JUDGMENT
JUDGMENT OF APPELLATE TRIBUNAL
Under Section 33 of the Indian Income-tax Act (XI of 1922) the Income-tax Appellate Tribunal, Calcutta Bench, consisting of RAM PRASAD VARMA (Judicial Member) and P.N.S. AIYAR (Accountant Member) delivered the following judgment on November 5, 1941.
“The Bar Council, Madras, has been assessed to Income-tax for the years 1939-40 and 1940-41 in respect of its income amounting to Rs. 9,708 and Rs. 11,189 respectively. These two appeals raise common questions of law and will be governed by one judgment given in this appeal No. R.A.A. No. 24 Madras of 1941-42.
2. The Bar Council, Madras, returned the above figures of income under protest to the Income-tax Officer and questioned its liability to pay the tax and the ground firstly, that its case is covered by the exemption mentioned in Section 4(3) clause (i) of the Income-tax Act and, secondly, that it is not one of the classes of persons liable to pay the tax which are mentioned in Section 3 of the Income-tax Act.
3. The Income-tax Officer held that the Bar Council is not exempt under the provisions of Section 4(3)(i) of the Income-tax Act and on the second question, viz., the status of the Bar Council, he held it to be an “Association of persons” and for this view he relied on Commissioner of Income-tax, Madras v. Salem District Urban Bank Ltd., and assessed the appellant as an “Association of persons.”
4. The Appellant Assistant Commissioner gave the matter a detailed and careful consideration and confirmed the assessment made on the appellant. The Appellant Assistant Commissioner, however, differed from the Income-tax Officer on the question of the status of the Bar Council for purposes of assessment and held it to be in “Individual” within the meaning of Section 3 of the Income-tax Act. He relied on Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of Income-tax, Bombay approved in Commissioner of Income-tax, Madras v. Salem District Urban Bank Ltd.
5. The appellant has argued the same questions before us and has claimed that his case is covered by the exemption mentioned in Section 4(3)(i) of the Act on the ground that the object of the Bar Council is to promote legal education. It is further contended that in any case it comes within the exemption on the ground that its object is one of general public utility benefiting the public.
6. The questions which arise for our determination may be stated as below :-
(1) Whether the object of the Bar Council is one which attracts the provisions of Section 4(3)(i) of the Income-tax Act and whether the object of the Bar Councils Act, by which the Bar Councils are constituted, is to confine its activities to legal education ?
(2) Whether the status of the Bar Council for the purposes of assessment is that of an “Individual” or “Association of persons” or whether it does not come under any of the classes liable to pay Income-tax under the Income-tax Act.
7. We shall first take up the determination of the question as to what the constitution of the Bar Council is and what are the objects with which the Bar Councils Act has been enacted.
Constitution of the Bar Council, its aims and objects. -The Bar Council is statutory body and according to Section 3(2) of the Indian Bar Councils Act it has all the attributes of a body corporate. The same section of the Act enacts as under :-
“Every Bar Council so constituted shall be a body corporate having perpetual succession and a common seal with power to acquire and hold property, both movable and immovable and to contract, and shall, by the name of the Bar Council of the High Court for which it has been constituted, sue and be sued.”
The Act, which is No. 38 of 1926, is based on the recommendations of the Indian Bar Committee and the whole object was the unification of the Bar in India, the idea being to have a single grade of practitioners entitled to practice in all Courts. The purpose of the Act is to consolidate and amend the law relating to the legal practitioners. This Act amended the Legal Practitioners Act by Section 19 and certain other Acts and directed its attention more towards defining the duties and rights of the members of the Bar, the regulation, and admission and the conduct of the Advocates.
8. Section 8 of the Act deals with the enrollment of the Advocates and the seniority of the Advocates inter se. It further deals in clause 4 with the respective rights, per-audience of the Advocates of the High Court and the rights of the Advocate-General. The roll of the Advocates had to be prepared by the Bar Council and required it to be sent to the High Court, and the rules, etc., are to be framed by the Bar Council.
