Keren Kayemeth le Jisroel Ltd v Commissioners of Inland Revenue

[1932] A.C. 650

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(Judgment by: Lord Tomlin (including background))

Between: Keren Kayemeth le Jisroel Ltd - Appellant
And: Commissioners of Inland Revenue - Respondents

Court:

Judges:
Lord TomlinLord Warrington of Clyffe
Lord Thankerton
Lord MacMillan
Lord Wright

Subject References:
REVENUE
INCOME TAX
Association for settling Jews in Palestine and Elsewhere
CHARITY

Legislative References:
Income Tax Act, 1918 (8 & 9 Geo. 5, c. 40) - s. 37

Hearing date: 9 May 1932
Judgment date: 10 May 1932

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Judgment by:
Lord Tomlin (including background)

An association incorporated as a company limited by guarantee had as its main object, as stated in its memorandum of association,

"to purchase, take on lease or to exchange or otherwise acquire any land, forest, rights of possession and other rights, easements and other immovable property in .... Palestine, Syria, or other parts of Turkey in Asia and the peninsula of Sinai for the purpose of settling Jews on such lands."

Then followed in the memorandum twenty-one specified objects and powers, which included power to cultivate and improve any lands and erect buildings thereon, to let any land of the company to any Jews, to acquire, construct and manage tramways, railways, harbours, docks, hydraulic works, telegraphs, telephones, factories and workshops, and to purchase and sell, work and develop mines and mining rights, and to carry on the business of mining and metallurgy. All the twenty-one objects or powers were stated to be subject to a proviso that they were to be "exercised only in such a way as shall in the opinion of the association be conducive to the attainment of the said primary object." No part of the income of the association was distributable by way of dividend, bonus or otherwise by way of profit to the members of the association, nor, in the event of a winding-up, were the surplus assets distributable among them:-

Held, that the association was not "a body of persons .... established for charitable purposes only" within s. 37, sub-s. 1 (b), of the Income Tax Act, 1918, so as to be entitled to exemption from income tax in respect of consolidated stock owned by it and representing donations.

Decision of the Court of Appeal [1931] 2 K.B. 465 affirmed.

Appeal from an order of the Court of Appeal ^[F1] affirming an order of Rowlatt J. upon a case stated by the Commissioners for the Special Purposes of the Income Tax Acts whereby the decision of the Commissioners was affirmed. The question for determination was whether the income of investments forming part of the general funds of the appellant association was exempt from income tax under s. 37, sub-s. 1 (b), of the Income Tax Act, 1918, as being income of a body of persons or trust established for charitable purposes only. The Commissioners and both the Courts below decided this question in the negative. The case is fully set out in the report before the Court of Appeal.

Norman Bentwich and H. Infield (with them Leonard Stein) for the appellants. This association is established for charitable purposes within Lord Macnaghten's definition in Commissioners for Special Purposes of Income Tax v. Pemsel, ^[F2] and the particular income in question, which forms part of the general funds of the association, is applied for charitable purposes.

(1.) The primary object of the association was the acquisition in perpetuity of land in the Land of Promise as the inalienable property of the Jewish people for the purpose of settling Jews on such land. It is a fundamental principle of the Jewish religion that land should be acquired in Palestine for the repatriation of the Jews. The actual living in Palestine is an essential part of the Jewish religion, and the law of Judaism cannot be adequately carried out except in Palestine. The settlement of the Jews in Palestine may therefore rightly be called a purpose for the advancement of religion. The fact that some of the subsidiary objects are not charitable does not affect the main purpose of the association, and this is expressly provided by the memorandum.

(2.) This association is established for the benefit of the community, or of a section of the community, whether the association be for the benefit of Jews all over the world or of the Jews repatriated in the Promised Land, and is a charitable institution on that ground.

(3.) The association exists for the relief of the poor. This is connoted by the word "settlement."

[They cited Inland Revenue Commissioners v. Yorkshire Agricultural Society; ^[F3] In re Good; ^[F4] Institution of Civil Engineers v. Inland Revenue Commissioners; ^[F5] O'Hanlan v. Logue; ^[F6] Verge v. Somerville; ^[F7] Mitford v. Reynolds; ^[F8] In re Smith. Public Trustee v. Smith; ^[F9] Webber v. Oldfield; ^[F10] Bowman v. Secular Society. ^[F11] ]

Sir Thomas Inskip A.-G., J. H. Stamp and Reginald Hills for the respondents were not called on.

