Case ID: 513

Judgment:
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 66(1) 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 66(1) 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. 1	00	000 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. 50	000 and an office allowance of Rs. 1	000 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. 1	00	000 (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 1/2 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. 30	000 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. 23	287 in 1946 47	 Rs. 36	786 in 1947 48 and Rs. 2	16	460 in 1948 49 was liable to be taxed under the provisions of the taxing statutes. On applications made by the assessee under a. 66(1) 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	 C.J.	 and Tendolkar	 J.	 who held that no part of the sum of Rs. 1	00	000 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 J.K. 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 4(3)(i) 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 4(3)(i) 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 (3)(i)	 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 4(3)(i). 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 took	the 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) ; L.R. 66 I.A. 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 (3)(i) 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 4(3) (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 4(3) (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) ; L.R. 71 I.A. 159	 73 fluctuating stock of yarn and cloth"	 and that the exemption in section 4(3)(i) 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 4(3)(i) of the Act. It is next contended for the respondent that even if business could in general be held to be property within section 4(3) (i)	 managing agency cannot be so regarded	 because having regard to sections 2(9A)	 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] S.C.R. 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 4(3)(i) 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 S.C.R. 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 77(c) 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. 1	00	000 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. 1	00	000 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 4(3)(i) 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 4(3)(i) 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 4(3)(i) read along with section 4(3)(ia) 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 4(3)(i). 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	 Dublin(3)	 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 4(3)(i) was (1) ; ; (3) [1021] A.C. 1. (2) I.L.R. (4) I.L.R. (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 4(3)(ia)	 which is 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: (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 4(3)(i) 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	 Punjab(1)	 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 4(3)(ia) was no reason why it should not be exempt from taxation if it fell within 1) 78 section 4(3) (i)	 and the main ground of the decision was that the two categories mentioned in section 4(3) (i) and section 4(3) (i)(a) 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 4(3)(i)	 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. 1	000 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 4(3)(i) 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 4(3)(i) 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 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. Held: (1) A managing agency is business which would be property within section 4(3)(i) of the Act. Lakshminarayan Ram Gopal and Son Ltd. vs The Government of Hyderabad	 (1955) I.S.C.R. 393	 followed. All India Spinners ' Association vs Commissioner of Income tax		 Bombay 	 relied on	 66 (2)Though 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. (3)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 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 4(3)(i) of the Act when the conditions laid down in section 4(3)(ia) were not satisfied.