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PETITIONER: COMMISSIONER OF INCOME TAX, NEW DELHI

       Vs.

RESPONDENT: FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRIES, NEWD

DATE OF JUDGMENT15/04/1981

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. SEN, A.P. (J) VENKATARAMIAH, E.S. (J)

CITATION:  1981 AIR 1408            1981 SCR  (3) 489  1981 SCC  (3) 156        1981 SCALE  (1)637

ACT:      Income  Tax   Act  1961,   S.  52(15)  and  11(1)  (a)- ’Charitable object’-Object  of general  public  utility-’Not involving the  carrying on  of  any  activity  for  profit’- Meaning  of-Primary   or  dominant   purpose  of   trust  or institution to  be  charitable-’Purpose’  of  trust-’Powers’ conferred  on   trustees  for   carrying  out  the  purpose- Distinction between.

HEADNOTE:      The respondent  assessee an  existing company under the Companies Act,  1956  had  neither  any  share  capital  nor distributed any  dividend to  its  members  and  its  entire income was  expended for  fulfilment of  its objects,  which were the  promotion, protection  and development  of  trade, commerce and industry in India.      During  the   assessment  year  1962-63,  the  relevant accounting year  for which  the year ended December 31, 1961 the assessee  submitted a return showing its total income as ’nil’ claiming  that all its income was exempt under section 11(1)(a) read  with Section  2(15) of  the Income  Tax  Act. During the  assessment year,  the assessee  held the  Indian Trade Fair  at New  Delhi and derived receipts from rent for space allotted,  temporary stalls  and storage  and realised deposit  and   advances  from  the  participants  for  hotel accommodation.  In   the  relevant   accounting  year,   the Conference  of  the  Afro-Asian  Organisation  for  Economic Cooperation,  was   sponsored  by   the  assessee   and  for organising the  Conference, the  assessee received  from the Government Rs. 3 lakhs as grant-in-aid and after meeting the expenses, was  left with  a balance  of Rs. 2 lakhs. It also received income  by sale  of books, fee for arbitration etc. The balance  sheet for the accounting year indicated that it had an  excess of  income over  expenditure under  the  head ’income’.      The contention  of the  assessee before  the Income Tax Officer was that the activities carried on by the Federation were not  were not  motive of earning profits, but that they were carried on with the object of promotion, protection and development of  trade, commerce  and industry  in India  and abroad, and therefore the income derived by the assessee was

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exempt under S. 11(1)(a).      The Income  Tax Officer, held that the decision of this Court in  the  Andhra  Chamber  of  Commerce’s  case  [1965] I.S.C.R. 565  was no  longer good law due to the addition of the words  ’not involving  the carrying  on any activity for profit’ in the definition of ’charitable purpose’ in Section 2(15) of  the Act  which qualify  the fourth head of charity viz. ’any  other object  of  general  public  utility’  and, therefore, must  be read subject to the additional statutory requirement that the 490 object of  general public  utility should  not  involve  the carrying on  of any  activity for  profit,  and  accordingly raised a demand.      On appeal  by the  assessee,  the  Appellate  Assistant Commissioner disagreed  with the  view  of  the  Income  Tax Officer and  held that  the activities  carried  on  by  the assessee were not profit-oriented and, therefore, its income was exempt.      The Department  appealed to the Appellate Tribunal, and the Appellate  Tribunal upheld  the view  of  the  Appellate Assistant Commissioner  and held  that the  dominant  object with which the Federation was constituted being a charitable purpose  viz.,  promotion,  protection  and  development  of trade, commerce  and industry, there being no motive to earn profits, it was not engaged in any activity in the nature of business or  trade, and,  if, any  income  arose  from  such activity,  it  was  only  incidental  or  ancillary  to  the dominant object  for the  welfare and  common  good  of  the country’s trade, commerce and industry.      The Commissioner of Income-Tax applied to the Appellate Tribunal to  make a  reference to  the High Court under sub- section (1)  of section  256 of  the Act, but in view of the conflict  in  the  decisions  of  the  High  Courts  on  the construction  of  the  expression  ’charitable  purpose’  as defined in  section 2(15)  of the  Act the  Tribunal made  a reference to this Court under Section 257 .      On the  question whether  the words  ’not involving the carrying on of any activity for profit’ in the definition of ’charitable purpose’  contained in section 2(15) of the Act, govern the  word ’advancement’  and not the words ’object of general public utility’. ^      HELD: [By the Court]      The reference  must be answered against the Revenue and in favour  of the  assessee, in  the view  of  the  majority opinion in  Addl. Commissioner  of Income  Tax v.  Surat Art Silk Cloth Manufactures, [1980] I S.C.R. 77. [492 F]      [Per A.P. Sen, J.]      1. The  majority view  in the  Surat Art  Silk case was 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. The theory of dominant or primary object of the trust, has, therefore, been treated to be  the determining  factor, even in regard to the fourth head of  charity, viz.  advancement of  any other  object of general public  utility, so  as to  make the  carrying on of business activity merely ancillary or incidental to the main object. This  doctrine of  dominant or  primary object holds the field till there is a change of law. [496 C-D, 497 F]      2. The majority decision had the effect of neutralising the radical  changes brought  about  by  Parliament  in  the system of  taxation of income and profits of charities, with particular reference  to "object  of general public utility" to prevent  tax evasion, by diversion of business profits to

