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PETITIONER: MUNICIPAL CORPORATION OF DELHI ETC.

       Vs.

RESPONDENT: CHILDREN BOOK TRUST ETC.

DATE OF JUDGMENT21/04/1992

BENCH: RANGNATHAN, S. BENCH: RANGNATHAN, S. OJHA, N.D. (J)

CITATION:  1991 SCALE  (2)491

ACT:          : Delhi Municipal Corporation Act, 1957 :       : Section 115(4)(a) Proviso & Explanation, 115(5)  and (6)-Property  tax-Levy  and  assessment  of-General  tax  in respect  of lands and buildings-Exemption-Grant  of-To  land and  buildings occupied and used by society for  ‘charitable purposes’-Conditions  to be fulfilled-‘Charitable  purpose’- Meaning  of-Whether  includes  imparting   education-Society ‘supported wholly or in part by voluntary contribution’-Test for  determination-What are-Exemption of  tax-Not  available ‘if  any  trade or business is carried on in  such  land  or building’-Interpretation  of  expression-Part  of  land  and building-When becomes entitled to exemption.      Delhi School Education Act, 1973 : Section 4, 5,  17(3) and 18(3).      Delhi   School  Education  Rules,  1973  :  Rules   50, 59(2)(g), 172, 173 and 177.      Property Tax liability under municipal corporation of a registered  society  running a  recognized  private  unaided school-Conditions  to be fulfilled-society not found  to  be supported   substantially  by  voluntary   contributions-Not entitled to tax exemption.      Words and Phrases : ‘charitable purpose’-Meaning of.

HEADNOTE:      In Civil Appeal No 2805 of 1980 the Respondent, a Trust registered under the Societies’ Registration Act 1960  owned the property. From the year 1964-65, only a part of property was subject to the General Tax in accordance with the provi- sions  of the Delhi Municipal Corporation Act.For  the  said year,  the  value  of  the  property  was  assessed  at  Rs. 8,51,480.In the year 1970, the appellant-Municipal  Corpora- tion  served a notice on the Trust proposing that the  rate- able   value of the building should be revised. On  February 1,  1973 the Deputy Assessor and Collector passed  an  order to  the  effect that the ratable value of  the  property  be revised and                                                        536 enhanced to Rs.16,29,750. The Deputy Assessor and  Collector held  that  the  Respondent had not  proved  its  charitable character,  and further the user of the property did not  go to prove that the property was used for charitable  purposes and that the same cannot be exempt from tax.

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    Aggrieved  by  the aforesaid order, the Trust  filed  a Writ Petition under Articles 220 and 227 of the Constitution and  contended  that the withdrawal of  exemption  from  the payment of General Tax previously enjoyed on portions of the property was wrong, and that the case was covered by Section 115 (4) proviso of the Delhi Municipal Corporation Act which provides  for exemption from the payment of General  Tax  if exclusively  occupied and used by a society  for  charitable purposes.      A Single Judge allowed the Writ Petition, and held that the Trust would be entitled to claim exemption from  payment of  tax under Section 115 (4) for all the portions  occupied by it except that which is occupied by the Press, viz.,  the basement  area of 11217 sq. ft . for which a monthly  rental value has been assessed at Rs.14,021.25 and an area of  2000 sq.  ft.  on  the ground floor rear portion  for  which  the monthly  rental value has been fixed at Rs.3,462.50. In  the result,  the order of the Deputy Assessor and Collector  was quashed to that extent and the matter was remitted back for disposal.      Aggrieved,  the  Corporation appealed  and  a  Division Bench  held  that  because of the  mandatory  provisions  of Section 115(4) no part of the premises in occupation of  the press  in the basement and the area of 2000 sq. ft.  in  the ground floor rear portion for which the monthly rental value has been fixed at Rs.17,483.75 could be exempt from tax  and partly allowed the appeal of the Corporation.      The  appellant society in C.A. No.228 of 1990  filed  a suit and sought interim injunction, questioning the proposal by  the Deputy Assessor and Collector assessing the  society for  the  General Tax but the Senior Subjudge being  of  the view  that  the subject matter of the suit being Rs.5,32,683 the suit could not be entertained. Thereupon, the  appellant withdrew  the  suit, and filed a writ petition in  the  High Court  challenging the assessment order. The  writ  petition was heard by a Division Bench which held that the  exemption claimed  by  the appellant was unavailable to it,  that  the case was not covered by section 115(4) of the Act and  find- ing  no infirmity in the order of assessment  dismissed  the writ petition in limine.                                                    537      In  the  appeals  to this Court, it  was  contended  on behalf of the Municipal Corporation that Section 115(4) is a peculiar  section which provides for relief to those  socie- ties  or  bodies on charitable support either  fully  or  in part, and that the proviso to the said Section distinguishes itself from other enactments, in that the legislative intent is to narrow down the clauses of exemption. To claim  exemp- tion  it  must  be shown that the society  is  supported  by voluntary  contribution. Where the activity of  the  society generates  income  to  support itself  and,  therefore,  the society does not any longer depends on the voluntary contri- bution, the exemption should certainly be made  unavailable, It  was further contented that the Municipal General Tax  is an  annual  tax, and that the question of  assessability  to such tax or exemption will, therefore, have to be determined each  year and that unless and until the  Society  satisfies the assessing authorities that it fulfils the conditions for exemption  in  respect of that particular  year,  it  cannot claim exemption as a rule and, therefore, the facts in  each case will have to be ascertained in each year. It was  shown that the method adopted under the Income Tax Act in  respect of  the assessment of societies under Sections 11 and 13  of the  said Act or even with regard to exempting donations  to charitable societies under Section 80(G) was similar.

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    On  behalf of the Societies which owned  the  buildings which  were  assessed  to tax, it was  contended,  that  the society owns a building, which houses the school  recognized under the Delhi School Education Act 1973 and the Rules made thereunder, and, there fore, the issue is whether the build- ing which houses the school is exempt from tax, and that the test  to be applied under Section 115(4) are two in  princi- ple,  viz.,  (i) society must be a charitable  society,  and (ii)  use must be for a charitable purpose, and it was  sub- mitted that the proviso to section 115(4) does not lay  down the  quantitative test in relation to voluntary contribution but  only  qualitative test. It was further  contended  that education  per  se is a charitable purpose  and,  therefore, even   if   the  school  charges  a  fee,  that   would   be irrelevant.The memorandum of objects and the bye-laws of the society  have to be seen, and if the object is a  charitable one, that would be enough, it makes little difference as  to how the funds are utilized, if the profits continue to  feed the  charity, the mere occurrence of profits would  not  de- tract  from the charitable nature of the enterprise. It  was further  contended that in construing the scope  of  Section 115(4), the several provisions of the Delhi School Education Act,  and the Delhi School Education Rules 1973 also have  a great                                                    538 bearing,  and that the proviso to section 115(4)  prescribes the qualitative test for identifying charitable societies.      One   behalf   of  the  interveners  -   petitions   in W.P.No.1754  of  1979 - the Court’s attention was  drawn  to Section 115(4) and it was submitted that the exemption would be  available  only if the lands or  buildings  or  portions thereof  should be in exclusive occupation and use and  such user  must be by a society or body for charitable  purposes, and  charitable purpose includes education, relief  of  poor and medical relief and the society is supported wholly or in part by voluntary contributions and applies its profits  for furtherance of and to promote the objects of the society and that  it does not pay dividend or bonus to its  members.  It was  also  contended that educations per se is  charity  and that the voluntary support talked of under the section  must be qualitative in nature and not quantitative.      On the questions:      (i) Whether the society or body is occupying and  using the  land and building for a charitable purpose  within  the meaning of section 115(4)?      (ii)  What is the meaning of the expression  ‘supported wholly or in part by voluntary contribution ?’      (iii)  Whether any trade or business is carried  on  in the premises within the meaning of section 115(5)?      Dismissing both the appeals, the Court,      HELD: 1. (i) Every municipality is a local self-govern- ment. Therefore, in order that it may sustain itself a power of  taxation  has been delegated to  municipal  bodies.  The taxes  are  local  taxes for local needs.  Such  taxes  must obviously  differ  from one municipality to another.  It  is impossible  for  the  Legislature to pass  statute  for  the imposition of such taxes in local areas. In a democratic set up the municipalities which need the proceeds of these taxes for  their  own administration, it would be  but  proper  to leave  to these municipalities the power to impose and  col- lect taxes. [554 H-555 A]      (ii)  The local authorities do not act  as  Legislature when they impose a tax but they do so as the agent of  State Legislature. The powers and the                                                        539

