Full Judgment Text
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PETITIONER:
C.I.T. BOMBAY
Vs.
RESPONDENT:
BAR COUNCIL OF MAHARASHTRABAR COUNCIL OF INDIABAR COUNCIL OF
DATE OF JUDGMENT22/04/1981
BENCH:
TULZAPURKAR, V.D.
BENCH:
TULZAPURKAR, V.D.
VENKATARAMIAH, E.S. (J)
CITATION:
1981 AIR 1462 1981 SCR (3) 542
1981 SCC (3) 308 1981 SCALE (1)679
CITATOR INFO :
R 1986 SC1054 (7,10)
ACT:
Income tax Act, 1961, section 2(15) and 11-Whether the
Bar Councils constituted under the Advocates Act, 1961, are
bodies intended to advance any object of general public
utility falling within section 2(15) for purposes of section
11 of the Act.
HEADNOTE:
The income derived by the Bar Council of Maharashtra
from securities (interest) and other income by way of
enrollment fees during the accounting periods relevant to
the assessment years 1962-63,1963-64,1964-65 was subjected
to tax by the Income Tax Officer. Since the Central
Government had accorded approval to the assessee for the
purpose of section 10(23A) during the pendency of the appeal
before the Tribunal by a notification dated August 5, 1966
with effect from December 28,1961, the Tribunal held that
the assessee Council was entitled to exemption under section
10(23A) in respect of its income by way of enrollment fees.
The Tribunal remanded the case back to the Appellate
Assistant Commissioner and directed him to dispose of the
case by examining the question as to the purpose for which
the securities were held by the assessee Council. It
observed that if the said securities were held for
educational purpose or for any other charitable purpose then
the exemption under section 11 would be admissible to the
extent available under the law. The High Court, on a
reference made at the instance of the assessee-Council,
answered the question: "Whether on the facts and in the
circumstances of the case, the assessee-Council could be
taken to be a body intended to advance any object of general
public utility falling within section 2(15) for purposes of
section 11 of the Act ?" in favour of the assessee and hence
the appeals by Revenue after obtaining special leave from
the Court.
Dismissing the appeals, the Court
^
HELD: 1. Having regard to the Preamble of the Advocates
Act, 1961 and the nature of the various obligatory functions
including the one under clause (d) enjoined upon every State
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Bar Council under section 6(1) of the Advocates Act, it is
clear that the primary or dominant purpose of an institution
like the assessee Council is the advancement of the object
of general public utility within the meaning of section
2(15) of the Income Tax Act, 1961 and as such the income
from securities held by the assessee-Council would be exempt
from any tax liability under section 11 of the Income Tax
Act, 1961. [551 E-G]
543
2. If the primary or dominant purpose of a trust or
institution was charitable any other object which by itself
might not be charitable but which was merely ancillary or
incidental to the primary or dominant purpose would not
prevent the trust or institution from being a valid charity.
The restrictive words "not involving the carrying on any
activity for profit" in section 2(15) of the Income Tax Act,
1961, qualify "object" and not the advancement or
accomplishment thereof. In other words, the true meaning of
the restrictive words is that when the purpose of a trust or
institution was the advancement of an object of general
public utility it was that object of general public utility
and not its accomplishment or carrying out which must not
involve the carrying on of any activity for profit. Here,
admittedly, the State Bar Councils are not indulging in any
activity for profit and hence the question of applying the
restrictive words in s.2(15) does not arise. [547 C-F, 548
G-H]
Commissioner of Income Tax, Madras v. Andhra Chamber of
Commerce, 55 ITR 722; Additional Commissioner of Income Tax,
Gujarat v. Surat Art Silk Cloth Manufacturers Association,
121 ITR 2, reiterated.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2115 to
2117 of 1980.
Appeals by special leave from the judgment and order
dated the 8 the August, 1978 of the Bombay High Court in
Income Tax Reference No. 142 of 1969.
S. C. Manchanda and A. Subhashini for the Appellant.
V. N. Ganpule and Mrs. Veena Devi Khanna for the
Respondent.
V. N. Ganpule for Intervener No. 1.
S. C. Patel for Intervener No. 2.
The Judgment of the Court was delivered by
TULZAPURKAR, J. These appeals by special leave raise
the question: "whether on the facts and in the circumstances
of the case the assessee-Council could be taken to be a body
intended to advance any object of general public utility
falling within s. 2(15) for purposes of s. 11 of the Income
Tax Act, 1961 ?"
