' MUHAMMAD ZAHOORUL HAQ, J.--The following question has been raised by the Commissioner of Income-tax,Karachi:- "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income of the assesse cannot be subjected to the levy of Income-tax Act"?
' This question is common to all the four Income-tax cases mentioned above. The assessment years relevant to the four cases are 1969-70, 1970-71, 1971-72 and 1972-73.
2.The assessee is the same. It is an association registered under section 26 of the Companies Act.
The facts of the case as stated by the Commissioner Income-tax are as under:-
(i) That the respondent is an Association registered under section 26 of the Companies Act. Its principle objects are set out in the Memorandum of Association and in clause 3 thereof it is expressly laid down that all the objects, privileges, advantages, concessions and benefits shall be conducted and be made available only to the members of the Association and not to the public generally. This exclusiveness is further re-affirmed in para. 1 of Article 5 which provides that "no person other than a member or a nominee of an institutional member shall be entitled, as of rights, to the advantages and benefits conferred and service rendered by the . Association." Although the Association has been approved by the Central Board of Revenue for the purposes of section 15(d)of the Income-tax Act i.e, donations made to the Association are entitled to rebate in the hands of the donor but this alone does not entitle the Association to exemption from tax under section 4(3)(i) of the Act. It is submitted that the scope of the two provisions is different inasmuch as an institution may qualify for approval under section 15(d) but not necessarily for exemption under section 4(3)(i).
(ii) That the respondent filed return under section 22 for the assessment year under reference showing all income. The return was accompanied with copies of audited accounts which disclosed following sources of income:-
(a) Subscription
(b) Eiltrance Fees
(c) Interest on Bank Deposits
(d) Executive Development Programmed.
(e) Seminar Fees
(f) Convention Fees
(g) Consultancy Fees
(h) Book Sales
(i) Miscellaneous Income.
' It was claimed that the Association was a charitable institution within the meaning of S. 4(3)(i)(ii) and as such its income was totally exempt from tax. The said claim was not accepted by the Assessing Officer on the ground that the association was a professional organization concerned with and interested in management. Its main purpose was the advancement of management profession and all its rights, privileges, advantages, concessions and benefits were exclusively reserved for its members and not for the general public. Amongst other reasons it was further mentioned that the association was carrying on regular business by charging consultancy fees, selling books, interest on deposits etc. which was opposed to the provisions contained in the first proviso to section 4(3)(i) in which severe restrictions are placed on the carrying on of business by a charitable institution.
(iii) That aggrieved by the aforesaid order of assessment of respondent filed an appeal before the Income-tax Appellate Tribunal which was allowed on 27-8-1973. The findings of the learned Tribunal are summarized as follows:-
(a) The Association is a charitable institution within the meaning of section 4(3)(i) & 4(3)(ii).
(b) The membership of the Associations is open almost to every member of the public who is interested in its objectives.
(c) The entire income is solely applied for the purpose of the insti tution as is evident from amended Article 46 of the Articles of Association read with clause 4 of the Memorandum of Association.
(d) No portion of the income of property is payable or transferable to the members of the Association.
' The finding recorded by the learned Tribunal in respect of ground (b) above is not factually correct. Relevant portions of Article 2 of the Association is not factually true with reference to the provision contained in Article of Association.
(iv) It is respectfully submitted that the following conditions must be satisfied before an institution can claim to be a charitable institution for the purposes of exemption under section 4(3)(i):-
(a) The income-bearing property must be held under trust or other legal obligation wholly for religious or charitable purpose.
(b) The income must be applied or finally set apart for application to religious or charitable purpose.
(c) Where such income is derived from business, such business must be carried on in the course of the carrying out of a religious or charitable purpose of the institution, or the work in connection with the business must be mainly carried on by beneficiaries of the institution.
' Under clause 3(m)(i) of its Articles the sources of Association's income can be only subscription, fees, gifts, deposits and grants in cash or kind and nothing else, whereas the accounts show that the Association carries on several other activities which contribute to its income. These include interest on Bank Deposits, consultancy fees, Book sales etc. In these circumstances, it is very doubtful whether the property can be said to be held under trust or other legal obligation. Again, since the Memorandum and Articles of Association do not expressly authorize such extra activities, it cannot be said that the business is carried on in the course of the carrying out of a religious or charitable purpose of the institution.