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extent  of these powers must be found in the  statute  which creates them with such powers. [555 B]      (iii)  Local bodies being subordinate branches of  gov- ernmental activities are democratic  institutions managed by the representatives of the people. They function for  public purpose. They bear the burden of government affairs in local areas  as they are required to carry on  local  self-govern- ment. The  power of taxation is a necessary adjunct to their other  powers.  There are various kinds  of  taxes  provided under each Municipal Act, the important  being property tax. [555 C]       (iv)  The  Delhi  Municipal Act  after  providing  for exemption  under  Section 115(4) and (5)  categories  cases, which will lose the exemption under sub-section (4).  Again, sub-section  (6) clarifies that a part of a building in  the occupation of a society may not be entitled to exemption though the other part is clearly exempt. [557 B]       (v) ‘Charity’ in its legal sense comprises four  prin- cipal  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 underlying idea of charity is the involving of an element of philanthropy  or something derived from pity, and  has  been from early times the fundamental of the concept of  charity. [561 D, F]       Special  Commissioners of Income Tax v. Pemsel, 3  Tax Cases 53 at 96, referred to.       (vi)  Thus, if education is run on  commercial  lines, merely because it is a school, it does not mean it would  be entitled to the exemption under Section 115 (4) of the  Act. [562 B]       (vii)  Where  the predominant object  is  to  subserve charitable  purpose  and not to earn profit it  would  be  a charitable purpose. [565 D]      The  King v. The Commissioners for Special Purposes  of the  Income  Tax(5 Tax Cases 408); The Abbey  Malvern  Wells Ltd. v.Minister of Town and Country Planning, [1951] (2) All England  Law Reports 154 at 161; The Trustees of the  ‘Trib- une’ (1939 (VII) Income Tax Reports 415); All India Spinners Association v.Commissioner of Income-Tax. Bombay (12  Income Tax Reports 1944 482); Commissioner of Income-Tax, Bombay                                                        540 City  v.Breach Candy Swimming Bath Trust, Bombay (27  Income Tax  Reports  1955 279 at pages 288-289) and  Addl.  C.I.T., Gujarat v.Surat Art Silk Cloth Manufactures Association (121 Income  Tax  Reports 1980 Page 1 at Pages 11 and   24),  re- ferred to.      (viii)  Merely  because education is  imparted  in  the school,  that by itself, cannot be regarded as a  charitable object.  Today, education has acquired a wider  meaning.  If education is imparted with a profit motive, to hold, in such a case as charitable purpose, will not be correct [565 F]      (ix) The rulings arising out of Income-tax Act may  not be  of great help because in the Income-tax Act  ‘charitable purpose’ includes the relief of the poor, education, medical relief  and the advancement of any other object  or  general public  utility.  The  advancement of any  other  object  of general public utility is not found under the Delhi  Munici- pal  Corporation  Act.  In other words,  the  definition  is narrower in scope. [565 G]      2.(i) The Delhi Municipal Corporation Act of 1957 in so far  as it grants an exemption under Section 115(4) makes  a departure from the other statutes of similar kind. Only  the Delhi  Municipal Corporation Act and Kerala Act  adopt  this

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pattern  of  exemption.  Therefore, unlike  the  other  Acts relating to municipalities of the various other States,  the legislative  intent appears to be to narrow down the  nature of exemption. [566 D-E]      (ii)  It cannot be gainsaid that the Municipal  general tax  is  an annual tax. Therefore,  normally  speaking,  the liability for taxation must be determined with reference  to each  year. In other words, the society  claiming  exemption will have to show that it fulfills the conditions or  exemp- tion  each  year.  If it shows, for example,  that  for  its support  it  has  to depend on, either wholly  or  in  part, voluntary contributions, in that particular year, it may  be exempt. But where in that year, for its support, it need not depend  on  voluntary contributions at all or again  if  the society produces surplus income and excludes the  dependence on  voluntary contributions, it may cease to be  exempt.  Of course,  the word ‘support’ will have to mean sustenance  of maintenance. [566 F-G]      (iii)  The  reasonable  way of giving  effect  to  this exemption, will be to take each case and assess for a period of  five  years  and find out whether the  society  or  body depends  on  voluntary  contributions.  Of  course,  at  the                                                        541 end  of each five year period the assessing authority  could review the position. [566 H]     (iv) The test must be whether the society could  survive without receiving voluntary contributions,even though it may have  some income by the activities of the society.The  word ‘part’ must mean an appreciable amount and not an insignifi- cant  one.  The ‘part’ in other words, must  be  substantial part.  What  is substantial would depend upon the  fact  and circumstances of each case. [567 B-C]      (v)  The word ‘contribution’ used in the  proviso  must also  be given its due meaning. It cannot be  understood  as donations.  If that be so, a voluntary  contribution  cannot amount  to a compulsive donation. If the donor, in order  to gain an advantage or benefit, if he apprehends that but  for the  contribution  some adverse  consequence  would  follow, makes a donation certainly it ceases to be voluntary.[567 D]      (vi)  The test to be applied is not merely  qualitative but quantitative as well. [567 E]      (vii) Under the Delhi School Education Act no provision is  found  by which the school is made a  separate  juristic entity. [569 D]      The  school being a separate entity, premises  occupied by  the  school will belong to it and not  to  the  society. Therefore,  the  society  cannot claim to  be  in  exclusive occupation  and  use of the land and building  in  question. [569 E]      (viii)  Section  115(4) of the Act covers  those  cases where  a part of the land or building is used for  trade  or business  or for getting rental income therefrom. That  part undoubtedly will be subject to tax. Suppose, there is anoth- er  portion  of the same lands or buildings where  trade  or business is carried on and profits are made and are  applied to charitable purposes then that portion shall, for purposes of municipal taxation, be deemed to be a separate  property. In  other  words, this part of the lands or  buildings  will qualify  for relief. But the other part will be  subject  to tax. The trade portion is subjected to tax. [572 C-D]      3.  Trade or business can be present in  both  sub-sec- tions  (4)  and (5) of section 115. But, if the  profits  or income  of  trade  or business is devoted  to  a  charitable purpose  and  no  part  thereof  is  distributed  among  the                                                        542

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members  as dividends or bonus, then that trade or  business is  a  means to an end. It is charity. But, if  there  is  a trade or business carried on in a land or building  and  its profits are not applied to a charitable  purpose,sub-section (6) says that part of the land or building where a trade  or business  is carried on or from which rent is derived,  will be subject to tax. [572 E-F]      In  the  instant case, though the society  running  the school  has  a charitable purpose, beyond that it  does  not strengthen  its case as it fails to answer the test that  it is  supported wholly or in part by voluntary  contributions. [572 G]

JUDGMENT:      CIVIL APPELLATE JURISDICTION :Civil Appeal No. 2805  of 1980.       From  the  Judgment and Order dated  29.2.1980  of  the Delhi High court in L.P.A. No. 102 of 1974                 AND         Civil Appeal No. 228 of 1990.      From  the  Judgment and Order dt. 3-2-89 of  the  Delhi High Court in C.W.P. No.263 of 1989      B.Sen,  R.K. Maheshwari and Vineet Maheshwari  for  the Appellant  in C.A.No. 2805 of 1980 and Respondent   of  C.A. No. 228 of 1990.      Harish  N. Salve, Anil Mallick, Vineet Kumar and  Vijay Bhasin for the Appellant in C.A. 228 of 1990.      G.B.  Pai,  Ms. Uma Mehta Jain for  the  Respondent  in C.A.2805 of 1980.      Harish  N. Salve, Rajiv Shakdhar, Ms Rita Bhalla,  S  S Shroff for S.A.Shroff & Co. Dr. A.M. Singhvi and R.Sasiprab- hu for a Interveners.      The  Judgment of the Court was delivered by      MOHAN,  J. Both these appeals can be dealt  with  under common  judgment  since the scope of  Section  115(4)  Delhi Municipal Corporation Act, 1957 (hereinafter referred to  as the Act) alone arises. However it is necessary to state  the facts of each case separately.                                                         543      CIVIL APPEAL NO 2805 OF 1980      The  property known as Nehru House, NO 4  Bahadur  Shah Zafar Marg, New Delhi is owned by respondent (Childern  Boot Trust).  It  is  a society registered  under  the  Society’s Registration Act, 1960.      From  the  year  1964-65 only a part  of  property  was subject to the General Tax in accordance with the provisions of the Act. For the said year the value of the property  was assessed  at Rs. 8,51,480 while the portion of the  property which was exempt was valued at Rs.5,96,870.      In  the  year 1970 the appellant-Corporation  served  a notice on the respondent proposing that the ratable value of the  building should be revised. On 1st February,  1973  the Deputy  Assessor and Collector of the  appellant-Corporation passed an order to the effect that the ratable value of  the property  be  revised  and enhanced to  Rs.  16,29,750.  The Deputy  Assessor and Collector held that the respondent  had not  proved its charitable character. Further, the  user  of the property did not go to prove that the property was  used for  the  charitable purpose and the same cannot  be  exempt from  tax.  Aggrieved by this order dated 1.2.1973,  a  writ petition under Articles 226 and 227 of the Constitution  was filed before the High Court of Delhi in C.W. No.318 of 1974. The  claim of the respondent, who figured as the  petitioner

