JUDGMENT
Naik, J.
1. As directed by this court in Miscellaneous Civil Case No. 247 of 1965, the Income-tax Appellate Tribunal, Bombay, has, under Section 66(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as “the Act”), referred the following two questions for decision to this court;
“1. Whether, in the facts and circumstances of the case, the income
of Rs. 5,31,584 from hessian and money-lending business was entitled to
exemption under Section 4(3)(i) itself?
2. If the income was not so exempt, whether under proviso (b) to Section 4(3)(i) it could be included in the total income of the assessee or could be exempted from taxation under the proviso ?”
2. The facts relevant for our purpose, as appearing from the statement of the case, may shortly be stated as follows:
The assessee is Seth Kirodimal Charity Trust which was created under a trust deed dated May 13, 1946, by Seth Kirodimal. The objects of the trust are charitable, namely, establishing and maintaining hospitals, temples, dharmasalas, educational institutions, etc. Under Clause 5 of the trust deed, the trustees were empowered as follows :
“The trustees may invest the trust fund either in the purchase or mortgage of immovable properties or in such investments, whether authorised by the Indian Trusts Act, 1882, or not, or in deposits with or loans to any company, bank, person or firm including the firm in which the trustees or any of them may be directly or indirectly interested and on such terms as to interest as the trustees may think proper with power to the trustees to alter, vary or transpose such investments from time to time in such manner they may in their absolute discretion think fit, for others of the same or of a like or different nature.”
3. The year of assessment, with which we are concerned, is 1952-53 of which the accounting year is the year ending on previous Diwali, viz., on October 30, 1951.
4. The reference relates to two items of income earned by the trust in the accounting year. The first item is of Rs. 1,82,654 earned as interest on certain loan advances, and the second item is of Rs. 3,48,930 earned as profits on certain transactions in hessian.
5. The assessee claims that both these items were exempt under the provisions of Section 4(3)(i) of the Act while the Commissioner claims that they were not so exempt.
6. The Income-tax Officer did not accept the claim of the assessee and held that the items were not exempt from liability to tax under Section 4(3)(i) of the Act. On appeal, the Appellate Assistant Commissioner held that the first item regarding interest was exempt under Section 4(3)(i) of the Act apparently on the ground that interest on advances did not constitute business income ; but in regard to the second item, he held that it fell within proviso (b) to Section 4(3)(i), as amended, and as the conditions for the applicability of the clause were not satisfied, the sum of Rs. 3,48,930 was assessable to tax. Both the department as well as the assessee appealed to the Income-tax Appellate Tribunal. The Tribunal dismissed the appeal of the department and allowed that of the assessee, later alia, holding :
(i) that the Appellate Assistant Commissioner erred in holding that the interest amount of Rs. 1,82,654 was exempt from tax as not arising from business carried on by the assessee ;
(ii) that as the proviso in the amended section did not have the effect of carving out from Sub-clause (i) of Clause (3) of Section 4 of the Act all such property as consisted of business, the provisions of Section 4(3) (i) governed the two items in question and made them exempt from income-tax as “income derived from property held under trust” within the meaning of that section.
7. Having heard the learned counsel for the parties, we are of opinion that on a true construction of the provisions of Section 4(3)(i) of the Act the question had been correctly decided by the Tribunal.
8. Clause (3) of Section 4 of the Act, prior to its amendment by Act No. 25 of 1953, was 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) Any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied, or finally set apart for application thereto.
(ia) Any income derived from business carried on behalf of a religious or charitable institution when the income is applied solely to the purposes of the institution and-
(a) the business is carried on in the course of the carrying out of a primary purpose of the institution, or
(b) the work in connection with the business is mainly carried on by beneficiaries of the institution.”
9. After the amendment of 1953, the clause read 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)….any income derived from property held under trust or other legal obligation wholly for religious or charitable purpose, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories…
Provided that such income shall be included in the total income
(b) in the case of income derived from business carried on behalf of a religious or charitable institution, unless the income is applied wholly for the purposes of the institution and either-
(I) the business is carried on in the course of the actual carrying out of a primary purpose of the institution ; or
(ii) the work in connection with the business is mainly carried on by beneficiaries of the institution ;
(c) if it is applied to purposes other than religious or charitable purposes or ceases to be accumulated or set apart for application thereto in which case it shall be deemed to be the income of the year in which it is so applied or ceases to be so accumulated or set apart.”
