1968 PLP 513 (PTD)

The points raised in this matter require consideration of the relevant provisions of the Act. Section 3 of the Act is the charging section and it provides that the total income of an assessee in respect of the previous year shall be liable to tax in accordance with law enacted by the Central Legislature. It is then laid down in section 4 sources of income to which the Income‑tax Act will apply in regard to the total income of previous year of any person. After having done so, in subsection (3) of section 4, it is provided that certain income would not be included in the total income as contemplated in section

3. In other words, the income from these sources would not be assessable to Income‑tax. I should at this stage read the material part of subsection (3) of section 4: "(3) Subject to the provisions of this Act, any income, profits or gains falling within the following classes shall not to such extent as may he specified in this subsection or prescribed in this behalf be included in the total income of the person receiv ing them: (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 applica tion, thereto: Provided that in the case of income derived from business this clause shall not apply unless the business is carried on behalf of a religious or charitable 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: Provided that nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act that part of the total income of private religious trust which does not ensure to the benefit of the public. Explanation.‑The expression "charitable purpose" as used 'in clauses (i) and (ii), includes relief of the poor, education, medical relief and the advancement of any other object of general public utility." We have now to find that if the Assessee has been formed with objects which can be called charitable purposes. Mr. Hasan appearing for the respondent submits that the income from the property for which the assessee has been made liable to pay tax by the Income‑tax Officer are held 'under legal obligation wholly for charitable purposes and the income from the said property, according to him, is applied solely for those purposes. He also claims that the income from business carried on by the assessee in also applied solely for the charitable purposes of the institution and the business itself is carried on for implemen tation of the objects of the Assessee. He does not claim exemp tion on any other ground. We have already noticed the objects of the assessee as set out in its memorandum of association. The main object is "to promote and protect the trade, commerce and industry and manufactures of Pakistan and in particular the trade, commerce, industry end manufactures of Narayanganj." The question is if these and other objects as set out in the memorandum of association would constitute, what may be called charitable purposes. The term may ordinarily mean alms giving or donation for a laudable object. In construing the provisions of this fiscal statute, we are, however, to be guided by the express provisions relating to charitable purpose as made in the Act itself. The expression charitable purpose as used in clauses (i) and (ii) of subsection (3) of section 4 includes relief to the poor, education, medical relief and the advancement of any other object of general public utility as laid in the explanation quoted above. On a perusal of the objects as set out at page 34 of the printed paper-book, we are clearly of opinion that they would ensure to the benefit of a large section of the public of the country as a whole, for it would bring out a co‑ordination in trade, com merce and industry and help development of commerce and industry of the country. Regard being had to the expression "advancement of any other object of general public utility" occurring in the explanation added to section 4 (3)(i) of the Act, we have no manner of doubt that the assessee‑company is further ing objects which are of general public utility. That being so, it can rightly claim exemption under section 4 (3) (i) of the Act provided the income derived by it from various sources' are applied solely for charitable purposes of the institution and fulfil other requirement laid down in the first proviso to section 4 (3)(i). Before I proceed further, I would mention that Mr. Afzalul Hoque relied on a decision of the Supreme Court in the case of Commissioner of Income‑tax of East Pakistan, Dacca, v. Muhammad Abdur Rouf khan (P L D 1963 S C 209) and urged us to hold that Narayanganj Chamber of Commerce cannot claim exemption under sec tion 4 (3) (i) of the Act. We are unable to accept this contention of learned Advocate, for, that case is easily distinguishable from the facts of the present case. In that case it was held that unless a business is carried on for the implementation of the objects of the charitable or religious institution, income derived therefrom is not exempt under section 4 (3) (i) of the Act. It was observed that business carried on should not be merely for the purpose of providing funds for the institution but it should be undertaken for the implementation of the objects of the institution and if any income is derived from such a business, it will be exempt from the Income‑tax. It was not held in that case, that an assessee having such objects as Narayanganj Chamber of Commerce has, would not be a charitable institution. Learned Advocate for the respondents has placed reliance on a decision of the Indian Supreme Court in the case of