Judgment Case ID: 1827

Judgment:
Appeal	 Nos. 606 610 of 1963. Appeals by special leave from the judgment dated January 20	 1961 of the Kerala High Court in Income tax Referred Case No. 16 of 1959. K. N. Rajagopal Sastri and R. N. Sachthey	 for the appellant (in all the appeals). 38 section T. Desai and Sardar Bahadur	 for the respondent (in all the appeals). April 29	 1964. The Judgment of the Court was delivered by SUBBA RAo J. These appeals by special leave raise the question of the construction of the provisions of section 4(3) (i) of the Indian Income tax Act	 1922	 hereinafter called the Act	 as am ended by the Indian Income tax (Amendment) Act	 1953	 hereinafter called the Amending Act. The facts are as follows. One P. section 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 thesaid will to conduct the said business and to disburse theincome 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 Incometax Department gave exemption from assessment for the 60 per cent of the income under section 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 Depart ment 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 section 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	 39 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 Com missioner 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 section 4(3) (i) of the Act. The references made to the High Court of Kerala were dismissed. Hence the present appeals. Mr. Rajagopala Sastri	 learned counsel for the Revenue	 contends that under section 4(3)(i) of the Act whereunder the said income is given exemption from taxation	 the property wherefrom the income is derived shall have been held under trust wholly or in part for religious or charitable purposes	 that the business run under the name and style of Arya Vaidya Sala was not capable of being held in trust	 that even if it was capable of being held under trust	 it was not wholly or in part so held in trust for religious or charitable purposes	 as only a part of the income was directed to be spent for religious or charitable purposes and that in the circumstances cl. (b) of the proviso was attracted but the conditions laid down thereunder were not complied with. Learned counsel for the respondent	 Mr. section T. Desa	 contends that business is property within the meaning of section 4(3) (i) of the Act and that it is held in trust in part for religious and charitable purposes and	 therefore	 the sub stantive part of the provision is attracted to the facts of the case and hence the proviso is excluded. Before we construe the relevant provisions of the Act and consider the arguments advanced on either side	 it would be convenient at the outset to read the material part of the will and to ascertain the scope of the bequest created thereunder. The will is marked as Annexure A2 in the case. The relevant parts of the Will read: "1. Will executed by Panniampalli Warriath deceased Parvathi alias Kunkikutty Warassiar 's 40 son Sri Sankunny Warriar known as Vaidyaratnam Sri P. section Warriar	 residing at Puthan Warian in Kottakkal Amsom and Desom of Ernad Taluk." "7. Apart from the properties mentioned in Schedule B	 C and D all other properties	 movable as well as immovable	 belonging to me I hereby constitute into a trust to be managed by the trustees as per the directions in the will. They are described in Schedule E	 and on my demises those properties will vest in the trustees. It is MY intention that except the properties mentioned in pares 4 and 5 (B	 C & D Schedule)	 all my properties are to be included in the Trust and therefore	 even if some item of property is left out by inadvertence	 it is also to be deemed included in the Trust and vested in the Trustees." "8. Provisions regarding the Trust. I hereby nominate the following persons as the first Board of Trustees: "9. The above Trust is to be managed and conducted according to the terms and conditions detailed below: (A to F) . . . . . The primary and chief objects of the Trust are to carry on for ever the two institutions viz.	 the Arya Vaidya Sala and the Arya Vaidya Hospital on the lines followed now with the object of enlarging and increasing their scope and utility. The work of Arya Vaidya Sala now consists of	 1. preparation of Ayurvedic medicines	 2. sale of the same	 3. treatment of . patients	 receiving from them compensation according to their capacity and means	 41 4. to conduct research into Arya Vaidyam with a view to make it more and more useful to the public. The following are the matters conducted in the institution called the Arya Vaidya Hospital. To examine poor patients free of charge	 to prescribe treatment for them and give medicines gratis (out patient Department). To take in at least 12 poor patients at any time	 give them lodging and board and also free medicines and treatment free (the in patient Department) . To carry out the said services with the help of an Arya Vaidyan and necessary operations with the help of an Allopathi doctor. Give