2004 P T D 1304

[Karachi High Court]

Before Shabbir Ahmed, Muhammad Mujeebullah Siddiqui, JJ

COMMISSIONER OF INCOME-TAX, EAST ZONE, KARACHI

Versus

MERCHANT NAVY CLUB

I.T.R. No.72 of 1988, decided on 18/02/2004.

(a) Income Tax Act (XI of 1922)-----

----S. 4(3)(i)---Income derived by assessee (Merchant Navy Club) from business carried out by same in the course of carrying out its charitable purpose---Order-in-original denying the exemption from tax to assessee Club was upheld by Appellate Authority, but was set aside by the Appellate Tribunal---Validity---Object of establishing assessee-Club had fulfilled requirement of charitable purpose---Officers and sea-men of assessee-Club constituted sufficient segment of society, so as to bring beneficiaries within purview of general public---Purpose would be fulfilled, where a sufficient segment of society was beneficiary, without any distinction of religion, caste, creed or sect---Admission to. Assessee Club was without any distinction on account of nationality or religion, thus, amenities offered would be deemed to be for general public utility---Mere ancillary and incidental activity of performance of dancing and supplying of wine to sea-men (who were mostly non Muslims) would not take out activities of assessee-Club from ambit of charitable purpose---Authority and Appellate Authority had ignored main object of establishing assessee-Club as contained in Memorandum of Association, Rules and Regulations---High Court answered the question in the affirmative by upholding findings of Appellate Tribunal.

(b) Income Tax Act (XI of 1922)---

----S. 4(3)(i) & Expln.---Expression "charitable purpose" as used in S.4(3)(i) of Income Tax Act, 1922---Connotation.

The expression "charitable purpose' carries a broader and extended connotation. The definition given in the explanation to section 4(3) of Income Tax Act, 1922 to the effect that it included relief to the poor, education, medical relief and the advancement of any other object of general public utility, is inclusive and is not exhaustive, conclusive or exclusive. The words "advancement of any other object of general public utility" are of very wide amplitude, which have to be interpreted liberally when examined in its true spirit. The expression "charitable purpose" as used, in a statute shall always be susceptible to the extended meaning from time to time and shall always be open to broader meaning in the facts and circumstances of the particular cases.

Commissioner of Income-tax v. Muhammad Abdur Rauf Khan PLD 1963 SC 209; Sadar Anjuman-i-Ahmedia, Rabwa v. Commissioner of Income Tax PLD 1977 Lah. 1121; C.I.T., Madras v. Andhra Chamber of Commerce, (1965) 11 Taxation 306; Fauji Foundation v. Shamimur Rehman PLD 1983 SC 457; Commissioner of Income-tax v. West Pakistan Management Association 1985 PTD 287; Commissioner of Income-tax v. Banaras Brass Merchant and Manufacturers Association (2000) 82 Tax 120; Pakistan Seamen Contributory Welfare Fund v. Income Tax Appellate Tribunal 1993 PTD 734; Hamdard Dawakhana v. Commissioner of Income-tax, Karachi, (1980) Tax 1; Commissioner of Income-tax, Bombay City v. Breach Candy Swimming Bath Trust, Bombay (1955) 27 ITR 278 and D' Aguiar v. Guyana I.R. Comrs (1970) 15 W.I.R. 198 (P.C) ref.

Nasrullah Awan for Applicant.

Muhammad Farid for Respondent.

Date of hearing: 20^th January, 2004.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---In this reference under section 136(1) of the Income Tax Ordinance, 1979, the Income Tax Appellate Tribunal Karachi Bench, has referred following question of law for our opinion:--

"Whether in the facts and circumstances of the case the Appellate Tribunal was justified in holding that the income derived by the assessee from the property and so also from the business carried out by it in the course of carrying out the charitable purpose was exempt from levy of income tax under section 4(3)(1) of the Income Tax Act."

The statement of facts as submitted by the Income Tax appellate. Tribunal (hereinafter referred to as the Tribunal) are that the respondent; assessee did not file returns of total income and therefore, notices were issued under section 34 of the Repealed Income Tax Act, 1922 (hereinafter referred to as the Repealed Act), In response to the notices, the assessee filed returns showing nil income in the Assessment years 1973-74 to 1975-76 on the plea that its income was exempt under section 4(3)(i) of the Repealed Act. The income tax officer did not accept the contention with the following observation:--

"The claim of the assessee has been examined in the light of judicial proceedings. As is evident from the Memorandum of Association and Rules and Regulations of the Merchant Navy Club, the objects of the club to provide convenience to the sea men of the Merchant Navy. Firstly, sea-men do not constitute a sufficient segment of public a condition absolutely essential for making the club eligible for exemption. Second, the purpose of the club cannot be considered to be charitable in the light of the objects of the club as outlined in the Memorandum of Association and Rules and Regulations."

