1952 (10) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 4(3)(i) of the Income-tax Act.
2. Whether the managing agency commission earned by the trustees is exempt from taxation under Section 4(3)(i).
3. Applicability of Section 4(3)(ia) of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Interpretation of Section 4(3)(i) of the Income-tax Act:
The primary issue revolves around the interpretation of Section 4(3)(i) of the Income-tax Act. The court examined whether the managing agency commission earned by the trustees could be considered as income derived from property held under trust for charitable purposes. The court emphasized that for income to be exempt under Section 4(3)(i), it must be derived directly from property settled upon a charitable trust. It is not sufficient for the income to be merely applied to charitable purposes; the property itself must be held under trust, and the income must be directly derived from it.

2. Whether the managing agency commission earned by the trustees is exempt from taxation under Section 4(3)(i):
The court analyzed whether the managing agency commission earned by the trustees of the J.K. Trust could be considered as income derived from the trust property, i.e., the sum of Rs. 1,00,000. The court noted that the trustees were appointed as managing agents of Raymond Woollen Mills Ltd. and earned commission in that capacity. However, the commission was derived from the services rendered by the trustees as managing agents, not from the trust property. The court stated, "the managing agency commission is derived from the services rendered by the trustees as managing agents. It is a remuneration paid to them for the work they did as managing agents." Therefore, the commission earned by the trustees could not be considered as income derived from the trust property and was not exempt under Section 4(3)(i).

3. Applicability of Section 4(3)(ia) of the Income-tax Act:
The court also considered whether the business carried on by the trustees could be exempt under Section 4(3)(ia) of the Income-tax Act. However, it was acknowledged that even if Section 4(3)(ia) applied, the conditions laid down in sub-clauses (a) or (b) were not complied with by the assessee. The court remarked, "it is unnecessary to consider what is the true construction to be placed upon Section 4(3)(ia) because it is common ground that even if Section 4(3)(ia) applied neither of the two conditions laid down in sub-clause (a) or (b) has been complied with by the assessee." Therefore, the court did not delve into the interpretation of Section 4(3)(ia) for the purposes of this reference.

Conclusion:
The court concluded that the managing agency commission earned by the trustees was not exempt under Section 4(3)(i) of the Income-tax Act. The commission was derived from the services rendered by the trustees as managing agents and not from the trust property. The court also noted that the conditions for exemption under Section 4(3)(ia) were not met. Consequently, the assessee was not entitled to claim exemption for the managing agency commission, and the reference was answered accordingly, with the assessee required to pay the costs.