(v) That in the light of the above facts it is respectfully submitted that the learned Tribunal has committed a manifest error of law in concluding that the respondent is entitled to claim benefit regarding exemption of its income from tax under section 4(3)(i) of the Income-tax Act
3. In order to correctly understand the problem it would be necessary to recapitulate relevant portions of section 4(3)(i)(iii) of the Income-tax Act, 1922 the relevant portion of which reads as under:- "4(1). Subject to the provisions of this Act, the total income of any previous year of any person, includes all income, profits and gains from whatever source derived:-
(3) Subject to the provisions of this Act, any income, profits or gains falling within the following classes shall not to such extent as may be specified in this subsection or prescribed in this behalf be included in that total income of the person receiving them:-
(i) any income derived from property held under trust or other legal obligation wholly or religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied, or finally set apart for application, thereto: Provided that in the case of income derived from business this clause shall not apply unless the business is carried on behalf of a religious or charitable institution and the income is applied solely for a religious or charitable purpose of the institution, and either:-
(i) the business is carried only in the course of carrying out of a religious or charitable purpose of the institution or
(ii) the work in connection with the business is mainly carried on by beneficiaries of the institution: Provided that nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act that part of the total income of a private religious trust which does not ensure for the benefit of the public.
Explanation.--The expression "charitable purpose" as under in clauses (i) and (ii), includes relief of the poor, education, medical relief and the advancement of any other object of general public utility:"
(ii) Any income of a religious or charitable institution derived from voluntary contribution and applicable solely to religious or charitable purposes.
4. Submission of Mr. Waheed Farooqui learned counsel appearing for the applicant was that the respondent association is not an association which can be covered by the definition of a religious or charitable organization and that in any case its objects are not of general public utility particularly in view of the fact that clause 3(13) of its memorandum of association declares that all the objects, privileges, concession and benefits shall be made available only to the members and not to the public generally. Counsel submitted that the respondent was a closed organization working for the benefits of its own members and hence it was not providing any benefits to the general public and hence its purposes are not charitable. He relied upon the observations of Beaumont, C.J. in C.I.T. v. Grain Merchants' Association of Bombay (1938) 6 I.T.R. 427 which were to the following effect:- "an object of general public utility means an object of public utility which is available to the general public as distinct from any section of the public" and that objects of an association "to benefit works of public utility confined to a section of the public, i.e, those interested in commerce" are not, "objects of general public utility."
5. However we find that these observations of Beaumont, C.J. have been overruled by the Supreme Court of India in the case of T.1.T. Madras v. Andhra Chamber of Commerce reported in (1965) 55 1 T R 722 where Justice Shah, J. had observed as under:- "observations of Beaumont, C.H. in (1938) 6 I T R 427 did not correctly interpret the expression "objects of general public utility". The learned Judge further observed "The section of the community sought to be benefitted must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature: where there is no common quality uniting the potential beneficiaries into a class, it may not be regarded as valid." The Supreme Court of India in the above case had held that the objects of the Chamber of Commerce were to promote and protect trade, commerce and industry and protect general commercial interest of India or any part thereof. It was held that 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 a 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 the community sought to be benefitted must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature." In that case it was held that the primary purpose of Chamber of Commerce was of general public utility, and an object where it was mentioned that chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures, such object was to be regarded as purely ancillary or subsidiary and not the primary object.
6. Again in (1981) 130 I T R 184 the Supreme Court of India observed that in the case of a Chamber of Commerce where profit-making was not the predominant object of the activity carried on by Andhra Chamber of Commerce, but their predominant object was to promote trade and commerce, therefore their object was of general public utility and was therefore charitable. In yet another case (1981) 130 I.T.R. 186 C.I.T. v. Federation of Indian Chambers of Commerce and Industry where a trade fair had been organized at Delhi by the Chamber of Commerce and income was derived from stalls and sale of tickets, the Supreme Court of India held that such activity was for advancement of predominant objects and promotion of trade and commerce.
7. In (1981) 130 I T R 28 where one of the objects of Bar, Council was safeguarding the rights, privileges and interests of Advocates of its rolls but there were other objects of general nature enjoined upon the Bar Council to ensure quality of service of competent lawyers to the litigant public to spread legal literacy, promote law reforms and provide legal assistance to the poor, the Supreme Court of India observed that the main objects sought to be achieved were the objects of general public utility while the benefit accruing to the lawyer members was incidental.
' The word "public" has been explained in Law Lexicon by lyyer at 1038 (1947 Edn.) as "the body of the people at large", "the people of the neighborhood." While section 12 of the Penal Code has defined "public" as: "includes any class of the public or public community." At page 1039 of Law Lexicon with reference to a case of A.C. v. Pearce, 2 Atk 87, "public charity" is explained: "An institution for the charitable benefit of a large and important body of poor persons is a public charity." The expression 'public purpose' used is Land Acquisition Act, 1894 was construed in 13 A L J 117 as "including building residences for Government Servants". In A 1 R 1931 Mad. 798 it was held "even if only a section of the public is benefitted by a Land Acquisition the purpose, would still be a public purpose."