The assessee preferred appeal before the Appellate Assistant Commissioner of Income-tax without any success. In second appeal before the Tribunal, the assessee's contention was up-held and its income was held to be exempt from levy of Income tax under section 4(3)(i) of the Repealed Act, with the following findings:--

"Both the officers below, in our opinion, have fallen into an error in holding that the assessee was not a charitable society to that the officers and sea-men for whose benefit it was established were not the sufficient segment of society. In our opinion, the officers and sea-men constitute a very pertinent segment of society and the object provides for the accommodation, recreation and their general welfare and particularly to provide a comfortable home at a moderate charge, cannot but be said to be a charitable purpose: Likewise, the other objects of the society. such as to, provide a refuge to the officers and sea-men who are shipwrecked and in distress and to impart useful knowledge to them in suitable manner etc., are obviously covered by the tern; `charitable purpose' and manifestly fall within the purview of the expression `objects of general public utility. The section of community, in the instant case, to be benefited is sufficiently defined and identifiable by common quality uniting them (the beneficiaries) into a class. We are satisfied from the material record that the income of the assessee was admittedly derived from the property owned by the assessee and by carrying on the business for charitable purposes and the income so derived has been utilized solely for achievement of the purposes set out in the Memorandum of Association. The Explanation appended to section 3 defines the expression `chartiable purposes' not. exhaustively but inclusively and according to it the advancement of any other object of general utility falls within the ambit thereof."

The Commissioner of Income-tax feeling aggrieved submitted reference application and the Tribunal referred the question reproduced in the earlier part of this judgment.

We have heard Mr. Nasruallah Awan, learned counsel for the department and Mr. Muhammad Farid, learned counsel for the respondents/assessee.

Mr. Awan, has submitted that two aspects require consideration, first, whether the purpose for which the respondent's club was established amounts to charitable purpose and secondly, whether sea-men form sufficient segment of public as envisaged under section 4(3)(i) of the Repealed Act. Although, the Trust Deed or Articles and Memorandum of Association or the Rules/Regulations of the respondent's club were not produced at any stage, of the proceedings, however, it is stated in the order of IAC, that the income of the respondent has been derived from sale of wine, catering, tobacco and cigarettes, minerals, shop goods. It is further stated that income is also derived from billiard, donations, empties, rent from sub-letting, dividend on NIT units, interest on debentures. It is also stated in the order of IAC, that the affidavit sworn on behalf of respondent that the income was being earned by providing facility of dancing as well., Mr, Muhammad Farid, learned counsel for the respondent, has admitted the above facts and has stated that during the World War-II, the British Merchant Navy ,was short of facilities. Consequently, the club was established for providing facilities to the sea-men and particularly to the wrecked ships who were in distress. In the Tribunal's order the purpose of establishing the respondent's club has been more elaborately described with reference to the Memorandum of Association and Rules and Regulations. It is observed that the respondent's club was a non-profit making organization and its main objects, inter alia provide as under:--

"(a) To provide for the accommodation, recreation and general welfare of the officers and sea-men of the Merchant Navy frequenting or visiting the port of Karachi and particularly to provide a comfortable home where such officers and sea-men may get board and lodging at a moderate charge;

(b)To provide a refuge for officers and sea-men who are shipwrecked and in distress:

(c)Generally to protect and further the interest of the officers and sea-men and diffusion of useful knowledge in such manner as may from time to time appear necessary or advisable for the purpose, to maintain the aforesaid clubs hereinafter referred to as the Merchant Navy Club and the Asian Sea-men's Club and to see that no distinction on account of nationality or religion shall be made in admitting officers and sea-men in the aforesaid club and to participation in the amenities 'offered therein. "

It was further stated before the Tribunal that the Appellate Commissioner has observed out of context that, "the club has been selling liquor and permitting dancing amongst strangers (men and women), catering to the services of liquor and the income derived can not be categorized in any manner for the benefit of the public. It was explained that certain Artists used to give their performance as ordinary service free of charge in the respondent's club and the main object of establishing the club was to provide for the accommodation, recreation and' general welfare of the officers and the sea-men of the Merchant Navy visiting the port of Karachi and particularly to provide comfortable home where such officers and sea-men may get board and lodging at a moderate charge; to provide a refuge for officers and sea-men who are shipwrecked and in distress. Further the club was established to promote goodwill and friendliness, diffusion of useful knowledge by means of social gatherings, entertainment, dances, functions and other amenities, and to do all other things as are incidental or conducive to protect and further the interests of the officers and sea-mean. The case of the respondent's club before the Tribunal was that the primary and dominant purpose of the respondent's club/society was charitable and the business which was being carried out by the respondent's was wholly incidental for achieving the objects of the respondent's/assessee-society and the entire income arising from the business carried on by the respondent was applied to the charitable objects of the assessee.

The Tribunal has further narrated the facts in its order deciding the appeal and has observed that the respondent/assessee-society came into being in 1944 by the amalgamation of two clubs, namely Merchant Navy Club, and the Mohnio Memorial Marine Club and was registered in that year under the Registration of Societies. Act XXI of 1860, for the objects enumerated in the order of Tribunal. The plot of land on which the Merchant Navy Club is built was given by the K.P.T., free of cost on paper-corn-rent. The Chairman of the KPT is the Ex-officio Chairman of the society which is being run on non-profitable basis.

