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Upper India Chamber Of Commerce vs Commissioner Of Income-Tax

High Court Of Judicature at Allahabad|20 February, 1947

JUDGMENT / ORDER

JUDGMENT Braund, J.
1. This is a reference to the High Court by the Income-tax Appellate Tribunal under Section 66 (2), Income-tax Act, 1922. The applicant is the Upper India Chamber of Commerce, Cawn-pore, and is hereinafter called the "Assessee."
2. The facts lie in a small compass. The Assessee is a Company registered, without the word "Limited," under Section 26, Companies Act, 1913. The only point about this section of the Indian Companies Act to which there is any need to draw attention is that, so far from the section imposing on a company registered under it any prohibition either against carrying on a business or against making 'profits' it impliedly recognizes the capacity of such a Company to make 'profits' by expressly regulating their disposal. In pointing this out, I do not overlook that in the case of most, if not of all, Companies registered without the word 'Limited,' the profit making motive of the Company is subordinate to, and more often than not wholly displaced by, its more beneficient objects. But this does not alter the fact that it can make 'profits.' The Assesses has in this case, been assessed to tax as, and according to the scale applicable to, a company, as defined by Section 2(6), Income-tax Act, for the two assessment years, 1938-39 and 1939-40 respectively.
3. The first question of law referred to us by the Appellate Tribunal in this respect is:
(1) Whether the Upper India Chamber of Commerce, Cawnpore, was rightly treated as a company within the meaning of Section 2(6), Income-tax Act and assessed as each to Income-tax for the assessment years, 1938-1939 8Dd 1939.1940.
4. The argument in support of the view that the assessee should not have been treated as a "company" for the purpose of assessment rests on the ground that, inasmuch as the assessee never contemplated embarking on any business in a commercial, sense, it should not be treated as a 'company' because the ordinary conception of the activities of a limited liability company necessarily involves a dominant profit-making motive. Whether this is true or not, I am scarcely concerned to inquire, since, if the Income-tax Act has provided for the taxation of every company in a particular way, then the only relevant question is whether the assessee is, or is not, a 'company', as that expression is understood by the law. I can find no reason for supposing that a company registered under Section 26, Companies Act, is not a company for all purposes, including that of taxation. It is registered under the Companies Act and that is sufficient to satisfy the definition of a company to be found in Section 2(6), Income-tax Act. Being a company, it must accept the fiscal consequences of the status its incorporators have chosen to give it, whatever the purpose of its corporate existence may be. I entirely agree with the view expressed by Collister J., on the same point in Chamber of Commerce Hapur v. Commr of Income-tax, U.P. 23 A.I.R. 1936 All. 764. Therefore, I should answer first of the two questions set out in para. 9 of the statement of the case in the affirmative.
5. The second of the questions put to us by the Appellate Tribunal is less readily answered, since, in my view, it involves in limine the difficult problem whether it is a question of law, and by us answerable at all. The assessee was incorporated in 1894 with the objects set forth in the memorandum of association. The first, and dominant, object was to "promote and protect the trade, commerce and manufactures of India, and, in particular, the trade, commerce and manufactures of the United Provinces of Agra and Oudh". The rest of its objects, as set out in Clause 3 of its memorandum of association, are all ancillary to its main object, and it can be conceded that they do not involve what may be called any specific profit-making activities. Now, the assessee, in the assessment years with which we are concerned, owned a number of securities yielding it dividends, a bank deposit or bank deposits from which it derived interest, and certain premises at Cawnpore, part of which it let out at rent to the Post Office, of the rest of which it occupied some portion as its own offices and in the remainder housed rent free its Secretary, Mr. H.W. Morgan. Apart from the dividends and interest derived from its securities and deposits and so much of the annual value of its Cawnpore premises as was taxable, it had no other income except the subscriptions of its members (with which it is agreed that we are not concerned), and a very small item of Rs. 987 gross in 1938-39 and Rs. 660 in 1939-40 the bulk. of which was received from "non-members for managing their affairs" and the balance (a sum of Rs. 162 in 1938-39) on the registration of trade marks. With these I deal later.
