Case: Commissioner of Income Tax, Kerala Vs. P. Krishna Warrier

One P. S. Warrier carried on business in Ayurvedic drugs in the name and style of "Arya Vaidya Shala". He made a will appointing trustees of his estate. The trustees were directed to carry on the "Arya Vaidya Shala" and to maintain a hospital and a school conducted by Warrier and to apply 60% of the income for the benefit of the hospital and the school and the rest for the benefit of two thavazies. Exigibility to tax of 60% of the income directed to be utilised for the hospital and the school was finally decided by this court in Commissioner of Income-tax v. P. Krishna Warriar. In these appeals the dispute relates to the special surcharge on income-tax and super-tax on the balance of the income directed to be given to the two thavazies in the account years relevant to the assessment years 1957-58 to 1961-62 After the original assessments were completed, on coming to learn that 15% surcharge on tax should have been levied in respect of the total income of the trust, which in his view was unearned income, the Income-tax Officer issued notices under section 34(1)(b) and assessed the trustees to special surcharge under the Finance Act, 1957 (2 of 1957). The order was confirmed in appeal by the Appellate Assistant Commissioner and the Appellate Tribunal

Court's reasoning:
The High Court of Kerala held that the share paid to the thavazies, being earned income, was not liable to surcharge. In the opinion of the High Court the case did not fall within the terms of section 41 of the Indian income-tax Act, 1922, since the business of "Arya Vaidya Shala" was property and the trustees did not carry on the business on behalf of any beneficiaryBy the Finance Act (No. 2), 1957 (2 of 1957), Part I, a surcharge on income-tax is leviedUnder the will of P. S. Warrier the trustees were directed to carry on the business of "Arya Vaidya Shala". In the income of the business the trustees had no beneficial interest, but it was still income chargeable under the head "Profits and gains of business, profession or vocation" carried on by the trustees. Being income chargeable under the head "Profits and gains of business, profession or vocation" carried on by the trustees, it was earned income in their hands, and to the earned income the special surcharge under the Finance Acts of 1957, 1958, 1959, 1960 and 1961 had no application. The High Court was right in answering the third question referred by the Tribunal in favour of the trustees