My trade association only helps its own trade and its members get a benefit from it — can it still be charitable?
Yes. The Supreme Court held that promotion and protection of trade, commerce and industry is an object of general public utility and therefore a charitable purpose, even though the members of the chamber benefit incidentally. An object need not benefit all mankind; it is enough that a section of the public, defined by some common quality of a public or impersonal nature, is intended to be benefited. Rental income from the chamber's building, held under a legal obligation to apply it to those objects, was exempt. The Revenue's appeals were dismissed with costs.
Decided by the Supreme Court (Supreme Court of India — J.C. Shah, K. Subba Rao and S.M. Sikri JJ (judgment by Shah J)) on 1964-10-01, reported as 1965 AIR 1281; 1965 SCR (1) 565. It bears on section 2(15), section 11 of the Income Tax Act 1961, in Charitable Trusts & Exemption and Capital Gains Exemptions matters.
This is the case that opened the fourth limb of charitable purpose to trade and professional bodies, and it did so on two grounds a practitioner still uses. First, a section of the public is enough — the contrary view in Grain Merchants' Association, that general public utility means utility available to the general public as distinct from a section of it, was disapproved. Second, incidental benefit to members does not destroy charity, provided it is incidental to the main purpose rather than a purpose in itself. It also draws the line on political objects: an ancillary object of urging or opposing legislation affecting the trade is not fatal where the primary purpose is public utility. Note that section 2(15) has since acquired a proviso restricting general public utility where trade or commerce is carried on.
Binding on every court and authority in India.
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The assessee, the Andhra Chamber of Commerce, was a company incorporated under the Indian Companies Act 1913 and permitted by the Government of Madras to omit 'Limited' from its name. Its principal objects were to promote and protect the trade, commerce and industries of India, of the Province of Madras and in particular of the Andhra country, to aid and stimulate their development, and to watch over and protect general commercial interests. Clause 4 of the memorandum required income and property to be applied solely to those objects, with nothing paid to members by way of dividend, bonus or profit. On 2 December 1944 the chamber bought a building, altered and improved it, moved its offices there in May 1947 and let out the portion it did not need. Its income came from members' subscriptions and donations and from that rent. For assessment years 1948-49 to 1954-55 (excluding 1952-53) it claimed the annual value of the building was exempt as income of a charitable institution, and alternatively that its excess of expenditure over other income should be set off. The Income-tax Officer and the Appellate Assistant Commissioner rejected both contentions. The Tribunal held the activities were primarily for the benefit of members. The Madras High Court answered the reference in the assessee's favour and the Commissioner appealed by certificate.
The appeals were dismissed with costs. The property was held under a legal obligation — by the terms of the Government's permission to drop 'Limited' and by clause 4 of the memorandum — and it was held for a charitable purpose, so the income qualified for exemption. Promotion of trade, commerce and industry is an object of general public utility: the resulting economic prosperity enures to the benefit of the whole community, and the fact that those engaged in trade share in it does not make the purpose any less one of general public utility. Promotion and protection of trade, commerce and industry cannot be equated with promotion of the interests merely of the persons engaged in them. The objects were not vague: an instrument of general public utility need not specify the modus or the steps by which the object is to be achieved. The object permitting the chamber to urge or oppose legislative or other measures affecting trade, commerce or manufacture was purely ancillary or subsidiary, not the primary object, so the purposes did not become political.
The statutory definition of charitable purpose is inclusive, not exhaustive: even where an object is not charitable in its popular sense, it qualifies if it advances an object of general public utility, and the legislature used language of great amplitude. The expression is not restricted to objects benefiting the whole of mankind or even all persons in a country or province; it is enough that the intention is to benefit a section of the public as distinguished from specified individuals, provided that section is sufficiently defined and identifiable by some common quality of a public or impersonal nature. The Court therefore disapproved Beaumont CJ's contrary reading in Grain Merchants' Association. On member benefit, the Court followed the English authorities on their facts: in Yorkshire Agricultural Society and Institution of Civil Engineers, benefits enjoyed by members were incidental to and consequent upon the way the body carried out its charitable purpose, and did not displace it; Halsbury puts it as a question of fact whether there is so much personal benefit as to be incapable of being disregarded. The vagueness objection failed because the objects were sufficiently certain, distinguishing Runchordas Vandrawandas and the English cases relied on. On the political objection, the English decisions striking down bodies whose primary object was to promote or oppose legislation, and this Court's decision in Laxman Balwant Bhopatkar, all turned on the primary object being political. Here it was not: the legislative object existed only to secure the primary aims. The Court added that English decisions construing different statutory language are of little value against the Indian definition, which departs from Pemsel.