On the basis of above facts, the learned Tribunal held that the respondent's society was established for a charitable purpose and advancement of an object of public utility.

We will consider the issue referred to us on the basis of facts as contained in the order of learned Tribunal.

Mr. Nasrullah Awan, learned counsel for the department has submitted that on the basis of facts contained in the order of Tribunal, the object for which the respondent's club has been established cannot be held for charitable purposes and secondly, the services provided by the respondent/assessee is restricted to sea-men only and therefore, it cannot be held for the advancement of any object of general public utility as envisaged in Explanation to section 4(3)(i) of the Repealed Act. In support of his contention he has placed reliance on the following judgments:--

(1)Commissioner of Income Tax v. Muhammad Abdur Rauf Khan PLD 1963 SC 209.

(2)Sadar Anjuman-I-Ahmedia, Rabwa v. Commissioner of Income Tax PLD 1977 Lah. 1121

On the other hand Mr. Muhammad Farid, learned counsel for the respondent has supported the findings of Tribunal. He has urged that the Tribunal has rightly held that the respondent club was established for a chartiable purpose and advancement of an object of the general public utility. He has maintained that the finding of the Tribunal is in consonance with the ratio of the judgment of Supreme Court of India, in the case of CIT Madras v. Andhra Chamber of Commerce (1965) 11 Taxation 306. Mr. Muhammad Farid, has submitted that the expression object of general public utility is not restricted to the, object beneficial to whole of man kind. According to him an object beneficial to section of public is an object of general public utility. He has further submitted that the definition of charitable purposes given in explanation to section 4(3) of the Repealed Act, is inclusive and is not exhaustive or exclusive and therefore, the object for which the respondent's club was established, squarely fell within the scope of "general public utility". He has supported the view of Tribunal that the officers and sea-men, constitute sufficient segments of society and, therefore, amounts to charitable purpose, as envisaged under section 4(3)(i) of the Repealed Act. He has also supported the finding of the Tribunal that the other purposes of the respondent's club which, include providing of refuge to the officers and sea-men who are shipwrecked and in distress, by various means also fall within the object of `general public utility'. He has contended that the section of community in the instances case is fully defined and consequently, the finding of Tribunal is not open to any exception. In support of his contention Mr. Muhammad Farid has placed reliance on the following judgments:--

(1) Fauji Foundation v. Shamimur Rehman PLD 1983 SC 457; (2) Commissioner of Income-tax, Madras v. Andhra Chamber of Commerce 1965 11 Tax 306 (SC India); (3) Commissioner of Income-tax v. West Pakistan Management Association (1985) 52 Tax 1 (H.C. Kar); (4) Commissioner of Income-tax v. Banaras Bras Merchant and Manufacturers Association, (2000) 82 Tax 120 (Allahabad High Court); (5) Pakistan Seamen Contributory Welfare Fund v. Income Tax Appellate Tribunal 1993 PTD 734; (6) Hamdard Dawakhana v. Commissioner of Income Tax, Karachi 1985 PTD 287 and (7) Commissioner of Income-tax, Bombay City v. Breach Canday Swimming Bath Trust, Bombay (1955) 27 ITR 278.

Mr. Muhammad Farid, has submitted that the learned AAC wrongly placed reliance on the judgment of Hon'ble Supreme Court in the case of Muhammad Abdur Rauf Khan (Supra) and the judgment of Lahore High Court in the case of Sadar Anjuman-i-Ahmedia, Rabwa (supra). According to, learned counsel ratio of judgment of Hon'ble Supreme Court in the case of Muhammad Abdur Rauf Khan, was dissented upon by the Hon'ble Supreme Court in the case of Hamdard Dawakhana (Supra) and therefore, the ratio of judgment is not more applicable, and in the case of Sadar Anjuman-I-Ahmedia, reliance was placed on the case of Muhammad Abdur Raud Khan, with the result that the judgment of Lahore High Court is no more required to be followed.

We have carefully considered the contentions raised by the learned Advocates for the parties. Before appreciating the contentions raised before us, it would be appropriate to re-produce section 4(3)(i) of the Repealed Act, the interpretation whereof is required in the instant case:--

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 be specified in this subsection or prescribed in this behalf, be included in the total income of the person receiving 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 application, thereto:

Provided that in the case of income derived from business this clause shall not apply unless the business is carried on, on behalf of a religious or charitable institution and the income is applied solely for 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 if mainly carried on by beneficiaries of the institution: '

Provided further that nothing in this class shall apply to so much of the income, profits and gains as is not expended during the previous year or set apart for being expended within Pakistan:

Provided further that if any sum out of the amount so set apart is expended outside Pakistan, it shall be included in the total income of the previous year in which it is not expended or the year in which it was set apart, whichever is the great, and the provisions of subsection (2) of section 34 shall not apply to any assessment or re-assessment, as the case may be, made or to be made in pursuance of this proviso;

(ii) ...............

