Case: Commissioner of Income Tax, Kerala &amp; Coimbatore Vs. Krishna Warriar

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 dedication of the whole or a fractional part of the property, but between the dedication of the said property wholly for religious or charitable purposes or in part for such purposes. If so understood, the two limbs of the substantive clause fall into a piece. The first limb deals with a property or a part of it held in trust wholly for religious or charitable purposes, and the second limb provides for such a property held in trust partly for religious or charitable purposes. On the said reading of the provision it follows that the entire business of Arya Vaidya Sala is held in trust for utilizing 50 per cent of its profits i.e., a part of the income, for religious or charitable purposes. The present case, therefore, falls squarely within the scope of the substantive part of Cl. (i) of S. 4(3) of the Act.8. Even so it is contended that cl. (b) of the proviso imposes further limitations before the exemption can be granted. But the said clause of the proviso only applies to the case of income derived from business carried on on behalf of a religious or charitable institution. A business held in trust wholly or in part for religious or charitable purposes is not a business carried on on behalf of a religious or charitable institution, for the business itself is held in trust. A few decisions cited at the Bar bringing out the distinction between the substantive part of Cl.(i) of S.4 (3) and Cl.(b) of the proviso may usefully be referred to at this stage. Where a business was held in trust for charitable purposes, a Division Bench of the Bombay High Court in Dharma Vijaya Agency Bombay v. Commissioner of Income-tax, Bombay City 1, (1938) 38 ITR 392 at pp. 405, 406, 410: (AIR 1960 Bom 380 at pp. 384-385, 386) held that it was not business which was carried on on behalf of religious or charitable institutions within the meaning of, cl. (b) of the proviso. Shah, J., after considering the relevant authorities and the provisions of the Act, observed:"In our view, the business referred to in cl. (b) of the proviso need not be business which is held for religious or charitable purposes, provided it is business carried on on behalf of a religious or charitable institution.Desai, J., stated thus:. . . . . . . it is impossible to equate the scope of proviso (b) with the scope of property consisting of business held under trust wholly for religious or charitable purposes. It must of necessity mes 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, Kerala, 1962-45 ITR 478 (Kerala) expressed much to the same effect. A Division Bench of the Madras High Court, in Thiagesar Dharma Vanikam v. Commissioner of Income-tax, Madras, 1963-50 ITR 798 at pp 807, 809 : (AIR 1964 Mad 483 at pp.486, 487) 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 carried 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 in section 4(3) (i) are fulfilled and the income is exempt from taxation. This exemption cannot be defeated even if the business were to be conducted by somebody else acting on behalf of the trust. Proviso (b) to section 4(3) (i) has application only to businesses which are not held in trust, and the field of its operation is, therefore, distinct and separate from that covered by section 4(3) (i)".Emphasis is laid upon the expression "such income in the opening words of the proviso and a contention is raised that the income dealt with in the proviso is income derived from property held under trust. To state it differently, the adjective "such" in the expression "such income" refers back to the income in the substantive clause. There is some plausibility in the contention, but if the interpretation be accepted, we will be attributing an intention to the Legislature to make a distinction between business and other property though both of them are held under trust. There is no acceptable reason for this distinction. That apart, the expression "such" may as well refer to the "income" in the opening sentence of sub-s. (3). The said sub-section says that the incomes mentioned thereunder shall not be included in the total income, but the proviso lifts the ban and says that such incomes shall be included in the total income if the conditions laid down are satisfied. We think that the expression “such income" only means the income accruing or arising in favour of the trust.9. The legal position may briefly be stated thus. Clause (1) of S. 4(3) of the Act takes in every property or a fractional part of it held in trust wholly for religious or charitable purposes. It also takes in such property held only in part for such purposes. Business is also property within the meaning of the said clause. Clause (b) of the proviso to S. 4(3) (i) applies only to a business not held in trust but carried on on behalf of religious or charitable institutions.