Lord Tomlin -

My Lords, this is an appeal from an order of the Court of Appeal affirming an order of Rowlatt J., he on his part having affirmed the decision of the Commissoners for the Special Purposes of the Income Tax upon a case stated by the Commissioners for the opinion of the Court.

The question arises under s. 37, sub-s. 1 (b), of the Income Tax Act, 1918, under which exemption is granted "from tax under Schedule C in respect of any interest, annuities, dividends or shares of annuities, and from tax under Schedule D in respect of any yearly interest or other annual payment forming part of the income of any body of persons or trust established for charitable purposes only, or which, according to the rules or regulations established by Act of Parliament, charter, decree, deed of trust, or will, are applicable to charitable purposes only, and so far as the same are applied to charitable purposes only." The appellants in this case seek exemption under that section.

The appellants are an association limited by guarantee and not having a capital divided into shares. The association was incorporated in April, 1907, and is no doubt an association connected with what is known as the Zionist movement.

The memorandum and articles of association provide for a number of matters, to some of which it is necessary to refer.

Clause 3 of the memorandum provides for the objects of the association. Sub-clause (1.) is as follows: "To purchase, take on lease or in exchange, or otherwise acquire any lands, forests, rights of possession and other rights, easements and other immovable property in the prescribed region (which expression shall in this memorandum mean Palestine, Syria, any other parts of Turkey in Asia and the peninsula of Sinai) or any part thereof, for the purpose of settling Jews on such lands."

Then in the subsequent sub-clauses there follow a number of objects of a very varied kind, conferring the widest possible powers. There is a power to clear, cultivate, irrigate, or otherwise improve the lands of the association; power to let any of the land or other immovable property of the association to any Jews upon any terms; power to construct and maintain roads, ways, tramways, railways, bridges, viaducts, aqueducts, and a number of other works of public utility; power to purchase or otherwise acquire, and to sell, dispose of, work, develop, deal with, and otherwise turn to account mines and mining rights, and to carry on the business of mining in any part of the prescribed region, but with a prohibition against anything enabling the association to divest itself of the paramount ownership of any of the soil of the prescribed region which it may from time to time acquire.

Some importance is attached to that limitation. Then there is power to purchase or otherwise acquire and undertake all or any part of the business, property and liabilities of any person or company carrying on any business which the association is authorized to carry on; power to acquire from any Government or other authority concessions and the like; power to sell, mortgage, exchange, grant licences, easements and other rights, in respect of and over, and in any other manner deal with or dispose of or turn to account the undertaking, and all or any of the property and assets for the time being of the association; and there is a similar qualification against the association's divesting itself of the paramount ownership of the soil. There is also power to borrow or raise money, to make, accept, indorse and execute negotiable instruments and bills of exchange; power to promote any companies for any purpose which may seem likely, directly or indirectly, to benefit the association, and to acquire, hold, and deal with shares or other interests in any such company; power to enter into any arrangement for sharing profits, union of interests, joint adventure, or co-operation with any person or company carrying on or about to carry on any business which the association is authorized to carry on. There are a number of other very wide and general powers.

Then at the end of clause 3 there is this proviso:

"Provided also that the primary object of the association shall be and is hereby declared to be the object specified in sub-clause (1.) of this clause, and the powers conferred by the succeeding sub-clauses of this clause shall be exercised only in such a way as shall in the opinion of the association be conducive to the attainment of the said primary object."

Then clause 4 provides:

"The income and property of the association, whencesoever derived, shall be applied solely towards the promotion of the objects of the association, as set forth in this memorandum of association, and no part thereof shall be paid or transferred, directly or indirectly, by way of dividend, bonus, or otherwise howsoever by way of profit, to the members of the association."

In the same way there is a provision that in a winding-up the members are to take nothing.

In clause 7 there is a provision that

"unless and until an order shall have been made or an effective resolution shall have been passed for the winding-up of the Jewish Colonial Trust, Limited"

- that is another company connected with the Zionist movement -

"no person shall be capable of becoming a member of the association who is not a holder, either solely or as one of two or more joint holders, of founders' shares or a founder's share in the said Jewish Colonial Trust."

