' GUL MUHAMMAD KHAN, J.-By this order we shall also dispose of three other tax References Nos. 20- 67, 62-67 and 63 67 as common questions of law have been raised in them. All these references pertain to seven assessm ent years from 1953-54 to 1959.60.
2. The petitioner in Rs, 19 and 62 of 1967, is a Society registered under the Societies Registration Act, 1860. In its income returns submitted for all these years it claimed exemption from tax unler section 4(3)(I) of the Income-tax Act (hereinafter called the Act) but the same was not allowed by the Income tax Officer. The petitioner took an appeal before the appellate Assistant Commissioner which did not succeed. A further appeal before the Income-tax Appellate Tribunal having also failed, the petitioner moved the Tribunal to refer the following three questions of law to this Court for its opinion :-
(1) Whether on the facts and in the circumstances of the case the income from business arising to the Society registered under the Societies Registration Act, 1860, was taxable under the provisions of the Income-tax Act, 1922 ?
(ii) Whether on the facts and in the circumstances of the case the income from dividend arising to the Society registered under the Societies Registration Act, 1860, was taxable under the provisions of the Income-tax Act, 1922 ?
(iii) Whether the re-assessm ent framed under section 342-B was legal one and could be sustained by retrospective provisions brought on the Statute Book after the completion of the assessment ?
After thoroughly considering the arguments of the parties, raised before it, the Tribunal decided to refer question; Not (ii) and (Ill) only. The petitioner then moved T. R. 19-67 to this Court under section 66(2) of the Act praying or a direction to the Tribunal to refer the first question also. The reference sent by the Tribunal about the other two questions is numbered as T. R. 62-67.
3. The petitioner in T. R.
20.67 is Tehrik Jadid Anjutnan Ahmadiyya, Rabwah. The grievance of that petitioner is also for the same assessm ent years as referred to in the two other cases above. There also the income-tax authorities at all levels refused to grant exemption to the petitioner on the same grounds. The application made by it for reference to the Tribunal met also with a similar fate. T. R. 20-67 has, therefore, been filed by the petitioner asking for a direction to the Tribunal to refer the first question whereas the other two questions have been referred to us in T. R. 63-67 by the Tribunal.
4. Both the assessees in their returns showed to have earned income inter alia from Binning factory, sale and purchase of cotton, operation of a brick-kiln, share dividend and voluntary contributions.
The Income-tax Officer found that as the dividend and business-income did not answer the requirements of the provisions of section 4(3)(1) of the Act it did not merit exemption. The income from voluntary contributions was exempted under section 4(3)(1i), in one of his orders dated 15th June 1959, for the assessm ent year 1954-55, the Income-tax Officer, discussed the nature of the objects of the assessees and relied on Bowman v. Secular Society Ltd. (1), Muhammad Ibrahim Malik v. C. I. T. (2), Rotunda Hospital case (3) etc. To hold that all the objects were not religious or charitable. Similar reasons were given by the Appellate Assistant Commissioner. He found that neither the business was being run in the course of carrying out of the religious or charitable purposes of the institution nor was the work being carried on mainly by the beneficaries. As regards the second question it was held that all the objects of the assessees being not religious or charitable and there being no apportionment or the income applied for charitable and religious objects, the question of exemption did not arise. The Tribunal in its well considered judgment relied on the judgment of the Supreme Court in C. I. T. v. Muhammad Abdur Rauf Khan (4) in dismissing the appeals. It is, however surprising to note that though stricter provisions were applicable to the voluntary contributions yet they were exempted under section 4(3)(0.
5. Before us the learned counsel for the petitioners raised the following points for our consideration :-
(a) the business was carried on on behalf of the religious and charitable institutions and so the income was exempt from tax ;
(1) 1917 A C 406 (2) AIR 1930 Nag. 226 (P C)
(3) (1921) 7 Tax Cas. 517 (4) PLD 1963 SC 209
(b) the business was being carried on in the course of the purposes of the institutions ;
(c) the work was being done mainly by the beneficiaries ; and
(d) all the objects of the petitioners were either charitable or religious in nature and the income was being solely applied to charitable and religious purposes.
