1. These are cases referred under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as “the Act”), at the instance of the assessee. The question referred is:
“Whether, on the facts and in the circumstances of the case, the assessee is entitled to exemption under section 4(3)(i) of the Indian Income-tax Act, 1922?”
2. This is a common question. The assessee, Shri Shaila Industrial & Spiritual Colony Charities, a registered society under the Societies Registration Act, 1860, for the six assessment years 1952–53, 1953–54, 1954–55, 1955–56, 1956–57 and 1957–58 claimed exemption of its income from tax under section 4(3)(i) of the Act. That section, omitting the proviso, is in these terms:
“4. (3)(i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, be income applied or finally set apart for application thereto:…”
3. The proviso is unnecessary for deciding the question. Clause (c) of sub-section (1) of section 16 of the Act has admittedly no application. The Tribunal held that the assessee is entitled to the exemption. Before dealing with the question, we have to deal with the contention raised by counsel for the assessee that the finding entered by the Tribunal on a reading of the relevant documents, the trust deed, and the memorandum of association of the assessee-society as it was, and as it was amended, that the objects of the society are for charitable purposes is a finding on a question of fact and that no specific question having been referred to this court as to the correctness of this finding that finding must be accepted. If the finding is accepted, counsel submitted that the question can be answered only in the affirmative, that is, in favour of the assessee and against the department. Reliance has been placed on the decision of the Supreme Court in Karam Chand Thapar and Bros. P. Ltd. v. Commissioner of Income-tax [1971] 80 I.T.R 167 S.C. in suppport of the submission.
4. The finding entered by the Tribunal depended on the construction of the documents we have referred to and on the question whether a particular object of the society is a charitable purpose. This is a question of law. The Privy Council in the decision in In re The Trustees of the “Tribune”2, at page 421, observed as follows:
“They are also of opinion that the question whether a particular object is of general public utility, like the question whether a particular trust is charitable, is a question of law, though doubtless it is for the Commissioner to find and state any facts bearing thereon.”
5. The finding entered by the Tribunal that the objects are for charitable purposes has been very strenuously contested before us by counsel on behalf of the revenue. He invited our attention to certain paragraphs of the memorandum of association as it was before its amendment on January 8, 1952. This memorandum is annexure “A” to the case. The paragraphs referred to by counsel for the revenue are parts of paragraph 2(a), paragraph 2(d), paragraph 2(g), paragraph 2(1), paragraph 2(m) and paragraph 2(n). We shall extract these paragraphs along with what we consider to be other relevant paragraphs of the memorandum of association.
“1. The name of the Society is ‘The Shrishaila Industrial & Spiritual Colony Charities’.
2. The objects for which the Society is established are:
(a) To organise the Shrishaila Industrial & Spiritual Colony Charities, Katalur Post, Malabar, hereinafter referred to as the Charities, and other new enterprises of general utility, and take any managing agencies.
(b) To maintain, develop, improve and extend Gurukula Vidyalaya at Shrishaila and other outside places wherever possible for imparting religious, artistic and literary culture to the public by lectures, discourses and classes in suitable centres; to provide for boarding of students, teachers and staff by opening hostels; to distribute scholarships and other aid to deserving students in any school anywhere, of any sex, caste, creed or colour.
(c) To provide funds for annual prizes to students for essays and compositions, theses on religion, art, culture and other topics selected by the board of trustees.
(d) To provide funds for the establishment of collection of paintings, sculpture, carving, metal work and other crafts; scientific inventions, research, mechanical and philosophic; natural history; museums, aquariums, zoos; gardens, kennels, etc., and refuges for domesticated animals and birds.
(e) To start, construct, maintain and manage widow's homes, orphanages, maternity homes, amenity homes for the public, homes for the infirm and disabled; T.B sanatoriums and leper asylums, lunatic asylums, libraries, reading rooms, clubs and associations for the development of art, culture and other literary and religious pursuits and recreation for general public utility.
(f) To help and promote rural reconstruction work.
(g) To purchase lands, erect buildings, acquire properties, construct tanks, wells, roads, instal and maintain electrical and other generating plants, water pumping stations, wireless and telephone stations, etc.
(h) To provide funds, at the discretion of the board, for other public charitable purposes and objects of general utility, such as relief to sufferers in distress from earthquake, flood, famine, pestilence, removal of untouchability, uplift of women, medical research, chemical research and for other similar charitable purposes.
(l) To open current and time deposit account with any banker or bank, shops or merchants or individuals and pay into and draw money from such accounts and generally to operate on all such accounts.
