1970 (3) TMI 53 - HC - Income Tax

Trust - income from business - income from property - claim for exemption under section 4(3)(i)

Summary

Issues:
Interpretation of section 4(3)(i) of the Indian Income-tax Act, 1922 regarding exemption of income from property held under trust for charitable purposes. Application of proviso (b) to section 4(3)(i) in determining tax liability on income derived from business activities of a trust.

Analysis:

The case involved the interpretation of section 4(3)(i) of the Indian Income-tax Act, 1922, regarding the exemption of income from property held under trust for charitable purposes. The Seth Kirodimal Charity Trust claimed exemption for income earned from hessian and money-lending business under this provision. The main issue was whether the income of Rs. 5,31,584 was entitled to exemption under section 4(3)(i) itself or if it should be included in the total income of the assessee under proviso (b) to section 4(3)(i).

The Trust was created for charitable purposes, including establishing hospitals, temples, educational institutions, etc. The income in question was earned during the accounting year 1952-53, with one part being interest on loan advances and the other part being profits from hessian transactions. The Income-tax Officer initially held that the income was not exempt under section 4(3)(i), but the Appellate Assistant Commissioner exempted the interest income while including the profit from hessian transactions in the total income.

Upon appeal to the Income-tax Appellate Tribunal, it was held that both items of income were exempt under section 4(3)(i) as "income derived from property held under trust." The Tribunal reasoned that the proviso (b) did not exclude income derived from business activities of a trust from the exemption provided under section 4(3)(i).

The High Court, after examining the provisions of section 4(3)(i) and the effect of the 1953 amendment, affirmed the Tribunal's decision. The Court emphasized that the proviso (b) was not intended to carve out income derived from business activities of a trust from the ambit of section 4(3)(i). The Court also highlighted previous judgments that clarified the distinction between income derived from property held under trust and income derived from business activities carried on behalf of a religious or charitable institution.

Furthermore, the Court rejected the argument that the income from hessian transactions was speculative in nature, emphasizing that it was profits from a legitimate business activity of the trust. Therefore, the Court concluded that the income from hessian and money-lending business was indeed entitled to exemption under section 4(3)(i) itself.

In conclusion, the Court ruled in favor of the Trust, stating that the income in question was exempt under section 4(3)(i) and there was no need to address the second question raised in the reference. The costs of the reference were to be paid by the Commissioner of Income-tax, Madhya Pradesh.