Full Judgment Text
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PETITIONER:
THE EAST INDIA INDUSTRIES (MADRAS) PRIVATE LTD.,MADRAS & ANR
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME TAX, MADRAS
DATE OF JUDGMENT:
03/04/1967
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
SHAH, J.C.
SIKRI, S.M.
CITATION:
1967 AIR 1554 1967 SCR (3) 359
CITATOR INFO :
D 1976 SC 10 (43)
F 1976 SC1836 (16)
R 1977 SC1548 (3)
RF 1977 SC2211 (11)
R 1978 SC1443 (9)
R 1980 SC 387 (5)
ACT:
Indian Income-tax Act, 1922 (Act 11 of 1922), Ss. 4(3) (1)
and 15B-Donation to Trust-One object not charitable in
nature, and income to be utilised for any one of the
objects-If exempted.
HEADNOTE:
The assessee claimed exemption from tax under s. 14-B of the
Incometax Act, 1922 for a sum donated to a Trust, whose most
of the objects were charitable and religious in nature, but
one was not, and it was open to the trustees to utilise the
income of any one of the objects to the exclusion of all
other objects. The Revenue rejected the claim for exemption
, but the Appellate Tribunal allowed it as it had in
relation to the previous assessment year held that the Trust
was a public trust.On reference, the High Court answered
the question against the assessee.In appeal to this Court,
the assessee contended that (i) this particularobject
must not be read isolated from the other object.-, of the
trust but having regard to the immediately preceding object
which was to run hospitals and dispensaries, the impugned
object, viz., the manufacture of pharmaceutical and
medicinal preparations must be deemed to be for the purpose
of carrying out the earlier object, and (ii) the High Court
acted in excess of jurisdiction in raising a new question
which was not raised by the Appellate Tribunal, namely,
whether the trust itself was constituted for wholly
religious or charitable purposes within the meaning of s. 4
(3) (i) of the Act.
HELD :-The appeal must fail.
(i)There was no connection between the two objects of the
trust and upon an interpretation of the document as a whole,
it could not be said that the earlier object was the
dominant object of the trust and the latter was a subsidiary
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object. In view of the absolute power of selection ,ranted
to the trustees to select between charitable and non-
charitable objects, the provision of s. 4 (3) (i) of the Act
could not be ipplied to the Trust and no exemption could be
granted to the assessce under s. of the; Act. [360D-E, G]
Mohammad Ibrahim Riza v. Commissioner of Income-tax, Nagpur,
57 I.A. 260; Oxford Group v. Inland Revenue Commissioner
[1949] 2 All. E.R. 537 and Keren Kayemeyh Le jisroel. Ltd.
v. lnland Revenue Comrs. 17 T.C. 27, 40 applied.
(i)The High Court was within its jurisdiction in examining
the question whether the Trust was eligible for exemption
from income-tax under s. 4(3) (i) of the Act. Even where a
question of law was not raised before the Tribunal but the
Tribunal deals with it, it must be deemed to be one arising
out of its order. [364B-D]
Commissioner of Income-tax, Bombay v. Scindia Steam Co.
Ltd. 42 T.T.R. 589, followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1399 of
1966.
357
Appeal by special leave from the judgment and order dated
October 25, 1961 of the Madras High Court in Tax Case No.
62 of 1958 (Reference No. 37 of 1958).
S. Swaminathan and R. Gopalkrishnan, for the appellant.
Veda Vyasa, S. K. Aiyar, S. P. Nayyar and R. N. Sachthey,
for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by special leave, from
the judgment of the Madras High Court dated October 25, 1961
in T.C. No. 62 of 1958.
The assessee, the East India Industries Limited, paid a
donation of Rs. 7,500 to a trust called "the Agastyar Trust"
and claimed exemption from tax under S. 14-B of the Income-
tax Act, 1922, hereinafter called the ’Act’. The trust had
been created by the partners of a business firm, K.
