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PETITIONER: COMMISSIONER OF INCOME TAX

       Vs.

RESPONDENT: DHARMODAYAN & CO., KERALA

DATE OF JUDGMENT22/08/1977

BENCH: CHANDRACHUD, Y.V. BENCH: CHANDRACHUD, Y.V. KAILASAM, P.S.

CITATION:  1977 AIR 2211            1978 SCR  (1) 319  1977 SCC  (4)  75  CITATOR INFO :  D          1978 SC1443  (11)  R          1980 SC 387  (13,15)

ACT: Income-Tax  Act,  1961-ss.  11(1)(a) and  2(15)  and  Indian Income-Tax  Act,  1922. 4(3)(i)-Scope of change in  the  two provisions. Assessee  carrying on business of kuries  (chit  funds)-High Court held assessee’s income exempt from tax under 1922 Act- Income Tax Officer held that earlier decision no longer  law because of change in definition of charitable purpose  under 1961 Act-Earlier decision, if good law.

HEADNOTE: Under  s. 4(3)(i) of the Indian Income-tax Act, 1922  income derived  front  property held under trust for  religious  or charitable  purposes was exempt from taxation in so  far  as such  income was applied for those purposes.  By cl. (b)  of the  proviso to s. 4(3)(i) income mentioned in cl.  (i)  was includable  in  the total income of the assessee if  it  was "derived  from business carried on behalf of a religious  or charitable  institution".   But  cl.  (b)  of  the   proviso contained  an exception to an exception to the  effect  that even  income  derived from business carried on behalf  of  a religious  or charitable institution was exempt from tax  if it  was applied wholly for the purposes of  the  institution and either the business was carried on in the course of  the actual carrying out of a primary purpose of the  institution or  the  work  in connection with the  business  was  mainly carried on by the beneficiaries of the institution.  Section 11(1)(a)  of the 1961 Act contains an  identical  provision. Section  2(15) of the 1961 Act defines "charitable  purpose" to include, inter alia, the advancement of any other  object of  general public utility not involving the carrying on  of any activity for profit. In respect of certain previous assessment years (1952-53  to 1956-57)   of  the  assessee  the  Kerala  High   Court   in Dharmodayan Co v. C.I.T. Kerala (45 ITR 478) held that since the business of kuries (chit funds) was held by the assessee under a trust for religious or charitable purposes, it could not  be said that the business was conducted "on behalf  of" the religious or charitable institution and that the  income

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from  kuries  in so far as it was applied for  religious  or charitable  purposes was exempt from tax.  Revenue filed  an appeal  in  this Court but withdrew it with the  result  the High Court’s decision became final. After the 1961 Act came into force, for the assessment  year 1968-69, the Income Tax Officer declined to grant  exemption in respect of income derived by the assessee from its  kurie business.   On appeal, the Appellate Assistant  Commissioner held  that despite the amendment introduced in s.  2(15)  of the  1961 Act the earlier decision in Dharmodayan held  good and  that  the assesses was entitled to claim  exemption  in regard  to its income from kuries.  This was upheld  by  the Tribunal. Two  questions, whether the Tribunal was correct in  holding (1) that the income derived by the assessee was exempt under s.  11(1)(a) of the 1961 Act and (2) that setting  apart  of reserves  under  art.  39  of  the  assessee’s  articles  of association  did not vitiate the charitable purpose  of  the institution,  which  were referred to the  High  Court  were answered in favour of the assessee. In appeal to this Court it was contended by the Revenue that by  reason of the words "not involving the carrying  on  any activity  for profit" occurring in s. 2(15) of the 1961  Act the decision of the High Court in Dharmodayan was no  longer good  law and therefore that decision could not be  said  to go-tern the question whether income received by the assessee by conducting kuries was exempt from taxation. 320 Dismissing the appeals, HELD:     Income  derived  by the assessee  from  kuries  is exempt  from  taxation under s. 11(1)(a) of  the  1961  Act. [328E] 1(a) The significant change brought about in this regard  by the 1961 Act is that by reason of the definition in s. 2(15) income  derived from a business which is carried on for  the advancement of an object of general public utility has to be included  in  the assessee’s total income,  if  it  involves carrying  on  of any activity for profit, while,  under  the 1922  Act income derived from a business carried on for  the purpose of advancing an object of general public utility was excludable   from  the  assessee’s  income,  even  if   such advancing  involved  the  carrying on  of  an  activity  for profit, if the income was applied wholly for the purpose  of the institution. [323G- H] (b)  It  will  be  erroneous to say  that  the  decision  in Dharmodayan has lost its validity by    reason of the change in the definition of charitable purpose brought about  by the 1961 Act.  That ’ judgment concludes the point that  the kurie business is  not conducted by the respondent in  order to advance or for the purpose of   advancing  any object  of general public utility. [324G] (c)  The  assumption  in the appellant’s argument  that  the respondent  is  running the kurie business as  a  matter  of advancement  of an object of general public utility  or  for that purpose is plainly contrary to the finding of the  High Court in Dharmodayan that the kurie "business itself is held under a trust for religious or charitable purposes".  It  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.  The appeal to This  Court  against  that decision  was  withdrawn  by  the Revenue.   Though  the relevant  legislative  provision  has undergone  a change the nature of the respondent’s  activity remains what it was when the High Court gave its judgment in Dharmodayan. [324D-F]