treatment and medicines to all persons seeking them	 receiving from such of them as are able such remuneration as they can afford including cost of medicines. The Arya Vaidya Hospital is now carried on with the medicines supplied by and taken from the Arya Vaidya Sala and the incidental expenses are now met from out of the funds of the Arya Vaidya Sala. The trustees are to run the above institutions according to the intentions expressed above with such modifications as the circumstances may warrant. In the Arya Vaidya Patasala run under the auspices of the Arya Samajam	 Aryavaidyam is taught in accordance with the service of Ayurveda. I have been meeting the expenses of the said institutions	 not covered by its income. From out of the profits of Arya Vaidya Sala. L. Out of the net profits of the Arya Vaidya Sala 25 per cent is to be devoted to the develop ment of the Arya Vaidya Sala	 25 per cent for meeting the expenses of the Arya Vaidya Hospital and 25 per cent for division equally between the two tavazhies (this only for 25 years) out of the remaining 25 per cent a sum not exceeding 10 per cent may be according to requirements	 utilised for the purposes of the Arya Vaidya Patasala. The balance	 if any	 that may remain out of the 10 per cent after disbursement to the Arya Vaidya Patasala	 may be used for the Arya Vaidya Sala itself. The balance 15 per cent .are to be deposited by the Trustees each year in approved banks as a Reserve fund for the two tavazhies for a period of 20 years and the fund thus accumulated inclusive of interest is to be divided equally among the two tavazhies equally i.e.	 in moiety and it will be the duty of the Trustees to invest 'the same on the authority of immovable properties. The Trustees are not bound to pay any amount to the said two tavazhies after the expiry of 20 years. The 40 per cent of the profit so earmarked for 20 years and so released after the expiry of 20 years are therefore to be utilised for the development of the Arya Vaidya Sala and Arya Vaidya Hospital according to the discretion of the Trustees. E Schedule: All remaining properties constituted into the Trust. will be seen from the said recitals of the Will that the stator created a trust in respect of his entire properties	 cluding those mentioned in Schedules B	 C and D and specifically vested them in the trustees appointed there under. The properties so vested included the business mrried 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 Vaidya Hospital 43 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 per cent for the develop ment of Arya Vaidya Sala	 25 per cent to meet the expenses of the Arya Vaidya Hospital	 not exceeding 10 per cent for the Arya Vaidya Patasala	 25 per cent to be shared equally by the two branches of the family of the testor 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 per cent to be given to the said branches; that is to say	 60 per cent 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 per cent to be utilized for the said purposes and the rest to be spent on non religious and non charitable 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 per cent of the profits of the business for 20 years and 85 per cent thereafter for religious and charitable purposes. The assessment years in question fell within 20 years from the death of the testator and	 therefore	 we are concerned only with 60 per cent of the income from the trust properties. The question is whether the 60 per cent of the income from the trust properties is exempt from assessment to income tax under section 4(3) (i) of the Act. The relevant provisions of the Act read: Section 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 purposes	 and in the case of property so held in part only for such purposes	 the income applied	 or finally set apart for application	 thereto: Provided that such income shall be included in the total income. . . . (b) in the case of income derived from business carried on behalf of a religious or charit 44 	able institutions	 unless the income is applied wholly for the purpose of the institution and either (i) the business is carried on in the course of the actual carrying out of a primary purpose of the institution	 or (ii) the work in connection with the businem is mainly carried on by beneficiaries of the institution. A brief history of the proviso may not be out of place here. Before the amendment of this clause by the Amending Act of 1953 the proviso was in the form of a separate substantive clause and was numbered as cl. (i a). The said cl. (i a) came under judicial scrutiny. It was argued on behalf of the Revenue that though a business was held under trust for religious or charitable purposes	 it would fall under cl. (i a) and the income therefrom could not be exempted from income tax unless the conditions laid down in the said clause were complied with. In Charitable Gadodia Swadeshi Stores vs Commissioner of Income tax	 Punjab (1). the Labore High Court rejected that contention	 and one of