Rajagopal and Company. This firm had been carrying on
business in Waste paper. Under the terms of the partnership
it was setting apart 80 per cent of the profits for
charitable and religious purposes. On July 1, 1944, a trust
deed was executed by Venkatarama Chetti. The claim of the
assessee to exemption from tax was rejected by the Income
Tax Officer on the ground that the trust did not fulfil the
conditions laid down under S. 15-B of the Act. The
Appellate Assistant Commissioner to whom an appeal was
preferred took the same view. The matter was taken up in
further appeal to the Incometax Appellate Tribunal which
observed that in relation to the previous assessment year,
it had held that the Agastyar Trust was a public trust and
that any donation made to that trust was an allowable
deduction under s. 15-B. At the instance of the
Commissionerof Income-tax the Tribunal referred the
following question of law for the determination of the High
Court under s. 66(1) of the Act:
"Whether on the facts and in the cirmustances
of the case the assessee is entitled to claim
deduction under Section 15-B in respect of the
donation paid to the Agastyar Trust ?"
The High Court answered the question against
the assesee who has brought the present appeal
to this Court by special leave.
Section 15-B of the Act provides for exemption
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from tax in respect of any sums paid by the
assessee as donations to any institution or
fund to which the section applies. Sub-
section (2) reads as follows
"(2) This section applies to any institution
or fund established in the taxtble territories
for a charitable purpose-
358
(i)the income whereof is exempt under clause
(i) of sub-section (3) of section 4;
Section 4(3)(i) of the Act states as follows
"(3) Any income, profits or gains falling
within the following classes shall not be
included in the total income of the person
receiving them;
(i)Subject to the provisions of clause (c) of
subsection (1) of section 16, any income
derived from property held under trust or
other legal obligation wholly for religious or
charitable purposes, in so far as such income
is applied or accumulated for application to
such religious or charitable purposes as
relate to anythincg done within the taxable
territories, and in the case of property so
held in part only for such purposes, the
income applied or finally set apart for
application thereto :
Paragraph 2 of the trust deed dated July 1, 1944 sets out
the objects of the ’Agastyar Trust’ as follows
"(a) to establish, conduct and maintain
residential schools, colleges, workshops and
other institutions for imparting general,
technical, vocational, professional, in-
dustrial or other kind of education and
training for the utility and welfare of the
general public;
(b)to make pecuniary grants by way of
scholarship, donation, subscription,
allowance, gratuity, guarantee or othe
rwise to
and for the benefit of students, scholars and
other persons,-,
c)to establish,, maintain and conduct
hospitals, clinics, dispensaries, maternity
houses and other institutions for affording
treatment, cure, rest, recuperation and other
reliefs;
(d)to manufacture, buy, sell and distribute
pharmaceutical, medicinal, chemical, and other
preparations and articles such as medicines,
drugs, medical and surgical articles,
preparations and restoratives of food;
(e)to establish and maintain choultries and
rest-houses,to provide food, clothes,
medicines and other articlesof necessity
free or at concessional rates and to make
money grants to the poor, needy for
celebration of marriages or ceremonies of, for
other purposes, floods, famine, pestilence,
and other causes;
359
(f)to collect, encourage, conduct research
in, interpret and popularise Nadis (ancient
manuscripts inscribed on palm leaves in Indian
languages with authorship ascribed to Devas,
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rishis, saints, sages and seers);
(g)to promote and encourage the study of and
research in religion and to propagate
religious principles;
(h)to buy, print, publish, sell for profit
or distribute free or at concessional rate
such literature as may be thought beneficial
for the objects of the trust;
(i)to conduct worship and festivals in
temples, shrinesand other places of
worship, to build, maintain,administer and
manage temples, shrines and other places of
worship;
(j)to do all such other things as may be
necessary, incidental conducive or convenient
to the attainment of the above objects or any
of them and the decision of the trustees that
any particular thing is necessary, incidental,
conducive or convenient to the attainment of
the above objects or any of them shall be
conclusive."