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C.I.T. v. P.  Krishna Warrier 53 ITR 176 explained. East India Industries (Madras) (P) Ltd. v. C.I.T. 65 ITR 611 and C.I.T. v.  P.  Krishna Warrier, 84 ITR 119  referred  to Sole  Trustee,  Lok Shikshana Trust v. C.I.T.  101  ITR  234 distinguished. (d)  Although  in the Indian Chamber of  Commerce v.  C.I.T. (101 ITR 796) attention of this Court was specifically drawn to  the judgment under appeal (reported in 94 ITR  113)  and this  Court criticized that decision as applying  the  wrong test, it cannot be said that decision has been overruled  as stated  in  the headstand because the facts of  the  instant case  were  not before this Court.  Further, it  is  evident from  this decision that the test applied by the High  Court was  held to be wrong on the assumption that  the  case-fell under the last clause of s. 2(15) which was the only part of that  clause  relevant for deciding the  Indian  Chamber  of Commerce  case.   From  the  fact  that  the  word  industry occurring   in  the  sentence  "the   assessee-company   was conducting  a profitable business of running chit funds  and its memorandum of association had as one of its objects ’to    do the  needful  for the promotion of  charity,  education  and industry’ has been  italicised in that case it is plain that the Court assumed that the assessee was engaged  in  running an industry.  On the facts of this case it is impossible  to hold  that the last clause of s. 2(15) has any  application. Moreover,  in the light of the activities of the  respondent spread  over  the past several years, no importance  can  be attached to cl. 39 of the Articles of Association.  It  is, therefore, difficult to read the decision in Indian  Chamber of  Commerce as overruling the judgment under  appeal.   The Court  was not even apprised in that case that  this  appeal was  pending against the decision of the High Court.  [327B, 328A-C] 2(a)  The  mere  power  under art. 39  of  the  Articles  of Association  to set apart reserves will not,  without  more, vitiate the charitable nature of the institution.  The  only activity  in which the respondent is engaged over the  years is the conduct of kuries.  The respondent had never  engaged itself  in any industry or in any other activity  of  public interest. [328F] (b)  If  and  when  the respondent  sets  apart  the  entire profits  or  a  substantive  part of  it  for  reserves  the Department will have ample powers and opportunity 321 to deny the exemption to it.  The High Court has found  that the respondent has spent its income for charitable purposes. [328F]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1521-1523 of 1973. Appeals  by  the Special Leave from the Judgment  and  Order dated  5-10-72  of  the  Kerala High  Court  in  income  Tax Reference  No.  75 of 1971 and O. P. Nos. 1588 of  1969  and 637/72. J.   Ramamurthi and Girish Chandra, for the Appellant. S.   T. Desai (In CA 1521/73), Y. S. Chitale (C.A. 1522-23), Paripurna,  A.  S.  Nambiar, Miss  Pushpa  Nambiar  and M. Mudgal, for the Respondent. The Judgment of the Court was delivered by CHANDRACHUD,  J.-The assessee in these appeals is a  company which  was  registered under the Cochin  Companies  Act  and later under the Indian Companies Act, 1956.  The sources  of