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charities. It is the vagueness of the fourth head of charity "any other object of general public utility" that impelled 491 Parliament to  insert the  restrictive words  "not involving the carrying on of any activity for profit". [496 G-497 A]      3.  It   was  clearly  inconsistent  with  the  settled principles to hold that if the dominant or primary object of a trust  was ’charity’  under the  fourth  head  ’any  other object of  general public  utility’, it  was permissible for such an  object of  general public  utility to  augment  its income by  engaging in trading or commercial activities.[497 B]      4.   When   the   Government   did   not   accept   the recommendation of the Direct Taxes Laws Committee in Chapter 2 for  the deletion of the words "not involving the carrying on of any activity for profit" occurring in Section 2(15) of the Act,  it was impermissible for the Court by a process of judicial construction to achieve the same result. [496 F]      5. In  the instant  case, activities of the assessee in regard to holding of the Indian Trade Fair and sponsoring of the  Conference   of  the  Afro-Asian  organisation  in  the relevant accounting  year were  for the  advancement of  the dominant object  and purpose  of the  trust, viz. promotion, protection and  development of  trade, commerce and industry in India.  The  income  derived  from  such  activities  was therefore exempt under S. 11(1)(a) read with S. 2(15) of the Act. [498 G-499 A]      6. There  is a  distinction between  the "purpose" of a trust  and  the  "power  conferred  upon  the  trustees"  as incidental to  the carrying  out  of  the  purpose.  If  the primary or  dominant purpose  of a  trust  or  institute  is charitable, any  other object  which is  merely ancillary or incidental to  the primary  or dominant  purpose, would  not prevent the  trust or the institution being a valid charity. [498 G, 499 A]      [Per Venkataramiah, J.]      1. It  is open to the Legislature to give encouragement to objects  which it  considers to  be laudable  by means of fiscal exemptions.  At the same time, it takes care to enact fresh provisions  from time to time to suppress any mischief which may  have resulted  from the  misuse of  existing law. Parliament deliberately  stepped in by adding the words "not involving the carrying on of any activity for profit" in the definition of  ’charitable purpose’  in section 2(15) of the Act, when  the tax  exemptions available  to charitable  and religious trusts came to be misused by some for the unworthy purposes of  tax avoidance. The law had been so restructured to prevent  allergy to taxation masquerading as charity. The law was  thus designed  by Parliament to prevent this misuse of tax exemption in the name of charity. [500 F-H]      2. This  Court has  enlarged  the  meaning  "charitable purpose" in Section 2(15) beyond what it legitimately should mean in the Surat Art Silk Cloth Manufacturers Association’s case. It  has virtually wiped off the restrictive words "not involving the  carrying  on  or  any  activity  for  profit" occurring in S. 2(15), thereby defeating the very object and purpose of  the legislation.  It is  not the  function of  a court of  law to  give the  words a  strained and  unnatural meaning. Judicial  attitudes cannot  be formed  in isolation from legislative processes, particularly, in connection with tax avoidance provisions. [500 D, 501A, 500E] 492      3. Modern legislation has changed in pattern re-casting provisions of taxation with very wide language, while at the same time  dealing in  much more  detail with  some areas of

