High Court Of Andhra Pradesh
CIT vs. A.P. Bankers & Pawnbrokers Association
Sections 2(15), 11
Asst. Year 1976-77
B.P. Jeevan Reddy & Syed Shah Mohammed Quadri, JJ.
R.C. No. 239 of 1982
21st July, 1987
M. Suryanarayanamurthy, for the Revenue : M.J. Swamy & D. Man Mohan, for the Assessee
B.P. JEEVAN REDDY, J.:
The two questions referred for our opinion under s. 256(1) of the IT Act, 1961, are :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was engaged in the relevant previous year in pursuit of objects or advancement of public utility not involving the carrying on of any activity for profit ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that for the assessment year under consideration, the assessee was entitled to the benefit of exemption under s. 11(1) r/w s. 2(15) of the IT Act, 1961 ?”
The assessee, A.P. Bankers and Pawn Brokers Association, Secunderabad, was registered as a company under the Companies Act, 1956. It was accorded a licence under s. 25 of the said Act, read with the first proviso to s. 3 of the A.P. Non-Trading Companies Act (No. 2) of 1962. The licence granted by the Andhra Pradesh Government expressly provided that the assesseeassociation shall be registered as a company with limited liability, but without the addition of the word “Limited” in its name, subject to certain conditions specified therein. One of the conditions was that the income and property of the licensee shall be applied solely for promotion of the objects as set forth in its memorandum of association and that no portion thereof shall be paid or transferred, directly or indirectly, by way of dividend, bonus, or otherwise, by way of profit, to persons who at any time are, or have been, members of the said company, or to any of them, or to any persons claiming through any one or more of them. The main objects of the assesseeassociation are set out in sub-cls. (i) to (xvii) of cl. 3. The predominant object of the assessee appears to be to promote, encourage and protect the interests of the banking and pawnbrokers’ trade. The other objects mentioned in sub-cls. (ii) to (xiv) of cl. 3 appear to be incidental and ancillary to this main purpose. Clause 5 of the memorandum expressly provides that the income and property of the association whencesoever derived shall be applied solely for the promotion of its objects as set forth in the memorandum, and that no portion of the income or property shall be paid or transferred, directly or indirectly, in any manner to any one. Clause 10 provides that on winding up or dissolution of the association, the assets remaining shall not be distributed amongst the members of the association, but shall be given or transferred to such other association having objects similar to the objects of this association.
The assessee filed a voluntary return disclosing “nil” income for the asst. yr. 1966-67. For subsequent years, it showed some nominal income. The ITO rejected the assessee’s claim for exemption purporting to follow the decision of the Supreme Court in Indian Chamber of Commerce vs. CIT (1975) CTR (SC) 271 : (1975) 101 ITR 796 (SC) : TC23R.250. On appeal, however, the AAC took a contrary view and held, on an examination of the purposes and objects of the assessee- association and other circumstances, that the income of the assessee is exempt under s. 2(15) r/w s. 11 of the Act. On further appeal, the Tribunal confirmed the said finding.
The principles in this behalf are enunciated by the Supreme Court in Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC) : TC23R.195. It is pointed out therein that the words “not involving the carrying on of any activity for profit” occurring in cl. (15) of s. 2 qualify only the words “the advancement of any other object of general utility” and not the words preceding them. It was further pointed out that the test which has to be applied is, whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profits. Once it is held that the object is to subserve a charitable purpose, the mere fact that the activity of the assessee results in some profit is of no consequence. Applying the said test, it must be held in this case that the predominant object of the assessee in this case is to promote, encourage and protect the interests of the persons engaged in banking and pawnbrokers’ trade. Banking serves an important need of the society. Even pawnbrokers do meet the needs of certain persons in certain situations. Their trade is lawful. The persons engaged in these trades constitute a sizeable section of the society. It is not necessary that the benefit of the assessee should reach each and every member of the public. So long as the benefit reaches a sizeable number of members of the public, it satisfies the requirement of subserving the general public interest. That is the uniform view taken by all the High Courts in this country.
Having regard to the fact that the assessee-association is registered under s. 25 of the Companies Act and further having regard to the objects and purposes referred to in detail in the order of the Tribunal relating to the asst. yr. 1976-77, which has been followed in the order relating to the assessment year concerned herein, it must be held that the Tribunal has rightly dismissed the appeal.
Accordingly, we answer both the questions referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. No costs.
[Citation : 170 ITR 476]