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income  of the assessee are interest on  securities,  income from property and kuries or chit funds.  For the  assessment years  1952-53 to 1956-57, in making its returns of  income, the  assessee  did not show the income from  kuries  on  the ground  that it was exempt under s. 4(3) (i) of  the  Income Tax  Act 1922 and that the proviso to that ’section  bad  no application as the business of kuries was not carried on "on behalf of a religious or charitable institution" but was the trust business of the assessee itself.  This contention  was rejected by the Income-tax Officer, the Appellate  Assistant Commissioner  and the Appellate Tribunal. but  on  reference under s. 66(1) of the Act of 1922, the High Court of  Kerala in Dharmodayan Co. v. Commissioner of Income Tax,  Kerala(1) held  that  the business of kuries was itself  held  by  the assessee under a trust for religious or charitable  purposes and  that  it  could  not be  said  that  the  business  was conducted  "   on  behalf of" the  religious  or  charitable institution.   Therefore,  according to the  Division  Bench which decided that case, the proviso to s. 4(3) (i) was  not attracted  and  the income from kuries in so far as  it  was applied for religious or charitable purposes was exempt from tax.  The Revenue brought the matter in appeal to this Court but it withdrew the appeal with the result that the decision of the High Court became final. The instant case arose after the Income Tax Act of 1961 came into force, the assessment year being 1968-69.  The  Income- tax  Officer declined to grant exemption in respect  of  the income derived by the. assessee from its kurie business  but that  order  was  set  aside  by  the  Appellate   Assistant Commissioner  whose Judgment was confirmed by the  Appellate Tribunal.   These  two  authorities held  that  despite  the amendment  introduced  by the Act of 1961 in s.  2(15),  the earlier decision would apply and the assessee was  therefore entitled  to  claim exemption in regard to its  income  from kuries. (1)  45 I.T.R. 478. 322 The  Tribunal, at the instance of the Revenue, referred  the following two questions for the opinion of the High Court :               "1.    Whether,  on  the  facts  and  in   the               circumstances  of  the  case,  the   Appellate               Tribunal is correct in law in holding that the               income derived by the assessee is exempt under               section 11 (1) (a) of the Income-tax Act, 1961               ?               2.    Whether,   on  the  facts  and  in   the               circumstances  of the case, the  Tribunal  was               right  in holding that setting apart  reserves               under Article 39 of the assessee’s  memorandum               did not vitiate the charitable purpose of  the               institution." The assessee also filed two writ petitions in the High Court challenging, by one writ petition, a notice for reopening an assessment  and  by the other, a notice calling upon  it  to file  a return.  The High Court answered both the  questions in  favour of the assessee, allowed the writ  petitions  and quashed  the  notices.  These appeals by special  leave  are directed against the judgment and orders of the High Court. On the first of the two questions referred to the High Court for   its   opinion  it  becomes   necessary   to   consider comparatively  the  relevant provisions of s.  4(3)  of  the Income Tax Act 1922 as it existed when the Kerala High Court decided  the Dharmodayam case (supra) on December  20,  1961 and  the provisions contained in the relevant part of s.  11 read with s. 2(15) of the Income Tax Act 1961.

