The Judgment of the Court was delivered by

Sethuraman, J.:— In this reference made by the Appellate Tribunal under the Income-tax Act, the point relates to the claim for exemption from taxability of the income of the assessee-association. It is not clear as to when this association came into existence; but it appears to have been started some time prior to 1901 when it got a lease of an open area measuring 200 grounds popularly known as the park fair grounds or People's Park near the Moore Market. The leases of the property were successively for periods of about 10 years. After the Indian Companies Act, 1913, came into force, this association was registered as a company under section 26 of that Act. The following are the objects set out in the memorandum of association:

(i) to promote and encourage entertainments, athletic sports and games;

(ii) to promote social intercourse amongst the members of the association; and

(iii) to do all such other things as are incidental or conducive to attainment of the above objects.

2. Every member of the association undertook to contribute to its assets in the event of winding up a sum not exceeding Rs. 100 for payment of debts and liabilities of the association and the costs, charges and expenses of winding up. The association was to consist of an unlimited number of members. There were life members, resident members, nonresident members, temporary members, special members and honorary members. There is provision for admission of not more than five cricketers, ten hockey players and ten football players upon the recommendation of the respective members of the executive committee in charge of cricket, hockey and football. Such associated cricketers, hockey and football players had no voice in the management nor could they compete in any tournament open only to members. They had to pay an ordinary subscription of Rs. 3 per month. The powers of the governing body included powers to make, amend or cancel bye-laws from time to time for the good order of the association. The bye-laws would remain in force unless cancelled by a general meeting. The committee had powers to purchase, take on lease or otherwise acquire any immovable or movable property for the purposes for which the association is established. There is a specific provision enabling the governing body to construct, maintain and alter any building or works, necessary or convenient for the purpose of the association. Any expenditure in excess of Rs. 1,000 had to be sanctioned by the general body before it was incurred. There is a provision for annual general meeting. Rule 36 provides for the grounds of the association being used for no purpose other than entertainment or sports organised by it. There would be free tickets for admission to the grounds during the annual sports and fair to the members.

3. On 14th October, 1943, a registered lease was granted with the approval of the Government of Madras for a period of 10 years. At the expiry of this lease, a fresh lease was granted by the Corporation of Madras in accordance with the resolution passed on 29th June, 1953, which was duly approved by the Government of Madras on 27th May, 1954. The lease was for a period of five years and it related to the grounds on which the buildings, the tennis court, the garden and other grounds then leased to the association stood in the People's Park. A sum of Rs. 700 was payable as ground rent and the lease was to expire at the end of 5 years from 1st October, 1953. In addition, a sum of Rs. 78.50 was payable as monthly rent on the 15th day of each and every month subsequent to that in which it became payable. 33 ⅓% of the gross auction bid of the contractor for the annual park fair and exhibition was payable to the Government. Clause 2(f) provides that the lessee, that is the association, was to use and suffer to be used the demised premises in the building, if any, erected thereon for the purpose of the association and for such other purposes as may from time to time be sanctioned by the lessor. Clause 2(o) required the association to lend the use of the grounds to all the public sports at reasonable rents and for all schools and colleges free of rent provided that one month's previous notice was given and provided that the ground was free and available. There are other clauses in the lease deed to which reference is unnecessary.

4. We are concerned with the assessment years 1962-63 and 1963-64, the relevant previous years ending on 31st March, 1962, and 31st March, 1963. The assessee filed a return for the assessment year 1962-63 claiming a loss of Rs. 117 under the head “House property” and an income of Rs. 2,619 under the head “Business”. There was a receipt of Rs. 4,337 in this year, which was credited to the building fund account. This building fund account came into existence in accordance with the resolution passed on 18th March, 1960, by the executive committee of the assessee. It was resolved that a separate building fund account be opened in the Indian Bank Ltd., Periamet, and that all donations received should be credited to that account. During the year ended 31st March, 1962, there was a receipt of Rs. 4,337.41 as donation. There was an opening balance in this account on 1st April, 1961. Along with the opening balance, the total amount to the credit of the building fund account as on 31st March, 1962, was Rs. 14,522.91. Out of this amount only Rs. 11,522.91 stood credited to the Indian Bank account referred to in the resolution and the balance was merged in some other account.