Provided that nothing contained iii clause (i) or clause (ii) shall operate to exempt from the provisions of this Act that part of the total income of a private religious trust which does not ensure for the benefit of the public.

Explanation. ---The expression `Charitable purposes", 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.

Now we proceed to consider the rulings relied upon by the learned advocates for the parties. In the case of Muhammad Abdur Rauf Khan (Supra), the provisions contained in section 4(3)(i) came for consideration before the Hon'ble Supreme Court. It was observed that the statute requires a number of conditions of which the following are in this case necessary conditions of qualification for exemption, namely:--

(1)the business should be carried on , on behalf of the religious or charitable institution-

(2)the income should be applied solely for a religious or charitable

purpose of the institution; and

(3)the business should be carried out in the course of the carrying out of a religious or charitable purpose of the institution.

In this case the sole trustee was plying launch. With reference to the rules and regulations specified in Trust deed, it was held that the launch plying business was not within the purposes for which the trust was established. It was further observed that, "But to secure exemption, it is necessary also that the business should be carried on in the implementation of a religious or charitable purpose of the Trust, and in addition, all the income derived from the business should be applied solely for a religious or charitable purpose of the Trust." It was further observed by the Hon'ble Supreme Court that the provisions of law is to be construed and applied to the facts of each case bearing in mind not only the intention of the main provision allowing exemption but also the duty of ensuring that, on a fair appreciation, both of language as well as of the circumstances, evasion of the tax is not assisted. His lordship S. A. Rahman, J, while construing the proviso to section 4(3)(i) held that, "clause (i) of the proviso -appears to contemplate business of 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 taxation. 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 execution 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 companies or private individuals. This seems to me to be the plain intention of the language of the proviso." In the case of Sadar Anjum-i-Ahmedia, (Supra), a Division Bench of the Lahore High Court considered the provisions contained in section 4(3)(i) of the Repealed Act, with reference to the purposes for which the trust was established. It was observed that a trust must file a return and its claim for exemption could be decided by the department only if the relevant material was placed before it. It was further observed that whether or not a trust is charitable, is a question of law to be decided by the Judge in the light of the circumstances in which the institution or trust came into existence and the sphere in which it operates. The judgment of the Privy Council in D' Aguiar v. Guyana I.R. Comrs (1970) 15 W.I.R. 198 (R.C) was referred, wherein the following rule was laid down:--

"It must first consider the trend of those decisions which have established certain objects as charitable under this heading and ask whether, by reasonable extension or, analogy, the instant case may be considered to be in line with these. Secondly it must examine certain accepted anomalies to see whether they fairly cover the objects under consideration. Thirdly and this is really a cross-check upon the others---it must ask whether, consistently with the objects declared, the income and property in question can be applied for purposes clearly falling, out side the scope of charity; if so the argument for charity must fail."

It was observed in para. 9 of -the judgment as follows:--

"(9) Viscount Simonds in I.R.C. v. Baddeley (1955) AC 572 at page 583 observed that there is no limit to a number and diversity ,of the ways in which man will seek to benefit his fellow-men. He remarked that there is a distinction "between a form of relief extended to the whole community yet by its very nature advantageous only to the few and a form of relief accorded to a selected few out of a large number equally willing and able to take, advantage of it. "The former type according to Verge's case (1924) AC 496, did not lack the necessary element to public benefit, even though confined to persons living in a specified area while the latter type did as held in Perhsel's case (1981) AC 531. The ratio decidendi of the above cases appears to be that if a power of subjective. selection of the beneficiaries is conferred on those who are administering a fund the trust will not be charitable."

In Para. 10 reference was made to the Halsbury's Laws of England as follows:--

"(10) Every object of, public 'utility is not necessarily a good charitable object. The question always is whether the particular object 'is within the purview of the ancient statute of Elizabeth.

Thus bequests for purposes of benevolence or benevolence and liberality, for pariotic; civil or religious, philanthropic, parochial, missionary, pious or Roman Catholic purposes, or `for parish work' or for social or recreational purposes in connection with certain churches', or for purposes `most conducive to the good of religion' in a diocese, or for purposes conducive to the attainment of the objects of an association not limited to the advancement of religion, or for helping to carry on the work of the Church in Wales, or for executing the Papal office, or for purposes of hospitality or general utility or for emigration uses or for increasing the sum of available knowledge or for the storage of books, or for the encouragement of a mere sport or game such as cricket, football. Fencing, yachting, bicycling, lawntennis, or any other healthy exercise and recreation primarily calculated to amuse individuals, though such sport may be beneficial to the community, are not charitable; nor is an association to promote athletic sports and general pastimes among members of a police force. Though the provision of the means of public recreation, and also the promotion of moral, social and physical well-being by provision of facilities for religious services and instruction and for social and physical. training and recreation have been held charitable, trust for religious, moral, social and recreative purposes have been held not charitable."

