SATISH CHANDRA, C.J. - (1.) THE Income-tax Appellate Tribunal has submitted this statement of the case and has referred the following question of law for the opinion of this court: Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee-trust was not eligible for exemption under section 11 of the Income-tax Act, 1961 ?"
(2.) M/s. Ganga Prasad Varma Memorial Society, Lucknow, is the assessee. It is a society registered under the Societies Registration Act No. XXI of 1960. The society has been functioning since 1925. Clause 2 of its constitution lays down the objects as follows: The Ganga Prasad Varma Memorial Society, which presently provided a memorial hall for public, a reading room and a public library, shall have as its objects the dissemination of knowledge to the people and the raising of the moral, intellectual, economic, social and political conditions of the people in general and with a view to the fulfilment of the above objects and to do the following amongst other things - (a) to enlarge, remodel or recondition the existing hall, reading room and library and add to the existing number of rooms. (b) to disseminate knowledge amongst the people by opening libraries and publication of suitable literature including periodicals. (c) to promote education in all spheres including general, technical, social, economic and political education by opening school. (d) to hold public meetings and study circles, seminars, exhibitions, social and cultural meets. (e) to acquire by purchase or by lease, hire or transfer or take on licence or otherwise any lands, buildings, or other property, movable or immovable, or rights over connected with them. (f) to lease or let out on hire, mortgage, sell, pledge or give on licence or otherwise any lands, buildings, or other property, movable or immovable. (g) to erect building or buildings, workshops or other structures on the land acquired by the Society in any manner. (h) to accept gifts, donations, etc., of any nature whatsoever on the condition, if necessary, of naming buildings, halls, etc., after the donors. (i) to draw, make, accept, endorse, discount, execute and issue cheques, promissory notes, bills of exchange or other negotiable or transferable instruments. (j) to take over, manage or combine with any institution if that will further the objects aforesaid. (k) to lend or borrow money on such terms and conditions as it thinks fit. (l) to grant scholarships or other help to deserving students and trainees. (m) to acquire, finance or run technical and industrial institutions with a view to impart training in technical and vocational trades. (n) to do all other things as are incidental to or may be conducive to the attainment of the above objects." Clause 10 of the constitution confers power of management of the affairs and activities of the Society in a board of management. Clause 11 of the constitution lays down the powers of the board as follows: "11. Without prejudice to the general powers conferred under rule 10, the board of management may exercise the following powers: (a) to take over, establish, maintain and run institutions, libraries, reading rooms, museums, art galleries, etc.; (b) to acquire lands, buildings and other movable and immovable properties by purchase or otherwise; (c) to construct buildings or other structures for the purposes of or connected with the Society; (d) to accept gifts, grants and subsidies, donations, etc., and to raise money for the purposes of the Society; (e) to name buildings, halls, libraries, etc., after the names of donors; (f) to lend or borrow money and to sell, lease or mortgage the property of the Society on such terms and conditions as it may think to be in the best interest the Society; (g) to grant scholarships and to give other financial help to poor and deserving persons especially students; (h) to employ such staff as it considers necessary, to fix the rates for the letting out of the memorial hall, shops, etc., and to make such rules and regulations as it may deem necessary; (i) to enter into and to receive fulfilment of the contracts and other engagements entered into by or on behalf of the Society; (j) to appoint, remove or suspend the servants of the Society and of the institutions or organizations maintained by it and to fix their salaries or remunerations; (k) to institute, conduct, defend, compound or abandon any legal proceedings by or against the Society or the board of management through any of the members of the board of management or the honorary general secretary or any other person specially authorised on their behalf; (l) to refer any claim by or against the Society to arbitration; (m) to provide money for establishing, maintaining and running institutions, libraries, reading rooms, etc., and for all other activities, which may be taken up by the Society for achieving all or any of its objects; (n) to invest and deal with the moneys of the Society, which is not immediately required, in such manner as it may think fit; (o) to do all acts and things which may be necessary to further the aims and objects of the Society." The Society pleaded that its income was exempt under ss. 11 and 12 of the I.T. Act, 1961, for the assessment years 1962-63, 1971-72 and 1973-74, because the income derived by the Society was from property held under trust wholly for charitable purposes. The objects of the Society were within the definition of the term "charitable purpose" as defined by cl. (15) of s. 2 of the Act. They were for the advancement of an object of general public utility not involving the carrying on of an activity for profit. The ITO repelled the claim. He held that the objects of raising the moral, intellectual, economic, social and political conditions of the people in general could, at best, be treated as objects of general public utility, but since the advancement of these objects was associated with activities for profit, namely, by the Society indulging in money-lending business and letting out its immovable properties on hire, these objects as such fall outside the ambit of "charitable purposes" as defined under s. 2(15) of the Act, the Society was hence not entitled to any exemption under s. 11 of the Act because for purposes of achieving the objects the Society has been characterised as a society carrying on an activity for profit. This view was upheld by the AAC as well as by the Tribunal. In addition, the Tribunal held that one of the objects of the trust, inter alia, is "raising the political conditions of the people in general". Under cl. (m) of r. 11, the trustees have an unfettered power to provide for establishing, maintaining and running institutions, libraries, reading rooms and for all other activities, which may be taken up by the society for achieving all or any of its objects. In terms of this clause, the management of the society could, if it is so decided, utilize all its income for achieving the object, namely, raising the political conditions of the people. This was not a charitable object and since it was open to the trustees to spend the entire income of the trust on non-charitable objects, the trust was not entitled to exemption under s. 11 of the Act. The first question that requires our consideration is what are the objects of the society. Clause 2 makes it clear that the object is the dis-semination of knowledge to the people and the raising of the moral, intellectual, economic, social and political conditions of the people in general. The various things mentioned in cls. (a) to (n) are the powers which the society can utilize in order to achieve the aforesaid objects. These clauses by themselves do not provide the main object of the society. These are the various activities or subjects through which the society expects to achieve the object.
(3.) THE next question is whether the objects are objects of general public utility within the meaning of the definition of "charitable purpose" given in s. 2(15) of the Act. THE ITO held that the main objects are such (sic). THE Appellate Tribunal, however, thought that the object of the raising of political conditions of the people in general was not such an object. THE phrase "political conditions" occurs in the phrase "the raising of the moral, intellectual, economic, social and political conditions of the people in general". This was sought to be achieved by dissemination of knowledge to the people. In the context, the term "political conditions" do not imply the advancement of any political theory or ideology or thinking of any political party or political leader. THE emphasis is on the raising of the tone of the people in general by raising their moral, intellectual, economic, social and political condition. THE word "political" is a word of board meaning. It includes the idea of pertaining to policy or the administration of Government or relating to the management of affairs of a State. In a generic sense, it means pertaining to the exercise of the rights and privileges or the influence by which individuals of a State seek to determine or control a public policy (vide Corpus Juris Secundum, Vol. 22, p. 222). The term "political condition" may refer to the legal or political status of the people. In "Words and phrases" Permanent Edition, Vol. 32A, p. 522, it has been stated that the law of England and almost all civilized countries ascribe to each individual at his birth two distinct legal status or conditions, one by virtue of which he becomes the subject of some particular country, binding him by the tie of natural allegiance, and which may be called his political status, another by virtue of which he has ascribed to him the character of a citizen of some particular country, and, as such, is possessed of certain municipal rights, and subject to certain obligations, which latter character is the civil status or condition of the individual.;