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law. Judges  while responding  to general trends of law, but also reacting to the form of modern tax legislation, must be prepared to  take account of the context and purposes of the change brought about.[501 E]      Greenberg v.  Inland Revenue  Commissioners [1972] A.C. 109 (HL) referred to.      4.  When   the  Government   had   not   accepted   the recommendation of the Direct Taxes Laws Committee in Chapter 2 for  the deletion of the words "not involving the carrying on of  any activity for profit", by suitable legislation, it was impermissible  by a  process of judicial construction to achieve the same result. [501 B]      5. People  who are truly charitable do not think of the tax benefits  while making  charities. Even  the poor who do not pay income tax can be charitable and their charities are made at great personal inconvenience. Charitable persons are not amongst the tax payers only. [502 H-503 A]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Tax Reference Case No. 17 of 1975.      Under section  257 of  the Income Tax Act, 1961 made by the Income  Tax Appellate Tribunal, Delhi Bench in Reference Application  No.   92/DEL/71-72  arising   out   of   I.T.A. No.1339/DEL/68-69.      B.B. Ahuja and Miss A.Subhashini for the Appellant.      A.K Sanghi and Narayan Netter for the Respondent.      The following Judgments were delivered:      PATHAK, J.  In view  of the  majority opinion  of  this Court in  Additional Commissioner  of Income-tax, Gujarat v. Surat Art  Silk Cloth  Manufactures, the  reference must  be answered against the Revenue and in favour of the assessee.      SEN, J.  This direct  reference under  s.  257  of  the Income tax  Act, 1961 (hereinafter referred to as ’the Act’) made by the Income Tax Appellate Tribunal Delhi Bench ’B’ at the instance  of the  Commissioner of  Income Tax, Delhi II, New Delhi  raises the  much vexed question as to whether the words "not  involving the  carrying on  of any  activity for profit" in  the definition of ’charitable purpose’ contained in s.  2 (15)  of the Act, govern the word ’advancement’ and not the words ’object of general public utility. 493      The facts  giving rise to the reference are as follows: The Federation  of Indian Chambers of Commerce and Industry, New Delhi-hereinafter  referred to  as ’the  assessee’ is an existing company  under the  Companies  Act,  1956.  It  was registered under s. 26 of that Act and permitted to omit the word ’Limited’  from its  name. It  has  neither  any  share capital nor does it distribute any dividends to its members. The entire  income is  expended for  the fulfilment  of  its object. The  main object  of the  assessee is  the promotion protection and  development of  trade, commerce and industry in India.      The main objects for which the Federation has come into existence are  set  out  in  cl.  3  of  the  Memorandum  of Association which, insofar as material, reads:           3.(a) To  promote Indian  business in  matters  of      inland  and  foreign  trade,  transport,  industry  and      manufactures, finance  and all  other economic subjects      and  to   encourage  Indian   banking,   shipping   and      insurance.      While cl.  3(a) defines  the  primary  purpose  of  the trust, i.e.  to promote trade and industry which undoubtedly