6. The Income-tax Officer assessed the assessee in the years in question : (1) in respect of its interest on securities and deposits, under Sections 6(ii) and 5, Income-tax Act; (2) in respect of the entire annual value of its property, under Sections 6(iii) and 9(i) of the Act, without making any apportionment in respect of any portion thereof occupied for the purpose of "any business, profession or vocation carried on" by the assessee "the profits of which were assessable to tax", on the simple ground that the assessee was carrying on no "business" the profits of which were assessable to tax as such; and (3) in respect of the small sums derived from non. members, after allowing a proportionate rebate for expenses, under Section 6(v) as "income from other sources". The question as it discloses itself before us, is really, this, whether the assessee was carrying on any such "business, profession or vocation...the profits of which are assessable to tax", as entitle it to the benefit of Section 9(1) of the Act in respect of so much of the annual value of the premises owned by it in Cawnpore as is attributable to its own occupation or to the occupation of its Secretary. If, and to the extent that, it carried on a "business', profession or vocation" as distinct from the other four sources of income set out in Section 6 of the Act, it was assessable under Section 10 and clearly became entitled to the benefit of the exception in respect of its premises, contained in Section 9(1) of the Act. If not, then the bona fide annual value of the property was as clearly assessable as income from property under Section 9, without any such benefit. The question, as framed by the Income-tax Appellate Tribunal, is this:
(2) Whether in respect of the annual value of one half portion of the house property used as the premises of the Chamber, the Chamber is entitled under Section 9(1) to exemption from income-tax as for a portion pf the property occupied by the assessee for the purpose of the vocation carried on by it.
To my mind, we have first to consider the unattractive questions whether, not with standing the way in which the question has been framed, a question of law emerges at all out of the Appellate Tribunal's order, and, so, whether, in the circumstances, it can be raised at this stage. This involves some further reference to the facts.
7. The assessee in its appeal to the Appellate Assistant Commissioner of Income-tax, Lucknow, in January 1941 contended that it was not a 'company' and that, since Mr. Morgan himself paid income tax on his rent-free perquisite, the assessee could not be taxed again on so much o£ the annual value as represented the Secretary's rent-free quarters. This failed. It next contended in its appeal to the appellate tribunal, in addition to urging as before that it was not a company, that it was carrying on a "business" under Section 10(6) of the Act and as such was entitled to the benefit of Section 9(1). The appellate tribunal, for the reasons set out in their order of 6th March 1942, did not concede this, but said:
"Exception is taken out to" (semble, 'to that') "course, but we find no justifiable reason to interfere. Admittedly the company is not carrying on business in the sense that expression has been defined in Section 2(4) as including any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. No exception can be taken on that account under Section 10(2)(i). It is admittedly not a deduction that can be made under Section 9."
8. It is fair to say that, not with standing the repeated use by the members of the tribunal of the word 'admittedly', there is no suggestion that the assessee ever admitted that it was not carrying on 'business'. The next stage has been, as the statement of the case points out, that the assessee has again somewhat shifted its ground by contending now that its activities constitute a "vocation", and as such entitle it to the benefit of the exception contained in Section 9, Income-tax Act. It should be pointed out that, while it has been found by the assessment order for 1938-39 dated 26th September 1938 that the nett income derived from "non-members" is income derived from 'other sources' and so, presumably, not from a "business" or "vocation", there is no express finding anywhere that the assessee is carrying on a "vocation" and, indeed, it has never until this moment been so argued.
9. But, however that may be, the first matter which to my mind falls to be considered is whether the question of the assessee's activities being either a 'business' or a 'vocation' is one of pure fact or involves some question of law. In the form in which the question is submitted to us by the appellate tribunal it has been treated as if it 'tare one of pure law, and I should desire to ask the tribunal to be careful in submitting questions to so frame them as to avoid the danger that what may in reality be a question of fact may be overlooked in an unduly general question of law. In this case, the real point is whether the assessee is occupying its Cawnpore premises for the purposes of activities which constitute a "business" or a "vocation"--there is no question of their being a "profession"--the profits of which are assessable to tax. When that has been decided, no other question is left, because there is, and always has been, no doubt in the case that the assessee would become entitled to the benefit of Section 9(1) of the Act, if it was carrying on a 'business' or 'vocation' the profits of which were assessable to tax under Section 10. If the question had been framed, as I venture to think it should have been, whether the assessee was occupying part of its Cawnpore premises for the purposes of carrying on a business or vocation the profits of which were assessable to tax, then it would have been apparent at once that a serious question arose whether the finding already reached by the appellate tribunal that no "business" was carried on was or was not a question of fact so as to be open to us now; and whether the same question as to the assessee's "vocation" was not equally one of fact, which, if not already decided, has never yet been raised. I have, therefore, to consider, I think, first whether these are not really questions of fact, bearing in mind that, if they are and so far as they have already been pronounced upon by the appellate tribunal, they are not open to us for reconsideration here. We are not entitled, if there was any evidence before the tribunal on which it might have based its finding of fact, to substitute our own judgment for theirs, even though it might be our view that the appellate tribunal was wrong.