It was further observed that every trust must be beneficial to the public at large or a section of the public and must have charity as its basis and not benevolence. The difficulty in defining the. expression charity was realized and it was observed that it was undoubtedly very difficult to define `charity' with precision. The literature on the point is as vast as despairing. Reference was made in this judgment to the observation of Hon'ble Supreme Court in the Case of M.A. Rauf Khan (Supra) to the effect that by religious and charitable purposes are meant purposes like relief to the poor, education, medical facilities etc.

Examining the question whether a purpose can be held to be charitable if it is not meant for the public at large or a sufficient section of a public or community it was held as follows:--

"(13) Further, it is well established principle of law of charities that a purpose is not charitable unless its benefit is directed either to the public-at-large or a sufficient section of public or community sufficiently defined or identified by some quality of a public nature as held in Karen Mayemeth be Jisroel Ltd. v. I.R.C. (1932) A.C. 650. An Indian Court took the same view in D. V. Arur v. CIT (AIR 1946 Bom. 44). A trust for the members of a religious community associated only for the purpose of working out their own salvation was held invalid in Naville Estates Ltd. v. Madden (1961) 3 All E.R. 769, Re: Banfield v. Smith (1968) 2 All E.R. 276. It was held in Davies v. Perpetual Trustees Co. (1959) A.C. 439 that a gift for Presbyterians who could claim a particular descent was not valid. Thus in Gilmore v. Coats (1949) 1 All E.R. 848 a trust for an association of strictly cloistered and purely contemplative nuns though undoubtedly for the advancement of religion, was held not to be charitable as lacking the element of public benefit: Farewell J. In Re: Delany (1902) 2 Ch. 642 (648-49) observed that:

"There is in truth no charity in attempting to prove one's own mind or save one's own soul. Charity is necessarily altruistic and involves the idea of aid or benefit to others."

The House of Lords in Re: Cox (1955) 1 All E.R. 525 held that trust for employees, ex-employees and dependents was not for a section of public but a creed and so not valid. A trust for members of a trade union which was open to all the members of the printing industry but to which not all the members of the industry in fact belonged, was not held to be charitable in Re: Mead's Will Trust Deed (1961) 2 All E.R. 836. A society for relief of sickness of its own members numbering about 400,000 was also considered not charitable in Waterson v. Hendon 'Borough Council (1959) 2 All E.R. 760. Thus a trust for the advancement of education among the members of Ahmadiyya Community (object at serial (b) cannot be said to be for the public or a section of public and, therefore, is not charitable. The stipulation that `other persons of communities' can also be the beneficiaries will not change the nature of the trust as the governing body of the Society has got the arbitrary power of selection and it may totally exclude them."

A passage from the commentary by A.C. Sampathiyengar, on Income Tax 1952 Edition, Volume II, at Page 296, was reproduced which reads as under:--

"Following the view in Governors of the Rotundo Hospital, Dublin v. Coman (191) 1 A.C. 1) it was held in CIT Madras v. Thevara Patasala (ILR 49 Md. 833) that a business carried on, on behalf of a charitable institution would not be exempt. In order to remove the hardship consequent on such view this subsection has been inserted following a similar legislative exemption granted in England. As in the case of the English enactment, under this section also; the income derived from the business to earn exemption must be applied, firstly, solely for the purpose of the institution, and secondly, the business must be one which is incidental to the primary purpose of the institution, .as for instance, to impart education, holding classes etc. or, the business itself must be carried on by the beneficiaries of the institution, as for example, by pupils employed in an industrial school manufacturing furniture, pottery or textile, etc., or by pupils being trained in repair motor cars, or drawing paintings, etc. or : by pupils to an institution for- the blind. The primary object of such an industrial school would be to train the students in the art of manufacture or production, or, repairing or painting, etc, and the proceeds of sale of such a product made by the pupils, or the tendering of services by them, if devoted to the institution, would fall under this clause. A pinjrapole maintaining and tending sick or old animals, selling the milk obtained from the animals and devoting the proceeds for the institution, or a hospital taking in paying patients and applying its income for the improvement or extension of its buildings would be other instances."

Now we come to the rulings relied upon by Mr. M Farid, learned counsel for the respondent/asses see. The moot point canvassed by him is that the expression charitable purposes used in section 4(3)(i) is not confined to alms giving (Khairat) only but has a wider connotation. He has submitted that the Assessing Officer and the A.A.C have taken very narrow view of the expression charitable purpose, which is not in consonance, with the definition given in the explanation to section 4(3) of the Repealed Act. He has argued that the object for which the respondent s club was established, as contained in the Memorandum of Association and rules/regulations, reproduced in the order of Tribunal, clearly bring the activities of the respondent within the purview of charitable purposes. He has pointed out that the objects of establishing respondent's club, inter alia was to provide the accommodation, recreation of general officers and sea-men of the Merchant Navy, frequenting or visiting the port of Karachi and particularly to provide a comfortable home where such officers may get board and lodging at a moderate charge. It also included the providing of refuge for officers and sea-men who were shipwrecked and in distress and to protect and further the interest of the officers and sea-men arid diffusion of useful knowledge in such manner as may from time to time appear necessary or advisable for the purpose. He has further submitted that the requirement that a defined section of public be entitled for the benefits is sufficiently satisfied and is not restricted to any particular nationality or the religion. The welfare activities offence to the beneficiaries are without any distinction and it has been specifically provided in the Memorandum of Association that no distinction on 'account of nationality or religion shall be made in the aforesaid club and to participation in the amenities offered therein. He has thus, submitted that all the conditions for availing exemption tinder section 4(3)(i) of the Repealed Act, are fulfilled. He has maintained that the benefits/ amenities are not required to be extended to the whole of man kind and if a sufficient segment of society is entitled for the benefits, the purpose of law is satisfied.