(m) To receive money on deposit or loan, at interest or otherwise from and to lend or advance money to, any person, firms and companies on such terms as may seem expedient, but not to do the business of banking within the meaning of the Act, 1949 of the Banking Companies.
(n) To draw, make, accept, endorse, sell, execute, negotiate purchase and lend money, to discount, hold and dispose of cheques, promissory notes, bills of exchange, hundies and drafts, charter parties, bills of lading, warrants, debentures and other contracts, deeds and other instruments, and to cancel and vary any such instruments, without infringing any of the business of banking within the meaning of the Act, 1949 of the Banking Companies.
(p) The Shrishaila Industrial & Spiritual Colony Charities is not formed for profit of any kind of its members, all the profits accruing being used and utilised only for the common moral, literary, scientific, medical and spiritual well-being of the public in general.”
6. We shall also refer to the amended memorandum which is at page 23, annexure “A”. The words “and take any managing agencies” which occurred in the original memorandum in paragraph 2(a) have been omitted by the amendment. The other changes made are the omission of para graphs 2(1) to (p) of the original memorandum and the incorporation of a new paragraph (1), as well as paragraphs 3 and 4. We shall extract new paragraphs 2(1), 3 and 4.
“2(1) And to do everything necessary or expedient for the furtherance or advancement of all or any of the objects mentioned above.
3. All property and income of the Charities shall be applied solely towards the promotion of the objects of the charities set forth in this memorandum of association, and no portion thereof shall be paid or transferred directly or indirectly by way of dividend bonus or otherwise howsoever by way of profits, to the persons who at any time are or have been trustees or members of the Charities or to anyone of them or to any person claiming through any of them. Provided that nothing herein contained shall prevent the payment in good faith of remuneration to employees of the Charities or to any member thereof or other persons for any service rendered to the Charities or prevent the Charities from giving subsistence allowances to or maintaining members who either work for the Charities or are too old or disabled or sick to work and have no means of maintaining themselves.
4. In the event of the Charities being dissolved for any cause whatever if there shall remain after the satisfaction of all debts and liabilities any property whatsoever the same shall not be paid or distributed among the members of the Charities or any of them, but shall be given or transferred to some other society or institution having objects similar to the objects of the Charities to be determined by the votes of not less than three-fifths of the members personally or by proxy at the time of the dissolution.”
7. It is admitted on all hands that the question must be answered with reference to the original memorandum for the year 1952–53 and with reference to the terms of the amended memorandum for the subsequent years.
8. The principles which should govern the decision are now fairly well-settled though those principles may be difficult to apply to a given set of facts. The memorandum must be read as a whole in order to understand the real objects for which a society or a company had been constituted. The purpose must be to find out whether there are independent objects some of which are for charitable purposes and others for purposes other than charitable purposes. If a memorandum of association contains objects which are clearly charitable purposes and other objects which, prima facie, are not charitable purposes, the further question whether the latter objects are incidental to the primary purposes or whether they are independent objects or purposes will have to be considered. If these are found to be independent objects, the constitution of the society or company is not wholly for charitable purposes. A case of this type is that decided by the Supreme Court in East India Industries (Madras) Private Ltd. v. Commissioner of Income-tax and the decision of the Supreme Court in Commissioner of Income-tax v. Andhra Chamber of Commerce dealt with a case where some of the objects were, prima facie, not for charitable purposes but such objects were incidental to the main objects. It is the submission of the assessee that the principle that should apply to the facts of these cases is that stated by the Supreme Court in Commissioner of Income-tax v. Andhra Chamber of Commerce.
9. Some parts of the paragraphs in the memorandum of the assessee taken separately may indicate that the objects mentioned in those parts are not charitable purposes. Counsel for the revenue is well-founded in his submission that these parts read by themselves indicate a purpose other than a charitable purpose as defined in the Indian Income-tax Act, 1922. This definition is contained in the last paragraph of section 4(3) and is in these terms:
“In this sub-section ‘charitable purpose’ includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act that part of the income from property held under a trust or other legal obligation for private religious purposes which does not enure for the benefit of the public.”
10. We have extracted the relevant paragraphs of the two memorandums which we have to construe for the purpose of answering the question referred to us. A fair reading of the memorandum as a whole indicates that the main purposes for which the trust had been created are those contained in sub-paragraphs 2(b) to (f). Excepting the last line in sub-paragraph 2(d) it is not disputed that the other parts of these paragraphs referred to charitable purposes as defined in the Act. The settlor was conducting a business, apparently an extensive and affluent business. He created a trust in respect of the business. This is clear from the trust deed which is part of annexure “A” at page 21 thereof. The relevant part of the declaration states:
“……………. do hereby create, declare and constitute a Trust governing and in respect of the business and industries and properties described in the Schedule and annexed hereto…. under the name and style of the Shrishaila Industrial and Spiritual Colony Charities….
