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TMI Blog1979 (11) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... operties were tarwad properties and all the other properties, movable and immovable, and all outstanding transactions and the institutions known as Arya Vaidya Sala, the Arya Vaidya Hospital and allied institutions together with all outstandings relating to them are the testator's private acquisitions. The B schedule properties were given to the tavazhi of Lakshmi Warassiar, daughter of the testator's mother's younger sister, and her children then existing and to be born in future the C schedule, to the tavazhi of Kunchi Warassiar (another daughter of the mother's sister) and her children born and to be born; the D schedule properties were left in common to the two tavazhis. Clause 7 of the will constituted all the remaining properties into a trust to be managed by the trustees. These were described in the E schedule to the will. Clause 7 may well be extracted " 7. Apart from the properties mentioned in schedules B, C and all other properties, movable as well as immovable, belonging to me, I hereby constitute into a trust to be managed by the trustees as per the directions in the will. They are described in schedule E. On my demise those properties will vest in the trustees. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para. L to be paid on the joint receipt of the karnavan, the senior most anandaravan and the senior most lady of the respective tavazhis." Up to the assessment year 1951-52, excluding the 40% of the income earmarked for the two tavazhis, exemption was being granted to the other 60% of the income. For the years 1952-53 and 1953-54, after the amendment to the Indian I.T. Act, 1922, in respect of s. 4(3)(i) of the Act, the department took the view that the exemption granted should be withdrawn except regarding the 25% granted to the vaidyasala. At the instance of the revenue a reference came up to this court against the Tribunal's decision which was adverse to the department. The decision of this court is reported as CIT v. Krishna Warriar [1962] 44 ITR 828, 833 (Ker). The question referred was : " Whether 60% of the income of the assessee applied to the development of Arya Vaidya Sala and the conduct of the hospital and school aforesaid is not exempt under section 4(3)(i) having regard to clause (b) of the proviso to that sub-section ? " A Division Bench of this court (M. S. Menon and M. Madhavan Nair JJ) noticed section 4 of the Indian I.T. Act, 1922, which deals with the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Vijaya Agency v. Commissioner of Income-tax [1960] 38 ITR 392, 412 (Bom): 'On a fair reading of clause (i), it must be held, in my judgment, that there is nothing in proviso (b) to clause (i) of section 4(3) which in any manner touches the case of a business which is held under trust for religious or charitable purposes. The income derived from such business is not to be included in the total income of the person receiving it.' In the light of what is stated above we agree with the Tribunal and hold that the income in controversy is exempt under section 4(3)(i) of the Indian Income-tax Act, 1922, and that it is not brought back into the net of taxation by clause (b) of the proviso to that sub-section. We answer the reference accordingly though in the circumstances of the case without any order as to costs. " On appeal against the said decision, the judgment of this court was affirmed-vide CIT v. P. Krishna Warriar [1964] 53 ITR 176 (SC). Subba Rao J., who spoke for the court, extracted the terms of the will. After noticing s. 4(3)(i) of the Indian I.T. Act, 1922, and cl. (b) of the proviso to the section, the Supreme Court examined the decisions which had considered the sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. " We may at this stage refer to the decision of a Division Bench of this court in Dharmodayam Co. v. CIT [1962] 45 ITR 478, which is referred to in the Supreme Court decision noticed. The same Division Bench which dealt with Krishna Warriar's case [1962] 44 ITR 828, restated the position thus : " We are dealing with a case where the business itself is held under trust for religious or charitable purposes ; we are not dealing with a case where the business is conducted on behalf of the religious or charitable institution. This is abundantly clear from the memorandum of association. The first object of the company, as stated therein, is 'to raise funds by conducting kuris with the company as the foreman ; receiving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are unable to accept the submission made by Mr. Ramamurthi on behalf of the revenue that by reason of the change brought about by the Act of 1961 in the definition of the expression ' charitable purpose ', the judgment of the Kerala High