement of  religion, and the advancement of objects  of general  public utility."  Note the  sense of action, of  something to  be done  in relation to an object. When  Lord   Macnaghten  adopted   the   classification   of charitable purposes in Special Comrs. v. Pemsel(2), he spoke of "trusts  for  the  relief  of  poverty,  trusts  for  the advancement of  education, trusts  for  the  advancement  of religion, and  trusts for  other purposes  beneficial to the community not  falling under any of the preceding heads." In the Indian law, the relief of poverty and the advancement of education  were   embodied  as  "relief  of  the  poor"  and "education". Medical  relief was  added. And  for the fourth head, with  which we are concerned, the language, an echo of Sir  Samuel   Romilly’s  classification,  referred  to  "the advancement  of   any  other   object  of   general   public utility....". It  will be  at once  evident  that  the  word "object" cannot by itself connote an activity. It represents a goal  towards which,  or in relation to which, an activity is propelled.  The element  of activity  is embodied  in the word "advancement".  If "charitable  purpose" is  defined in terms of  an activity, that is to say, the advancement of an object, the  restrictive clause  "not involving the carrying on of any activity for profit", which is also descriptive of an activity,  must necessarily relate to "the advancement of an  object..  ".  I  am  of  opinion,  therefore,  that  the restrictive clause must be read with "the advancement of any other object  of general  public utility"  and not with "the object of  general public  utility. En  passant, it  may  be observed that  much confusion  can  be  avoided  if  in  the context of  the fourth  head the  purpose of  the  trust  or institution is referred to as the "purpose" and 116 not as the "object" of the trust or institution, because the purpose there is defined as "the advancement of an object’.      It being  clear then that the charitable purpose is the advancement of the object, and that the advancement must not involve carrying  on 13 of an activity for profit, I proceed to the  next step. The words "activity for profit" should, I think,  be  taken  as  descriptive  of  the  nature  of  the activity. It  is an  activity of  a kind  intended to  yield profit. It  is a  profit-making activity.  That it  may  not actually yield  profit during  any period  does not deny its true nature.  Conversely if  profit  has  resulted  from  an activity, that  does not, without anything more, classify it as an "activity for profit".      Therefore, for  a purpose to fall under the fourth head of "charitable purpose", it must constitute the, advancement

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of an object of general public utility in which the activity of advancement  must not  involve a  profit making activity. The word  "involving"  in  the  restrictive  clause  is  not without  significance.   An  activity  is  involved  in  the advancement of  an object  when it is enwrapped or enveloped in the  activity of  advancement. In another case, it may be interwoven into  the activity  of advancement,  so that  the resulting activity  has a  dual nature  or is  twin faceted. Since we  are concerned  with the  definition af "charitable purpose", and  the definition  defines  in  its  entirety  a "purpose" only  it will be more appropriate tc, speak of the purpose of profit making being enwrapped or enveloped in the purpose of  the advancement  of an  object of general public utility or, in the other kind of case, the purpose of profit making being  interwoven into the purpose of the advancement of that object giving rise to a purpose of possessing a dual nature or  twin facets.  Now, s.  2(15) clearly says that to constitute a  "charitable purpose",  the purpose  of  profit making must  be excluded.  In my  opinion the requirement is satisfied where  there is  either a  total  absence  of  the purpose of  profit making or it is so insignificant compared to the  purpose of  advancement of  the  object  of  general public utility  that  the  dominating  role  of  the  latter renders the former unworthy of account. If the profit making purpose holds  a dominating  role or  even  constitutes  all equal component  with the  purpose  of  advancement  of  the object  of   general  public   utility,  then   clearly  the definition in  s. 2(15)  is not  satisfied. When applying s. 11, it  is open  to the tax authority in an appropriate case to pierce  the veil  of what is proclaimed on the surface by the document  constituting the  trust  or  establishing  the institution, and  enter into  an ascertainment  of the  true purpose of  the trust  or institution. The true purpose must be genuinely and essentially charitable. 117      Now, the  definition of a purpose is a thing apart from the mode  or method  employed for  carrying out the purpose. Yet the  nature of  the purpose  controls in some degree the mode which  is open  for carrying  it out. If the purpose is charitable in reality, the mode adopted must be one which is directed to  carrying out  the charitable  purpose. It would include, in  my opinion,  a business engaged in for carrying out the  charitable purpose of the trust or institution. The carrying on  of such  a business  does not  detract from the purpose which  permeates it,  the end result of the business activity being  the effectuation  of the charitable purpose. business activity carried on not with a view to carrying out the charitable  purpose of the trust but which is related to a non-charitable  purpose or  constitutes an  end in  itself falls outside  the scope of the trust, and indeed may betray the  fact  that  the  real  purpose  of  the  trust  is  not essentially charitable  If it is a business entered into for working out the purpose of the trust or institution, that is to  say,  in  the  course  of,  and  with  a  view  to,  the realisation of  the charitable purpose, the income therefore will be  entitled to  exemption under  section 11.  In  this connection,  it   is  appropriate   to  note  that  s  11(4) specifically  defines   "property  held   under  trust"   as including a  business undertaking.  Moreover,  when  it  was found that  judicial  decisions  had  held  the  restrictive clause in  s. 2(15) to control the fourth head only, and not also the  first three  heads in  the definition,  Parliament attempted to secure its original intent by enacting cl. (bb) in s.  13(1). The  two  provisions  represent  the  mode  of finding finance  for working out the purpose of the trust or