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being  an  object  of  general  public  utility  engaged  in carrying  on  activities  without  any  profit  motive,  the subsidiary objects  set out  in sub-cls. (b) to (z2) of cl.3 are merely incidental or ancillary thereof.      During  the   assessment  year  1962-63,  the  relevant accounting year  for which  was the  year ended December 31, 1961 the  assessee submitted  a  return  showing  its  total income as  ’nil’ claiming  that all  its income  was  exempt under s.  11(1)(a) read with s. 2(15) of the Act. During the assessment year  in question,  the assessee  held the Indian Trade Fair  at New  Delhi and derived receipts totalling Rs. 75,18,548 from rent for space allotted, temporary stalls and storage. It  also received  Rs. 20,750  by  sale  of  season tickets and  Rs. 3,94,143 by daily gate tickets. It realised deposits  and  advances  from  the  participants  for  hotel accommodation.  In   the  relevant   accounting  year,   the Conference  of  the  Afro-Asian  Organisation  for  Economic Cooperation, sponsored  by the  assessee, was  held  at  New Delhi. For  organising the Conference, the assessee received Rs. 3,00,000  from the  Government of  India as grant-in-aid and after  meeting the  expenses, was left with a balance of Rs. 2,17,346.38.  Further, the  assessee received Rs. 265.50 as the  share of  profits on  the sale  of a book on Company Law, Rs.  5,371.82  as  fee  for  arbitration.  It  realised advances from  its members  for arbitration amounting to Rs. 20,000 from  out of  which a balance of Rs. 299.18 was left. The balance-sheet for the 494 accounting year shows that the assessee had in excess income of  Rs.   2,291.71  over  the  expenditure  under  the  head ’income’.      The contention  of the  assessee before  the Income Tax officer was that the activities carried on by the Federation were not  with the  motive of earning profits, but they were carried on  with the  object of  promotion,  protection  and development of  trade, commerce  and industry  in India  and abroad. Its  contention was  that the  dominant  object  for which the  Federation was  constituted  was  for  promotion, protection and  development of the country’s trade, commerce and industry  and  the  activities  carried  on  during  the assessment year  in question,  namely, the  holding  of  the Indian Trade  Fair and  of sponsoring  the Conference of the Afro-Asian  Organisation   for  Economic   Cooperation  were incidental or  ancillary to the main object, and, therefore, the income  derived therefrom  was exempt under s. 11 (1)(a) of the  Act. Reliance  in support  of  this  contention  was placed on  the decision  of this  Court in  Commissioner  of Income-Tax v. Andhra Chamber of Commerce. In the immediately preceding assessment  years 1960-61  and 1961-62, the income of the assessee was treated as exempt from tax under s. 4(3) (i) of the Income Tax Act, 1922.      The Income Tax officer, however, felt that the decision of this  Court in  the Andhra  Chamber  of  Commerce’s  case (supra) was  no longer  good law  due to the addition of the words "not  involving the  carrying on  of any  activity for profit" in  the definition  of ’charitable  purpose’  in  s. 2(15) of  the Act  which qualify the fourth head of charity, viz., "any  other object  of general  public utility",  and, therefore, must  be read subject to the additional statutory requirement that the object of general public utility should not involve  the carrying  on of any activity for profit. He accordingly raised  a demand of Rs. 49,818 on a total income of  Rs.   84,430  on   appeal,   the   Appellate   Assistant Commissioner disagreed  with the  view  of  the  Income  Tax Officer and  held that  the activities  carried  on  by  the