The facts giving rise to the aforesaid question may
briefly be stated. The respondent assessee-Bar Council of
Maharashtra-is a body corporate established under the
Advocate’s Act, 1961 (Act 25 of 1961) which came into force
on December 28, 1961. During the accounting periods relevant
to the assessment years 1962-63, 1963-64 and 1964-65 the
assessee derived income from
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securities (interest) and other income by way of enrollment
fees particulars whereof, are as follows:
Assessment year Interest on securities Other Income
1962-63 Rs. 3,779 Rs 28,035
1963-64 Rs. 8,629 Rs 3,04,103
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1964-65 Rs. 9,356 Rs 96,322
The Income Tax Officer subjected to tax the income from
both the sources for all the three years. In appeals
preferred to the Appellate Assistant Commissioner it was
contended by the assessee that its other income by
enrollment fees was exempt under s. 10 (23A) and interest on
securities was exempt from tax under s. 11 of the Income Tax
Act, 1961. The Appellate Assistant Commissioner negatived
the exemption claimed under s. 10(23A) in the absence of the
Central Government’s notification according approval to the
association and with regard to the claim for exemption in
respect of the interest on securities he held that it was
not established that the securities were held on trust for
any charitable purpose. He took the view that the main
object of the assessee-Council was to benefit the legal
profession (its Members) and, therefore, the object was not
one of general public utility. Accordingly he confirmed the
assessment orders for the three years.
The matter was carried in further appeal to the Income
Tax Appellate Tribunal and since by that time the Central
Government had accorded approval to the assessee for the
purpose of s. 10 (23A) by a notification dated August 5,
1966 with effect from December 28, 1961, the Tribunal held
that the assessee-Council was entitled to exemption under s.
10(23A) in respect of its income by way of enrollment fees.
In regard to the income by way of interest on the securities
the Tribunal observed that the character of the body holding
the securities was not by itself decisive, that safeguarding
the rights, privileges and interest of advocates on its roll
could not be said to be an object of general public utility,
that the real question to be considered under s. 11 was
whether the securities were held for any charitable purpose
or not and the tribunal found that there was no evidence or
material on record touching this aspect. It, therefore,
remanded the case back to the Appellate Assistant
Commissioner and directed him to dispose of the case by
examining the question as to the purpose for which the
securities were held by
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the assessee-Council. It observed that if the said
securities were held for educational purpose or for any
other charitable purpose then the exemption under s. 11
would be admissible to the extent available under the law.
At the instance of the assessee Council the question set out
at the commencement of this judgment was referred to the
High Court for its decision under s. 256(1) of the Act. The
High Court took the view that having regard to the
obligatory functions enjoined upon a State Bar Council under
s.6 of the Advocate’s Act the assessee-Council could be
regarded as a body constituted for general public utility
and that the entire income of the body would be exempt from
tax under s.11 of the Income Tax Act, 1961. In its view the
advancement of any object beneficial to the public or a
section of the public as distinct from an individual or a
group of individuals would be a charitable purpose as
defined in s.2 (15) of the Income Tax Act and in this view
of the matter the High Court answered the question in the
affirmative and against the Revenue. It is this view of the
High Court that is being challenged by the Revenue before us
in these appeals.
In support of the appeals counsel for the Revenue
sought to raise two contentions. First, he urged that the
relief claimed under s.11 was ruled out by reason of relief
having been obtained by the assessee-Council in respect of
its income from enrollment fees under s.10 (23A) of the Act.
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According to him s.10 (23A), while exempting from tax any
income of an association or institution established in India
having as its object the control, supervision, regulation
and encouragement of the profession of law, medicine,
accountancy and any other profession as the Central
Government may specify, has expressly excluded from
exemption such association’s or institution’s income
chargeable under the head "interest on securities" or
"Income from house properties" or "any income received in
rendering any specific service", etc., and, therefore, what
has been expressly excluded from exemption under this
provision could not be or was not intended to be exempt
under s.11 of the Act. In other words, the assessee-
Council’s claim for exemption in respect of interest on
securities under s.11 was ruled out by reason of s.10(23A)
of the Act. Secondly, counsel contended that on merits the
High Court’s view that the assessee-Council was a body
constituted for advancement of an object of general public
utility was erroneous inasmuch as it was a body established
principally for the purpose of safeguarding the rights,
privileges and interest of the advocates on its roll and
since such objective merely served to benefit the members
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of the profession it was no charitable purpose as defined by
s.2 (15) for purposes of s.11 of the Act. In support of this
contention counsel placed reliance on some English
decisions.