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]If business is property and is held under trust wholly or partly for religious or charitable purposes, it falls squarely under the substantive part of Cl. (i) and in that event Cl. (b) of the proviso cannot be attracted, as under that clause of the proviso the business mentioned therein is not held under trust but one carried on on behalf of a religious or charitable institution. To take a business out of the substantive Cl. (i) of S. 4 (3) and place it in Cl. (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.In our view, the expression "in part" does not refer to an aliquot part; if half a house is held in trust wholly for religious or charitable purposes, it would be covered by the first part of the substantive clause of cl. (i), for in that event the subject-matter of the trust is only the said half of the house and that half is held wholly for religious or charitable purposes. The expression "in part", therefore, must apply to a case at 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 part of the income shall be given to the grantors 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 there from 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 under 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 dedication of the whole or a fractional part of the property, but between the dedication of the said property wholly for religious or charitable purposes or in part for such purposes. If so understood, the two  limbs of the substantive clause fall into a piece. The first limb deals with a property or a part of it held in trust wholly for religious or charitable purposes, and the second limb provides for such a property held in trust partly for religious or charitable purposes. On the said reading of the provision it follows that the entire business of Arya Vaidya Sala is held in trust for utilizing 50 per cent of its profits i.e., a part of the income, for religious or charitable purposes. The present case, therefore, falls squarely within the scope of the substantive part of Cl. (i) of S. 4(3) of theis laid upon the expression "such income in the opening words of the proviso and a contention is raised that the income dealt with in the proviso is income derived from property held under trust. To state it differently, the adjective "such" in the expression "such income" refers back to the income in the substantive clause. There is some plausibility in the contention, but if the interpretation be accepted, we will be attributing an intention to the Legislature to make a distinction between business and other property though both of them are held under trust. There is no acceptable reason for this distinction. That apart, the expression "such" may as well refer to the "income" in the opening sentence of sub-s. (3). The said sub-section says that the incomes mentioned thereunder shall not be included in the total income, but the proviso lifts the ban and says that such incomes shall be included in the total income if the conditions laid down are satisfied. We think that the expressionincome" only means the income accruing or arising in favour of the trust.9. The legal position may briefly be stated thus. Clause (1) of S. 4(3) of the Act takes in every property or a fractional part of it held in trust wholly for religious or charitable purposes. It also takes in such property held only in part for such purposes. Business is also property within the meaning of the said clause. Clause (b) of the proviso to S. 4(3) (i) applies only to a business not held in trust but carried on on behalf of religious or charitablewill be seen from the said recitals of the will that the testator created a trust in respect of his entire properties, including those mentioned in Schedules B, C and D and specifically vested them into the trustees appointed thereunder. The properties so vested included the business carried on in the name and style of Arya Vaidya Sala. The main objects of the trust were to carry on the said two institutions, namely, Arya Vaidya Sala and Arya Vaiday Hospital and also the other objects mentioned thereunder. Out of the income from the business so vested in the trustees, he directed the trustees to spend 25% for the development of Arya Vaidya Sala, 25% to meet the expenses of the Arya Vaidya Hospital, not exceeding 10% for the Arya Vaidya Patasala, 25% to be shared equally by two branches of the family of the testator for a period of 20 years and thereafter to be utilized for the purpose of the Arya Vaidya Sala and Arya Vaidya Hospital and 15% to be given to the said branches; that is to say, 60% of the total properties for a period of 20 years from the demise of the testator should be utilized for religious and charitable purposes and thereafter 85% to be utilized for the said purposes and the rest to be spent on nonreligious and noncharitable purposes. Therefore, under the will the E Schedule properties, including the business, were held under trust and the object of the trust was to utilize 60% of the profits of the business for 20 years 85% thereafter for religious and charitable purpose. The assessment years in question fell within 20 years from the death of the testator and, therefore, we are concerned only with 60% of the income from the trust properties.n so it is contended that cl. (b) of the proviso imposes further limitations before the exemption can be granted.But the said clause of the proviso only applies to the case of income derived from business carried on on behalf of a religious or charitable institution. A business held in trust wholly or in part for religious or charitable purposes is not a business carried on on behalf of a religious or charitable institution, for the business itself is held in trust. A few decisions cited at the Bar bringing out the distinction between the substantive part of Cl.(i) of S.4 (3) and Cl.(b) of the proviso may usefully be referred to at this stage. Where a business was held in trust for charitable purposes, a Division Bench of the Bombay High Court in Dharma Vijaya Agency Bombay v. Commissioner ofBombay City 1, (1938) 38 ITR 392   at pp. 405, 406, 410: (AIR 1960 Bom 380   at pp.386) held that it was not business which was carried on on behalf of religious or charitable institutions within the meaning of, cl. (b) of the proviso.