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institution, by deriving income from the corpus of the trust property and  also from an activity carried on in the course of the  actual carrying  out of  the purpose of the trust or institution..      At this stage, it will be appropriate to point out that the question whether a trust is created or an institution is established for  a charitable purpose falls to be determined by reference  to the  real  purpose  of  the  trust  or  the institution and  not by  the circumstance  that  the  income derived can be measured by standards usually applicable to a commercial activity.  The quantum  of income  is no  test in itself. It  may be  the result  of an  activity  permissible under a  truly charitable purpose for, as has been observed, a profitable  activity in working out the charitable purpose is not  excluded. I  am unable  to agree, with respect, with all that  has fallen  from H. R. Khanna and A. C. Gupta, JJ. in Sole  Trustee, Loka  Shikshana Trust  v. Commissioner  of Income-tax, Mysore  that the  terms of the trust must impose restrictions on  making profits otherwise the purpose of the trust must be regarded 118 as involving the carrying on of a profit making activity. On the contrary, 1 find myself in agreement with Beg, J. to the extent that  he says,  in the  same case,  that  it  is  the genuineness of  the purpose,  that it  is truly  charitable, which determines  the issue. It seems necessary to me that a distinction must  constantly be  maintained between  what is merely a  definition of  "charitable purpose" and the powers conferred for  working out or fulfilling that purpose. While the purpose  and the  powers must  correlate, they cannot be identified with  each other.  Reference may,  of course,  be made to  the nature  and width  of the powers as evidence of the charitable  or non-charitable nature of the purpose. For the same reason, I a.m compelled, with respect, to hold that the observations  of Krishna Iyer, J. speaking for the Court in Indian Chamber of Commerce v. Commissioner of Income-tax, West Bengal-ll(1)  do not accord with what I believe to be a true construction  of s.  2(15). If  that  decision  can  be justified, it  can be  only on the basis that in the opinion of the  court the  true purpose  of the trust or institution was not  essentially charitable.  I am  unable to accept the proposition that  if the  purpose is  truly charitable,, the attainment  of  the  purpose  must  rigorously  exclude  any activity for  profit.  I  am  also  unable  to  endorse  the position that  by permitting,  the trust  or institution  to carry on  an activity  which brings in profit, although that activity is  carried on  in the course of the working out of the purpose  of the trust or institution, "business men have a high road to tax avoidance". It was apparently not brought to the notice of the learned judges that a carefully enacted scheme has  been  incorporated  in  the  Act  which  closely controls the  utilisation of  the trust income, and that the tax exemption  is  conditional  on  the  observance  of  the statutory conditions stipulated in that schedule.      on the  facts of  the present reference s which are set out in  the judgment prepared by my brother Bhagwati, I have no hesitation  in holding that the purpose of the respondent company falls  within the  definition of  s.  2(15)  of  the Income Tax  Act, 1961.  Sub-clause (a)  of clause  3 of  the Memorandum of  Association declares  that  the  purpose  for which the  company  has  been  established  is  "to  promote commerce and  trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk  Cloth, Silk Cloth and Cotton Cloth." The promotion of commerce  and trade  has  been  held  by  this  Court  in Commissioner of  Income Tax v. Andhra Chamber of Commerce(2)

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to be  an object  of general  public utility,  and there  is nothing to  show that, viewed as the "purpose" for which the company was incorporated, the sub-clause involves the 119 carrying on  of any  activity for profit. The remaining sub- clauses  enumerate   the  powers   for  which  it  has  been constituted.      Having regard to the interpretation placed by me on the words defining the Fourth head of "charitable purpose" in s. 2(15) of  the Act, I answer the question referred in each of the references in the affirmative, in favour of the assessee and against  the Revenue.  The Revenue will pay the costs of the assessee  in two  sets, one in Tax Reference Case No. lA of 1973 and the other in Tax Reference Case Nos. 10 to 14 of 1975.      SEN J. I have had the advantage of reading the judgment prepared by  my learned  brother Bhagwati  J.  I  regret  my inability to  share the  views expressed  by him  as to  the construction  of  the  expression  ’charitable  purpose"  as defined in s. 2(15) of the Income-tax Act, 1961. I am of the opinion  that  the  two  decisions  in  Sole  Trustee,  Loka Shikshana Trust v. C.I.T. (1) and Indian Chamber of Commerce v. C.I.T.(2) lay down the correct law and still hold good.      In the definition of "charitable purpose", contained in s. 2(15)  of the  Act of  1961, the words "not involving the carrying on  of any activity for profit", which did not find place in  the Act  of 1922,  qualify only the fourth head of charitable purpose viz., "any other object of general public utility",  and  not  any  of  the  first  three  heads.  The definition of  "charitable purpose"  in s. 2(15) is in these terms:           "2(15) ’charitable purpose’ includes relief of the      poor, education, medical relief, and the advancement of      any  other   object  of   general  public  utility  not      involving the carrying on of any activity for profit;"      It has  brought about  radical changes in the system of taxation of income and profits of charities, with particular reference to  ’objects of general public utility’ to prevent tax evasion,  by diversion of business profits to charities. After the  experience gained  in the  39 years that followed the enactment  of the  Act of  1922, it  came to be realised that many  activities for  profit were not subject to tax on income merely  because they  could be regarded as objects of general public utility. What was amiss under the Act of 1922 was not  the idea  of giving income-tax relief in respect of charity, but  undue width  of the  range of  what ranks as a charity for  that  purpose.  It  is  the  Vagueness  of  the expression "any other object of general public utility 120 "that impelled  Parliament to  insert the  restrictive words "not involving the carrying on of any activity for profit".      It is not permissible for the Court to whittle down the plain language  of the section. "It would be contrary to all rules of  construction", in the words of Khanna J., speaking for himself  and Gupta J. in Loka Shikshana Trust "to ignore the impact  of the  newly added  words  ’not  involving  the carrying on  of any activity for profit’ and to construe the definition as if the newly added words were either not there or were  intended to  be  otiose  and  redundant,  i.e.,  as qualifying and  affirming the  position  under  the  Act  of 1922". Such a construction would, I am afraid, frustrate the very  object   of  the  legislation  The  section  is  self- explanatory. The  relative simplicity of the language brings out the  necessary legislative  intent  to  counter-act  tax advantages   resulting    from   so-called   ’charities   in

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camouflage’.      No distinction had been made by the Act of 1922 between the well-known  charities of  relief to  the poor, education and medical  relief on  the one hand and charities resulting from the  advancement of  any other object of general public utility, on  the other hand. But such a distinction has been introduced  by   the  definition  of  the  term  "charitable purpose" in  s. 2(15)  though the definition is an inclusive one. The  restriction is  that the advancement of objects of general public utility should not involve the carrying on of any activity  for profit.  If it involved any such activity, the charity  will fail  outside the definition of charitable purpose in  s. 2(15).  This change has radically altered the law and  whenever the  advancement of  an object  of general public utility  involved an  activity for profit that object will cease  to be  a charitable  purpose. So, in such cases, the income  from the  activity for profit cannot be exempted from tax under s. 11 of the Act. The object of this addition of the  restrictive words  "not involving the carrying on of any activity  for  profit."  was  to  clearly  overcome  the decision in  In re The Trustees of the Tribune(1), All India spinners’  Association   v.  C.I.T.(2)  and  J.K.  Trust  v. C.l.T.(8) All these cases arose under s. 4(3) (i) of the Act of 1922,  which did not include the words "not involving the carrying on  of any  activity for  profit". and  they are no longer good law.      There is  a distinction  between "a business held under trust.’ and  "a business  carried on  by or on behalf of the trust". Section  11(1) exempts  income derived from property held under trust wholly for 121 charitable or  religious purposes,  to the  extent to  which such income   is  applied to such purposes in India. Section 11(4) includes  within the  "property held  under  trust"  a business undertaking  so  held.  Therefore,  income  from  a business undertaking  held under  a trust  for a  charitable purpose is  exempt under  s. 11 ( 1 ) . There is, therefore, no statutory bar or restriction to earn exemption in respect of income  derived from  a  business  undertaking,  if  such business undertaking  is held under a trust for a charitable purpose. That  ’property’ ill s. 11(1) includes business has been well established not only by the decisions of the Privy Council dealing  with the corresponding provision in s. 4(3) (i) of  the Act  of 1922  in Tribunes  Trustees (supra)  and Spinners Association  (supra) but  also by the two decisions of this  Court in  C.I.T. v. Radhaswami Satsang Sabha(1) and C.I.T.  v.   P.  Krishna  Warrier(2).  The  first  essential condition  for   exemption  under   s.  11(1)  is  that  the ’property’ from  which the  income is  derived must  be held under trust or other legal obligation. Section 11(4) gives a statutory recognition  of the law laid down by this Court in Radhaswami Satsang  Sabha namely  that business  is property and if  a business  is held in trust wholly for a charitable purpose, the income therefrom will be exempt under s. 11(1).      As already  stated above,  the Act  of 1961 now defines ’charitable  purpose’   to  include  ’relief  of  the  poor, education, medical  relief, and the advancement of any other object of  general public utility not involving the carrying on of  any activity  for profit’.  It is  accepted that  the words ’not  involving the  carrying on  of any  activity for profit’ qualify  only the  fourth head of charitable purpose stated in  the definition  viz. ’any other object of general public utility’.  Consequently, it  is clear  that in  cases falling under  the first  three heads  of charitable purpose stated in  the definition  imposes no ban on the carrying on