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assessee were not profit-oriented and, therefore, its income was exempt.  The Commissioner  of Income-tax appealed to the Appellate Tribunal  without any success. The Tribunal upheld the view  of the  Appellate Assistant  Commissioner and held that the  dominant object  with  which  the  Federation  was constituted being  a charitable  purpose,  viz.,  promotion, protection and  development of trade, commerce and industry, there being no motive to earn profits, it was not engaged in any activity in the nature of business or trade, and, if any 495 income arose  from such  activity, it was only incidental or ancillary to  the dominant object for the welfare and common good of the country’s trade, commerce and industry.      Thereupon, the  Commissioner of  Income Tax  applied to the Appellate Tribunal to make a reference to the High Court under sub-s.(1)  of s.256  of the  Act, but the Tribunal, in view of  the conflict in the decisions of the High Courts on the construction  of the  expression ’charitable purpose’ as defined in  s. 2(15) of the Act, has made a reference of the following questions  to this  Court under s. 257 of the Act, for its opinion, namely:           1. Whether  having regard  to  the  definition  of      charitable purpose  as contained  in Section 2(15) read      with Sections  11(1) and  11(4), charging  sections and      sections  dealing   with  computation  of  income,  the      assessee was  liable to  be taxed  in respect of income      relating to assessment year 1962-63 ?           2. Whether  on the  facts and in the circumstances      of the  case, the  Tribunal was right in law in holding      that the  income earned  by the assessee would not come      within  the  provisions  of  Section  2(15)  read  with      Section 11  of the  Income-Tax Act,  1961 and  the onus      that this  profit was  not exempt  from tax would be on      the Revenue ?           3. Whether  on the  facts and in the circumstances      of the  case, the  purpose of  the Federation of Indian      Chambers of  Commerce and  Industry was  advancement of      objects of  general public  utility not  involving  the      carrying on of any activity for profit ?      There had  been a sharp conflict of opinion between the different High  courts as  to the  construction of  the  ten 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". This Court  resolved the  conflict in the Sole Trustee, Loka Shikshan Trust v. C.I.T. and the Indian Chambers of Commerce v. C.I.T.  by holding  that the  words  "not  involving  the carrying on  of any  activity for  profit" govern  the  word "advancement"  and  observed  that  if  the  advancement  or attainment of  the object  involves an  activity for profit, tax exemption would not be available. 496      Unfortunately for  the Revenue,  the Court  has,  in  a five-Judges Bench,  by a  majority  of  4  to  1,  in  Addl. Commissioner  of   Income  Tax   v.  Surat  Art  Silk  Cloth Manufactures’ Association  reversed these  two decisions  in the Loka  Shikshan Trust’s  case and  the Indian Chambers of Commerce’s case  (supra). The  Court  has  approved  of  the observations of  Beg, J.  in  his  separate  but  concurring judgment in  the Loka  Shikshan Trust’s  case that  "if  the profits must  necessarily feed  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." In  other words,  the majority  view in  the Surat Art  Silk’s case  (supra) was  that the condition that

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the purpose  should not  involve  the  carrying  on  of  any activity for  profit would  be satisfied if profit-making is not the  real object.  The theory  of  dominant  or  primary object of  the trust  has, therefore, been treated to be the determining factor,  even in  regard to  the fourth  head of charity, viz.,  the  advancement  of  any  other  object  of general public  utility, so  as to  make the  carrying on of business activity merely ancillary or incidental to the main object.      One  should  have  thought  that  the  correct  way  to approach this  question of  interpretation was  to give  the words used  by Parliament  their  ordinary  meaning  in  the English language  and if,  consistently  with  the  ordinary meaning,  there   was  a   choice  between  two  alternative interpretations,  then   to  prefer  the  construction  that maintains a  reasonable and  consistent scheme  of  taxation without distorting the language. When the Government did not accept the recommendation of the Direct Taxes Laws Committee in Chapter  2  (Interim  Report,  December,  1977)  for  the deletion of  the words "not involving the carrying on of any activity for  profit" occurring  in s. 2(15) of the Act, the Court has by a process of judicial construction achieved the same result.      Whatever  reservations   one  may  have  regarding  the correctness  of  this  interpretation  of  the  exclusionary clause in  the definition  of charitable purpose in s. 2(15) of the Act, there can be no doubt that the majority decision in the  Surat Art Silk’s case (supra) is binding on us. With respect, I venture to say that the majority decision has the effect of  neutralising the radical changes brought about by Parliament 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 497 charities. It is the vagueness of the fourth head of charity "any other  object of  general public utility" that impelled Parliament to  insert the  restrictive words  "not involving the carrying  on of any activity for profit". In my minority opinion  in   the  Surat  Art  Silk’s  case  (supra)  I  had endeavoured to  give reasons  why  the  correctness  of  the majority decision was open to question. There is no point in traversing the  same  ground  over  again.  It  was  clearly inconsistent with the settled principles to hold that if the dominant or  primary object  of a  trust was ’charity’ under the  fourth   head  ’any  other  object  of  general  public utility’, it  was permissible  for such an object of general public utility, to augment its income by engaging in trading or commercial activities.      In retrospect  it seems  that it would have been better for Parliament to have deleted the fourth head of "any other object of  general public  utility" from  the ambit  of  the definition of  ’charitable purpose’  while enacting s. 2(15) of the Act rather than inserted the words "not involving the carrying on  of any  other  activity  for  profit",  thereby creating all this legal conundrum. In England, the Radcliffe Commission on  Taxation of Profits and Income recommended in 1955 that  for  purposes  of  taxation,  charity  should  be restricted to  relief of  poverty, advancement  of education and advancement  of religion  and that  the fourth  category mentioned in  the dictum of Lord Macnaghten, namely, "trusts for other  purposes beneficial  to the  community’ should be cut out entirely.      The majority  in the  Surat Art Silk’s case (supra) has evolved the doctrine of dominant or primary object and there

