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Kedia Jatiya Saha-Yak Sebha And Fund C Alcutta v. Commissioner Of Income Tax .
Factual and Procedural Background
This opinion arises from a reference under section 66(1) of the Indian Income-tax Act asking: “Whether in the facts and circumstances of this case and on a true construction of the Memorandum of Association of the assessee the income or any portion thereof was exempt from the levy of Income-tax under section 4(8) (i) of the Indian Income-tax Act?” (as framed in the statement of case).
The assessee is a society registered under the Societies Registration Act on May 6, 1931. It received subscriptions from persons of the Kedia community spread across India and derived income from a house property assessed at Rs. 5,893. The Income-tax Officer denied the assessee's claim of exemption under section 4(3)(i). On appeal, the Appellate Assistant Commissioner allowed partial exemption, holding that part of the house property income was devoted to charitable objects. The Income Tax Appellate Tribunal (Tribunal) overruled that finding, reasoning that the objects of the Society must be gathered from the Memorandum of Association and, because the Memorandum contained both charitable and non-charitable clauses, the institution was not solely for charitable purposes.
The statement of case records that the Tribunal noted the income from the house property was to be spent among activities such as running dispensaries and schools in the village Ked, but the Court observed that this does not appear on a perusal of the Memorandum. The Tribunal did not decide whether the Kedia community constituted a sufficient cross-section of the public to merit exemption; the Court likewise declined to remit that specific factual question to the Tribunal.
Legal Issues Presented
- Whether, on the true construction of the Memorandum of Association of the assessee-society, the income or any portion thereof was exempt from income-tax under the relevant provision(s) of the Indian Income-tax Act (the reference framed this question in terms of section 4(8)(i) in the statement of case and the opinion repeatedly discusses section 4(3)(i) in relation to the exemption claimed).
- Whether the objects set out in the Memorandum of Association are charitable in nature within the meaning of the Income-tax Act and therefore capable of supporting an exemption.
- Whether the Kedia community (as described in the Memorandum and rules) constituted a sufficiently public class (a “cross section of the public”) so as to permit charitable status for some or all objects of the Society — a factual point noted but not determined by the Court.
Arguments of the Parties
Assessee's Arguments
- The assessee contended that clause (a) of the objects clause — “To promote the social, moral, religious, physical and material conditions of the Kedia community” — was the primary or dominant object of the Society, and that the other objects in the Memorandum should be treated as ancillary or subsidiary to that primary object.
- Reliance was placed on certain English authorities concerning the objects clause of a company's Memorandum of Association where, if a primary object failed, the company could be wound up because its substratum had gone; the assessee pressed an analogy to treat clause (a) as the dominant object.
- Counsel for the assessee referred to Andhra Chamber of Commerce v. Commissioner of Income Tax (Madras) for the proposition that promoting trade, commerce and industry can amount to an object of general public utility (relevant to sub-clause (b)).
- Learned counsel did not press the case under the second portion of section 4(3)(i) (i.e., the part dealing with property held in part only for charitable purposes applied or set apart for such purposes).
The opinion does not contain a detailed account of the revenue's or other opposing party's separate arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Inland Revenue Commissioners v. Baddeley (House of Lords) (1955) 1 All E.R. 525 | The House of Lords held that objects described as promoting the “moral, social and physical well‑being” of a locality are too wide in ambit to be treated as charitable; language about “well‑being” may denote aims outside the legal category of charity. | The Court used the reasoning in Baddeley to analogise the relevant portion of clause (a) (“to promote the social, moral, physical and material condition of the Kedia community”) and concluded that such language, especially when including non‑religious and “material condition” aspects, is not readily classifiable as charitable within the Income‑tax Act. |
| Andhra Chamber of Commerce v. Commissioner of Income Tax, Madras, (42 I.T.R. 503) | The case is cited for the proposition that promoting trade, commerce and industry can amount to an object of general public utility under the Income‑tax Act. | The Court noted the authority in relation to sub‑clause (b) (“To promote trade, commerce and industry…”), but expressly stated it was not necessary to express an opinion on that clause given the cumulative content of other clauses in the Memorandum. |
| Trustees of Gordhandas Govind‑ram Family Charity Trust v. Commissioner of Income Tax (Central), Bombay (21 I.T.R. 231) | Chagla C.J. observed that providing marriage expenses to specific individuals is not a charitable object; relief of poverty involves supplying bare necessities, and matrimony is not a bare necessity. | The Court relied on this reasoning to conclude that parts of sub‑clause (d) (establishing funds for maintenance, marriage and funeral ceremonies of needy persons of the community) do not, insofar as they provide marriage expenses to specific individuals, amount to charitable purposes under the Income‑tax Act. |
Court's Reasoning and Analysis
The Court proceeded by construing the Society's Memorandum of Association and relevant statutory provisions, and by applying the cited authorities to the specific clauses of the Memorandum.
