Holding

Section 3 of the Limitation Act bars only the remedy, not the debt right; the bank's adjustment of security was a lawful contractual act, not a criminal offence, and the complaint was quashed, while the municipal tax exemption requires a genuine charitable purpose, substantive voluntary support, and no trade activity, leading to dismissal of the exemption appeals.

Summary

The Supreme Court decided two matters. In Punjab National Bank & Ors. v. Surendra Prasad Sinha, the Court held that Section 3 of the Limitation Act bars only the remedy, not the underlying right to a debt, and that the bank's adjustment of a fixed‑deposit security to satisfy the principal debtor's liability was a contractual adjustment, not criminal breach of trust; consequently the criminal complaint was quashed and the bank's appeal was allowed. In Municipal Corporation of Delhi v. Children Book Trust (and related appeals), the Court examined the scope of Section 115(4) of the Delhi Municipal Corporation Act, interpreting "charitable purpose", "supported wholly or in part by voluntary contributions", and the exclusion of trade or business under s.115(5). It concluded that the societies in question did not satisfy the voluntary‑contribution test and were engaged in commercial activity, and therefore the appeals seeking exemption from municipal general tax were dismissed. The Court also clarified the meaning of charitable purpose under the Act, emphasizing public benefit and the need for substantive voluntary support.

Issues considered

The effect of Section 3 of the Limitation Act on the right to recover a debt versus the remedy to enforce it.
Whether the bank's adjustment of a fixed‑deposit security constitutes criminal breach of trust under IPC s.409, s.109/114.
The proper scope of Section 115(4) of the Delhi Municipal Corporation Act regarding exemption for lands/buildings used for charitable purposes.
The meaning of "charitable purpose" and whether education alone qualifies.
The interpretation of "supported wholly or in part by voluntary contributions" – qualitative or quantitative test.
Whether any trade or business is carried on in the premises, invoking s.115(5) and s.115(6).

Legislation cited

Delhi Municipal Corporation Act, 1957s. 115(4), s. 115(5), s. 115(6)
Delhi School Education Act, 1973
Delhi School Education Rules, 1973s. 172, s. 173, s. 177, s. 50, s. 59(2)(g)
Indian Penal Code, 1860s. 109, s. 114, s. 405, s. 409
Limitation Act, 1963s. 3

Subjects

Limitation Actdebt recoverycriminal breach of trustcontractual adjustmentmunicipal property taxcharitable purposevoluntary contributionstrade or businessDelhi Municipal Corporation Acteducation as charitypublic benefit

Judgment

A PUNJAB NATIONAL BANK AND ORS. k
v.
SURENDRA PRASAD SINHA

APRIL 20, 1992

B [K. RAMASWAMY AND B.P. JEEVAN REDDY, JJ.]
...--
Limitation Act, 1963-Section 3-Whether bars the right to which a
remedy related--Right to enforce debt by judicial process-Scope of-Time
barred debt-Realisation of-Filing of suit to recover debt-Creditor's obliga- _,,,
c tioh. .....
Penal Code, 1860-Section 40~Action in terms of a con-
~
tract-Whether amounts to criminal breach of trust or misappropria-
tion-creditor in possession of security-Adjustment of debt due from
security-Justification of.
D
Penal Code, 1860-Sections 409, 109/114--Complaint petition-Main-
tainability-Duty of Magistrate, indicated-Accused to be legally responsible
for the offences charged-Magistrate's satisfaction of prima facie
case-criminal justice-Objects of.
E
On 5.5.1984, the Bank-appellant No.1, gave a loan of Rs.15,000 to one
S.N. Dubey. The respondent and his wife executed a Security Bond, as
guarantors and hande(l over a Fixed Deposit Receipt for a sum of Rs.
24,000 which was valued at Rs.41,292 on its maturity on 1.11.1988.

F The principal debtor defaulted making payment of the debt. When
the respondent's F.D. matured, the Manager of the Bank (appellant No.5)

~
adjusting a sum of Rs.27,037.60 due and payable by the principal debtor
as on December 1988 and the balance sum of Rs.14,254.40 was credited to
the S.B. Account of the respondent.
G The respondent filed a private complaint against the appellants in
the Court of Addi. Chief Judicial Magistrate u/ss.409,109/114, IPC, alleging
that the debt became barred by limitation as on 5.5.1987; that the liability
of the respondent being co-extensive with that of the principal debtor, his
liability also stood extinguished as on 5.5.1987; that without taking any <'
H action to recover the amount from the principal debtor within the period
528
I,

P.N.B. v. S. P. SINHA 529

of limitation, on 14.1.1989, the Branch Manager credited to his S.B. A
Account only RS.14,254.00 on the maturity of his F.D.R. and thereby the
appellants criminally embezzled the amount.

The appellants filed this Criminal Appeal by special leave challeng-
ing the High Court's order declining to quash the complaint filed by the
respondent u/ss. 409, 109/114, IPC. · B
Allowing the appeal of the Bank, this Court,

HELD : 1.01. The rules of limitation are not meant to destroy the
rights of the parties. Section 3 of the Limitation Act only bars the remedy, C
but does not destroy the right which the remedy relates to. The right to the
debt continues to exist notwithstanding the remedy is barred by the
limitation. Only exception in which the remedy also becomes barred by
limitation is the right is destroyed. [532E-F]

L02. Though the right to enforce the debt by judicial process is D
barred, the right to debt remains. The time 'i>arred debt does not cease to
exist by reason of s.3. That right can be exercised in any other manner than
by means of a suit. The debt is not extinguished, but the remedy to enforce
the liability is destroyed. [532G]

1.03. What s.3. refers is only to the remedy but not to the right of the E
creditors. Such debt continues to subsists so long as it is not paid. It is
not obligatory to file a suit to recover the debt. [532G-H]

2.01. Action in. terms of the contract expressly or implied is a
negation of criminal breach of trust defined in s.405 and punishable under
s.409 I.P.C. It is neither dishonest, nor misappropriation. [533C] F

2.02. The creditor when he is in possession of an adequate security,
the debt due could be adjusted from the security, in his possession and
custody. [533A]

2.03. The bank had in its possession the F.D.R. as guarantee for due
G
payment of the debt and bank appropriated the amount towards the debt
due and payable by the principal debtor. [5330)

2.04. The respondent and his wife stood guarantors to the principal
debtor, jointly executed the security bond and entrusted the F .D.R. as H
530 SUPREME.COURT REPORTS [1992) 2 S.C.R.

security to adjust the outstanding debt from it at maturity. Therefore,
though the remedy to recover the debt from the principal debtor is barred
by limitation, the liability still subsists. In terms of the contract the bank
is entitled to appropriate the debt due and credit the balance amount to
the saving bank account of the resp?ndent. Thereby the appellant did not
act in violation of any law, nor converted the amount entrusted to them
B dishonestly for any purpose. [533B-C]

3.01. The Magistrate without adverting whether the allegation in the
complaint prima facie makes out an offence charged for, obvi(msly, in a
mechanical manner, issued the process against all the appellants. The
c High Court committed grave error in declining to quash the complaint on
the finding that the Bank acted prima facie high handedly. [533E]

3.02. Judicial process should not be an instrument of oppression or ·~
needless harassment. The complaint was laid impleading the Chairman,
D the Managing Director of the Bank by name and a host of officers. There
lies responsiblity and duty on the Magistracy to find whether the con-
cerned accused should be legally responsible for the offence charged for.
Only on satisfying that the law casts liability or creates offence, against
the juristic person or the persons impleaded, then only process would be
issued. At that stage the court would be circumspect and judicious in
E exercising discretion and should take all the relevant facts and cir-
cumstances into consideration before issuing process, least it would be an
instrument in the hands of the private complainant as vendetta to harass
the persons needlessly. Vindication of majesty of justice and maintenance
of law and order in the society are the prime objects of criminal justice
F but it would not be the means to wreak personal vengeance. [533F-534A]

CRIMINAL APPELLATE JURISDICTIO~ : Criminal Appeal No.
254of1992.

From the Judgment and Order dated 25.6.1991 of the Madhya
G Pradesh High Court in Misc. Criminal Case No. 1701of1991.

G.L. Sanghi, Dhruv Mehta, Aman Vachher and S.K. Mehta for the
Appellants.

H The Judgment of the Court was delivered by
P.N.B. v. S. P. SINHA [K RAMASWAMY, J.] 531
-;f.
K. RAMASWAMY, J. Special leave granted. A

Though the respondent was served on July 29,1991, neither appeared
in person, nor ti.rough counsel. The facts set OUL in the complaint eloquent-
ly manifests on its face a clear abuse of the process of the court to harass
the appellants. The respondent, an Advocate and Standing Counsel for the
first appellant filed a private complaint in the court of Addi. Chief Judicial
B
Magistrate, Katni in C.C. No.933/91 for offences under s.409 and ss.109/114
I.P.C.

~-
The facts stated in the complaint run thus :
..--- c
The first appellant's branch at Katni gave a loan of Rs.15,000 to one
).- Sriman Narain Dubey on May 5, 1984 and the respondent and his wife
Annapoorna stood as guarantors, .executed Annexure 'P' "security bond"
and handed .over Fixed Deposit Receipt for a sum of Rs.24,000 which
would mature on November l, 1988. At maturity its value would be at Rs. D
41,292. The principal debtor committed default in payment of the debt. On
maturity, the Branch Manager, 5th appellant, Sri V.K. Dubey, adjusted a
sum of Rs. 27,037.60 due and payable by the principal debtor as on
December, 1988 and the balance sum of Rs.14,254.40 was credited to the
Saving Banks Account of the respondent. The respondent alleged that the
~
debt became barred by limitation as on May 5, 1987. The liability of the E
respondent being co-extensive with that of the principal debtor, his liability
also stood extinguished as on May 5, 1987. Without taking any action to
recover the amount from the principal debtor within the period of limita-
tion, on Janua1y 14, 1989, Sri D.K. Dubey, the Branch Manager, intimated
that only Rs.14,254.40 was credited to his Saving Bank Account No.3763. F
The entire amount at maturity, namely Rs.41,292 ought to have been
credited to his account and despite repeated demands made by the respon-
~ dent it was not credited. Thereby the appellants criminally embezzled the
said amount. The first appellant with a dishonest interest to save themsel-
ves from the financial obligation neglected to recover the amount from the
principal debtor and allowed the claim to be barred limitation and embez- G
zled the amount entrusted by the respondent. The appellant 2 to 6 abated
the commission of the crime in converting the amount of Rs.27,037.40 to
its own use in violation of the specific direction of the respondent. Thus
they committed the offences punishable under s.409 and ss.109 and 114
I.P.C. H
532 SUPREME COURT REPORTS [1992) 2 S.C.R.