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is  little  that  we  can  do  about  it.  Faced  with  this difficulty, learned  counsel for  the  Revenue  advanced  no submissions  with  regard  to  the  questions  referred  and indeed, in  view of  the majority  decision in the Surat Art Silk’s case  (supra) the  answers to the questions are self- evident. The doctrine of dominant or primary object must, as laid down in the Surat Art Silk’s case, holds the field till there is a change in the law. Undoubtedly, the activities of the assessee  in regard  to holding of the Indian Trade Fair and  sponsoring   of  the   Conference  of   the  Afro-Asian Organisation in  the relevant  accounting year  were for the advancement of the dominant object and purpose of the trust, viz., 498 promotion, protection and development of trade, commerce and industry in  India. Learned  Counsel for  revenue  with  his usual fairness,  conceded that  the income  derived  by  the assessee from  such activities  was exempt  under s.11(1)(a) read with s.2(15) of the Act.      It was, however, urged that the objects set out in sub- cls. (v),  (z1) and  (z2)  of  cl.3  of  the  Memorandum  of Association  of   the  Federation  were  not  incidental  or ancillary to the main object of the trust. The relevant sub- clauses are set out below:           (v)  To   establish  and   support  or   aid   the      establishment    and     support    of    associations,      institutions, funds, trusts and convenience, calculated      to  benefit   employees  of   the  Federation   or  the      dependents or  connections of  such persons,  and grant      pension and  allowances, and  to make  payments towards      insurance, and  to subscribe  or  guarantee  money  for      charitable or  benevolent objects or for any exhibition      for any public, general, useful object.           (z1) To establish a Trust or Trusts and/or appoint      Trustees thereof  from time  to time and vest the funds      or the surplus income or any property of the Federation      in the Trustees who shall hold and deal with the funds,      surplus income  or  property  in  such  manner  as  the      committee may decide.           (z2) To  undertake  and  execute  any  Trusts  the      undertaking  of   which  may  seem  to  the  Federation      desirable either gratuitously or otherwise.      The contention  advanced cannot  be accepted,  for  the reason that  no such  point was  ever raised at any stage of the proceedings,  much less  before the  Appellate Tribunal. Even otherwise,  there appears  to be  no substance  in  the contention. There  is a distinction between the "purpose" of a trust  and the  "powers" conferred  upon the  trustees  as incidental to  the carrying  out of  purpose.  For  instance cl.3(v)   enables   the   establishment   and   support   of associations, institutions,  funds, trusts  and  convenience calculated to  benefit the  employees and  their dependents, for making  provisions for  grant of  pension and allowances etc.  The  framing  of  such  employee  benefit  schemes  is essential and  necessary for  the proper  functioning of the organisation and  is incidental  to the  carrying out of the purpose for 499 which it  is constituted.  I  refrain  from  expressing  any opinion whether  or not  the employees constitute a "section of the public". For, if the primary or dominant purpose of a trust or  institution is  charitable, any other object which is merely ancillary or incidental to the primary or dominant purpose, would  not prevent  the trust  or institution  from being a  valid charity.  Likewise, cls.3(z1)  and (z2) which