The other clauses of the trust deed provide for the
appointment of additional trustees, the administration and
management of schools, colleges, etc., that may be set up,
investment of the moneys, the power conferred on the
trustees to alter the form of the properties and re-invest
the funds, to grant leases, to borrow, and lastly to conduct
or carry on any business or undertaking alone or in part-
nership with any other person for the benefit of the trust.
The question to be considered is whether the property from
which the income of the Agastyar trust is derived is held
under trust or other legal obligation wholly for religious
or charitable purposes within the meaning of S. 4(3)(i) of
the Act. In the present case, it appears from the deed of
trust that one of the objects of the trust, namely item 4,
is not for charitable or religious purposes. Item No. 4 is
"to manufacture, buy, sell and distribute pharmaceutical,
medicinal, chemical, and other preparations and articles
such as medicines, drugs, medical and surgical articles,
preparations and restoratives of food". It may be that most
of the other objects of the trust are religious and
charitable in nature but if item 4 is not charitable, then
the conditions envisaged by S. 4(3) (i) of the Act are not
fulfilled and the exemption conferred by s.15 -B of the Act
cannot be applied. Clause 5 (i) of the trust deed states
that "the trustee shall have power to apply the whole of any
part of the trust property or fund whether capital or income
in or towards payment of the expenses of the trust or for or
towards all or any of the purposes of the trust provided any
property or money held in special trust shall be applied
only for that purpose and not otherwise". In the present
case, there is no special trust,
360
that is to say, no particular item of property has been
burdened with the performance of any specific object of the
trust. It is therefore manifest that under cl. 5(i) of the
trust deed it is open to the trustees to utilise the income
for any one of the objects of the trust to the exclusion of
all other objects. In other words, it would not be a
violation of the trust if the trustees devoted the entire
income to the carrying on of a business of manufacture, sale
and distribution of pharmaceutical, medicinal and other
preparations. In our opinion, this particular object of the
trust is neither charitable nor religious in character. If
the trustees can, under a trust held validly, spend the
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entire income of the trust on this non-charitable object, it
is difficult to hold that the trust property is held under a
trust or other legal obligation wholly for religious or
charitable purposes within the meaning of s. 4(3)(i) of the
Act.
It was argued by Mr. Swaminathan on behalf of the appellant
that this particular object must not be read isolated from
the other objects of the trust but having regard to the
immediately preceding object which is to run hospitals and
dispensaries, the impugned object, viz., the manufacture of
pharmaceutical and medicinal preparations must be deemed to
be for the purpose of carrying out the earlier object, viz.,
running of hospitals and dispensaries. We are unable to
hold that there is any connection between the two objects of
the trust and upon an interpretation of the document taken
as a whole, it is impossible to accept the appellant’s
contention that cl. 2(c) is the dominant object of the trust
and cl. 2(d) is a subsidiary object. The argument of the
appellants is, in fact, contradictory of the last clause of
para 2 of the trust deed which states that the objects shall
be independent of each other, notwithstanding that any of
the objects shall be void for any reason whatsoever, the
trust shall be valid and operative with respect to the other
objects. This clause expressly provides that the trustees
shall have discretion "to apply the property of the trust in
carrying out all or any of such objects of the trust as the
trustees may deem fit". Having regard to the language of
paragraph 2 of the trust deed in the context of other
paragraphs of the document, we are of opinion that the trust
deed, on a proper interpretation, gives an absolute power of
selection to the trustees to choose between charitable and
non-charitable objects of the trust for spending the entire
income of the trust properties. It follows that the
Agastyar trust does not fulfil the conditions imposed by s.
4(3)(i) of the Act and the donation made by the assessee to
the Agastyar trust cannot therefore be exempted under s. 15-
B of the Act.
The view that we have expressed is borne out by the decision
of the Judicial Committee in Mohammad Ibrahim Riza v.
Commissioner of Income-,tax, Nagpur(1) in which it was held
that if there
(1)57 I.A. 260.
