AJMAL MIAN, J. --Since the above two income-tax references raise following common questions of law, we intend to dispose of the same by this common judgment:- "Whether in the facts and circumstances of the case the Income-tax Appellate Tribunal was justified in not allowing the exemption available to the applicant ion its income under the provisions of section 4(3) of the Income-tax Act, 1922.
The applicant is a company incorporated under - the Companies Act, 1913 and has been approved as a charitable institution by the Central Board of Revenue under section 15-D of the Income-tax Act (hereinafter referred to as the Foundation). Under clause 4 of the Memorandum of Association of the Foundation, its income and property are to be applied solely and exclusively towards to objects of the Foundation and no part thereof can be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to the members of the Foundation. It may also be observed that in the event of winding up of the Foundation, the funds of tine Foundation are to be transferred to some non-profit organization which has been approved as a charitable institution by the Central board of Revenue under section 115-D of the Income-tax Act (hereinafter referred to as the Act). It seems that the Income-tax Officer, Circle IV, Karachi for the assessment year 1965-66 assessed the income of the Foundation at Rs. 3,50,000 it e. Rs. 2,80,000 -received as donations by the Foundation from the Amin Wakf Estate and rest Rs. 70,OJ0 the income from donations. It further seems that for the year 1966-67 the Foundation was assessed at Rs. 2,34,826 by the Income-tax Officer, Companies Circle IV, the break-up of which is as follows: From 1-7-1965 to 30-6-1966:
(A) Income from donation from
(i) Amin Wakf Estate Rs. 2,80,000
(ii) G. M. D. FoundationRs: 70,000. Rs. 3,50,000
(B) Dividend received from:
(i) Pak Jute Baler Ltd. Rs. 59,140
(ii) Amin Jute Mills Ltd.Rs. 1,85,528Rs. 2,44,668 Rs. 5,94,668 Less expenses :-- InterestRs. 3,59,782.00 General expensesRs.10.50 Bank chargesRs.18.00 'Printing & StationeryRs. 31.50 Rs. 3,59,84 Total income Rs. 2,34,826 The Foundation went in appeals against the above assessment orders. The appeal for the year 1965-66 was heard by the Appellate Assistant Commissioner of Income-tax, P Range, Karachi and was allowed by him by his order dated nil. The, Income-tax Officer being aggrieved by the above appellate order filed appeal before the Income-tax Appellate Tribunal (hereinafter referred to as the Tribunal). The Foundation's appeal against the assessment order for the year 1965-66 was taken up by the Tribunal alongwith the appeal filed by the Income-tax Officer against the above order of the Appellate Assistant Commissioner, and the same were disposed of by a common order dated 22-2-1972, whereby it was held that the Foundation was not entitled to tax exemption under sections 4(3)(i) and 4(3)(ii) of the Act but the mistake of the Income-tax Officer including donation of Rs. 3,50,000 twice though there was one donation of the above sum was rectified. The Foundation has, therefore, filed the above two references.
2. In support of the above references Mr. Khalid Anwar, learned counsel for the Foundation has vehemently urged that the reasoning on which the exemption under sections 4(3)(i) and 4(3)(ii) has been denied to the Foundation is not sustainable in law as the objects of the Foundation are admittedly public charitable/religious.
On the other hand Mt. Sheikh Haider, learned counsel for the respondent has contended that as admittedly the Foundation is a private limited company, it is liable to be taxed unless a case of exemption is made out.
It has been further urged by him that admittedly in the two assessment years in question no amount had been spent on charitable purpose, no tax ei6emption could have been claimed.
3. In our view, it will be appropriate to take up the reasons found favour with the Tribunal for denying the tax exemption to the Foundation and to examine whether the same are sustainable in law. The conclusions of the Tribunal are contained in paras. 3 and 4 of the order, which are as follows: -
(i) That the Foundation is not registered under section, 26 of the Companies Act.
(ii) That certain objects of the Foundation are far beyond the scope of charity.