' He also took us through the objects of the two Societies as appearing at pages 83 to 86 of the printed paper-book to show that the same were either charitable or religious. A pointed reference was made to clause (d) of the objects of the institutions to show that improvement of economic life of the community too was a charitable purpose and that the business was being carried on specifically in furtherance thereof. Reliance was placed by him on Haisbury, III Edn., Vol. 4, pages 210, 211, 214, 229, 230 and 242 and paras. 489 and 491. The judgments reported as All-India Spinner's Association v. C. I. T. (1), Trustees of Tribune Press v. C. I. T. (2) and C. I. T. v. Narayanganj Chamber of Commerce and Industry (3) were also cited in support of his plea. However, none of the precedents cited above are helpful to the assessees.
6. Perusal of section 4(3)(I) would show that in order to successfully claim exemption an assessee must show that-
(i) the entire income declared by him was derived from property held under trust or other legal obligation wholly for religious or charitable purposes ; or
(ii) the income derived from part of the property held for religious or charitable purposes was either applied to such purposes or had been finally set apart for application ; or
(iii) only so much of the income, profits and gains are exempt as were in the previous year, expended or set apart in Pakistan and not abroad.
' These provisions also suggest that an . Assessee must disclose not only the source of income and the objects of the trust or institutions but also the avenue and details of expenditure. Ho, therefore, must file a return and his claim for exemption could be decided by the Department only after the relevant material was placed before it. It was held in Lala Gopi Mal Kutniala Charitable Trust v. I. T.
0. (4) that oven where assessee claims that his income is exempt under section 4(3)(i) he must file a return of income.
7. A cursory glance at the objects of the assessees would show that the objects at serials (b) and
(f) provide for activities involving expenditure abroad. An exemption from tax of entire or partial income could be given only if it was shown that the same had been spent exclusively in Pakistan on religious and charitable purposes. Expenses could be incurred abroad also on objects at serials (c), (d), (e), (g), (h), (1). ( j), etc. And the same will also not be covered by the exemption provision, unless the trust made sure that the trustees of the fund had no power to expend trust funds outside Pakistan. It was held in the H. E. H. The Nizam's Religious Endowment Trust v. C. I. T. (5) that so long as there is possibility of the Trustees in their discretion to apply the trust fund for purposes outside the taxable
(1) (1944) 12 I T R 482 (2) (1939) 7 I T R 415
(3) (1968) 17 Taxation 201 (4) (1962) 6 Taxation 226
(5) (1963) 48 I T R)92 ' territories, the income from trust does not fall within the scope of section 4(3)(i). The decision of the Tribunal, therefore, is not incorrect even for this sole reason.
8. Under section 4(3)(1) the other point to be considered is whether an institution or a trust is exclusively religious or charitable and if the entire property or a part of it was being held for these purposes? Whether or not a trust is charitable, is a question of law to be decided by the Judge in the light of the circumstances in which the institution or trust came into existence and the sphere in which it operates as observed in Royal Choral Society v. I. R. C. (1). Same view was taken in All India Spinner's Association v. C. I. T. In reaching his decision the Judge is completely unaffected by the settlor's or testator's opinion as to whether the purpose he has indicated is charitable or not, as held in the Trustees of Tribune's case by the Judicial Committee of the Privy Council. The Privy Council in Angular v. Guyana I. R. Commrs. (2) laid down the following rule:- "It must first consider the trend of those decisions which have established certain objects as charitable under this heading and ask whether, by reasonable extension or analogy, the instant case may be considered to be in line with these, Secondly it must examine certain accepted anomalies to see whether they fairly cover the objects under consideration. Thirdly-and this is really a cross check upon the others-it must ask whether, consistently with the objects declared, the income and property in question can be applied for purposes clearly falling outside the scope of charity; if so, the argument for charity must fail."
