TMI Blog1952 (10) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... commission earned by the trustees is exempt from taxation. Now, under clause 3 of the trust deed, the trustees are empowered with the help of the trust fund for and on behalf and for the benefit of the trust to carry on such business including the taking up and conducting the managing agency or selling agency of any company, and the trustees availing themselves of the power conferred upon them under the trust deed have acted as the managing agents of the Raymond Woollen Mills. Under the managing agency agreement the trustees have deposited a sum of ₹ 1,00,000 which constituted the trust fund and under the agreement the trustees received interest at the rate of 3? per cent. per annum, and the Income-tax Department does not dispute the fact that as far as the interest earned on this fund is concerned it is exempt under Section 4(3)(i) of the Act. With regard to the commission earned by the trustees, in order that exemption can be claimed we must be satisfied that the managing agency commission constitutes an income derived from property held under trust or other legal obligation. The only property which is held under trust or other legal obligation is the sum of ₹ 1,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts which are before us, it is clear that the managing agency commission was neither derived from the trust fund nor was the trust fund invested in the managing agency business. Turning to the first aspect of the case, it is clear that the managing agency commission is derived from the services rendered by the trustees as managing agents. It is a remuneration paid to them for the work they did as managing agents. It has nothing whatever to do with the trust fund of ₹ 1,00,000. The remuneration earned by them has no connection with the trust fund. All that the trust fund yields is the interest of 3? per cent. per annum. But it is by reason of their personal labour and by reason of the services rendered by them that the trustee earned the commission as managing agents. Therefore when the managing agency commission comes to their hands it comes to them not as income derived from property settled upon trust, but it comes to them as managing agents, who have rendered services to the company. As soon as the income comes to their hands tax is attracted to it and when the income is in their hands the trustees cannot say that they have received this income from property which is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay [1944] 12 I.T.R. 482. In that case two questions arose for the decision of the Privy Council. One was whether there was a trust or other legal obligation under which the property from which the income was derived was held, and the second was whether it was a trust or legal obligation for the relief of the poor or for any other object of general public utility. The High Court of Bombay had taken the view that it was not a charitable trust within the meaning of the Income-tax Act. That finding was not accepted by their Lordships of the Privy Council. On the other question whether the property was held upon trust within the meaning of the Act, their Lordships of the Privy Council pointed out that by clause 3 of the trust deed it was expressly provided that the funds and assets of the association were to vest in the trustees to be held for the purposes of the association, and their Lordships further held that the property of the association consisted of the organization and the undertakings as well as the fluctuating stock of yarn and cloth. Therefore the income for which the All India Spinners' Association was claiming exemption was the income derived from the whole organizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny business which has been started with the assistance of that sum of ₹ 1,00,000. Reference might also be usefully made to the definition of the expression derived given by the Privy Council in Commissioner of Income-tax, Bihar and Orissa v. Kamakhaya Narayan Singh [1948] 16 I.T.R. 325 at p. 328. It is true that their Lordships were there considering the question of agricultural income, but the interpretation placed upon the expression derived by their Lordships is not without assistance for interpreting the same expression in Section 4(3)(i). The expression used in this section is any income derived from property held under trust , and to put upon it the interpretation put by the Privy Council, the property must be the effective source from which the income arises. It is not sufficient that the property should be indirectly responsible for the income. The income must directly and substantially arise from the property held under trust, and on the facts of the case before us it is impossible to contend that the managing agency commission effectively and substantially arose from the sum of ₹ 1,00,000 which was settled on trust. A question has also been submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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