Full Judgment Text
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CASE NO.:
Appeal (civil) 5656 of 2007
PETITIONER:
Commissioner of Income Tax
RESPONDENT:
Gujarat Maritime Board
DATE OF JUDGMENT: 05/12/2007
BENCH:
S.H. KAPADIA & B. SUDERSHAN REDDY
JUDGMENT:
JUDGMENT
ORDER
Leave granted.
Gujarat Maritime Board is a statutory Authority constituted under Section
3(2) of Gujarat Martime Board Act, 1981.
Before 13.11.2002, the Board was registered as "Local Authority" as defined
under Section 3(31) of the General Clauses Act, 1897 which was a very wide
definition. Prior to 2002, the Board was availing exemption as Local
Authority under Section 10(20) of the 1961 Act. Accordingly, prior to 2002
the income of the Board was not exigible to income-tax under Section 10(20)
of the Income-tax Act, 1961.
By Finance Act, 2002, an Explanation was added in Section 10(20) by which
"Local Authority" was defined. It gave a restricted meaning to the word
"Local Authority". By reason of the said Explanation, the expression.
"Local Authority" was confined to Panchayats, municipality, municipal
committtee, district board and cantonment board. Thus, Maritime Board did
not come within the definition of the expression "Local Authority".
Under the circumstance, Gujarat Maritime Board made an application to the
Commissioner for registering it (Board) as a "Charitable Institution" as
defined under Section 2(15) of the Income-tax Act, 1961(hereinafter for the
sake of brevity as "1961 Act"). Accordingly, they claimed exemption as
Charitable Institution in respect of income derived from their
property/business under Section 11 of the 1961 Act. This has been denied by
the Department.
The short controversy which we are required to decide in this case is:
whether the Maritime Board is entitled to the status of a Charitable
Institution under Section 11 of the 1961 Act. We may clarify that in this
case we are concerned with registration and not with application of income.
Before analyzing various provisions of the 1961 Act, we are required to
analyse the provisions of Gujarat Maritime Board Act, 1981 ("1981 Act" for
short).
As can be seen from the preamble of the 1981 Act, it is clear that the
Board has been constituted, inter alia, for purposes of development and
maintenance of minor ports. Under the said Act the Maritime Board also
renders services like stevedoring, transport of goods, storage, shipping
etc. It is also incharge of upkeepment of jetties, wharfs, roads, lights,
etc. However the main object of the said Act is development of minor ports
in the state of Gujarat. the income, accruing to the Maritime Board,
including reserves and surplus are also required to be deployed and
credited to a separate fund to be utilized for development of minor ports
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within the State. In this connection, we quote Sections 73, 74 and 75 of
the 1981 Act hereinbelow which read as under:
"73. All moneys recieved by or on behalf of a Board under the provisions of
this Act and all moneys received by it as the Conservators of the Ports and
of their approaches or as the body appointed under Section 36 of the Indian
Ports Act, 1908 shall be credited to a fund called the General Account of
the Minor Ports.
74. (1) The moneys credited to the general account under section 73 shall
be applied by the Board in payment of the following charges, namely:-
(a) the interest and instalments of principal due in respect of any
loan that may have been raised or obtained by the Board or for the
repayment of which the Board may be liable and payments to the
sinking fund established for such loan;
(b) the salaries, fees, remunerations, allowances, pensions,
gratuties, compassionate allowances or others moneys due to-
(i) the Chairman, and other member of the board;
(ii) the employees of the Board; and
(iii) the surviving relatives, if any, of such employees.
(c) the contributions, if any, payable to the Central Government or any
State Government on account of the pension and leave allowance of any
officer lent to the Board by such Government;
(d) the cost and expenses, if any, incurred by the Board in the conduct and
administration of any provident or welfare fund or loan or special fund
established by the Board;
(e) the contributions, if any, duly authorized to be made by regulations
made under this Act to any such fund as is referred to in clause (d);
(f) such sums as may, from time to time, be agreed upon by the Board and
the State Government or the Central Government or any other authority, as a
reasonable contribution payable by the Board towards the expenses in
connection with the watch and ward functions of the Police Force or the
Central Industrial Security Force or any other Force which the State
Government or the Central Government or any other authority, as the case
may be, may establish and maintain for the protection of the port and the
docks, warehouses and other property of the Board;
(g) the cost of repairs and maintenance of the property belonging to or
vested in the Board and all charges upon the same and all working expenses;
(h) the cost of the execution and provision of any new work or appliance
specified in section 25 which the Board may determine to charge to revenue;
(i) any expenditure incurred under Section 26; (j) any other expenditure
which may be incurred by the Board generally for the purpose of this Act;
(k) any other charge which may on the application of the Board or otherwise
be specially sanctioned by the State Government or for which the Board may
be legally liable.