Commissioner of Income‑tax, Madras v. Andhra of Chamber of Commerce ((1955) 55 I T R 722). In that case, Andhra Chamber of Commerce which had one of its objects "To promote and protect trade, commerce and industries of India, in the Province of Madras and in particular in the Andhra country" was held to be an association of persons formed with objects which would come within the meaning of charitable purposes under the Act. It was found in that case that the advancement of promotion of trade, commerce and industry leading to economic prosperity enure to the benefit of the entire community and as such it was held to be an institution formed for charitable pur poses. It will, therefore, be seen that although it was an associa tion of persons engaged in commerce and industry, the learned Judges felt that it would not detract the objects from being of general public utility. This case clearly supports the view taken by us that an organisation such as Narayanganj Chamber of Com merce, would be able to claim exemption from payment of Income-tax for its income under section 4 (3) (i) of the Act, provided it fulfils the other requirements. The other requirements of section have been considered in the case of Commissioner of Income‑tax v. Muhammad Abdur Rouf Khan, referred to above. In that case S. A. Rahman, J. observed: "Clause (i) 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 the beneficiaries, the income would be exempt from tax ation. 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 execu tion 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 be the plain intention of the language of the proviso." It will, therefore, be seen that it is necessary for the Revenue to refuse exemption to be able to point out that the charitable institution has engaged itself in a business merely for the purpose of providing funds for the objects of the institution but the business undertaken was not strictly necessary for the implementa tion of its objects. In this case, the Revenue has failed to point out any such business of the assessee. In the observation quoted above S. A. Rahman, J. has referred to the circumstances in which the income would not be entitled to exemption. But in the case before us the findings of fact of the Tribunal are in the following terms: "In view of the discussion supra it must be held that the assessee‑company registered under section 26 of the Companies Act and bound by clauses 4 and 8 of the Memorandum is under a legal obligation within the terms of section 4 (3) (i). It, therefore, follows that the sources of Income are also under the same legal obligation. In regard to the second condition there is no suggestion that the Income is not applied or set apart for charitable purpose. Coming to the requirements of the first proviso to section 4 (3)(i), it is settled law that the expression `property' includes business. Since the objects of assessee‑company are not materially different from those of the Andhara Chamber of Commerce, there is also no difficulty in holding that the assessee‑company is a charitable institution and in facts already discussed it satisfied the substantive part of the first proviso. In these facts and circumstances; we must also hold that the business satisfied one of the alternative conditions that it is carried on in the course of the carrying out of the charitable purposes of the institution. We accordingly hold that the sources of income brought underassessment are exempt under section 4 (3) (i)." It will, therefore, be seen that it has not been challenged that the sources of income derived by the assessee from property and business are applied solely for charitable purposes of the institu tion. We have found that the Appellate Assistant Commissioner has stated "The principal source of its income has been subscrip tion received from the members, arbitration, courier, service, licence, measurement and issue of certificates and house property." We are, therefore, of opinion that from this statement of the sources, we cannot say that there is a source of income which is not solely related to the charitable purpose of this institution undertaken for the implementation of its objects. We have to remember that the charitable purpose of this institution is the advancement of a matter of general public utility, namely, the commerce and industry. This association requires members to function ; it arbitrates in order to present the business community from going into unnecessary litigation. It facilitates communica tion by adopting courier service. It issues certificates for charit able purposes of the institution. It is necessary for the institutions to function to have a house property primarily for its own establishment. There is nothing before us to hold that the rent derived from the house property is spent for a purpose with which the objects of this association have no concern. In the case before us it has not been found by anybody at any stage that the income derived from the house property and the business has been utilised for purposes other than for which this association of persons has been registered under section 26 of the Companies Act and we have noticed that the Tribunal has recorded its findings to the effect that it, in fact, fulfils the requirements of the proviso to section 4 (3) (i) of the Act. For the reasons stated above, we answer the question in the affirmative. The parties are left to bear their own costs. A. H. KHAN, J.‑I agree. S. Q. Reference answered in the affirmative.