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therein,  was  that  the withdrawal of  exemption  from  the payment of General Tax previously enjoyed on portions of the property  was wrong. It was contended that the case  of  the Trust  was  covered by Section 115(4) proviso  of  the  Act; proviso exempts buildings from the payment of General Tax if exclusively  occupied and used by a society  for  charitable purpose.  The  learned  Single  Judge  (Rajinder  Sachar,J.) allowed  the writ petition. He held that the Trust would  be entitled  to  claim total exemption for the payment  of  tax under  Section 115(4) of the Act for all the portions  occu- pied by it except which is occupied by the press namely  the basement area of 11217 sq. ft.for which monthly rental value has been assessed at Rs.14.021.25 and an area of 2000 sq. ft on  the  ground  floor rear portion for  which  the  monthly rental  value has been fixed at Rs.3,462,50. Even from  this rental  value the Trust was entitled to claim  exemption  in the proportion of the income accruing to it from the  publi- cation  of children books etc. In the result,  the  impugned order  of the Deputy Assessor and Collector was  quashed  to the above extent and the                                                        544 matter was remitted to him to dispose of in accordance  with law  and in the light of the observations made in the  judg- ment.      Aggrieved  by  the judgment L.P.A.No. 102 of  1974  was preferred by the appellant to the Division Bench of the said Court. By a judgment and order dated 29th February, 1980  it was held inter alia as under:-      "Suffice it is to say the ‘education’ cannot be  under- stood in the limited sense of teaching being given by  hold- ing  classes or by delivery of lectures. The acquisition  of information  or knowledge, from whatever source and  in  any manner  has to be regarded as education. The Library,  Dolls Museum  and  holding  of exhibitions help  in  providing  an opportunity  to acquire information and knowledge.  Premises used  for such purposes would be regarded as being used  for education and thus for charitable purpose."      In  this view the Division Bench held that, because  of the  mandatory provisions of sub-section (5) of Section  115 no  part of the premises in occupation of the press  in  the basement  and the area of 2,000 sq. ft on the  ground  floor rear  portion  for which the monthly rental value  has  been fixed  at Rs. 17,483.75 could be exempt from tax. The  judg- ment of the learned Single Judge in this regard could not be sustained.  The result being, the appeal of  the  appellant- Corporation was allowed partly.  Under these  circumstances, the Municipal Corporation of Delhi has come up in appeal. By an  order  dated 26.11.80 special leave was  granted.  Hence Civil Appeal No.2805 of 1980.      CIVIL APPEAL NO. 228 OF 1990      The appellant-Society is registered under the Society’s Registration  Act,  1860. When there was a proposal  by  the Deputy Assessor and Collector to assess the Society for  the General  Tax,  the appellant-Society claimed that it  was  a Society for charitable purpose and, therefore, no tax  could be  levied  on its building since the exemption  under  sub- section (4) of Section 115 of the Act would be applicable to it.  This  contention was rejected. The  ultimate  order  of assessment is of 4th of November, 1988 whereby the  respond- ent imposed the property tax of Rs.5,32,683 by assessing the rateable value.                                                        545      The  appellant-Society filed a suit and sought  interim injunction but the Senior Sub-Judge was of the view that the subject-matter  of the suit being Rs.5,32,683 he  could  not

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entertain  the suit. Therefore, on 24.12.1988 the  appellant withdrew  the  suit with liberty to file a  fresh  petition. There upon, the appellant-Society filed Civil Writ  Petition NO.263  of 1989 challenging the assessment order  dated  4th November, 1988 in the High Court of Delhi. That was heard by a Division Bench. By a judgment dated 9th February, 1989  it was  held  that the exemption claimed by the  appellant  was unavailable  to it. Therefore, the case was not  covered  by Section 115(4) of the Act. Accordingly, finding no infirmity in the order of assessment the writ petition was dimissed in limine.  By an order dated 23rd January, 1990 special  leave having been granted, this appeal is before us.      We will now advert to the arguments addressed in  Civil Appeal  No.  228 of 1990 since the main arguments  were  ad- dressed by Mr. Harish Salve, learned counsel for the  appel- lant.  The appellant is a Public School called  Green  Field School.  It is recognized under Delhi School Education  Act, 1973  and  the  Rules made thereunder.  The  conditions  for recognition are:-      (i) The society must run the School.      (ii) The School must maintain its accounts.      The  Society in this case owns a  building.  Therefore, the  building which houses the School, whether  exempt  from tax,  is  the issue. The tests to be applied  under  Section 115(4) are two in principle.      (i) Society must be a charitable Society.      (ii) Use must be for a charitable purpose.      In  the submission of the learned counsel, the  proviso does  not  lay down the quantitative test  in  relations  to voluntary contribution but only qualitative test.      Education  per se is a charitable  purpose.  Therefore, even if the School charges a fee, that would be  irrelevant. The Society must satisfy the following conditions:      (i) That it is supported by voluntary contributions;                                                        546      (ii) applies its own income to promote its objects; and      (iii) it does not pay dividend to any other members.      Two classes of societies could be thought of      (i) Where members receive full value for their  contri- bution.      (ii) Society for private gain.      For the application of Section 115(4) two tests are:      (i) In relation to explanation education per se  chari- ty.      (ii)  In relation to the proviso, distributive  in  na- ture.      Therefore, one has to look at the memorandum of objects and  the  bye-laws. If the object is  charitable  one,  that would  be enough. It makes little difference as to  how  the funds are utilised. Secondly if the bye-laws do not  provide for  the payment of dividend, that again is  descriptive  on the  same line of reasoning where the proviso says "is  sup- ported wholly or in part by voluntary contributions",  which means  it has no funds. It does not matter how the  accounts are drawn.      The learned counsel strenuously urged that the statuto- ry setting in which Section 115(4) has to be construed, must be kept in the background. He draws our attention to Section 4 of Delhi School Education Act, 1973, which prescribes  the conditions  under which a School could be recognised.  Again Section  5 provides for scheme of management. Section  17(3) makes it obligatory on the Manager to file with the Directo- ry a full statement of the fees to be levied by the  school. It further provides that no fee shall be levied except  with the prior approval of the Director. No fee in excess of  the

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fee specified by the Manager could be levied. Section  18(3) talks of recognition under aided school fund.      The  Rules made under the Delhi School  Education  Act, 1973 also have a great bearing. Rule 50 lays down elaborate- ly  the conditions for recognition. Clause (i) of  the  said Rule  requires that the School is run by a  Society.  Clause (iv) says that the school shall not be run for profit to any individual  or group or association. Clause (ix)  stipulates that  the  School building shall not be used for  any  other purpose.                                                        547      Chapter  XIV of the Rules deals with the School  funds. Rule  172 requires the Trust or the Society not  to  collect fees.      Rules  173 stipulates the requirement for  the  mainte- nance of the School fund. It inter alia provides:      (i) School funds shall be kept separately.      (ii) It cannot run for profit.      (iii) The Society cannot draw from School funds.      Rules  177  clearly lays down the manner in  which  the funds  realised  by  unaided recognised schools  are  to  be utilised.      Thus,  according to learned counsel, in construing  the scope  of Section 115(4), all these provisions will have  to be  adverted to and then the tests must be  formulated.  The next  question is whether education per se is  charity.  The leading  case  on this subject is Special  Commissioners  of Income  Tax v. Pemsel (3 Tax Cases 53 at 96). Again, in  The King v. The Commissioners for Special Purposes of the Income Tax  (5 Tax Cases 408 at 414) it was laid down that a  trust for  advancing of education would be charitable  in  nature. The  dictum  laid  down in The Abbey,  Malvern  Wells,  Ltd. v.Minister  of Town and Country Planning (1951 (2) All  Eng- land  Law Reports 154 at 161) squarely applies to the  facts of this case. Therefore it is beyond dispute that the Socie- ty is engaged in a charitable purpose.      The  learned counsel further relies on The Trustees  of the ‘Tribune’ (1939 (VII) Income Tax Reports 415),  particu- larly  at  pages 422-423; All  India  Spinners’  Association v.Commissioner of Income-Tax, Bombay (12 Income Tax  Reports 1944  482) and the propositions stated at pages 488-489  and Commissioner of Income-Tax, Bombay city v.Breach Candy Swim- ming  Bath Trust, Bombay (27 Income Tax Reports 1955 279  at pages 288-289). Therefore, according to him, the only essen- tial  factor  to determine whether it is a  charity  or  not would  be to find out whether there is any private  gain  by setting up of the institution. This was the test adopted  in Addl.  C.I.T., Gujarat v.Surat Art Silk Cloth  Manufacturers Association (121 Income Tax Reports 1980 Page 1 at Pages  11 and 24).      Therefore  if there is no private gain; if the  Society cannot utilise the funds as the rules under the Delhi School Act state, as long as there is no                                                        548 profit it is charitable. The essential test of a  charitable purpose  is the destination of profits. If the profits  con- tinue  to feed the charity, the mere occurrence  of  profits would  not detract from the charitable nature of the  enter- prise.  The  proviso under Section 115(4)  prescribes  three qualitative  tests  for  identifying  charitable  societies. These  tests relate to the nature and the character  of  the societies and not to its actual transactions in any particu- lar year or group of years.      When the proviso uses the words "supported wholly or in part by voluntary contributions", the test for  ascertaining