9. Viscount Simonds in I. R. C. v. Baddeley (3) observed that there is no limit to a number and diversity of the ways in which man will seek to benefit his fellowmen. He remarked that there is a distinction "between a form of relief extended to the whole community yet by its very nature advantageous only to the few and a form of relief accorded to a selected few out of a large number equally willing and able to take advantage of it." The former type according to Verge's case (4), did not lack the necessary element to public benefit even though confined to persons living in a specified area while the latter type did as held in Penuel's case (5). The ratio decidendi of the above cases appears to be that if a power of subjective selection of the beneficiaries is conferred on those who are administering a fund the trust will not be charitable.
10. In Halabury's Laws of England III, Edition, Volume 4, pages 241-242 the following objects have been noted as having been held non-charitable public objects t- "Every object of public utility is not necessarily a good charitable object. The question always is whether the particular object is within the purview of the ancient statute of Elizabeth.
' Thus bequests for purposes of benevolence or benevolence and liberality, for patriotic, civil or religious, philanthropic, parochial, missionary, pious or Roman Catholic purposes, or 'for parish w ork', or for 'social or recreational purposes in connection with certain churoSes', or
(1) (1943)2 All ER 101 (2) (1970) 15 W I R 198 (P
(3) 1955 A C 572 (4) 1924 A C 496
(5) 1891 A C 521 ' for purposes 'most conducive to the good of religion' in a diocese, or for purposes conducive to the attainment of the objects of an association not limited to the advancement of religion, or for helping to carry on the work of the Church in Wales, or for executing the Papal office, or for the purposes of hospitality or general utility or for emigration uses, or for increasing the sum of available knowledge or for the storage of books, or for the encouragement of a mere sport or game such as cricket, football, fencing, yachting, bicycling, lawntennis, or any other healthy exercise and recreation primarily calculated to amuse individuals, though such sport may be beneficial to the community, are not charitable; nor is an association to promote athletic sports and general pastimes among members of a police force. Though the provision of the means of public recreation, and also the promotion of moral, social and physical well-being by provision of facilities for religious services and instruction and for social and physical training and recreation have been held charitable, trusts for religious, moral, social and recreate purposes have been held not charitable."
11. Every trust must be beneficial to the public-at-large or a section of the public and must have charity as its basis and not benevolence. It was held in Chichester Disceson Fund etc. v. Simpson (1) that a trust for benevolent purposes is void for uncertainty. It is undoubtedly very difficult to define 'charity' with precision. The literature on the point is as vast as despairing. The question strictly speaking is not whether 'a charity exists, but whether the trusts on which property is held as 'trusts for a charitable purpose'. In determining its legal meanings the Courts have been guided by the lists of charitable objects set out in the preamble to the Statute 43 Elia I C 4, 1601. The best classification of charitable purposes under the above Act has been given by Lord Macaagthen's speech in C. I. T. v. Pemsel (2) which is being consistently followed by the English Courts. It was stated that 'charity' in its legal sense comprises four principal divisions
(1) trusts for relief of poverty ;
(ti) trusts for the advancement of education ;
(iii) trusts for the advancement of religion ; and
(iv) trusts for other purposes beneficial to the community, not falling under any of the preceding heads.
' That judgment added that the trusts last referred to are not the less charitable in the eye of law because incidentally they benefit the rich as well as the poor, as indeed, every charity that deserves the name must do so either directly or indirectly. The American Law Institute in the Restatement of Trusts adds two more headings :-
(v) promotion of health ; and
(vi) governmental and municipal purposes.
The religious and charitable objects of Muslim Waqfs cannot be of any assistance in the cases in hand. A perusal of the Explanation after the second proviso to section 4(3)(i) of the Act would show that the scope of the term 'charitable purpose' in the Act is extensive as adopted by the British or
(1) (1944) 2 A E R 60 (2) 1891 AC 531 ' American Courts and guidance can be sought from them in view of the' paucity of authority in this country. It was also held in Abdul Rauf Khan's case as under :- "By religious or charitable purposes are meant purposes like relief to the poor, education, medical facilities, etc."