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of any  activity for  profit.  The  restrictive  words  ’not involving the  carrying on  of any activity for profit’ were deliberately introduced  in  the  definition  of  charitable purpose in s. 2(15) to cut down the wide ambit of the fourth head viz.  ’any other object of general public utility’ as a measure to  check avoidance  of tax. Indubitably, engagement in activity  for profit  by religious  or charitable  trusts provides scope  for  manipulation  for  tax  avoidance.  The Parliament, however,  thought that  it will not be desirable to ban an activity for profit which arises in the pursuit of the primary  object of  the trust created with the object of relief the poor, education or medical relief. 122      A study made by the Department of Company Affairs of 75 trusts,  of  which  62  were  charitable,  showed  that  the business houses  creating the trusts had mostly appropriated the trust  funds for  their own  businesses. Considering the problem of tax avoidance through formation of charitable and religious trusts,  the Public Accounts Committee in a recent report(’) observed  that ’while  trusts  fulfil  a  laudable social objective,  they have  also been  used as a device to avoid tax’.  The Committee  also took  note of the fact that out of  45 trusts  connected  with  industrial-  houses  and having a  corpus of  Rs. 24.11 crores, the investments by 32 trusts in concerns connected with the industrial houses were SO per  cent or  more of  their funds. In some cases, it was noticed that  the investment in such concerns amounted to as much as  90 per  cent of  the funds  of the trusts. In other words,  the   big  business  houses  established  their  own ’charitable  trusts’   because  they   find  it  financially advantageous to  filter money  through them.  In the  United States of America, despite several provisions for preventing misuse of  funds of public trusts, taxpayers still find ways and means  to use  charity as  a cover for tax avoidance. In his revealing  study ’The Rich and the Super Rich’ Ferdinand Lundberg(2) observes:           "....foundations   can   do   anything   that   is      financially  possible,   without  any  sort  of  public      supervision or  regulation. In  the sphere  of finance,      name it and they can do it, tax free. " He goes on to add:           "It is  mainly because  of the  Protean utility of      the foundation,  particularly in  the evasion of taxes,      that nearly  everyone in  the community  of wealth  has      come now  to share  the original  insight of only a few      such as the pioneering Carnegie and Rockfeller."      Avoidance of tax through the media of charitable trusts is a  malady prevalent  in  other  countries  as  well.  The British Royal  Commission on  Taxation of Profits and Income observed that  the vagueness  of definition of ’charity’, or more precisely the absence of a definition, has enabled very substantial  benefits   of  exemptions   to  be  claimed  by activities which,  in extreme  cases, had no real connection with the  idea of  charity at  all. The  Royal Commission on Taxation for  Canada also  took note  of this problem in its report and 123 recommended that charity should pay income-tax on business A income.      There has  been a  sharp conflict  of opinion  upon the construction  of   the  crucial  words  ’not  involving  the carrying on  of any  activity for  profit’,  qualifying  the fourth head  of charity, ’advancement of any other object of general public  utility’. According to the Kerala High Court in C.I.T. v. Indian Chamber of Commerce,(2) C.I.T. v. Cochin

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Chamber of  Commerce (3) and C.I.T. v. Charmodayan & Co.,(4) it was  observed that  in order to take an object of general public utility  outside the  scope of  the definition,  that object must  involve carrying on of any activity for profit. The Calcutta  High Court  in C.I.T.  v.  Indian  Chamber  of Commerce(5) took  a view  different from  that of the Kerala High Court  observing that  the fourth  head of charity ’the advancement of  any other  object of  general public utility not involving  the carrying  on of  any activity for profit’ plainly indicates  that it  is not  the  object  of  general public utility  which would  involve the  carrying on of any activity for  profit, but  the advancement  of that  object. Otherwise, the  Calcutta High Court held that ’it would lead to a  contradictory situation  and  be  destructive  of  the limitation which  the Parliament  in its  wisdom thought  it necessary to  impose. It  further observed that that was the only way  to avoid  a conflict  between ss.  11  and  2(15), specially with the provisions of s. 11(1)(a) and 11(4). This Court resolved  the conflict in Loka Shikshana Trust (supra) and Indian  Chamber of  Commerce (supra) by holding that the words ’not  involving the  carrying on  of any  activity for profit’ govern  the word  ’advancement’ and  not  the  words ’object of  general public utility’ and observed that if the advancement or attainment of the object involves an activity for profit, tax exemption would not be available. F      The words  ’charity’ and  charitable purpose’  must  be construed  in  their  legal  or  technical  sense  which  is different from  their popular  meaning. Charity is a word of art, of  precise and  technical meaning  and  an  exhaustive definition of  charity in  the legal  sense has  never  been attempted. The  cases in  which the  question of charity has come  before   the  Courts  are  legion,  and  not  all  the decisions, even  of  the  highest  authority,  are  easy  to reconcile. 124      In England,  the locus  classicus on the subject is the decision of  Lord Macnaghten  in  Commissioner  for  Special Purposes of  Income-tax v.  Pemsel decided  in the  House of Lords. In  that case  Lord Macnaghten, after explaining that no doubt  the popular  meanings of  the words  ’charity’ and ’charitable’ do  not coincide  with their legal meaning, but when  used   in  such   expressions  as   ’charitable  uses’ ’charitable trust’  or ’charitable purposes’, the word has a well-settled technical meaning, observed:           " ’Charity’  in its  legal  sense  comprises  four      principal divisions:  trusts for the relief of poverty;      trusts for the advancement of education; trusts for the      advancement of  religion; and trusts for other purposes      beneficial to  the community  not falling  under any of      the preceding heads." The fourth  head of this classification has been the subject of much  discussion in  cases in England. In some of them it has been  held to  be synonymous with ’philanthropic’, while in others  it has  been given  a narrower  meaning.  In  Re. Macduff(2) it  was held  that while a charitable purpose may well be  a purpose  of  general  utility,  all  purposes  of general utility  cannot be  deemed to  be charitable. It was observed that  the words  ’public utility’ are so large that they comprehend purposes which are not charitable. This view was affirmed  on appeal,  and with  regard to  Pemsel’s case Lord Justice Lindley observed:           "I am certain that Lord Macnaghten did not mean to      say that  every object  of public  general utility must      necessarily be.  charitable. Some  may be  and some may      not be."