In support of his contention he has placed reliance on the case of Fauji Foundation (Supra), wherein the Hon'ble Supreme Court, while considering the expression "public purpose" held that it includes any purpose in which even a fraction of a community may be interested or by which it tray be benefited. The Hon'ble Supreme Court has further held that the expression "public, purpose" has no precise and rigid meaning except that it should have the criterion of, benefit or advantage to the public as distinguished from the private interest of an individual. The Hon'ble Supreme Court reproduced an excerpt from D.D. Basu's "Commentaries on the Constitution of India" Vol. II. Page 217, with approval which reads as follows:--

"The definition of the expression is elastic and takes its colour from the statute in which it occurs, the concept varying with the time and state of society and its needs. The point to be determined in each case is whether the acquisition is in the general interest of the community as distinguished from the private interest of an individual. No hard and fast definition of a `public purpose' can, therefore, be laid down. Whatever features the general interest of the community as opposed to the particular interests of the individual must be regarded as a public purpose and the expression has to be construed according to the spirit of the times in which the particular legislation is enacted. Thus:

"With the onward march of civilization our nation as to the scope of the general interest of the community are fast changing and widening with the result that our old and narrower notions as to the sanctity of' the private interest of the individual can no longer stem the forward flowing tide of time and must necessarily give way to the broader notions of the general interest of the community."

His lordship Mr. Justice Muhammad Haleem, Actg. C.J., speaking for the Court held as follows:--

"It will be seen that conceptually" the expression "public purpose" has also the same connotation and I do not see why it should not be taken to be included within .the concept of public welfare which according to Schwartz, is a broader expression and includes within its ambit both "public use" and "public purpose": This wider interpretation is given because of the changing times, state of society and its needs. However, the basic requirement nonetheless remains, that is, the general interest of the community as distinguished from the private interest of an individual."

In the case of Commissioner of Income Tax v. Andhra Chamber of Commerce, Supreme Court of India, while considering the provisions of law under consideration held as under:--

"(i)advancement or promotion of trade; commerce and industry leading to economic prosperity ensured for the benefit of the entire community. That prosperity would be shared also by those who are engaged in trade, commerce and industry, but on that, account the purpose was not rendered any the less an object of general public utility;

(ii)the Legislature had used language of great amplitude in defining "charitable purpose"; the definition was inclusive and not exhaustive or exclusive;

(iii)the expression `object of general public utility' was not restricted to objects beneficial to the whole of mankind. An object beneficial to a section of the public was an object of general public utility. To serve as a charitable purpose, it was not necessary that the object should be to benefit the whole of mankind or even all persons living in a particular country or province. It was sufficient if the intention was to benefit a section of the public as distinguished from specified individuals. The section of community sought to be' benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature; where there was no common quality uniting the potential. beneficiaries into a class, it might not be regarded as valid."

The provisions of law under discussion came for consideration before a Division Bench of this Court in the case of Commissioner of Income Tax v. West Pakistan Management Association (Supra) and after referring the judgment of Hon'ble Supreme Court in the case of Fauji Foundation (Supra) and various judgments of the Supreme Court of India, it was held as follows:--

"In the light of the law laid down by our Supreme Court noted above and also the decisions of Indian Courts it cannot be denied that the respondent's object are not confined to the welfare of any individual but are available to a large section of the Public namely those who are interested in the subject or study of the Science of management and can become its members and hence they are objects of general Public utility as required under explanation to section 4(3) of the Income Tax Act, 1922. Mere fact that the objects are restricted to its members is not of much significance when we see that under Article 2 of respondents, its membership is open even, to students and temporary membership is open to every one who is engaged or interested in the management. We have already seen that respondent is registered under section 26 of the Companies Act and thus it is under a legal obligation not to distribute any of its profits to its members. Moreover, the Tribunal has found by reference to Articles 4 and 46 of the Articles of Association of the respondent that its entire income is solely applied to the objects of the respondents and that finding is not challenged before us in any manner. It has also been observed by the Tribunal that it was nobody's case that the respondent does not carry on its' objects as stated in the Memorandum of Association.

