1957 (5) TMI 7 - SC - Income Tax

Whether on the facts of the case the commission earned by the managing agents for managing the Raymond Woollen Mills was income earned by the managing agents for services rendered and not income derived from property held under trust or for other legal obligations and, therefore, not exempt under section 4(3)(i) of the Income-tax Act ? Whether on the facts of the case the business carried on by the trustees falls to be considered under section 4(3)(i) or section 4(3)(ia) of the Income-tax Act ? Held that - Confining ourselves solely to the language of section 4(3)(i), there is nothing in it which restricts in any manner the normal and accepted meaning of the word 'property,' and excludes business from its connotation. A reading of Tribunal's order shows that it was not really satisfied about its correctness. Accordingly, when the appellant applied for reference under section 66(1) of the Act, the Tribunal referred the second question also for the decision of the High Court. But in the view which the learned Judges of the Bombay High Court took that business was not property within section 4(3)(i), it became unnecessary for them to express an opinion on that question. Now that we have held that the word property in section 4(3)(i), standing by itself, is susceptible of a wider connotation so as to include business, it becomes necessary to consider the second question under reference. Learned counsel on both sides agree that it would be more satisfactory that this question should be remitted to the High Court for determination. Remand the case to the High Court of Bombay for a fresh disposal of the reference on a consideration of the second question

Issues Involved:
1. Whether the income received by the trustees of the J. K. Trust, Bombay, as managing agents of Raymond Woollen Mills Ltd., is income derived from property held on trust or on an obligation in the nature of trust.
2. Whether the claim for exemption in respect of such income is to be determined under section 4(3)(i) or section 4(3)(ia) of the Indian Income-tax Act, 1922.

Detailed Analysis:

Issue 1: Whether the income received by the trustees of the J. K. Trust, Bombay, as managing agents of Raymond Woollen Mills Ltd., is income derived from property held on trust or on an obligation in the nature of trust.

The court analyzed whether the managing agency could be considered as "property" within the meaning of section 4(3)(i) of the Indian Income-tax Act, 1922. It was argued by the appellant that managing agency is a business and, therefore, property, and since it is conducted by trustees on behalf of the trust, it should be considered property held on trust. The respondent contended that managing agency involves rendering services and cannot be regarded as property, and even if it were, it could not be subject to a trust due to its precarious nature.

The court referred to the case of Lakshminarayan Ram Gopal and Son Ltd. v. Government of Hyderabad, where managing agency was held to be business. The court noted that "property" is a term of the widest import and includes every possible interest which a person can acquire, hold, and enjoy. It was held that business, including managing agency, is property within the meaning of section 4(3)(i).

The court also cited the Privy Council decision in All India Spinners' Association v. Commissioner of Income-tax, Bombay, where it was held that business could be considered property for the purposes of section 4(3)(i). The court rejected the respondent's reliance on Eggar v. Commissioner of Income-tax, as it was not relevant to the issue at hand.

The court concluded that the managing agency constituted under Exhibit B must be treated as property held on trust within section 4(3)(i) of the Act.

Issue 2: Whether the claim for exemption in respect of such income is to be determined under section 4(3)(i) or section 4(3)(ia) of the Indian Income-tax Act, 1922.

The court examined the legislative history and context of sections 4(3)(i) and 4(3)(ia). Initially, section 4(3)(i) was the only provision for exemption from taxation of income derived from property dedicated to religious or charitable trust. However, subsequent judicial decisions led to the enactment of section 4(3)(ia), which specifically dealt with business income carried on behalf of a religious or charitable institution.

Section 4(3)(ia) provides that business income would be exempt if the income is applied solely to the purposes of the institution and if the business is carried on in the course of carrying out a primary purpose of the institution or if the work is mainly carried on by beneficiaries of the institution.

The court noted that the Department contended that section 4(3)(ia) is a special provision dealing with business income, and any claim for exemption must be made under this provision. The appellant relied on the Lahore High Court decision in Gadodia Swadeshi Stores v. Commissioner of Income-tax, Punjab, which held that failure to satisfy the conditions of section 4(3)(ia) did not preclude exemption under section 4(3)(i).

Given the court's conclusion that "property" in section 4(3)(i) includes business, it became necessary to consider whether the specific provision of section 4(3)(ia) would override the general provision of section 4(3)(i). The court decided to remand the case to the High Court of Bombay for a fresh determination of this question.

Conclusion:

The case was remanded to the High Court of Bombay for further consideration of whether the claim for exemption should be determined under section 4(3)(i) or section 4(3)(ia) of the Indian Income-tax Act, 1922. The court directed the respondent to pay the appellant's costs for the appeal and the hearing before the High Court, with the costs of the further hearing to be dealt with by the High Court on remand.

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