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Section 4(3) of the Act of 1922 read thus :               "4(3)  Any  income, profits or  gains  falling               within  the  following classes  shall  not  be               included  in  the total income of  the  person               receiving them :               (i)   Subject to the provisions of clause  (c)               of sub-section               (1)   of  section 16, any income derived  from               property  held  under  trust  or  other  legal               obligation wholly for religious or  charitable               purposes, in so far as such income is  applied               or   accumulated  for  application   to   such               religious or charitable purposes as relate  to               anything done within the taxable  territories,               and  in the case of property so held  in  part               only for such purposes, the income applied or               finally set apart for application thereto :               Provided that such income shall be included in               the total income.               (b)   in  the  case  of  income  derived  from               business  carried on behalf of a religious  or               charitable  institution, unless the income  is               applied   wholly  for  the  purposes  of   the               institution and either-               (i)   the business is carried on in the course               of the actual               carrying   out  of  a primary purpose  of  the               institution, or               (ii)  the work in connection with the business               is mainly               carried   on  by  the  beneficiaries  of   the               institution."               Section  11 (1) (a) of the Act of  1961  reads               thus :               323               "Income  from property held for charitable  or               religious   purposes.-(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  or   religious               purposes,  to the extent to which such  income               is  applied  to such purposes in  India;  and,               where  any such income is accumulated  or  set               apart  for  application to  such  purposes  in               India,  to the extent to which the  income  so               accumulated  or set apart-is not in excess  of               twenty-five per cent. of the income from  such               property;"               Section 2(15) of the Act of 1961 says               "2. In this Act, unless the context  otherwise               requires,-               (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  is  undeniable  that the law  governing  exemption  from taxation of income derived from property held for  religious or  charitable  purposes has undergone  significant  changes after the enactment of the Act of 1961.  Under section  4(3) (i)  of  the Act of 1922, in so far as is relevant  for  the present  purposes, income derived from property  held  under

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trust  for religious or charitable purposes was exempt  from taxation  in  so far as such income was  applied  for  those purposes.   Section 1 1 (1) (a) of the Act of 1961  contains for  our purposes an identical provision, subject of  course to the argument of the revenue with which we will  presently deal that the definition of ’charitable purposes’ in section 2(1)  of  that  Act alters the very basis  of  exclusion  of income  from  property  held  for  religious  or  charitable purposes.  By clause (b) of the proviso to section 4 (3) (i) of the Act of 1922, which was in the nature of an exception, income mentioned in clause (i) was includable, in the  total income  of  the assessee if it was  "derived  from  business carried on behalf of a religious or charitable institution". But  clause (b) of the proviso contained an exception to  an exception  to  the  effect that  even  income  derived  from business  carried  on behalf of a  religious  or  charitable institution  was  to be exempt from tax if it  ;was  applied wholly  for the purposes of the institution and  either  the business was carried on in the course of the actual carrying out of a primary purpose of the institution, or the work  in connection  with the business was mainly carried on  by  the beneficiaries of the institution.  Section 2(15) of the  Act of  1961 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.  By reason of  this definition, income derived from a business which is  carried on  for  the  advancement of an  object  of  general  public utility  has to be included in the assessee’s total  income, if  it  involves  carrying on of any  activity  for  profit. Under  the  Act  of 1922, income  derived  from  a  business carried on for the purpose of advancing an object of general public  utility  was  excludable  from  the  assessee  total income, even if such advancing involved 324 the carrying On of an activity for profit, if the income was applied  wholly  for  the purposes of  the  institution  and either  the  business was carried on in the course,  of  the actual carrying out of a primary purpose of the  institution or  the  work  in connection with the  business  was  mainly carried on by the beneficiaries of the institution.  This is the significant change brought about by the 1961 Act. But, we are unable to accept the submission made by Mr. Ram- murthi on behalf of the revenue that by reason of the change brought  about by the Act of 1961 in the definition  of  the expression ’charitable purpose’, the judgment of the  Kerala High Court in Dharmodayain (supra) is not good law and  that the  decision therein cannot any longer govern the  question whether  income received by the assessee by  conducting  the kuries  is  exempt from taxation.  The  entire  argument  is built  around the words "advancement of any other object  of general public utility not involving the, carrying on of any activity  for  profit"  which occur  in  the  definition  of "charitable purposes" contained in section 2(15) of the  Act of  1961, particular emphasis being laid by counsel  on  the expression not involving the carrying on or any activity for profit".   This  argument  assumes that  the  respondent  is running  the kuries as a matter of advancement of an  object of  general public utility.  If that were so, it would  have been  necessary  to inquire whether  conducting  the  kuries business  involved  the  carrying on  of  any  activity  for profit.   The  answer, perhaps, to that inquiry  might  have been  in  the  affirmative since,  speaking  generally,  the conduct  of  a  business  involves the  carrying  on  of  an activity for profit.  But the assumption that the respondent