A The security bond, admittedly, executed by the respondent reads the
material parts thus : "We confirm having handed over to you by way of
security against your branch office Katni F.D. Account No.77/83 dated
November 1, 1983 for Rs. 24,000 in the event of renewal of the said Fixed
Deposit Receipt as security for the. above loan." "We confirm....the F.D.R.
will continue to remain with the bank as security here". "The amount due
B and other charges, if any, be adjusted and appropriated by you from the
proceeds of the said F.D.R. at any time before, on or its maturity at your
discretion, unless the loan is otherwise fully adjusted from the dues on
demand in writing made by you ..." "We give the bank right to credit the
balance to our saving banks account or any other amount and adjust the
c amount due from the borrowers out of the same". "We authorise you and
confirm that the F.D.R. pledged a security for the said loan shall also be
security including the surplus proceeds thereof for any other liability and
the obligation of person and further in favour of the bank and the bank
shall be entitl~d to retain/realise/utilise/appropriate the samr: without ref-
D erence to us."

Admittedly, as the principal debtor did not repay the debt, the bank
as creditor adjusted at maturity of the F.D.R., the outstanding debt due to
the bank in terms of the contract and the balance sum was credited to the
Saving Banks account of the respondent. The rules of limitation are not
E meant to destroy the rights of the parties. Section 3 of the Limitation Act
36 of 1963, for short "the Act" only bars the remedy, but does not destroy
the right which the remedy relates to. The right to the debt continues to
exist notwithstanding the remedy is barred by the limitation. Only exception
in which the remedy also becomes barred by limitation is that right itself
F is destroyed. For example under s.27 of the Act a suit for possession of any
property becoming barred by limitation, the right to property itself is
destroyed. Except in such cases which are specially provided under the
right to which remedy relates in other case the right subsists. Though the
right to enforce the debt by judicial process is barred under s.3 read with
G the relevant Article in the schedule, the right to debt remains. The time
barred debt does not cease to exist by reason of s.3. That right can be
exercised in any other manner than by means of a suit. The debt is not
extinguished, but the remedy to enforce the liability is destroyed. What s.3
refers is only to the remedy but not to the right of t4e creditors. Such debt
continues to subsists so long as it is not paid ..It is not obligatory to file a
H suit to recover the debt. It is settled law that the creditor would be entitled
P.N.B. v. S. P. SINHA [K. RAMASWAMY, J.] 533

to adjust, from the payment of a sum by a debtor, towards the time barred A
debt. It is also equally settled law that the creditor when he is in possession
of an adequate security, the debt due could be adjusted from the security
in his possession and custody. Undoubtedly the respondent and his wife
stood guarantors to the principal debtor, jointly executed the security bond
and entrusted the F.D.R. as security to adjust the QUtstanding debt from it
at maturity. Therefore, though the remedy to recover the debt from the
B
principal debtor is barred by limitation, the liability still subsists. In terms
of the contract the bank is entitled to appropriate the debt due and credit

- the balance amount to the saving bank account of the respondent. Thereby
the appellant did not act in violation of any law, nor converted the amount
entrusted to them dishonestly for any purpose. Action in terms of the
contract expressly or implied is a negation of criminal breach of trust
c
defined in s.405 and punishable under s.409 I.P.C. It is neither dishonest,
nor misappropriation. The bank had in its possession the fixed deposit
receipt as guarantee for due payment of the debt and the bank ap-
propriated the amount towards the debt due and payable by the principal D
debtor. Further, the F.D.R. was not entrusted during the course of the
business of the first appellant as a Banker of the respondent but in the
capacity as guarantor. The complaint does not make out any case much
le!>s prim a f acie case, a condition precedent to set criminal law in motion.
The Magistrate without adverting whether the allegation in the complaint
prima facie makes out an offence charged for, obviously, in a mechanical E
manner, issued the process against all the' appellants. The High Court
committed grave error in declining to quash the complaint on the finding
that the Bank acted prima fade high handedly.

It is also salutary to note that judicial process should not be an F
instrument of oppression or needless harassment. The complaint was laid
impleading the Chairman, the Managing Director of the Bank by name and
a host of officers. There lies responsibility and duty on the Migistracy to
find whether the concerned accused should be legally responsible for the
offence charged for. Only on satisfying that the law casts liability or creates
offence against the juristic person or the persons impleaded· then only G
process would be issued. At that stage the court would be circumspect and
judicious in exercising discretion and should take all the relevant facts and
circumstances into consideration before issuing process lest it would be an
instrument in the hands of the private complaint as vendetta to harass the
persons needlessly. Vindication of majesty of justice and maintenance of , H
534 SUPREME COURT REPORTS {1992] 2 S.C.R.

A law and order in the society are the prime objects of criminal justice but
it would not be the means to wreak personal vengeance. Considered from
any angle we find that the respondent had abused the process and laid
complaint against all the appellants without any prim a f acie case to harass
them for vendetta.

B The appeal is accordingly allowed and the complaint is quashed.

V.P.R. Appeal allowed.

-

..
•
]
MUNICIPAL CORPORATION OF DELHI ETC. A
' -:+ v.
CHILDREN BOOK TRUST ETC.

APRIL 21, 1992

[S. MOHAN AND G. N. RAY, JJ.] B

Del/ti Municipal Corporation Act, 1957 :

Sections 115(4)(a) Proviso & Explanation, 115(5) and (6)--Property
tax-Levy and assessment of-General tax in respect of lands and buildings - C
_, Exemption-Grant of-To land and buildings occupied and used by society
for 'charitable purposes'- Conditions to be fulfilled- 'Charitable purpose'-
Meaning of-Whether includes imparting education-Society 'supported whol-
ly or in part by voluntary contribution'-Tests for detennination-Wliat
are-Exemption of tax-Not available 'if any trade or business is carried on
in such land or building'-lnterpretation of expression-Part of land and D
building-When becomes entitled to exemption.

Delhi School Education Act, 1973: Sections 4, 5, 17(3) and 18(3).

Delhi School Education Rules, 1973: Rules 50, 59(2)(g), 172, 173 and
177. E
Property Tax liability under nm11icipal corporation of a registered
society running a recognised private· unaided school-Conditions to be ful-

- fille<k:-Sotiety not found to b~ supported substantially by voluntary contrib~
tions-Not entitled to tax exemption.

Words and Phrases : 'charitable purpose'-Meaning of.
F

In Civil Appeal No.2805 of 1980 the Respondent, a Trust registered
under the Societies' Registration Act 1960 owned the property. From the
year 1964-65, only a part of the property was subject to the General Tax
in accordance with the provisions of the Delhi Municipal Corporation Act. G
For the said year, the value of the property was assessed at Rs. 8,51~480.
In the year 1970, the appellant-Munieipal Corporation served a notice on
the .Trust propos.ing that the rateable value of the building should be
revised. On February 1, 1973, the Deputy Assessor and Collector passed
an order to the effect that the rateable value of the property be revised and H
535
536 SUPREME COURT REPORTS [1992] 2 S.C.R.

A enhanced to Rs.16,29,750. The Deputy Assessor and Collector held that the
Respondent had not proved its charitable character, and further the user
of the property did not go to prove that the property was used for
charitable purposes and that the same cannot be exempt from tax.

Aggrieved by the aforesaid order, the Trust filed aWrit Petition
B under Articles 220 and 227 of the Constitution and contended that the
~-
withdrawal of exemption ~rom the payment of General ·Tax previously
enjoyed on portions of the property was wrong, and that the case was
covered by Section 115 (4) p"°oviso of the Delhi Municipal Corporation Act
which provides for exemption from the payment of General Tax if ex·
C elusively occupied and used by a society for charitable purposes.

A Single Judge allowed the Writ Petition, and held that the Trust
would be entitled to claim exemption from payment of tax under Section
115 (4) for all the portions occupied by it except that which is occupied by
the Press, viz., the basement area of 11217 sq. ft. for which a monthly rental
D value has been assessed at Rs.14,021.25 and an area of 2000 sq. ft. on the
ground floor rear portion for which the monthly rental value has been fixed
at Rs.3,462.50. In the result, the order of the Deputy Assessor and Collec-
tor was quashed to that extent and the matter was remitted back for
disposal.
E
Aggrieved, the Corporation appealed and a- Division Bench held that
because' of .the mandatory provisions of Section 115(4) no part of the
premises in occupation of the press in the basement and the area of 2000
sq. ft. in the ground Door rear portion for which the monthly rental value
has been fixed at Rs.17,483.75 could be exempt from tax and partly allowed
F the appeal of the Corporation.

The appellant society in C.A. No.228 of 1990 filed a suit and sought
interim injunction, questioning the proposal by the Deputy Assessor and ,r..
Collector assessing the society for the General Tax but the Senior sub- ·
G judge being of the view that the riubject matter of the suit being Rs.5,32,683
the suit could not be entertained. Thereupon, the appellant wit~ the '-
suit, and filed a writ petition in the High Court challenging the as~essment
order. The writ petition was heard by a Division Bench which held that the
exemption cl~inied by the appellant was unav~ilable to it, that the case was
not covered by seetion 115(4) of the Act and finding no infirmity in the Jll'"
H order of assessment dismissed the writ petition in limine.
MUNICIPAL CORPN. v. BOOK TRUST 537
In the appeals to this Court, it was contended on behalf of the A
Municipal Corporation that Section 115(4) is a peculiar· section which
provides for relief to those societies or bodies on charitable support either
fully or in part, and that the proviso to the said Section distinguishes itself
from other enactments, in that the legislat~ve intent is to narrow down the
clauses of exemption. To claim exemption it must be shown that the society
B
is supported by voluntary contribution. Where the activity of the society
generates income to support itself and, therefore, the society does not any
longer depend on the voluntary contribution, the exemption should cer-
tainly be made unavailable, It was further contented that the Municipal
General Tax is an annual tax, and that the question of assessability to such
tax or exemption will, therefore, have to be determined each year and that c
unless and until the Society satisfies the assessing authorities that it fulfils
the conditions for exemption in respect of that particular year, it cannot
claim exemption as a rule and, therefore,,the facts in each case will have
to be ascertained in each year. It was shown that the method adopted under
the Income Tax Act in ~espect of the assessment of societies under Sections D
11 and i3 of the said Act or even with regard to exempting donations to
charitable societies under Section 80(G) was similar.

