1979 (11) TMI 42 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income derived from Arya Vaidya Sala is exempt under section 11(1)(a) of the Income-tax Act, 1961, read with section 2(15), or section 4(3) of the Indian Income-tax Act, 1922.
2. Whether the Tribunal was justified in declining to admit additional evidence.
3. Whether the interpretation of the will of late Shri P. S. Warrier by the Tribunal was proper and valid.
4. Whether the amounts earmarked for Arya Vaidya Sala, Arya Vaidya Hospital, and Arya Vaidya Patasala are entitled to exemption under section 11 of the Income-tax Act, 1961.
5. Whether the Tribunal was justified in holding that the income spent towards Arya Vaidya Patasala and Arya Vaidya Hospital out of the profits of Arya Vaidya Sala is exempt under section 11.

Detailed Analysis:

1. Exemption of Income Derived from Arya Vaidya Sala:
The main question was whether the income derived from Arya Vaidya Sala is exempt under section 11(1)(a) of the Income-tax Act, 1961, read with section 2(15), or section 4(3) of the Indian Income-tax Act, 1922. The court analyzed the will of late P. S. Warrier, which constituted Arya Vaidya Sala into a trust. The primary and chief objects of the trust included carrying on the Arya Vaidya Sala and the Arya Vaidya Hospital. The court noted that up to the assessment year 1951-52, 60% of the income was exempt, but this was contested for subsequent years. The court held that the business itself was impressed with the character of the trust, and the income derived from it was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922, and section 11 of the Income-tax Act, 1961. The court overruled the previous decision in CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker) and held that the income from Arya Vaidya Sala was for charitable purposes and entitled to exemption.

2. Admission of Additional Evidence:
The Tribunal had declined to admit additional evidence, including affidavits from the managing trustee and another individual, during the appeal process. The court found that the Tribunal's refusal to admit the additional evidence was unjustified. The court emphasized that the additional evidence could have provided significant insights into the nature and purpose of the trust. Therefore, the Tribunal's decision to decline the admission of additional evidence was not justified.

3. Interpretation of the Will of Late Shri P. S. Warrier:
The interpretation of the will was crucial in determining the nature of the trust and its eligibility for tax exemption. The court found that the Tribunal and the previous decision in CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker) had misinterpreted the will by not recognizing that the Arya Vaidya Sala itself was constituted into a trust. The court held that the predominant object of the trust was charitable, focusing on medical relief, relief of the poor, and education. The court concluded that the Tribunal's interpretation of the will was incorrect and that the trust was indeed for charitable purposes.

4. Exemption of Amounts Earmarked for Arya Vaidya Sala, Arya Vaidya Hospital, and Arya Vaidya Patasala:
The court examined whether the amounts earmarked for Arya Vaidya Sala, Arya Vaidya Hospital, and Arya Vaidya Patasala under the will were entitled to exemption under section 11. The court held that the amounts set apart for these institutions were for charitable purposes and thus eligible for exemption. The court emphasized that the trust's primary purpose was charitable, and the income applied to these institutions fell within the scope of section 11.

5. Exemption of Income Spent Towards Arya Vaidya Patasala and Arya Vaidya Hospital:
The court addressed whether the Tribunal was justified in holding that the income spent towards Arya Vaidya Patasala and Arya Vaidya Hospital out of the profits of Arya Vaidya Sala was exempt under section 11. The court affirmed that the income spent on these institutions was for charitable purposes and entitled to exemption. The court reiterated that the business of Arya Vaidya Sala was held under trust for charitable purposes, and the income applied to Arya Vaidya Patasala and Arya Vaidya Hospital was exempt under section 11.

Conclusion:
The court concluded that the income derived from Arya Vaidya Sala was exempt under section 11 of the Income-tax Act, 1961. The Tribunal's refusal to admit additional evidence was unjustified, and the interpretation of the will by the Tribunal was incorrect. The amounts earmarked for Arya Vaidya Sala, Arya Vaidya Hospital, and Arya Vaidya Patasala were entitled to exemption. The income spent towards Arya Vaidya Patasala and Arya Vaidya Hospital out of the profits of Arya Vaidya Sala was also exempt under section 11. The court overruled the previous decision in CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker) and held in favor of the assessee.