1981 (1) TMI 8 - HC - Income Tax

Summary

Issues:
1. Whether the business of mining or making loans was held under trust to attract provisions of s. 4(3)(i) of the Indian I.T. Act, 1922?
2. Whether the proviso (b) of s. 4(3)(i) applied to render the income earned by the trust assessable to tax?

Analysis:

The case involved a reference under s. 66 of the Indian I.T. Act, 1922, concerning assessments for the years 1954-55, 1955-56, and 1956-57. The assessee, an association of persons, operated under a trust deed for charitable purposes, including mining and making loans. The trustees were authorized to conduct business activities, including mining operations and giving loans. The trust earned income from mining contracts and loans during the relevant years.

Before the ITO, the assessee claimed exemption under s. 4(3)(i) of the Act, but the ITO denied it, stating that the business was not held in trust. The AAC allowed the exemption, which was upheld by the Tribunal. The reference to the High Court focused on whether the business activities were held under trust as per the trust deed.

The High Court analyzed the trust deed clause 18, which clearly indicated that the business was held in trust. The court emphasized that the existence of the business before the trust deed was not a prerequisite for attracting s. 4(3)(i). Therefore, the court held that the business was held in trust, attracting the provisions of s. 4(3)(i) for all relevant assessment years.

Regarding the application of proviso (b) of s. 4(3)(i), the court found that since the business was held in trust, the proviso did not apply. Consequently, the court answered the first question in the affirmative, against the Revenue, and the second question in the negative, also against the Revenue. The assessee was awarded costs for the reference.

In conclusion, the High Court held that the business activities of the trust, including mining and giving loans, were held under trust as per the trust deed, attracting the provisions of s. 4(3)(i) of the Indian I.T. Act, 1922. The court's decision clarified the application of the proviso and upheld the assessee's claim for exemption under the Act.