(iii) That certain clauses of the memorandum of association give the members a free hand over the Foundation to indulge in any activity of non-charitable character.
(iv) That the object of the Foundation was simply a subtle device to create holding company for the shares of Amin Jute Mills, Pak Jute Mills and allied concerns on the Karachi and Dacca Stock Exchanges.
(v) That the interests of the members of the Foundation are kept intact from the beginning till the end and that the cloak of charity therefore, is unreal.
4. Adverting to the above first reason, it may be observed that section 26 of the Companies Act provides that where it is proved to the satisfaction of the Federal Government that an association capable of being formed as a limited company has been or is about to be formed for promoting art, science, religion, charity or any other useful object and applies or intends to apply its profits (if any) or other income in promoting its objects and. To prohibit the payment of any dividend to its members, the Federal Government may by licence under the hand of one of its Secretaries direct that the association be registered as a company with limited liability without the addition of the word "limited" to its name and that the association may be registered accordingly. It further empowers the Federal Government to revoke the licence after notice to such association. It may be pointed out that under section 26, it is not obligatory for every charitable/religious company/institution to apply for a licence for dispensing with the use of word "limited" or for getting itself registered as a private limited company under the above section. On the other hand, section 15-D of the Act provides exemption from the payment of income-tax in respect of any sum paid by an assessee as donation to the charitable/religious institutions approved thereunder.
Admittedly the Foundation has been approved by the Central Board of Revenue as an institution qualified under section 15-D of the Act. In our view, it is not the factum, whether an association is registered as an ordinary company or as a company under section 26 of the Companies Act, can determine the nature of such company, but the determining factor' would be inter alia the objects and the activities of such a company.
5. Reverting to the other grounds referred to hereinabove, it may be observed that the Tribunal has referred to inter alia sub-clauses (xii), (xx)(xxi), (xxiii) and (xxvi) of Article 3 of the Memorandum of Association and concluded that certain objects are far beyond the scope of charity and that they give free hand to the members over the Foundation to indulge in any activity of non-charitable character and that it was a device to provide a holding company for maintaining the price level of the companies making donations to the Foundation and that the interest of members was kept intact till the end and the cloak of charity is unreal. In this regard, it may be pertinent to quote herein below sub-clauses (i) to (xi) of Article 1 of the Memorandum of Association, which read as follows
(i) "Promote education and science and do and promote charity in and among the communities and peoples of Pakistan and promote anal advance the welfare and well-being of the communities and peoples of Pakistan; without prejudice tom the generality of the objects in and powers conferred by this sub-clause, the Foundation may do ail or any of the things mentioned in the other sub-clauses of this clause;
(ii) Promote, spread, advance and impart religious among different sect and firqas of Islam; (iii). Provide facilities for, foster, encourage, secure and maintain good and closer relationship and amity among different sects and firqas of Islam
(iv) Print and distribute copses of Quran and print, publish, issue, circulate, aid and assist in printing, publishing, circulating and issuing papers, periodicals, books, publications and other literary efforts and undertakings as may seem conducive to the attainment of any of the above objects;
(v) Promote arts and sciences and promote and advance knowledge and learning of arts and sciences and of literature, medicine, engineering, agriculture and other branches of arts and sciences;
(vi) Found, build, aid, assist, set-up, manage, maintain, administer and run schools, colleges, institutions of learning and for imparting of knowledge, institutions for studies and research and institutions promoting welfare or having as one of their objects the promotion of welfare of communities 'and peoples;
(vii) Found, build, aid, assist, set-up, maintain, manage, administer and run libraries, museums, public buildings and halls, parks, playgrounds, places of recreation and other places of terse or benefit to communities and peoples;