Section 9 deals with the making of rules for regulation the qualification for admission to the roll of the Advocates.
Sections 10 to 13 deal with the inquiries into the conduct of Advocates and the procedure and form of enquiries into the conduct of the Advocates and deal with the manner of constitution of the Tribunal and such other matters.
Section 14 deals with the rights of the Advocate to practice in the High Court of which he is an Advocate and in other Courts subject to rules made by the Bar Council.
Section 15 then deals with the powers to make rules, regulations and duties of the Advocates, their discipline, professional conduct, right to practice and matters connected with providing facilities for education and holding and conduction of the examination. The statute, in the main, deals with the powers of the Bar Council to training, enrolling and qualifying an Advocate for the roll to be prepared for the Council and also for the manner of the enquiries into the conduct of the Advocates. Clause (c) of this section is principally relied on by the learned Advocate of the appellant.
9. It will appear from the above resume of the sections that the advancing of the legal education comes in incidentally, and the advancement of the legal education or research in legal education is not its main concern but it deals with the qualifications to be laid down by the Council and the rules to be laid down for the enrolment of the Advocates. It is with this end in view that the Bar Council may make rules for the education and examination of the candidates for being enrolled as Advocates. The section mainly relied on by the appellant, viz., Section 15, may be reproduced as under :-
Section 15 :- “A Bar Council may, with the previous sanction of the High Court for which it is constituted, make rules consistent with this Act to provide for and regulate any of the following matters namely :-
(a) the rights and duties of the Advocates of the High Court and their discipline and professional conduct;
(b) the conditions subject to which Advocates of other High Courts may be permitted to practise in the High Court;
(c) the giving of facilities for legal education and training and the holding and conduct of examinations by the Bar Council;
(d) the charging of fees payable to the Bar Council in respect of the enjoyment of educational facilities provided; or of the right to appear at examinations held by the Bar Council;
(e) the investment and management of the funds of the Bar Council, and
(f) and other matter in respect of which the High Court may required rules to be made under this section.”
It will appear that the Bar Council may make rules on objects mentioned in clause (c) with the permission of the High Court which may or may not be granted. The University is there to give qualifying tests as far as any other Bar Councils in India are concerned.
10. We will now turn to consider the conception of Charitable Purposes as given in the Act.
Section 4(3), clause (i), so far as relevant reads as under :-
“Any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes.”
The question is whether the income of Bar Council derived from property is held under trust or other legal obligation wholly for religious or charitable purposes. The question narrows down to whether the object as defined in the Act are for education or are for advancement of any other object of general public utility. It is not and it is not contended to be for religious purposes. The word wholly used in the section under consideration has some significance and it has been interpreted to mean solely and not partly. The council can claim exemption only if it can show that its sole purposes is education or (2) the advancement of any other object of public utility. It is clear that the whole object is not legal education and the Bar Council is concerned with education only so far as the admission to the profession is concerned. The decisions, which we shall have occasion to consider a little later, go to show that if the main object is to benefit the profession the fact that it incidentally helps education will not make it charitable.
The Income-tax Officer and the Appellate Assistant Commissioner relied on Sulley v. Royal College of Surgeons and The General medical Council v. Commissioners of Inland Revenue The appellant relied on Commissioners of Inland Revenue v. Forrest (Institution of Civil Engineers) Tax and The King v. Commissioners for Special Purposes of the Income Tax (Ex parte University College of North Wales).
11. It may be pointed out that there is no obligation under the Bar Councils Act to impart legal education. The functions are permissive as will appear from Section 15 mentioned above, and it may be noted that several Bar Councils in India, though the Act has been in force for 15 years, have taken no steps to make rules nor have they done anything towards legal education. It must be said to the credit of the Bar Council, Madras, and its energetic secretary that some work has been done in this direction.