12. Keeping in view the above tests we are led to the conclusion that the objects of the assessee Society as are referred to at paras. 83 to 86 of the printed paper-book would not permit it to be placed in the category of an institution meant exclusively for charitable or religious purposes. We may particularly refer to object (p) which overrides other objects in their scope and extent. It reads as under :- "(p) To do all other acts and things, whether incidental to the powers aforesaid or not, as may be requisite in order to further its objects as a social, educational, cultural, moral, charitable and spiritual institution."
The above clause empowers the Society to promote its objects as a social, educational, cultural, moral, charitable and spiritual institution notwithstanding the other provisions. It thus clearly spells out that the objects social, cultural and moral are as important to the Society as the religious, charitable and spiritual. Clause (f) which also supports our conclusion, reads a under :- "(f) To establish and affiliate branches under or allied to it in all parts of the world for diffusion of useful knowledge in the social, moral and religious sphere and for the promotion of the objects of the society and in order to direct, control, supervise or otherwise promote the objects of the society to employ persons in Pakistan and abroad and to pay them out of the funds of the Society."
One, therefore, does not have to travel far and wide to conclude that the assessees are not exclusively religious and charitable institutions. Viscount Simonds in his speech in Inland Revenue Commrs. v. Beddeley observed that: - "Once more I submit to your Lordships that their trust must fail by reason of its vagueness and generality. The moral, social and physical well-being of the community, or any part of it, is a laudable object of benevolence and philanthropy, but its ambit is far too wide to include only purposes which the law regards as charitable. I need not repeat what I have said in regard to the promotion of religious, social and physical well-being, except to emphasize that to hold the one a valid and the other an invalid trust would be to introduce the sort of refinement which I deplore."
(The underlining is by us).
' Similarly a trust to maintain an institution in London for promoting moral, social, spiritual and educational welfare of Welsh people or people connected with Wales was held to be not charitable by the House of Lords in the Trustees of Sir Howell Jones William's Trust v. Inland Revenue Commrs.
(1). Memorandum of Association in Oxford Group v. Inland Rev. Commrs. (2) Inter alia set out.
"3(A).-The advancement of the Christian religion .................... (B) The maintenance, support, development and assistance of the Oxford . [Here in italics)
(1) (1947) 1 All E R 513 (2) (1949) 2 All E R 537 ' Group Movement in every way . . . . (C) (9) To establish and support or aid in the establishment and support of any charitable or benevolent associations or institutions, and to subscribe or guarantee money for charitable or benevolent purposes (10) To do all such other things as are incidental or the association may think conducive, to the attainment of the above objects or any of them."
' It was admitted by the Crown in the above case that if object (4) of the object clause of the Memorandum of Association stood alone, the company would be established for charitable purposes only. However, the Court of Appeal held that clause (B) of the Memorandum of Association extended beyond purely religious activities and autorised the expenditure on mattets which were not charitable. It was further held that :- "(iii) the objects set forth in clause 3 (C) pares. (9), (10) of the memorandum of association were not merely ancillary to the main objects expressed in such clauses (A) and (B), but themselves conferred powers on the company which were so wide that they could not be regarded as charitable."
' In view of the above the petitioners cannot be said to be Societies established for religious or charitable purposes exclusively.