- Statutory context: The Court observed that under the Societies Registration Act a society may be registered even if some of its objects are not charitable (section 1 and section 20 of the Societies Registration Act were discussed). Consequently, the mere fact of registration under that Act does not guarantee charitable status under the Income‑tax Act.
- Income‑tax statute: The Court examined the exemption provision as it stood for the relevant period, cited as section 4(3)(i) (the opinion explains the exemption of income “derived from property held under trust or other legal obligation wholly for religious or charitable purposes” and, in part, for property held in part only for such purposes), and quoted the statutory, non‑exhaustive definition of “charitable purposes” comprising relief of the poor, education, medical relief and advancement of objects of general public utility.
- Construction of the Memorandum: The Court set out the object clauses (a)–(k) and examined rules of the Society, including membership (rule 2), application of income and property to objects only (rule 29), and dissolution provisions (rule 40).
- Primary‑object argument rejected: The Court rejected the assessee's contention that clause (a) was the primary object and the rest ancillary. The Court noted that societies may be constituted with multiple objects, some charitable and some not; there is nothing in the Memorandum or rules to indicate clause (a) was dominant. The executive committee could expend income on any of the listed objects.
-
Analysis of individual clauses using authority:
- Clause (a): The Court compared the language to the House of Lords decision in Baddeley and invoked the observation that promoting “moral, social and physical well‑being” is too wide to be treated as charitable; the additional phrase “material condition” in the present clause further took it outside charitable classification. The Court concluded clause (a) does not attract exemption under section 4(3)(i).
- Clause (b): The Court acknowledged Andhra Chamber of Commerce holding that promoting trade and industry can be of general public utility, but declined to decide this clause's effect given the overall composition of the Memorandum.
- Clause (d): The Court held that providing marriage expenses to specific needy persons is not a charitable object, relying on the Bombay decision in Gordhandas Trustees; thus the marriage‑related aspects of clause (d) are not charitable.
- Clause (e) (curtailing social luxuries): The Court found this to be at best social reform and not necessarily an object contemplated by section 20 of the Societies Registration Act nor a charitable object within the Income‑tax Act.
- Clause (i) (purchase and lending of materials for marriages and ceremonies): The Court reasoned that if contributing to marriage expenses is not charitable, maintaining materials for marriages cannot be considered charitable.
- Clause (j) (monuments): The Court accepted that cherishing memory of great men may be laudable but held that preserving/erecting monuments is not a charitable purpose under the Income‑tax Act.
- Clause (k) (general welfare of the Kedia community): The Court emphasized that doing acts for the welfare of a specified community would not necessarily be charitable.
- Application to the exemption claim: Because the income from the property was not held under a trust or legal obligation wholly for religious or charitable purposes (the Memorandum permitted non‑charitable uses and did not establish a wholly charitable trust), the Court concluded the income could not be exempt under section 4(3)(i).
- Procedural/factual points: The Tribunal's comment that income would be spent on dispensary, schools etc. in village Ked was said not to appear from the Memorandum; the Court did not remit the discrete factual question of the meaning of “Kedia community” to the Tribunal because it considered the other aspects decisive. Learned counsel for the assessee did not press the alternative limb of section 4(3)(i).
Holding and Implications
Holding: The Court answered the reference in the negative — the income was not exempt under the provision considered. The core ruling is expressed as: the income derived from the property is not exempt under the provisions of section 4(3)(i) of the Indian Income‑tax Act, and the answer to the reference question is negative.