(2) All moneys standing at the credit of the Board which cannot immediately
be applied in the manner or for the purposes specified in sub-section (1)
shall-
(a) be deposited in the State Bank of India or any corresponding
new bank as defined in clause (d) of section 2 of the Banking
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Companies Acquisition and Transfer of Undertaking Act, 1970 [or in
any corporation or financial institution controlled and managed by
the State Government], as the Board may decide, or
(b) be invested in such public securities as may be determined by
the Board and the said securities shall be held in trust by the
Board for the purposes of this Act.
75. The Board may, with the previous sanction of the State Government,
apply any sum out of the moneys credited to the general account of the port
towards meeting deficits, if any, in the particular or specified account
such as pilotage account, if so maintained or transfer the whole or part of
any surplus funds in such particular account to the general account of the
port."
Coming to the provisions of the 1961 Act, the most important provision for
the purpose of this decision is Section 2(15) and Section 11(1) & (4) of
the 1961 Act. The said sections are quoted hereinbelow which read as under;
"2. (15) "charitable purpose" includes relief of the poor, education,
medical relief, and the advancement of any other object of general public
utility.
11. (1) Subject to the provisions of Sections 60 to 63, the following
income shall not be included in the total income of the previous year of
the person in receipt of the income-
(a) income derived from property held under trust wholly for
charitable or religious purposes, to the extent to which such
income is applied to such purposes in India; and, where any such
income is accumulated or set apart for application to such purposes
in India, to the extent to which the income so accumulated or set
apart is not in excess of twenty five per cent of the income from
such property.
(b) income derived from property held under trust in part only for
such purposes, the trust having been created before the
commencement of this Act, to the extent to which such income is
applied to such purposes in India; and, where any such income is
finally set apart for application to such purposes in India, to the
extent to which the income so set apart is not in excess of twenty
five per cent of the income from such property;
(c) income derived from property held under trust--
(i) created on or after the Ist day of April, 1952, for a
charitable purpose which tends to promote international welfare in
which India is interested, to the extent to which such income is
applied to such purposes outside India, and
(ii) for charitable or religious purposes, created before the Ist
day of April, 1952, to the extent to which such income is applied
to such purposes outside India:
Provided that the Board, by general or special order, has directed
in either case that it shall not be included in the total income of
the person in receipt of such income;
(d) income in the form of voluntary contrubutions made with a
specific direction that they shall form part of the corpus of the
trust or institution.
11. (4) For the purposes of this section "property held under trust"
includes a business undertaking so held, and where a claim is made that the
income of any such undertaking shall not be included in the total income of
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the persons in receipt thereof, the "Assessing Officer shall have power to
determine the income of such undertaking in accordance with the provisions
of this Act relating to assessment; and where any income so determined is
in excess of the income as shown in the accounts of the undertaking, such
excess shall be deemed to be applied to purposes other than charitable or
religious purposes."
According to Section 2(15), the expression "charitable purpose" has been
defined by way of an inclusive definition so as to include relief to the
poor, education, medical relief and advancement of any other object of
general public utility. In this case we are concerned with the
interpretation of the expression "advancement of any other object of
general public utility".
Under Section 11(1) income from property held for charitable purpose is not
includible and does not form part of total income. Section 11(1) has three
sub-sections (a), (b) and (c). In all the three sub-sections the words used
are "income derived from property held under trust wholly for charitable
purposes". Under Section 11(4) the expression "property held under trust"
includes a business undertaking so held. In other words, income from
business undertaking held for charitable purposes can fall under Section 11
subject to such income fulfilling the requisite conditions of that section.