At the out set it may be stated that we were not
inclined to permit counsel for the Revenue to urge his first
contention as in our view the Revenue must be deemed to have
given up the same. We may point out that precisely this very
contention was raised by the Revenue before the Tribunal and
was negatived by it. The Tribunal on a detailed analysis of
the concerned provisions took the view that the two
provisions were not mutually exclusive but operated under
different circumstances, that s.11 was relatively wider in
its scope and ambit, that while s.10 (23A) granted absolute
exemption in respect of particular types of income s.11
imposed certain conditions for the exemption but such
exemption was available for all sources and there was
nothing inherently improbable or inconceivable about the two
provisions operating simultaneously and as such the claim
for exemption under s.11 was available to the assessee-
Council provided it satisfied all the requirements of that
provision. We may point out that there are other allied
provisions like for instance sub-s. (23C) in s.10 which
clearly indicate that the Legislature did not intend to rule
out s.11 when exemption was claimable under such specific
provisions of s.10. It was after negativing the contention
in this manner that the Tribunal went on to consider the
claim for exemption made by the assessee-Council under s.11
but on merits found that there was no material or evidence
on record to show whether or not the securities were held by
the assessee-Council for any of charitable purposes and,
therefore, it remanded the case. The remand order was never
challenged by the Revenue by seeking a reference on the
ground that a remand was unnecessary because s.11 was ruled
out by reason of exemption having been obtained by the
assessee-Council under s.10 (23A) of the Act nor was any
such contention raised when reference was sought by the
assessee-Council nor when the matter was being argued in the
High Court. In these circumstances it is clear to us that
the Revenue acquiesced in the view taken by the Tribunal
that the claim for exemption under s.11 of the Act could not
be said to be ruled out by reason of the provisions of s.10
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(23A). We, therefore, proceed to deal with the second
contention which was principally argued before us in these
appeals.
Under s.11 of the Income Tax Act, 1961, subject to the
conditions therein specified, income derived from property
held
547
under trust wholly for charitable or religious purposes to
the extent to which such income is applied to such purposes
in India is exempt from the tax liability under the Act and
s.2 (15) gives an inclusive definition of the expression
"charitable purpose" thus:
"Charitable purpose" includes relief of the poor,
education, medical relief and the advancement of any
other object of general public utility not involving
the carrying on any activity for profit.
It may be noticed that whereas any object of general
public utility was included in the definition of "Charitable
purpose" in the 1922 Act, the present definition has
inserted the restrictive words "not involving the carrying
on of any activity for profit" which qualify or govern the
last head of charitable purpose. In Commissioner of Income
Tax, Madras v. Andhra Chamber of Commerce-a case decided by
this Court under the 1922 Act where the restrictive words
were absent-this Court laid down that if the primary or
dominant purpose of a trust or institution was charitable,
any other object which by itself might not be charitable but
which was merely ancillary or incidental to the primary or
dominant purpose would not prevent the trust or institution
from being a valid charity. After the addition of the
restrictive words in the definition in the 1961 Act, this
Court in Additional Commissioner of Income Tax, Gujarat v.
Surat Art Silk Cloth Manufacturers Association affirmed that
the aforesaid test of primary of dominant purpose of a trust
or institution still holds good, that the restrictive words
qualify "object" and not the advancement or accomplishment
thereof and that the true meaning of the restrictive words
was that when the purpose of a trust or institution was the
advancement of an object of general public utility at was
that object of general public utility and not its
accomplishment or carrying out which must not involve the
carrying on of any activity for profit. And applying these
tests trading bodies like Andhra chamber of Commerce and
Surat Art Silk Cloth Manufacturers Association have been
held to be institutions constituted with a view to advance
an object of general public utility because their primary or
dominant purpose was to promote and protect industry, trade
and commerce either generally or in certain commodities,
even though some benefit through some of their activities
did accrue to their members which
548
was regarded as incidental and this Court held that the
income derived from diverse sources by these institutions
(rental income from property in the case of Andhra Chamber
of Commerce and income from annual subscriptions collected
from its members and commission of a certain percentage of
the value of licences for import of foreign yarn and quotas
for purchase of indigenous yarn obtained by the assessee
from its members in the case of Surat Art Silk Cloth
Manufacturers Association was exempt from tax liability
under s.11 of the Act. Reliance on English decisions would
not be of much avail because the definition of charitable
purposes as given in our Act since it embraces ’any other
object of general public utility’ goes further than the
definition of charity to be derived from the English cases.