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The   fourth    head   of    Lord   Macnaghten’s   four-fold classification is  vague because of its generality, I do not think much  useful purpose  would be  served by referring to the other  English cases  dealing with  the subject,  or  in attempting  to   reconcile  the   dicta  of  eminent  Judges contained in some of them.      It will  be sufficient  for our present purposes to say that the  Indian Legislature  while enacting the Act of 1922 appears to have steered clear of these difficulties by using phraseology which  is much wider and more comprehensive than that of  Lord Macnaghten’s fourth head of classification. It was in  1896 that  Lord Lindley  and other Law Lords held in Macduff’s case  that the  words "general public utility were very wide  in their  scope,  that  every  object  of  public utility was  not necessarily  a charitable purpose’, and yet 22 years later in 1918. 125 when the Explanation to s. 4 (3) of the Income-tax Act, 1922 was placed on the statute book, the Indian Legislature while practically  adopting   Lord  Macnaghten’s   phraseology  in enumerating  the   first  three  heads  of  the  definition, described the  fourth as  ’advancement of  other objects  of general  public   utility,  without   any   restriction   or qualification whatever. The Courts, therefore, felt it their duty to  give full  effect to the plain meaning of the words used in s. 4(3) of the Act of 1922.      In s.  4(3) the Legislature deliberately refrained from qualifying in any way the words "any other object of general public utility",  and there was nothing in the context which indicated that  it was  intended to  give them  a restricted meaning. It  was, therefore, not open to the Courts or other authorities whose  duty it  was to interpret the section, to cut down  the plain  and comprehensive  meaning of the words used, simply  because they  would  give  to  the  expression "charitable purpose"  a meaning  which is hot in accord with popular notions.      In re.  The Trustees  of the  Tribune (supra) the Privy Council held  that the  object of  supplying State  with  an organ of  educated public  opinion was  an object  of public utility, and it was a charitable object, in the absence of a motive of  private profit, even though the newspaper charged its readers  and advertisers  at ordinary  commercial rates. The case  established  that  under  the  Act  of  1922,  the charitable institutions  which carried out trade at a profit was  exempt   in  respect   of  the  profits,  provided  the institution was  held on  a charitable trust and the profits were and could be applied only to the charitable purposes of the institution.      The result of this and other similar decisions was that a charitable  institution could escape the payment of tax on income earned  from business provided it could be shown that the money  was  spent  for  an  "object  of  general  public utility".  Exemption   from  income-tax  of  the  income  of charitable trusts  provides opportunities for tax avoidance. The fact  that some of charitable trusts are created for the purpose of evasion or avoidance of tax is virtually endemic, an unmitigated well-known evil.      The question  of tax  avoidance  through  formation  of charitable  and  religious  trusts  has  been  engaging  the attention of  the Government  for quite  some  time.  Before coming into  force of  the Income-tax Act, 1961, s. 4(3) (i) of  the   Act  of  1922  governed  exemption  of  income  of charitable trusts. H      The definition  of the  expression "charitable purpose" in s.  2 (15) of the Act is different from the definition of

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that expression in s.4 126 (3) (i)  of the  Act of  1922. The  words "not involving the carrying on of any activity for profit" were inserted in the Act of 1961 at the Select Committee stage. The Committee was of the  opinion that  the definition of "charitable purpose" needed a  change to  eliminate the  tax avoidance device in- built in  it. It first considered the insertion of the words "other than the furtherance of an undertaking for commercial profit", after  the sentence  "any other  object of  general public utility",  but subsequently  this was changed to "not involving the  carrying on  of any  activity for profit" and thus the  changed definition of "charitable purpose" in s. 2 (15) of  the present Act was brought in. The main object was to take away the element of ’business’ from ’charity’.      The then  Finance Minister  while introducing  the Bill      had said.           "The definition  of ’charitable  purpose’, in that      clause is  at present  so widely  worded that it can be      taken advantage  of even  by commercial concerns which,      while ostensibly  serving a  public purpose,  get fully      paid from  the benefits  provided by  them, namely, the      newspaper industry  which while  running its concern on      commercial  lines   can  claim   that  by   circulating      newspapers it  was improving  the general know ledge of      the public.  In order  to prevent  the misuse  of  this      definition in  such cases,  the Select  Committee  felt      that the a; words ’not involving the carrying on of any      activity  for   profit’  should   be   added   to   the      definition."      The  words  "not  involving  the  carrying  on  of  any activity for profit have changed the picture completely, and the decision of the Privy Council in Trustees of the Tribune (supra) and Spinners’ Association (supra) as well as that of this Court  in Radhaswami Satsang Sabha (supra), J. K. Trust v. C.I.T.  and C.I.T.  v. Andhra  Chamber of Commerce(o) are now of  academic interest  only. Parliament  by  introducing these words  have not only curtailed the scope of the fourth head of charity, ’advancement of any other object of general public utility’,  but also  left little  room for  the  tax- payers to  manoeuvre the diversion of their business profits to charity.      Even assuming that the dominant object is the promotion or  advancement  of  any  other  object  of  general  public utility’, if  it involves any activity for profit, i.e., any business or  commercial activity,  then it  ceases to  be  a "charitable purpose"  within the  meaning of  s. 2  (15). In that event, the profits derived from such business 127 are not  liable to  exemption under s. 11 (1) read with s. 2 (15). The A concept of ’profits to feed the charity’ is also of no  avail. That is because the concept of profits to feed the charity’  can only  arise under the first three heads of ’charitable purpose’  as defined  in s.  2 (15)  of the Act, i.e., "relief  of  the  poor  ",  "education"  and  "medical relief", but they are not germane insofar as the fourth head is concerned,  viz., "the advancement of any other object of general public  utility". If the fulfillment of an object of general public  utility is  dependent upon  any activity for profit, it ceases to be a charitable purpose.      This Court  in Loka  Shikshana Trust (supra) and Indian Chamber of  Commerce (supra)  has had  occasion to deal with the legal  significance of  the  words  "not  involving  the carrying on  of  any  activity  for  profit"  added  to  the definition of  "charitable purpose  as contained in s 2 (15)

