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TMI Blog1957 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... Lala Kailashpat Singhania and Lala Lakshmipat Singhania who were carrying on business under the name of Juggilal Kamlapat, executed a deed of trust, Exhibit A, whereby they settled a sum of Rs. 1,00,000 on various charities specified therein and called the J. K. Trust, Bombay, and appointed themselves and two other persons Lala Ramdeo Podar and Sir Chunnilal Mehta as its trustees. The trust deed provided inter alia that "the trustees may with the help of the trust fund, for and on behalf of and for the benefit of the trust, carry on such business including the taking up and conducting the managing agency or selling agency of any company in such name or names as they in their absolute discretion may think fit and proper and may close and re-start such business and utilise the profits for all or any of the objects aforesaid." Large powers were conferred on them in the conduct of the business, and they were also authorised to "raise or borrow money required for the purpose of the trust. " At this time, Messrs. E. D. Sassoon and Co. Ltd. were the managing agents of a public company called the Raymond Woollen Mills Ltd. The firm of Juggilal Kamlapat of which the three Singhania brother ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the managing agency work on a remuneration of 30 per cent. of the annual income which would be payable to them under Exhibit B. Before the Income-tax authorities, the appellant claimed that the income derived from the managing agency was income derived from property held under trust to be applied wholly for charitable purposes, and was, in consequence, exempt from taxation under section 4(3)(i) of the Act. The Income-tax authorities held that the income in question was remuneration for services rendered, and was not derived from any property, and that, therefore, it did not fall within section 4(3)(i) of the Act. They further held that even if the managing agency business could be regarded as property within section 4(3)(i), it was governed by the special provision contained in section 4(3)(ia), and as the conditions laid down therein had not been satisfied, no exemption could be claimed. In this view, they allowed a sum of Rs. 30,000 per annum for remuneration of Mr. Khaitan as a deduction under section 10(2)(x) of the Act, and held that the balance of the income, Rs. 23,287 in 1946-47, Rs. 36,786 in 1947-48 and Rs. 2,16,460 in 1948-49 was liable to be taxed under the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld, on the principle laid down in section 88 of the Trusts Act, on an obligation in the nature of trust, and that section 4(3)(i) is, in consequence, attracted. For the respondent, Mr. Joshi does not dispute that managing agency is to be regarded as business, but he contends that there can be no trust of such agency, because it really involves rendering of services and cannot be said to be property in respect of which alone trust can be created, and further because managing agency is an office and that again is not property. He also contends that, in any event, the managing agency created under Exhibit B could not be held to be trust property, because it could be terminated at any time, if the trustees so desired, on three months' notice, and that there could be no trust of such a precarious, ephemeral or evanescent kind of property, if indeed it could be held to be property. He also contends that section 88 was inapplicable, as there was no property which was held on an obligation in the nature of a trust. Whether a managing agency could be regarded as business was considered by this Court in Lakshminarayan Ram Gopal and Son Ltd. v. Government of Hyderabad, where the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Privy Council does not bear on the present controversy. What is relevant to our purposes is that before the High Court a contention was raised that the word 'property' must bear the same meaning both in sections 9 and 4(3)(i), that in section 9 it was used in contradistinction to business which was dealt with under section 10, and that, therefore, 'property' in section 4(3)(i) could not include business. This contention was repelled by the High Court, which held that the meaning of the word 'property' in section 4(3)(i) could not be controlled by the connotation of that word in section 9 : Vide In re The Tribune. Before the Privy Council, however, the question whether business of the Tribune press and newspaper was property was not raised, the Board merely observing that in the letter of reference there was "no suggestion that the income under assessment is not derived from property held under trust declared in the 20th and 21st paragraphs of the will. " The point, however, arose directly for decision in All India Spinners' Association v. Commissioner of Income-tax, Bombay. There, the assessee was an unregistered association called the All India Spin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices and discharge of certain obligations, and that that could not be regarded as property, which could be the subject matter of trust. We are unable to accede to this contention. In Angurbala Mullick v. Debabrata Mullick and The Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt even an office of trusteeship was held to be property especially when emoluments were attached to it, and that must a fortiori be the position in the case of office of managing agency, which is clearly one of profit and even alienable under certain circumstances. The office requires no doubt the performance of services ; but there is no antithesis between service and business, as there are several kinds of business, which involve the performance of services, such as insurance and commission agency. The true test is whether the services are a regular source of income. And if managing agency is business, as was held in Lakshminarayan Ram Gopal and Son Ltd. v. The Government of Hyderabad, then there is no reason why it should not be property for purposes of section 4(3)(i) of the Act. Nor is it an accurate statement of the true position to describe trust of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representing the same", that on the terms aforesaid, the managing agency cannot be held to be property held in trust, as no part of the sum of Rs. 1,00,000 was utilised in the acquisition of the business so as to impress it with the character of accretion. It is argued that though the sum of Rs. 1,00,000 was given as security by the trustees under Exhibit B, that was only for the due performance of their obligations as managing agents, and that the amount itself was not actually thrown into the business. But it is to be observed that clause (3) of the trust deed expressly provides for the acquisition of the business of managing agency on behalf of the trust and "with the help of the trust fund" and that precisely is what has happened and indeed, reading together Exhibits A and B, it is impossible to resist the conclusion that both the documents formed part of an integral scheme, and that what the settlors had in view in clause 3 of Exhibit A is the very managing agency, which was acquired under Exhibit B. There is considerable authority in England that when trustees carry on business with the aid of trust fund, the position in law is the same as if they actually employed it in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Council this question was not raised. It was in this state of the law that the Legislature intervened, and enacted a new provision, section 4(3)(ia), which is 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: (ia) Any income derived from business carried on on behalf of a religious or charitable institution when the income is applied solely to the purposes of the institution and---- (a) the business is carried on in the course of the carrying out of a primary purpose of the institution, or (b) the work in connection with the business is mainly carried on by beneficiaries of the institution. " Under this provision, the profits of business would be exempt only if the conditions laid down therein are satisfied. It is the contention of the Department that as this is a special provision dealing with the topic of exemption in respect of business carried on for and on behalf of a trust, any claim for exemption as regards profits derived from any such business can be made only under that provision, and when the conditions laid down therein are not satisfied, it is not open to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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