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

2. The facts are as follows. One P. S. Warriar, an eminent Ayurvedic physician, carried on business in Ayurvedic drugs under the name and style of "Arya Vaidya Sala"and was also running a hospital named "Arya Sikitsa Sala" and a school called "Arya Vaidya Pata Sala". The said Warriar died on January 30, 1944, after executing a will wherein he created a trust in respect of his properties, including the Arya Vaidya Sala. He gave directions to the trustees appointed under the said will to conduct the said business and to disburse the income therefrom in certain proportions to the Arya Vaidya Sala, Arya Sikitsa Sala and Arya Vaidya Pata Sala and to his descendants. Broadly stated 60 per cent of the income was directed to be spent on the said three institutions and 40 per cent, to be given to his descendants. Till the Amending Act came into force the Income-tax Department gave exemption from assessment for the 60 per cent, of the income under S. 4 (3) (i) of the Act; but, after the Amending Act came into force, which was given retrospective operation from April 1, 1952, the said Department refused to give exemption from assessment even in regard to the 60 per cent, of the income. For the assessment years 1954-55 and 1955-56 the Income-tax Officer assessed the entire income from the said properties; and in respect of the income pertaining to the assessment years 1952-53 and 1953-54, which had already been assessed in the usual course giving exemption for the said 60 per cent of the income, the Income-tax Officer issued notices under S. 34 of the Act and by two separate orders dated September 28, 1956, assessed the said 60 per cent, of the income on the basis of escaped assessment. On December 20, 1956, for the assessment year 1956-57 the Income-tax Officer, in the like manner, assessed the entire income from the said properties. The appeals filed by the assessee against the said orders of assessment to the Appellate Assistant Commissioner were dismissed. The appeals filed against the orders of the Appellate Assistant Commissioner to the Income-tax Appellate Tribunal, Madras, were consolidated and by its order dated February 28, 1958, the said Tribunal allowed the appeals exempting 60 per cent, of the said income from assessment to income-tax under S.4 (3)(i) of the Act. The references made to the High Court of Kerala were dismissed. Hence the present appeals.

Reasoning: 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.