' In the case of Fauji Foundation as reported in PLD 1983 SC 457 it was held that "public purpose in which even a fraction of the community may be interested or by which it may be benefitted." And it was also observed: "inadequacy test is no longer now in vogue to constitute public purpose".
Reliance in the above case was placed upon 262 U.S. 707 Rindge Co. v. Los Angles where it was held: "It is not essential that the entire community, nor even a considerable portion, should directly enjoy or participate in any improvement in order to constitute a public use. "giving reasons of wider interpretation of "public purpose" and "public use" our Supreme Court in above case of Fauji Foundation had observed at p. 674 "This wider interpretation is given because of the changing times, state of society and its need", and it had concluded: "however, the basic requirement nevertheless remains, that is the general interest of the community as distinguished from the private interests of the individual."
In the light of the law laid down by our Supreme Court noted above and also the decisions of Indian Courts it cannot be denied that the respondent's objects are not confined to the welfare of any individual but are available to a large section of the public namely those who are interested in the subject or study of the Science of management and can become its' members and hence they are objects of general public utility as required under Explanation to S. 4(3) of the Income-tax Act, 1922.
Mere fact that the objects are restricted to its' members is not of much significance when we see that under Article 2 of respondent, its' membership is open even to students and temporary membership is open to every one is engaged or interested in the management. We have already seen that respondent is registered under section 26 of the Companies Act and thus it is under a legal obligation not to distribute any of its' profits to its' members, Moreover, the Tribunal has found by reference to Articles 4 and 46 of the Articles of Association of the respondent that its entire income is solely applied to the objects of the respondents and that finding is not challenged before us in any manner. It has also been observed by the Tribunal that it was nobody's case that the respondent does not carry on its objects as stated in the Memorandum of Association.
' The argument that approval of an Association as a charitable institution by the Central Board of Revenue under section 15-D of the Income-tax Act is not relevant for exemption from tax under section 9(3)(i) of the Act does not appear to be completely correct. It would be useful to refer to relevant portions of section 15-1)(d) which exempts donations and subsection (4) of section 15-D which defines Charitable Purpose. The expression Charitable Purpose, is defined similarly under the Explanation of section 4(3)(i).
' It is, therefore, obvious that "charitable purpose" are common. in section 15-D (4) of the Income- tax Act and section 4(3)(i) of the Income-tax. Act.
' Hence an association, which is found to be having a charitable purpose under section 15-D by Central Board of Revenue, should ordinarily be held to be having the same charitable purpose for the purposes of section 4(3)(i) (Explanation) of the Income-tax Act, provided it satisfies the order conditions of section 4(3)(i) & (ii).
Therefore, according to our view declaration of an association by the Central Board of Revenue as an association being run for a charitable purpose under section 15-D of Income-tax Act though not conclusive but should be very relevant for the purposes of assessment of its' income and it should ordinarily be treated as an association for a charitable purpose by the Income-tax Officer under section 4(3) (Explanation) of I.T. Act as well, unless there are positive findings that the other requirements of section 4(3)(i) & (ii) are lacking.
' The Memorandum of the respondent shows that some of the objects of the respondent are:-
4. To collect and disseminate information on management practices by establishing libraries, publishing periodical journals and by arranging conference seminars, etc.
5. To provide facilities for the study of and inquiry and research into management and management problems among members and if necessary to establish scholarships, grants rewards and prizes for this purpose.
6. To develop management courses of all kinds whether independently or in co-operation with the educational and research institutions.
' The perusal of the above objects shows that these objects are educative in nature and also are of public utility as study of and inquiry and research into management problems is in pursuit of knowledge and similarly dissemination of information on management practice to be done by them is again for the purposes of expansion of knowledge and is of public utility. They have also to develop management courses of all kinds either independently or in co-operation with the education and research institutions which is evidently for the purposes of imparting education and training in respect of the section of management and are bound to benefits the public. They also have the object of holding examinations and tests of knowledge and experience of management theory and practice which again is the process of ascertainment of the results of the education imparted by them. Mere fact that the aforesaid objects and concessions and benefits are made available only to the members of the Association and not to the public generally does not derogate from the respondent's association being an educational association. An educational institution is hot required according to section 9(3)(i) of the Income-tax Act to impart education generally and therefore, if an association has the object of imparting education and advancement of knowledge of its' members only even then it can call itself an educational institution. Education simplicity is a charitable purpose according to the Explanation of section 4(3) of Income-tax Act, 1922 and since the respondent Association has education as some of its' objects as discussed above therefore, it is an association basically for a charitable purpose.
