Judgment:
P.K. Balasubramanyan, J.
1. At the instance of the Revenue, the following question of law has been referred to this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding :
(a) the assessee is a charitable association falling within the definition of Section 2(15) of the Income-tax Act, 1961 ?
(b) the assessee is a charitable institution and that its income would be eligible for exemption provided the conditions found in Sections 11 to 13 are fulfilled ?'
2. The assessee is the Ernakulam District Cement Dealers Association. It is assessed to tax in the status of association of persons. For the assessment year 1983-84, the assessee rendered clearing and handling services and realised a sum of Rs. 2,27,148. After deducting the expenses, the assessee returned a net profit of Rs. 1,54,194, and after adding an amount of Rs. 2,000 received as donation returned an amount of Rs. 1,56,194. The assessee pleaded that the income was not liable to tax in view of Section 11 of the Income-tax Act. The assessee relied on the ratio of the decision in CIT (Addl.) v. Surat Art Silk Cloth Manufacturers Association : [1980]121ITR1(SC) . The assessing authority did not allow the claim. The Commissioner of Income-tax (Appeals) also overruled the plea of the assessee in that regard. The essential finding of the appellate authority was that the assessee's activities would not fall under Section 2(15) of the Act, as the assessee was carrying on an activity for profit. The assessee filed an appeal before the Income-tax Appellate Tribunal. The Tribunal held that the assessee was a charitable trust satisfying the definition of charitable purpose given in Section 2(15) of the Income-tax Act and the profits earned by the assessee would be outside the tax net if the conditions adumbrated in Section 11 of the Act stand fulfilled. It is on this finding of the Tribunal, that the Revenue sought a reference to this court of the question referred to above under Section 256 of the Income-tax Act. Section 2(15) of the Act as it stood at the relevant time reads as follows :
''Charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit.'
3. The order of the Tribunal has extracted the main objects of the assessee-association. A reading of Clauses (a) to (j) extracted in the order of the Tribunal does not show that the association was formed with any charitable or religious purpose. Clause 7 of the articles of association extracted by the Tribunal in its order indicates that the association was formed not with a view to make profit- It may be noted that Clause (e) of the objects clearly provides that the object of the association is to run and maintain libraries, play grounds, rest house, etc., for the members for their cultural and social development and Clause (g) shows that it is to work for the common benefit of the members. The members are admittedly traders in cement and the income derived by the assessee-association is for the services rendered to those traders. In the circumstances, the question is whether there is any charitable purpose involved in the activities of the association. Firstly, there is no intention to benefit the general public or any section of the general public. The object is merely to benefit the trader members of the association. There is no provision for any relief of the poor or for education or for medical relief and the advancement of any other object of general public utility as contemplated by Section 2(15) of the Income-tax Act. Merely because Clause 7 provides that the association shall not function for profit and the balance income shall be expended solely for the objects set forth in the memorandum of association that cannot make the income earned by the association exempt under Section 11 of the Income-tax Act. We are, therefore, of the view that the Tribunal was in error in holding that the income of the assessee was liable to be exempted under Section 11 of the Income-tax Act provided the requirements of Section 11 are satisfied by the assessee. In this situation, we answer the question referred to us in the negative and hold that the Tribunal is not right in holding that the assessee is a charitable association falling within the definition of Section 2(15) of the Income-tax Act, 1961, and that the assessee is not a charitable institution and its income is not eligible for exemption provided in Sections 11 to 13 of the Act. Thus, we answer the question of law referred to us in favour of the Revenue and against the assessee.