COMMISSIONER OF INCOME TAX, NEW DELHI vs. FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRIES, NEW DELHI

TAX REFERENCE CASE No. 17/1975Supreme Court[1981] 3 S.C.R. 48915 April 1981Bench: 3 JudgesAuthor: R.S. PATHAK, A.P. SEN, E.S. VENKATARAMIAH OF15 pages
AI SummaryAllowed

What were the facts?

The assessee, Federation of Indian Chambers of Commerce & Industries, is a company whose objects are the promotion, protection, and development of trade, commerce, and industry. For the assessment year 1962-63, it claimed exemption under Section 11(1)(a) read with Section 2(15) of the Income Tax Act, 1961, stating its total income was 'nil'. The assessee had income from holding an Indian Trade Fair, organizing a conference for which it received a grant, and from sale of books and arbitration fees. The balance sheet showed an excess of income over expenditure. The Income Tax Officer rejected the claim, citing a change in Section 2(15) due to the addition of 'not involving the carrying on of any activity for profit'. The Appellate Assistant Commissioner and the Appellate Tribunal ruled in favour of the assessee, holding its dominant object was charitable and any income was incidental. The Department appealed to the Tribunal for a reference to the High Court, but the Tribunal referred the matter directly to the Supreme Court under Section 257 due to conflicting High Court decisions.

What did the Supreme Court hold?

The Supreme Court, by a majority, answered the reference against the Revenue and in favour of the assessee, following the majority opinion in Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers. The Court held that the condition 'not involving the carrying on of any activity for profit' is satisfied if profit-making is not the real object. The theory of dominant or primary object of the trust is the determining factor, even for the fourth head of charity (advancement of any other object of general public utility). Activities like holding trade fairs or sponsoring conferences, if they are ancillary or incidental to the dominant charitable object of promoting trade, commerce, and industry, would not disentitle the assessee to exemption. The Court noted that the majority decision in Surat Art Silk had the effect of neutralizing changes brought about by Parliament to prevent tax evasion by charities. The Court also distinguished between the 'purpose' of a trust and the 'powers' conferred on trustees for carrying out that purpose. The income derived from the assessee's activities was therefore exempt under Section 11(1)(a) read with Section 2(15).

What were the issues?

1. Whether the words 'not involving the carrying on of any activity for profit' in the definition of 'charitable purpose' under Section 2(15) of the Income Tax Act, 1961, govern the word 'advancement' or the words 'object of general public utility'. (Question of law) Assessee's contentions: - The activities carried on by the Federation were not for the motive of earning profits but for the object of promotion, protection, and development of trade, commerce, and industry. Therefore, its income was exempt under Section 11(1)(a). Revenue's contentions: - The addition of the words 'not involving the carrying on of any activity for profit' in Section 2(15) qualified the head 'any other object of general public utility', making it a statutory requirement that such an object should not involve carrying on an activity for profit. - The decision in Andhra Chamber of Commerce's case was no longer good law due to this amendment.

Which sections of the Income-tax Act were involved?

Section 11(1)(a),Section 2(15),Section 256(1),Section 257

AI-generated summary — verify with the full judgment below

COMMISSIONER OF INCOME TAX, NEW DELHI v. FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRIES, NEW DELHI April 15, 1981 [R.S. PATHAK, A.P. SEN AND E.S. VENKATARAMIAH, JJ.] 489 Income Tax Act 1961, S. 52(15) and IJ(J)(a)-'Charitable object'-Object of general public utility-' Not involving the carrying on of any activity for profit'- Meaning of-Primary or dominant purpose of trust or institution to be charitable- A B 'Purpose' oftrust-'Powers' conferred on trustees for carrying out the purpose- C Distinction between.

The respondent assessee an existing company under the Companies Act, 1956 had neither any share capital nor distributed any dividend to its members and its entire income was expended for fulfilment of its objects, which were the premotion.. protection and development of trade, commerce and industry in In~ D During the assessment year 1962-63, the relevant accounting year for which the year ended December 31, 1961 the assessee submitted a return showing its total income as 'nil' claiming that all its income was exempt under section ll(l)(a) read with Section 2(15) of the Income Tax Act.

During the assessment year, the assessee held the Indian Trad

The order continues below.

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