12. The decisions cited below also show that if the main object is to benefit the profession the fact that incidentally it helps education will not make the object charitable. That “public utility” does not include benefit to the members of a profession alone is clear from the decision of the Court of Appeal in the case of the General Medical Council. The position of the General Medical Council formed under the Medical Act presents the closest analogy to the Bar Council. Both are created by statute and the object is similar, viz., to regulate a profession. The benefit to the public, if any, is indirect, i.e., only by betterment of the profession. It was held by the Court of Appeal that the Council was not established for charitable purposes only and was not entitled to exemption. The argument in this case was “that this body has been formed for what may be called general public benefit, and that it is therefore to be considered as a body which can ultimately be brought within the definition of a charity”, See page 844 of the judgment of Lord Hanworth, M.R. The question under the Indian Act is the same. Lord Hanworth states the question which has to be put when one is considering objects of public utility in these words : “Is this a body formed for the promotion of abstract science ?”, or on the other hand, “Is this a society formed for professional purposes ?” He answers the first question in the negative and the second in the affirmative and decides the case in favour of the Crown : page 848.
13. Under the Indian Act also the question is whether the object is one of public utility and the test questions laid down by Lord Hanworth are directly applicable. This is a direct authority for holding that if a society is formed for professional purposes its object is not one of public utility and is not hence charitable. The following observations of Sargant, L.J., also at page 849 are very pertinent and apply with all force to Bar Councils :-
“I think myself that the whole scheme of this legislation is to regulate the profession of medical men, who in consequence have certain privileges conferred upon them by the legislation and that it is in the first instance as a professional measure that the legislation is to be regarded. No doubt, as I have said, the result of that strict qualification and supervision will be to the public advantage. Exactly the same thing might be said of the regulations which govern the admission of qualified persons to the ranks of solicitors and barristers, or any other scientific profession.” This decision is applicable in law and on the facts. There is nothing to distinguish the present case from it.
14. The case which appears at first to favour the Council is the case of Institution of Civil Engineers v. Inland Revenue. Though the decision of the case was in favour of the assessee, yet the principle laid down is wholly against him; for the case has proceeded upon the footing that if the substantial purposes was to benefit the profession the object would not be charitable. The object was held to be charitable in this case on the express finding based on the facts, that the object of the institution was primarily to advance science and not to benefit the profession. Lord Hanworth, M.R., concludes as follows (page 174) :-
“After these careful criticisms and incisive analysis of the object and purpose of the institution and the effect of membership upon engineers who belong to it, the House of Lords held that it was exempt as being carried on for the promotion of engineering science and not for the promotion of professional interest or advantage of the members.” Lawrence, L. J., puts the essence of the matter in these words (page 174) : “The answer to this question depends upon whether the institution is established solely for the advancement of the science of civil engineering (an admittedly charitable purpose) or whether one of the purposes for which it is established is to benefit civil engineers in order to enable them to practice their profession to greater advantage.” The ratio decidendi of the case instead of helping the Bar Council, goes against it and affirms the principle that if the substantial object of a body is to regulate and advance the interests of a profession, its object would not be charitable.
15. The question of Medical Councils, The General Medical Council General Nursing Council for Scotland Institution of Civil Engineers, Geologists Association, and Juridical Society, and Yorkshire Agricultural Society have come up before the English Courts and all these decisions (including the case where the objects have been held to be charitable) establish that if the substantial object of the institution is the benefit a profession or the members of the institution its purpose would not be charitable, even though incidentally such associations advance the science which the profession practise.
The earliest case in which the position of professional associations was clearly stated is Commissioners of Inland Revenue v. Forest Lord Macnaghten said in this case before the House of Lords XECX : “The question at issue may be stated shortly. Is the property of the Institution of Civil Engineers legally appropriated and applied for the promotion of the science of civil engineering, or is it legally appropriated and applied for the benefit of Civil Engineers in order to enable them to practice their profession to greater advantage ?” The principle expressed in this case that if the substantial object of an institution is to benefit the members of the profession and not the advancement of education or science, its income would not be exempt has been consistently followed in all later cases.