13. Further, it is a well-established principle of Law of Charities that purpose is not charitable unless its benefit is directed either to the public-atlarge or a sufficient section of public or community sufficiently defined or identified by some quality of a public nature as held in Karen Mayemeth Le Jisroel Ltd. v I. R. C. (I). An Indian Court took the same view in D. V. Arur v. C. I. T. (2). A trust for the members of a religious community associated only for the purpose of working out their own salvation was held invalid in Naville Estates Ltd. v. Madden (3), In Re : Banfield v. Smith (4). It was held in Davies v. Perpetual' Trustees Co. (5) that a gift for presbyterians who could claim a particular descent was not valid. Thus in Gilmore v. Costs (o) a trust for an association of strictly cloistered and purely contemplative nuns though undoubtedly for the advancement of religion, was held not to be charitable as lacking the element of public benefit. Farewell, J. In re : Delany (') observed that : "There is in truth no charity in attempting to prove one's own mind or save one's own soul. Charity is necessarily altruistic and involves the idea of aid or benefit to others."
' The House of Lords In re : Cox (8) held that trust for employees, ex-employees and dependents was not for a section of public but a creed and so not valid. A trust for members of a Trade Union which was open to all the members of the printing industry but to which not all the members of the industry in fact belonged, was not held to be charitable in In re : Mead's Will Trust Deed (9). A society for relief of sickness of its own members numbering about 400,000 was also considered not charitable in Waterson v. Hendon Borough Council (10). Thus a trust for the advancement of education
(1) 1932 A C 650 (2) AIR 1946 Bom. 44
(3) (1961) 3 All B R 769 (4) (1968) 2 All B R 276
(5) 1959 A C 439 (6) (1949) 1 All E R 848
(7) (1902) 2 Ch. 642 (8) (1955) 1 All E R 525
(9) (1961) 2 All E R 836 (10) (1959) 2 All E R 760 among the members of Ahmadiyya Community (object at serial (b)) cannot be said to be for the public or a section of public and, therefore, is not charitable. The stipulation that 'other persons of communities' can also be the beneficiaries will not change the nature of the trust as the governing body of the Society has got the arbitrary power of selection and it may totally exclude them.
14. It was held in Morice v. Bishop of Durham (1) that a trust would fail if trustees could without breach of trust devote the whole funds to a non-charitable purpose. Similar view was taken in Dwarka Das Bhimji and others v. C. I. T, (2). A trust for `emigration uses' was held not charitable for the trustees might, without breach of trust, use the whole funds to enable rich persons to emigrate (In re : Sidney (3)). Similarly In re : Cole (4) in which Court of Appeal decided that a gift for general bonefit and general welfare of the children for the time being in a home provided and maintained by a local authority, was not charitable as it migbt be possible to use the funds for non-charitable purposes such as the provision of television sets for the Juvenile delinquents and refactory ohildren or even inmates of a Borstal Institutian The objects given at serials (c), (d) and (p) are so wide that the administrators of the fund may without beach of trust al! Ogether igrnore the poor to improve the economic position of others, or devote the whole funds for social and cultural activities In I. R.
Corn n. v. Baddeley majority of Law Lords took the view that the social purposes were too wide to fall within Lord Macnaghten's fourth class and held that trusts were for that reason not charitable. It may be noted here in contrast that objects described as 'charitable and deserving' or 'charitable and benevolent' were held to be charitable only if the words 'deserving' and 'benevolent' were merely restrictive of the class of the charities to which the property could be diverted. Reference he also made to In re : Sutton (5), Re: Best Jarv's v. Birmingham Corpn., (6). In re : Eades (7). In this view of the matter the object at serial (i) also would not be charitable as the 'deserving persons' who are to be made useful members of the Society, may not necessarily be poor.
15. Poverty is an essential ingredient of a charitable trust. Evershed M. R. In re : Coulihurst's Will Trust
(8) said "Poverty, of course, does not mean destitution." In re : Hobourn Aero Component Air Raid Distress Fund (9) where voluntary collections from employees of the munition factory belonging to a certain company were to be used to relieve without a means test, the distress suffered by the employees from air raids, Morton, L. J. Stressed the absence of any poverty qualification for participation in the fund and held that the trust was not charitable. In re : Sandera Will Trusts (10) it was held that poor and 'the working classes' are not now interchangeable terms for the purpose of Law of Charities and so the trust was held not charitable. In In re: Corelli (11) a trust to enclose land as a breathing space and air zone for a town was vitiated by a provision for the establishment of a hotel on the land for the use of distinguished visitors.