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the same would be:      (i)  Does  a Society rely upon  voluntary  contribution ultimately  to meet the deficits, if any which may arise  in its capital or revenue account?      (ii) Does the Society rely upon voluntary contributions to  finance its capital outlays to the extent  such  outlays exceed its savings and borrowings ?      The  test is essentially qualitative in nature.  It  is that  test  which  is commanded for acceptance  by  us.  The learned counsel further states that the advantages of apply- ing the qualitative test would be:       (i)  By  a series of decisions it has been  held  that mere generation of profits would not detract from the  char- itable nature of society so long as the profits continue  to feed the charity and are not diverted to either non-charita- ble or private purpose.       (ii) It would conform to the interpretation adopted by English Courts on similar expressions used in statute  which are pari materia.       (iii)  It would afford a definite and a reliable  test for identifying the exempt societies.       (iv) It would do away with the artificial  distinction between  societies which are efficiently run and generate  a surplus and others which run into deficits.      On the contrary if the quantitative test is applied  it may  lead  to arbitratiness and anomalies. in  a  particular year, in order to meet its                                                        549 expenses,  the society may depend upon  voluntary  contribu- tions  while  in the succeeding year it may not  any  longer depend. It is also impossible to adopt a number of years  or a  particular  year as yardstick to  determine  whether  the society satisfies the conditions enumerated in the  proviso. This  becomes  further apparent when it is  applied  to  the second and third parts of the proviso.      Where  the bye-laws of a society permit application  of profits  for private purpose or payment of dividend  to  its members that undoubtedly would be disqualified from claiming exemption.  As laid down in Girl’s Public Day  School  Trust Ltd v.Minister of Town and Country 1951 (i) Chancery 400 the object of the proviso when it insists on  support by  volun- tary contribution wholly or in part, is to disqualify mutual benefit societies. Voluntary Contributions would, therefore, mean contributions other than those made by beneficiaries of the  services.  Reliance is placed on the Overseers  of  the Poor and Chapelwarden of the Royal Precinct of the Savoy  in the County of London v.The Art Union of London (1896  Appeal Cases  296 at 310) and Institution of  Mechanical  Engineers v.Cane  (Valuation Officer) and others (1960 3  All  England Reports 715). The last submission of the learned counsel is, the  expression "support" does not, in any manner,  connotes sustenance otherwise it would not make even partial  support to  qualify  for exemption. The word  "support",  therefore, must  mean which enriches the society itself or relieves  it of  a burden or furthers its objects or powers as laid  down in Cane (Valuation Officer)  and Another v.Royal College  of Music  (1961 2 Queen’s Bench Division 89 at  pages  120-121. Thus it is submitted that the approach of the High Court  is incorrect and warrants interference.      Mr. B.Sen, learned counsel for the respondent in  reply to  the arguments of the appellant would urge  that  Section 115(4) a peculiar section which provides for relief to those societies  or bodies carrying on charitable  support  either fully or in part. The proviso of the Delhi municipal  Corpo- ration  Act distinguished itself from other enactments.  The

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legislative  intent is to narrow down the clauses of  exemp- tion.      The  Municipal General Tax is an annual tax. The  ques- tion of assessability to such tax or exemption will,  there- fore, have to be determined each year. Therefore, unless and until the society satisfies the assessing authority that  it fulfills  the  conditions for exemption in respect  of  that particular year,                                                        550 it cannot claim exemption as a rule. Therefore the facts  in each case will have to be ascertained in each year.  Similar is the method adopted under the Income Tax Act in respect of assessment of societies under Sections 11 to 13 of the  said Act or even with regard to exempting donations to charitable societies under Section 80G.      One  other method will be to decide with  reference  to the overall position of the society or body over a period of 4  or 5 years. This was the method adopted in Brighton  Col- lege  v.Marriott  (H.M. Inspector of Taxes)  (10  Tax  Cases 213). Similar was the test adopted in  the case of Southwell (Surveyor  of Taxes) v.The Governors of Holloway College  (3 Tax Cases 386) while determining whether it fell within  the concept of a charitable school within the meaning of erratic statute.      It  is conceivable that society may depend upon  volun- tary  contributions for a number of years. But, in  a  given year  it might not be able to generate a small  surplus.  In such  a case it might be entitled to exemption. On the  con- trary,  where the surplus is generated in a systematic  man- ner, year after year, it will lose its character as a socie- ty supported by voluntary contributions.      The  word "supported" must mean sustenance.  Where  the society does not depend upon voluntary contributions for its sustenance  it cannot have the benefit of the  proviso.  The expression  "wholly or in part" when read in the context  of "supported" would mean that there could be  a  society which would depend upon wholly on voluntary contributions for  its sustenance,  that is, for the expenses for carrying  on  its activities.  The word "part" means a society may  have  some income  of  its  own. Still it could claim  the  benefit  of exemption if it is not sufficient for its maintenance and it has to be supplemented by voluntary contributions. In  other words,  the  test to be applied is whether the  society  can survive  without voluntary contributions even though it  may have  some income of its own. As regards the part, it  would depend  upon the facts of each case. The submission is  that it must be a substantial part as laid down by this Court  in case arising out of Land Acquisition Act; Smt. Somavanti and other v.The State of Punjab and Others, [1963] 2 SCR 774.      When the Section talks of Contribution it must be given its  proper meaning. Such a contribution must be  voluntary. Therefore,  a voluntary contribution is not made under  com- pulsion. Equally, it should not be made                                                        551 under  any  kind of apprehension that  some  adverse  conse- quences  would  follow if such a contribution  is  no  made. Equally,  if  a contribution is not made in return  for  any benefit  except  incidental,  it would be  entitled  to  the benefit.  In support of the submission, the learned  counsel relies on Forbes (surveyor of Taxes) v.Standard Life  Assur- ance  Company  (3 Tax Cases 268 at 272) and  Institution  of Mechanical  Engineers (supra). On the basis of these, it  is submitted  that any donation paid at the time  of  admission cannot be treated as voluntary.      The argument, that the transfer of funds to the society

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by the school can be regarded as voluntary contribution  re- ceived by the society, is wrong. The Delhi School  Education Act  does  not create the school into  a  specific  juristic entity different from the society. The Act only makes  regu- lations in the matter of running the school and the  service conditions of the  employees. Indeed, the Act itself imposes a  condition that the school must be run by a society  or  a body  under Rule 50. Further, the Managing Committee of  the school shall act under the  control  and  supervision of the society which runs the school. Consequently, if the funds of the  school were transferred to the society, it  would  only amount  to  transfer of funds from one account  to  another, both under the control of the same society.      Under Section 115(4) if the society were to run  educa- tion as a trade or business, even in such a case, the  bene- fit  of  exemption will be lost, as laid  down  in  Brighton College case (supra).      It  cannot  be urged as an axiomatic  proposition  that imparting  education would be a charitable purpose  per  se. Pemsel’s  case (supra) no doubt continues to hold the  field in England. A careful reading of the judgement will disclose that  there must be an element of public benefit or  philan- thropy  that was what was stressed by each of the Law  Lord. Therefore, while applying the ratio under the Delhi  Munici- pal Corporation Act one cannot straightaway adopt the  views expressed  in  England.  Here, the  definition  is  somewhat circumspect. Hence, it must be viewed with reference  to the objects  to be achieved by a particular statute.  Therefore, education per se cannot  be regarded as a charitable  object otherwise  even if education was carried  on with a view  to make  profit, to call it a charity, would  be  unreasonable. Hence, it is submitted that the concept of a public  benefit will  have  to be introduced. If that  is  one,  "education" under Section 115(4)                                                        552 must  be interpreted a ejusdem generis. Therefore, it  ought to  be  understood as having some element of relief  to  the public at large or public benefit.      The  learned  counsel refers to the balance  sheet  and states  that the donations to the school have been  credited to  the society’s accounts. The Term ’fees" appropriated  by the society is reflected in the balance sheet which  clearly shows that there have never been two separate entities as is sought to be made out now.      CIVIL APPEAL NO.2805 OF 1980      Mr. B. Sen, Sr. Advocate for the  appellant-Corporation would  submit that respondent-Book Trust was established  on 7.5.57. The building was constructed during the years  1961- 65.  Part of the building has been let out in  1970-71.  The rental income is Rs.86,632.80 per mensum. The Children  Book Trust has:-      (a) Delhi Office      (b) Printing Press      (c) Dolls Museum      (d) Library      (e) Singer Institution.      For  the  years  1964-65  and  1969-70  exemption  from property tax was granted since the respondent was  depending on  the Government grants. However, in 1971  notice,  making the  demand for property tax, was issued with regard to  the portion which had been rented out to the press.  Admittedly, no exemption could be claimed concerning this portion. It is only  the other portions which are relevant for the  purpose of the case. The High Court in its judgment while interpret- ing Section 115(4)(a) proviso has held that, because of  the