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Under English law of charity a trust is charitable only if
it is within the spirit and intendment of the Preamble to
the Statute of Elizabeth (43 Eliz. ch. 4) and all objects of
general public utility are not necessarily charitable, some
may or some may not be, depending upon whether they fall
within the spirit and intendment of the Statute of
Elizabeth. Under our definition every object of general
public utility would be charitable subject only to the
condition imposed by the restrictive words inserted in the
1961 Act. It is because of this basic difference between
Indian Law and English Law of charity that Lord Wright in
All India Spinners’ Assn. v. CIT uttered a warning against
blind adherence to English decisions on the subject thus:
"The Indian Act gives a clear and succinct definition which
must be construed according to its actual language and
meaning. English decisions have no binding authority on its
construction and though they may sometimes afford help or
guidance, cannot relieve the Indian Courts from their
responsibility of applying the language of the Act to the
particular circumstances that emerge under conditions of
Indian life."
Having regard to the aforesaid manner in which the
definition of "charitable purpose" given in s.2 (15) has
been interpreted by this Court the question that arises for
consideration in these appeals is whether the securities,
interest from which is sought to be exempted from tax
liability, were held by the assessee-Council on trust wholly
for a charitable purpose, namely, for the advancement of an
object of general public utility? Admittedly the assessee-
Council is not indulging in any activity for profit and
hence the aspect of considering the applicability of the
restrictive words does not arise and the answer to the
question must depend upon the
549
nature or character of the functions and activities which
the assessee-Council can undertake under the Advocates Act,
1961 for it is clear that it cannot go beyond what is
prescribed by that Act.
The Preamble of the Advocates Act, 1961 shows that it
was enacted with a view to amend and consolidate the law
relating to legal practitioners and to provide for the
constitution of Bar Councils and an All India Bar. Under s.3
of the Act Bar Councils are constituted for various States
and the assessee-Council happens to be a State Bar Council
for Maharashtra. Section 4 provides that every Bar Council
shall be a body corporate having perpetual succession and a
common seal, with power to acquire and hold property both
movable and immovable and to contract, and may by the name
by which it is known sue or be sued. Section 6 is the
material provision which sets out both obligatory as well as
optional functions of every State Bar Council and so far as
is material runs thus:
"6.(1)The functions of a State Bar Council shall
be-
(a) to admit persons as advocates on its
roll;
(b) to prepare and maintain such roll;
(c) to entertain and determine cases of
misconduct against advocates on its
roll;
(d) to safeguard the rights, privileges and
interests of advocates on its roll;
(e) to promote and support law reform;
(ee) to conduct seminars and organise talks
on legal topics by eminent jurists and
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publish journals and papers of legal
interest;
(eee) to organise legal aid to the poor in the
prescribed manner;
(f) to manage and invest the funds of the
Bar Council;
(g) to provide for the election of its
members;
(h) to perform all other functions conferred
on it by or under this Act;
550
(i) to do all other things necessary for
discharging the aforesaid functions.
(2) A State Bar Council may constitute one or
more funds in the prescribed manner for the
purpose of-
(a) giving financial assistance to organise
welfare schemes for the indigent, disabled or
other advocates;
(b) giving legal aid or advice in accordance with
the rules made in this behalf."
Sections 9, 9A and 10 of the Act provide for the
constitution of various committees for the purposes
mentioned therein. Section 15 confers power on the Bar
Council to make rules to carry out the purposes of this
Chapter. The rest of the provisions of the Act are not
material for the purpose of the issue under consideration.