Court in Dharmodayam's case [1962] 45 ITR 478 (Ker) is not good law and that the decision therein cannot any longer govern the question whether income received by the assessee by conducting the kuris is exempt from taxation. The entire argument is built around the words ' advancement of any other object of general public utility not involving the carrying on of any activity for profit ' which occur in the definition of 'charitable purpose' contained in section 2(15) of the Act of 1961, particular emphasis being laid by counsel on the expression ' not involving the carrying on of any activity for profit '. This argument assumes that the respondent is running the kuris as a matter of advancement of an object of general public utility. If that were so, it would have been necessary to inquire whether conducting the kuri business involved the carrying on of any activity for profit. The answer, perhaps, to that inquiry might have been in the affirmative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l public utility involving the carrying on of an activity for profit. In Dharmodaram Co.'s case [1977] 109 ITR 527 the Supreme Court pointed out that the last clause of s. 2(15) of the 1961 Act had no application to the facts in Krishna Warrier's case [1972] 84 ITR 119 (Ker). The Supreme Court then referred to East India Industries (Madras) P. Ltd. v. CIT [1967] 65 ITR 611 (SC), where it was held that the business of carrying on of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations was neither charitable nor religious and the assessee was not entitled to claim deduction under s. 15B of the 1922 Act in respect of donations received by the trust. Reference was also made to Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC). It has held that the decision had no application as the business of the kuris was not started with the object or for the purpose of advancing an object of general public utility. Reliance was also placed for the revenue on the decision of the Supreme Court in Indian Chamber of Commerce's case [1975] 101 ITR 796 (SC). That case referred to the decision of the Kerala High Court in Dharmodayam Co.'s case [1974] 94 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral public utility " and not the words " relief of the poor, education and medical relief " in s. 2(15) of the I.T. Act, 1961. It was ruled that the income of the appellant from the kuri business was income held under trust for charitable purposes and the appellant was entitled to exemption under s. 11 (1)(a) of the Act. The decision of this court in CIT v. Dharmadeepti [1975] 100 ITR 375 [FB] was reversed. In Dharmaposhanam Co. v. CIT [1978] 114 ITR 463 (SC), it was ruled that whether the trust is for a charitable purpose or not, falls to be determined by reference to all the objects for which the trust had been brought into existence and not merely to the activity actually conducted by the assessee. Applying the principle, it was ruled that the claim for exemption failed. Considerable reliance was placed on the decision of this court in CIT v. P. Krishna Warrier [1972] 84 ITR 119. A Division Bench of this court held that the objects of the Vaidyasala did not constitute a charitable purpose within the meaning of s. 2(15) of the Act. It was also held that the intention of the testator was that the Vaidya Sala by its working must apply the financial resources essential for the exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these cases, the Supreme Court observed (at page 470): " It has been urged on behalf of the appellant that what should be taken into consideration is the activity actually conducted by the assessee, and not what is open to it under the provisions of its memorandum of association. We do not agree. Whether a trust is for charitable purposes falls to be determined by reference to all the objects for which the trust has been brought into existence. See Tennent Plays Ltd. v. Commissioners of Inland Revenue [1948] 30 TC 107 (CA) and Incorporated Council of Law Reporting for England and Wales v. Attorney-General and Commissioners of Inland Revenue [1971] 47 TC 321 (CA). In Rex v. Special Commissioners of Income-tax [1922] 8 TC 286 (CA), it was pointed out by the Court of Appeal in England that if the settler reserves to himself the power of appointment under which he might appoint to non-charitable purposes, the trust cannot claim exemption even though the power of appointment is in fact exercised in favour of a charitable object. It would be a different case where one or more of the objects mentioned in the memorandum of association, although included therein, were never intended to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was held not entitled to deduction under s. 15B in respect of donations made by the trust. The decision is surely distinguishable. There was no