ORDER
Per P. K. Ammini, Judicial Member – These appeals by the revenue and the cross – objections by the assessee are directed against the consolidated order of the Appellate Assistant Commissioner of Wealth-tax dated 10-3-1986. The assessment years involved are 1961-62, 1962-63, 1963-64 and 1964-65. Since common disputes are involved in these appeals, they were heard together and are being disposed of by this consolidated order, for the sake of convenience.
2. The original assessments on the assessee trust in this case was completed on 23-2-1979 but it was set aside by the Commissioner of Wealth-tax (Appeals) by his common order dated 21-3-1979 with a direction to re-do the assessment in the light of the decision of the Supreme Court in the case of CIT v. P. Krishna Warrier [1964] 53 ITR 176. In compliance with the directions fresh assessments were made and the appeals arise out the fresh assessments.
3. The assessee is a Managing Trustee of Arya Vaidya Sala, Kottakkal. The material facts leading to the present appeals and the cross-objections are as follows :
3.1 Shri P. S. Warrier, an eminent Ayurvedic Physician was carrying on business in Ayurvedic medicines under the name and style “Arya Vaidya Sala”. He was also running a hospital named “Aryasikitsa Sala” and a school by name “Arya Vaidya Patasala”. Shri Warrier executed a will whereby he created a trust in respect of his properties. As per the aforesaid trust-deed, 60% of the income was to be spent on the three institutions named above and 40% of the income to be given to two “thavazhies” for a period of 20 years and thereafter the entire income was to be utilised for the requirement of the above three institutions. The period of 20 years expired on 30-1-1964. Shri Warrier died on 30-1-1944.
3.2 The relevant portion of the trust deed is as follows :-
“G. The primary and chief objects of the Trust are to carry on for even the two institutions, viz. The Arya Vaidya Sala and the Arya Vaidya Hospital on the lines followed now with the object of enlarging and increasing their scope and utility. The work of Arya Vaidya Sala now consists of :
1. Preparation of Ayurvedic Medicines,
2. Sale of the same,
3. Treatment of patients, receiving from them compensation according to their capacity and means,
4. To conduct research into Arya Vaidyam with a view to make it more and more useful to the public.
** ** **
L. Out of the net profits of the Arya Vaidya Sala, 25% is to be devoted to the development of the Arya Vaidya Sala, 25% for meeting the expenses of the Arya Vaidya Hospital and 25% for division equally between the two thavazhies (this only for 20 years) : Out of remaining 25%, a sum not exceeding 10% may be, according to requirements, utilised for the purposes of the Arya Vaidya Patasala. The balance, if any, that may remain out of the 10% after disbursements of the Arya Vaidya Patasala, may be used for the Arya Vaidya Sala itself. The balance 15% are to be deposited by the Trustees each year in approved banks as a reserve fund for the two thavazhies for a period of 20 years and the fund thus accumulated inclusive of interest is to be divided equally among the two thavazhies equally, i.e. in moiety, and it will be the duty of the trustees to invest the same on the authority of immovable properties.
M. The Trustees are not bound to pay any amount to the said two thavazhies after the expiry of 20 years. The 40% of the profit so earmarked for 20 years and so released after the expiry of 20 years are therefore to be utilised for the development of the Arya Vaidya Sala and Arya Vaidya Hospital according to the discretion of the Trustees.”
3.3 During the relevant assessment years under consideration, the assessee claimed exemption under section 5(1) (i) of the W. T. Act. The Wealth-tax Officer allowed 60% and brought 40% of the assets of the trust to wealth-tax. But on appeal, the Appellate Assistant Commissioner of Wealth-tax allowed the entire claim of the assessee under section 5(1) (i) of the W. T. Act.
3.4 The Honble Supreme Court in its judgment in CIT v. P. Krishna Warrier [1964] 53 ITR 176, in the case of the assessee itself, has held that the entire business of Arya Vaidya Sala is held in trust for utilising 60% of its profits, i.e. part of the income for religious or charities purposes. The balance 40% of the income is not utilised for the religious or charitable purposes and hence to be taxed. But the Appellate Assistant Commissioner allowed the claim on the basis of the decision in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker.) (FB) and CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker.). Hence these appeals by the revenue.