(1) (1804) 9 Ves. 399 (2) (1948) I T R 160
(3) (1908) 1 Ch. 448 (4) (1958) 3 All E R 102
(5) (1885) 28 Ch. D 464 (6) (1904) 2 Ch. 354
(7) (1920) 2 Ch. 353 (8) (1951) 1 All E R 774
(9) (1946) 1 All E R 501 (10) 1954 A C 265 (1943) 2 All E R 519
16. The objects also show that some of those though apparently educational are not charitable. It has been held in In re: Shaw (1) that though education is not restricted to the narrow sense of master teaching class but if the object is merely the increase of knowledge that in itself is not a charitable object unless it be continued with teaching or education. In re: Hopkin's Will Trusts (2) it was observed that education extends beyond teaching and in order to be charitable research must either be of educational value to the researcher or must be so directed as to lead to something which will pass into the store of educational material, or so as to improve the sum of communicable knowledge in an area which education may cover. A gift for mere pursuit of science was not to be admitted unless some educational element can be discovered therein as held in In re: Ogden (3). In Wheeker v. Hume (4) it was opined that there must be an intention that the learning shall be imparted, not merely accumulated. The object at serial (e) to direct and support the activities of the members of the Ahmadiyya Community and others in the advancement of literature does not answer the above requirements and is, therefore, not charitable.
17. We are mindful of the fact, vehemently argued on behalf of the assessees, that a gift will still be charitable notwithstanding that the achievement of the objects, which are charitable, incidentally promote other objects which are not. An example of an incidental or minor benefit was present in In re : Coxen (5). There the testator entrusted to the Court of Aldermen of the City of London the management of a large fund for the benefit of orthopaedic hospitals and directed that an annual sum not exceeding 100 out of the fund be applied for a dinner for the Court upon their meeting for the business of the trust and one guinea to each elderman who attended the meeting of the trust.
Jenkin, J. Held that payment of fees and dinner was valid. It was held in Oxford Group v. I. R. C. That a trust will fail if the non-charitable purpose is not incidental but independent of the main purpose.
It was held in Allahabad Bank Ltd. v. C. I. T. (6) and affirmed by the Indian Supreme Court in (1953)
24 1 T R 519 that a trust for payment of pension to the employees of a banking company was not legal and valid as there was uncertainty both in regard to pension itself as well as beneficiaries and there was no legal obligation to grant any pension. In the case in hand the objects or some of the objects like selection of beneficiaries of other communities, improvement of the economic life of the members of the community and others, undertaking commercial enterprises or grant of pensions, allowances, gratuities and bonuses to employees or co-employees out of the trust fund without legal obligation are not incidental to the purpose but quite independent. Same was the case In re : Cole where it was held that provision of television sets for Juvenile delinquints and refractory children or even inmates of a Borstal Institution was not a charitable purpose.
18. We are also not sure if the objects at serials (m), (n) and (o) are religious or charitable. They, on their face, appear to be purely commercial adventures but we shall refrain to discuss the same further or give al positive finding thereon as it is not necessary in view of our finding about, objects (b), (d), (f), (0, (p) and others. The Tribunal was, therefore, right in'
(1) (1957) 1 All E R 745 (2) (1964)3 All E R 46
(3) (1909) 25 L T R 382 (4) (1858) 7 H L Cas. 124
(5) (1948) A C 747 (6) (1952) 21 1 T R 169 saying that all the objects of the Societies were not religious or charitable. Undoubtedly the shares which yielded dividend were property and the entire income therefrom would be exempt only if it was being held wholly for religious or charitable purpose, as also held in Kedia Jatiya Sahayark and Fund v. C. I. T. (1). A part of it on the other hand would be exempt if it was shown that It had been applied or finally set apart for its application to a religious or charitable purpose. In the cases in hand the finding of fact arrived at by the Tribunal was that as some of the purposes of the petitioners were not charitable or religious and as the entire income had been kept as a composite block it was not ascertainable as to which part had been applied for charitable or religious purposes and which to others. In the circumstances, the Tribunal was right in refusing exemption of the entire dividend income. Reference be also made to Nizam's Religious Endowment Trust v. C I, T.