' Since the respondent association has been registered as an Association under section 26 of the Companies Act of '1913, it clearly means that it was formed for promoting Commerce, Art, Science, Religion, Charity or any other useful object and that its' profits or other income is intended to be applied for promotion of its' objects and that it has. prohibited that payment of any dividend to its' members, The respondent could not have been registered under section 26 of Companies Act unless the Government had been satisfied in respect of the above positions and had then issued a licence directing the Registrar of Companies to register the respondent as such. Therefore, this shows that the respondent is an association whose entire profits are to be utilized for the promotion of its' objects .and no dividend is to be distributed amongst its' members, The same is also the finding of the tribunal based on the reading of Articles 4 and 46 of the Articles of Association of the respondent. The respondent is therefore, an Association not for profit.
Consequently every property of respondent Association is held by it wholly for the purposes of promotion of its' objects under the legal obligation enjoined upon it under section 26 of the Companies Act of 1913 and Articles 4 and 6 of its' Articles of Association. The consequence of this finding is that if the objects of this Association are found to be charitable, as we have found them to be, then it has to be held that the property of this Association is held wholly for a charitable purposes and hence income derived from such property would be covered by section 4(3)(1) of the Income-tax Act, 1922.
' Dealing specifically with the various incomes of respondent we are quite clear in our minds that the holding of seminars, executive development programmers and conventions are part of the objects of the Association and therefore, fees and amounts realized from these are income from an activity which is carried on for realizing the objects of the respondent. Book sales appeared to be closely connected with the research and study and other objects of the Association and hence they are all covered by clause (i) of Proviso of section 4(3) of the Income-tax Act. In any case it is only an incidental activity and not the main object and hence it does not affect the charitable character of respondent.
' Moreover the income of the respondent from contributions is also bound to be spent on the objects of the association which are basically charitable and hence they were exempt under section 4(3)(ii) of Income-tax Act.
' Although all objections of the petitioner have been taken note of already, however, we would take specific note of the contention of the petitioner challenging the finding of the tribunal in respect of membership of respondent being open to almost every member of the public who is interested in its' objectives. The tribunal by this finding meant to convey that since membership was open to a large section of the public therefore the benefits of the objects of the respondent were available to the general public. In our view the finding of the tribunal is justified. The membership is dealt with in Article 2 of the respondent which makes a provision of 7 types of members (i) Honorary members,
(ii) Corporate members, (iii) Institutional members, (iv) Associates members, (v) Students members (vi) Visiting members and (vii) Temporary members, ' Any student enrolled as a student of an Institution teaching management subjects or of a management Association for its' professional examinations and awards is eligible to become a student member. Similarly any individual engaged in or having an interests in management can be admitted as a temporary members, These two types of membership under clauses V & VII of Article 2 of the respondents are sufficient to establish that the respondent is open for membership to almost every person who is interested in the subject of management or is actually engaged in the management of any institution or has some interest in management. These categories cover a very wide section of the general public and hence it cannot be argued that because benefits of this respondent are restricted to its' members therefore, its' objects are not of general public utility.
The membership itself being open to a very large and wide sections of the public its' benefits are available to a large section of the public and thus they are available to the general public which is interested in the subject of management or the practical aspect of management.
' At this stage it would be useful to consider whether the objects of the Association could be called to be of general public utility, in spite of the fact that it is a professional organization. It is no doubt true that the first object of the respondent is to establish and maintain an Association for persons and organizations concerned with management but I do not find any object which provides for safeguarding or advancing or protecting the interests of individual members, On the other hand its' objects are to collect and disseminate information on management practices, to develop courses and to exchange information with other bodies. More important are the objects to lay down standards of knowledge, training and experience in the practice of management, to hold examinations and tests of knowledge for examinations. Another significant object is to formulate standards of conduct for members and to encourage appropriate professional attitudes for members and lastly to foster members to undertake voluntary work for the objects of Association.
There can be no doubt that the object of providing facilities for study and research of the science of management and to formulate standards of conduct for members are definitely objects of general public utility as management is an important subject which can help in better management of business Industry and Associations and thus its utility to the general public cannot be denied. A community where the business, Industry and other Institutions are managed by capable people, who have learnt the Science of management, would be a much better organized society than the one where duly trained Managers are not available. Moreover by setting standards of professional conduct the general public would be saved from those management people who could adopt unethical and unfair methods. Therefore, the bulk of the objects of the respondents are of general public utility and hence it is in every sense an Association for a Charitable purpose.
' The net result of the above detailed discussion is that question posed by the petitioner is answered in the affirmative.