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Whether the income derived by the assessee trust as a partner in a firm is exempt from tax under section 4(3)(i) of the Indian Income-tax Act. Analysis: The case involved the question of whether the income derived by a trust as a partner in a firm was exempt from tax under section 4(3)(i) of the Income-tax Act. The trust, in this case, held a one-third share in a partnership firm and claimed that its share income was exempt from taxation under the provisions of section 4(3)(i). The trust argued that its share in the firm was held for religious and charitable purposes. However, the Income-tax Officer rejected this claim, stating that the partnership was not held in trust for charitable purposes. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal also ruled against the assessee, leading to the matter being referred to the High Court. The High Court analyzed the provisions of section 4(3)(i) which provide for the exemption of income of properties held under trust or legal obligation wholly for religious or charitable purposes. The court emphasized that for the income to be exempt from taxation, the property must be held wholly for religious or charitable purposes, and the income must be actually applied or accumulated for such purposes. The court held that a trust with mixed objects, some of which are not religious or charitable, cannot qualify for the exemption if there is no compelling obligation to devote income for religious or charitable purposes. The court referred to a previous decision where it was held that if the trustees have unfettered discretion to utilize the income for non-charitable purposes, the property cannot be deemed to be held wholly for charitable or religious purposes. Based on the trust deed and previous judgments, the court concluded that the trust in question did not fall within the ambit of section 4(3)(i) and was ineligible for the tax exemption. The court rejected the contention that only the applicability of the proviso to section 4(3)(i) was in question, emphasizing that the assessee must first establish eligibility under the main provision before considering the proviso. Since the trust's object included a pharmaceutical business that could be lawfully performed without charitable purposes, the court held that the trust did not qualify for the tax exemption. The court relied on precedent and ruled against the assessee, directing them to pay the costs of the department. In conclusion, the High Court held that the income derived by the trust as a partner in the firm was not exempt from tax under section 4(3)(i) of the Income-tax Act. The court dismissed the assessee's claim and ordered them to pay the department's costs.
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