4. According to the revenue, the learned Appellate Assistant Commissioner erred in holding that the assessees properties are exempt under section 5(1) (i) of the W. T. Act. He ought to have found that since the utilisation of the 40% of the income was held to be not for charitable purposes, exemption under section 5(1) (i) will not be available to the assessee for these years for the proportionate value of the net wealth of the trust.
5. On the other hand, the learned counsel for the assessee contended that the only point to be decided was whether the business was carried on under trust and the dominant object was only for religious or charitable purposes. According to him, the business was run by the trust and the dominant object is of charitable or religious purposes in this case. In the earlier years also, it was held by the Supreme Court that 60% of the income from the business was exempt as it was allotted for the charitable of religious purposes. Reliance is placed on CIT v. P. Krishna Warrier [1964] 53 ITR 176 (SC). Now the assessee claimed for the entire exemption under section 5(1) (i) of the W. T. Act. In support of this claim, the learned counsel for the assessee placed reliance on the following decisions :-
1. P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker.) (FB)
2. Abdul Sathar Haji Moosa Sait Dharmastapanam v. CIT [1988] 169 ITR 84 (Ker.)
3. Trustees of K. B. H. M. Bhiwandiwalla Trust v. CWT [1977] 106 ITR 709 (Bom.)
4. Managing Shebaits of Bhukailash Debutter Estate v. WTO [1977] 106 ITR 904 (Cal.)
Accordingly he submitted that the order of the Appellate Assistant Commissioner was in order and did not require any interference.
6. On a careful consideration of the arguments addressed by both the sides and on a perusal of the records made available in this case, we hold that the appeals of the revenue and the cross objections of the assessee must fail. The assessee in this case claimed for exemption under section 5(1) (i) which reads as follows :
“5. (1) [Subject to the provisions of sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets], and such assets shall not be included in the net wealth of the assessee –
(i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India :
[Provided that nothing contained in this clause shall apply to a property forming part of any business, not being a business referred to in clause (a) or clause (b) of sub-section (4A) of section 11 of the Income-tax Act in respect of which separate books of account are maintained or a business carried on by an institution, fund or trust referred to in clause (22) or clause (22 A) or clause (23 B) or clause (23 C) of section 10 of that Act :]”
The question as to whether the income of the assets held by the assessee in trust required to be allotted wholly for charitable or religious puposes for the exemption under section 5(1) (i) came for consideration before the Honble High Court of Bombay in Trustees of K. B. H. M. Managing Shebaits of Bhukailash Debutter Estates case (supra) wherein it is held that –
“There is a difference in the language between the Indian Income-tax Act, 1922, and the later enactment – the Wealth-tax Act, 1957. Under section 4(3) (i) of the Income-tax Act, to earn exemption, income should have been derived from property held under trust wholly or in part for religious or charitable purposes. If property is held wholly for religious or charitable purposes the whole of the income is exempt and in the case of property held in part only for such purposes the income applied or finally set apart for application thereto is exempt. In the Wealth-tax Act, there is an omission of the word wholly in section 5(1) (i) and there is no provision for exempting part only of property held for religious or charitable purposes. This difference in language is intentional. The reason for it is that in the case of income arising from property held on trust partly for other purposes apportionment is possible. Such apportionment is not possible in respect of the corpus of the property. The intention of the Legislature in omitting the word wholly in section 5(1) (i) as a qualifying word as regards the requirements concerning the objects of a trust is that if it can be said that primarily or predominantly the objects of the trust are of a public charitable nature the corpus would qualify for exemption. Under section 5(1) (i) all the objects need not fall within the expression public purpose of a charitable or religious nature in India. It would be sufficient if the objects of the trust considered as a whole could be regarded to be within the expression.”