5. During the accounting year ended 31st March, 1963, relevant for the assessment year 1963-64 a sum of Rs. 11,435 was shown as received towards the building fund account. Along with the opening balance, the total amount available in this building fund account was Rs. 25,977.55 as on 31st March, 1963. Out of this amount only Rs. 8,902.55 stood credited to the building fund account referred to in the resolution. There was some difference in the opening balance and the balance was spent for payment of income-tax and on electrical installations.

6. We may now refer to the manner in which the credits to the building fund account arose. The grounds are being let out to various institutions, political parties and some private circus companies. There are receipts shown as donations from these parties of lump sums. For instance, Gemini Circus, a circus troupe, which had its shows in the assessee's grounds, paid a sum of Rs. 7,300 in the financial year 1962-63. There were similar receipts from others. The Income-tax Officer considered that these receipts partook of the character of ground rent, and, therefore, brought these amounts to tax in these two years. He accepted the return with reference to the rest of the items, subject to such modifications as were necessary under the provisions of the Act.

7. The assessee appealed to the Appellate Assistant Commissioner objecting to the assessability of the amount credited to the building fund account saying that it did not carry on any activity for profit and that its objects were charitable, being of general public utility. It relied on the decision in Commissioner of Income-tax v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC). The Appellate Assistant Commissioner observed that before one could claim exemption under section 11 or 13 of the Income-tax Act of 1961, there must be a valid trust or legal obligation to show that the income of the property in question was to be utilised only for public charitable purposes, and that, in this case, even if it was held that the objects of the assessee were of charitable nature still there was no legal obligation or trust, which would prohibit the distribution of the income or property between the members of the assessee-association. It was also pointed out that the memorandum of association did not provide that the income or property of the assessee was to be utilised only for such charitable purposes. Reference was made on behalf of the assessee to rule 23 of the articles of association which related to the financial power of the managing committee and it did not relate to any distribution of income between the members. The Appellate Assistant Commissioner pointed out that the said rule limited the scope of powers of the committee, but not of the general body, so that the members could distribute the profits, if they so liked. As long as there was no restriction prohibiting the members to distribute the profits among themselves it could not be held that the members were not legally entitled to the property. He, therefore, held that the mere fact that the income had not been applied for any personal or private purposes would not enable the assessee to claim the exemption.

8. The assessee appealed to the Appellate Tribunal and repeated the objections to the assessment and relied on the decision in Commissioner of Income-tax v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC). The assessee's objection was not sustained. Promotion and encouragement of entertainment set out as clause (1) of the objects, it was pointed out, was not an object of general public utility. Similar was the case of promotion of social intercourse among the members. It was, therefore, held that the association was not one whose income and property were held under trust or legal obligation wholly for charitable purposes. As regards the donations for the building fund, the Tribunal was inclined to hold that such donations made without consideration would not form part of the assessee's income and that they would be in the nature of casual receipts unconnected with the assessee's business. The appeal was restored to the file of the Appellate Assistant Commissioner for each of these years for re-adjudication on the question as to what would be the real amount of ground rents included in the contributions credited to the “building fund account”.

9. From this order of the Tribunal, this reference has been sought by the assessee and the questions referred run as follows:

“(i) Whether, on the facts and in the circumstances of the case, the assessee is one whose income and property are held under trust or other legal obligation wholly for charitable purposes?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the donations received for building fund are exempt.”