(viii) Found, build, aid, assist, set up, maintain, manage, administer and run hospitals, clinics, dispensaries, centres and places of medical aid relief, convalescent homes, homes for children, orphans and for old people, maternity homes and homes for women;
(ix) Found, build, aid, assist, set up, manage, maintain, administer and run homes, shelters, places of residence and refuge for the poor and generally to promote the welfare of the poor and relief of distress by social and spiritual means and agencies;
(x) Found, subsidise, aid, assist establish, maintain, run, administer and manage trusts, funds, grants, and other benefactions;
(xi) Print, publish, issue, circulate and assist and aid in printing publishing, issuing and circulating papers, periodicals, nooks and other literary, scientific and useful works, efforts and undertakings as may seem conducive to the attainment of any of the objects of the Foundation;"
There cannot be two opinions that the objects mentioned in the above quoted sub-clauses are public charitable/ religious the other clauses incorporated in the Memorandum of Association are to be read in conjunction, with the above-quoted sub-clauses. It may be highlighted that the clauses referred to by the Tribunal for example sub-clauses (xii), (xx) themselves provide that the Foundation would be competent to do the acts mentioned therein for achieving the objects or purposes of the Foundation. The other sub-clauses namely, sub-clauses (xxi), (xxiii) and (xvi) though confer general power on the Foundation to engage itself to activities mentioned therein, but they cannot be read in isolation without reference to the other clauses. The basic features of the Foundation are that its income can only be used for the objects mentioned in the memorandum and no part of the income can be given in form of dividend or otherwise to any of the members and that in case of winding up the funds received by the Foundation are liable to be transferred to non-profit organization approved under section 15-D of the Act subject to the proviso that the Foundation may in good faith pay remuneration to any member, officer or employee of the Foundation in return for services actually rendered to the Foundation. In our view, the Tribunal has misconstrued the above proviso to Article 4 by observing that under the above proviso the entire assets or income can be paid by the Foundation to any of its members or staff. It has overlooked the phrase "in good faith" Only the payments which can be said to have been made in good faith are covered by the above clause and not the payment of the entire income or all the assets.' Furthermore, under section 4(3) of the Act, it is not every income which is exempted from payment of income-tax but only income, which can be brought within the four corners of the various clauses mentioned in the above section. If a company having charitable and religious objects engages itself in business activities its income from business shall be liable to be assessed unless such business activity is incidental to the charitable/religious object.
6. (a) Mr. Khalid Anwar, learned counsel for the applicant has referred to the case of Bat Hirbai Rahim Aloo Paroo and another v. Commissioner of Income-tax, Bombay City II 68 I T R 821, the case of Commissioner of Income-tax Calcutta v. Board of Mutwallis to the Wakf Estate, Ebrahim Solaiman Saleji 69 I T R 758, the case of The Religious Tract and Book Society of Scotland v. Forbes 3 Tax Cas. 415, the case of Glasgow Heritable Trust Ltd. v. Commissioner of Inland Revenue 35 Tax Cas. 196, the case of (Maulana) Muhammad Ibrahim Riza Malak v. Commissioner of Income-tax Nagpur AIR 1930 P C 226, the case of All India Spinners' Association v. Commissioner of Income-tax, Bombay 12 I T R 482, the case of Commissioner of Income-tax, Punjab v. Thakur Dass Bhargava 24 I T R 275, the case of Commissioner of Income-tax, West Bengal v. Sardar Bahadur Sardar India Singh Trust 29 I T R 781, the case of Commis--sioner of Income-tax Bombay City v. Breach Candy Swimming Bath Trust, Bombay 27 I T R 279, the case of Royal College of Surgeons of England v.
National Provincial Bank Ltd. And others (1952) 1 All E R 984, the case of Commissioner of Inland Revenue v. City of Glasgow Police Athletic Association 34 Tax Cas. 76, the case of The Trustees of the Tribune 7 I T R 415, the case of Yogiraj Charity Trust v. Commissioner of Income-tax, New Delhi (1977) 36 Taxation 67 (SC Ind.), the case of Commissioner of Income-tax, East Pakistan, Dacca v.
Narayanganj Chamber of Commerce and Industries Narayanganj 1968 PTD 513 and the case of Commissioner of the Income-tax, Madras v. Andhra Chamber of Commerce 1965 P T 9 481.