On behalf of the Societies which owned the buildings which were
assessed to tax, it was contended, that the society owns a building, which
houses· the school recognised under the Delhi School Education Act 1973 E
and the Rules made thereunder, and, therefore, the issue is whether the
·building which houses the school is exempt from tax, and that the test to
be applied under Section 115(4) are two in principle, viz., (i) society must
be a charitable society, and (ii) use must be for a charitable purpose, and
it was submitted that the proviso to section 115(4) does not lay down the
quantitative test in relation to voluntary contribution but only qualitative F
test. It was further contended that education per se is a charitable purpose
and, therefore, even irthe the school charges a fee, that would be irrelevant.
The memorandum of objects and the bye-laws of the society have to be
seen, and if the object is a charitable one, that would be enough, it makes
little difference as to how the funds are utilised, if the profits continue to G
feed the charity, the mere occurance of profits would not detract from the
charitable nature of the enterprise. It was further contended that in
construing the scope of Section 115(4), the several provisions of the Delhi
School Education Act, and the Delhi School Education Rules 1973 also

H
538 SUPREME COURT REPORTS (1992) 2 S.C.R.

A have a great bearing, and that the proviso to section 115(4) prescribes the
qualitative test for identifying charitable societies.

On behalf of the intervenors • petitions in W.P.No.1754 of 1979 • the
Court's attention was drawn to Section 115(4) and it was submitted that
the exemption would be available only if the lands or buildings or portions
B thereof should be in exclusive occupation and use and such user must be
by a society or body for charitable purposes, and charitable purpose
includes education, relief· of poor and medical relief and the society is
supported wholly or in part by voluntary contributions and applies its
profits for furthera~ce of and to promote the objects of the society and
C that it does not pay dividend or bonus to its members. It was also
contended that education per se is charity and that the voluntary support
talked of under the section must be qualitative in nature and not quantita-
tive.

On the questions :
D
(i) Whether the society or body is occupying and using the land and
building for a charitable purpose within the meaning of section 115(4)?

(ii) What is the meaning of the expression 'supported wholly or in
part by voluntary contribution?'
E
(iii) ~ether any trade or business is carried on in the premises
within the meaning of section 115(5)?

Dismissing both the appeals, the Court,

F HELD: 1. (i) Every municipality is a local self-goverm1:1ent. There-
fore, in order that it may sustain itself a power of taxation has been
delegated to municipal bodies. The taxes are local taxes for local needs.
Such taxes must obviously differ from one municipality to another. It is
impossible for the Legislature to pass statute for the imposition of such
G taxes in local areas. In a democratic set up the municipalities which need
the proceeds of these taxes for their own administration, it would be but
proper to leave to these municipalities the power to impose and collect
taxes. (554 ~-555 A]

(ii) The lacal authorities do not act as Legislature when they impose
H a tax but they do so as the agent of State Legislat'(e. The powers and the
MUNICIPAL CORPN. v. BOOK TRUST 539

extent of these powers must be found in the statute which creates them A
with such powers. [SSS BJ

(iii) Local bodies being subordinate branches of governmental ac·
tivities are democratic institutions managed by the representatives of the
people. They function for public purpose. They bear the burden of govern-
ment affairs in local areas as they are required to carry on local self· B
government. The power of taxation is a necessary adjunct to their other
powers. There are various kinds of taxes provided under each Municipal
Act, the important being property tax. [SSS CJ

(iv) The Delhi Municipal Act after providing for exemption under C
Section 11S(4) and (S) categorises cases, which will lose the exemption
under sub-section (4). Again, sub-section (6) clarifies that a part of a
building in the occupation of a society may not be entitled to exemption
though the other part is clearly exempt. [SS7 BJ

(v) 'Charity' in its legal sense comprises four principal divisions: D
trusts for the relief of poverty, trusts for the advancement of education,
trusts for the advancement of religion and trusts for other purposes
beneficial to the community not falling under any of the preceding heads.
The underlying idea of charity is the involving of an element of
philanthropy or something derived from pity, and has been from early
times the fundamental of the concept of charity. [S61 D, FJ E
Special Commissioners of Income Tax v. Pemsel, 3 Tax Cases 53 at
96, rt:ferred to.

(vi) Thus, if education is run on commercial lines, merely because it
is a school, it does not mean it would be entitled to the exemption under F
Section 11S(4) of the Act. (562 BJ
·j
(vii) Where the predominant object is to subserve charitable purpose
and not to earn profit it would be a charitable purpose. [56S DJ

17ie King v.The Commissioners for Special Purposes of the Income Tax G
(S Tax Cases 408); The Abbey Malvern Wells Ltd. v. Minister of Town and
Country Planning, [1951] (2) All England Law Reports 1S4 at 161; The
Tntstees of the 'Tribune' (1939 (VU) Income Tax Reports 415); All India

' Spinners' Association v. Commissioner of Income-Tax. Bombay (12 Income
Tax Reports 1944 482); Commissioner of Income-Tax, Bombay Cicy v.Breach H
540 SUPREME COURT REPORTS [1992] 2 S.C.R.

A Candy Swimming Bath Trust, Bombay (21 Income Tax Reports 1955 279 at
pages 288-289) and Addi. C.I. T., Gujarat v. Surat Alt Silk Cloth Manufac-
tures Association (121 Income Tax Reports 1980 Page 1 at Pages 11 at.d
24), referred to.

(viii) Merely because education is imparted in the school, that by
B itself, cannot be regarded as a charitable object. Today, education has
acquired a wider meaning. If education is imparted with a profit motive,
to hold, in such a case as charitable purpose, will not be correct. (565 F]

(ix) The rulings arising out of Income-tax Act may not be of great
C help because in the Income-tax Act 'charitable purpose' includes the relief
of the poor, education, medical relief and. the advancement of any other
object or general public utility. The advancement of any other object of
general public utility is not found under the Delhi Municipal Corporation
Act. In other words, the definition is narrower in scope. [565 G]
D
2. (i) The Delhi Municipal Corporation Act of 1957 in so far as it
grants an exemption under Section 115(4) makes a departure from the other
statutes of similar kind. Only the Delhi Municipal Corporation Act and
Kerala Act adopt this pattern of exemption. Therefore, unlike the other Acts
relating to municipalities of the various other States, the legislative intent
E appears to be to narrow down the nature of exemption. [566 D-EJ

(ii) It cannot be gainsaid that the Municipal general tax is an annual
tax. Therefore, normally speaking, the liability for taxation must be deter-
mined wi_th reference to each year. In other words, the society claiming
F exemption will have to show that it fulfils the conditions for exemption
each year. If it shows, for example, that for its support it bas to depend
on, either wholly or in part, voluntary contributions, in that particular
year, it may be exempt. But where in that year, for its support, it need not )
depend on voluntary contributions at all or again if the society produces
surplus income and excludes the dependence on voluntary contributions,
G it may cease to be exempt. Of course, the word 'support' will have to mean
sustenance of maintenance. (566 F-GJ

(iii) The reasonable way of giving effect to this exemption, will be to
tak~ each case and ass.ess for a period of five years and find out whether
H the society or body depends on voluntary contributions. Of course, at th·e
MUNICIPAL CORPN. v. BOOK TRUST 541

end of each five year period the assessing authority could review the A
position. [566 HJ

(iv) The test must be whether the society could survive without
receiving voluntary contributions, even though it may have some income
by the activiti~s of the society. The word 'part' must mean an appreciable
amount and not an insignificant one. The 'part' in other words, must be B
substantial part. What is substantial would depend upon the fact and
circumstances of each case. (567 B-C]

(v) The word 'contribution' used in the proviso must also be given
its due meaning. It cannot be understood as donations. If that be so, a
I
>--
voluntary contribution cannot amount to a compulsive donation. If the
c
donor, in order to gain an advantage or benefit, if he apprehends that but
for: the contribution some adverse consequence would follow, makes a
donation certainly it ceases to be voluntary. [567 DJ

(vi) The test to be applied is not merely qualitative but quantitative D
as well. [567 EJ

(vii) Under the Delhi School Education Act no provision is f0\1Dd by
which the school is made a separate juristic entity. (569 DJ

The school being a separate entity, premises occupied by the school E
will belong to it and not to the society. Therefore, the society cannot clai.m
to be in exclusive occupation and use of the land and building in question.
[569 EJ

(viii) Section 115(4) of the Act covers those cases where a part of the
land or building is used for trade or business or for getting rental income F
_therefrom. That part undoubtedly will be subject to tax. Suppose, there is
another portion of the same lands or buildings where trade or business is
carried on and profits are made and are applied to charitable purposes
then that portion shall, for purposes of municipal taxation, be deemed to
be a separate property. In other words, this part of the lands or buildings G
will qualify for relief. But the other part will be subject to tax. The trade
portion is subjected to tax. (572 C-DJ

3. Trade or business can be present in both sub-sections (4) and (5)
of section 115. But,Jf the profits or income of trade or business is devoted
to a charitable purpose and no part thereof is distributed among the· H
542 SUPREME COURT REPORTS (1992] 2 S.C.R.

A members as dividends or bonus, then that trade or business is a means to
an end. It is charity. But, if there is a trctde or business carried on in a
land or building and its profits are not applied to a charitable purpose,
sub- section (6) says that that part of the land or building where a trade
or business is carried on or from which rent is derived, will be subject to
tax. [S72 E-F]
B
In the instant case, though the society running the school has a
charitable purpose, beyond that it does not strengthen its case as it fails
to _answer the test that it is supported wholly or in part by voluntary
contributions. [572 G]
c CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2805 of
1980.

From the Judgment and Order dated 29.2.1980 of the Delhi High
Court in L.P.A. No.102 of 1974.
D
AND
Civil Appeal No. 228 of 1990.

From the Judgment and Order dt. 3-2-89 of the Delhi High Court in
E C.W.P. No. 263 of 1989.

B.Sen, R.K. Maheshwari and Vineet Maheshwari for the Appellant
in C.A.No.2805 of 1980 and Respondent in C.A. No.228 of 1990.

Barish N. Salve, Anil Mallick, Vineet Kumar and Vijay Bhasin for
F the Appellant in C.A.228 of 1990.

G .B. Pai, Ms. U ma Mehta Jain for the Respondent in C.A.2805 of 1980.