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use  of words "in part" in the proviso the society would  be entitled  to claim exemption provided other  conditions  are satisfied if it is able to show that it has received even  a small amount of voluntary contribution.      It  is this finding which is objected to by the  appel- lant.  The  society cannot pay the tax, is the  test  to  be adopted. In other words, to claim the                                                        553 exemption it must be shown that the society is supported  by the voluntary contribution. Where the activity of the socie- ty   generates income to support itself and, therefore,  the society does not any longer depend on the voluntary  contri- bution, certainly the exemption should be made  unavailable. From  this point of view, the finding, that even if  it  re- ceives a small contribution irrespective of the fact whether it is able to support or not, is not the correct test. It is this aspect of the matter which requires to be clarified and the law settled by this Court.       Mr. G.B. Pai, learned counsel for the respondent-Trust submits  that the broad purpose of Section 115 is to  exempt charity. There may be two types of voluntary contributions:      (i)  From the Society      (ii) From third parties      The  object  of the Section is to help  the  charitable institution. The sine qua non is non-distribution of profit. Once  that test is answered the rest becomes immaterial.  In support  of  this submission, the case in P.C.  Raja  Ratnam Institution  v. Municipal Corporation of Delhi  and  others, [1990]  Supp. SCC 97 is relied on. Lastly, it  is  submitted that  the  proviso must be read down to find out as  to  the income  is  realised and whether there  is   non-payment  of dividends  to the members. That would be in consonance  with the  object of the Section, granting exemption to those  who are engaged in charitable  purpose. Certainly, it cannot  be contended  that imparting of education is not  a  charitable purpose.  The leading case on this aspect is  Pemsel’s  case (supra).      The learned counsel for the intervenors (the  petition- ers  in W.P.No.1754 of 1979) draws our attention to  Section 115(4) and submits that exemption would be available if  the following tests were satisfied:-      (i)  Land or buildings or portion thereof.      (ii) Exclusive occupation and use.      (iii) Such user must be by a society or body.      (iv) For the charitable purpose.                                                        554      (v)  Charitable purpose includes education,  relief  of poor and medical relief.      (vi)  Such a society is supported wholly or in part  by voluntary contributions.      (vii)  Applies its profit to itself for furtherance  of the objects of the society.      (viii) In promoting its objects.      (ix) It does not pay dividend or bonus to its members.      In  this case, elements (iv), (v) and (vi) are in  dis- pute. It must be held education per se charity. However,  it is not contended that the taxing authority is precluded from going  into  the question whether the society  is  imparting education and thereby is pursuing a charitable object.      It  is  further submitted that  the  voluntary  support talked  of under Section must be qualitative in  nature  and not  quantitative. In Cane (Valuation Officer)  and  Another (supra) is what is relied on for advancing this proposition. In  that  case, the test that was laid down  was:  (1)  that enriches  the  Corporation itself of (2) relieves  it  of  a

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burden or (3) furthers its objects or powers.      British  School  of Egyptian  Archaeology,  Murray  and others  v. Public Trustee and others, [1954(1)  All  England Reports  887]  is a case which deal with the  quid  pro  quo nature of voluntary contribution. Therefore, it is submitted if  the Court were to adopt the test whether voluntary  con- tributions  provide  the  life line, such a  test  would  be violative  of  Article 14. When property tax  exemption  was granted  for aided schools and such exemption was denied  to non-aided schools it was held to be discriminatory in  Bald- win Girls’ High School, Bangalore v. Corporation of the City of Bangalore, AIR 1984 Karnataka 162.      Before we deal with the respective contentions we think it  necessary to provide the background in relation  to  the municipality  and the power of taxation. Every  municipality is a local self-government. Therefore, in order that it  may sustain  itself  a power of taxation has been  delegated  to municipal bodies. The taxes are local taxes for local needs. Such  taxes must obviously differ from one  municipality  to another. It is impossible for the                                                        555 Legislature  to  pass statutes for the  imposition  of  such taxes in local areas. In a  democratic set up the municipal- ities  which need the proceeds of these taxes for their  own administration,  it  would be but proper to leave  to  these municipalities the power to impose and collect taxes.      The  local authorities do not act as  Legislature  when they  impose  a  tax but they do so as the  agent  of  State Legislature. The powers and the extent of these powers  must be found in the statute which creates them with such powers.      Local  bodies being subordinate branches of  government activities are democratic institutions managed by the repre- sentatives of the people. They function for public  purpose. They bear the burden of government affairs in local areas as they  are  required to carry on local  self-government.  The power  of  taxation is a necessary  adjunct to  their  other powers. There are various kinds of taxes provided under each Municipal Act, importantly, property tax.      Now, we come to Section 114 of the Act. Sub-section (1) of the said Section reads:-         "Save as otherwise provided in this Act, the proper- ty  shall   be levied on lands and buildings  in  Delhi  and shall consist of the following, namely:-      (a) ...................................................      (b) ...................................................      (c) ...................................................      (d) a general tax.      (i) ...................................................      (ii). .................................................      Explanation:-  Where any portion of a land or  building is  liable to a higher rate of the general tax such  portion shall be deemed to be a separate property for the purpose of municipal taxation.                                                        556           The  Corporation may exempt from the  general  tax lands  and  buildings of which the rateable value  does  not exceed one  hundred rupees".      While  dealing  with the premises in respect  of  which property  taxes are to be levied sub-section (4)(a) of  Sec- tion 115 states:           "(4)  Save as otherwise provided in this Act,  the general  tax  shall  be levied in respect of all  lands  and buildings in Delhi except-           (a)  lands and buildings or portions of lands  and buildings  exclusively occupied and used for public  worship

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or by a society  or body for a charitable purpose.           Provided  that such society or body  is  supported wholly  or in  part by voluntary contributions, applies  its profits,  if any, or other income in promoting  its  objects and does not pay any  dividend or bonus to its members.           Explanation: "Charitable purpose" includes  relief of  the  poor,  education and medical relief  but  does  not include  a purpose  which relates exclusively  to  religious teaching;           (b) ..............................................           (c) ..............................................                                          (Emphasis supplied)      It  is  this scope of the sub-section that  has  to  be determined in these two cases.      Sub-section (5) of Section 115 provides:           "(5) Lands and buildings or portions thereof shall not  be   deemed  to be exclusively occupied  and  used  for public worship or for a charitable purpose within the  mean- ing  of  clause  (a)  of sub-section (4), if  any  trade  or business  is carried on in such lands and buildings or  por- tions  thereof or if in respect of such lands and  buildings or portions thereof, any rent is derived."           Sub-section (6) of Section 115 provides:-                                                        557           "(6) Where any portion of any land or building  is exempt  from the general tax by reason of its  being  exclu- sively  occupied and used for public worship or for a  char- itable purpose such portion shall be deemed to be a separate property for the purpose of municipal taxation."      Therefore,  after  providing for exemption  under  sub- sections  (4) and (5) Section 115 categorises  cases,  which will  lose the exemption under sub-section (4). Again,  sub- section  (6)  clarifies  that a part of a  building  in  the occupation  of  society  may not be  entitled  to  exemption though the other part is clearly exempt.      By a reading of the above, it is clear that sub-section (4) of Section 115 provides that general tax shall be levied in respect of all lands and buildings except those lands and buildings  or part of lands and buildings which  are  exclu- sively occupied and used (i) for  public  worship or (ii) by society or body for charitable purpose.      The conditions for claiming exemption under sub-section (4) are:-           (i)  The lands and buildings or portions of  lands and  buildings,  in respect of which  exemption  is  claimed shall  be  exclusively occupied by a society or a  body  and used for a charitable  purpose.           (ii) Such society or body must be supported wholly or in part by voluntary contributions.           (iii)  It must apply its profit, if any, or  other income for promoting its objects.           (iv) It must not pay any dividend or bonus to  its members.      In the Explanation as to what is charitable purpose  is stated in an inclusive manner, relief of the poor, education and medical relief. In the present case, the questions which arise for our determination are:           (i)  Whether the society or body is occupying  and using the land and building for a charitable purpose  within the meaning of sub-section (4)?                                                        558      (ii)  What  is  the  meaning  of  the  expression  "sup ported wholly or in part by voluntary contribution?"      (iii)  Whether any trade or business is carried  on  in the premises  within the meaning of sub-section (5)?