(b)(i) In the first case a Division Bench of the Bombay High Court while considering the question, whether the Trust created by two sisters belonging to the Khoja community providing for holding annual Majlis and meeting, of whole of the relations and acquaintances and feast them in Bombay in remembrance of the anniversary of Imam Hussain Saheb in the name of her husband Dahramsey Khakoo and pay such expenses in connection therewith as the trustees may think proper was a trust, of which income was qualified for tax exemption under section 4(3)(i) of the Act. It was held that since the dominant intention being to hold annual Majlis in remembrance of the anniversary of Imam Hussain who is regarded with the highest veneration by Khojas, the provision that the celebration should be associated with the name of her husband did not change the nature of the main provision of the sub-clause nor the fact that a meeting was to be held of all of the relations and the acquaintances of the settlor, who were to he given a feast, changes the main purpose and, therefore, the income of the above trust was qualified for tax exemption.
(ii) In the second case a Division Bench of the Calcutta High Court held that a Trust providing for contribution to poor with the power to the Mutawalis to spend any income for the benefits of the descendants of the settlor to the exclusion of the purposes mentioned in other clauses did not disqualify the above Trust from tax exemption under section 4(3)(i) of the Act as upon reading of the deed of Wakf as a whole, the purpose was pre--dominantly charitable it the sense that the purpose was for benefit of the public and motive of the Wakf in creating the Wakf estate was to obtain religious merit as understood and laid down by the Muhammadan Law of Hanafi Sect. It was further held that the predominant object of the Wakf was to benefit the poor including the poor relatives and to benefit other bodies of public utility like mosque, school, Mosafirkhana and water supply etc.
(iii) In the third case (which pertains to Scotland), the facts were, that a society was having shops of books selling and was also having a society for the diffusion of religious literature and to send out colporteurs whose duties were to sell Bibles and to act as cottage missionaries. It was held that colporteurs is not a trade and that the loss on it cannot for the purposes of Income-tax, be set against the profits from the bookseller's business carried on at the shops.
(iv) In the fourth case the question before a Court of Session England, was whether a Company, which was formed to take over a number of properties and which made surplus out of the sale of the properties can be taxed on surplus as a profit earned in the course of carrying on trade. It was held that since the company was not engaged in the sale and purchase of the properties, the above surplus could not be treated as a profit arising out of carrying on a trade.
(v) In the fifth case, which is a judgment of the Privy Council and was relied upon by the department before the Income-tax Authorities, it was held that where a property is vested in the head of a community under deeds of trust, but the trust property is applicable to purposes, many of which are neither religious nor charitable, and as it was not suggested that any part of the properties was set aside for any charitable or religious purposes so that it may be identified as appropriated exclusively for such purposes, the income of the whole of the property was assessable to-income-tax. ,
(vi) In the sixth case the facts were that All-India Congress Committee, which was a political organization to India got "All India Spinners' Associa--tion" established. Though the above association was established as an integral part of the Congress Organization but it had independent existence and powers unaffected and uncontrolled by politics. One of the clauses of the document containing the constitution of the Association started that the Council shall have .The right to raise loans, to collect subscriptions, to hold immovable property, to invest fund under proper security, to give and take mortgage for the furtherance of hand-spinning and Khaddar, to give financial assistance to Khaddar organizations by way of loans, gifts or bounties, to help or establish schools or institutions, where hand-spinning is taught, to hold and open Khaddar stores, to establish the Khaddar service, to act as agency on behalf of the Congress, to receive spun yarn as subscription to the Congress and to issue certificates and to do all things that may be necessary for furtherance of its object with the power to make regulations for the conduct of affairs of the association of the Council and to make such amendments in the constitution as may be considered necessary from time to time. The fund of the association mostly consisted of donation and subscriptions, from which Charkhas and handlooms were purchased and supplied to the inhabitants free of charge. Raw cotton was supplied to the poor people to spin into yarn and the yarn so span alongwith the yarn acquired by the association were supplied to the other poor people for hand---weaving. The Commissioner of Income-tax as well as the High Court held that the income of the above association was not exempt under section 4(3)(i) of the Act was the dominant purpose of the Association was political one. However, the Privy Council reversed the decision of the High Court and held that the property of the association consisted of the organization and undertaking as well as the fluctuating stock of yarn. It was held that the primary object of the association was the relief of the poor and the purposes of association included the advancement of other purposes of general public utility, the income of the association was exempt under section 4(3)(i) of the Act. It was further held that the if the association is set on foot by political organization and is connected with it but still has for its real object the relief-of poverty, its connection with the political organization does not make its real object any the less charitable.