. Barish N. Salve, Rajiv Shakdhar, Ms. Rita Bhalla, S.S. Shroff for S.A.
Shroff & Co. Dr. A.M. Singhvi and R.Sasiprabhu for the Interveners.
G
The Judgment of the Court was delivered by

MOHAN, J. Both these appeals can be dealt with under common
judgment since the scope of Section 115(4) Delhi Municipal Corporation
Act, 1957 (hereinafter referred to as the. Act) alone arises. However, it is
H necessary to state the facts of each case separately.
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.] 543

CWIL APPEAL NO. 2805 OF 1980 A

The property known as Nehru House, No.4 Bahad'Qt- Shah Zafar
Marg, New Delhi is owned by respondent (Childern Boot Trust). It is a
society registered under the Society's Registration Act, 1960.
B
From the year 1964-65 only a part of property was subject to the
General Tax in accordance with the provisions of the Act. For the said year
the value of the property was assessed at Rs.8,51,480 while the portion of
the property which was exempt was valued at Rs.5,96,870.
c
In the year 1970 the appellant-Corporation served a notice on the
respondent proposing that the rateable value of the building should be
revised. On 1st February, 1973 the Deputy Assessor and Collector of the
appellant-Corporation passed an order to the effect that the rateable value
of the property be revised and enhanced to Rs. 16,29,750. The Deputy D
Assessor and Collector held that the respondent had not proved its
charitable character. Further, the user of the property did not go to prove
that the property was used for the charitable purpose and the same cannot
be exempt from tax. Aggrieved by this order dated 1.2.1973, a writ petition
under Articles 226 and 227 of the Constitution was filed before the High
Court of Delhi in C.W. No.318 of 1974. The claim of the respondent, who E
figured as the petitioner therein, was that the withdrawal of exemption
from the payment of General Tax previously enjoyed on portions of the
property was wrong. It was contended that the case of the Trust was
> covered by Section 115(4) proviso of the Act; proviso exempts buildings
from the payment of General Tax if exclusively occupied and used by a F
society for charitable purpose. The learned Single. Judge (Rajinder Sachar,
J.) allowed the writ petition. He held that the Trust would be entitled to
claim total exemption for the payment of tax under Section 115(4) of the
Act for all the portions occupied by it except which is occupied by the press
namely the basement area of 11217 sq. ft. for which a monthly rental value G
has been assessed at Rs.14.021.25 and an area of 2000 sq. ft. on the ground
floor rear portion for which the monthly rental value has been fixed at
Rs.3,462.50. Even from this rental Vjllue the Trust was entitled to claim
exemption in the proportion of the income accruing to it from the publi-
cation of children books etc. In the result, the impugned order of the
Deputy Assessor and Collector was quashed to the above exent and the H
544 SUPREME COURT REPORTS [1992] 2 S.C.R.

A mattter was remitted to him to dispose of in accordance with law and in ~
the light of the observations made in the judgment.

Aggrieved by the judgment L.P.A. No.102 of 1974 was preferred by
the appellant to the Division Bench of the said Court. By a judgment and
order dated 29th February, 1980 it was held inte; alia as under:-
B
"Suffice it is. to say that 'education' cannot be understood
in the limited sense of teaching being given by holding classes
or by delivery of lectures. The acquisition of information or
knowledge, from whatever source and in any manner has to be
c regarded as education. The Library, Dolls Museum and holding
of exhibitions help in providing an opportunity to acquire
information and knowledge. Premises used for such purposes
would be regarded as being used for education and thus for
charitable purpose."
D
.In this view the Division Bench held that, because of the mandatory
provisions of sub-section (5) of Section 115 no part of the premises in
occupation of the press in the basement and the area of 2,000 sq. ft. on the
ground floor rear portion for which the monthly rental value has been fixed
at Rs.17,483.75 could be exempt from tax. The judgment of the learned
E Single Judge in this regard could not be sustained. The result being, the
-..j_.
appeal of the appellant-Corporation was allowed partly. Under these cir- r

cumstances, the Municipal Corporation of Delhi has come up in appeal.
By an order dated 26.11.80 special leave was granted. Hence Civil Appeal
No.2805 of 1980.
F
CIVIL APPEAL NO. 228 OF 1990
I
The appellant-Society is registered under the Society's Registration v
Act~ 1860. When there was a proposal by the Deputy Assessor and Collec-
fo
tor assess the Society for the General Tax, the appellant-Society claimed
G that it was a Society for charitable purpose and, therefore, no tax cowd be
levied on its building since the exemption under sub-section (4) of Section
115 of the Act would be applicable.to it. This contention was rejected. The
ultimate order of assessment is of 4th of November, 1:988 whereby the .)..
l .
respondent imposed the property tax of Rs.5,32,683 by assessing the rate-
H able value.
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.) 545

The appellant-Society filed a suit and sought interim injunction but A
the Senior Sub-Judge was of the view that the subject-matter of the suit
being Rs.5,32,683 he could not entertain the suit. Therefore, on 24.12.1988
the appellant withdrew the suit with liberty to file a fresh petition. There-
upon, the appeallnt-Society filed Civil Writ Petition No.263 of 1989
challlengi.ng the assessment order dated 4th November, 1988 in the High B
Court of Delhi. That was heard by a Division Bench. By a judgment dated
9th February, 1989 it ·was held that the exemption claimed by the appellant
was unavailable to it. Therefore,. the case was not covered by Section 115(4)
of the Act. Accordingly, finding no infirmity in the order of assessment the
writ petition was dimissed in limine. By an order dated 23rd January, 1990
special leave having been granted, this appeal is before us. C
We will now advert to the arguments addressed in Civil Appeal
No.228 of 1990 since the main arguments were addressed by Mr. Harish
Salve, learned counsel for the appellant. The appellant is a Public School
called Green field School. It is recognised under Delhi School Education
Act, 1973 and the Rules made thereunder. The conditions for recognition D
are:-

(i) The society must run the School.

(ii) The School must maintain its accounts.
E
The Society in this case owns a building. Therefore, the building
which houses the School, whether exempt from tax, is the issue. The tests
to be applied under Section 115{ 4) are two in principle.

(i) Society must be a charitable Society.
F
(ii) Use must be for a charitable purpose.

In the submission of the learned counsel, the proviso does ·not lay
down the quantitative test in relations to voluntary contribution but only
qualitative test. G
Education per se is a charitable purpose. Therefore, even if the
School charges a fee, that would be irrelevant. The Society must satisfy the
following conditions:

(i) That it is supported by voluntary contributions; H
546 SUPREME COURT REPORTS [1992) 2 S.C.R.

A (ii) applies its own income to promote its objects; and

(iii) it does not pay dividend to any other members.

Two classes of societies could be thought of.

B (i) Where members receive full value for their contribution.

(ii) Society for private gain.

For the application of Section 115(4) two tests are:

c (i) In relation to explanation education per se charity. ]
(ii) In relation to the proviso, distributive in nature.

Therefore, one has to look at the memorandum of objects and the
bye-laws. If the object is charitable one, that would be enough. It makes
D little difference as to how the funds are utilised. Secondly, if the bye-laws
do nol provide for the payment of dividend, that again is descriptive on the
same line of reasoning where the proviso says "is supported wholly or in
part by voluntary contributions", which means it has no funds. It does not
matter how the accounts are drawn.
E The learned counsel strenuously urged that the statutory setting in
which Section 115(4) has to be construed, must be kept in the background.
He draws our attention to Section 4 of Delhi School Education Act, 1973,
which prescribes the conditions under which a School could be recognised.
Again Section 5 provides for scheme of management. Section 17(3) makes
F it obligatory on the Manager to file with the Directory a full statement of
the fees to be levied by the school. It further provides that no fee shall be
levied except with the prior approval of the Director. No fee in excess of
the fee specified by the Manager could be levied. Section 18(3) talks of
recognition under aided school fund.
G The Rules made under the Delhi School Education Act, 1973 also
have a great bearing. Rule 50 lays down elaborately the conditions for
recognition. Clause (i) of the said Rule requires that the School is run by
a Society. Clause (iv) says that the school shall not be run for profit to any
individual or group or association. Clause (ix) stipulates that the School
H building shall not be used for any other purpose.
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.] 547

Chapter XIV of the Rules deals with the School funds. Rule 172 A
requires the Trust or the Society not to collect fees.

Rules 173 stipulates the requirement for the maintenance of the
School fund. It inter alia provides:

(i) School funds shall be kept separately. B
(ii) It cannot run for profit.

(iii) The Society cannot draw from School funds.

Rules 177 clearly lays down the manner in which the funds realised C
by unaided recognised schools are to be utilised.

Thus, according to learned counsel, in construing the scope of Sec-
tion 115 (4), all these provisions will have to be adverted to and then the
tests must be formulated. The next question is whether education per se is
charity. The leading case on this subject is Special Commissioners of D
Income Tax v. Pemsel (3 Tax Cases 53 at 96). Again, in The King v. The
Commissioners for Special Purposes of the Income Tax (5 Tax Cases 408 at
414) it was laid down that a trust for advancing of education would be
charitable in nature. The dictum laid down in 17te Abbey, Malvern Wells,
Ltd. v. Minister of Town and Country Planning (1951 (2) All England Law E
Reports 154 at 161) squarely applies to the facts of this case. Therefore, it
is beyond dispute that the Society is engaged in a charitable purpose.

The learned counsel further relies on Tiie Tntstces of the 'Tribune'
(1939 (VII) Income Tax Reports 415), particularly at pages 422-423; All
flldia Spi1111ers' Association v. Commissioner of Income-Tax, Bombay (12 F
Income Tax Reports 1944 482) and the propositions stated at pages 488-
489 and Commissioner of Income-Tax, Bombay City v.t'Breaclt Candy Swim-
ming Bath Tmst, Bombay (27 Income Tax Reports 1955 279 at pages
288-289). Therefore, according to him, the only essential factor to deter-
mine whether it is a charity or not would be to find out whether there is G
any private gain by setting up of the institution. This was the test adopted
in Addi. C.l. T., Gujarat v. Surat Art Silk Cloth Manufacturers Association
(121 Income Tax Reports 1980 Page 1 at Pages 11 and 24).

Therefore if there is no private gain; if the Society cannot utilise the
funds as the rules under the Delhi School Act state, as long as there is no H
548 SUPREME COURT REPORTS (1992] 2 S.C.R.

A profit it is charitable. The essential test of a charitable purpose is the
destination of profits. If the profits continue to feed the charity, the mere
occurrence of profits would not detract from the charitable nature of the
enterprise. The proviso under Section 115(4) prescribes three qualitative
tests for identifying charitable societies. These tests relate to the nature and
the character of the societies and not to its actual transactions in any
B particular year or group of years .

.When the proviso uses the words "supported wholly or in part by
voluntary contributions", the test for as~ertaining the same would be:

(i) Does a Society rely upon voluntary contributions ultimately
c to meet the deficits, if any, which may arise in its capital or
revenue account?

(ii) Does the Society rely upon voluntary contributions to
finance its capital outlays to the extent such outlays exceed its
D savings and borrowings?

The test is essentially qualitative in nature. It is that lest which is
commended for acceptance by us. The learned counsel further states that
the advantages of applying the qualitative test would be:

E (i) By a series of decisions it has been held that mere generation
of profits would not detract from the charitable nature of
society so long as the profits continue to feed the charity and
are not deverted to either non-charitable or private purpose.

(ii) It would conform to the interpretation adopted by English
F Courts on similar expressions used in statute which are pari
materia.

. (iii) It would afford a definite and a reliable test for identifying

G
the exempt societies.

(iv) It would do away with the aritificial distinction between
-
societies which are efficiently run and generate a surplus and
others which run into deficits.