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    We  will first take up the case of Civil Appeal  no.228 of 1990.      The appellant-Society is a society registered under the Society’s  Registration  Act. It is engaged in  running  the school  known as Green Field School. This school  is  recog- nised private unaided school. The school is run in a  build- ing owned by the appellant-Society. Mr Harish Salve, learned counsel  for the appellant draws our attention to the  Delhi School Education Act, 1973 and the Rules framed  thereunder, in  order to appreciate the statutory setting in which  Sec- tion 115 (4), according to him, is to be construed.      As  far as Delhi School Education Act is  concerned  we will refer to Section (3). It reads as follows:      "(3)  The  manager of every  recognised  school  shall, before the commencement of each academic session, file  with the  Director  a full statement of the fees to be levied  by such school during the ensuing academic session, and  except with  the  prior approval of the Director,  no  such  school shall  charge,  during  that academic session,  any  fee  in excess  of the fee specified by its  manager in said  state- ment."      Section 18 (3) talks of unaided school like the present and its school fund, which is extracted below:      "(3) In every recognised unaided school, there shall be a  fund, to be called the "Recognised Unaided School  Fund", and there shall be credited there to income accruing to  the school by way of-           (a) fees,       (b) any charges and payments which may be realised  by the school for other specific purpose, and                                                        559     (c)  any other contributions, endowments, gifts and  the like."      Sub-section (4) states as under:-      "(4)(a)  income  derived by unaided schools by  way  of fees shall be utilised only for such educational purposes as may be prescribed; and      (b) charges and payments realised and all other contri- butions,  endowments and gifts received by the school  shall be  utilised  only for the specific purpose for  which  they were realised or received."      Rule  50 of the Rules framed under this Act  stipulates the conditions for recognition. The important conditions for our purpose are:-      (i) the school is run by a society registered under the Societies  Registration Act, 1860 (21 of 1860), or a  public trust constituted under any law for the time being in  force and  is  managed in accordance with a scheme  of  management made under these rules;      (iv) the school is not run for profit to any  individu- al,  group or association of individuals or any  other  per- sons; and      (ix)  the school buildings or other structures  of  the grounds  are   not used during the day or night for  commer- cial  or  residential purposes (except for  the  purpose  of residence  of any employee of the school) or  for  communal, political or non-educational activity of any kind  whatsoev- er.      Under Rule 59(2)(q) it is specifically stated that  the Management  Committee  shall be subject to the  control  and supervision  of  the trust society by which such  school  is run.      Now,  we  come to Chapter XIV which relates  to  school fund. Rules 172 and 173 may be quoted:      "172.  Trust  or  society not to  collect  fees,  etc.,

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schools to grant receipts for fees, etc., collected by it  - (1) No fee, contribution                                                        560 or  other charge shall be collected from any student by  the trust   or  society running any recognised  school;  whether aided or not.      (2)  Every fee, contribution or other charge  collected from  any student by a recognised school, whether  aided  or not, shall be  collected by the school for every  collection made by it.       173.  School  fund how to be maintained  -  (1)  Every School  Fund shall be kept deposited in a nationalised  bank or  a  scheduled  bank any post office in the  name  of  the school.       (2) Such part of the School Fund as may be approved by the Administrator, or any officer authorised by him in  this behalf,  may be kept in the form of Government securities.       (3)  The  Administrator  may allow such  part  of  the School  Fund as he may specify in the case of  each  school, (depending upon the size and needs of the school) to be kept as cash in hand.       (4) Every Recognised Unaided School Fund shall be kept deposited in a nationalised bank or a scheduled bank or in a post  office in the name of the school and such part of  the said  Fund as may be specified by the Administrator  or  any officer  authorised by him in this behalf shall be  kept  in the  form of Government securities and as cash in  hand  re- spectively:       Provided  that  in  the case of  an  unaided  minority school, the proportion of such Fund which may be kept in the form  of Government securities or as cash in hand  shall  be determined by the managing committee of such school."      Rule 177 deals with utilisation of the fees realised by unaided recognised schools. In sub-rule (1) it is stated:-      "177.  Fees realised by unaided recognised schools  how to be utilised-      (1)  Income derived by an unaided recognised school  by way  of  fees shall be utilised in the  first  instance  for meeting the pay, allowances and other benefits admissible to the employees of the school:                                                        561      Provided  that savings, if any from the fees  collected by such school may be utilised by its managing committee for meeting capital or contingent expenditure of the school,  or for  one  or  more of the  following  educational  purposes, namely:-      (a) award of scholarships to students;      (d) establishment of any other recognised school, or      (c) assisting any other school or educational  institu- tion,  not  being a college, under management  of  the  same society  or  trust by which the first  mentioned  school  is run."      In this background, we will consider whether  education per  se is a charitable purpose and its application  to  the appellant-society.  The  case relied on strongly  is  Pemsel (supra).   The  dictum of Lord Macnaghten at page 96  is  as follows :-      "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 trusts  last referred to are not the less charitable in  the eye of the law because incidentally they benefit the rich as well as the poor, as indeed every charity that deserves  the

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name must do, either directly or indirectly."      One  thing that is clear is that each of the Law  Lords emphasised  the  underlying  idea of  charity  involving  an element  of philanthropy or something derived from  pity  of early  times  as  being the fundamental of  the  concept  of charity. Lord Bramwell at page 83 states:      "I think a "charitable purpose" is where assistance  is given to the bringing up, feeding, clothing, lodging, educa- tion  of  those who, from poverty  or  comparative  poverty, stand in need of such assistance."      Again, Lord Hershell at page 88 observed:      "It is the helplessness of those who are the objects of its  care which evokes the assistance of the  benevolent.  I think, then,                                                        562 that  the popular conception of a charitable purpose  covers the  relief on any form of necessity, destitution, or  help- lessness  which excites the compassion or sympathy  of  men, and so appeals to their benevolence for relief."      Therefore, an element of public benefit or philanthropy has  to be present. The reason why we stress on this  aspect of  the matter is if education is run on  commercial  lines, merely because it is a school, it does not mean it would  be entitled to the exemption under Section 115(4) of the Act.      The  next  case to which reference can be made  is  The King v.The Commissioners for Special Purposes of the  Income Tax, 5 Tax Cases 408. The question arose whether the Univer- sity College of North Wales could be held as established for charitable  purposes.  Fletcher  Moulton,  L.J.  relying  on Pemsel’s  case (supra)held that a trust for  advancement  of education was charitable.      In The Abbey, Malvern Wells, Ltd.(supra) it is observed at pages 160-161:-      "In the present case, it seems to me that one is  enti- tled, and, indeed,bound, to look at the constitution of  the company to see who, in fact, is in control. I find that,  by art. 3 of the company’s articles, the company is  controlled entirely by a body called a council, a body of persons, and, by art. 64, that body of persons must be the trustees of the trust deed. Therefore, while the company, theoretically, has the  power to apply its property and assets for the  purpose of  making profits and devoting the resulting profit to  the distribution of dividends among the members, I find that the persons  who regulate the operations of the company are  not free  persons unrestricted in their operations, but are  the trustees  of  the trust deed, and, under the  terms  of  the trust deed, they may use the property of the company only in a particular way and must not make use of the assets of  the company  for the purpose of a profitmaking concern.  I  find that  they  are strictly bound by the trusts  of  the  trust deed, and that those trusts are charitable trusts. It  seems to  me, therefore, that while nominally the property of  the company is held under the provisions of the memorandum                                                        563 and articles of association, in actual fact the property  of the company is regulated by the terms of the memorandum  and articles  of  association plus the provisions of  the  trust deed,  and, therefore, the company is restricted in fact  in the  application  of its property and assets and  may  apply them for the charitable purposes which are mentioned in  the trust deed."      Relying  on this passage it is contended on  behalf  of the  appellant that the position is exactly the same in  the instant case. The submission is where the society’s building houses, the school which is imparting education, it being  a

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charitable  purpose,  the  exemption would  apply.  We  will consider  this aspect of the matter after referring  to  the Indian cases.      In The Trustees of the ‘Tribune’ (supra) at pages  422- 423 it is observed :      "In the High Court stress was laid by the learned Chief Justice  and by Addison, J., one the fact that  the  Tribune newspaper  charges its readers and advertisers  at  ordinary commercial  rates  for the advantages which it  affords.  As against  this the evidence or findings do not disclose  that any  profit was made by the newspaper or press  before  1918 and  it  is at least certain that neither  was  founded  for private profit whether to the testator or any other  person. By  the  terms of the trust it is not to be carried  on  for profit  to  any individual. It cannot  in  their  Lordships’ opinion be regarded as an element necessarily present in any purpose  of general public utility, that it  should  provide something for nothing or for less than it costs or for  less than  the  ordinary  price. An elemosynary  element  is  not essential even in the strict English view of charitable uses (Commissioners v. University College of North Wales)".      In All India Spinners’ Association (supra) at page  483 it is observed :      "Section  4(3)  of the Indian Income-tax  Act  gives  a clear and succinct definition of "charitable purposes" which must  be  construed  according to its  actual  language  and meaning. Lord Macnaghten’s definition of charity and English decisions on the law of charities have no binding  authority on its construction and though they sometimes afford help or guidance, cannot                                                        564 relieve  the  Indian  Courts from  their  responsibility  of applying  the language of the Act to the particular  circum- stances  that  emerge under conditions of Indian  life.  The difference  in language, particularly the inclusion  in  the Indian Act of the word "public" is of importance.      The  constitution of Section 4(3) is obviously a  ques- tion  of law, but so also is the question what is  the  real purpose of an Association. The Court must make its  decision on the latter point on the basis of the facts found for  it, but  given the facts the question is one of law.  Where  the principal  fact is the constitution of the  Association  the true  construction of the constitution  for finding out  its purpose is a question of law.      The words "general public utility" in Section 4(3)  are very  wide wards. They would exclude the object  of  private gain,  such as an undertaking for commercial  profit  though all the same it would subserve general public utility."      In  Commissioner of Income-tax, Bombay City (supra)  it was observed at page 289:      "A settlor or a donor may make a charity by setting  up an  institution and also providing funds by which those  who take  advantage of the institution can do so without  paying any charge ; or we may have a case where the charity may not go to those limits and one may confine his charity to merely setting up the institution and providing that those who wish to  take  advantage of the institution must  pay  reasonable charges  for the same.  In both cases the setting up of  the institution would be a charitable object if the  institution serves a purpose of general public utility. The only  essen- tial  factor  to determine whether it is a  charity  or  not would be whether there is any private gain by the setting up of  the  institution.  If the gain derived  by  running  the institution  continues to be impressed with the trust  which is  a  charitable trust, then it is immaterial  whether  the