An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind.
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court held that promotion and protection of trade, commerce and industry is an object of general public utility and therefore a charitable purpose, even though the members of the chamber benefit incidentally. An object need not benefit all mankind; it is enough that a section of the public, defined by some common quality of a public or impersonal nature, is intended to be benefited. Rental income from the chamber's building, held under a legal obligation to apply it to those objects, was exempt. The Revenue's appeals were dismissed with costs. This was decided by the Supreme Court (Supreme Court of India — J.C. Shah, K. Subba Rao and S.M. Sikri JJ (judgment by Shah J)) and bears on section 2(15), section 11 of the Income Tax Act 1961. It is reported as 1965 AIR 1281; 1965 SCR (1) 565. This is the case that opened the fourth limb of charitable purpose to trade and professional bodies, and it did so on two grounds a practitioner still uses. First, a section of the public is enough — the contrary view in Grain Merchants' Association, that general public utility means utility available to the general public as distinct from a section of it, was disapproved. Second, incidental benefit to members does not destroy charity, provided it is incidental to the main purpose rather than a purpose in itself. It also draws the line on political objects: an ancillary object of urging or opposing legislation affecting the trade is not fatal where the primary purpose is public utility. Note that section 2(15) has since acquired a proviso restricting general public utility where trade or commerce is carried on. If it applies to you, the first step is this: Show from the constitution documents that the primary object is public utility and that any member benefit or lobbying object is ancillary — the Court decided the case on the memorandum's object clauses.
The assessee, the Andhra Chamber of Commerce, was a company incorporated under the Indian Companies Act 1913 and permitted by the Government of Madras to omit 'Limited' from its name. Its principal objects were to promote and protect the trade, commerce and industries of India, of the Province of Madras and in particular of the Andhra country, to aid and stimulate their development, and to watch over and protect general commercial interests. Clause 4 of the memorandum required income and property to be applied solely to those objects, with nothing paid to members by way of dividend, bonus or profit. On 2 December 1944 the chamber bought a building, altered and improved it, moved its offices there in May 1947 and let out the portion it did not need. Its income came from members' subscriptions and donations and from that rent. For assessment years 1948-49 to 1954-55 (excluding 1952-53) it claimed the annual value of the building was exempt as income of a charitable institution, and alternatively that its excess of expenditure over other income should be set off. The Income-tax Officer and the Appellate Assistant Commissioner rejected both contentions. The Tribunal held the activities were primarily for the benefit of members. The Madras High Court answered the reference in the assessee's favour and the Commissioner appealed by certificate. The matter was decided on 1964-10-01 by the Supreme Court (Supreme Court of India — J.C. Shah, K. Subba Rao and S.M. Sikri JJ (judgment by Shah J)). On those facts the Supreme Court held as follows. The appeals were dismissed with costs. The property was held under a legal obligation — by the terms of the Government's permission to drop 'Limited' and by clause 4 of the memorandum — and it was held for a charitable purpose, so the income qualified for exemption. Promotion of trade, commerce and industry is an object of general public utility: the resulting economic prosperity enures to the benefit of the whole community, and the fact that those engaged in trade share in it does not make the purpose any less one of general public utility. Promotion and protection of trade, commerce and industry cannot be equated with promotion of the interests merely of the persons engaged in them. The objects were not vague: an instrument of general public utility need not specify the modus or the steps by which the object is to be achieved. The object permitting the chamber to urge or oppose legislative or other measures affecting trade, commerce or manufacture was purely ancillary or subsidiary, not the primary object, so the purposes did not become political.
