KERALA HIGH COURT

                                        Commissioner of Income-Tax

                                                         Vs

                                       Cochin Chamber of Commerce

                                     (V G Nambiyar, C.J. G B Nair, J.)

                                                   20.09.1977

                                                  JUDGMENT

Gopalan Nambiyar, C.J.

1. These references are by the Income-tax Appellate Tribunal, Cochin Bench, which has sent up
certain questions of law for determination and opinion by this court. The question of law referred
under Section 256(1) "of the Income-tax Act by the Tribunal in I.T.Rs. Nos. 51 and 52 of 1975 is
as follows : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal
is justified in law in holding that the provisions of Section 28(iii) are not applicable to the facts of
the case ? "
2. The question arises in respect of the assessment years 1971-72 and 1972-73. The Tribunal
declined to refer the second question of law. Reference of the said question was sought to be
compelled on an application made to this court under Section 256(2) of the Act. This court
compelled the reference and accordingly I.T.Rs. Nos. 78 and 79 of 1977 are before this court in
respect of the said question, reference of which was declined by the Tribunal and was compelled
by this court. The question referred is as follows:
" Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified
in law in holding that the income of the assessee is exempt from tax under Section 11 of the
Income-tax Act, 1961 ?"
3. The question compelled and referred also relates to the same two years 1971-72 and 1972-73.

4. It would be convenient to deal first with I.T.Rs. Nos. 78 and 79 of 1977. Paragraph 2 of the
statement of the case sent up by the Tribunal is as follows :

        " The assessee is a chamber of commerce. It is registered as a company under Section 25
        of the Companies Act. There is a regular memorandtim of association governing the
        conduct of the chamber of commerce. The assessee's receipts during the accounting years
        are given below :

1971-72 1972-73 Rs. Rs. Subscription from members 20,960 21,160 Entrance fee from
members 3,500 Measurement and weighment fees 1,85,087 1,81,464 Certificates of origin and
other certificates 12,663 12,337 Sampling and survey fees 8,442 8,949 Sale of
publications Interest on Government securities 7,132 8,196 Dividends 3,133 2,746 Interest
received (gross) 10,638 13,887 Miscellaneous receipts 5,980 5,704 Profit on sale of fixed
assets ... Provision for doubtful debts written back .. Profit on redemption of investments
...2,58,510 2,55,486 The question that has been agitated before us is whether the receipts
shown under the above heads are entitled to exemption under Section 11 of the Income-tax Act
read with Section 2, Clause (15), of the same, or whether the exemption is to be denied on the
ground that the Cochin Chamber of Commerce has been carrying on an activity for profit which
would dis-sentitle it to earn the exemption under Section 11 of the Act. The exact effect and
import of the exemption under Section 11 read with Section 2(15) of the Act was recently
expounded by the Supreme Court in Indian Chamber of Commerce v. Commissioner of Income-
tax [1975] 101 ITR 796 (SC). It was pointed out that Section 2(15) must be interpreted according
to the language used therein, and against the background of Indian life, and that the benefit of the
exemption from total income is taken away, if in accomplishing a charitable purpose, the
institution itself engages in activities for profit. We are sparing ourselves the need to expatiate
further the principles which have been elaborated in the judgment of the Supreme Court. The
decision of the Supreme Court was based on the observations in an earlier pronouncement
in Loka Shikshana Trust v. Commissioner of Income-tax1 The court noticed the cleavage of
judicial opinion on the point. It reversed and overruled the decision of the Kerala High Court
inCommissioner of Income-tax v. Cochin Chamber of Commerce and Industry2 and affirmed the
decision of the Calcutta High Court in Commissioner of Income-tax v. Indian Chamber of
Commerce3

5. In the light of the above principle laid down by the Supreme Court it is plain, and there was no
controversy, that the receipts from : (1) Measurement and weighment fees, (2) certificates of
origin and other certificates, (3) sampling and survey fees, (4) sale of publications, (5)
miscellaneous receipts, (6) profit on sale of fixed assets, and (7) profit on redemption of
investments cannot qualify for the exemption under Section 2(15) read with Section 11 of the
Act. This was fairly realised by counsel for the assessee. But he contended that in regard to the
following items, viz.:

1. Interest on Government securities ;
2. Dividend; and

3. Interest received (gross), the question has neither been discussed nor found as to whether the
Chamber of Commerce can be said to be carrying on an activity for earning profit within the
meaning of the words used in Section 2(15) of the Income-tax Act. Counsel rightly pointed out
that the approach to this question will have to be in the light of the exposition made by the
Supreme Court in the decision noticed supra, and that the Tribunal and the assessing authority
had proceeded on the basis of this court's pronouncement in Cochin Chamber of Commerce's
case [1973] 87 ITR 83 (Ker) referred to earlier. We think the submission of counsel is well-
founded ; and that in respect of items referred to by him it is not only fair and proper, but very
necessary, that there should be a fresh investigation and finding by the Tribunal. In the light of
the above, we answer the question referred as follows:
6. In regard to the following items mentioned in the statement of the case, viz.:

1. The measurement and weighment fees

2. Certificates of origin and other certificates

3. Sampling and surveying fees 4 Sale of publications

5. Interest on Govt. securities

6. Dividends

7. Interest received (gross)

8. Miscellaneous receipts

9. Profit on sale of fixed assets

10. Provision for doubtful debts written back

11. Profit on redemption of investments;

we answer the question in favour of the department and against the assessee. In respect, however,
of the following items in the said paragraph, viz.:
1. Interest on Government securities,
2. Dividends, and

3. Interest received (gross), we direct the Tribunal to take back the Appeals Nos. 231 and
232/Cochin/ 73-74, to its file and proceed to investigate the question in the light of the
observations contained herein and proceed to enter its finding thereon in accordance with law.
We, answer the question referred against the assessee and in favour of the deparment to the
extent indicated above. There will be no order as to costs. LT.Rs. Nos. 51 and 52 of 1975.

7. In the light of the answer that we have given to the question of law referred in I.T.Rs. Nos. 78
and 79 of 1977, the question of law referred in I.T.Rs. Nos. 51 and 52 of 1975 has become
academic and there is no need to answer the same. We accordingly, decline to answer the
question of law referred in these two/income-tax references. No order as to costs.

Cases Referred.

1[1975] 101 ITR 234 (SC)
2[1973] 87 ITR 83 (Ker)
3[1971] 81 ITR 147 (Cal)