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of the Act. After referring to the Finance Minister’s speech it observed  that the  amended provision  was directed  at a change of  law as  it was  declared by  the Privy Council in Trustees of the Tribune (supra).      The case  of Loka Shikshana Trust first brought out the legislative intent.  This was  a typical case of an abuse of the tax  exemption given  to  charitable  institutions  that brought about  a change in the law. It was a case of a trust constituted by  a person  who  appointed  himself  the  sole trustee with  absolute discretion and the entire activity of the trust  was in  fact that  of running  a wide circulation newspaper. It  was claimed that the mere act of printing and publishing and  circulating a  newspaper was  tantamount  to carrying out the charitable object of education. By claiming exemption of  tax, the  trust  funds  had  over  the  years, swelled from about Rs. 4,000/- to nearly Rs. 2 lakhs. During the assessment  year in  question, the total receipts of the trust were  of the  tune of  Rs. 22 lakhs. It was entirely a commercial activity  and there  was not  even a semblance of spending any  part of  the income on the object of education by way  of  granting  scholarships  or  providing  means  of education and so on.      The  Court   laid  down  that  if  the  object  of  the charitable trust  is advancement  of any  object of  general public utility,  any income  derived by it from any activity for profit, will not be entitled to exemption under s. 11 of the Act,  having regard  to the  words  "not  involving  the carrying on  of any  activity for profit", introduced in the definition of  the term ’charitable purpose’ as contained in s. 2 (15).      Khanna J.,  speaking for the Court, pointed out that as a result  of the  addition of  the words  "not involving the carrying on  of any  activity for profit", at the end of the definition in s. 2(15) of the 128 Act, even if the purpose of the trust is "advancement of any other object  of general  public utility",  it would  not be considered to  be "charitable  purpose" unless  it is  shown that the  advancement of  such object  does not  involve the carrying on of any activity for profit, saying           "It is  also difficult  to subscribe  to the  view      that the  newly added words "not involving the carrying      on of  any activity  for  profit"  merely  qualify  and      affirm what  was the  position as it obtained under the      definition given in the Act of 1922. If the legislature      intended that  the concept of charitable purpose should      be the same under the Act of 1961, as it was in the Act      of 1922,  there was  no necessity for it to add the new      words in the definition. The earlier definition did not      involve any ambiguity and the position in law was clear      and admitted of no doubt after the pronouncement of the      Judicial Committee  in the  cases of  Tribune  and  All      India Spinners’  Association. If  despite that fact the      legislature  added  new  words  in  the  definition  of      charitable purpose,  it would  be contrary to all rules      of construction to ignore the impact of the newly added      words and to so construe the definition as if the newly      added words  were either  not there or were intended to      be otiose and redundant."      Beg  J.,   who  delivered  a  separate  but  concurring judgment, while discussing the scope of s. 2 (15), observed:           "As a  rule, if  the terms of the trust permit its      operation  ’for  profit’,  they  became,  prima  facie,      evidence of  a purpose  falling outside  charity.  They      would indicate  the object  of profit making unless and

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    until it  is shown  that the  terms of the trust compel      the trustee to utilise the profits of business also for      charity. This  means that  the test  introduced by  the      amendment is:  Does the  purpose of  a  trust  restrict      spending  the   income   of   a   profitable   activity      exclusively or  primarily upon what is "charity" in law      ? If  the profits  must necessarily  feed a  charitable      purpose, under  the terms  of the  trust, the mere fact      that the  activities of the trust yield profit will not      alter the  charitable character  of the trust. The test      now is,  more clearly then in the past, the genuineness      of the  purpose tested  by the  obligatory  created  to      spend  the   money  exclusively   or   essentially   on      ’charity’. li  that obligation  is  there,  the  income      becomes entitled  to exemption. That in our opinion, is      the most reliable test." 129 These observations of Beg J. were in the nature of an obiter dictum, as  on facts  he held  the trust  in that case to be actually engaged  in activity  for profit. I shall, however, deal  with  the  observations  later  as  they  create  some difficulty.      The matter  was put  beyond the  pale of controversy by the  Court  in  Indian  Chamber  of  Commerce  (supra).  The assessee was  a Chamber  of Commerce.  Its objects  were  to promote and protect trade interests and other allied service operations falling  within the expression the advancement of any other  object of  general public  utility". The  Chamber deriv d  income from (i) arbitration fees levied by it, (ii) fees collected for issuing certificates of origin, and (iii) share  in  the  profits  made  by  issuing  certificates  of weighment and  measurement. The  question was  whether  tile activates of  the Chamber  being activities  carried on  for profit, in  the absence of any restriction in its memorandum and articles  of association  against the  making of  profit from such  activities the  income of  the Chamber from those activities was  liable to  income-tax  or  was  exempt  from income-tax under s. 11 read with s. 2(15). D      Krishna Iyer,  J., speaking on behalf of himself, Gupta and Fazal Ali J.T., referred to the legislative history, the evil sought  to be  remedied, and  the speech of the Finance Minister, which gave the "true reason for the remedy", said:           "The obvious change as between the old and the new      definitions is the exclusionary provision introduced in      the last  few words.  The history  which compelled this      definitional modification  was the  abuse. to which the      charitable  disposition   the  statute   to  charitable      purposes was  subjected, by exploiting businessman. You      create  a  charity,  earn  exemption  from  the  taxing      provision and run big industries virtually enjoying the      profits with  a seeming  veneer of charity, a situation      which exsuscitated  Parliament and  constrained  it  to      engraft a  clause deprivatory  of the  exemption in the      institution fulfilling  charitable purposes  undertook.      activities for  profit and  thus sought to hoodwink the      statute. The  Finance Minister’s  speech in  the  House      explicates the  reason for  the restrictive condition."      (Emphasis supplied) He lamented  the legislative  obscurity in the definition of charitable purpose  in s. 2(15) of tho Act but observed that the Court  must adopt  a  construction  which  advances  the legislative intent, stating:           "The evil  sought to  be abolished  is thus clear.      The inter  pretation of  the provision  must  naturally      fall in line with the advancement of the object."

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130 The whole  object of  adding the  words "not  involving  the carrying on  of any  activity for  profit" at the end of the definition of ’charitable purpose’ in s. 2(15), in the words of Krishna Iyer J., was:           "This expression,  defined in  section 2(15), is a      term of  art and  embraces  object  of  general  public      utility. But,  under cover  of charitable  purposes,  a      crop of  camouflaged organisations  sprung up. The mask      was charitable,  but the  heart was hunger for tax-free      profit. When  Parliament found  this dubious  growth of      charitable chemelsons,  the definition in section 2(15)      was altered  to suppress the mischief by qualifying the      broad object  of  "general  public  utility"  with  the      additive "not involving the carrying on of any activity      for profit.  The core  of  the  dispute  before  us  is      whether this  intentional  addition  of  a  "cut  back"      clause expels  the chamber  from the tax exemption zone      in  respect   of  the   triune   profit-fetching   sub-      enterprises undertaken  by way  of service  or facility      for the trading community." A realistic  line of  reasoning, according  to  him,  is  to interpret ’charitable  purpose" in such a manner that ’we do not burke  any word’, ’treat any expression as redundant’ or ’miss the accent of the amandatory phrase’. He struck a note of warning  regarding the  ’possibility  of  obscurity’  and ’dual meanings’  by shifting  of emphasis from ’advancement’ to ’object’  used in  s. 2(15).  The emphasis  is not on the object of  public utility  and the  carrying on  of  related activity  for   profit.  On   the  other  hand,  if  in  the advancement of  these objects, the trust resorts to carrying on of  activities for  profit,  then  necessarily  s.  2(15) cannot confer  cover. The  advancement of charitable objects must not involve profit-making activities. That according to him, is  the mandate  of  the  new  law.  In  reaching  that conclusion he observes:           "In our  view, ll  e ingredients essential to earn      freedom from  tax are  discernible from the definition,      if insightfully,  actually read  against  the  brooding      presence  of   the  evil   to  be  suppressed  and  the      beneficial object  to be  served.  The  policy  of  the      statute is  to give  tax relief for charitable purpose,      but what  falls outside  the page of charitable purpose      ’? The  institution must confine itself to the carrying      on of  activities which  are not  for profit. It is not      enough if  the object be one of general public utility.      The  attainment   of  that  object  shall  not  involve      activities for profit " In conclusion, he sums up the legislative intent, saying:           "To sum  up, section 2(15) excludes from exemption      the carrying  on of  activities for profit even if they      are linked with 131      the objectives  of general  public utility, because the      statute   interdicts, for  purpose of  tax relief,  the      advancement of  such  objects  by  involvement  in  the      carrying on of activities for profit."      The dictionary  meaning of  the word  "involve" is  "to envelop, to  entangle, to  include, to  contain, to  imply": Shorter oxford  Dictionary,  3rd  ed.,  p.  1042.  The  word "involve" thus contemplates the advancement of the object of general public  utility  being  sought  to  be  achieved  by carrying on  of an  activity for  profit. That conclusion is inevitable on  a proper  analysis of  the two  decisions. In Loka Shikshana  Trust, the  object of the trust could not be

