TMI Blog1957 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the view which the learned Judges of the Bombay High Court took that business was not property within section 4(3)(i), it became unnecessary for them to express an opinion on that question. Now that we have held that the word "property" in section 4(3)(i), standing by itself, is susceptible of a wider connotation so as to include business, it becomes necessary to consider the second question under reference. Learned counsel on both sides agree that it would be more satisfactory that this question should be remitted to the High Court for determination. Remand the case to the High Court of Bombay for a fresh disposal of the reference on a consideration of the second question - C.A. 246 OF 1954 - - - Dated:- 22-5-1957 - Judge(s) : BHAGWATI., KAPUR., VENKATARAMA AIYAR JUDGMENT The Judgment of the Court was delivered by VENKATARAMA AIYAR, J.---This is an appeal by special leave against the judgment of the Bombay High Court passed in a reference under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) and sections 21 and 19 of the Excess Profits Tax Act, 1940, and of the Business Profits Tax Act, 1947, respectively read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustees, and it is expressly provided therein that the expression 'managing agents', unless excluded by or repugnant to the context shall include the Trustees for the time being of the said Trust or any other Trust with which the same may be amalgamated. The agency was to be for a period of 20 years; but it was open to the trustees to throw it upon giving three months' notice. The managing agents were to get a remuneration of 10 per cent. of the net annual profits subject to a minimum of ₹ 50,000 and an office allowance of ₹ 1,000 per mensem. Clause 7 of the agreement provided that, During the continuance of this agreement, the managing agents shall maintain with the company a deposit of ₹ 1,00,000 (Rupees one lac only) in cash by way of security for due fulfilment of their obligations as specified therein and shall be entitled to charge interest at 3 1/2 per cent. per annum on the amount of such deposit in addition to their remuneration. Clause 8 laid an obligation on the managing agents to arrange loans and advances to the company as and when required up to and not exceeding ₹ 10 lacs at any time and if necessary to guarantee such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss carried on by the trustees falls to be considered under section 4(3)(i) or section 4(3)(ia) of the Income-tax Act ? The reference was heard by Chagla, C.J., and Tendolkar, J., who held that no part of the sum of ₹ 1,00,000 which was the only property settled on trust under Exhibit A was actually invested in the managing agency business, which could not, therefore, be regarded as trust property, and that the income received from that business was not within the exemption enacted in section 4(3)(i). They accordingly answered the first question against the appellant. As regards the second question, the learned Judges held that it was unnecessary to express any opinion thereon, as it was common ground that even if section 4(3)(ia) applied, neither of the conditions laid down in sub-clause (a) or (b) had been fulfilled, and that accordingly no relief could be granted thereunder. The points that arise for determination in this appeal are (1) whether the income received by the trustees of the J. K. Trust, Bombay, as managing agents of Raymond Woollen Mills Ltd., is income derived from property held on trust or on an obligation in the nature of trust; and (2) whether the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which a person can acquire, hold and enjoy. Business would undoubtedly be property, unless there is something to the contrary in the enactment. Section 4(3)(i) of the Act under which exemption is claimed, runs as follows :---- 4.(3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them--- (i) any income derived from property held under trust or other legal obligation wholly for religious or charitable purpose, and in the case of property so held in part only for such purposes, the income applied, or finally set apart for application thereto. Now, confining ourselves solely to the language of section 4(3)(i), there is nothing in it which restricts in any manner the normal and accepted meaning of the word 'property,' and excludes business from its connotation. There is also authority in support of the view that business is property within the intendment of section 4(3)(i). In In re The Tribune, the question was whether a trust created over the Tribune press and newspaper was for a charitable purpose as defined in section 4(3)(i) of the Act. The majority of the learned Judges o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion that the yarn and the cloth the sale of which yielded the income, could not be regarded as property held in trust, and that, in consequence, section 4(3)(i) did not apply. In reversing this judgment, the Privy Council held that the property consisted of the organisation and the undertaking as well as in the fluctuating stock of yarn and cloth , and that the exemption in section 4(3)(i) applied. This is direct authority in support of the contention of the appellant. As against these authorities, the respondent relied on the decision in Eggar v. Commissioner of Income-tax. There, a certain professor agreed to hand over the remuneration which would be payable to him by the University for lectures to be delivered by him, for certain charitable purposes, but, in fact, no deed of trust was executed. The question was whether the amounts actually paid to him by the University were exempt from taxation, and it was held that they were not, and that the income in question was at the time of the receipt the private property of the assessee being remuneration for services rendered by him. There could be no question in this case of any source of income being dedicated to trust, and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to at the option of the trustee, whereas the managing agency created by Exhibit B could be terminated by the trustees by giving three months' notice. This is to confuse charity with properties devoted to charity. It is true that a public charity is perpetual in character, and that means that it is capable of enforcement, so long as there is any property left which can be appropriated for its objects. And even if some or all of the objects become incapable of fulfilment, the trust properties will be devoted to the performance of similar or allied charitable purposes on the doctrine of cypres. But so far as the trust properties themselves are concerned, they will be held only on the incidents to which they are subject under the law. Thus, if the property is a leasehold interest, it must cease on the termination of the lease. Likewise, if trust property is alienated under circumstances binding on the trust, it will go out of the trust. But that does not operate as an extinction of the trust, unless there is no property at all left, with which the trust could be carried out. That is the principle enacted in section 77(c) of the Indian Trusts Act, 1882, which in terms, however, app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d business, and if the question fell to be decided solely on the terms of that sub-section, the managing agency constituted under Exhibit B must be treated as property held on trust within section 4(3)(i) of the Act. This conclusion, however, is not sufficient to dispose of the appeal in favour of the appellant, because there is still the question raised by the respondent that even if under the general law, the word property is wide enough in its significance to include business, in its context in section 4(3)(i) read along with section 4(3)(ia) it bears a more restricted sense as meaning only property other than business. And it is this contention that forms the subject-matter of the second question under reference. In order to understand this question, it is necessary to state that in the Act as originally passed, the only provision for exemption from taxation of income derived from property dedicated to religious or charitable trust was contained in section 4(3)(i). On this section, the question arose whether when a business was carried on for and on behalf of a trust, the profits derived therefrom were exempt from taxation. It was held in Commissioner of Income-tax, Madr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the decision was that the two categories mentioned in section 4(3)(i) and section 4(3)(ia) having been enacted as two different clauses, it must be taken that the one did not exclude the other. It was this decision that was, relied upon by the appellant before the Tribunal, which, however, considered it distinguishable. A reading of its order, however, shows that it was not really satisfied about its correctness. Accordingly, when the appellant applied for reference under section 66(1) of the Act, the Tribunal referred the second question also for the decision of the High Court. But in the view which the learned Judges of the Bombay High Court took that business was not property within section 4(3)(i), it became unnecessary for them to express an opinion on that question. Now that we have held that the word property in section 4(3)(i), standing by itself, is susceptible of a wider connotation so as to include business, it becomes necessary to consider the second question under reference. Learned counsel on both sides agree that it would be more satisfactory that this question should be remitted to the High Court for determination. In the result, we remand the case to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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