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is running the kurie business as a matter of advancement  of an  object of general public utility or for that purpose  is plainly contrary to the finding of the Kerala High Court  in Dharmodayam (supra) that the kurie "business itself is  held under a trust for religious or charitable purposes".  It  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.  The  decision of the Kerala High Court was challenged by the revenue in an appeal filed in this Court, but that appeal was withdrawn by it.   The  relevant  legislative  provision  has   certainly undergone  a  change,  but the nature  of  the  respondent’s activity remains what it was when the Kerala High Court gave its  judgment  in  Dharmodayam.   It  will,  therefore,   be erroneous to say, as contended by Mr. Rammurtbi on behalf of the revenue, that the Kerala judgment has lost its validity. That judgment, in our opinion, concludes the point that  the kurie  business is not conducted by the respondent in  order to  advance  or for the purpose of advancing any  object  of general public utility. Nothing  really  turns  on  the  respondent’s  Articles   or Association  or  on the circumstances that  article  39  was amended  in 1963 after the High Court gave its  judgment  on December  30, 1961.  Article 39, as it then stood, has  been set out at page 480, para 9, of the High Court’s judgment in Dharmodayam.  The present article 39 reads thus :               "The  profits  of this company  shall  not  be               divided  among the members.  From  the  annual               net  profits from the working of the  company,               such proportion as the General Meeting may               325               deem  fit may be set apart towards  a  reserve               fund  for  the stability of  the  Company  and               towards  a  reserve  for  bad  debts  and  the               balance  of the profit may in accordance  with               the  object  in  the memorandum  be  spent  on               charity,   education,   industry   and   other               purposes of public interest." It  is  undisputed that the respondent  company,  which  was registered  on January 21, 1959 under the  Cochin  Companies Act,  has  never engaged itself in any industry  or  in  any other activity of public interest.  It is notorious that the memoranda  and articles of association of companies  usually cover  a variety of activities, only a few of which  are  in fact undertaken or intended to be undertaken.  That obviates the  necessity  for applying for amendment of  the  articles from time to time and helps rule out a possible challenge on the  ground that the company has acted beyond its powers  in undertaking  a  particular  form  of  activity.   The   only activity  in which the respondent is engaged over the  years is the conduct of kuries.  On this aspect of the matter  the High  Court  rightly  observes  : "There  is  no  case  that Dharmodayam Company ever started any industry; there is also no  ground for saying that the object of the Company was  to start an industry for the purpose of making profit". (1) We,  may now notice some of the decisions cited at the  bar. In  C.I.T. Kerala v. P. Krishna Warrier(2), it was  held  by this  Court in a case which arose under section 4(3) (i)  of the  Act  of  1922 that clause (b) of  the  proviso  to  the section which spoke of income derived from "business carried on behalf of a religious or charitable institution" did  not apply  to  cases in which the business itself  was  held  in trust.   Speaking for the Court, Subba Rao J. observed  that if  business is property and is held under trust,  the  case would fall squarely under the substantive part of clause (i)