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achieved without  carrying on the business of publication of newspapers. In  Indian Chamber  of Commerce, the income from fees from  arbitration or  fees for  issuing certificates of weighment and measurement, might have been conceived as part of its  objects of  assisting trade  and  commerce.  If  the profit-making  activity  is  thus  the  appointed  means  of achieving a  charitable object  of general  public  utility, then, the  profit would be taxable. At p. 803 of the Report, Krishna Iyer  J., speaking  for the Bench, held that "by the new definition,  the benefit  of exclusion  from  the  total income is  taken away  where in  accomplishing a  charitable purpose the  institution engaged  itself in  activities  for profit". A reading of s. 2(15) and s. 11 together shows that what is  frowned upon is an activity for profit by a charity established for  advancement of  an object of general public utility  the course of accomplishing its objects.      These being  the principles  upon  which  exemption  of income derived  from property  held under trust by an object of general  public utility under s. ll(l) read with s. 2(15) can be claimed, it is clearly inconsistent with them to hold that if  the dominant  or primary  purpose was ’charity’, it was permissible  for  such  an,  object  of  general  public utility, to  augment its  income by  engaging in  trading or commercial activity. That would be clearly against the whole scheme of  the Act.  I need  hardly say that, if the altered definition of  ’charitable purpose’  in s.  2(15) were to be applied,   according    to   the    well-known   canons   of construction, no  such point would for a moment be arguable. There can  be no doubt that Parliament wanted to bring about a change in the law to prevent tax avoidance by diversion of business profits  to pseudo  charities. Surely, it cannot be said that  Parliament did  not  mean  what  it  intended  to achieve, by introducing the restrictive words "not involving the carrying  on of  any activity  for profit".  It  clearly meant to  prevent tax-free  profits from being ploughed back in business.  But it  is said that the law is different; and the point upon which the case 132 must turn  cannot be more distinctly put that was put by Beg J. in his judgment in Loka Shikshana Trust.      The observations  of  Beg  J.  have  given  rise  to  a controversy that  the condition  that the purpose should not involve the  carrying on of any activity for profit would be satisfied if  profit-making is not the real object; and that if the terms of the trust permit the carrying on of business activity for profit it would prima facie indicate the object of profit-making unless those terms indicate the real object to be  charitable by  compelling the trustees to utilize the business profit for charity. This is contrary to what Khanna and Gupta JJ. stated. While they observed that ’if the terms of the  trust do  not impose  restrictions on profit-making, the court  would be  well  justified  in  assuming.  In  the absence of  some indication to the contrary, that the object of the  trust involved  the carrying  oil of an activity for profit. To  quote again,  Beg J.  Observed: "If  the profits must necessarily  feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit  will not alter the charitable character of the trust". On  the basis  of the  observations of Beg J. it is, asserted that  the test  now is,  more clearly  than in  the past,  the   genuineness  of   the  purpose  tested  by  the obligation  created   to  spend  the  money  exclusively  or essentially on  ’charity’. It  is stated  that  despite  the addition of  the words "not involving the carrying on of any activity for  profit" in  s. 2(15)  of the  Art, there  is a

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distinction between  (a) a  business being  held under trust where profits  feed a  charity in  which case  the income of such trust  would be  wholly exempt, and (b) the carrying on of a  business in  carrying  out  what  is  conceived  as  a charitable purpose  in which case the income may be taxable. It is said that the distinction is fine, but must be kept in view. The  so-called distinction,  in my opinion, is without any basis  whatever. It  runs counter to the very abject and purpose of the legislation.      Under the existing provisions, if the object of purpose of a  trust is  relief of  the poor,  education  or  medical relief, the  trust can  carry  on  an  activity  for  profit provided it  is in  the course  of carrying  out the primary object of  the trust. However, if the object of the trust is advancement of  an object  of general  public utility and it carried on. any activity for profit, it is excluded from the ambit  of  charitable  purpose  defined  in  s.  2(15).  The distinction  is   clearly  brought   out  by  the  provision contained in  s. 13(1)(bb)  inserted by Tax Laws (Amendment) Act. 1975, which provides that in case of a charitable trust or institution  for the  relief of  the poor,  education  or medical relief,  which carries  on any business,, any income derived from  such business,  unless the business is carried on in the course of the actual carrying out of a 133 primary purpose  of the  trust or  institution shall  not be excluded from  the total income of the previous year.      It seems that the attention of Beg J. in Loka Shikshana Trust (supra)  was not drawn to the fact that he was dealing with a  case  falling  under  the  fourth  head  of  charity "advancement of any other object of general public utility", the ambit  of which  was restricted by the qualifying clause "not involving  the carrying on of any activity for profit", aud, therefore,  there was  no occasion  for him to observe, "if the  profits must necessarily feed a charitable purpose, under the  terms of  the  trust,  the  mere  fact  that  the activities of  the trust  yield profit  will not  alter  the charitable character of the trust". These considerations can only arise  under the  first three  heads of  charity  viz., ’relier of the poor’, ’education’ and ’medical relief’      In C.I.T.  Kerala v. Dharmoddyam Co.,(1) Dharmaposhanam Co.  v.   C.I.T.,  Kerala(2)   and  Dharmadipti  v.  C.I.T., Kerala(3) the Court had occasion to deal with the definition of ’charitable  purpose’ in  s. 2(15).  In Dharmodayam,  the finding of  the Kerala High Court was that the kuri business was itself  held under  trust  or  religious  or  charitable purpose, and therefore, the Court observed:           "lt is  a necessary  implication of  this  finding      that the  business activity  was not  undertaken by the      respondent in  order to  advance any  object of general      public utility.  It, therefore did not become necessary      to  enquire   whether  conducting   the  kuri  business      involved the  carrying on of my activity for profit, in      as much  as the income derived by the assessee from the      kuries was exempt from tax under s. 11(1) (a)." In Dharposhanam,  it was  held that  the  income  from  the, business of  conducting, kuries and money lending fell under the residual  general head  ’any  other  object  of  general public utility’  and being carried on or profit could not be regarded  as   charitable  purpose   under  s.   2(15).   In Dharmadipti, the Court came to a contrary conclusion because the income  from  the  kuri  business  was  derived  from  a business held  under trust  for charitable  purposes. In all these cases,  there was  nonfulfillment of  one condition or the other,  i.e., either  the business  was not  held  under