10. None of these cases which require questions of law to be distinguished from question of fact are very easy, and I think myself that authorities dealing with particular circumstances are apt to become misleading when applied to other circumstances. The problem here is whether the question whether the assessee was, in the assessment years, "occupying" any part of the Cawnpore premises "for the purpose of any business, profession or vocation carried on by him the profits of which are assessable to tax," is one of fact, or is one involving a question of law. Now, what does the answer to it require? It requires the ascertainment first of what the assessee was doing. Those are facts and they are found by the appellate tribunal. It then involves applying those facts to the question whether they constitute a 'business' or 'vocation', and, if so, whether such business or vocation was assessable to tax. The words 'business' and 'vocation' by themselves are, I think, very ordinary English words and I am inclined to the view that what, in the common parlance of language, constitutes business or a vocation and what does not, would, apart from any particular context, normally constitute a pure question of fact. Neither a 'business' nor a 'vocation' is prima facie a creation of the law, as are a 'firm' or a 'Trade Union'. A business and a vocation are words applied to certain practical activities of mankind. It may be that a business. or a vocation is sometimes, as a matter of fact, difficult to distinguish from a hobby, a pastime or even a single experiment, but it is nonetheless, in my view, normally a question of fact. But, as has been pointed out by Lord Sterndale in Currie v. Inland Revenue Commissioner (1921) 2 K.B. 332 at p. 336 in respect of the word 'profession', it must depend on the circumstances with which the Court is dealing whether the question is one of pure fact or not, and there may be circumstances which may convert what is primarily a question of fact into one involving law. Now, what have we to ask ourselves here? We have, I think to ask whether what this assessee has been doing constituted something which the Income-tax Act regards as a business. I say this because, in my view, that which might well be regarded as a business or a vocation by a layman need cot necessarily fulfil the characteristics of a business or a vocation for income-tax purposes. The Income-tax Act has found it necessary by Section 2(4), not perhaps to define, but to expand or explain, for the purposes of the Act, the normal meaning of the word 'business'. In my opinion, the appellate tribunal in looking at the facts of the case for the purpose with which they were concerned have had to construe the words "business, profession or vocation" in the context of the Income-tax Act, weighing the claims of Section 6(iv) against the claims of Section 6(v) ("other sources"), which, as I see it, necessarily involves the construction of that section as well. Finally, as regards the question of a "vocation", there is involved what to my mind is undoubtedly a question of law so far as company is concerned, that is to say whether a corporation can have a "vocation" at all. In re Calcutta Stock Exchange Association Ltd. ('35) 62 Cal. 547 What may be the true answer to that question, I do not know, but at least it seems to me to involve a question of law, and, if, a question of law is involved in any case as to one part of the composite expression "business, profusion or vocation," it is difficult to hold that no question of law arises out of the words taken as a whole. Moreover, the words to be construed in Section 9(1), Income-tax Act, are not simply 'business" or "vocation". They are "business...or vocation, the profits of which are assessable to tax", that is to say a business or vocation of a particular kind, namely one producing profits to which the Income-tax Act applies. This again appears to involve a question of law. In my judgment, therefore, I am inclined to the view, though not without some hesitation, in the circumstances of this case, that a question of law is involved in determining whether the assessee was, in 'the assessment years, occupying its Cawnpore premises for the purpose of carrying on any business or vocation, the profits of which were assessable to tax as such.
11. That being so, it is open to us to consider whether, on the facts as disclosed by the statement of the case, any part of its Cawnpore premises was occupied by the assessee for the purposes of carrying on "a vocation the profits of which are assessable to tax." It is observed that the actual question in the form in which it is put to us only refers to a 'vocation'. But I am inclined to read the words "business, profession or vocation" in Section 9(1) of the Act as a sufficiently connected expression to enable us to consider whether the assessee's activities constituted a "business" or a 'vocation' for tax purposes within the meaning of that expression.