In Sulley v. Royal College of Surgeons, the Royal College of Surgeons, Edinburgh, was held to be not a scientific or literacy institution but an institution for the advancement of the profession of Surgeons and its income was held liable to Income-tax.
In Royal College of Surgeons v. Inland Revenue, decision of the Court of Appeal, the College had two main objects, each of great importance. One was the promotion of the science of surgery, and the other the promotion and encouragement of the practice of surgery including the promotion of the interest of those practicing or about to practice surgery as a profession and also including the examination of students and others to qualify for practice, or honour in surgery and kindred subjects. Their Lordships disposed of the second object summarily with the following words : See page 367. “Now, so far as concerns property which may be legally appropriated and applied to what we have called the second main function of the college as distinguished from its other function of the promotion of the science of surgery, it appears to us clear that such property would not come within any of the exemptions from duty mentioned in Section 11 of the Customs and Inland Revenue Act, 1885.” This Section 11 of the Customs and Inland Revenue Act, 1885, exempted under sub-section (3) “property which or the income or profits whereof is legally appropriated and applied for the promotion of science.”
In Farmer v. Juridical Society of Edinburgh, the test to be applied is thus stated in Lord Mackenzies judgment at page 475 where his Lordship quotes from the case of Sulley v. Royal College : “If the main the leading object of the institution be that of advancing the interest of a profession then the fact that it may incidentally and as a consequence promote science, will not the least make it other than a professional institution and as such not entitled to the exemption claimed.” In this case even though it was set out in the first section of the Rules of the Society that “the object of the society shall be the advancement of the science of law and the pursuit of general literature,” it was unanimously held by three Lords (the Lord President, Lord Mackenzie and Lord Skerrington), that the society was a professional institution.
16. Findings on the first point. – There is nothing either in the Indian or English Acts or decisions to support the view that a body like the Bar Council is one established for a charitable purpose. On the other hand every decided case supports the view laid down in the General Medical Council case that the purpose of a body which is constituted for the benefit of a profession is not a charitable purpose even though incidentally it may hold examinations, give lectures, etc., and advance education or science.
Our findings on the first issue, therefore, are that the objects of the Bar Councils which are multifarious do not attract the provisions of Section 4(3), clause (i), of the Income-tax Act and the Bar Councils are not constituted to confine their activities solely to legal education. If the object of the Bar Councils Act was the promotion of legal science in the abstract just as in the case of Commissioners of Inland Revenue v. Forest cited above, the position would have been different. But as stated above the functions primarily are for the benefit of the profession and legal education contemplated in the Act merely qualifies its members for enrollment as Advocates or helps to make better Advocates. The benefit of education is available to the members of the profession and though the general public may be eventually benefited by the Advocates being better equipped in legal knowledge, it is only an indirect and remote purpose and not the immediate one. The object is neither in the nature of general public utility nor does it fulfill any other purpose stated in Section 4(3), clause (i), of the Income-tax Act.
17. Findings on the second point. – We will now devote ourselves to the consideration of the second question. There is a difference of opinion on the question, for the Income-tax Officer held it to be an “Association of persons” and the Appellate Assistant Commissioner held the Bar Council to be an individual. The case which the Income-tax Officer examined and relied upon for his view is Commissioner of Income-tax, Madras v. Salient District Urban Bank Ltd., while the Appellate Assistant Commissioner footed himself on Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of Income-tax, and observations in Commissioner of Income-tax, Madras v. Salem District Urban Bank Ltd.
We have gone through all the cases and have come to the conclusion that a corporate body like the Bar Council can more appropriately be classified as an “Individual” rather than an “Association of person.”
The case in Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of Income-tax went on appeal before their Lordships of the Privy Council and is reported in Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of Income-tax, Bombay. The judgment on appeal was confirmed and no exception was taken to the view that the corporate body of trustees was an “Individual” though this specific point was not considered or debated before their Lordships.