361
are several objects of the trust, some of which are
charitabel and some non-charitable, and the trustees have
unfettered discretion to apply the income to any of the
object, the whole trust would fail and no part of the income
would be exempt from tax. The same view has been expressed
by the Court of Appeal in Oxford Group v. lnland Revenue
Commissioners(1). In that case, the memorandum of
association of the Oxford Group, a company limited by
guarantee, set out the following as the objects of the
-company
"3(A) The advancement of the Christian
religion, and, in particular, by the means and
in accordance with the principles of the
Oxford Group Movement, founded in or about the
year 1921 by Frank Nathan Daniel Buchman. (B)
The maintenance, support, development and
assistance of the Oxford Group Movement in
every way...... (C) (9) To establish and
support or aid in the establishment and
support of any charitable or benevolent
associations or institutions, and to subscribe
or guarantee money for charitable or
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benevolent purposes in any way connected with
the purposes of the association or calculated
to further its objects. (10) To do all such
other things as are incidental, or the
association may think conducive, to the
attainment of the above objects or any of
them."
The Oxford Group sought exemption from income tax on the
ground that it was a body of persons established for
charitable purposes only. It was admitted by the Crown
that, if object A of the objects clause of the company’s
memorandum of association stood alone, the company would be
established for charitable purposes only. It was, however,
held by the Court of Appeal that the words in cl. 3(B) of
the memorandum of association, "the maintenance, support,
development and assistance of the Oxford Group Movement in
every way," extended beyond purely religious activities,
permitted the company to engage in secular activities, and
authorised the expenditure of its funds on matters which
were not charitable, and, therefore, the company could not
be said to be formed for charitable purposes only. It was
also observed that although a religious body might, without
losing its religious character, engage in a number of
subsidiary activities which were not -purely religious, a
trust which was so worded as to permit the expenditure of
income by such a body in such subsidiary activities was not
a good charitable trust. It was further held that the
objects set forth in cl. 3(C), paras (9), (10), of the
memorandum of association were not merely ancillary to the
main objects expressed in sub-cls. (A) and (B), but
themselves conferred powers on the company which were so
wide that they could not be regarded as charitable. The
primi-
(1)[1949] 2 All. E.R. 537.
362
ciple has been clearly expressed by Lawrence, L.J. in Keren
Kayemeth Le Jisroel, Ltd. v. Inland Revenue Comrs. (1) as
follows
"The instrument with which this case is
concerned consists of the memorandum of
association of the company and it is essential
to bear in mind that in order to obtain
exemption from income tax under the section it
is not enough that the purposes described in
the memorandum should include charitable
purposes, the memorandum must be confined to
those purposes so that any application by the
company of its funds to non-charitable
purposes would be ultra vires .... The
extensive powers conferred on the company by
sub-cls. (2) to (22) (to some of which I have
referred in order to indicate their
character), although purporting to be
secondary to the object mentioned in sub-cl.
(2), are nevertheless objects for which the
company is established. The company can
exercise any or all of these powers whenever
in its opinion such an exercise would be
conducive to the attainment of the so-called
primary object which, from a practical point
of view, means that it can exercise them
whenever it is minded to do so, and whether
such exercise is in fact conducive to the
attainment of that object or not, as neither
the court nor any one else can control the
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company’s opinion, or otherwise interfere with
the manner in which it chooses to carry out
its objects. It would be difficult in any
case to determine whether any particular
enterprise undertaken by the company under its
wide powers was or was not in fact conducive
to the attainment of the primary object, but
when the question of whether it is or is not
so conducive is left to the decision
of the
company itself, I cannot avoid the conclusion
that the objects mentioned in sub-cls. (2) to
(22) can be carried out by the company just as
freely as the object mentioned in sub-cl. (I )
and that there is no substantial difference in
degree between them."