On the contrary if the quantitative test is applied it may lead to
H arbitratiness and anomalies. in a particular year, in order to meet its .
MUNICIPAL CORPN. v. BOOK '!RUST [MOHAN, J.] 549

-;- expenses, the society may depend upon voluntary contributions while in the A
J' succeetling year it may not any longer depend. It is also impossible to adopt
a number of years or a particular year as yardstick to determine whether
the society satisfies the conditions enumerated in the proviso. This becomes
further apparent when it is applied to the second and third parts of the
proviso.
B
~-
Where the bye-laws of a society permit application of profits for
private purpose or payment of dividend to its members that undoubtedly
would be disqualified from claiming exemption. As laid down in Girl's
Public Day School Trnst Ltd. v. Minister of Town and Country 1951 (i)
Chancery 400 the object of the proviso when it insists on support by c
voluntary contribution wholly or in part, is to disqualify mutual benefit
societies. Voluntary C' Jntributions would, therefore, mean contributions
-
~ other than those made by bendiciaries of the services. Reliance is placed
on The Overseers of the Poor and Chapelwarden of the Royal Precinct of the
. Savoy in the County of London v. The Art Union of London (1896 Appeal
C<ises 296 at 310) and Institution of Mechanical Engineers v. Cane (Va/ua-
D
tion Officer) and others (1960 3 All England Reports 715). The last submis-
sion of the learned counsel is, the expression "support" does not, in any
manner, connotes sustenance otherwise it would not make even partial
support to qualify for exemption. The word "support", therefore, must
mean which enriches the society itself or ~ dieves it of a burden or furthers E
__.,. its objects or powers as laid down in Cane (Valua!ion Officer) and Another
v. Royal College of Music (1961 2 Queen's Bcul-h Division 89 at pages
120-121. Thus it is submitted that the approach of thf" High Court is
incorrect and warrants interference.
-7
F
Mr. B.Sen, learned counsel for the respondent iii reply to the argu·
ments of the appellant would urge that Section 115(4) , a peculiar section
which provides for relief to those societies or bodies cacrying on charitable
J
support either fully nr in part. The proviso of the Delhi Municipal Cor-
_,;...
poration Act distinguished itself from oti.er enact.men's. The legislative
intent is to narrow down the clauses of exemption. G
""
The Municipal General Tax is an annu ll tax. The ctnestion of asses-
sability to such tax or exemption will, ther.~~...re, have to be determined each
1-
year. Therefore, unless and until the society satisfies the assessing authority
that it fulfills the conditions for exemption in respect of that particular year, H
.
350 SUPREME COURT REPORTS (1992) 2 S.C.R;

A it' cannot claim exemption as a rule. Therefore, the facts in each case will
have to be ascertained in each year. Similar is the method adopted uuder
+
the Income Tax Act in respect of assessment of societies under Sections
11 to 13 of the said Act or even with regard to exempting donations to
charitable societies under Section 80G.

B One other method will be to decide with reference to the overall
position of the society or body over a period of 4 or 5 years. This was the
method adopted in Brighton College v. Marriott (H.M. Inspector of Taxes)
(10 Tax Cases 213). Similar wa~ the test adopted in the case of Southwell
(Surveyor of Taxes) v. The Governors of Holloway College (3 Tax Cases 386)
C while determining whether it fell within .the concept of a charitable school
within the meaning of erratic statute.

It is conceivable that society may depend upon voluntary contribu-
tions for a number of years. But, in a given year it might not be able to
generate a small surplus. In such a ca5e it might be entitled to exemption.
D On the contrary, where the surplus is generated in a systematic manner,
year after year, it will lose its character as a society supported by voluntary
contributions.

The word "supported" must mean sustenance. Where the society does
not depend upon voluntary contributions for its sustenance it cannot have
E
the benefit of the proviso. The expression "wholly or in part" when read in
the context of ''supported" would mean that there could be a society which
would depend upon wholly on voluntary contributions for its sustenance,
that is, for the expenses of carrying on its activities. The word "part" means
a society may have some income of its own. Still it could claim the benefit
F of exemption if it is not sufficient for its maintenance and it has to be
supplemented by voluntary contributions. In other words, the test to be
applied is whether the society can survive without voluntary contributions
even though it may have some income of its own. As regards the part, it
would depend upon the facts of each case. The submission is that it must
G be a substantial part as laid down by this Court in case arising out of Land
Acquisition Act; Smt. Somavanti and other v. The State of Punjab and others,
(1963) 2 SCR 774.

When the Section talks of Contribution it must be given its proper
meaning. Such a contribution must be voluntary. Therefore, a voluntary
H contribution is not made under compulsion, Equally, it should not be made
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.) 551

--+
;
under any kind of apprehension that some adverse consequences would A
follow if such a contribution is no made. Equally, if a contribution is not
made in return for any benefit except incidental, it would be entitled to the
benefit. In support of the submission, the learned counsel relies on Forbes
(Surveyor of Taxes) v. Standard Life Assurance Company (3 Tax Cases 268
at 272) and Institution of Mechanical Engineers (supra). On the basis of
B
~ these, it is submitted that any donation paid at the time of admission cannot
be treated as voluntary.

The argument, that the transfer of funds to-the society by the school
can be regarded as voluntary contribution received by the society, is wrong.
,- The Delhi School Education Act does not create the school into a specific c
juristic entity different from the society. The Act only makes regulations in
'j-.- th~ matter of running the school and the service conditions of the
employees. Indeed, the Act itself imposes a condition that the school must
be run by a society or a body under Rule 50. Further, the Managing
Committee of the school shall act under the control and supervision of the D
society which runs the school. Consequently, if the funds of the school were
transferred to the society, it would only amount to transfer of funds from
one account to another, both under the control of the same society.

Under Section ll5(4) if the society were to run eduction as a trade E
..t-· or business, even in such a. case, the benefit of exemption will be lost, as
laid down in Brighton College case (supra).

In· cannot be urged as an axiomatic proposition that imparting educa-
tion would be a charitable purpose per se. Pemsel's case (supra) no doubt F
continues to hold the field in England. A careful reading of the judment
will di_§close that there must be an element of public benefit or philanthropy
- 1 that was what was stressed by each of the Law Lord. Therefore, ~bile
applying t.he ratio under the Delhi Municipal Corporation Act one cannot
~
straightaway adopt the views expressed in England. Here, the definition is
somewhat circumspect. Hence, it must be viewed with reference to the G
objects to be achieved by a particular statute. Therefore, education per se
.... cannot be regarded as a charitable object otherwise even if education was
1 carried on with a view to make profit, to call it a charity, would be
unreasonable. Hence, it is submitted that the concept of a public benefit
will have to be introduced. If that is done, "education" under Sedion 115(4) H
552 SUPREME COURT REPORTS (1992) 2 S.C.R.

A must be interpreted a ejusdem generis. Therefore, it ought to be understood
as having some element of relief to the public at large or public benefit.
+--
The learned counsel refers to the balance sheet and states that the
donations to the school have been credited to the society's accounts. The
Term "fees" appropriated by the society is reflected in the balance sheet
B which clearly shows that there have never been two separate entities as is
sought to be made out now.

CIVIL APPEAL N0.2805 OF 1980

Mr. B. Sen, Sr. Advocate for the appellant-Corporation would submit
c that respondent-Book Trust was established on 7.5.57. The building was
constructed during the years 1961-65. Part of the building bas been let out
in 1970-71. The rental income is Rs.86,632.80 per mensum. The Children
Book Trust has:-

D (a) Delhi Office

(b) Printing Press

(c) Dolls Museum

E (d) Library

(e) Singer Institution.

For the years 1964-65 and 1969-70 exemption from property tax was
granted since the respondent was depending on the Government grants.
F However, in 1971 notice, making the demand for property tax, was issued
with regard to the portion which had been rented out to the press.
Admittedly, no exemption could be claimed concerning this portion. It is
only the other portions which are relevant for the purpose of the case. The ).---
High Court in its judgment while interpreting Section 115(4)(a) proviso has
G held that, because of the use of words "in part" in the proviso the society
would be entitled to claim exemption provided other conditions are satis-
fied if it is· able to show that it has received even a small amount of
voluntary contribution.

It is this finding which is objected to by the appellant. The society
H cannot pay the tax, is the test to be adopted. In other words, to claim the
'

MUNICIPAL CORPN. v. BOOK TRUST (MOHAN, J.] 553

exemption it must be shown that the society is supported by the voluntary A
contribution. Where the activity of the society generates income to support
itself and, therefore, the society does not any longer depend on the volun-
tary contribution, certainly the exemption should be made unavailable.
From this point of view, the finding, that even if it receives a small
contribution irrespective of the fact whether it is able to support or not, is
B
-i· not the correct test. It is this aspect of the matter which requires to be
clarified and the law settled by this Court.

Mr. G.B. Pai, learned counsel for the respondent-Trust submits that
the broad purpose of Section 115 is to exempt charity. There may be two
types of voluntary contributions: C
(i) From the Society

(ii) From third parties

The object of the Section is to help the charitable institutions. The D
sine qua non is non-distribution of profits. Once that test is answered the
rest becomes immaterial. In support of this submission, the case in P.C.
Raja Ratnam Institution v. Municipal Corporation of Delhi and others, [1990]
Supp. SCC 97 is relied on. Lastly, it is submitted that the proviso must be
read down to find out as to the income is realised and whether there is E
non-payment of dividends to the members. That would be in consonance
with the object of the Section, granting exemption to those who are
engaged in chartitable purpose. Certainly, it cannot be contended that
imparting of education is not a charitable purpose. The leading case on
this aspect is Pemsel's case (supra).
F
The learned counsel for the intervenors (the petitioners in
W.P.No.1754 of 1979) draws our attention to Section 115(4) and submits
that exemption would be available if the following tests were satisfied:-

(i) Lands or huildings or portion thereof.

(ii) Exclusive occupation and use.

I (iii) Such user must be by a society or body.

(iv) For the charitable purpose. H
554 SUPREME COURT REPORTS [1992) 2 S.C.R.

A (v) Charitable purpose includes education, relief of poor and medical i--
relief.

· (vi) Such a society is supported wholly or in part by voluntary
contributions.

B (vii) Applies its profit to itself for furtherance of the objects of the
society.

(viii) In promoting its objects.

(ix) It does not pay dividend or bonus to its members.
c
In this case, elements (iv), (v) and lvi) are in dispute. It must be held
education per se charity. However, it is not contended that the taxing
authority is precluded from going into the question whether the society is
imparting education and thereby is pursuing a charitable object.