11. Business has been held to be property and this proposition is not challenged before us. The trust was therefore in relation to the property that was business. This is an aspect which we have to bear in mind in understanding the import of some of the wide expressions used in some of the paragraphs of the memorandum of association. If we read those paragraphs in the light of this fact, we are inclined to take the view that the last part of paragraph 2(a) which speaks of “organising other new enterprises of general utility and take any managing agencies” are subsidiary to the main purpose mentioned in that paragraph to organise the Shrishaila Industrial & Spiritual Colony Charities which itself is a business. In paragraph 2(d) the last line which mentions of provision being made for refuges for domesticated animals and birds can be treated to be a charitable purpose, for charities constituted prompted by feelings of kindness are treated as charitable purposes in India though they may not be charitable purposes in England. The other provisions on which emphasis had been laid by counsel for the revenue, 2(g), the last part of 2(h), 2(m) and 2(n) are also, we think, powers taken for the purpose of carrying out the objects for which the trust was created which, as we said, have been delineated in paragraph 2(b) to 2(f). So understood, there cannot be any difficulty in holding that the memorandum of association as it originally stood before its amendment was for achieving the primary objects of charitable purpose. We must also refer to paragraph 2(p) which enjoins that the Shrishaila Industrial & Spiritual Colony Charities is not for profit of any kind and that all the profits must be utilised only for the common moral, literary, scientific, medical and spiritual well-being of the public in general.
12. Certain changes were made by amending the memorandum. Paragraph 2(p) has been omitted and the position is made further clear by withdrawing the power to take managing agencies. Paragraphs 3 and 4 have also been added. We are of the view that no material changes have been effected in regard to the primary objects of the society by these changes. We think the cases will fall within the principles stated in the decision in Commissioner of Income-tax v. Andhra Chamber of Commerce.
13. The Tribunal came to the same conclusion. It drew a distinction between the objects in a memorandum of association and the powers taken in the memorandum of association to carry out those objects. Reliance had been placed on a decision of the Court of Appeal in North of England Zoological Society v. Chester Rural District Council which in turn referred to a decision of the House of Lords in Cotman v. Brougham [1918] A.C 511 H.L.. Lord Wrenbury expressed the view in Cotman v. Brougham that there may be included in the objects what are not real objects of the company but are enabling powers to achieve the objects of the company. A passage from the judgment of Lord Wrenbury at page 522 may be extracted
“The objects of the company and the powers of the company to be exercised in effecting the objects are different things. Powers are not required to be, and ought not to be, specified in the memorandum. The Act intended that the company, if it be a trading company, should by its memorandum define the trade, not that it should specify the various acts which it should be within the power of the company to do in carrying on the trade. The Third Schedule of the Act contains model forms of memoranda of association. These ought to be followed. Section 118, sub-section (1), enacts that those forms ‘or forms as near thereto as circumstances admit’ shall be used in all matters to which those forms refer.
There has grown up a pernicious practice of registering memoranda of association which, under the clause relating to objects, contain paragraph after paragraph not specifying or delimiting the proposed trade or purpose, but confusing power with purpose and indicating every class of act which the corporation is to have power to do. The practice is not one of recent growth. It was in active operation when I was a junior at the Bar. After a vain struggle I had to yield to it, contrary to my own convictions. It has arrived now at a point at which the fact is that the function of the memorandum is taken to be, not to specify, not to disclose, but to bury beneath a mass of words the real object or objects of the company with the intent that every conceivable form of activity shall be found included somewhere within its terms.”
14. The paragraphs relied on by counsel on behalf of the revenue can be treated as powers distinct from the primary objects of the company and they are meant to enable the real purposes being achieved. The memorandum in question is one wherein there has been a mingling of real objects with powers. The real objects disclose charitable purposes and the powers taken are merely to carry out the objects. We, therefore, hold that the assessee-society is established for a charitable purpose and is entitled to exemption under section 4(3)(i) of the Act. We, accordingly, answer the question in the affirmative, that is, in favour of the assessee and against the department. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by sub-section (5) of section 66 of the Indian Income-tax Act, 1922.
15. There will be no order as to costs.