(vii) Adverting to the seventh case, it may be observed that the facts of the above case were that the assessee was an Advocate, who had given up his practice but was persuaded to accept a brief to defend the accused in a criminal case on condition that the accused and their friends should provide the assessee Rs. 40,000 for charitable purpose and the assessee should create a public charitable trust thereof. The assessee defended the accused person and received a sum of Rs.
32,500 which was deposited in the bank. Subsequently, the assessee executed a trust deed.The question before a D. B. Of the High Court of East Punjab was, whether the sum received by the assessee was taxable income in his hand. It was held that the sum received by the assessee was not received by him as professional income but way received on behalf of a trust not in his capacity as an individual and it was, therefore, not taxable in his band.
(viii) In the 8tb case a Division Bench of the Calcutta High Court while considering the question, whether a charitable trust was qualified for tax exemption under section 4(3)(i) held that there was a valid trust even though the choice of particular charitable purpose or purposes was left to the discretion of the trustees and that though under the trust the trustee bad the discretion in choosing the purpose but nevertheless they had to carry out the direction in a reasonable manner. It was further held that though the settler bad the power to revoke the trust after six years but since the property was held wholly for charitable purpose, income derived therefrom was exempt from tax under section 4(3)(i) of the Act. It was also observed that the deed should be presumed to intend what it says and its provision must be construed whenever possible as to give effect to that intention and so must the directions obtained in the deed be held to be workable and intended to be worked if such a construction is open on the words used.
(ix) Reverting to the 9th case, it may be stated that the facts of the case were that by a trust deed executed in 1876 between Government of India and the Bombay Municipal Corporation, a Trust was created with the 'object of constructing and maintaining a salt water swimming bath at a certain place for the use and benefit of the European public of Bombay. The Corporation administered this trust and the bath was erected and maintained by it. Subsequently, a scheme was approved by the High Court. Powers were given to the trustees to make a provision for supply of refreshment including the alcoholic liquors to those resorting to the bath at the bar and the restaurant. The question before a Division Bench of the Bombay High Court was, whether the income from the sale of tickets for admission to the bath and from the bar and restaurant was exempt from tax on the ground that the trust was a charitable trust. It was held that the object of the trust was the maintenance of a swimming bath for the benefit of European public of Bombay aria it was an object of general public utility and that as no private gain was made out of the income of the trust the mere fact that profits were made by it by charging admission fees etc. Did not prevent it front being a charitable trust. It was further held that the trustees were carrying on the activities of business as part of the trust itself and that the income was derived from property, which was held in trust wholly for a charitable purpose and it was exempt from tax under section 4(3)(i) of the Act.
(x) In the 10th case, the House of Lords held that the object remains the public object, though incidentally it may benefit some individuals. It was held that the gifts given to the Royal College of Surgeons' which was incorporated for the due promotion and encouragement of the study and practice of the art and science of surgery which were directed to the relief of human suffering or to the advancement of education of science were public purposes. It was further held that there was no distinction between a charity incorporated by royal charter and the one incorporated by any other means and, therefore, the college was a charity and the gift over- it was not bad for perpetuity.
(xi) In the 11th case, the facts were that an association was formed in 1938 to encourage all forms of athetic sports and general pastimes. Member--ship was restricted to officers and ex-officers of City of Glasgow Police Force and was voluntary. 85 percent. Of the members of the Force belonged to it. The association was administered by the members themselves, each member was paying annual subscription to the association. Funds were also raised by holding annual sports meeting.