As we have already stated, on a proper interpretation of the
terms of the trust deed in the Present case we are satisfied
that paragraph 2(d) is not subsidiary in character to
paragraph 2(c) and the trustees have been expressly granted
the discretion- to apply the income of the trust wholly to a
non-charitable object to the exclusion of charitable
objects. It follows therefore that in view of the absolute
power of selection granted to the trustees to select between
charitable and non-charitable objects, the provisions of s.
4(3)(i) of the Act cannot be applied to the Agastyar trust
and no exemption can be granted to the assessee under S. 15-
B of the Act. We
(1) 17 T. C. 27, 40.
363
accordingly hold that the High Court rightly answered the
question of law against the assessee and in favour of the
Commissioner of Income-tax.
It was, however, contended by Mr. Swaminathan on behalf of
the assessee that the High Court had no jurisdiction to go
into the question whether the Agastyar trust was held for a
wholly religious or charitable purpose under s. 4(3)(i) of
the Act. It was pointed out that the only question of law
arising from the order of the Tribunal was with respect to
the examination of the eligibility of the Agastyar trust for
exemption under S. 4(3)(i)(b) of the Act. It was contended
that the scope of the appeal from the order of the Tribunal
was confined to the question whether the income from the
business owned by the trust was entitled to exemption under
s. 4(3)(i)(b) of the Act and whether the conditions of that
proviso were satisfied. It was submitted that the High
Court acted in excess of jurisdiction in raising a new
question which was not raised by the Appellate Tribunal,
namely, whether the trust itself was constituted for wholly
religious or charitable purposes within the meaning of S.
4(3)(i) of the Act. We are unable to accept the argument
put forward on behalf of the appellants as correct. It
appears that before the Appellate Tribunal there was no
detailed examination of the question of law. The Tribunal
merely referred to an earlier case it had dealt with
regarding the same assessee. The Tribunal apparently took
the view in the earlier case that even if the income which
the trust earned in business was not exempt from tax, the
income derived from donations which was utilised for
charitable purposes would be eligible for exemption. So far
as the assessment for the year 1955-56 is concerned, the
question was not considered by the Appellate Tribunal at any
length. But the Income Tax Officer held that the trust did
not fulfil the conditions laid down by S. 15-B of the Act.
The Assistant Commissioner, however, in appeal specifically
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stated that one of the conditions was that the income of the
institution or fund should be exempt under cl. (1) of sub-s.
(3) of S. 4 and dealt with the argument relating to the
business carried on by the trust and observed
" Property’ as used in section 4(3)(i)
includes business also and unless the business
also is exempt, donation
to such an institution will not be eligible
for concession given in Section 15-B."
The question therefore before the Tribunal was whether the
trust income was exempt under S. 4(3)(i) of the Act. In the
course of its order dated July 27, 1957 for the assessment
year 1.955-56 the Appellate Tribunal stated as follows :
"With reference to the first contention, we
have held in I.T.A. No. 5707 of 1955-56 that
the Agastyar Trust was a public trust and
hence any donation made to the
364
said trust is an allowable concession under
Section 15-B. Therefore, the claim of the
assessee is allowed on this contention."
We are therefore unable to accept the contention of the
appellants that the question whether S. 4(3)(i) of the Act
applies to the Agastyar trust was not within the scope of
the question referred to the High Court by the Appellate
Tribunal or that the High Court went beyond its jurisdiction
in answering that question. In Commissioner of Income-tax,
Bombay v. Scindia Steam Navigation Co. Ltd.(1) this Court
examined the scope of the jurisdiction of the High Court in
a reference under S. 66(1) and it was pointed out that even
where a question of law was not raised before the Tribunal
but the Tribunal deals with it, it must be deemed to be one
arising out of its order. Applying the principle to the
present case, we hold that the High Court was within its
jurisdiction in examining the question whether the Agastyar
trust was eligible for exemption from income-tax under S.
4(3)(i) of the Act. We accordingly reject the argument of
the appellants on this aspect of the case.
For these reasons we hold that this appeal is without merit
and must be dismissed with costs.
Y.P. Appeal dismissed.
(1) 42 I.T.R. 589.
365