Section 3 says – “Where any Act of the Indian Legislature enacts that income-tax shall be charged for any year at any rate or rates applicable to the total income of an assessee, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act in respect of all income, profits and gains of the previous year of every individual, Hindu undivided family, company, firm and other association of individuals.”
The word “individual” has not been used as synonymous with “persons.” It would have been quite easy to use the word “person” in this section instead of the word “Individual” if it was so intended. The word “individual” has been defined in the Oxford Dictionary as :- “One in substance or essence; forming an indivisible entity; indivisible.” The corporate body like the Bar Council fulfills the sense of this word. In Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of Income-tax, Bombay, it was so held. The case of Commissioner of Income-tax, Madras v. Salem District Urban Bank Ltd., relied upon by the Income-tax Officer does not decide a contrary proposition. In fact, it supports the view taken in the Bombay case as against the latter view taken by the Bombay High Court in Commissioner of Income-tax, Bombay v. Ahmedabad Millowners Association. In the case of Salem District Urban Bank Ltd., referred to above, the question for consideration was whether a body like the Salem District Urban Bank, shares of which were held by persons and co-operative societies was an “Individual” or an “Association of individuals” and their Lordships held that the words “Association of individuals” embrace an association of corporate bodies. In the same case under consideration the Chief Justice of the Madras High Court had laid down –
“To give the word “individual” the meaning of persons only would, it seems to me, be to disregard the scheme of the Act and to rob the word of an accepted meaning.”
We, therefore, feel that the Bar Council can be held to be an and is a body liable to pay tax on its investments and other incomes as per return.
Conclusions. – We have found above that the income of the Bar Council is not exempt as it is not applied to any educational purposes or any object of public utility within the meaning of clause (i) of Section 4(3). We have also held that it is to be classed for purposes of Section 3 of the Income-tax Act as “Individual”.
18. The result is that these two appeals preferred by the Bar Council, Madras, are dismissed and the orders assessing it are hereby confirmed.”
On the application of the assessee under Section 66(1) of the Indian Income-tax Act (XI of 1922) the Appellate Tribunal referred the case to the Madras High Court.
JUDGMENT
(Judgment of the Court was delivered by the Honble the Chief Justice).
The questions referred by the Income-tax Appellate Tribunal relate to the liability of the Bar Council of Madras to Income-tax. The Income-tax authorities have imposed a tax on the income of the Council for the years 1939-40 and 1940-41. In the previous years on 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 enrollment 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 enrollment 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.
Section 3 of the Income-tax 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 association of persons within the meaning of the section. Therefore its income is taxable unless exemption is to be obtained under the provisions of Section 4(3). Clause (i) of sub-section (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 Income-tax Officer proposed to assess the Council to Income-tax, it claimed total exemption by reason of clause (i) of the sub-section and the case has proceeded throughout on that basis. The Council appealed from the Income-tax Officers order to the Appellate Assistant Commissioner and from the latters order, which confirmed the Income-tax Officers order, to the Income-tax Appellate Tribunal, which agreed with the Income-tax 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 investment 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 enrollment and examination fees is taxable income. At the suggestion of the Court, the Council will make a formal statement to the Income-tax authorities with regard to the purposes for which the investments are held. In these circumstances Mr. Sesha Ayyangar, on behalf of the Income-tax authorities, suggests that the case may be allowed to stand over for a week in order to enable him to obtain instructions from the Commissioner of Income-tax. 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.
This case comming on for further hearing on November 9, 1942 the Court made the following :-
ORDER
(The order of the Court was delivered by the Honble the Chief Justice).
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 the Council have been treating the investments and income therefrom as applicable to legal education, 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 dated the 2nd November 1942 the income form enrolment and examination fees is taxable. The Commissioner of Income-tax 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.
Reference answered accordingly.