10. We may at the outset mention that the second question is not intelligible. The Tribunal has required an investigation of the facts to find out the real amount of ground rent included in the contributions credited to the building fund account. The obvious implication of the remand is that to the extent of contributions to the building fund, which had nothing to do with the ground rent, the assessee would be eligible for exemption. This reference having been made at the instance of the assessee, we do not believe that the assessee had any grievance against the exemption so granted. The assessee's grievance appears to be that there was no question of any investigation especially when the whole amount was received only as donation and no part of it was ground rent, since ground rent had been separately received. It is difficult to go into this aspect at this stage. The very foundation of the Tribunal's direction is that the facts already on record are not sufficient to show whether the entire amount was received only as donation. The Tribunal has envisaged the possibility of a part of the amount being the ground rent. In case the assessee satisfies the Appellate Assistant Commissioner or any higher authority that no part of these donations related to ground rent, the point raised in the second question would only be of an academic interest. In the circumstances, we do not think it necessary to reframe the question to bring out the real issue between the parties and to answer it especially when there is some possibility of the reference being academic in nature. We may also make it clear that we ought not to be understood as having made any observation on the merits or otherwise of the assessee's submission on this aspect. When these aspects were pointed out during the hearing, the learned counsel for the assessee said that so long as the point was capable of being raised, if necessary later, he would not mind the question not being answered. It would be open to the assessee to contest the conclusion after the investigation is over, if the assessee is so advised. We decline to answer the second question for the reasons mentioned above.

11. We now turn to the first question, which requires an examination of two points, viz., (1) whether the purpose for which the assessee-association has come into existence is a charitable purpose, and (2) whether the income and property of the assessee-association are held under trust or other legal obligation wholly for such purposes.

12. The submission of the learned counsel for the assessee was that the promotion of athletic sports and games would be for the well-being of the public at large so as to be a charitable purpose. He brought to our notice some decisions rendered by the courts in the United Kingdom and others of our land. Before considering the authorities cited to the extent necessary, we have to bear in mind the caution administered by the Privy Council speaking through Lord Wright in All India Spinners' Association v. Commissioner of Income-tax [1944] 12 ITR 482 (PC). The All India Spinners' Association was an unregistered association formed for the purpose of the development of the village industry, viz., hand spinning and khaddar. Out of the funds of the association, which consisted mostly of donations and subscriptions, charkas and handlooms were purchased and supplied to the villagers free of charge. Raw cotton was supplied for spinning as yarn and the yarn so spun was supplied for hand-weaving. Wages were paid to the spinners and weavers and the cloth produced was sold at a price calculated on the basis of the cost price plus a certain percentage for shop and overhead charges. The assessee claimed exemption from tax of the income of the association, which was negatived by the Commissioner of Income-tax on the ground that the dominant purpose of the association was a political one (because it was associated with the Congress party) or, at any rate, was not a charitable purpose in law. The High Court of Bombay sustained this decision of the Commissioner. The Privy Council reversing the decision of the High Court held that the income of the association was exempt. The Privy Council dealt with two points, viz., (1) whether the object of the association disclosed a charitable purpose, and (2) whether there was any property held under trust or other legal obligation so as to satisfy the conditions of the statute. In order to find out whether the purpose of the association contained any charitable element, decisions of the U.K courts had been pressed into service in the course of the arguments. After referring to the definition of charitable purpose set out in section 4(3) of the Indian Income-tax Act, 1922, it was observed at page 486 as follows:

“It is now recognised that the Indian Act must be construed on its actual words and is not to be governed by English decisions on the topic. The English decisions, on the law of charities, are not based upon definite and precise statutory provisions. They have been developed in the course of more than three centuries of the Chancery Courts. The Act of 43 Elizabeth (1601) contained in a preamble a list of charitable objects which fell within the Act, and this was taken as a sort of chart or scheme which the court adopted as a groundwork for developing the law. In doing so they made liberal use of analogies so that the modern English law can only be ascertained by considering a mass of particular decisions often difficult to reconcile. It is true that section 4(3) of the Act has largely been influenced by Lord Macnaghten's definition of charity in Commissioners for Special Purposes of Income-tax v. Pemsel [1891] AC 531, 583 (HL) but that definition has no statutory authority and is not precisely followed in the most material particular; the words of the section are “for the advancement of any other object of general public utility” whereas Lord Macnaghten's words were ‘other purposes beneficial to the community’. The difference in language, particularly the inclusion in the Indian Act of the word ‘public’ is of importance. The Indian Act gives a clear and succinct definition, which must be construed according to its actual language and meaning. English decisions have no binding authority on its construction and though they may sometimes afford help or guidance, cannot relieve the Indian courts from their responsibility of applying the language of the Act to the particular circumstances that emerge under conditions of Indian life.”