12. In my view, they did not. I think that the expression in Section 9(1) of the Act "any business, profession or vocation the profits of which are assessable to tax" must mean any such business, profession or vocation the profits of which are assessable to tax as profits and gains of business, profession or vocation under Sections 6(iv) and 10, Income-tax Act, and not merely as income from other sources. They must, therefore, be the proceeds of something that is being "carried on" by the assessee as a "business, profession or vocation," and not merely as a mere incident. Reverting once again to the facts, there are only five items of receipt in the whole course of the two years derived from nonmembers or from sources other than subscriptions, interest or rent of its premises. Four of these items are stated to be "for managing the affairs" of two other Associations. The other is a trifling sum for the registration of Trade Marks. What form of management was undertaken is not stated. The sums themselves are trifling. Moreover, when one looks again at the memorandum of association there is to be found in it nothing from which it can be supposed that it was any real function of the assessee's existence to manage the affairs of other associations. In my view, upon a proper construction of the words "business" and "vocation" in the context of the Income-tax Act, there must be some real, substantive and systematic course of business or conduct, before it can be said that a business or vocation exists the profits of which are taxable as suet under the Act, so as to render the assesses's property occupied for the purpose of a business or vocation, the profits of which are assessable to tax, within the meaning of the Act. If this were not so, it would be open to this, and. other assessee similarly placed, by some single ad hoc transaction of the value of Rs. 10 to qualify themselves annually for exemption of the annual value of their premises under Section 9 of the Act as the carriers on of businesses or vocations, whereas in truth and in reality they were nothing of the kind. The question is not, I think, whether the assessee company can legally and properly perform certain is clated functions under its memorandum; but whether those particular is clated activities (which, in this case, it, of course, had a perfect right to perform) constitutes in the particular circumstances of the case a 'business or vocation carried on by it, so that it is entitled to say that it is occupying its premises, or part of them, for the purpose of 'carrying on' what it is doing as a business or vocation, and not as mere is clated transactions. On the facts of this case as applied to Sections 9 and 10, Income-tax Act, 1913, I find it difficult to disagree with the learned appellate tribunal that the activities of the assessee in the assessment years 1938-39 and 1939.40 did rot amount to a "business" carried on by the assessee "the profits of which were assessable to tax," so as to enable it to claim that it was occupying its premises for that purpose. I think, therefore, that the income from its property was rightly assessed as income from 'other sources' under Section 6(v) of the Act.
13. If these activities did not amount to a 'business' then, in my view, they certainly did not amount to a 'vocation.' The reason why this is so is that, in the case of a company, it would appear impossible, even if a company can legally have a 'vocation,' that such 'vocation,' should be something distinct from its 'business.' If, therefore, the activities in question do not, as I think they do not, amount to a 'business' for the present purposes, then a fortiori they do not, in my opinion, amount to a 'vocation.' A company is not like an individual who can choose his activities. A man may work or play or engage himself in what he likes, with or without system. A company exists for one purpose only--its 'business.' When a company does something, then, even if it amounts technically to a 'vocation,' it could, I think, be nothing else but its business. In the case of a company, I am inclined to the view that the words "business" and "vocation" are virtually synonymous, since I can see no room for a vocation, which is not also the company's business. I think, therefore, that there is in reality only one question, and not two; and that that question is whether the assessee was occupying its premises, or part of them, for the purposes of such a business as was assessable to tax as such under the Act.
14. It is unnecessary for me, on this view of the matter, to deal with the point whether a corporation can in law ever have a 'vocation.' For the foregoing reasons I should propose that the second question set before us by the appellate tribunal ought to be answered in the negative.
Iqbal Ahmad, C.J
15. I have had the advantage of reading the judgment of my brother Braund, and I agree that, (1) the answer to the first question referred by the Income-tax appellate tribunal to this Court should be in the affirmative and, (2) the second question referred by the tribunal does raise a question of law and is, therefore, entertainable by us. My learned brother has, in the course of his judgment given reasons in support of these conclusions, and I respectfully adopt those reasons.
16. I, however, regret that I am unable to share the view of my brother that the assessee is not entitled to exemption from income-tax with respect to the annual value of a portion of the building used as the premises of, the Chamber, and that the answer to the second question should be in the negative.
17. The assessee is a company limited by guarantee registered under Section 26, Companies Act. Its main object as disclosed by its memorandum of Association was "to promote and protect the trade, commerce and manufactures of India, and, in particular, the trade, commerce and manufactures of the United Provinces of Agra and Oudh." Paragraph 3 of the memorandum specifies in detail the objects of the Association and it may be taken for granted that, while Clause (1) of that paragraph defines the main object of the association, Clauses (2) to (21) specify certain objects which are incidental or ancillary to the main object defined by Sub-clause (1). It is, however, to my mind, important to take note of Clause (21) of para. 3 which lays down that the association was established "to do all such other things as may be conducive to the extension of trade, commerce or manufactures, or incidental to the attainment of the above objects or any of them.