It is further held that –
“Out of the five objects of the trust, four fell within section 5(1) (i) of the Wealth-tax Act. The objects specified in the deed were conjunctive and not disjunctive. The trustees had not been given discretion to use the whole income of the trust on any one of the specified objects. The property of the trust was held primarily for a public purpose of a charitable nature in India and was wholly exempt under section 5(1) (i).”
According to us, the dictum laid down in this decision fully supports the case of the assessee before us, for the reason that the dominant object in the trust deed of Shri Late P. S. Warrier is to charitable in nature and in having set apart 60% of the income derived from the business held under the trust for charitable purposes. The allotment of 40% of the income for the thavazhies benefit is only for a limited period of 20 years, which period is fast approaching to an end. In P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker.) (FB) the point for the consideration of the Honble High Court was whether the amount set apart for being spent for Arya Vaidya Sala for the years 1964-65 to 1970-71 was entitled to exemption under section 11 of the Act of 1961 and other questions and the Full Bench of the Honble High Court answered the questions on reference as follows :
(i) that the predominant object of the trust was charitable in nature;
(ii) that the will had constituted the Vaidya Sala itself as a trust, and, therefore, the income from the Vaidya Sala was income from property held under trust for a charitable purpose;
(iii) that the period of twenty years during which 40% of the income was to be allotted to the two thavazhies under the will had also expired by 1964. The amount set apart under will for being spent for Arya Vaidya Sala for the assessment years 1964-65 to 1970-71 was entitled to exemption under section 11;
(iv) that the 25% of the profits devoted to the development of the Vaidya Sala was exempt from tax;
(v) that the income earmarked or spent for hospital and patasala for the assessment years 1965-66 to 1970-71 was wholly exempt.
The Appellate Assistant Commissioner has rightly placed reliance on P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker.) (FB) to hold that the assessee is entitled to full exemption under section 5(1) (i) of the W. T. Act.
7. Another decision relied on by the assessee is Abdul Sathar Haji Moosa Sait Dharmastapanams case (supra), where it is held that –
“Section 3 of the Wealth-tax Act is subject to other provisions of the Act and thus subject to section 21 also. No assessment can be made under section 3 apart from and without reference to section 21. As the assessment of the trustee would have to be made in the same status as that of the beneficiary, the status and liability of the beneficiary assume relevance and importance to fasten liability on the trustee. If the beneficiary cannot be made liable, the trustee also cannot be held liable. It is, therefore, necessary to consider whether the beneficiary will be exempt under section 5(1) and for that purpose, the nature of the trust, whether it is a public charitable trust has to be considered. Section 5(1) (i) extends exemption stipulated in the section are : (1) the asset could be any property; (2) it should be held under trust or other obligation; (3) it should be held for charitable or religious purposes of public character; and (4) it should be held in India.”
In this case, all the conditions mentioned in the aforesaid decision are satisfied. From the records available in this case, it is clear that the dominant object of the trust is to spend 60% of the income derived from the business held under the trust for the charitable or religious purposes. This decision in Abdul Sathar Haji Moosa Sait Dharmastapanams case (supra) does further and narrates the methods how to fix the liability on the trust as well as the benefits regarding the income derived from the business held under the trust for and on behalf of the beneficiaries. In this case, there is no dispute with respect to the exemption relating to 60% of the income derived from the business held by the trust. The 40% is set apart for the benefit of two thavazhies. They are the daughters of younger sisters of the mother of the testator. If these income are to be taxed in the hands of the beneficiaries, it is open to the department to take steps in accordance with law. But so far the Trust is concerned, the entire wealth would be exempt under section 5(1) (i) of the W. T. Act. So we agree with the view of the A. A. C., who held that the assessee was entitled to full exemption under section 5(1) (i) of the Act. Hence, the appeals fail and they are hereby dismissed.
8. The cross objections deal with computation of net wealth, deduction of liability and valuation of assets. Since in our view the assets of the trust would be exempted under section 5(1) (i) of the W. T. Act, the cross objections are dismissed as infructuous.
9. In the result, all the appeals as well as the cross objections are dismissed.