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institution  is run as a commercial institution or not,  but if  in the running of the institution profits are  made  and the profit goes to any private individual or if the institu- tion is intended for any private gain, then undoubtedly  the running of                                                        565 the  institution could not be considered as being run for  a charitable object."      In Addl. C.I.T. v.Surat Art Silk Cloth Assocn., (Income Tax Reports 121 Page 1 at 24) it is observed:      "Where  an  activity is carried on as a matter  of  ad- vancement  of the charitable purpose or for the  purpose  of carrying out the charitable purpose, it would not be  incor- rect  to say as a matter of plain English grammar  that  the charitable purpose involves the carrying on of such  activi- ty,  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 former."      In  view  of the above rulings it would be  clear  that where  the  predominant  object is  to  subserve  charitable purpose and not to earn profit it would be a charitable pur- pose.  However, the argument of the appellant is as per  the Delhi School Education Act and the Rules framed  thereunder, if the society cannot utilise the fund and the school cannot be  run  for private gain in the absence of any  profit,  it would be a charitable purpose.      We  have already seen that merely because education  is imparted  in the school, that by itself, cannot be  regarded as  a  charitable object. Today, education  has  acquired  a wider  meaning. If education is imparted with a  profit  mo- tive,  to hold, in such a case, as charitable purpose,  will not  be  correct. We are inclined to  agree  with  Mr.B.Sen, learned counsel for the Delhi Municipal Corporation in  this regard.  Therefore,  it  would  necessarily  involve  public benefit.      The rulings arising out of Income-tax Act may not be of great  help because in the Income-tax Act  "charitable  pur- pose"  includes the relief of the poor,  education,  medical relief  and the advancement of any other object  or  general public  utility.  The  advancement of any  other  object  of general public utility is not found under the Delhi  Munici- pal  Corporation  Act.  In other words,  the  definition  is narrower in scope. This is our answer to question No. 1.                                                        566      The  second  important  aspect is society  or  body  is supported  wholly  or in part  by  voluntary  contributions. Reliance is placed on The Overseers of the Poor and  Chapel- warden  of the Royal Precinct of the Savoy in the County  of London (supra). At page 310 it is observed:      "The  expression "supported by voluntary  contribution" has  long been well known in connection with  hospitals  and other  institutions; I think the essential idea conveyed  by them is that the payments are a gratuitous offering for  the benefit  of others, and not the price of an  advantage  pur- chased by the contributor."      But  this case is not helpful because it turned on  the meaning of "voluntary".      The test according to the appellant to determine volun- tary  contributions is qualitative and not quantitative.  We will  examine the correctness of this submission. The  Delhi Municipal Corporation Act of 1957 in so far as it grants  an exemption  under Section 115(4) makes a departure  from  the other  statutes  of similar kind. As a matter of  fact,  the

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learned  counsel have provided us with the  relevant  provi- sions of the various municipal statutes of the other States. Only  the  Delhi Municipal Corporation Act  and  Kerala  Act adopt this pattern of exemption. Therefore, unlike the other Acts relating to municipalities of the various other States, the  legislative  intent appears to be to  narrow  down  the nature of exemption.      It cannot be gainsaid that the municipal general tax is an  annual tax. Therefore, normally speaking, the  liability for taxation must be determined with reference to each year. In other words, the society claiming exemption will have  to show  that  if fulfills the conditions  for  exemption  each year. If it shows, for example, that for its support it  has to depend on, either wholly or in part, voluntary  contribu- tions, in that particular year, it may be exempt. But  where in that year, for its support, it need not depend on  volun- tary  contributions at all or again if the society  produces surplus  income  and excludes the  dependence  on  voluntary contributions it may cease to be exempt. Of course, the word "support" will have to mean sustenance or maintenance.  Only to  get  over this difficulty that the qualitative  test  is pressed  into service. We would consider the reasonable  way of giving effect to the exemption, will be to take each case and  assess for a period of five years and find out  whether the  society or body depends on voluntary contributions.  Of course, at the end of each five year period the assessing                                                        567 authority could review the position. In other words, what we want to stress is, where a society or body is making system- atic  profit, even though that profit is utilised  only  for charitable  purposes,  yet it cannot be said that  it  could claim  exemption. If, merely qualitative test is applied  to societies,  even schools which are run on  commercial  basis making  profits would go out to the purview of taxation  and could  demand  exemption. Thus, the test, according  to  us, must be whether the society could survive without  receiving voluntary contributions, even though it may have some income by the activities of the society. The word "part’ must  mean an  appreciable  amount and not an  insignificant  one.  The "part"  in  other words, must be substantial part.  What  is substantial would depend upon the facts and circumstances of each case.      The  word "contribution" used in the proviso must  also be  given its due meaning. It cannot be understood as  dona- tions. If that be so, a voluntary contribution cannot amount to a compulsive donation. If the donor, in order to gain  an advantage  or  benefit, if he apprehends that  but  for  the contribution some adverse consequence would follow, makes  a donation certainly it ceases to be voluntary.      Therefore,  we conclude that the test to be applied  is not merely qualitative but quantitative as well.      The  last  aspect of the matter is utilisation  of  the income in promoting its objects and not paying any  dividend or bonus to its members. The learned counsel for the  appel- lant and the intervener would urge that on the basis of Cane (Valuation  Officer)  and Another (supra)  (1961(2)  Queen’s Bench  Division 89) the position in the instant case is  the same. At Page 121 the following observation is found:           "One, I  think,  that  enriches the    corporation           itself or  relieves  it  of a burden   or furthers           its objects or powers."      In  the light of the above discussion, we will  analyse the  position in the context of the Delhi  School  Education Act  and the Rules, since the school is regulated  by  these statutory provisions. The school no doubt is run by a regis-

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tered  society as required under Rule 50. It is  managed  in accordance  with the scheme of management as provided  under the Rules. However, Rule 59 sub-rule 2(q) which has  already been extracted clearly lays down that the managing committee shall be subject to the control and                                                         568 supervision  of the trust or society by which the school  is run. Rule 177 which we have quoted above requires the utili- sation of the income only for  the purpose mentioned in that rule.  Therefore,  it would be clear that the rules  do  not contemplate  the  transfer of funds from the school  to  the society.      It cannot be denied and it is not denied that the  only activity  carried  on by the society is the running  of  the Green Field School at Safdarjung Enclave. We have       been provided with copies of  the balance sheets of the  society. That  shows for years ending on 31.3.1980 to  31.3.1984  and 31.3.1986  to  31.3.1990 the society had  not  incurred  any expenditure. The income of the society consists of:-           (i) term fees received;           (ii) donations; and           (iii) interest from bank      What  exactly are the donations, we have not  been  ex- plained. The following extracts from the Income and Expendi- ture Accounts furnish us the following details: -------------------------------------------------------------------    "Year  Excess of Income      *Term           **Donation   Ending  over expenditure  Fees/Contributions                              received from the                                   School ------------------------------------------------------------------- 31.3.80        49,865         3,31,189             76,230 31.3.81        79,564         3,25,725             87,274 31.3.82      1,06,698         2,78,650           1,00,244 31.3.83      1,23,032         2,43,398           1,15,301 31.3.84      2,21,561           57,109           2,17,020 31.3.86      5,35,973         3,32,662           1,87,580 31.3.87      6,73,645         4,81,200           1,76,778 31.3.88     13,91,743         7,16,700           5,30,547 31.3.89     10,31,228         7,59,820           2,53,230 31.3.90      9,91,487         6,30,725           5,06,255 ----------------------------------------------------------------      *The  receipts are from the School which are  collected from the students thrice an year and are called "Term Fee’.                                                   569      ** Sources not explained. It appears that these are the collections  made  from the parents of the students  at  the time of admission."      When  we turn to the extracts from the income  the  ex- penditure  accounts of Green Field School, we find from  the tabulated  statement  furnished to us for  the  year  ending 31.3.77  to 31.3.87 contributions have been made every  year to  the  society. It has already been seen  that  the  Delhi School Education Rules nowhere contemplate transfer of funds from  the school to the society. Certainly,  such  contribu- tions cannot amount to voluntary contributions. The transfer of  funds are in disregard of the rules and run  counter  to Rule 177 quoted above. We cannot, by any process of  reason- ing, hold that these are voluntary contributions received by the  society. The Delhi School Education Act does not create the school entity a specific juristic entity different  from the  society. Where under rule 59(2)(q) of the Rules  it  is provided that the managing committee shall be subject to the control  and supervision of the society by which the  school is  run,  it means that school is a part and parcel  of  the