Where the same view was taken. We think that the petitioners are lucky that their income from voluntary contributions which was placed precisely in the same position was exempted under section 3(4)(ii) though that could be done only if it was proved that the voluntary contributions were also applied solely to religious or charitable purposes.
19. The next question is whether the business of brick-kiln, cotton ginning or sale or purchase of cotton attracts exemption clause. First proviso lf to section 4(3)(i) reads as under 1- "Provided that in the case of income derived from business this clause shall not apply unless the business is carried on 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 on in the course of the 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."
' In order to qualify for exemption the business income must satisfy the following requirements :- (a)the business must he carried on on behalf of religious or charitable institution (b)the income derived from such business be solely applied in Pakistan for the religious or charitable purposes of the institution ;
(c) the business must be carried on in the course of carrying out of a religious or charitable purpose of the institution or tie work in connection with the business must be mainly carried on by the beneficiaries of the institution,
20. A perusal of the objects would show that none of the objects bear any relevance to the type of the business mentioned above. The only clauses that the learned counsel for the petitioners could refer to be pertinent are (d) and (q). These may be reproduced for the benefit of ready reference "(d) To derive ways and means to improve the economic life of the members of the community and others and for that purpose to undertake commercial enterprises of all descriptions and to entrust them to such members of the community and others who are fitted for them and on such terms as it may deem reasonable.
(q) The income as earned by the Society from all the sources after deducting the expenses incurred in connection with the administration, collection of funds and the achievement of various objects of the Society, enumerated above, Will be applicable solely to religious and charitable purposes."
' Clause (d) only provides that the assessees in order to improve the economic life of the members of the community and others may undertake commercial enterprises of all descriptions and entrust them to such members of the community and others on such terms as it may deem reasonable. The means to achieve the object as provided, therefore, are not to establish or take on lease such commercial enterprises to be run for profit by the assessees themselves but to hand over the same to fit members for their operation. The petitioners thus could not operate such undertakings in pursuance of that object. The business conducted by the assessees was thus beyond the scope of the Memorandum of Association and can in no way be said to have been carried on in the course of performing the objects of the institutions.
21. Object at serial (q) provides that the income earned from all sources, after deducting expenses, be utilized solely for religious and charitable purposes. This provision will make no sense if we take it to mean that the promoters knew that some of the objects at not charitable. If on the other hand we accept the contention that the income could be spent only for religions and charitable purposes then the assessees must prove the amounts spent or set apart for religious and charitable purposes. What is in issue is whether in the facts and circumstances as on record business income earned by the assessees could be exempted under the first proviso to section 4(3)(i)? Business income under that provision can be exempted only if in addition to other conditions, it is applied solely for a religious or charitable purpose of the institution. As we have held above that all the purposes of the assessees are not religious or charitable in nature, and as it is not shown that the entire income was spent only for religious or charitable purposes, the Tribunal could not allow any exemption.
22. There is no finding that the income was being solely applied for the religious or charitable purposes of the institution. We are also of the view that the business was not being carried on in the course of carrying out of the purposes of the institution. A. C. Sampathiyengar in his book on Income-tax, 1952 Edn., Vol. II, at page 296 writes as under :- "Following the view in The Governors of the Rotunda Hospital, Dublin v. Roman (1921) 1 AC 1 it was held in CI.T., Madras v. Thevara Patasala I L R 49 Mad 833 that a business carried on on behalf of a charitable institution would not be exempt. In order to remove the hardship consequent on such view this subsection has been inserted following a similar legislative exemption granted in England.