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trust or  being an  object of  general  public  utility  was engaged in an activity for profit.      With respect,  I venture  to say  that if  an object of general public utility is engaged in an activity for profit, it ceases 134 to be a charitable purpose and, therefore, the income is not exempt under  6. 11(i) (a). In case of a trust falling under any of  the first  three heads  of charity, viz., ’relief of the poor’, ’education’ and ’medical relief’ it may engage in any activity  for profit,  and  the  profits  would  not  be taxable if  they were utilized for the primary object of the trust. In  other words,  the business carried  on by them is incidental or  ancillary to  the primary object viz., relief of the  poor, education and medical relief. To illustrate, a charitable hospital  holding buildings  on trust  may run  a nursing home.  The profits of the nursing home owned and run by the  trust will  be exempt  under s.  11(4), because  the business is  carried on  by the  trust in  the course of the actual carrying out of the primary purpose of the trust. The concept of  ’profits to  feed the  charity’,  therefore,  is applicable only  to the first three heads of charity and not the fourth.  It would be illogical and, indeed, difficult to apply the  same  consideration  to  institutions  which  are established for charitable purposes of any object of general public utility.  Any profit-making  activity linked  with an object of  general public  utility  would  be  taxable.  The theory of  the dominant  or  primary  object  of  the  trust cannot, therefore,  be projected  into the  fourth  head  of charity, viz.,  ’advancement of  any other object of general public utility’, so as to make the carrying on of a business activity merely ancillary or incidental to the main object.      In fact, if any other view to prevail, it would lead to an alarming  result detrimental  to the  revenue. The  whole object of inserting the restrictive words ’not involving the carrying on  of any  activity for  profit’ in  the  stricter definition of  ’charitable purpose’  in s. 2(15) to make the range of  favoured activity  less flexible  than it had been hitherto before  i.e., to  prevent big  business houses from siphoning of  a substantial  portion of  their income in the name of charity, would be defeated. The danger of permitting diversion of  business  profits,  which  was  sought  to  be prevented by  Parliament is but apparent. In my opinion, the restrictive words  ’not involving  the carrying  on  of  any activity  for  profit’  in  the  definition  of  ’charitable purpose’ in  s.2(15) of  the Income-tax  Act, 1961  must  be given their  due weight. Otherwise, it would have the effect of  admitting  to  the  benefits  of  exemption  the  fourth indeterminate class  viz., objects of general public utility engaged in  activity for  profit contrary to the plain words of s.2(15).      Modern legislation  has changed  in pattern towards re- casting taxes  and provisions with very wide language, while at the same time dealing in much more detail with some crees of law. Judges, 135 in part,  responding to  general trends  of  law,  but  also reacting to  A the  farm of  modern tax legislation, must be prepared to  take account of the context and purposes of the change brought  about.(1) Most  Judges, in  dealing with tax legislation, have refused to engage in what Megarry J. calls "a bout of speculative judicial legislation" to cut down the wide words  of the  statute: Inland  Revenue Commissioner v. Brown.(2) In  Harrison v.  Nairn Williamson(3)  Goulding  J. Observes:

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         "The way  I have to approach this pure question of      verbal interpretation  is, I  think, to  give the words      used  by  Parliament  their  ordinary  meaning  in  the      English language,  and if,  consistently with  ordinary      meaning, there  is a  choice  between  two  alternative      interpretations, then  to prefer  the construction that      maintains  a   reasonable  and   consistent  scheme  of      taxation without distorting the language."      Both the  Judge’s conclusion,  and his  reasoning, were adopted expressly  in the  Court of  Appeal, where the Court was exercised by the fact that the taxpayer’s interpretation of the  section in question might lead to a most obvious way of tax   evasion.  This attitude  was  rejected  earlier  by Megarry  J.   in  the  following  comment:  ’There  is  high authority for  saying that  it scarcely lies in the mouth of the taxpayer  who plays  with  fire  to  complain  of  burnt fingers’ Reeves  v. Evans  Boyce and  Northcott Syndicate(4) Lord Justice  Sellers in  F. S. Securities v. I.R.C.(6) also found that  "enrichment without any service to the community and without  taxation is  hard to countenance". Lord Reid in Greeberg v.  I.R.C.(6) voices  the same  concern  about  the prevailing attitude to tax statutes, saying:           "Parliament is very properly determined to prevent      this kind  of tax  evasion, and  if the  courts find it      impossible  to  give  very  wide  meanings  to  general      phrases the  only alter native may be for Parliament to      do as  some other  countries have  done  and  introduce      legislation of a more sweeping character." 136      It is legitimate to look at the state of law prevailing leading to  the legislation  so  as  to  see  what  was  the mischief at  which the  Act was  directed. This Court has on many occasions  taken judicial notice of such matters as the reports of parliamentary committees, and of such other facts as must  be assumed to have been within the contemplation of the legislature  when the  Acts in  question were passed. In C.I.T., M.P.  & Bhopal  v. Sodre Devi(1) the question before the Court  was as  to the  construction of  s. 16(3)  of the Income-tax  Act,   1922.  After   finding  that   the   word ’individual’ occurring  in  the  aforesaid  sub-section  was ambiguous, Bhagwati  J. observed:  "In order to resolve this ambiguity therefore  we must of necessity have resort to the state of  law before  the enactment  of the  provisions, the mischief and  the defect  for which the law did not provide; the remedy  which the  legislature resolved and appointed to cure the defect; and, the true reason for the remedy."      The then prevailing law relating to exemption of income of charitable  trusts contained  several loopholes.  The Law Commission in  its Twelfth Report felt the need to eliminate the tax  avoidance device  in-built  in  the  definition  of ’charitable purpose’  in s.  4(3) of  the Act  of  1922,  by insertion of an Explanation to the effect:           "Explanation: In  this sub-section ’property’ does      not include ’business’."      The Direct  Taxes Administration  Enquiry Committee  in their report (1958-59) observed as follows:           "The existing  provisions relating to exemption of      the income  of charitable trusts under Section 4(3) (i)      of the  Income-tax Act  contain certain loopholes which      help the formation of pseudo charitable trusts."           "Another wide loophole rests in the interpretation      of the  word ’property’, whereunder a trust could carry      on business  which had  nothing to  do with the primary      object of  the trust  itself and still yet exemption in      respect of  the income  from this business. Courts have