10. Examining the effect of the amendment, S. T. Desai J. in Dharma Vijaya Agency v. Commissioner of Income-tax, [1960] 38 I.T.R. 392, 410 (Bom.) said :
“The question I put to myself is, are the words ‘income derived from business carried on behalf of a religious or charitable institution’ in proviso (b) wide enough to carve out from Clause (i) all such property as consists of business ? A business which falls within the ambit of Clause (i) may be carried on by persons in whom it is vested under trust, and the trustees may still not carrying on the business on behalf of any religious or charitable institution. Of this, there seems to be little doubt. Therefore, it is impossible to equate the scope of proviso (b) with the scope of property consisting of business held under trust wholly for religious or charitable purposes. It must of necessity mean that we have in Clause (i) a very wide category of business which is trust property, and we have in proviso (b) a restricted and a lesser category of business which is carried on by or on behalf of a religious or charitable institution. This, to my mind, is the plain reading of Clause (i) of Section 4(3) read with the proviso : and if this be the position, it is extremely difficult to accede to the argument pressed before us on behalf of the department that although the insurance agency business, of which a trust was created, is within the operation of Clause (i) Section 4(3), it is yet hit by the initial words of proviso (b) to Clause (i).”
11. In our opinion, the purpose of Section 4(3)(i) and that of proviso (b) is distinct and separate and, though enacted as a proviso, that proviso, was not intended to carve out from the ambit of Clause (i) cases where a trust carried on business.
12. It is now well-settled that the word “property” would also include a business : [see Commissioner of Income-tax v. P. Krishna Warriar, [1964] 53 I.T.R. 176, 186; [1964] 8 S.C.R. 36 (S.C.) and Thiagesar Dharma Vanikam v. Commissioner of Income-tax, [1963] 50 I.T.R. 798 (Mad.)).
13. The provisions of Section 4(3)(i) apply to “any income derived from property held under trust”; and if “property” includes business, it applies to any income derived from any business held under trust. It cannot be disputed that the income covered by the two items in question was income derived from business of the trust distinct from income derived from business carried on behalf a religious or charitable institution.
14. Proviso (b), on the other hand, does not concern itself with “any income derived from any property (including business) held under trust” but with “income derived from business carried on behalf of a religious or charitable institution”, that is to say, on behalf of a religious and charitable institution as distinct from a trust which latter is specifically governed by the provisions of Section 4(3)(i) of the Act in regard to all kinds of property including business.
15. The contention that provisions contained in proviso (b) are a further restriction on the provisions of Section 4(3)(i) and take the income derived from business of the trust from out of its ambit has been negatived in Charitable Gadodia Swadeshi Stores v. Commissioner of Income-tax, [1944] 12 I.T.R. 385 (Lah.) J.K. Trust v. Commissioner of Income-tax, [1958] 33 I.T.R. 32 (Bom.) Trustees of the Charity Fund v. Commissioner of Income-tax, [1959) 36 I.T.R. 513; [1959] Supp. 2 (7) [1963] 50 S.C.R. 923 (S.C.). Dharma Vijaya Agency v. Commissioner of Income-tax, [1960] 38 I.T.R. 392 (Bom.) Commissioner of Income-tax v. Cotton Textiles Export Promotion Council, [1968] 67 I.T.R. 539 (Bom.) Dharmodayam Co. v. Commissioner of Income-tax, [1962] 45 I.T.R. 478 (Ker.) and Thiagesar Dharma Vanikam v. Commissioner of Income-tax¸[1963] 50 I.T.R. 798 (Mad.).
16. In Commissioner of Income-tax v. P. Krishna Warriar, [1964] 53 I.T.R. 176, 186 (S.C.) the Supreme Court said :
“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 behalf of religious or charitable institutions.”
17. After the aforesaid decision of the Supreme Court there can be no controversy on the question of construction of Section 4(3)(i) and Clause (b) of the proviso to it; and this was clearly stated by this court in its judgment dated December 1, 1967, in Miscellaneous Civil Case No. 247 of 1966.
18. It was also contended by the learned counsel for the Commissioner that the income covered by the two items was for speculation and could not, therefore, be said to be the business of the trust within the meaning of Section 4(3)(i) of the Act. The statement of the case does not refer to the transaction of hessian as speculation, nor is there any material to show that it was speculation. On the other hand, as pointed out by the learned Advocate-General, the order of the Appellate Assistant Commissioner says:
“Now, the facts regarding this business are : the assessee contracted to purchase 6 lakhs yds. of hessian on February 22, 1951, at Rs. 55 per 100 yds. of which delivery was to be taken from July to September at 2 lakhs yds. monthly. As prices of hessian shot up, the assessee sold the entire lot in April at Rs. 114 per 100 yds., thereby making a profit of Rs. 3,48,930”
19. which showed that the said item related to profits from the purchases and sale of 6 lakhs yards of hessian and not from speculation pure and simple.
20. We, therefore, answer the reference saying that, in the facts and circumstances of the case, the income of Rs. 5,31,584 from hessian and money-lending business was entitled to exemption under Section 4(3)(i) itself and that, in view of the aforesaid answer, the need to answer the second question does not arise.
21. Costs of this reference shall be paid by the applicant, Commissioner of Income-tax, Madhya Pradesh. Counsel’s fee Rs. 150.
