Appeal No 246 of 1954
Appeal by special leave from the judgment an order dated October 6 1952 of the Bombay High Court in Income tax Reference No 1 of 1952
N A Palkhivala J B Dadachanji section N Andley Rameshwar Nath and P L Vohra for the appellant
O N Joshi and R H Dhebar for the respondent
May 22
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 661 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 section 661 of the Act
The dispute between the parties relates to the assessment of income tax for the assessment years 1946 47 1947 48 and 1948 49 and of excess profits tax for the chargeable accounting periods September 3 1945 to March 31 1946 April 1 1946 to March 31 1947 and April 1 1947 to March 31 1948 and it arises out of the same facts and involves the same points for determination 67 On June 15 1945 three brothers Sir Padampat Singhania 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 100000 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 brothers were the partners acquired a controlling interest in the said Mills by purchase of the shares of Messrs E D Sassoon and Co therein and following on this the shareholders passed a special resolution on September 3 1945 appointing the trustees of the J K Trust as managing agents of the Company in the place of Messrs E D Sassoon and Co  Lid who resigned
On September 10 1945 a memorandum of agreement exhibit B was duly executed by the Company constituting the trustees of the J K Trust Bombay as its managing agents on the terms and conditions set out therein
It is to be noted that the five persons named as trustees under exhibit A were appointed as managing agents in their character as 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 68 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 up on 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 Rs 50000 and an office allowance of Rs 1000 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 Rs 100000 Rupees one lack 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 12 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 Rs 10 lacs at any time and if necessary to guarantee such loans or advances from time to time
Under el 14 Notwithstanding anything herein contained all the terms and conditions of this Agreement including the period of appointment of the Managing Agents may be varied or abrogated by mutual agreement
 The trustees entered on their duties as managing agents under this agreement and by an agreement dated May 14 1946 they appointed one Tej Narain Khaitan son in law of one of the three Singhania brothers as their representative to carry 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 69 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 30000 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 23287 in 1946 47 Rs 36786 in 1947 48 and Rs 216460 in 1948 49 was liable to be taxed under the provisions of the taxing statutes
On applications made by the assessee under a 661 of the Act and the corresponding provisions in the Excess Profits Tax Act and the Business Profits Tax Act the Tribunal referred the following questions for the decision of the High Court of Bombay 1  Whether on the facts of the case the commission earned by the managing agents for managing
the Raymond Woollen Mills was income earned by the managing agents for services rendered and not income derived from property held under trust or for other legal obligations and therefore not exempt under section 4 3 i of the Income tax Act 2
Whether on the facts of the case the business 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 CJ and Tendolkar J who held that no part of the sum of Rs 100000 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 cl
a or b had been fulfilled and that accordingly no relief could be granted thereunder
70 The points that arise for determination in this appeal are 1 whether the income received by the trustees of JK 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 claim for exemption in respect of such income is to be determined under section 4 3 i or section 4 3 ia
With reference to the first question the contention of Mr Palkhivala is that managing agency is business and therefore it is property and that it is property held on trust because it is conducted by the trustees on behalf of the trust with the help of trust properties and in accordance with the directions contained in the trust deed
He also contends that even if the business is not held on trust it is at least held 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 ii 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 vs The Government of Hyderabad 1 where the question arose with reference to assessment of excess profits tax on the remuneration received by managing agents tax being leviable under 1 71 that Act only on business income and it was held that it was business and that the profits therefrom were rightly assessed to tax under the Act
The law must therefore be taken to be settled beyond controversy that managing agency is itself business
Then the question is whether that business can be held to be property within section 43i of the Act
Now property  is a term of the widest import and subject to any limitation or qualification which the context might require it signifies every possible interest which a person can acquire hold and enjoy
Business would undoubtedly be property unless there is something to the contrary in the enactment
Section 43i 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 3i 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 43i
In In re The Tribune 1 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 majoritv of the learned Judges of the High Court tookthe view that the object of the trust was not wholly religious or charitable and that accordingly the exemption under that section could not be claimed
This decision was taken in appeal to the Privy Council which held reversing the judgment of the High Court that the object of the trust was in its entirety charitable and that it came within the exemption enacted in section 4 3 i
Vide In re The Trustees of the Tribune 2
That is a question with 1  1035 2  LR 66 IA 72 which we are not concerned in this appeal and the actual decision of the 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 3i 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 1
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 vs Commissioner of Income tax Bombay 2
There the assessee was an unregistered association called the All India Spinners  Association and it was formed for the purpose of development of the village industries of handspinning and handweaving
The Association collected subscriptions from its members and also donations and invested them in the purchase of raw cotton which was supplied to poor labourers for being spun into yarn the yarn being
then supplied to them for being woven into cloth which was then sold and the sale proceeds appropriated to the funds of the Association for the purposes aforesaid
The assessee claimed exemption under section 43 i on the ground that its income was derived from property held under trust
The High Court was of the opinion 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 43 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 1 2  LR 71 IA 159 73 fluctuating stock of yarn and cloth and that the exemption in section 43i 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 vs Commissioner of Incometax 1
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 decision accordingly has no bearing on the point which falls to be decided here
The weight of authority is therefore clearly in favour of the view that business would be property  for purposes of section 43i of the Act
It is next contended for the respondent that even if business could in general be held to be property within section 43 i managing agency cannot be so regarded because having regard to sections 29A 87A and 87B of the Indian Companies Act it is merely an office which consists in the performance of services 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 vs Debabrata Mullick 2 and The Commissioner Hindu Religious Endowments Madras vs Sri Lakshmindra Thirtha Swamiar of Sri Shirur MUtt 3 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 1 2 195I SCR 1125