After an order has been made for winding up that trust

"no person shall be capable of becoming a member of the association who is not a member of some body which shall for the time being be carrying on an undertaking similar to and in succession to the undertaking of the said Jewish Colonial Trust or of some other body designated by special resolution of the association."

Under the articles there is what is called a controlling committee, the purpose of which is really to act cas a delaying committee; that is to say, it can veto the exercise by the directors of any of their powers until either the controlling committee or the association in general meeting resolve to the contrary. That controlling committee consists of persons who from time to time form the small actions committee, constituted by or under the rules or regulations adopted or recognized by the most recent Zionist Congress for the time being. So there is a body nominated by the Zionist Congress which has an element of control over this association.

Now the claim of the association is that certain funds which it holds - some 32,000l. invested in Consols of this country, the association itself being an English company - are exempt from income tax under the section which I have read, on the ground that it is an institution established for charitable purposes only within the meaning of the section. Those funds, in fact, I understand, are the result, in the main, of donations which various persons have made to the association, but it is not disputed that they form part of the general funds of the association and are not the subject of any special trust. Therefore the question arises under the first part of sub-s. 1 (b) of s. 37.

The Courts below have reached the conclusion that this is not an institution established for charitable purposes only, and the appellants complain of the orders that have been made by the Courts below substantially on three grounds. It is said that the association is an institution established for charitable purposes only: first, because it is really established for a religious purpose; secondly, because, if it is not established for a religious purpose, it is established for the benefit of a community within the meaning of those cases in which it has been held that a trust fund is held on a good charitable trust if it is held upon trusts which are beneficial for the community or some class of the community; thirdly, because, if the case cannot be made good on either of those heads, it still may be made good as being a trust which is for the benefit of poor Jews.

I shall consider the matter under each of those three heads.

With regard to the submission that this is a good charitable trust for religious purposes, the case is put in this way:

It is said, and no doubt truly, that the return of the Jews to the Promised Land is an element of great importance in their religion and their religious life. Attention is called to the texts in which the promises were made to Abraham. It is pointed out that in those texts - and the one in the fifteenth chapter of Genesis is taken as an illustration - the promise in relation to the land extends beyond what is commonly called the Holy Land or Palestine, and that the Promised Land includes more than that.

The eighteenth verse of the fifteenth chapter of Genesis is in these terms:

"In the same day the Lord made a covenant with Abram saying, Unto thy seed have I given this land, from the river of Egypt unto the great river, the river Euphrates."

The nineteenth and following verses refer to the Kenites and the Kenizzites and the Kadmonites and a number of other tribes. It is said that this promise covers, as no doubt it does, a wider area than Palestine in the ordinary acceptance of that term as a geographical term. On the other hand, it may be said that the precise geographical limits indicated by those verses are somewhat obscure, but this, I think, is certain, and is recognized quite fairly by counsel for the appellants, that the first sub-clause of clause 3 of the memorandum goes beyond any area which on any view of these texts could be comprised in the terms used. The prescribed region in sub-clause (1.) of clause 3 is defined in this way:

"which expression shall in this memorandum mean Palestine, Syria, any other parts of Turkey in Asia, and the peninsula of Sinai."

Now it must be remembered that the articles of association were framed in the year 1907, and the extent of Turkey in Asia at that time was considerable; it extended much beyond Palestine and Syria, and certainly included, as it does to-day, Asia Minor, and no doubt other regions. Asia Minor, and other regions outside Syria and Palestine, could not on any view be treated as included in the region covered by the description in Genesis. However, bearing that in mind, the point is this, and this is the way it is put - it is said that it is an essential part of the Jewish religion to look forward to the return of the race to the Promised Land, and that this is apparent not only from the texts of Scripture but from Rabbinical writings, from the daily prayers, and from other matters connected with the Jewish religion.

Indeed, it is put in two ways. It is said, first, that there are many commandments of the religion which cannot be effectively performed except in the Promised Land, and secondly, that it is only with Judaism established in the Promised Land that the real influence of Judaism can be properly exercised. That being so, it is an essential part of the Jewish religion that daily the devout Jew should pray for the return of the race to the Promised Land, and it is to him of the very essence of his religion that the race should so return. Basing themselves upon that, which I accept absolutely as an accurate statement of the Jewish feeling in the matter, the appellants say that we must construe this memorandum and the articles of association so as to give them the sense of establishing an association for charitable purposes.