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society.  Where, therefore, the funds are transferred,  even calling  the  contribution from the school to  the  society, would be nothing more than transfer oneself. In fact, we  do not find under the Delhi School Education Act any  provision by which the school is made a separate juristic entity.      There  is  another way of looking at  the  matter.  The school  being  a separate entity, premises occupied  by  the school will belong to it and not to the society.  Therefore, the  society cannot claim to be in exclusive occupation  and use  of  the  land and building in question.  In  fact,  the proposal for assessment sets out these aspects clearly which are extracted below:           "The first step would be to determine whether the           activity in which the society is engaged is char-           itable or not.The charitable purpose has not been           defined in the Act,  but it  definitely  means to           include only such acts as relief of the poor, me-           dical relief to the poor and education relief. In           P.C. Rajaratnam Institutions  v. MCD  (Civil Writ           Petition No. 1764 of 1979) division bench of  the           Delhi High Court has held that to be held as cha-           ritable institutions for the purpose  of  Section           115(4), the society  must give education  relief.           It  was further held by the  Hon’ble  Court  that           where fees are charged, exemption cannot be gran-           ted. The                                                      570           scrutiny of the Income and Expenditure account  of           the school shows that the activity which is  being           carried out by the society i.e. running of school,           generates positive income from year to year. Posi-           tive income in the years 1977 to 1987 ranged  bet-           ween  32,000 to Rs.3 lacs per year. I do not  know           on  what criteria   this activity can be called as           charitable activity. The institute is   being  run           purely on commercial  lines for  the  purposes  of           profits. Even the society for which  receipts  and           payments accounts have not   been filed are in re-           ceipt of income  generated  from this activity  in           the form of building fund and donations etc. which           are forced on the students and their guardians.                The figures picked up from some of the  final          accounts of the  society  show  that  contributions          from  the school to the society was Rs.1,56,895  in          the  year ending  31.3.79,  and every  year  there-          after   the amount of contribution from  school  to          the  society has been increasing. Since the  insti-          tute   is   not only self-supporting  but  also  is          generating positive income, I hold that the activi-          ty  carried out by the society is not a  charitable          activity. The second confusion that the  institute/          society   should be supported wholly or in part  by          voluntary  contribution  is also   not   fulfilled.          The  element  of voluntary contributions comes only          if  there  is  an excess of expenditure   over  the          receipts   of   the  society.  Even  otherwise  the          donations received  by the society if any cannot be          treated as voluntary in view of the  fact that they          are  all forced on the  student/parents.  The  very          fact that the tax payer  society has claimed depre-          ciation  in the income and expenditure  account  of          the school shows that  what  they are preparing  is          not  the  income  and  expenditure account,  but  a          Profit  and Loss Account as is  done in  commercial          establishments.  Depreciation is  not  an  expendi-

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        ture  but is only a deduction @ certain  percentage          of the capital assets for  arriving  at profits and          gains  of the business. In view of  the   foregoing          discussions   I  have  no  hesitation   to  decline          exemption from payment of general  tax  in  respect          of   the  property known  as  Green  Field  School,          A-2  Block,  S.J.D.A New  Delhi.  Accordingly,  all          property taxes are payable by the tax payer."                                                            571      The  High Court correctly appreciated the law and  held as under in C.W.P. No.263 of 1989 reported in AIR 1989 Delhi 266:                     "At  our instance, Mr Bhasin brought  on           record  the  balancesheets of the school  for  the          years 1981 to 1987-88      and that of the  society          for  the  years  from 1978-79 to  1984-85.  It  was          stated  that  balance  sheets  of  the   petitioner          society for subsequent years were not ready.           If reference is made to the income and expenditure           account   of  the  school  for  the  year   ending           31.3.1988  it  would be seen that the  school  has          collected  Rs.25,35,900.66 as fees and has given  a          contribution  of  Rs.17,148.60  to  the   petitoner          society. Again, if reference is made to the balance          sheet for the year ending 31.3.1985 of the  school,          the school has collected over Rs.14.5 lakhs as fees          and   contributed   to   the   petitioner   society          Rs.1,00,724.13.  The  amount is  reflected  in  the          balance  sheet of the petitioner society as  having          been received from the school. Countribution of the          school  for the year ending 31.3.1984 to the  peti-          tioner society is Rs.1,06,459.50. As on  31.3.1983,          the  amount of contribution from the school to  the          petitioner  society is Rs.2,43,398.91. It  is  not,          therefore,  that  there is any  contribution  being          made  by  the society for running  of  the  school.          Rather  the school is contributing various  amounts          to the petitioner society."               "Merely because the petitioner society is  not          distributing  profit  or is  applying  the  profits          earned  from running of the school on  construction          of  school building is not enough for it  to  claim          exemption.  It has to be shown that the  petitioner          society is supported wholly or in part by voluntary          contributions.  The  learned  Deputy  Assessor  and          Collector has given weighty reasons to come to  the          conclusion  that there were no voluntary  contribu-          tions  to the petitioners society and also to  show          that  the  case of the petitioner society  was  not          covered  by S.115(4) of the Act. As has been  noted          above,  in the present case it is the school  which          is generating income for the petitioner society and          no  amount whatsoever is being spent by  the  peti-          tioner  society on the school. The  learned  Deputy          Assessor  and collector has further  observed  that          the  petitioner society is being                                                  572           run purely on commercial lines for the purpose  of           profits  and it is in receipt of income  generated           from  this activity in the form of building   fund           and  donations  etc.,  which  are  forced  on  the           students  and their guardians. Thus, there  is  no           voluntary contribution."           We are  in  entire agreement  with these findings.      The  last question is whether any trade or business  is

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carried  on within the meaning of sub-section  (5).  Section 115(6) of Act covers those cases where a part of the land or building is used for trade or business or for getting rental income  therefrom. That part undoubtedly will be subject  to tax. Suppose, there is another portion of the same lands  or buildings where trade or business is carried on and  profits are  made and are applied to charitable purposes  then  that portion shall, for purposes of municipal taxation, be deemed to be a separate property. In other words, this part of  the lands  or buildings will qualify for relief. But  the  other part  will be subject to tax. This is the idea of  making  a part  of the lands or buildings a separate property so  that the  entire building does not get the exemption.  The  trade portion is subjected to tax, and the charity portion is  not subjected to tax.      Trade   or  business  can  be  present  in  both   sub- sections(4)  and (5) of section 115. But, if the profits  of income  of  trade  or business is devoted  to  a  charitable purpose and no part thereof is distributed among the members as dividends or bonus, then that trade or business is a mean to an end. It is charity.      But,  if there is a trade or business carried on  in  a land  or  building  and its profits are  not  applied  to  a charitable  purpose,  sub-section(6) says that part  of  the land or building where a trade or business is carried on  or from rent is derived, will be subject to tax.      Applying  the  above propositions, it  would  only,  at best,  make  the  society running the  school  a  charitable purpose,  beyond that it does not strengthen its case as  it fails  to answer the test that it is supported wholly or  in part by voluntary contributions.      We  are unable to read down the proviso to  utilisation of income and non-payment of dividends to the members as submitted by  Mr. G.B.Pai.                                                    573 CIVIL APPEAL NO.2805 OF 1980      Mr.  B.Sen, learned counsel for the appellant does  not dispute before us that the Children Book Trust qualifies  in every  respect for exemption. He only objected to that  part of the finding wherein the High Court had held as follows:           "  The next contention of Mr. Arun Kumar was  that the respondent was not supported mainly by voluntary contri- butions and was as such not entitled to the exemption.  This contention of the appellant is answered by the provision  to the said sub-section which clearly provides that the society may  be supported ‘wholly or in part by voluntary  contribu- tions’.  Because  of the use of the words ‘in part’  in  the proviso  the society would be entitled to  claim  exemption, provided  other conditions are satisfied, if it is  able  to show  that it has received even a small amount of  voluntary contribution." But this finding cannot be correct in view of our  foregoing discussion.      In  the result, we dismiss both the  appeals.  However, there shall be no orders as to costs. N.V.K.                                    Appeals dismissed.                                                         574