The Commissioner of Inland Revenue declined the association claim for exemption but the Special Commissioner allowed the same by holding that the association's object was not per se, a charitable but there were special factors in the nature of a police force which enabled them to hold that the Association was a body of persons established for charitable purposes only. The matter went before the Court of Session but the Crown's appeal was dismissed. The matter was then taken up before the House of Lord, which held that English law of charity has to be regarded for income- tax purposes as part of law of Scotland and not as a foreign law and that the association was not established for charitable purposes alone. It may be advantageous to reproduce hereinbelow certain observations from the judgment delivered by Lord Cohen:- "(1) If the main purpose of the body of persons is charitable and the only elements in its constitution and operations which are non---charitable are merely incidental to that main purpose that body of persons is a charity notwithstanding the presence of those elements Royal College of Surgeons of England v. National Provincial Bank 1952 A C 631.
(2) If, however, a non-charitable object is itself one of the purposes of the body of persons and is not merely incidental to the charitable purposes, the body of persons is not a body of persons formed for charitable purposes only, within the meaning of the Income-tax Acts-Oxford Group v.
Inland Revenue Commissioners (1949) 2 All E R 537.
(3) If a substantial part of the objects of the body of persons is to benefit its own members, the body of persons is not established for charitable purposes only Inland Revenue Commissioner v.
York1hire Agricultural Society (1928) 1 K B 611. The distinction between this class of case and that contemplated in the first principle I have stated is aptly pointed out by Atkin, L. J., in the ease last cited, when be says at page 631 "There can be no doubt that a society formed for the purpose merely of benefiting its own members, though it may be to the public advantage that its members should be benefited by being educated or having their aesthetic tastes improved or whatever the object may be, would not be for a charitable purpose, and if it were a substantial part of the object that it should benefit its members I should think that it would not be established for a charitable purpose only. But, on the other hand, if the benefit given to its members is only given to them with a view of giving encouragement and tai eying, out the main purpose which is a charitable purpose, then I think the mere fact that the members are benefited in the course of promoting the charitable purpose would not prevent the Society being established for charitable purposes only."
(xii) As regards 12th case, it may be mentioned that in the above case the facts were that a person, who owned a press and the newspaper created a trust by his will by which his property in the stock and goodwill of the press and newspaper was made to vest permanently in a committee of certain members. It was the duty of the said committee of trusstees under the will to maintain the said press and newspaper in an efficient condition and-to keep up the liberal policy-of the said newspaper, devoting the surplus income of the said press and newspaper after defraying all current expenses in improving the said newspaper and placing, it on a footing of permanency. It was held by Lahore High Court in a reference that the income earned by the above trust was not income derived from property held under trust for charitable purposes as that expression is defined in section 4(3) of the Act. On appeal the Privy Council reversed the judgment of the High Court and held that-object of the settler was to supply the province with an organ of educated public opinion and this was prima facie an object of general public utility. It was further held that though a trust for connecting newspaper as a mere vehicle for the promotion of a particular political or fiscal opinion may n. t be within the exemption but when the object is to disseminate news and ventilated opinion on matters of public interest, the fact that the paper may have or may acquire a particular political complexion would not take away its exemption. It was also held that the admissibility of a claim exemption from income-tax must be determined by the language of the special provision made by the Indian Income-tax Act in that behalf and not with reference to the English Statutes. It was further held that the fact that the settlor thought that the object of the trust was beneficial to the public would not by itself make the object of general public utility and discharge the Court of its responsibility in coining to a finding as to the character of the object of the trust. It was also pointed out by the Privy Council that under the Indian Act the test of general public utility is applicable not with reference to trusts in the English sense, but it is to be applied to property held under trust or other, legal obligation, a phrase which would include Muslim Wakfs and Hindu Endowments and while determining the above question the standard of customary law and common opinion amongst the community, to which the parties interested belong must be applied to and not the English ideas.