Consequences for the parties:
- The assessee's claim for exemption was rejected; the income from the house property is taxable.
- The assessee was ordered to pay the costs of the Reference.
Broader implications: The opinion confines its reasoning to construction of the Society's Memorandum and application of established authorities; it does not purport to create new legal precedent beyond applying existing case law (for example Baddeley and Gordhandas Trustees) to the facts. The Court expressly declined to decide or remit the separate factual question of whether the Kedia community constitutes a sufficiently public class.
Judgment delivered by: G.K. Mitter, J. (with Laik, J. concurring).
The Judgment of the Court was as follows:
G.K Mitter, J.:— This is a reference under section 66(1) of the Indian Income-tax Act for the opinion of the Court on the following question: “Whether in the facts and circumstances of this case and on a true construction of the Memorandum of Association of the assessee the income or any portion thereof was exempt from the levy of Income-tax under section 4(8) (i) of the Indian Income-tax Act?”
2. The assessee is a society registered under the Societies Registration Act of 1860 on May 6, 1931. According to the statement of case it was getting subscription from persons belonging to the Kedia community scattered all over India. In addition thereto it had income from a house property which was assessed by the Income-tax Officer at Rs. 5,893|-. The claim of the assessee that it was entitled to exemption under section 4(3)(i) was negatived by the Income-tax Officer. In appeal to the Appellate Assistant Commissioner that order was varied and it was held that a part of the income from this house property was devoted to charitable objects only. As such a portion of the income was exempt under section 4(3) (i). On a further appeal to the Income Tax Appellate Tribunal this claim to partial exemption was over-ruled. According to the Tribunal whether the objects of the Society were charitable or not had to be gathered from the Memorandum of Association and if the Association or its Executive Committee was entitled to spend amounts under any of the clauses of the objects clause some of which were charitable in nature and others not the only conclusion to come to was that the institution was not solely for the purpose of charity. Unfortunately it is recorded in the statement of case; “that the income arising out of the said house property was to be spent amongst other activities of running dispensary, schools etc. in the village Ked in Rajasthan, from which place all the Kedias came”. On a perusal of the Memorandum of Association this does not appear to be correct. The Tribunal did not think it necessary to go into the question as to whether the Kedia community could be taken to be a sufficient cross section of the public so as to merit exemption under section 4(3) (i) in view of the various clauses given in the Memorandum of Association and although it appears prima facie that it would have been a serious objection if it had been pressed we do not think it necessary on the facts of the case to refer the matter back to the Tribunal for a finding on that point, namely, what was the meaning of the word “Kedia community” as appearing in the Memorandum of Association.
3. Before referring to the said Memorandum of Association it is necessary to refer to the Societies Registration Act under which the Association was registered. Under section 1 of this Act “any seven or more persons associated for any literary, scientific or charitable purpose or for any such purpose as is described under section 20 of the Act, may by subscribing their names to a Memorandum of Association and filing the same with the Registrar of Joint Stock Companies form themselves into a Society under this Act”. Under section 2 of the Act “the Memorandum of Association shall contain the following things (that is to say), the name of the society; the objects of the society; the names, addresses, and occupations of the governors, council, directors, committee or other governing body to whom by the rules of this society, the management of its affairs is entrusted”. Section 20 of the Act provides “that the following societies may be registered under this Act: Charitable societies, military orphan funds or societies established at the several Presidencies of India, societies established for the promotion of science, literature, or fine arts, for instruction, the diffusion of useful knowledge, the diffusion of political education, the foundation or maintenance of libraries or reading-rooms for general use among the members or open to the public, or public museums and galleries of painting and other works of art, collections of natural history, mechanical and philosophical inventions, instruments or designs.
4. It should be noticed from the above that a Society can be registered under this Act with a purpose which is not “charitable”, within the meaning of the expression in the Indian Income-tax Act. There has been some alteration in the Income Tax Act in the year 1952 and for our purpose the provision as it stood before that date governs the situation. Under section 4(3) (i) “any income derived from property held under trust or other legal obligation wholly for 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 was to be exempt from taxation”. Charitable purpose has been defined by the section itself. The definition is not exhaustive but provides as follows:
Under this sub-section “charitable purposes include relief the poor, education, medical relief and the advancement of any other object of general public utility. But nothing contained under 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.”