The statutory definition of charitable purpose is inclusive, not exhaustive: even where an object is not charitable in its popular sense, it qualifies if it advances an object of general public utility, and the legislature used language of great amplitude. The expression is not restricted to objects benefiting the whole of mankind or even all persons in a country or province; it is enough that the intention is to benefit a section of the public as distinguished from specified individuals, provided that section is sufficiently defined and identifiable by some common quality of a public or impersonal nature. The Court therefore disapproved Beaumont CJ's contrary reading in Grain Merchants' Association. On member benefit, the Court followed the English authorities on their facts: in Yorkshire Agricultural Society and Institution of Civil Engineers, benefits enjoyed by members were incidental to and consequent upon the way the body carried out its charitable purpose, and did not displace it; Halsbury puts it as a question of fact whether there is so much personal benefit as to be incapable of being disregarded. The vagueness objection failed because the objects were sufficiently certain, distinguishing Runchordas Vandrawandas and the English cases relied on. On the political objection, the English decisions striking down bodies whose primary object was to promote or oppose legislation, and this Court's decision in Laxman Balwant Bhopatkar, all turned on the primary object being political. Here it was not: the legislative object existed only to secure the primary aims. The Court added that English decisions construing different statutory language are of little value against the Indian definition, which departs from Pemsel. In the words reproduced by the source cited on this page: "An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind."
It was decided by the Supreme Court on 1964-10-01 and is reported as 1965 AIR 1281; 1965 SCR (1) 565. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 2(15), section 11, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeals were dismissed with costs. The property was held under a legal obligation — by the terms of the Government's permission to drop 'Limited' and by clause 4 of the memorandum — and it was held for a charitable purpose, so the income qualified for exemption. Promotion of trade, commerce and industry is an object of general public utility: the resulting economic prosperity enures to the benefit of the whole community, and the fact that those engaged in trade share in it does not make the purpose any less one of general public utility. Promotion and protection of trade, commerce and industry cannot be equated with promotion of the interests merely of the persons engaged in them. The objects were not vague: an instrument of general public utility need not specify the modus or the steps by which the object is to be achieved. The object permitting the chamber to urge or oppose legislative or other measures affecting trade, commerce or manufacture was purely ancillary or subsidiary, not the primary object, so the purposes did not become political. It arises in Charitable Trusts & Exemption and Capital Gains Exemptions matters, on section 2(15), section 11 of the Income Tax Act 1961, and was decided by Supreme Court of India — J.C. Shah, K. Subba Rao and S.M. Sikri JJ (judgment by Shah J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Identify the section of the public benefited by a common quality of a public or impersonal nature; a group with no such uniting quality will not qualify. Bind the income and property by a clause prohibiting distribution to members, as clause 4 did here; that supplied the legal obligation even though there was no trust. Test the claim against the present proviso to section 2(15) as well, since receipts from trade, commerce or business now carry their own threshold that this judgment predates.
Still good law. Constantly applied — the source page records over 260 citing decisions and the citator shows it followed and relied on by later Supreme Court benches. The 'section of the public' and 'incidental member benefit' propositions stand. The statutory context has moved on: section 2(15) of the 1961 Act now carries a proviso limiting the general public utility limb where trade, commerce or business is carried on, which this judgment could not consider. Assessed from the judgment and its citator entries only. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment construes section 4(3)(i) and the definition of charitable purpose in section 4(3) of the Indian Income-tax Act 1922; sections 2(15) and 11 of the 1961 Act are the corresponding provisions and are listed on that basis. The batch line gives the year as 1965 (the reporting year); the judgment is dated 1 October 1964. The alternative contention on set-off of excess expenditure was not decided, the High Court having recorded no formal answer on the second referred question. The effect of the present proviso to section 2(15) on a body of this kind was not examined. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed with costs. The property was held under a legal obligation — by the terms of the Government's permission to drop 'Limited' and by clause 4 of the memorandum — and it was held for a charitable purpose, so the income qualified for exemption. Promotion of trade, commerce and industry is an object of general public utility: the resulting economic prosperity enures to the benefit of the whole community, and the fact that those engaged in trade share in it does not make the purpose any less one of general public utility. Promotion and protection of trade, commerce and industry cannot be equated with promotion of the interests merely of the persons engaged in them. The objects were not vague: an instrument of general public utility need not specify the modus or the steps by which the object is to be achieved. The object permitting the chamber to urge or oppose legislative or other measures affecting trade, commerce or manufacture was purely ancillary or subsidiary, not the primary object, so the purposes did not become political.
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