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permit the  establishment of  a trust or trusts, appointment of trustees  thereof from  time to  time and  the vesting of funds or  surplus income  or any property of the assessee in the trustees,  are nothing  but powers conferred on them for the proper  financial management of the affairs of the trust which are incidental or ancillary to the main purpose of the trust. The contention must, therefore, fail.      In the  result, the reference under s.257 of the Income Tax Act,  1961 made  by the  Income Tax  Appellate Tribunal, Delhi-B, New Delhi, must be answered against the Revenue and in favour  of the  assessee. There  shall be  no order as to costs.      VENKATARAMIAH, J.  I have  had the advantage of reading the judgment prepared by my learned brother A.P. Sen, J. and I respectfully  agree with  his reasoning  and conclusion. I share with  him my  doubts  about  the  correctness  of  the decision in  Additional Commissioner  of Income tax, Gujarat v. Surat  Art Silk Cloth Manufacturers’ Association. I would like to say a few words of my own on the subject.      There can  be no  objection to  a person  spending  his money on charity. But can he be charitable at the expense of others? This  is a question which necessarily arises when we read section  11 of  the Income-tax Act, 1961. Section 11 as it stands  now grants  exemption from  payment of tax on any income, which  would have  otherwise been  taxable, provided (1) the property yielding income is held under trust or such other legal obligation which is brought into existence by an act of  party and  not by  an act of law, (2) the purpose of the trust  is charitable  which may  enure to the benefit of the public  or a  section of  the public  and (3)  the other conditions prescribed  by the  Act are  satisfied. It  means that if  there is  a diversion of property or income earning apparatus by an act of party into a charitable trust and the prescribed conditions are satisfied, the income derived from it (including  the portion  which would  have  gone  to  the public exchequer but for the trust) may be spent by a person in charge of the 500 affairs of the trust on objects indicated in the trust which is a creature of its author. In effect what does it mean? It means that  the author of the trust is able to divert by his own will  to a purpose of his own choice, though charitable, a large  part of  the income  which would have been, but for the trust,  at the  disposal of  the Legislature which alone has the power over the national exchequer. Whatever may have been the  position in  those days  when the State was just a police State  performing minimum  functions  of  Government, today when  the State  is a  welfare State would it be right either morally  or constitutionally  to allow  amounts which should legitimately form part of the revenue of the State to be dealt  with by  non-Governmental  agencies  administering trusts is  a  question  which  requires  examination  in  an appropriate case. This, however, is a larger question which, if logically  pursued, may  justify total  deletion  of  the exemption accorded  in the  case of charitable and religious trustee.      But even as the provisions now stand, I feel that while construing them,  this Court  has enlarged  the  meaning  of "charitable purpose"  in  section  2  (15)  beyond  what  it legitimately  should  mean  in  the  Surat  Art  Silk  Cloth Manufacturers’ Associations’ case (supra).      I would  like to  adopt the  words  in  the  dissenting judgment of  my learned brother A.P. Sen J. in the Surat Art Silk Cloth Manufacturers’ Association’s case (supra):           "The  judicial   attitudes  cannot  be  formed  in