the reasons given for the rejection was that if the &aid clause was intended to narrow down the scope of cl. (i)	 the said clause would have been added as a proviso to the old clause. Presumably on the basis of this suggestion the Amending Act of 1953 substituted cl. (i a) by cl. (b) of the proviso. But it is not an inflexible rule of construction that a proviso in a statute should always be read as a limitation upon the effect of the main enactment. Generally the natural presumption is that but for the proviso the enacting part of the section would have included the subject matter of the proviso; but the clear language of the substantive provision as well as the proviso may establish that the proviso is not a qualifying clause of the main provisions	 but is in itself a substantive provision. In the words of Maxwell	 "the true principle is that the sound view of the enacting clause	 the saving clause and the proviso taken and construed together is to prevail". So construed we find no difficulty	 as we will indicate later (1) (i944) in our judgment	 in holding that the said cl. (b) of the proviso deals with a case of business which is not vested in trust for religious or charitable purposes within the meaning of the substantive clause of section 4(3) (i). With this introductory remarks we shall proceed to construe the provisions of section 4(3)(i) of the Act	 along with cl. (b) of the Proviso. Under cl. (i)	 so far as it is relevant to the question raised before us	 to earn the exemption the income shall have been derived from property under trust wholly or in part held for religious or charitable purposes. Under cl. (b) of the proviso to that clause	 in the case of income derived from business carried on on behalf of a religious or charitable institution	 unless the condition laid down thereunder are complied with	 the said income cannot be exempted. 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 *vent 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 I behalf of a religious or charitable institution. To take a business out of the substantive cl. (i) of section 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. The Privy Council in In re Trustees of the Tribune( ') did not question the view expressed by the Bombay High Court that business of running the newspaper Tribune was property held under trust for charitable purposes. This Court in J. K. Trust	 Bombay vs Commissioner of Income tax. Excess profits Tax Bombay( ') endorsed the said view and held that "property" is a term of the widest import and that business would undoubtedly be property unless there was something to the contrary in the enactment. If business was property	 it could be held under trust for religious and charitable purposes. As the	business of running the Arya Vaidya Sala vested under trust for religious and charitable purposes	 it would fall under (1) (2) (1958) S.C.R. 65 46 cl. (i)	 if the other conditions laid down therein were satisfied. The necessary condition for the application of cl. (i) of section 4(3) of the Act is that the said property	 namely	 the business	 shall have been wholly or in part held for religious or charitable purposes. As 40 per cent of the profits in the business would be given to purposes other than religious or charitable purposes it cannot be said that the business was held wholly for religious or charitable purposes. But as 60 per cent of the profits thereof would be spent for religious or charitable purposes	 the question is whether it can be held that the business was held in trust in part for religious or charitable purposes. The argument advanced on behalf of the Revenue is that the expression "in part" in cl. (i) applies only to a case where an aliquot part of property is vested in trust and that is not legally possible in the case of business. It is said that a business is one and indivisible and	 therefore	 the subject matter of trust can only be the share of the profits payable to a partner during the continuance of the partnership or after its dissolution. Reliance is placed in support of the said proposition on the decisions in K. A. Ramachar vs Commissioner of Income tax	 Madras( ')	 David Burnet vs Charles P. Leininger(2)	 Mohammad Ibrahim Riza vs Commissioner of Income tax	 Nagpur(3). The first two decisions dealt with a different problem	 viz.	 whether an assessee is liable to tax on his share of profits in a firm after setting or assigning the same in favour of a third party and the courts have held that the profits accrued to the assessee before the assignments could operate on them and he was liable to be assessed to tax on the said profits. In the third decision	 the Judicial Committee held that there was no valid trust for charitable purposes	 as the utilization of the income to charitable or secular purposes was left to the absolute discretion of the head of the community. None of the three decisions has any bearing on the question whether a business could be held in trust wholly or in part for