3   1019
10 74 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 vs The Government of Hyderabad 1 then there is no reason why it should not be property for purposes of section 43i of the Act
Nor is it an accurate statement of the true position to describe trust of the managing agency as a trust of an obligation
It is in truth a trust of property which carries with it certain obligations and in law there is no objection to creating a trust over property burdened with obligations though if it is onerous by reason of such obligations the trustee may be entitled to disclaim it
It is then contended that even if managing agency could be the subject of trust the managing agency created by exhibit B must be held to be incapable of being held on trust because it is of the essence of public as distinguished from private charity that it must be permanent and incapable of being revoked or put an end 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 cy pres
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 1 1955 I SCR 393
75 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 77c of the  which in terms however applies only to private trusts
We must therefore hold that the fact that the trustees have the option at any
time to throw up the managing agency is no legal  impediment to its being property which could be held on trust
Lastly it is contended that on the terms of exhibit A the properties which the trustees are  to hold and stand possessed of  are  the sum of Rupees One Lao and any donations or contributions received by the Trustees and all accretions thereto and thereof and the investments in securities for the time being and from time to time 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 100000 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 100000 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 cl 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 Exs
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 cl 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 business though in fact it be not actually invested therein
Thus in Rocke vs Hart 1 Sir William Grant observed 1    1010
76 a trader lodges money at his banker s he has in effect a benefit from that
As he must generally keep a balance in his banker s it answers the purpose of his credit as if it was his own money and I should hold that to be employment in his trade
 There are similar observations by Lord Gifford in Moons vs De Bernales 1
In the result we are of opinion that the word I property  in section 43i of the Act is of sufficient amplitude to comprehend 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 43i 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 I property  is wide enough in its significance to include business in its context in section 43i read along with section 43ia 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 43i
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 Madras vs Arunachalam Chettiar 2 following a decision of the House of Lords in Coman vs Governors of the Rotunda Hospital Dublin3 that they were not
That was also the view taken by the Allahabad High Court in Lachhman Das Narain Das In re 4
Then came the decision in In re The Tribune 5 already referred to wherein the Lahore High Court held that property  in section 43i was 1   3 1021 AC 1
2 ILR 4 ILR 1925 47 All
5 77 sufficiently comprehensive to include business and that profits from business carried on by trustees would be exempt from taxation
As already stated though the matter was taken in appeal to the Privy Council this question was not raised
It was in this state of the law that the Legislature intervened and enacted a new provision section 43ia which is as follows  43 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 assessee to fall back upon the general provision contained in section 43i and claim exemption thereunder on the ground that business is property
The basis of this contention is the well known maxim Generalia specialibus non derogant
In Charitable Gadodia Swadeshi Stores vs Commissioner of Income tax Punjab1 this question came up for consideration before the Lahore High Court
It was held by the learned Judges that the fact that the business failed to satisfy the two conditions laid down in section 43ia was no reason why it should not be exempt from taxation if it fell within 1 78 section 43 i and the main ground of the decision was that the two categories mentioned in section 43 i and section 43 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 43i 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 the High Court of Bombay for a fresh disposal of the reference on a consideration of the second question
As for costs we direct that the respondent do pay the appellant the costs of this appeal as also the costs of the hearing before the High Court
The costs of the further hearing which we have directed will be dealt with by the High Court on remand
Appeal allowed
Case remanded


Summary:
A deed of trust whereby a sum of Rs 1 lac was settled on various charities specified therein provided for the acquisition of the business of managing agency on behalf of the trust and with the help of the trust fund
The trustees of the said trust appellant became the managing agents of a public company
The agreement for the agency provided inter alia that the agency was for a period of twenty years but that it was open to the trustees to give up the agency on giving three months  notice and that the managing agents were to get a remuneration of 10 per cent  of the net annual profits subject to a minimum of Rs 50000 and an office allowance of Rs 1000 per mensem
The appellant claimed that the income derived from the managing agency was income from property held under trust to be applied wholly for charitable purposes and was in consequence exempt from taxation under section 43i of the Indian Income tax Act 1922
It was contended on behalf of the Income tax authorities 1 that the income in question was remuneration for services rendered and was not derived from any property as a managing agency could not be considered to be property and that therefore it did not fall within section 43i of the Act 2 that on the terms of the deed of trust the managing agency could not be property held on trust as no part of the sum of Rs 1 lac was utilised in the acquisition of the business so as to impress it with the character of accretion and 3 that even if the managing agency business could be regarded as property within section 43i it was governed by the special provision contained in section 43ia and as the conditions laid down therein had not been satisfied no exemption could be claimed
Held 1 A managing agency is business which would be property within section 43i of the Act
Lakshminarayan Ram Gopal and Son Ltd vs The Government of Hyderabad 1955 ISCR 393 followed
All India Spinners  Association vs Commissioner of Income tax Bombay  relied on 66 2Though the office of managing agency carries with it certain obligations in law there can be no objection to creating a trust over property burdened with obligations though if it is onerous by reason of such obligations the trustee may be entitled to disclaim it
3When 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 business though in fact it be not actually invested therein and taking the provisions of the deed of trust and the agreement of agency together the managing agency must be held to be property held on trust
Rocke vs Hart  and Moons vs De Bernales   relied on
The case was remanded to the High Court for a decision on the question whether profits from business would be exempt from taxation under section 43i of the Act when the conditions laid down in section 43ia were not satisfied