(xiii) Reverting to the 13th case reported in (1977) 36 Taxation 67 SC (Ind.) 67, it may be observed that the Indian Supreme Court while considering the question of exemption under section 4(3)(i) held that wherein a trust deed many charitable objects are provided and the trustees are authorized to open and maintain commercial institutions with the object of providing living wages to the poor and to contribute to the commercial, technical or industrial concerns, institutions, associations or bodies imparting any type of training or providing employment to persons and the deed gives uncontrolled discre--tion to the trustees to spend the whole of the trust fund on any of the non-charitable objects of the trust, the income of the trust was no exempt from, payment of tax under section 4(3)(i).
(xiv) As regards the case reported in 1968 PTD 513 Taxation it will suffice to observe that a Division Bench of the Dacca High Court upon a reference held that assessee Narayanganj Chamber of Commerce, which was incorporated under section 26 of the Companies Act and had obtained a licence under section 26 (1) of the said Act and the main object of which was promote and protect the trade, commerce and industry of Narayanganj be principal source of which was the income by subscription received from the members, arbitration, courier service, licence, measurement and issue of certificates and house property, the High Court confirmed the decision of income-tax Appellate Tribunal that the income of the above association was liable to be exempted under section 4 (3) (i).
(xv) The last case is a decision of the Supreme Court of India, in which the question in issue was, whether, the Andhra Chamber of Commerce registered under the Companies Act and permitted under section 26 of the Act to omit the word "limited" could claim tax exemption in respect of its income. The Income-tax department i.e. The, Income-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal held that since the above association was not a charitable institution, its income was liable to be taxed. Upon reference, the High Court reversed the above conclusion and held that the income from the property of the above associa-- tion was exempt under section 4 (3) (i). The Supreme Court of India upheld the judgment of the High Court and inter alia held as follows: -
(i) advancement or promotion of trade, commerce and industry leading to economic prosperity enured for the benefit of the entire community. That prosperity would be shared also by those who engaged in trade, commerce sad industry, but on that account the purpose was not rendered any the less an object of general public utility;
(ii) the Legislature had used language of great amplitude in defining "charitable purpose" definition was inclusive and not exhaustive or exclusive;
(iii) the expression "object of general public utility" was not restricted to objects beneficial to the whole of mankind. An object beneficial to a section of the public was an object of general public utility. To serve as a charitable purpose, it was not necessary that the object should be to benefit the whole of mankind or even all persons living in particular country or province. It was sufficient if the intention was to benefit a section of the public as distinguished from specified individuals. The section of community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature; whereas there was no common quality uniting the potential beneficiaries into a 'class, it might not be regarded as valid;
(iv) the primary objects of the Chamber of Commerce were not vague or indefinite;
(v) an object of general public utility, such as .Promotion, protection, aiding and stimulation of trade, commerce and industries, need not, to be valid, specify the modus or the steps by which the object might be achieved or secured
(vi) if the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e. g.
Promotion of or opposition to legislation concerning that purpose, was contemplated. It was only for the purpose of securing its primary aims that it was mentioned in the Memorandum of Association that the Chamber might take steps to 'urge or oppose legislative or other measure affecting trade, commerce or manufactures. Such an object ought to be regarded as purely ancillary or subsidiary and not the primary object ; and
(vii) the income of the Chamber of Commerce from its building was exempt from tax under section 4(3)(i) of the Income-tax Act as the building was held under a legal obligation wholly for charitable purpose."
7. From the above-cited and discussed cases, the following principles deducible:-
(1) that if the dominant object of a trust or wakf is to benefit the public or to ensure the performance of public religious ceremonies like Majlis, the factum that incidentally the trust/wakf also provides benefit to the settler/wakif's relations will not change the nature of such trust or wakf.
(ii) that a public object remains as such, though incidentally, it may benefit some individuals.
(iii) that if the object of a trust is of general public utility, not permitting any private gain, the factum that certain profits are made by it by charging admission tee or supplying refreshment etc., shall not make such trust non-charitable and its income will be qualified for tax exemption under section 4(3)(i) of the Income-tax Act.
