Decided on November 09,1942



LIONEL LEACH, C.J. - (1.) THE questions referred by the Tribunal relate to the liability of the Bar Council of Madras to income-tax. THE IT authorities have imposed a tax on the income of the Council for the years 1939-40 and 1940-41. In the previous years no tax was levied, it being taken that the income of the Council was not taxable under the Act. It may be mentioned that the Bar Councils of Calcutta, Bombay, Allahabad, Lucknow, Patna, Sind and Nagpur have not been required to pay tax on their income. THE income of the Council consists of fees paid by persons enrolled as Advocates of the High Court, examination fees paid by apprentices-at-law and interest on investments. THE enrolment fees provide the biggest source of income. THE income is utilized for meeting the establishment expenses and the payment of fees to lecturers and examiners. THE Council is a statutory body whose main functions relate to the enrolment of persons as Advocates of the High Court, the rights and duties of Advocates and their discipline and professional conduct. Its duties, however, include the giving of facilities for legal education and training and the holding and conduct of examinations.
(2.) SEC. 3 of the IT Act, which is the charging section, makes, inter alia, an individual or association of persons liable to pay the tax on income. The Council has been taxed as an individual, and there can be no doubt that it is an individual or AOP within the meaning of the section. Therefore its income is taxable unless exemption is to be obtained under the provisions of s. 4 (3). Clause (i) of sub-s. (3) exempts 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. The last clause of this sub- section defines what is meant by the words "charitable purpose" and the definition includes education. When the ITO proposed to assess the Council to income-tax, it claimed total exemption by reason of cl. (i) of the sub-section and the case has proceeded throughout on that basis. The Council appealed from the ITO's order to the AAC and from the latter's order, which confirmed the ITO's order, to the Tribunal, which agreed with the IT authorities that this clause did not exempt the income of the Council. Now, it is clear that it does exempt income derived from the investments of the Council if these investments are held by the Council for educational purposes. This aspect of the case has not been considered. The learned Advocate-General who appears on behalf of the Council has stated to the Court that the investments of the Council have been made, and the fund represented by them is held, for educational purposes. This being so, this income is not taxable. On the other hand it is quite clear that the income derived from enrolment and examination fees is taxable income. At the suggestion of the Court, the Council will make a formal statement to the IT authorities with regard to the purposes for which the investments are held. In these circumstances, Mr. Sesha Ayyangar, on behalf of the IT authorities, suggests that the case may be allowed to stand over for a week in order to enable him to obtain instructions from the CIT. We agree to this course and the case will stand out of the list until next Monday. If it is possible, as it appears likely, that an agreement may be arrived at, it will not be necessary for this Court to answer the reference. The learned Advocate-General on behalf of the Bar Council states that the Council will utilize its income from investments solely for legal education and for expenses, including establishment charges, in connection therewith. In future, separate accounts will be maintained for this purpose. In past years Council have been treating the investments and income therefrom as applicable to legal education, though no separate accounts have been maintained in respect of the investments. This makes it perfectly clear that the income of the Council received from investments is not taxable. As we have pointed out in our order, dt. the 2nd Nov., 1942, the income from enrolment and examination fees is taxable. The CIT accepts the statement of the learned Advocate-General. In these circumstances the assessment for the years in question should be made on this basis. The questions referred will be answered in the sense indicated in our two orders. There will be no order as to costs.;

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