Counsel for the Revenue contended that the primary
object or purpose with which the Bar Council of a State is
constituted is to benefit the members of the legal
profession inasmuch as under s.6 (1) (d) it is an obligatory
function of the State Bar Council to safeguard the rights
privileges and interests of the advocates of its roll and
that other functions like promotion of law reform,
conducting law seminars etc. are incidental objects and the
benefit to the public is remote or indirect or incidental
and, therefore, the assessee-Council could not be regarded
as a body intended to advance the object of general public
utility. It is impossible to accept this contention. It is
clear that sub-s. (1) lays down the obligatory functions
while sub-s. (2) indicates what are the optional or
discretionary functions that could be undertaken by the
State Bar Council and from amongst the obligatory functions
it will be wrong to pick out one and say it is the primary
or dominant object or purpose. All the clauses of sub-s. (1)
will have to be considered in light of the main objective
sought to be achieved as indicated in the Preamble. The
functions mentioned in cls. (a) and (b) of sub-s. (1),
namely, to admit persons as advocates on its roll and to
prepare and maintain such roll, are clearly regulatory in
character intended to ensure that persons with requisite
qualifications who are fit and otherwise proper to be
advocates are available for being engaged by the litigating
public; the function prescribed in cl. (c) has been enjoined
upon avowedly with the objective of protecting the
litigating public from unscrupulous professionals by taking
them to task for any misconduct on
551
their part; it is also one of the obligatory functions of a
State Bar Council to promote and support measures for law
reform as also to conduct law seminars and organise talks on
legal topics by eminent jurists, obviously with a view to
educate the general public, the function prescribed by cl.
(eee) is obviously charitable in nature, the same being to
organise legal aid to the poor. Amongst these various
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obligatory functions one under cl. (d) is to safeguard the
rights, privileges and interests of the advocates on its
roll and it is difficult to regard it as a primary or
dominant function or purpose for which the body is
constituted, Even this function apart from securing speedy
discharge of obligations by the litigants to the lawyers
ensures maintenance of high professional standards and
independence of the Bar which are necessary in the
performance of their duties to the society. In other words,
the dominant purpose of a State Bar Council as reflected by
the various obligatory functions is to ensure quality
service of competent lawyers to the litigating public, to
spread legal literacy, promote law reforms and provide legal
assistance to the poor while the benefit accruing to the
lawyer members is incidental. It is true that sub-s. (2)
provides that a State Bar Council may constitute one or more
funds for the purpose of giving financial assistance to
organise welfare schemes for the indigent, disabled or other
advocates; but it is an optional or discretionary function
to be undertaken by the Council. Apart from that, admittedly
the assessee-Council has not so far constituted any such
fund for the purpose specified in the instant case. As and
when such a fund is constituted a question may arise for
consideration and the Court may have to decide whether the
function so undertaken by a State Bar Council has become the
dominant purpose for which that Council is operating. Having
regard to the Preamble of the Act and the nature of the
various obligatory functions including the one under cl. (d)
enjoined upon every State Bar Council Under s.6 (1) of the
Act, it is clear that the primary or dominant purpose of an
institution like the assessee-Council is the advancement of
the object of general public utility within the meaning of
s.2 (15) of the Act, and as such the income from securities
held by the assessee-Council would be exempt from any tax
liability under s.11 of the Act.
Having come to the aforesaid conclusion on applying the
language of our Act to the nature of functions undertaken by
a State Bar Council under the Advocates Act 1961 it is truly
unnecessary to deal with the English decisions cited during
the course of
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arguments. However, we might indicate that in two cases
(Royal College of Surgeons case and the General Medical
Council’s) case on an analysis of the functions undertaken
by the two concerned institutions under the Statutes and
Charters governing them the Court came to the conclusion
that the institutions were not constituted for charitable
purpose but they were more of professional institutions, the
approach being to find out whether the objects satisfied the
limited concept of charity within the spirit and intendment
of the Statute of Elizabeth. In the other two cases (The
Yorkshire Agricultural Society’s case and The Institute of
Civil Engineers’ case the Court took the view that both the
institutions were constituted for charitable purposes
entitled the exemptions under s.37 (1) (b) of the Income Tax
Act, 1918, and the benefits accruing to the members were
regarded as incidental.
In the result we are of the opinion that the High Court
was right in answering the question in the affirmative and
in favour of the assessee. The appeals are accordingly
dismissed with no order as to costs.
S.R. Appeals dismissed.
553
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