(iv) that the fact that the trustees of a trust have discretion to choose any charitable or religious purpose, would not render the income of such trust taxable.
(v) that if a trust property under the terms of the trust can be used foci non-religious and non- charitable purposes and no property is kept, apart for the exclusive use of any charitable and religious purpose, the income of the whole of the property is assessable to Income-tax.
(vi) that if the main purpose of a body of persons is charitable, the fact that certain incidental operations to the main purpose are non charitable, shall not make such body of persons non- charitable, but if l one of the main objects is non-charitable and not incidental, such body of persons shall be deemed to be non-charitable.
(vii) that a trust may have charitable objects but if the trustees have uncontrolled discretion to spend the income of the trust on non-charitable objects, the income of such trust does not qualify to tax exemption under section 4(3)(i).
(viii) that if an assessee instead of charging professional fee for his services receives an. Amount for charitable or religious purpose and uses the same for the said purpose, the amount so received is not taxable as professional income.
(ix) that if the primary object of an association is to provide relief to the poor or to advance other purposes of general public utility, the factum, that the association has been set up by a political organisation or an organisation having no charitable or religions objects, will not change the nature of such association as to disentitle it from tax exemption under section 4(3)(i).
(x) that no distinction can be made between a charity incorporated by an enactment or by any other means.
(xi) that if the object of a settler of a press trust is to supply a large area of a country an organ of educated public opinion. It will be construed as a charitable purpose in terms of section 4(3) of the, Income-tax Act, but if the object of the trust is to provide vehicle for projecting a particular political or fiscal opinion, its income will not qualify tax exemption. '
(xii) that if the object of a Chamber of Commerce is advancement -ors promotion of trade, commerce, and industry, it will be covered by they expression "object of general public utility" though it may only benefit] a section of community, and its income will qualify to tax exemption.
(xiii) that if a company is not engaged in purchase and sale of landed property as its normal business, any surplus arising out of the sat proceeds of any landed property vested in the company cannot be treated as a trading profit for income-tax Purpose.
8. That the ratio decidendi of the above-cited cases is equally applicable to the instant cases as the predominant objects of the Foundation referred to hereinabove in para. 5' are charitable/religious and/or one of public utility.
It may be observed that the Income-tax Appellate Tribunal has not recorded any finding to the effect that the Foundation was engaged- in trade or business. The Foundation had either received donations in the form of shares or dividends therefrom. The expenditure shown is either towards the payment of the interest of loan or the payment of price of the shares purchased for the benefit of the Foundation.
We are inclined to hold that the Tribunal could not have read few of the clauses of the Memorandum of Association in isolation in order to conclude that the Foundation does not qualify to tax exemption under section 4(3)(i) of the Act but the clauses are to be read in conjunction and if the predominant object is charitable/religious, the tax exemption cannot be denied on the amount, which is either spent on charitable/religious object or which has been set aside for the above objects. It may again be pointed out that under section 4(3)(i) tax exemption is not a general exemption, but it is only on the amount of income either spent or kept aside for charitable and religious objects which is exempted. The conclusion arrived at by the Tribunal are based on surmises and conjectures and not on the proper construction of the various clauses of the Memorandum of Articles of Association of the) Foundation.
9. As regards Mr. Shaikh Haider's contention that since no amount was spent on charitable purpose, no tax exemption could have been claimed under section 4(3)(0, "it may be observed that the above contention is devoid of any force as under the above provision either the income should be able or should be finally set apart for application for religious or charitable purposes. The payment of the purchase price of the shares or the amount of interest for acquiring the shares for the objects of the Foundation in fact constitutes setting apart the income for application for the objects of the Foundation. It may also be observed that though in the two assessment years in question, no amount has been spent on any charitable object except which were intended to be used utilised for charitable purposes but in the subsequent years substantial amounts have been paid for charitable/religious objects which is indicated from the orders in questions."
10. For the aforesaid reasons the answer to the question framed is in the negative.