D It · is further submitted that the voluntary support talked of under
Section inust be qualitative in nature and not quantitative. In Cane (Valua-
tion Officer) and Another (supra) is what is relied on for advancing this
proposition. In that case, the test that was laid down was: (1) that enriches
the Corporation itself or (2) relieves it of a burden or (3) furthers its
E . objects or powers.
British School of Egyptian Archaeology, Mu"ay and others v. Public
Trustee and others, (1954 (1) All England Reports 887) is a case which deal
with the quid pro quo nature of voluntary c-.ontribution. Therefore, it is
submitted if the Court were to adopt the test whether voluntary contribu-
F tions provide the life line, such a test would be violative of Article 14. When
property tax exemption was granted for aided schools and such exemption
was denied to non-aided schools it was held to be discriminatory in Baldwin
Girls' High Sclwo4 Bangalore v. Corporation of the City of Bangalore, AIR
1984 Karnataka 162.
G Before we deal with the respective contentions we think it necessary
to provide the background in relation to the municipality and the power
of taxation. Every municipality is a local self-government. Therefore, in
order that it may sustain itself a power of taxation has beeh delegated to
municipal bodies. The taxes are focal taxes for local needs. Such taxes must
H obviously differ from one municipality to another. It is impossible for the
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.) 555.

Legislature to pass statutes for the imposition of such taxes in local areas. A
In a democratic set up the munidpalities which need the proceeds of these
taxes for their own administration, it would be but proper to leave to these
municipalities the power to impose and collect taxes.

The local authorities do not act as Legislature when they impose a
tax but they do so as the agent of State Legislature. The powers and the B
extent of these powers must be found in the statute which creates them
with such powers.

Local bodies being subordinate branches of government activities are
democratic institutions managed by the representatives of the people. They C
function for public purpose. They bear the burden of government affairs
in local areas as they are required to carry on local self-government. The
power of taxation is a necessary adjunct to their other powers. There are
various kinds of taxes provided under each Municipal Act, importantly,
property tax.
D
Now, we come to Section 114 of the Act. Sub-section (1) of the said
Section reads:-

"Save as otherwise provided in this Act, the property shall
be levied on lands and buildings in Delhi and shall consist of E
the following, namely:-

(a) ....................................................................................................... .

(b) ...................................................................................................... .
F
(c) ...................................................................................................... .

( d) a general tax.
1 \
-'.,

(i) ...................................................................................... :................. ·G

(ii) ...................................................................................................... .

Explanation:- Where any portion of a land or building is liable
to a higher rate of the general tax such portion shall be deemed
to be a separate property for the purpose of municipal taxation. H
556
"
SUPREME COURT REPORTS (1992) 2 S.C.R.

A The Corporation may exempt from the general tax lands and
(
buildings of which the rateable value does not exceed one
hundred rupees."
r
While dealing with the premises in respect of which property truces
are to be levied sub-section {4){a) of Section 115 states:
B
"(4) Save as otherwise pro\ided in this Act, the general tax shall
be levied in respect of all lands and buildings in Delhi except-

(a) lands and buildings or portions of lands and buildings
exclusively occupied and used for public worship or by a society
c or body for a charitable purpose:

Provided that such society or body is supported wholly or in
part by voluntary contributions, applies its profits, if any, or
other income in promoting its objects and does not pay any
dividend or bonus to its members.
D
Explanation: "Charitable purpose" includes relief of the poor,
education· and medical relief but docs not include a purpose
which relates exclusively to religious teaching;

E. (b) .......................................................................................................

(c) ...................................................................................................... .

(Emphasis supplied)

It is this scope of the sub-section that has to be determined in these
F two cases.

Sub-section (5) of Section 115 provides:

"(5) Lands and buildings or portions thereof shall not be
G deemed to be exclusively occupied an~ used for public worship
or for a charitable purpose within the meaning of clause (a)
of sub- section (4), if any trade or business is carried on in such
lands and buildings or portions thereof or if in respect of such
lands and buildings or portions thereof, any rent is derived."

H Sub-section (6) of Section 115 provides:-
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.) 557

"(6) Where any portion of any land or building is exempt from A
the general tax by reason of its being exclusively occupied and
used for public worship or for a charitable purpose such por-
tion shall be deemed to be a separate property for the purpose
of municipal taxation."

Therefore, after providing for exemption under sub-sections (4) and
B
~- (5) Section 115 categorises cases, which will lose the exemption under
sub-section (4). Again, sub-section (6) clarifies that a part of a building in
the occupation of society may not be entitled to exemption though the
other part is clearly exempt.
c
- --:>--
By a reading of the above, it is clear that sub-section ( 4) of Section
115 provides that general tax shall be levied in respect of all lands and
buildings except those lands and buildings or part of lands and buildings
which are exclusively occupied and used (i) for public worship or (ii) by
society or body for charitable purpose.
D
The conditions for claiming exemption under sub-section (4) are:-

(i) The lands and buildings or portions of land and buildings,
in respect of which exemption is claimed shall be exclusively
occupied by a society or a body and used for a charitable E
purpose.

(ii) Such society or body must be supported wholly or in part
by voluntary contributions.

(iii) It must apply its profit, if any, or other income for promot- F
ing its objects.

J
I
(iv) It must not pay any dividend or bonus to its members.
~-',

In the Explanation as to what is charitable purpose is stated in an
inclusive manner, relief of the poor, education and medical relief. In the
G
present case, the questions which arise for our determination are:

(i) Whether the society or body is occupying and using the land
and building for a charitable purpose within the meaning of
~ sub- section (4)? H
558 SUPREME COURT REPORTS [1992] 2 S.C.R.
)

A (ii) What is the meaning of the expression "supported wholly
or in part by voluntary contribution?"

(iii) Whether any trade or business is carried on in the premises
within the meaning of sub-section (5)?

B We will first take up the case of Civil Appeal No.228 of 1990.

The appellant-Society is a society registered under the Society's
Registration Act. It is engaged in running the school known !15 Green Field
School. This school is recognised private unaided school. The school is run
C in a building owned by the appellant-Society. Mr. Harish Salve, learned
counsel for the appellant draws our attention to the Delhi School Educa-
tion Act, 1973 and the Rules framed thereunder, in order to· appreciate the
statutory setting in which Section 115 (4), according to him, is to be
construed.

D· As far as Delhi School Education Act is concerned we will refer to
Section {3). It reads as follows:

"(3) The manager of every recognised school shall, before the
commencement of each academic session, file with the Director
E a full statement of the fees to be levied by such .school during
the ensuing academic session, and except with the prior ap-
proval of the Director, no such school shall charge, during that
academic session, any fee in excess of the fee specified by its
• f •
manager m said statement."

F Section 18 (3) talks of unaided school like the present and its school
fund, which is extracted below:

"(3) In every recognised unaided school, there shall be a fund,
to be called the "Recongnised Unaided School Fund", and there
shall be credited there to income accruing to the school by way
G
of-

(a) fees,

(b) any charges and payments which may be realised by the
H school for other specific purpose, and
>--
(
MUNICIPAL CORPN. v. BOOK TRUST (MOHA."J; J.] 559

-:f (c) any other contributions, endowments, gifts and the like." A

Sub-section (4) states as under:-

"(4)(a) income derived by unaided schools by way of foes shall
be utilised only for such educational purposes as may be
B
y prescribed; and

(b) charges and payments realised and all other contributions,
endowments a~d gifts received by the school shall be utilised
only for the specific purpose for which they were realised or

_...... received." c
Rule 50 of the Rules framed under this Act stipulates the conditions
-r for recognition. The important conditions for our purpose are:-

(i) the school is run by a society i:egistered under the Societies
Registration Act, 1860 (21 of 1860), or a public trust con- D
stituted under any law for the tinie being in force and is
managed in accordance with a scheme of management made
•,
under these rules;

(iv) the school is not run for profit to any individual, group or
E
association of individuals or any other persons; and
-<--
(ix) the school buildings or other structures of the grounds are
not used during the day or night for commercial or residential
purposes (except for the purpose of residence of any employee
of the school) or for communal, political or non-educational F
activity of any kind whatsoever.
I
_)
....J Under Rule 59(2){q) it is specifically stated that the Management
Committee shall be subject to the control and supervision of the trust
society by which such school is run.
G
Now, we come to Chapter XIV which relates to school fund. Rules
172 and 173 may be.quoted:~

~1,
"172. Trust or society not to collect fees, etc., schools to grant
. receipts for fees, etc., collected by it - (1) No fee, contribution H
560 SUPREME COURT REPORTS (1992] 2 S.C.R.

A or other charge shall be collected from any student by the trust
or society running any recognised school; whether aided or not.

{2) EvepY fee, contribution or mher charge collected from any
student by a recognised school, whether aided or not, shall be
collected by the school for every collection made by it.
B
173. School fund how to be maintained- (1) Every School Fund
shall be kept deposited in a nationalised bank or a scheduled
bank any post office in the name of the school.

(2) Such part of the School Fund. as may be approved by the
c Administrator, or any officer authorised by him in this behalf,
may be kept in the form of Government securities.

(3) The Administrator may allow such part of the School Fund
as he may specify in the case of each school, (depending upon
D the size and needs of the school) to be kept as cash in hand.

(4) Every Recognised Unaided School Fund shall be kept
deposited in a nationalised bank or a scheduled bank or in a
post office in the name of the school and such part of the said
Fund as may be specified by the Administrator or any officer
E authorised by him in this behalf shall be kept in the form of
Government securities and as cash in hand respectively:

Provided that in the case of an unaided minority school, the
proportion of such Fund which may be kept in the form of
Government securities or as cash in hand shall be determined
F by the managing committee of such school."

Rule 177 deals with utilisation of the fees realised by unaided recog-
nised schools. In sub-rule (1) it is stated:-

"177. Fees realised by unaided recognised schools how to be
G
utilised-

(1) Income derived by an unaided recognised school by way of
fees shall be utilised in the first instance for meeting ihe pay,
allowances and other benefits admissible to the employees of
H the school:
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.] 561

Provided that savings,. if any from the fees collected by such A
school may be utilised by its managing committee for meeting
capital or contingent expenditure of the school, or for one or
more of the following educational purposes, namely:-

(a) award of scholarships to students;
---i B
· (d) establishment of any other recognised school, or

(c) assisting any other school or educational institution, not
being· a college, under management of the same society or trust

-- -:~
by which the first mentioned school is run."

In this background, we will consider whether education per se is a
charitable purpose and its application to the appeliant-society. The case
c

relied on strongly is Pemsel (supra). The dictum of Lord Macnaghten al
page% is as follows:-
D
" 'Charity' in its legal sense comprises four principal divisions:
trusts for the relief of poverty, trusts for. the advancement of
education, trusts for the advancement of religion, and trusts for
other purposes beneficial to the community not falling under
any of the preceding heads. TJle trusts last referred to are not
the less charitable in the eye ofthe law because incidentally E
they benefit the rich as well as the poor, as indeed every charity
that deserves the name must do, either directly or indirectly."

