1964 (4) TMI 13 - SC - Income Tax

Whether the 60% of the income from the trust properties is exempt from assessment to income-tax under section 4(3)(i) of the Act? Held that - The said sub-section says that the incomes mentioned thereunder shall not be included in the total income, but the proviso lifts the ban and says that such incomes shall be included in the total income if the conditions laid down are satisfied. We think that the expression such income only means the income accruing or arising in favour of the trust. The legal position may briefly be stated thus. Clause (i) of section 4(3) of the Act takes in every property or a fractional part of it held in trust wholly for religious or charitable purposes. It also takes in such property held only in part for such purposes. Business is also property within the meaning of the said clause. Clause (b) of the proviso to section 4(3)(i) applies only to a business not held in trust but carried on on behalf of religious or charitable institutions. Appeal dismissed.

Issues Involved:
1. Interpretation of Section 4(3)(i) of the Indian Income-tax Act, 1922.
2. Applicability of the Amending Act of 1953.
3. Definition of "property" under trust for religious or charitable purposes.
4. Scope and application of the proviso in Section 4(3)(i).

Detailed Analysis:

1. Interpretation of Section 4(3)(i) of the Indian Income-tax Act, 1922:
The primary issue in these appeals is the construction of Section 4(3)(i) of the Indian Income-tax Act, 1922, as amended by the Indian Income-tax (Amendment) Act, 1953. The court examined whether the income derived from the business run under the name "Arya Vaidya Sala" and held in trust, in part, for religious or charitable purposes, qualifies for exemption from income tax under this provision. The court noted that the business was directed to use 60% of its income for religious and charitable purposes, thus meeting the requirement for partial trust under Section 4(3)(i).

2. Applicability of the Amending Act of 1953:
The Amending Act of 1953, which was given retrospective effect from April 1, 1952, altered the interpretation of Section 4(3)(i). Prior to this amendment, the income-tax department exempted 60% of the income from the business. Post-amendment, the department assessed the entire income, leading to the current dispute. The court had to determine whether the amended provisions applied to the income derived from the trust properties during the assessment years in question.

3. Definition of "property" under trust for religious or charitable purposes:
The court examined whether the business itself could be considered "property" held under trust for religious or charitable purposes. The court referred to precedents, including the Privy Council's decision in In re The Trustees of the Tribune and the Supreme Court's decision in J. K. Trust v. Commissioner of Income-tax, which established that business is indeed property. The court concluded that the business of Arya Vaidya Sala, held in trust for religious and charitable purposes, falls within the definition of property under Section 4(3)(i).

4. Scope and application of the proviso in Section 4(3)(i):
The court analyzed the proviso to Section 4(3)(i), which states that income derived from business carried on behalf of a religious or charitable institution shall not be exempt unless certain conditions are met. The court clarified that this proviso applies only to businesses not held in trust but carried on behalf of such institutions. Since the Arya Vaidya Sala business was held in trust, the proviso did not apply. The court emphasized that the substantive clause of Section 4(3)(i) covers property held wholly or in part for religious or charitable purposes, including businesses.

Conclusion:
The court held that the High Court correctly interpreted Section 4(3)(i) and the proviso. The Arya Vaidya Sala business, held in trust for religious and charitable purposes, qualified for exemption from income tax for the 60% of income used for such purposes. The appeals were dismissed, affirming the High Court's decision.

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