Dealing specifically with the various incomes of respondent we are quite clear in our minds that the holding of seminars, executive development programs and conventions are part of the objects of the Association and therefore, fees and amounts realized from these are income from an activity which is carried on for realizing the objects of the respondent. Book sales appeared to be closely connected with the research and study and other objects of the Association and hence they are all covered by clause (i) of Proviso of section 4(3) of the Income Tax Act. In any case it is only an incidental activity and. not the main object and hence it does not affect the charitable character of respondent.

At this stage it would be useful to consider whether the, objects of the Association could be called to be of general Public utility, in spite of the fact that it is a professional organization. It is no doubt true that the first object of the respondent is to establish and maintain an Association for persons and organizations concerned with management but I do not find any object which provides for safeguarding or advancing or protecting the interest of individual members. On the other hand its objects are to collect and disseminate information on management practices, to develop courses and to exchange information with other bodies. More important are the objects to lay down standards of knowledge, training and experience in the practice of management, to hold examinations and tests of knowledge for examinations. Another significant object is to formulate standards of conduct for members and to encourage appropriate professional attitudes for members and lastly to foster members to undertake voluntary work for the objects of Association. There can be no doubt that the object, of providing facilities for study and research of the science of management and to formulate standards of conduct for members are definitely objects of general public utility as management is an important subject which can help in better management of business, Industry and Association and thus its utility to the general Public cannot be denied. A Community where the business, Industry and other Institutions are managed by capable people, who have learnt the Science of management, would be a much better organised society than the one where duly trained managers are not available. Moreover by setting standards of professional conduct the general public would be saved from those management people who could adopt unethical and unfair methods. Therefore, the bulk of the objects of the respondents are of general Public utility and hence it is in every sense an Association for a Charitable purposes."

In the case of Commissioner of income-tax v. Banaras Brass Merchant and Manufacturers Association (Supra), the Allahabad High Court while considering the provisions contained in section 11(1)(a) of the Income Tax Act, 1961 (Analogous to section 4(3) of the Repealed Act,) held that a company established with the following object was incorporated for the purpose of general public utility and was entitled for the exemption:--

"(a)To foster and develop friendly relations, mutual help and common understanding among all, who are directly or indirectly interested in or concerned with the trade, commerce, industry, agriculture or manufacture.

(b)To promote and protect the trade, commerce, industry, agriculture and manufacture in which members of the association are engaged or interested, directly or indirectly and to represent and to express on these and connected questions the opinions of the mercantile community of the Indian Union.

(c)To consider all questions connected with such trade, commerce, industry, agriculture and manufacture and the interests thereof."

Mr. Farid, has referred to the judgment of Hon'ble Supreme Court in the case of Muhammad Abdur Rauf Khan (Supra) and. has submitted that it is no more a good law because the view taken in this judgment has been dissented upon by the Hon'ble Supreme Court in the case of Hamdard Dawakhana. He has further submitted that for the same reasons, judgment of Lahore High Court, in the case of Sadar Anjuman-i-Ahmedia, does not hold the field, because it is based on the ratio of judgment in the case of Muhammad Abdur Rauf Khan. After perusal of the judgment in the case of Hamdard Dawakhana, we do not find any force in the contention of Mr. M. Farid, because his lordship Anwarul Haq, C.J., while considering the effect of the proviso to section 4(3)(i) of the Repealed Act, made an observation that, "I am unable to adopt the construction placed on the proviso by the learned Judges, who decided the case of Muhammad Abdur Rauf Khan." However, his lordship M. Afzal Zullah, J, while agreeing with the conclusion contained in the opinion recorded by his lordship Anwarul Haq, C.J., observed that, "I do not find any compelling reason to change the law laid down by this Court in the case of Muhammad Abdur Rauf Khan. I agree with the view taken in that case that the proviso to clause (i) is not an independent clause and that it operates in true nature of the proviso in the ordinary sense. I also agree that the reasoning of Hamoodur Rahman (the then Chief Justice), for following the ruling in the case of Muhammad Abdur Rauf Khan (PLD 1963 SC 209) in so far as first question regarding the role of the proviso as an, exception to sub-clause (i) is concerned."

Thus, neither the law laid down in the case of M. Abdur Raud Khan, was overruled nor the dissenting opinion recorded by the then Hon'ble Chief Justice, was pertaining to the issue under consideration in this case but related to the scope of the proviso, which is not the issue under consideration in this case. It is therefore, held that the law as laid down in the case of Muhammad Abdur Rauf Khan, as well as Sadar Anjuman -i-Ahmedia, pertaining to the issue under consideration still hold the field.

The provisions of law under discussion came for consideration before the Bombay High Court in this case of Commissioner of Income Tax v. Breach Candy Swimming Bath Trust, Bombay: It was held as follows:--

"(i)that the object of the trust was the maintenance of a swimming bath for the benefit of the European public at Bombay, and it was an object of general public utility;

(ii)that as no private gain was made out of the income of the trust, the mere fact that profits were made by it by charging admission fees etc., did not prevent it from being a charitable trust;

(iii)that, as the trustees were carrying on the activities or business as , part of the trust itself, the income was derived from property which was held in trust wholly for a charitable purpose and it was exempt from tax under section 4(3)(i) of the Indian Income Tax Act."