My Lords, I think myself that that argument must fail. We are concerned here only with the language which is employed in this memorandum before us. There is not in it a word which can suggest anything of a religious character. It is quite true that the minds of those who are intimately concerned with the working of this association may be affected by religious motives and religious sentiments in taking the part which they do take in the work which this association performs, but, none the less, the object of the association is not to do something which is in itself religious; it is not, in any sense in which the words, as English words, can be construed, creating a trust for the advancement of religion. It is only when you go subjectively to the minds of those concerned that you are able to introduce any element of the kind at all. If the arguments of learned counsel in favour of this view were well founded, it seems to me that such clauses as these might have a different meaning and effect according to the character of those who happened to be the promoters concerned in the working of the association.

But, whether that be well founded or not, there are other reasons why it seems to me the argument must fail. There are a great number of objects in this memorandum. They are all expressed to be ancillary to the main object, and I well appreciate the argument which says that if you once find that the main object is charitable you cannot destroy the charitable character of the main object, because the ancillary powers, which are incidental to it, are, some of them, in themselves, not charitable. That argument may indeed be well founded, but when the question is whether the primary object is itself charitable, it is legitimate, in reaching a conclusion upon that head, to consider the effect of the incidental powers, and it may well be that the incidental powers are such as to indicate or give some indication that the primary object is not itself charitable. I confess I feel great difficulty, in the face of the elaborate powers of a non-charitable character which are contained in this memorandum, in saying, quite apart from any other reason, that sub-clause (1.), which in itself has no language directly indicative of charitable purposes, is to be construed as charitable.

But there is another reason which seems to me disastrous to the appellants' argument on this head, and that is the prescribed region itself, because the whole argument with regard to the religious element is linked up with the return to what they call the Promised Land, and in fact this region is far wider than the Promised Land on any construction of the promise. Even if they are right in the view which they take about an activity to settle Jews in the Promised Land, it seems to me that as soon as you find that the activity is not only to settle Jews in the Promised Land but to settle Jews in lands which are not and never have been part of the Promised Land, you have a combination of objects, religious and non-religious, which cannot be separated, and this combination is fatal to the contention that this association is established for charitable purposes only. In my view, therefore, the first point, that this is a religious charity, necessarily fails.

Then the next point is that, if it is not religious, it is said to be beneficial to the community. I have great difficulty, as indeed counsel for the appellants had, in identifying the community. They suggest some alternatives. First of all, they suggest that the community is the community of all the Jews throughout the world. That seems to me to be very difficult. They next suggest that it is the Jews in the prescribed region, but I have great difficulty in seeing why they should be the community, because, although the Jews who are to be settled under the objects no doubt include Jews in the prescribed region, there are also included Jews outside the prescribed region, and whether a settling of Jews from outside the prescribed region is for the benefit of Jews within the prescribed region - it may or may not be; I do not see any indication one way or the other - I think it is extraordinarily difficult to say that within the meaning of the cases there is really any community to be found in the circumstances before your Lordships' House.

My Lords, that leaves the third point - the poverty point. I confess that this point seems to me very difficult to advance consistently with the argument which has been put before your Lordships on the point that the association is an institution for religious purposes. The two things do not seem to me to be really consistent, but on the merits of the point I confess I am unable to see how, by any straining of the language, this can be limited to poor Jews. Clause 3, sub-clause (1.), is "for the purpose of settling Jews on such land." It is suggested that there can be got out of the word "settling" some element which suggests poverty, and reference is made to the case of the repatriation of Australian soldiers: Verge v. Somerville, ^[F12] where it was said that the word "repatriating" connoted something suggestive of poverty; but I am unable to find in this word any such element at all. Indeed, it is legitimate to refer to some others of the clauses, which may not be decisive on the matter, but which seem to me to point against the contention of the appellants. For example, sub-clause (3.) of clause 3 contains power "to let any of the land or other immovable property of the association to any Jews upon any terms." Although, as I say, it is not decisive upon a point of this kind, it is certainly an element which points against it, and I think there is not sufficient in the language employed to justify the conclusion that any element of poverty is an essential part of the scheme which the memorandum embodies.

My Lords, for these reasons I think that this appeal must fail, and I move your Lordships that it be dismissed with costs.