COMMISSIONER OF INCOME-TAX WEST BENGAL-III, CALCUTTA versus M/S. INDIAN SUGAR MILLS ASSOCIATION

Citation: [1975] 2 S.C.R. 605 · Decided: 05-11-1974 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Appeal(s) allowed

Judgment (excerpt)

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COMMISSIONER OF INCOME-TAX 
WEST BENGAL-III, CALCUTTA 
·v. 
MIS. INDIAN SUGAR MILLS ASSOCIATION 
November 5, 1974 
[H, R. KHANNA AND A. C. GUPTA, JJ.] 
605 
Income Tax Act; 1922-Section 4(3) (!)-Income held wholly for religious 
or charitable purposes meaning of Trade Association Rules and Regulations-
Co11struction-Rules of construction of wills and deeds inapplicable. 
The Indian Sugar Mills Association is a trade union registered under 
the 
Trade Unions Act, 1926. Its objects arc, intu alia, to promote and protecnhe 
trade, commerce and industries of India and in particular the trade, commerce 
and industries connected with sugar, to encourage friendly feeling and good 
relations amongst the sugar mills in general and the members in particular and 
also between producers of sugar and cane growers, distributors of 11ugar and 
other dealing with sugar mills and connected with sugar industries, to regulate 
terms and conditions of employment in the miHs and factories, to promote eood 
relations between the employers and the employees, to adjust controversies bet-
ween members of the Association, and to establish just and equitable principles 
in trade and impose restrictive conditions on the conduct of suear trade and 
business. 
Rule 4(a) of the Association provides that the income and property 
of the Association shall be applied sCllcly towards the promotion of the Associa-
tion and no portion thereof shall be paid by way of dividend bonus or other-
wise to the members of the Association. Rule 64 provides that the profits of 
the Association shall be applied in such a manner as the Committee may think 
fit provided that no distribution of profits amongst members will be made with-
out a resolution of the General Meeting of the Association. It was claimed on 
behalf of the Association that the business it carried on was in !he nature of 
property held under trust er legal obligation to apply the income for charitable 
purposes within the meaning of cl. (I) sub-section 
( 3) of section 4 of the 
Income Tax Act, 1922 and therefore was exempted from tax. The income tax 
authorities and the tribunal rejected the claim. 
On reference the High 
Court 
answered in favour of the assessee. The High Court held that the primary ob-
jects of the Association were objects of general public utility and that the Asso-
ciation was under a legal obligation to hold the income it derived from the busi-
ness for charitable purposes. It was of the view that section 4(3)(1) 
was of 
wider amplitude than what was known as religious or charitable purposes in 
English law and a purpose of general public utility had to be ascertained with 
reference to conceptions prevailing in our country . 
Allowing the appeal, 
HELD : (i) In th~ pr~nt Cll6C no conflict arises between the English and 
the Indian concept of charitable purposes. 
· 
. 
(ii) The exemption under s. 4(3)(1) can be claimed if the income is held 
wholly for religious or -charitable purposes; this requirement is satisfied if the 
primary purpose is religious or charitable and the other purposes, not by them-
selves religious or charitable are ancillary and serve to achieve the main purpose. 
[609D-E) 
Commissioner of Income-Tax, Madras v. Andhra Chamber of Commerce, 55 
l.T.R. 722, followed. 
(iii) Under Rule 64 the Committee of the Association might decide to appor-
tion the entire profits amo!lgst the .members of th~ Association leaving nothin,g 
to be applied towards chantable ob1ects. Rule 64 mtroduces an element of pn-
vate gain which is inconsistent with the_ object of general public utility. It is not 
possible to hold that all the objects .of the Association are charitable. It cannot 
also be held that the primary purpose of the association .is charitable and _ot~er 
objects are ancillary or incidental. Some. of the stated ob1ects pf the Associatton 
cannot be treated as primary and others !fl apparent confiict with them as of no 
GOS 
SUPRl!M! COURT 1.1.EPOR.TS 
[1975J 2 s.c.1.1.. 
etfe'ct. It is not therefore possible to agree that the Association held the income 
derived from its bu5iness 
wholly for charitable purp6ses. All India Spinners 
Association and Commissioner of /nc<>me Tax, Bombay 12 I.T.R. -482 followed: 
Commissioner of Income Tax, Madras v. Andhra Chamber of Commerce 55 
l.T.R. 722, distinguished. [60'JG, 610D; 611C] 
(iv) Undoubtedly Rule 4(a) and Rule 64 are repugnant to each other. But 
the rule of construction of deeds and wills

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