One thing that is clear is that each of the Law Lords emphasised the
underlying idea of charity involving an element of philanthropy or some-
thing derived from pity of early times as being the ·fundamental of the F
-.. concept of charity. Lord Bramwell at page 83 states:
-....J
"I think a "charitable purpose" is where assistance is given to
the bringing up, feeding, clothing, lodging, education of those
who, from poverty or comparative poverty, stand in need of G
such assistance."

Again, Lord Hershell at page 88 observed:
~....(,
"It is the helplessness of those who are the objects of its care
which evokes the assistance of the benevolent. I think, then, H
562 SUPREME COURT REPORTS [1992) 2 S.C.R.

A that the popular conception of a charitable purpose covers the
relief of any form of necessity, destitution, or helplessness which
excites the compassion or sympathy of men, and so appeals to
their benevolence for relief."

Therefore, an element of public beneiit or philanthropy has to be
B present. The reason why we stress on this aspect of the matter is if
education is run on commercial lines, merely because it is a school, it does
not mean it would be entitled to the exemption under Section 115(4) of the
Act.

c Commissioners
The next case to which reference can be made is The King v. The
for Special Purposes of the Incomo Tax, 5 Tax Cases 408.
The question arose whether the University College of North Wales could
be held as established for charitable purposes, Fletcher Moulton, L.J. -<
relying on Pemsel's case (supra) held that a' trust for advancement of
education was charitable.
D
In The Abbey, Malvern Wells, Ltd. (supra) it is observed at pages
160-161:-

"In the present case, it seems to me that one is entitled, and,
indeed, bound, to look at the constitution of the company to
E see who, in fact, is in control. I find that, by art. 3 of the
company's articles, the company is controlled entirely by a body
called a council, a body of persons, and, by art. 64, that body
of persons must be the trustees of the trust deed. Therefore,
while the company, theoretically, has the power to apply its
F property and assets for the purpose of making profits and
devoting the resulting profit to the distribution of dividends
among the members, I find that the persons who regulate the
operations of the company are not free persons unrestricted in
their operations, but are the trustees of the trust deed, and,
under the terms of the trust deed, they may use the property
G of the company only in a particular way and must not make
use of the assets of the company for the purpose of a profit-
making concern. I find that they are strictly bound by the trusts
of the trust deed, and that those trusts are charitable trusts. It )....
I
seems to me, therefore, that, 'while nominally the property of
H the company is held under the provisions of the memorandum
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.] 563

and articles of association, in actual fact the property of the A
company is regulated by the terms of the memorandum and
articles of association plus the provisions of the trust deed, and,
therefore, the company is restricted in fact in the application
of its property and assets and may apply them for the charitable
purposes which are mentioned in the trust deed."
B
Relying on this passage it is contended on behalf of the appellant
that the position is exactly the same in the instant case. The submission is
where th!! society's building houses, the school which is imparting edu«a-
tion, it being a charitable purpose, the exemption would apply. We will
consider this aspect of the matter after referring to the Indian cases. C

In The Trustees of the 'Tribune' (supra) at pages 422-423 it is ob-
served:

"In the High Court stress was laid by the learned Chief Justice
and by Addison, J., on the fact that the Tribune newspaper D
charges its readers and advertisers at ordinary commercial rates
for the advantages which it affords. As against this the evidence
or finding_s do not disclose that any profit was made by the
newspaper or press before 1918 and it is at least certain that
neither was founded for private profit whether to the testator E
or. any other person. By the terms of the trust it is not to be
carried on for profit to any individual. It cannot in their
Lordships' opinion be regarded as an element necessarily
present in any purpose of general public utility, that it should
provide something for nothing or for less than it costs or for
less than the ordinary price. An elemosynary element is not F
essential even in the strict English view of charitable uses
(Commissioners v. University College of North Wales)."

In All India Spinners' Association (su.pra) at page 483 it is observed:

" Section 4(3) of the Indian Income-tax Act gives a clear and G
succinct definition of "charitable purposes" which must be con-
strued according to its actual language and meaning. Lord
Macnaghten's definition of charity and English decisions on the
law of charities have no binding authority on its construction
and though they sometimes afford help or guidance, cannot H
564 SUPREME COURT REPORTS (1992] 2 S.C.R.

A relieve the Indian Courts from their responsibility of applying
the language of the Act to the particular circumstances that
emerge under conditions of Indian life. The difference in lan-
guage, particularly _the inclusion in the Indian Act of the word
"public" is of importance.
B The constitution of Section 4(3) is obviously a question of y
law, but so also is the question what is the real purpose of an
Association. The Court must make its decision on the latter
point on the basis pf the factS found for it, but given the facts
the question is one of law. Where the principal fact is the
c constitution of the Association the true construction of the
constitution for finding out its purpose is a question of law.

The words· "general public utility" in SectiQn 4(3) are very
wide words. They would exclude the object of private gain, such
as an undertaking for commercial profit though all the same it
D would subserve general public utility."

In Commissioner of Income-tax, Bombay City (supra) it was observed
at page 289:

"A settlor or a donor may make a charity by setting up aii
E instituti~n and also providing funds by which t~ose who take
advantage of the institution can do so without paying any
charge; or we may have a case where the charity may not go
to those limits and one may confine his charity to merely setting
up the institution and providing that those who wish to take
F advantage of the institution must pay reasonable charges for
the same. In both cases the setting up of the institution would
be a charitable object if the· institution serves a purpose of I -
general public utility. The only essential factor to determine -~
whether it is a charity or not would be whether there is any
private gain by the setting up of the institution. If the gain
G derived by running the institution continues to be impressed
with the trust which is a charitable tru5t, then it is immaterial
whether the institution is run as a commercial institut!pn or not,
but if in the running of the institution profits are made and the
profit goes to any private individual or if the institution is
H intended for ali'y private gain, then undoubtely the running of
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.J 565

the institution could not be considered as being run for a. A
charitable object."

In Addi. C.l. T. v. Surat Art Silk Cloth Assocn., (Income Tax Reports
121 Page 1 at 24) it is observed:
B
"Where an activity is carried on as a malter of advancement of
the charitable ·purpose or for the purpose of carrying out the
charitable purpose, it would not be incorrect to say as a matter
of plain English grammar that the charitable purpose involves
the carrying on of such activity, but the predominant object of
such activity must be to subserve the charitable purpose and C
not to earn profit. The charitable purpose should not be sub-
merged by the profit making mo~ive; the latter should not
masquerade under the guise of the former."

In view of the above rulings it would be clear that where the D
predominant object is to subserve charitable purpose and not to earn profit
it would be a charitable purpose. However, the argument of the appellant
is as per the Delhi School Education Act and the Rules framed thereunder,
if the society cannot utilise the fund and the school cannot be run for
private gain in the absence of any profit, it would be a charitable purpose. E

We have already seen that merely because education is imparted in
the school, that by itself, cannot be regarded as a charitable object. Today,
education has acquired a wider meaning. If education is imparted with a
profit motive, to hold, in such a case, as charitable purpose, will not be
correct. We are inclined to agree with Mr.B.Sen, learned counsel for the
F
Delhi Municipal Corporation in this regard. Therefore, it would necessarily
involve public benefit.

The rulings arising out of Income-tax Act may not be of great help
because in the Income-tax Act "charitable purpose" includes the relief of G
the poor, education, medical relief and the advancement of any other
object or general public utility. The advancement of any other object of
general public utility is not found under the Delhi Municipal Corporation
Act. In other words, the definition is narrower in scope. This is our answer
to question No.1. H
566 SUPREME COURT REPORTS [1992] 2 S.C.R.

A The second important aspect is society or body. is supported wholly
or in pan by voluntary contributions. Reliance is placed on The Overseers
of the Poor and Chapelwarden of the Royal Precinct of the Savoy in the
County of London (supra). At page 310 it is observed:.

"The expression "supported by voluntary contribution" has long
B been well known in connection with hospitals and other _institu-
tions; I think the essential idea conveyed by them is that the
payments are a gratuitous offering for the benefit of others, and
not the pri~ of an advantage purchased by the contributor."

But this case is not helpful because it turned on the meaning of
c "voluntary".
The test according to the appellant to determine voluntary contribu-
tions is qualitative and not quantitative. We will examine the correctness
of this submission. The Delhi Municipal Corporation Act of 1957 in so far
D as it grants an exemption under Section 115(4) makes a departure from the
other statutes of similar kind. As a matter of fact, the learned counsel have
provided us with the relevant provisions of the various municipal statutes
of the other States. Only the Delhi Municipal Corporation Act and Kerala
Act adopt this pattern of exemption. Therefore, unlike the other Acts
relating to municipalities of the various other States, the legislative intent
E appears to be to narrow down the nature of exemption.

It cannot be gainsaid that the municipal general tax is an annual tax.
Therefore, normally speaking, the liability for taxation must be determined
with reference to each year; In other words, the society claiming exemption
F will have to show that it fulfills the conditons for exemption each year. If
it shows, for example, that for its support it has to depend on, either wholly
or in part, voluntary contributions, in that particular year, it may be exempt.
But where in that year, for its support, it need not depend on voluntary
contributions at all or again if the society produces surplus income and
G excludes the dependence on voluntary contributions it may cease to be
exempt. Of course, the word "support" will have to mean sustenance or
maintenance. Only to get over this difficulty that the qualitative test is
pressed into service. We would consider the reasonable way of giving
effect to the exemption, will be to take each case and assess for a period
of five years and find out whether the society or body depends on voluntary
H contributions. Of course, at the end of each five year period the assessing
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.] 567

authority could review the position. In other words, what we want to stress A
is, where a society or body is making systematic profit, even though that
profit is utilised only for charitable purposes, yet it, cannot be said that it
could claim exemption. If, merely qualitative test is applied to societies,
even schools which are run on commercial basis making profits would go
out to the purview of taxation and could demand exemption. Thus, the test,
according to us, must be whether the society could survive without receiv-
B
ing voluntary contributions, even though it may have some income by the
activities of the society. The word "part' must mean an appreciable amount
and not an insignificant one. The "part" in other words,-must be substantial
part. What is substantial would depend upon the facts and circumstances
of each case. c
The word "contribution" used in the proviso must also be given its
due meaning. It cannot be understood as donations. If that be so, a
~-
voluntary contribution cannot amount to a compulsive donation. If the
donor, in order to gain an advantage or benefit, if he apprehends that but D
for the contribution some adverse consequence would follow; makes a
donation certainly it ceases to be voluntary.