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    isolation from  legislative processes, particularly, in      connection with tax avoidance provisions."      It is  true that  it is open to the Legislature to give encouragement to  objects which  it considers to be laudable by means  of fiscal  exemptions. At  the same  time it takes care to enact fresh provisions from time to time to suppress any mischief  which may  have resulted  from the  misuse  of existing law.  Parliament deliberately  stepped in by adding the words "not involving the carrying on of any activity for profit" in the definition of charitable purpose in section 2 (15) of  the Act,  when  the  tax  exemptions  available  to charitable and  religious trusts  came to be misused by some for the unworthy purposes of tax avoidance. The law had been so re-structured to prevent allergy to taxation masquerading as charity.  The law  was thus  designed  by  Parliament  to prevent this misuse of tax exemption in the name of charity. The  majority   decision  in   the  Surat   Art  Silk  Cloth Manufacturers’ Association’s  case (supra),  if I may say so without meaning 501 any disrespect,  has virtually  wiped  off  the  restrictive words "not  involving the  carrying on  of any  activity for profit" occurring  in section  2(15), thereby  defeating the very object  and purpose  of the  legislation. It is not the function of  a court of law to give the words a strained and unnatural meaning.      When the Government had not accepted the recommendation of the  Direct Taxes  Laws Committee  in Chapter  2 (Interim Report, December,  1977) for  the deletion of the words "not involving the  carrying on  of any  activity for profit", by suitable legislation, it was impermissible for this Court by a process  of judicial  construction  to  achieve  the  same result. If  I may  adopt the words of Lord Reid in Greenberg v. IRC  quoted in  the minority  decision in  Surat Art Silk Cloth Manufacturers’  Association’s case  (supra) displaying the court’s  concern about  the prevailing  attitude of  tax statutes:           "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 alternative may be for Parliament to      do as  some other  countries have  done, and  introduce      legislation of a more sweeping character... "      Modern legislation  has changed  in pattern towards re- casting provisions  of taxation  with  very  wide  language, while at the same time dealing in much more detail with some areas of  law. Judges, while responding to general trends of law,  but   also  reacting   to  the   form  of  modern  tax legislation, must be prepared to take account of the context and purposes of the change brought about.      It is relevant to refer to one other aspect arising out of an  observation  made  in  the  course  of  the  majority judgment  in   the  Surat   Art  Silk   Cloth  Manufacurers’ Association’s case  (supra)  suggesting  that  the  area  of exemption under  Indian law  is  much  wider  than  what  is available under  English  law.  The  relevant  part  of  the majority judgment reads:           "The definition  of "charitable purpose" in Indian      Law thus  goes much  further  than  the  definition  of      charity to  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 502      a purpose  falls within  one of  the four  divisions of

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    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 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 (12  I.T.R.      482) 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."      If  Indian   life  should  be  a  true  guide  for  the determination of  questions arising in court, then we should go back  to our  ancient treatises  to  find  out  the  true meaning of  charity which  may be either dana or utsarga. In the case  of dana  the donor  gives up  his ownership over a thing, makes  another the  owner of it and cannot thereafter use it  nor has  he any control over it. When a man makes an utsarga, he no doubt gives up his ownership but gives up the thing for  the benefit  of all. Opinion is, however, divided whether as  a member  of the  public he can also use a thing thus dedicated for the public. But in any event, he would no longer have  any control  over the thing dedicated. How many of the  so called  charitable trusts  satisfy the rigours of the Indian  concept of  charity? Are  there any  measures by which  misuse   of  funds  belonging  to  charities  can  be effectively checked?      It is  wrong to  think that  all springs  of charity in India will  dry up if true effect is given to section 2 (15) of the  Act in  accordance with the minority judgment in the Surat  Art  Silk  Cloth  Manufacturers’  Association’s  case (supra). People who are truly charitable do not think of the tax benefits while making charities. One must realise 503 that even  the poor  who  do  not  pay  income  tax  can  be charitable  and  their  charities  made  at  great  personal inconvenience are  commendable indeed.  One need  not go  in search of  charitable persons  amongst the  tax payers only. Still the majority view has got to be followed now. N.V.K. 504