One of the objections raised on behalf of the Department was that Gujarat
Maritime Board is not entitled to the benefit of Section 11 of the 1961 Act
as the said Board was not a trust under Public Trust Act and, therefore, it
was not entitled to claim registration under Section 12A of the 1961 Act.
The Department’s case was that the Maritime Board was a statutory
Authority. It was not a trust. Its business was not held under a trust. Its
property was not held under trust. Therefore, the Board was not entitled to
be registered as a Charitable Institution. It was the case of the
Department that the Board was performing statutory functions. Development
of minor ports in the state of Gujarat cannot be termed as the work
undertaking for charitable purposes and in the circumstances the
Commissioner rejected the Board’s application under Section 12A of the 1961
act. In the light of the above case of the Department, we are required to
consider the expression "any other object of general public utility" in
Section 2(15) of the 1961 Act.
At the outset, we may point out that Section 10(20) and Section 11 of the
1961 Act operate in totally different spheres. Even if the Board has ceased
to be a "Local Authority", it is not precluded from claiming exemption
under Section 11(1) of the 1961 Act. therefore, we have to read Section
11(1) in the light of the definition of the words "charitable purposes" as
defined under Section 2(15) of the 1961 Act.
We have perused number of decisions of this Court which have interpreted
the words, in Section 11(15), namely, "any other object of generally public
utility". From the said decisions it emerges that the said expression is of
the widest connotation. The word "general" in the said expression means
pertaining to a whole class. Therefore, advancement of any object of
benefit to the public or a section of the public as distinguished from
benefit to an individual or a group of individuals would be a charitable
purpose [Commissioner of Income-tax, Gujarat-III, Ahmedabad v. Ahmedabad
Rana Caste association, (1983) 140 ITR 1 SC]. The said expression would
prima facie include all objects which promote the welfare of the general
public. It cannot be said that a purpose would cease to be charitable even
if public welfare is intended to be served. If the primary purpose and the
predominant object are to promote the welfare of the general public the
purpose would be charitable purpose. When an object is to promote or
protect the interest of a particular trade or industry that object becomes
an object of public utility, but not so, if it seeks to promote the
interest of those who conduct the said trade or industry [Commissioner of
Income-tax Madras v. Andhra Chamber of Commerce, - (1965) 55 ITR 722 SC].
If the primary or predominant object of an institution is charitable, any
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other object which might not be charitable but which is ancillary or
incidental to the dominant purpose, would not prevant the institution from
being a valid charity- [Addl. Commissioner of Income-tax, Gujarat v. Surat
Art Silk Cloth Manufacture Association, (1980) ITR SC].
The present case in our view is equarely covered by the judgment of this
Court in the case of Commissioner of Income-tax, A.P. v. Andhra Pradesh
State Road Transport Corporation, (1986) 159 ITR 1 SC in which it has been
held that since the Corporation was established for the purpose of
providing efficient transport system, having no profit motive, though it
earns income in the porcess, it is not liable to income-tax.
Applying the ratio of the said judgment in the case of Andhra Pradesh State
Road Transport Corporation (supra), we find that, in the present case,
Gujarat Maritime Board is established for the predominant purpose of
development of minor ports within the State of Gujarat, the management and
control of the Board is essesntially with the State Government and there is
no profit motive, as indicated by the provisions of Sections 73, 74 and 75
of the 1981 Act. The income earned by the Board is deployed for the
development of minor ports in India. In the circumstances. in our view the
judgment of this court in Andhra Pradesh State road Transport Corporation
(supra) squarely applies to the facts of the present case.
Before concluding we may mention that under the scheme of Section 11(1) of
the 1961 Act, the source of income must be held under trust or under other
legal obligation. Applying the said test it is clear, that Gujarat Maritime
Board is under legal obligation to apply the income which arises directly
and substantially from the business held under trust for the development of
minor port in the State of Gujarat. Therefore, they are entitled to be
registered as "Charitable Trust" under Section 12A of the 1961 Act.
For the aforestated reasons, we see no infirmity in the impugned judgments
of the High Court and Tribunal and consequently civil appeal stand
dismissed with no order as to costs.