Therefore, we conclude that the test to be applied is not merely
qualitative but quantitative as well.
E
The last aspect of the matter is utilisation of the income in promoting
its objects and not paying any dividend or bonus to its members. The
!earned counsel for the appellant and the intervenor would urge that on
the basis of Cane (Valuation Officer) and Another(supra) (1961(2)
Queen's Bench Divison 89) the position in the instant case is the same. At
Page 121 the following observation is found: F

"One, I think, that enriches the corporation itself or relieves it
of a burden or furthers its objects or powers."

In the light of the above discussion, we will analyse the position in
the context of the Delhi School Education Act and the Rules, since the G
school is regulated by these statutory provisions. The school no doubt is
run by a registered society as required under Rule 50. It is managed in
accordance with the scheme of management as provided under the Rules.
However, Rule 59 sub-rule 2(q) which has already been extracted clearly
lays down that the managing committee shall be subject to the control and H ·
568 SUPREME COURT REPORTS [1992] 2 S.C.R.

A supervision of the trust or society by which the school is run. Rule 177
which we have quoted above requires the utilisation of the income only for ):--
the purpose mentioned in that rule. Therefore, it would be clear that the
rules do not contemplate the transfer of funds from the school to the
society.

B It cannot be denied and it is not denied that the only activity carried
on by the society is the running of the Green Field School at Safdarjung
Enclave. We have been provided with copies of the balance .sheets of the
society. That ~hows for years ending on 31.3.1980 to 31.3.1984 and 31.3.1986
to 31.3.1990 the society had not incurred any expenditure. The income of
C the society consists of:-

(i) term fees received;
'
(ii) donations; and

D (iii) interest from bank

What exactly are the donations, we have not been explained. The
following extracts from the Income and Expenditure Accounts furnish us
the following details:

E "Year Excess of Income *Term **Donation
Ending over expenditure Fees/Contributions
received from the
School
31.3.80 49,865 3,31,189 76,230
F 31.3.81 79,564 3,25,725 87,274
31.3.82 1,06,698 2,78,650 1,00,244
31.3.83 1,23,032 2,43,398 1,15,301
31.3.84 2,21,561 57,109 2,17,020
31.3.86 5,35,973 3,32,662
:
).......
1,87,580
G
31.3.87
31.3.88
. 6,73,645
13,91,743
4,81,200
7,16,700
1,76,778
5,30,547
31.3.89 10,31,228 7,59,820 2,53,230
31.3.90 I 9,91,487 6,30,725 5,06,255

*The receipts are from the School which are collected from the )..
H students thriCe an year and are called 'Term Fee'.
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.) 569

** Sources not explained. !t appears that these are the collections A
made from the parents of the students at the time of admission."

When we turn to the extracts from .the income and expenditure
accounts of Green Field School, we_ find from the tabulated statement
furnished to us for the year ending 31.3.77 to 31.3.87 contributions have B
been made every year to the society. It has already been seen that the Delhi
School Education Rules nowhere contemplate transfer of funds from the
school to the society. Certainly, such contributions cannot amount to
voluntary contributions. The transfer of funds are in disregard of the rules
and run counter to Rule 177 quoted above. We cannot, by any process of
reasoning, hold that these are voluntary contributions received by the C
society. The Delhi School Education Act does not create the school entity
a specific juristic entity different from the society. Where under rule
59(2)(q) of the Rules it is provided that the managing committee shall be
subject to the control and supervision of the society by which the school is
run, it means that school is a part and parcel of the society. Where, D
therefore, the funds are transferred, even calling the contribution from the
school to the society, would be nothing more than transfer oneself. In fact,
we do qot find under the .Delhi School Education Act. any provision by
which the school is made a separate juristic entity.

There is another way of looking at the matter. The school being a E
sepnrate entity, premises occupied by the school will belong to it and not
to the society. Therefore, the society cannot claim to be in exclusive
occupation and use of the land and building in question. In fact, the
proposal for assessment sets out these aspects clearly which are extracted
below:
F

- "The first step would be to determine whether the activity in
which the society is engaged is charitable or not. The charitable
purpose has not been defined in the Act, but it definitely means
to include only such acts as relief of the poor, medical relief to
the poor and education relief. In P.C. Rajaratnam Institutions G
v. MCD (Civil Writ Petition No. 1764 of 1979) division bench
of the Delhi High Co'urt has held that to be held as charitable
institutions for the purpose of Section 115(4), the society must
give education relid. It was further held by the Hon'ble Court
that where fees are charged, exemption cannot be granted. The H
570 SUPREME COURT REPORTS [1992] 2 S.C.R.

A scrutiny of the Income and Expenditure account of the school
shows that the activity which is being carried out by the society
i.e. running of school, generates positive income from year to
year. Positive income in the years 1977 to 1987 ranged between
32;000 to Rs.3 lacs per year. I do not know on what criteria this
activity can be called as charitable activity. The institute is being
B run purely on commercial lines for the purposes of profits. Even
the society for which receipts and payments accounts have not
been filed are in receipt of income generated from this activity
in the form of building fund and donations etc. which are forced
on the students and their guardians.
c The figures picked up from some of the final accounts of
the society show that contributions from the school to the
society was Rs.1,56,895 in the year ending 31.3.79, and every
year thereafter the amount of contribution from school to the
-r
society has been increasing. Since the institute is not only
D self-supporting but also is generating positive income, I hold
that the activity carried out by the society is not a charitable
activity. The second confusion that the institute/society should
be supported wholly or in part by voluntary contribution is also
not fulfilled. The element of v9luntary contributions comes only
E if there is an excess of expenditure over the receipts of the
society. Even otherwise the donations received by the society
if any cannot be treated as voluntary in view of the fact that
they are all forced on the students/parents. The very fact that
the tax payer society has claimed depreciation in the income
and expenditure accqunt of the school shows that what they are
F preparing is not the income and expenditure account, but a
Profit and Loss Account as is done in commercial estab-
lishments. Depreciation is not an expenditure but is only a
deduction @ certain percentage of the capital assets for arriv-
ing at profits and gains of the business. In view of the foregoing
/
-
),._.,...-

G discussions I have no hesitation to decline exemption from

-
payment of general tax in respect of the property known as
Green Field School, A-2 Block, S.J.D.A. New Delhi. Accord-
ingly, all property taxes are payable by the ta.x payer."

H
t-- -
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.] 571

The High Court correctly appreciated the law and held as under in A
C.W.P. No.263of1989 reported in AIR 1989 Delhi 266:

"At our instance, Mr.Bhasin brought on record the balance-
sheets of the school for the years 1981 to 1987-88 and that of
the society for the years from 1978-79 to 1984-85. It was stated B
that balance sheets of the petitioner society for subsequent
years were not ready.

If reference is made to the income and expenditure account of
the school for the year ending 31.3.1988 it would be s;::en that
the school has collected Rs.25,35,900.66 as fees and has given c
a contribution of Rs.17,148.60 to the petitioner society. Again,
if r~ference is made to the balance sheet for the year ending
31.3.1985 of the school, the scpool has collected over Rs.14.5
lakhs as fees and contributed to the petitioner society
Rs.1,00,724.13. The amount is reflected in the balance sheet of D
the petitioner society as having been received from the school.
Contribution of the school for the year ending 31.3.1984 to the
petitioner society is Rs.1,06,459.50. As on 31.3.1983, the amount
of contribution from the scho'ol to the petitioner society is
Rs.2,43,398.91. It is not, therefore,~that there is any contribution
being made by the society for running of the school. Rather the E
school is contributing various amounts to the pe•itioner society.''

"Merely because the petitioner society is not distributing profit
or is applying the profits earned from running of the school on
construction of school building is not enough for it to claim F
exemption. It has to be shown that the petitioner society is
supported wholly or in part by voluntary contributions. The
learned Deputy Assessor and Collector has given weighty
reasons to come to the conclusion that there were no voluntary
contributions to the petitioners society and also to show that
the case of the petitioner society was not covered by S.115(4) G
of the Act. As has been noted above, in the present case it is
the school which is generating income for the petitioner society
and no amount whatsoever is being spent by the petitioner
society on the school. The learned Deputy Assessor and Col-
lector has further observed that the petitioner society is being H
572 SUPREME COURT REPORTS [1992) 2 S.C.R.

A run purely on commercial lines for the purpose of profits and
it is in receipt of income generated from this activity in the
form of building fund and donations etc., which are forced on
the students ·and their guardians. Thus, there is no voluntary
contribution."

B We are in entire agreement with these findings.

The last question is whether any trade or business is carried on within
the meaning of sub-section (5). Section 115(6) of Act ~overs those cases
where a part of the land or building is used for trade or busines~ or for
C getting rental income therefrom. That part undoubedly will be subject to
tax. Suppose, there is another portion of the same lands or buildings where
trade or business is carried on and profits are made and are applied to
charitable purposes then that portion shall, for purposes· of municipal
taxation, be deemed to be a separate property. In other words, this part of
the land.s or buildings will qualify for relief. But the other part will be
D subject to tax. This is the idea of making a part of the lands or buildings a
separate property so that the entire building does not get the exemption.
The trade portion is subjected to tax, and the charity portion is not
subjected to tax.

E Trade or business can be present in both ~uh-sections (4) and ( 5) of
section 115. But, if the profits of income of trade or business i~ devoted to
a charitable purpose and no part thereof is distributed among the members
as dividends or bonus, then that trade or business is a means to zin end. It
is charity.

F But, if there is a trade or business carried on in a !and or building
and its profits are not applied to a charitable purpose, sub-section (6) says
that that part of the land or building where a trade or business is carried
on or from which rent is derived, will be subject lo tax.

G Applying the above propositions, it would only, at best, make the
sccidy running the school a charitable purpose, beyond that it does. not
strengthen its c,ase a~ it fails to answer the test that it is supported wholly
or in part by voluntary contributions.

We are unable to read down the proviso to utilisation of income and
H non-payment of dividends to the members as submitted by Mr. G.B.Pai.
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.J 573

CWIL APPEAL N0.2805·0F 1980 A
Mr. B. Sen, learned counsel for the appellant does not dispute before
us that the Children Book Trust qualifies in every respect for exemption.
He only objected to that part of the finding wherein the High Court had
held as follows:
B
"The next contention of Mr. Arun Kumar was that the respon-
dent was not supported mainly by voluntary contributions and
was as such not entitled to the exemption. This contention of
the appellant is answered by the provision to the said sub-sec-
tion which clearly provides that the society may be supported
'wholly or in part by voluntary contributions'. Because of the C
use of the words 'in part' in the proviso the society whould be
. entitled to claim exemption, provided other conditions are
satisfied, if it is able to show that it has received even a small
amount of voluntary contribution."

But this finding cannot be correct in view of our foregoing discussion. D

In the result, we dismiss both the appeals. However, there shall be
no orders as to costs.

N.V.K. Appeals dismissed.