As in the case of the English enactment, under this section also, the income derived from the business to earn exemption must be applied, firstly, solely for the purpose of the institution, and secondly, the business must be one which is incidental to the primary purpose of the institution, as for instance, to impart education, holding classes etc. Or, the business itself must be carried on by the beneficiaries of the institution, as for example, by pupils employed in an industrial school manufacturing furniture, pottery or textile, etc., or by pupils being trained in repairing motor-cars, or drawing paintings, etc., or by pupils in an institution for the blind. The primary object of such an industrial school would be se train the students in the art of manufacture, or production, or repairing or painting, etc., and the proceeds of sale of such a product made by the pupils, or the tendering of services by them. If devoted to the institution, would fall under this clause. A pinjrapole maintaining and tending-sick or old animals, selling the milk obtained from the animals and devoting the proceeds for the institution, or a hospital taking in paying patients and applying its income for the improvement or extension of its buildings would be other instances."
23. The Tribunal relied on the case of C. I. T. v. Abdur Rauj Khan incoming to the conclusion that the business was not carried on in the course of performance of any objects of the Societies to refuse exemption. The relevant observations of their Lordships of the Supreme Court which encompass the cases in hand are as follows :- "Per S. A. Rahman, J. : ' Clause (Si of the proviso appears to contemplate business of a character which has a direct and intimate relation with one of the religious or charitable purposes of the institution. For instance, if a charitable institution adopts as one of its objects, the teaching of a profession or trade, to its beneficiaries and starts business strictly for that purpose so that some income accrues to the Trust in the course of running that business intended to train t e beneficiaries, the income would be exempt from taxation. If the business be not of that nature, its income would appear to be outside the purview of the exemption altogether. The object may have been to limit the exemption to such subsidiary business only, as was part and parcel of the execution of an object of the charitable institution and to avoid conferring an undue advantage on other business carried on by or under a Trust, in competition with business sponsored by commercial companies or private individuals.
This seems to me to be the plain intention of the language of the proviso."
"Per B. Z. Kaikaus, J. : ' The words used in the proviso point to an intention that all income which is derived from business is liable to payment of income-tax except where the fulfilment of the purpose of a religious or charitable trust involves in itself the carrying on of some business by the trust.
' It seems obvious to me that the intention by this condition was to exempt from income-tax income from business carried on by a trust only in a case where not to exempt it would amount to the placing of obstructions in the way of the fulfillment of the purpose of a trust. There are trusts of a kind where necessarily some business has to be carried on in the execution of its purpose. For instance if ban free trairing is to be given to persons for making a particular article, then during the course of that training that particular article is to be produced and it will have to be sold. In such a case there is a business which is being carried on in the course of the execution of a trust."
' No purpose of the institutions envisages carrying out of a business of the nature of brick-kiln etc in the course of carrying out its objects. The term in the course of carrying out a religious or charitable purpose of the institution' narrows down the scope inasmuch as that it is for the assessee to show that the business being carried on was a must or incidental to achieving the object. To illustrate one might say that if the purpose of the institution was to train people as bricklayers, or brick-kiln operators, it may have been successfully argued that the brick-kiln business was being carried on in the course of achieving the object of institution. Similarly, the business of sale and purchase of cotton or running of ginning factory should have been necessary or incidental to achieving any object of the assessees in order to entitle it to claim exemption, Further the business was not being carried on mainly by the beneficiaries but paid employees as stated before us. The assessees, therefore, did not answer any of the requirements in the first proviso to section 4(3)(l).
24. The last question was not pressed by the learned counsel in view of the judgment of the Supreme Court in I. T.
0. v. Sulatman Bhai Jiwa (1).
' For the reasons given above our answer to all to the three questions referred to In these petitions will be in the affirmative, The Department shall have its costs from the assessees in all the four cases.
(1) PLD 1970 SC 80