Case: The East India Industries (Madras) Private Ltd.,Madras &amp; A Vs. The Commissioner Of Income Tax, Madras

2. The assessee, the East India Industries Limited, paid a donation of Rs. 7,500 to a trust called "the Agastyar Trust" and claimed exemption from tax under S. 15-B of the Income-tax Act, 1922,hereinafter called the Act. The trust had been created by the partners of a business firm K. Rajagopal and Company. This firm had been carrying on business in waste paper. Under the terms of the partnership it was setting apart 80 per cent of the profits for charitable and religious purposes. On July 1, 1944, a trust deed was executed by Venkatarama Chetti. The claim of the assessee to exemption from tax was rejected by the Income-tax Officer on the ground that the trust did not fulfil the conditions laid down under S. 15-B of the Act. The Appellate Assistant Commissioner to whom an appeal was preferred took the same view. The matter was taken up in further appeal to the Income-tax Appellate Tribunal which observed that in relation to the previous assessment year, it had held that the Agastyar Trust was a public trust and that any donation made to that trust was an allowable deduction under S. 15-B. At the instance of the Commissioner of Income-tax the Tribunal referred the following question of law for the determination of the High Court under S. 66 (1) of theon the facts and in the circumstances of the case the assessee is entitled to claim deduction under S. 15-B in respect of the donation paid to the Agastyar TrustHigh Court answered the question against the assessee who has brought the present appeal to this Court by special leave.

Reasoning: In the present case, it appears from the deed of trust that one of the objects of the trust, namely Item 4, is not for charitable or religious purposes. Item No. 4 is "to manufacture, buy, sell and distribute pharmaceutical, medicinal, chemical and other preparations and articles such as medicines, drugs, medical and surgical articles, preparations and restoratives of food". It may be that most of the other objects of the trust are religious and charitable in nature but if Item 4 is not charitable, then the conditions envisaged by S. 4 (3) (i) of the Act are not fulfilled and the exemption conferred by S. 15-B of the act cannot be applied. Clause 5 (i) of the trust deed states that "the trustee shall have power to apply the whole or any part of the trust property or fund whether capital or income in or towards payment of the expenses of the trust or for or towards all or any of the purposes of the trust provided any property or money held in specia1 trust shal1 be applied only for that purpose and not otherwise". In the present case, there is no special trust, that is to say, no particular item of property has been burdened with the performance of any specific object of the trust.It is, therefore, manifest that under Cl. 5 (i) of the trust deed it is open to the trustees to utilise the income for any one of the objects of the trust to the exclusion of all other objects. In other words, it would not be a violation of the trust if the trustees devoted the entire income to the carrying on of a business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations In our opinion, this particular object of the trust is neither charitable nor religious inare unable to hold that there is any connection between the two objects of the trust and upon an interpretation of the document taken as a whole, it is impossible to accept the appellants contention that Cl. 2(c) is the dominant object of the trust and Cl. 2 (d) is a subsidiary object. The argument of the appellants is, in fact, contradictory of the last clause of Para. 2 of the trust deed which states that the objects shall be independent of each other, notwithstanding that any of the objects shall be void for any reason whatsoever , the trust shall be valid and operative with respect to the otherregard to the language of Para. 2 of the trust deed in the context of other paragraphs of the document, we are of opinion that the trust deed, on a proper interpretation, gives an absolute power of selection to the trustees to choose between charitable and non-charitable objects of the trust for spending the entire income of the trust properties. It follows that the Agastyar trust does not fulfil the conditions imposed by S. 4 (3) (i) of the Act and the donation made by the assessee to the Agastyar trust cannot, therefore. be exempted under S. 15-B of theare unable to accept the argument put forward on behalf of the appellants as correct. It appears that before the Appellate Tribunal there was no detailed examination of the question of law. The Tribunal merely referred to an earlier case it had dealt with regarding the same assessee. The Tribunal apparently took the view in the earlier case that even if the income which the trust earned in business was not exempt from tax the income derived from donations which was utilised for charitable purposes would be eligible for exemption. So far as the assessment for the year 1955-56 is concerned the question was not considered by the Appellate Tribunal at any length. But the In come-tax Officer held that the trust did not fulfil the conditions laid down by S. 15-B of theare, therefore, unable to accept the contention of the appellants that the question whether S. 4 (3) (i) of the Act applies to the Agastyar Trust was not within the scope of the question referred to the High Court by the Appellate Tribunal or that the High Court went beyond its jurisdiction in answering that question. In Commissioner of Income-tax, Bombay v. Scindia Steam Navigation Co. Ltd., 1961-42 ITR 589  : (AIR 1961 SC 1633  ), this Court examined the scope of the jurisdiction of the High Court in a reference under S. 66 (1) and it was pointed out that even where a question of law was not raised before the Tribunal but the Tribunal deals with it, it must be deemed to be one arising out of its order. Applying the principle to the present case, we hold that the High Court was within its jurisdiction in examining the question whether the Agastyar Trust was eligible for exemption from income-tax under S. 4 (3) (i) of the Act. We accordingly reject the argument of the appellants on this aspect of thewe have already stated, on a proper interpretation of the terms of the trust deed in the present case we are satisfied that Paragraph 2 (d) is not subsidiary in character to Para. 2 (c) and the trustees have been expressly granted the discretion to apply the income of the trust wholly to aobject to the exclusion of charitable objects. It follows, therefore, that in view of the absolute power of selection granted to the trustees to select between charitable andobjects, the provisions of Section 4 (3) (i) of the Act cannot be applied to the Agastyar trust and no exemption can be granted to the assessee under S.of the Act. We accordingly hold that the High Court rightly answered the question of law against the assessee and in favour of the Commissioner of