TMI Blog1964 (4) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ed:- 29-4-1964 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SUBBA RAO J.--These appeals by special leave raise the question of the construction of the provisions of section 4(3)(i) of the Indian Income-tax Act, 1922, hereinafter called the Act, as amended by the Indian Income-tax (Amendment) Act, 1953, hereinafter called the Amending Act. The facts are as follows. One P. S. Warriar, an eminent Ayurvedic physician, carried on business in Ayurvedic drugs under the name and Style of " Arya Vaidya Sala " and was also running a hospital named " Arya Sikitsa Sala " and a school called " Arya Vaidya Pata Sala. " The said Warriar died on January 30, 1944, after executing a will wherein he created a trust in respect of his properties, including the Arya Vaidya Sala. He gave directions to the trustees appointed under the said will to conduct the said business and to disburse the income therefrom in certain proportions to the Arya Vaidya Sala, Arya Sikitsa Sala and Arya Vaidya Pata Sala and to his descendants. Broadly stated 60 per cent. of the income was directed to be spent on the said three institutions and 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied with. Learned counsel for the respondent, Mr. S. T. Desai, contends that business is property within the meaning of section 4(3)(i) of the Act and that it is held in trust in part for religious and charitable purposes and, therefore, the substantive part of the provision is attracted to the facts of the case and hence the proviso is excluded. Before we construe the relevant provisions of the Act and consider the arguments advanced on either side, it would be convenient at the outset to read the material part of the will and to ascertain the scope of the bequest created thereunder. The will is marked as annexure " A2 " in the case. The relevant parts of the will read : " 1. Will executed by Panniampalli Warriath deceased Parvathi alias Kunhikutty Warassiar's son Sri Sankunny Warriar known as Vaidyaratnam Sri P. S. Warriar, residing at Puthan Warian in Kottakkal Amsom and Desom of Ernad Taluk. " 7. Apart from the properties mentioned in Schedules B, C and D all other properties, movable as well as immovable, belonging to me I hereby constitute into a trust to be managed by the trustees as per the directions in the will. They are described in Schedule E, and on my dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said institutions, not covered by its income, from out of the profits of Arya Vaidya Sala. L. Out of the net profits of the Arya Vaidya Sala 25% is to be devoted to the development of the Arya Vaidya Sala, 25% for meeting the expenses of the Arya Vaidya Hospital and 25% for division equally between the two tavazhies (this only for 20 years); out of the remaining 25% a sum not exceeding 10% may be, according to requirements, utilised for the purposes of the Arya Vaidya Patasala. The balance, if any, that may remain out of the 10% after disbursement to the Arya Vaidya Patasala, may be used for the Arya Vaidya Sala itself. The balance 15% are to be deposited by the Trustees each year in approved banks as a reserve fund for the two tavazhies for a period of 20 years and the fund thus accumulated inclusive of interest is to be divided equally among the two tavazhies equally, i.e., in moiety, and it will be the duty of the Trustees to invest the same on the authority of immovable properties. M. The Trustees are not bound to pay any amount to the said two tavazhies after the expiry of 20 years. The 40% of the profit so earmarked for 20 years and so released after the expiry of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of property so held in part only for such purposes, the income applied, or finally set apart for application, thereto. Provided that such income shall be included in the total income-- . . . (b) in the case of income derived from the business carried on on behalf of a religious or charitable institution, unless the income is applied wholly for the purposes of the institution and either-- (i) the business is carried on in the course of the actual carrying out of a primary purpose of the institution, or (ii) the work in connection with the business is mainly carried on by beneficiaries of the institution." A brief history of the proviso may not be out of place here. Before the amendment of this clause by the Amending Act of 1953 the proviso was in the form of a separate substantive clause and was numbered as clause (ia). The said clause (ia) came under judicial scrutiny. It was argued on behalf of the revenue that though a business was held under trust for religious or charitable purposes, it would fall under clause (ia) and the income therefrom could not be exempted from income-tax unless the conditions laid down in the said clause were complied with. In Charitable Ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take a business out of the substantive clause (i) of section 4(3) and place it in clause (b) of the proviso, it is suggested that business is not property and that even if it is property the said property is not wholly or partly held in trust for religious or charitable purposes. That business is property is now well settled. The Privy Council in In re The Trustees of the Tribune did not question the view expressed by the Bombay High Court that business of running the newspaper Tribune was property held under trust for charitable purposes. This court in J. K. Trust v. Commissioner of Income-tax endorsed the said view and held that " property " is a term of the widest import and that business would undoubtedly be property unless there was something to the contrary in the enactment. If business was property, it could be held under trust for religious and charitable purposes. As the business of running the Arya Vaidya Sala vested under trust for religious and charitable purposes, it would fall under clause (i), if the other conditions laid down therein were satisfied. The necessary condition for the application of clause (i) of section 4(3) of the Act is that the said property, namely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expression " in part ", therefore, must apply to a case other than a property a part of which is wholly held for religious or charitable purposes. In India there are a variety of trusts wherein there is no complete dedication of the property but only a partial dedication. A property may be dedicated entirely to a religious or charitable institution or to a deity. This is an instance of complete dedication. A property may be dedicated to a deity, subject to a charge that a part of the income shall be given to the grantor's heirs. A property may be given to an individual subject to, or burdened with, a charge in favour of an idol or a religious institution or for charitable purposes. An owner of property may retain the property for himself but carve out a beneficial interest therefrom in favour of the public by way of easement or otherwise. There may be many other instances where though there is a trust, it involves only a partial dedication of the property held tinder trust in the sense that only a part of the income of that property is utilized for religious or charitable purposes. The dichotomy between the two expressions " wholly " and " in part " is not based upon the dedicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business which is trust property, and we have in proviso (b) a restricted and a lesser category of business which is carried on by or on behalf of a religious or charitable institution. " A Division Bench of the Kerala High Court in Dharmodayam Co. v. Commissioner of Income-tax expressed much to the same effect. A Division Bench of the Madras High Court in Thiagesar Dharma Vanikam v. Commissioner of Income-tax, after considering the decisions of the various High Courts and the relevant provisions of the Act, observed : " When the trustee acts, it is only the trust that acts, as the trustee fully represents the trust. A business carried on on behalf of a trust rather indicates a business which is not held in trust, than a business of the trust run by the trustees. " It concluded thus : In our opinion proviso (b) to section 4(3)(i) does not restrict the operation of the main provision in section 4(3)(i). If a trust carries on business and the business itself is held in trust and the income from such business is applied or accumulated for application for the purpose of the trust, which must of course be of a religious or a charitable character, the conditions prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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