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    held that  business can  also be ’property’, held under      trust. Certain  amendments in  Section 4(3)  (i) of the      Income-tax Act  were made through the Indian Income-tax      (Amendment) Act, 1953 to try to ensure that income of a      ’charitable’ business  got  e  exemption  only  if  the      business was  carried on   behalf  of a  religious  and      charitable institution and was carried on in 137      the course  of implementing  a primary  purpose of  the      institution or the work of the business was mainly done      by the  beneficiaries of the institution. This was done      by adding proviso (b) to Section 4(3) (i) of the Indian      Income-tax Act.  That  proviso  says  that  the  income      derived from property held under trust for religious or      charitable shall  not be  exempt and shall consequently      be included in the total income."           "Courts have,  however, taken  the view  that  the      above two  conditions  (in  the  proviso)  for  getting      exemption apply  only  where  business  is  carried  on      behalf of a religious or charitable institution and not      where the  business itself is held upon trust, and that      as such  the income  of such  a business would still be      entitled to  exemption under  the substantive  part  of      Section  4(3)   (i)  despite   nonfulfillment  of   the      conditions set out in the proviso."      Adopting the  recommendation of  the Select  Committee, Parliament inserted the words "not involving the carrying on of any  activity  for  profit"  in  the  definition  of  the expression ’charitable purpose’ in s. 2(15) of the Act.      The report  of the  Public Accounts  Committee  made  a comprehensive  study   of  the  problem  and  indicated  the magnitude  of   avoidance  of   tax  through   formation  of charitable trusts,  and considered  whether the  words  ’not involving the carrying on of any activity for profit’ should be deleted, but recommended against its deletion.      The Direct  Taxes Enquiry  Committee (otherwise know as the Wanchoo  Committee) considered  the question whether the restriction  of   trusts  in   the  matter  of  engaging  in activities  for  profit  should  be  removed  and  made  the following recommendations.           "It  is   in  this   background  that  we  address      ourselves to  the question  as to  whether religious or      charitable trusts  enjoying  tax  exemption  should  be      permitted  to   carry  on   any  activity  for  profit.      Indubitably, engagement  in activity for profit by such      trusts  provides   scope  for   manipulations  for  tax      avoidance. We,  however, consider  that it  will not be      desirable to ban an activity for profit which arises in      the pursuit  of the  primary purpose of a trust created      with the  object of  relief of  the poor,  education or      medical relief. For instance, 10-868SCI/79 138      in the  case of  a trust  for vocational  training,  it      would be  essential for  the  trust  to  carry  on  its      vocation. We, there. fore, recommend that law should be      suitably amended  to provide that where a trust for the      religion of  the  poor,  education  or  medical  relief      derives income from any activity for profit, its income      would be  exempt  from  income-tax  only  if  the  said      activity for  profit is carried on in the course of the      actual  carrying  out  of  a  primary  purpose  of  the      institution. We  wish to  make it abundantly clear that      even where  a business  is settled  in trust, the trust      should fulfil  this condition  if it  is to  enjoy  tax      exemption in  respect of the income from such business.

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    So far as trusts for any other object of general public      utility are  concerned, pursuit  of  any  activity  for      profit should  continue to  render them  ineligible for      tax exemption.      The Direct  Taxes Laws  Committee in Chapter 2 (Interim Report, December  1977) on  charitable trusts considered the question whether  the above  expression  in  the  definition should be  deleted and recommended the deletion of the above expression stating:           "We   have    received   a    large   number    of      representations on   the hardship caused as a result of      the total  banning of  activity for  profit so  far  as      trusts  having   the  fourth   category   objects   are      concerned. It  has been pointed out that activities for      ;.  profit  are  essentially  fund-raising  in  nature,      without  which   charities  cannot   exist.   We   find      considerable substance in these representations. We are      aware that  some  trusts  have  abused  the  provisions      enabling them  to carry  on  business  ’  I  and  that,      sometimes, expansion or consolidation of business is by      itself,  sought  to  be  justified  as  furtherance  of      charity. such  abuses would  particularly arise where a      business is  merely  held  by  a  charitable  trust  as      property unconnected  with the  objects of charity. The      remedy, in our opinion, lies in the direction of proper      enforcement of  the provisions  relating to application      of trust  funds for  charitable  purposes  and  not  of      totally banning all activities for profit. Moreover, it      is  noticed   that  charitable  trusts  generally  have      objects falling  under all  the four  categories.  Very      often, a trust has come into difficulties on account of      a single  object under the fourth category, even though      all the  important objects  fall under  the first three      categories. We, therefore, 139      recommend deletion  of the  words  "not  involving  the      carrying on  of any  activity for  profit" occurring in      section 2(15)."      The  Government,   however,  has   not   accepted   the recommendation. I fail to comprehend when the recommendation has not  been acted  upon  by  the  Government  by  suitable legislation, how  can this  Court by  a process  of judicial construction achieve the same result.      Fears expressed  at the  Bar that  this  harsh  measure enacted by,  Parliament has  shrivelled and  dried  up  many genuine charities, does not take into account that it had to step in  when the tax exemptions available to charitable and religious trusts  started being  misused  for  the  unworthy purposes  of   tax  avoidance.  The  law  has  been  so  re- structured to  prevent allergy  to taxation  masquerading as charity. It  cannot be  disputed that  many business  houses have abused  the provision relating to exemption from tax by carrying on  activities for  profit as a means for expansion and consolidation  of  business,  which  was  sought  to  be justified as in furtherance of charity, i.e., charity became big business.  Now, the  law is  designed  to  prevent  this misuse of  tax exemption  in the  name of charity. It is not the function  of a court of law to give the words a strained and  unnatural   meaning.  It   may  be  that  many  genuine charitable  trusts   promoting  objects  of  general  public utility are  severely affected and are caught in-between the two extremes.  But this  call for  a change in the law. I am only reiterating  what has  been said over and over again in deal with  taxing Acts.  In Cape  Brandy Syndicate v. Inland Revenue Commissioner(l)  the principle  was  formulated  and

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stated by Rowlat J. in his own terse language:           "In a taxing Act one has merely to look at what is      clearly said.  There is  no room  for  any  intendment.      There is no equity about a tax. There is no presumption      as to a tax. Nothing is to be read in, nothing is to be      implied. one  can only  look  fairly  at  the  language      used."      In Inland  Revenue Commissioner  v. Ross  &  Coulter(’) Lord Thanketro  in describing  ’the harsh  consequences of a taxing provision’ said:           "..If the  meaning of  the provision is reasonably      clear, the courts have no jurisdiction to mitigate such      harshness." 140      The judicial  attitudes cannot  be formed  in isolation from Legislative  processes, particularly in connection with Tax avoidance provisions.      I would,  accordingly, answer  the references in favour of the  Revenue and  against the  assessee. The Commissioner will be entitled to his costs. P.B.R. 141