13. In passing we may notice that the Indian law does not appear to be based on the dictum of Lord Macnaghten in Commissioners for Special Purposes of Income-tax v. Pemsel [1891] AC 531 (HL) as mentioned above. Section 2 of the Charitable Endowments Act, Act No. VI of 1890, enacted a year earlier than the decision of the House of Lords, defines “charitable purpose” as including “relief of the poor, education, medical relief and the advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching or worship.”. Except the closing words, the definition in the Indian Income-tax Act of 1922 at the end of section 4(3) or section 2(15) of the Income-tax Act, 1961, is identical. It thus appears that the draftsmen of the Indian statute had anticipated Lord Macnaghten's dictum.

14. Viscount Simonds in Inland Revenue Commissioners v. Baddeley [1955] 2 WLR 552, 561 (HL) has given expression to a doubt “whether rationalization would help to explain a branch of the law which had developed empirically and by analogy upon analogy”. Lord Upjohn in Scottish Burial case [1968] AC 138, 151 (HL) has described the state of this branch of law “as almost incredible to anyone as not familiar with this branch of the English law”. When eminent British judges have lamented on the unsatisfactory lines on which this branch of the law has developed in U.K it would be unsafe to place excessive reliance on British precedents.

15. Bearing this caution in mind we would very briefly refer to the decisions in the U.K courts brought to our notice. In Public Trustee v. More [1932] 1 Ch 133 (Ch D) the point in issue was whether a trust created under a will to make certain payments for provision of playing fields, parks, gymnasiums or other plans which would give recreation to as many people as possible was a valid charitable purpose. Clauson J. pointed out that there was no trace in the will of a desire to encourage mere sport and that the health and welfare of the working classes was obviously the dominant object in the testator's mind. The purpose was held to be a charitable one. In the present case there is no provision of a playing field, park or gymnasium open to the entire public. We shall explain this aspect a little later after considering the other two cases cited.

16. In Inland Revenue Commissioners v. Baddeley [1955] 2 WLR 552 (HL), certain properties were transferred for conversion and the capital money arising from the sale of the properties was liable to be used for the promotion of the religious, social and physical well-being of persons resident in the County Boroughs of West Ham and Leyton by the provision of facilities for religious services and instruction and for the social and physical training and recreation of such aforementioned persons who for the time being are in the opinion of such leaders or members likely to become members of the Methodist Church and of insufficient means otherwise to enjoy the advantage provided by the trust. The question was whether the trust was for a charitable purpose. The House of Lords by a majority held that the purpose was vague. Our attention was drawn to some passages in the speech of Lord Reid. But his was a dissenting voice. At page 567 of the report it was pointed out that the promotion of recreation on a playing field was a charitable purpose and that the promotion of moral, social and physical training would, therefore, be a charitable purpose. In this case also the facilities were open to a section of the public. On the point whether the section of the public was sufficiently numerous to be the object of a public charity, there was an equal difference of opinion. A public purpose appears to be lacking in the present case, as we shall show presently.

17. In Incorporated Council of Law Reporting for England and Wales v. Attorney-General [1971] 47 TC 321 (CA) the point for consideration was whether the Incorporated Council of Law Reporting for England and Wales could be registered as a charity under section 4 of the Charities Act, 1960. It was held that the publication of law reports to enable judge-made law to be properly developed and administered by the court was a purpose beneficial to the community and that it was no objection that in carrying out such a purpose (a) the legal profession benefited, (b) the council was carrying on a business, or (c) a charge was made for purchase of law reports. The learned judges held that there was an element of education in the publication of law reports and that it was also beneficial to the community at large.