5. The objects of the society as given in clause (3) of the Memorandum of Association are as follows:—
“(a) To promote the social, moral, religious, physical and material conditions of the Kedia community.
(b) To promote trade, commerce and industry and to remove the social draw-backs of the Kedia community.
(c) To establish branches and sub-branches of the Society in different parts of the country.
(d) To establish funds for the maintenance, marriage and funeral ceremonies of the Kedia community.
(e) To curtail the unnecessary social luxuries in which the Kedia community indulge and to regulate them properly.
(f) To relieve the sufferings members of the Kedia communit their sisters, daughters and wives requiring relief by establishing and|or maintaining widow homes, orphanage, hospitals, charitable dispensaries, boarding houses and aiding such existing institutions and helping deserving and needy persons by granting donations, monthly allowances.
(g) To encourage education amongst the Kedia community.
(h) To establish Schools and Colleges for the advancement of learning and education in different parts of the country for the Kedia community in particular and the public in general and to encourage and help the student of the above community who are reading in different part of the country in every possible way i.e, granting prizes and scholarships and rendering financial help to them.
(i) To purchase and maintain materials for use in marriages and other social and religious ceremonies of the Kedia community and to lend them to the members of the said community if necessary to the members of the other community,
(j) To establish funds for preservation and erection of monuments already existing or to be erected commemorating the memory of the great man of the community and celebrated events in the community.
(k) To do all other acts deeds and things for the welfare of the Kedia community.”
6. The rules and regulations of the Society to which attention need be drawn are rules 2, 29 and 40. Under rule (2) “any major male member of the Kedia community amongst the Marwari Agarwallas who are decendants of Sewramjee and who are described as Kedias of Chhaochharias etc. wherever residing shall be entitled to become a member of the Society. “Under rule (29)” the income and property of the Society shall be applied solely towards its objects and no portion shall be paid or divided amongst any of its members or invested in their interest”. Rule 40 provides “On dissolution of the society for any reason whatsoever no part of its funds and assets shall be divided amongst its members and the whole of it shall be given and made over to such charitable institutions as the society in its Extraordinary general meeting specially called for the purpose may decide upon by 75 per cent votes of the members present. On the clear understanding that all the funds and assets would be spent in the welfare of the Kedia community only according to rules and regulations of the society such meeting shall be called by giving one month's notice to all the members of the society residing in Calcutta or outside Calcutta.”
7. The main argument before us on behalf of the assessee was that clause (a) of the object clause must be taken to be the primary object of the society and the other objects must be treated as if they were ancillary or subsidiary to the first clause. Reference was made to certain English decisions bearing on the objects clause of the Memorandum of Association of a company where it had been held by learned Judges that where a Company had a primary object to which the others were subsidiary the substratum of the company could be said to have gone once it was found that the primary object had failed or could not be achieved and it was just and proper that a winding up order should be made. In my view, this argument cannot hold good in the case of a society having more than one object and registered under the Societies Registration Act. Under section 20 of this Act a society having many objects, may be registered and some of these objects may not be charitable. Further there is nothing in the objects clause of the Memorandum of Association of the Society to indicate that clause (a) was the dominant or the primary object of the Society. Both under the Memorandum and under the Rules it would be open to the society or the executive committee thereof to spend its income on any of the objects not necessarily confined to sub-clause (a) or sub-clause (b) or sub-clause (f). It seems difficult to hold that the various objects enumerated in (a) to (k) with the exception of a few can be said to be charitable in nature. To take for instance clause (a), “to promote the social, moral, religious, physical and material condition of the Kedia community” leaving aside the religious aspect of it, I cannot see how promoting the social or the material condition of a community can be said to be charitable in nature to attract section 14(3) (i) of the Indian Income-tax Act. A clause very much similar to clause (a) came up for consideration by the House of Lords in the case of Inland Revenue Commissioners v. Baddeley (1) (1955) 1 All E.R 525. There “property was conveyed on trust and the trustees were directed to permit the property to be appropriated and used by the leaders for the time being of the Stratford Newotn Methodist Mission for the promotion of the religious, social and physical well-being of persons resident in the country boroughs of West Ham and Leyton in the County of Essex by the provision of facilities for religious services and instructions and for the social and physical training and recreation of such aforementioned persons who for the time-being were in the opinion of such leaders members or likely to become members of the Methodist Church”. In that case Viscount Simonds observed:—
“The moral, social and physical well-being of the community, or any part of it, is a laudable object of benovolence and philanthropy, but its ambit is far too wide to include only purposes which the law regards as charitable.”