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and  in  that  event, clause (b) of the  proviso  cannot  be attracted  since,  under  that clause of  the  proviso,  the business  mentioned therein is not held under trust  but  is one   carried  on  behalf  of  a  religious   or   chirtable institution.   The importance of this decision is  two-fold. In the first place, it places in a proper light the decision of  the Kerala High Court to Dharmodayam (supra) by  showing that the High Court having held in that case that the  kurie business  was itself held by the respondent in trust,  there was no scope for saying that the business was carried on  on behalf   of   any  religious  or   charitable   institution. Therefore,  despite the change brought about by the  Act  of 1961 by framing a new definition of ’charitable purpose’,  a busness which was held in trust cannot by mere reason of the amendment  become  a  business started for  the  purpose  of advancing  an object of general public utility.  The  second aspect  on which the decision in Krishna Warrier (supra)  is important  is that the judgment of the Kerala High Court  in Dharmodayam was referred to by this Court approvingly. Counsel  for  the revenue, however, relies on  a  subsequent judgment  of  the Kerala High Court in C.I.T v.  P.  Krishna Warrier(3) in (1) 94 I.T.R. 113,  119. (2)  53 T.T.R. 176. (3)  84 I.T.R. 119. 326 which the impact of section 2(15) of the Act of 1961 had  to be  considered.  This case arose out of identical  facts  as the  decision  of this Court in 53 ITR 176,  which  we  have discussed  above.  After referring to the judgment  of  this Court  in the, earlier case, the Kerala High Court took  the view  that  the  income in respect of  which  exemption  was claimed  was  not excludable from the total  income  of  the assessee since the assessee had commenced a business for the purpose  of  advancing an object of general  public  utility involving the carrying on of an activity for profit. He main argument advanced before the Kerala High Court was that  the true  purpose  of  the business, as  gleaned  from  all  the circumstances of the case, was to afford medical relief  and not the advancement of an object of general public  utility. The  High  Court rejected that argument and  held  that  the preparation  and sale of Ayurvedic medicines cannot be  said to  be  an  activity in the nature of  medical  relief.   As explained  earlier, in the instant case the last  clause  of section  2(15)  of the Act of 1961, which  is  described  in various judgments as the fourth category falling within  the terms of that section, has no application. The decision of this Court in East India Industries (Madras) Private  Limited  v. C.I.T. Madras(1) arose out  of  similar facts  as  the Kerala judgment in Warrier (supra).   It  was held  by  this Court that the carrying on of a  business  of manufacture,   sale  and  distribution  of   pharmaceutical, medicinal and other preparations was neither charitable  nor religious  in character and since the trustees could,  under the  deed, validly spend the entire income of the  trust  on such nonchargeability objects, the assessee was not entitled to  claim deduction under section 15B of the Act of 1922  in respect of donations received by the trust. In Sole Trustee, Loka Shikshana Trust v. C.I.T Mysore(2), it was  held  by this Court that though a  number  of  objects, including  the setting up of educational institutions,  were mentioned in the trust deed as the, objects of the trust, at the  relevant time the trust was occupied only in  supplying the  Kannada  speaking  people with an organ  or  organs  of educated public opinion.  This, according to the Court,  was

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not  ’education’ within the meaning of section 2(15) of  the Act  of 1961, which expression was to be understood  in  the sense  of  systematic instruction,  schooling  or  training. Learned  counsel  for  the revenue relies  strongly  on  the observation of Khanna J. at page 242 of the report 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 section 2(15) of the Act of 1961, even if  the purpose of the trust is ’advancement of any other object  of general  public  utility, it would not be  considered  as  a charitable  purpose unless the purpose does not involve  the carrying  on  of  any  activity for  profit.   This  has  no application  in  the  instant case since,  the  business  of kuries was not started by the respondent with the object  or for  the  purpose of advancing an object of  general  public utility. (1)  65 I.T.R. 611. (2)  101 T.T.R. 234. 32 7 This judgment will be incomplete without a close and careful consideration  of  the  decision of  this  Court  in  Indian Chamber  of  Commerce v. C.I.T. West Bengal 11(1)  on  which counsel  for the revenue has placed the  greatest  reliance. That  is  understandable, because the judgment of  the  High Court  which  is  now under appeal before us  and  which  is reported  in  94 ITR 113, was specifically  brought  to  the notice of the Court in Indian Chamber of Commerce(1) and was criticised therein as applying the wrong test.  It is  urged on behalf of the revenue that the three-Judge Bench,  having already overruled the judgment in appeal before us, there is nothing left for us to do save to allow this appeal filed by the  revenue.  Having given our most anxious and  respectful consideration  to  the judgment in Indian  Chamber  of  Com- merce,(1)   we   find  ourselves  unable  to   accept   this submission.   The Memorandum and Articles of Association  of the  assessee in that case, the Indian Chamber of  Commerce, indisputably  showed  that  the  Chamber  was  to  undertake activities  for the purpose of advancing objects of  general public  utility  (p.  799).  The  Chamber  received  income, amongst other sources, from : (a) arbitration fees, (b) fees collected  for the certificates of origin, and (c) share  in the  profit  made by issuing certificates of  weighment  and measurement.  The bone of contention was whether this income was  excludible under section 1 1 (1) (a) read with  section 2(15)  of the Act of 1961.  As said by Krishna Iyer J.,  (p. 799),  who spoke for the Court, the straight question to  be answered  was  whether the three  activities  which  yielded profits  to  the  Chamber involved the carrying  on  of  any activity for profit.  Observing that the various chambers of commerce were established in the country in order to promote the trading interests of the commercial community (p.  802), the Court held that by the new definition in section  2(15), the  benefit of exclusion from total income was  taken  away where in accomplishing a charitable purpose the  institution engages itself in activities for profit (p. 803).  In  other words, " section 2(15) excludes from exception the  carrying on of activities for profit even if they are linked with the objectives  of general public utility, because the,  statute interdicts,  for purposes of tax relief, the advancement  of such objects by involvement in the carrying on of activities for profit" (p. 805).  After so holding, the Court  referred to  the  decision  of this Court  in  Loka  Shikshana  Trust (supra) and observed :               "  Among  the Kerala cases which went  on  the               wrong   test   we   wish   to   mention   one,

