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Interpretation of section 4(3)(i) of the Indian Income-tax Act, 1922 regarding exemption of income applied to religious or charitable purposes. Analysis: The High Court of Kerala addressed a reference by the Income-tax Appellate Tribunal regarding the application of income to the development of Arya Vaidyasala and related activities. The key question was whether 60% of the assessee's income applied to these purposes is exempt under section 4(3)(i) of the Income-tax Act. Section 4(3)(i) excludes income derived from property held under trust for religious or charitable purposes from the total income. However, this exclusion is subject to certain conditions, including the proviso under clause (b) of sub-section (3) of section 4. The Tribunal determined that the Vaidyasala in question is property held under trust and is a business actually run by the trust, not on behalf of the trust. Consequently, the proviso to clause (i) of sub-section (3) of section 4 was deemed inapplicable, leading to the conclusion that the income is exempt under section 4(3)(i). The court affirmed this decision, emphasizing that income from a business held under trust for religious or charitable purposes falls within the exemption of section 4(3)(i) and is not subject to the proviso. The court cited legal authorities to support its decision, including Raghavachariar and Desai J., who clarified that income from a business held under trust is exempt under section 4(3)(i) and not affected by the proviso. It was established that if the business itself is held under trust, the income is exempt, and the proviso does not apply. Therefore, the court concurred with the Tribunal's ruling that the income in question is exempt under section 4(3)(i) and is not taxable under the proviso. In conclusion, the High Court answered the reference by confirming that the income applied to the development of Arya Vaidyasala and related activities is exempt under section 4(3)(i) of the Income-tax Act, 1922, and is not subject to taxation under the proviso. The judgment will be forwarded to the Appellate Tribunal as required by the law.
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