religious or charitable purposes. That question falls to be considered on different considerations. In our view	 the expression "in part" does not refer to an aliquot part; if half a house is held in trust wholly for (1) ; (2) ; (3) (1930) 57 T.A. 260 47 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 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 a part of the income shall be given to the grantor 's heirs. A property may be given to an individual subject to	 or burdened with	 a charge in favour of are 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 therefrom in favour of the public by way of easement or otherwise. There may be many other instance	 where though there is a trust	 it involves only a partial dedication of the property held under trust in the sense that only a Dart 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 60 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 section 4(3) of the Act. Even so it is contended that cl. (b) of the proviso imposes further limitations before the exemption can be 48 granted. But the said clause of the proviso only applies to the case of income derived from business carried on on r 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 section 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 Vijiya Agency vs Commissioner of Income tax	 Bombay City( ') 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: with the scope of property consisting of business held under trust wholly for religious or charitable purposes. It must of necessity mean that we have in clause (i) a very wide category of business which is trust property	 and we have in proviso (b) a restricted and a lesser category of business which is carried on by or on behalf of a religious or charitable institution. " A Division Bench of the Kerala High Court in Dharmodayam 	Co. vs Commissioner of Income tax	 Kerala( ') expressed much to the same effect. A Division Bench of the Madras !High Court	 in Thiagesar Dharma Vanikam vs Commissioner (1) 	 405 466	 410. (2) (11962) 49 of Income tax	 Madras( ')	 after considering the decisions of the various High Courts and the relevant provisions of the Act	 observed: A "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 (1) 	 807	 809. 51 section C. 4 50 "such" may as well refer to the "income" in the opening sentence of sub section 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. The legal position may briefly be stated thus. Clause (i) of section 4(3) of the Act takes in every property or a frac tional 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 section 4(3) (i) applies only to a business not held in trust but carried on on behalf of religious or charitable institutions. For the foregoing reasons we hold that the High Court has correctly answered the question referred to it. In the result	 the appeals fail and are dismissed with costs. One set of hearing fees. Appeal dismissed.

Summary:
A testator was carrying on business in Ayurvedic drugs under the name and style of Arya Vaidya Sala. Under his will his properties	 A including the business	 were held under trust and the object of the trust was to utilise 60 per cent of the profits of the business for 20 years and 85 per cent thereafter for religious and charitable purposes. The assessment years in question fell within 20 years from the death of the testator and the question was whether the 60 per cent of the income from the trust properties was exempt from assessment to income tax under section 4(3)(1) of the Indian Income tax Act	 1922. The Income tax authorities rejected the claim for exemption and assesses. the entire income from the said properties	 on the ground that the substantive cl. (i) of section 4(3) was not applicable to the case but only cl. (b) of the proviso and that the conditions laid down thereunder were not complied with. HELD: (i) The business run under the name and style of Arya Vaidya Sala was property within the meaning of section 4(3)(i) of the Indian Income tax Act	 1922	 and as the entire business was held in trust for utilising a part of its profits for religious or charitable purposes	 the said income was exempt from assessment to income tax under that section. (ii) Cl. (b) of the proviso to section 4(3)(i) was applicable only to a business not held in trust but carried on on behalf of a religious or charitable institution	 (iii) A business held in trust wholly or in part for religious or charitable purposes was not a business carried on on behalf of a religious or charitable institution. (iv) The dichotomy between the two expressions "wholly" and "in part" in section 4(3)(i) was not based upon the dedication of the whole or a fractional part of the property	 but between the dedication of the said property the income from which was to be utilized wholly for religious or charitable purposes or in part for such purposes. (v) The expression "such income" in the opening words of the proviso to section 4(3)(i) meant "income accruing or arising in favour of the trust".