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             Dharmodayam.     The   assessee-company    was               conducting  a profitable business  of  running               chit  funds and its memorandum of  association               had  as one of its objects ’to do the  needful               for  the promotion of charity,  education  and               industry’.   The  court found it  possible  on               these  facts to grant the benefit  of  section               2(15) by a recondite reasoning.  If this ratio               were to hold good, businessmen have a highroad               to tax avoidance.  Dharmodayam shows how  dan-               gerous the consequence can be if the provision               were misconstrued." (pp. 807-808). This  is square and scathing comment on the judgment now  in appeal  before  us and the Court has expressed its  view  in unequivocal language. (1)  101 I.T.R. 796. 328 But  we cannot accept that the Court "overruled", as  stated in the head-note of the report (p. 797), the judgment of the Kerala High Court and that we must, without considering  the facts of the case, allow the appeal straightaway.  The facts of  the  instant case were not before the  Court  in  Indian Chamber  of  Commerce  (supra) and it is  evident  from  the passage extracted above that the test applied by the  Kerala High  Court was held to be wrong on the assumption that  the case fell under the last clause of section 2(15) of the  Act of  1961, which was the only part of section 2(15)  relevant for  deciding the Indian Chamber of Commerce  case  (supra). Considering  further  that  the  word  ’industry’  has  been italicised in the passage extracted above, it is plain  that the  Court assumed that the assessee was engaged in  running an  industry.  We have endeavored to point out that, on  the facts  of the case, it is impossible to hold that  the  last clause of section 2(15) has any application and that, in the light  of the activities of the respondent spread  over  the past several years, no importance can be attached to  clause 39  of its Articles of Association which enables it  "to  do the needful for the promotion of ... industry".  With  great deference, therefore, we are unable to read the decision  in Indian  Chamber  of  Commerce  (supra)  as  overruling   the judgment which is under appeal before us.  The Court was not even apprised there that this appeal was pending against the decision of the Kerala High Court. We are therefore of the opinion, strictly limiting ourselves to  the  facts  of the case and for  the  reasons  mentioned above,  that  the income derived by the  assessee  from  the kuries  is exempt from taxation under section 1 1 ( 1 )  (a) of the Act of 1961. The   second   question   presents   no   difficulty.    The apprehension  that  in exercise of the  power  conferred  by article  39  of  the Articles of  Association,  the  General Meeting  may  set apart the entire profit or  a  substantive part  of  it  for reserves is unfounded.  If  and  when  the affairs  of the respondent take that shape,  the  Department will have ample powers and opportunity-to deny the exemption to  the  respondent.  For Power time being it is  enough  to state that the High Court has found that the respondent  has spent the income for charitable purposes.  The answer to the second  question must, therefore, be that the power  to  set apart  reserves  under article 39 will  not,  without  more, vitiate the charitable nature of the institution. Accordingly,  we  confirm  the  High  Court’s  judgment  and dismiss   the   appeals.   The  appellant  shall   pay   the respondent’s cost in one set. P.B.R.

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Appeals dismissed. 32 9