18. The public benefit is essential in order that there may be a charitable purpose. Encouragement of mere entertainment, which is included in object No. 1 cannot be called a charitable purpose. If the contentions of the learned counsel were to be accepted, then any cinema house or music hall or theatre staging plays could qualify for exemption so long as some association ran them. We do not find any warrant in the statute for this claim. Section 2(15) of the Act defines “charitable purpose” as including “relief of the poor, education, medical relief and the advancement of any other object of general public utility not involving the carrying on of any activity for profit”. The attempt of the learned counsel for the assessee was to bring the present case within the last part of the above definition, viz., “advancement of any other object of general public utility”. As pointed out earlier, promotion and encouragement of entertainments, as such, is not a charitable purpose. It suffers also from vagueness, as no court would be in a position to administer a trust for mere promotion and encouragement of entertainment. Encouragement of art is different from encouragement of mere entertainment. Similarly, promotion of intercourse among the members of the association cannot be considered to be a charitable purpose. The Privy Council in Mohammad Ibrahim Riza Malak v. Commissioner of Income-tax AIR 1930 PC 226 (PC) and the Supreme Court in East India Industries (Madras) Private Ltd. v. Commissioner of Income-tax [1967] 65 ITR 611 (SC) held that if there are several objects of a trust, some of which are charitable and some non-charitable, and the trustees in their discretion could apply the income to any of the objects, the whole trust must fail and no part of the income would be exempt from tax. In the present case the members of the association could apply the income to any of the objects, which we have found to be non-charitable, so that it would fall within the decisions mentioned above. The Tribunal's conclusion is, therefore, correct.

19. We have in the above discussion not considered the object relating to the promotion of athletic sports and games. We have assumed for our purpose that it would be a charitable object. The learned counsel for the department submitted that encouragement of mere sports and games would not be a charitable purpose. He pointed out that athletic sports and games association with educational institution's or with public at large might possibly be a charitable purpose. For our present purpose, we think it unnecessary to go into this aspect, as we have found that the objects are not charitable in so far as they related to entertainment and social intercourse amongst the members. The learned counsel for the assessee relied on a decision in Commissioner of Income-tax v. Breach Candy Swimming Bath Trust [1955] 27 ITR 279 (Bom), wherein a trust created for construction and maintenance of a swimming bath for the use and benefit of the European public of Bombay claimed exemption from the income-tax assessment. The Bombay High Court held that in that case there was an income derived from an activity or a business which was held in trust wholly for a charitable purpose, and that, therefore, the income was not includible in the assessment of the assessee. It is in the course of the discussion leading to this conclusion that the learned judges have referred to the provision of a swimming bath as conducive to the physical well-being. As we have already shown, even assuming that there is a charitable purpose in the promotion of athletic sports and games, still the exemption is not available to the assessee because there are other non-charitable purposes.

20. Strong reliance was placed by the learned counsel for the department on Cricket Association Of Bengal v. Commissioner Of Income-Tax, Calcutta [1959] 37 ITR 277 (Cal) to show that the encouragement of mere sports is not a charitable purpose. It is unnecessary to discuss this decision in the view that we have already taken, viz., that there is no charitable element in some of the objects, so that the purpose of the present association cannot be said to be a charitable one.

21. Even on the assumption that the purpose of the association was a charitable purpose, we find that the assessee cannot succeed in its claim for exemption as there is no property held under trust or other legal obligation for such charitable purpose. As pointed out by the Tribunal, there is nothing preventing the members from utilising the surplus in any manner they liked, even for distribution amongst themselves. It appears that subsequently there has been an amendment of the memorandum, which has been confirmed by this court by an order dated 16th April, 1971. It is in the amended memorandum that there is a prohibition against declaration of dividends by way of profit to the members. There is also a prohibition that on the dissolution of the association the surplus, if any, is not to be distributed among the members, but is to be transferred to some other institution or institutions having similar objects. In the absence of a similar prohibition in the years under consideration, we have to hold that the property of the association was not held under any trust or legal obligation for a charitable purpose. The property could be utilised in the relevant year for any non-charitable purpose and, therefore, it would not satisfy the conditions of sections 11 and 13 of the Income-tax Act of 1961. The first question is, therefore, answered in the negative and against the assessee. The department will have its costs. Counsel's fee Rs. 250.