8. Lord Somervell said:—
“The word “well-being”, though qualified by “religious” as well as “social and physical”, means pri marily, in my opinion, a happy or contented state. Social well-being would be prompted when people were happy together an important factor in institutional life. Physical well-being is promoted by exercise or recreation; and the health and contentment which normally follow. Social training is an ambiguous expression and may well be too vague. Its meaning to me is training in social behaviour, in manners. ****On this view the trust, limited as it is, is plainly not a charity.”
9. In my opinion, it is difficult to distinguish portions of clause (a) from the clause as given in the House of Lords case. The relevant portion of clause (a) in our case is “to promote the social, moral, physical and material condition of the Kedia community”. The word “material condition” does not find a place the judgment of the House of Lords. How improving the material condition of a community can be a charitable object, I fail to understand.
10. With regard to sub-clause (b) learned counsel for the assessee drew our attention to the case of Andhra Chamber of Commerce v. Commisioner of Income Tax, Madras (2) 42 I.T.R 503. In that case it was held that the object of promoting trade, commerce and industry was an object of general public utility within the meaning of section 4 (3) (i) of the Indian Tax Act. It is not necessary to express any opinion on this clause in view of the other clauses of the Memorandum of Association.
11. Under sub-clause (d) the Society can establish funds for the maintenance, marriage and funeral ceremonies of the needy persons of the Kedia community. Parts of this Clause certainly saveur of relief of poverty but I cannot hold that contributing towards the marriage expenses of a needy person of the community would be a charitable purpose. In the Trustees of Gordhandas Govind-ram Family Charity Trust v. Commissioner of Income Tax (Central) Bombay (3) 21 I.T.R 231 Chagla C.J said: “It is difficult to see how giving marriage expenses to specific individuals can ever be a charitable object, whether it involves general public utility or not. When you relieve poverty you supply a person with the bare necessities of life. You give him what he cannot possibly do without. ****It is not possible to say that a poor man cannot do without matrimony and that matrimony is a bare necessity of life and you must provide funds which may help him to get married.”
12. One of the objects of the Association as appearing in sub-clause (e) of the Memorandum is to curtail the unnecessary social luxuries in which the Kedia community indulge and to regulate them properly. It was argued that this was an object of general public utility. In the first place, I cannot see how this can be an object within the meaning of section 20 of Societies Registration Act. It might be an object of social reform but that by itself would not certainly be one of general public utility.
13. Under sub-clause (i) of the Memorandum the Society can purchase and maintain materials for use in marriages and other social and religious ceremonies of the Kedia community and to lend them to the members of the said community, and also if necessary to the members of the other community. If contribution towards marriage expenses be not a charitable object, maintaining materials for use in marriages and other social and religious ceremonies a fortori cannot be so.
14. Under sub-clause (j) the Society can establish funds for preservation and erection of monuments already existing or to be erected commemorating the memory of the great men of the community and celebrated events in the community. Certainly these objects may be laudable in themselves as cherishing memories of people whom the public ought to remember. But the establishment of funds for preservation and erection of monuments would not be a charitable purpose within the meaning of the expression used in the Income Tax Act.
15. Lastly, doing, acts deeds and things for the welfare of the Kedia community would not necessarily be charitable.
16. In the result, as the income derived from the property is not held under a trust or other legal obligation wholly for religious or charitable purposes, it cannot be exempt under the provisions of section 4 (3) (i) mentioned above.
17. Learned Counsel for the assessee did not press his case with regard to the second portion of section 4(3) (i) and in this view of the matter, the answer to the question must be in the negative. The assessee must pay the costs of this Reference.
Laik, J.:— I agree.
C.R.D
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