question of the business itself having been impressed with the character of the trust as in the present case and as was stressed by the principle of the decision in CIT v. P. Krishna Warrier [1962] 44 ITR 828 (Ker) and the other cases that we have referred to. Counsel for the revenue repeatedly stressed the decisions in CIT v. Dharmodayam Co. [1977] 109 ITR 527 (SC), CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker) and Dharmaposhanam's case [1978] 114 ITR 463 (SC) at 466 and 468. We have examined these decisions and showed how the principle of those decisions can have no application. In the light of the principles discussed above, we shall proceed to answer the various references before us. I.T.R. Nos. 95 of 1974 and 40 of 1976: The question referred in I.T.R. No. 95 of 1974, was only one, viz.: " Whether the Tribunal was justified in law in declining to grant the request of the assessee to admit the additional evidence, the particulars of which are specified in annexure D ? " The assessment year is 1964-65. The dispute wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11(4) of the Income-tax Act, 1961, for the assessment year 1964-65 ? 2. Is the approach made and interpretation placed on the will of late P. S. Warrier dated November 3, 1939, by the Tribunal proper, valid and justified in law ? " In the light of our discussion above, we answer question No. 1 in I.T.R. No. 40 of 1976, in the negative, that is, in favour of the assessee and against the revenue. We answer question No. 2 again, in the negative, that is, in favour of the assessee and against the department. There will be no order as to costs. In view of our answer to the questions in I.T.R. No. 40 of 1976, it is unnecessary to deal with the question referred in I.T.R. No. 95 of 1974. We, accordingly, decline to answer the question referred in I.T.R. No. 95 of 1974. I.T.R. Nos. 13 to 18 of 1978: These relate to the assessment years 1965-66 to 1970-71. For the assessments for the six years with which we are concerned the assessment for 1965-66 was completed before the judgment of the Kerala High Court in CIT v. P. Krishna Warrier [1972] 84 ITR 119, and the rest, only after the said judgment. The period of 20 years during which 40% of the income is to be allotted to the two ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal followed the decision in CIT v. Krishna Warrier [1972] 84 ITR 119 and held that 25% of the income devoted to the development of Arya Vaidya Sala is taxable and not entitled to exemption. It rejected the objections of the ITO about the admissibility before the AAC of fresh evidence. It also held that the fresh evidence had not in any way altered the position of the assessee. It was of the view that the business of sale and manufacture of ayurvedic medicines in the Arya Vaidya Sala was property held under trust along with other items of property, that the object of the trust declared by the will as medical relief, relief of the poor and education, were all relevant only if the decision in CIT v. Krishna Warrier [1972] 84 ITR 119 (Ker) is reconsidered, which the Tribunal was not competent to do, and, therefore, it was not necessary for it to discuss and decide the merits of these contentions. As regards the 40% formerly allotted to the two tavazhis, which portion of the money was spent for the Arya Vaidya Hospital, and as regards the 10% earmarked for the Arya Vaidya Patasala, the Tribunal held that these are not taxable, and they are entitled to exemption under s. 11. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances and advertence to irrelevant and immaterial factors, germane to the issue involved in the instant case ? (H) Is not the assessee entitled to full exemption from tax, of its income, as pleaded and earmarked or spent for Arya Vaidya Sala, Arya Vaidya Hospital and Arya Vaidya Patasala, for all the six years ? (1965-66 to 1970-71)" On the basis of our discussion, we answer the questions as follows: Question (A) in the negative, that is, in favour of the assessee, and against the revenue ; and question (B) in the negative, that is, in favour of the assessee and against the revenue. Question (C) we answer the first part of the question in the affirmative, that is, against the assessee and in favour of the department, and the second part again in the affirmative, viz., in favour of the assessee. Questions (D), (E) (F): In view of our answers to questions (A) and (B), these questions do not arise and we decline to answer the same. Question (G) : In the light of our conclusions on questions (A) and (B), we answer the first part of the question in the negative, that is, in favour of the assessee and against the revenue, and we decline to answer the second part in view of o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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