18. It is common ground, indeed it has been found by the appellate tribunal, that the Upper India Chamber of Commerce, Cawnpore, the assessee, is the owner of a building in the city of Cawnpore and a portion of that building is used as office premises by the assessee. The position taken by the assessee before the Income-tax Officer, the Assistant Commissioner of Income-tax and before the appellate tribunal as regards the exemption from tax claimed by the assessee was by no means consistent. It is, however, manifest, from the statement of the case submitted by the Tribunal, that eventually it was maintained by the assessee that the portion of the building, that was used by the assessee as the premises of the Chamber, was not chargeable to income-tax in view of the provisions of Section 9(1) of the Act. The Tribunal has, in the statement of the case, observed that it was "not at first inclined to entertain this plea, but since no new facts are involved and it is purely a question of deter, mining whether the relevant provision of law applies," it considered it proper to refer question No. 2 to this Court.
19. Section 6, Income-tax Act (11 XI of 1922) is the charging section and specifies the heads of income, profits and gains that are chargeable to income tax and one of such heads is "income from property." Section 9 of the Act prescribes the manner in which tax is to be charged on income from property and Sub-section (1) of Section 9 runs as follows:
The tax shall be payable by an assesaee under the head 'Income from Property' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant there to of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession or vocation carried on by him the profits of which are assessable to tax....
20. The answer to the second question referred to us must obviously depend on the answer to the question, whether or not the portion of the building as regards which exemption from tax was claimed was occupied by the assessee "for the purposes of any business, profession or vocation carried on by him the profits of which are assessable to tax."
21. A reference to the assessment order for 1938-39 printed at p. 21 of the statement of the case shows that the assessee received in all a sum of Rs. 987 from the Indian Sugar Producers' Association, Tanners' Federation of India and by registration of trade marks. The Income-tax Officer declined to treat this income as income from business and taxed it as income from "other sources" on two grounds. Firstly he observed that "it will be seen that only a small income is received from the non-members for managing their affairs" and, secondly, he remarked that "the main income of the Chamber is from its own members which is charged with the object of promoting and protecting the interest of those members in commercial matters." Again, the assessment order for 1939-40, printed at p. 6, shows that the assessee received a sum of Rs. 660 in the accounting year from the Indian Sugar Producers' Association and registration of trade marks and that amount was assessed to income-tax, for similar reasons, under the head of "income from other sources."
22. It cannot be disputed that the activities I am, for the present, deliberately avoiding the use of the words "business, profession or vocation"--of the assessee included the. "management" of the "affairs" of other associations and the registration of trade marks. It is equally manifest that these activities were carried on from the office of the assessee located in the building and that a portion of the building was, therefore, occupied by the assessee for the purpose, amongst others, of earning the amounts mentioned above. It is further clear that the amounts so earned were assessable, and were actually assessed to tax. The only question that then remains is whether the amounts above referred to represent the profits of "any business, profession or vocation." If they were, Section 9(1) applies. If they were not, the assessment under the head of income from other sources was perfectly correct.
23. It is agreed that the activity of the assessee just referred to could not be characterized as a profession. The question is thus narrowed down to this : "Did the activity in question amount to a "business" or "vocation" within the meaning of the Income-tax Act?"
24. Now, even though in Section 2, Income-tax Act, the Legislature has embodied exhaustive definitions of some of the words and phrases used in the Act, it has, for very good reasons, refrained from attempting an exhaustive definition of the words 'business,' 'dividend,' 'income' and 'person' etc., and what is more, it has, it appears to me, deliberately omitted to define the words 'profession' or 'vocation.' The words 'business' and 'vocation' are words, of wide import and, whether a particular human activity amounts to one or the other or to neither, must depend on a variety of circumstances, and it is impossible to prepare or to attempt an exhaustive catalogue of such circumstances. It is equally impossible to define the distinctive characteristics of business or vocation. I, however, venture' to suggest that as the Legislature has used two different words, 'business' and 'vocation,' in one and the same section, it must be deemed, in the absence of cogent reasons to the contrary, to have used the two words in distinct sense. I say so because I feel that the Legislature must be credited with a desire not to use superfluous or redundant words or expressions. Be that as it may, the activity in question of the assessee does, in my judgment, amount either to business, or to
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Title

Upper India Chamber Of Commerce vs Commissioner Of Income-Tax

Court

High Court Of Judicature at Allahabad

JudgmentDate
20 February, 1947
Judges
  • W I Chamber
  • C I The
  • I Act
  • T E It