Chagla, C.J., while considering the expression 'charitable purpose' and 'public utility' opined as under:--

"The object of setting up the swimming bath especially in modern times is obviously to advance public health; and, as we pointed out, one must not forget that access to this swimming bath is open to a 'section of the public. It is true that the only section of the public that could be benefited by this bath would be the European public in Bombay but it is well-settled that an object of public utility need not be an object in which the whole of the public is interested. 'It is sufficient if a well-defined section of the public benefits by 'the object, and the object of the trust in the case before us was to benefit clearly a defined section of the public living in Bombay."

While dealing with the concept of charitable purpose, Justice Chagla, concluded in the following terms:--

"It may then be suggested that it is not a charitable trust because the object was not to give the facility of swimming to the public free without any charge but the object was to set up a commercial institution which would charge for the admission of every member of the public to the swimming pool and make profit out of running the institution. Now, on a casual consideration of the matter it may strike one that the most essential element of charity is to render service to the public without any charge or remuneration, but, as we shall presently point out, it is clear on the authorities that the eleemosynary element is not an essential element of charity. A settler or a donor may make a charity by setting up an institution and also providing funds by which those who take advantage of the institution can do so without paying any charge; or we may have case where the charity may not go to those limits and one may confine his charity to merely setting up the institution and providing that those who wish to take advantage of the institution must pay reasonable charges for the same. In both cases the setting up of the institution would be a charitable object if the institution serves a purpose of general public utility. The only essential factor to determine whether it is a charity or not would be whether there is any private gain by the setting up of the institution. If the gain derived by running the institution continues to be impressed with the trust which is a charitable trust, then it is immaterial whether the institution is run as a commercial institution or not, but if in the running of the institution profits are made and the profit goes to any private individual or if the institution is intended for any private gain, then undoubtedly the running of the institution could not be considered as being run for a charitable object."

The Karnataka High Court from Indian jurisdiction also considered the connotation of expression 'charitable purpose' in the case of Commissioner of Income-tax v Gayathri Women Welfare Association (Supra). After referring to various judgments front Indian jurisdiction, it was held that the test for determining the charitable purpose is to consider the dominant and primary purpose of the organization and that the purpose of trust or organization is relief to the poor, education or medical relief, the requirement of the definition of charitable purpose would be fully satisfied and any activity which is incidental or ancillary shall not take out the dominant or primary purpose out side the pale of charitable purpose.

We have carefully considered the contentions raised by the learned advocates for the parties with reference to the object of establishing the respondents club and have given our anxious consideration to the law laid down in the judgments cited above.

At the very outset, we would like to observe that the Income-tax. Officer and the Appellate Assistant Commissioner have ignored the objects of establishing the respondent's club as contained in the Memorandum of Association and rules and regulations with the result that they have lost sight of the dominant and main object of establishing the respondent club. It appears that trey have not examined the issue in right perspective and were influenced by an incidental and ancillary activity whereby the entertainment of dancing performance and drinks to the sea-men were provided at concessional rates.

We agree with the proposition laid down in the judgments cited above that the expression 'charitable purpose' carries a broader and extended connotation. The definition given in the Explanation to section 4(3) of the Repealed Act, to the effect that it includes relief to the poor, education, medical relief and the advancement of any other object of general pubic utility, is inclusive and is not exhaustive conclusive or exclusive. The words 'advancement of any other object of general public utility' are of very wide amplitude which has to be interpreted liberally when examined in its true spirit. The expression `charitable purpose' as used in a statute shall always be susceptible to the extended meaning from, time to time and shall always be open to broader meaning in the facts and circumstances of the particular cases. Respectfully following the judgments laying down the scope and extent of the expression charitable purpose, we are of the considered opinion that the objects for which the respondent club was established fulfilled the requirement of charitable purpose and merely for the reason that ancillary and incidental .activity included the performance of dancing and supplying of wine to the sea; men who were mostly non-Muslims shall not take out the activities of respondent's club from the ambit of charitable purpose. We are further of the opinion that the officers and sea-men of the Merchant Navy constitute sufficient segment of the society so as to bring the beneficiaries within the purview of general public. The reason being that it is not necessary that benefits may be ensured to the humanity at large. The purpose is fulfilled if a sufficient segment of the society is the beneficiary, without any distinction of religion, caste, creed or sect. In the present case, the admission in the club is open without any distinction on account of nationality or religion and consequently the amenities offered shall be deemed to be for the general public utility.

For the foregoing reasons, we are of the opinion that the Tribunal was justified in holding that income derived by respondent/assessee from the property and also from the business carried out by it in the course of carrying out the charitable purpose was exempt from levy of income tax under section 4(3)(i) of the Repealed Act. The question referred to us is answered in affirmative.

S.A./C-2/KAnswer in affirmative