JUDGMENT
Tendolkar, J.
1. This reference has been remanded to us for disposal by the Supreme Court and the question that remains to be disposed of by us after the decision of their Lordships of the Supreme Court is Question No. 2 which was originally referred to us, but which we did not feel it necessary then to determine in the view that we took of Question No. 1. That question is:
“Whether on the facts of the case the business carried on by the trustees falls to be considered under Section 4 (3) (i) or Section 4 (3) (ia) of the Income-tax Act?”
2. For the purpose of determining this question, it is not necessary to state many facts. It is sufficient to state that under a trust deed dated 15-6-1945, according to the decision of their Lordships of the Privy Council, the business of a managing agency was held in trust. Therefore, the Income derived from the managing agency has been held by their Lordships of the Supreme Court as falling within Section 4 (3) (i) since the word “property” in that sub-section includes business as well. But it was contended before their Lordships of the Supreme Court that although the income may appear to fall within Section 4 (3) (i), as the language of that section is wide enough to include the income, the scope of Section 4 (3) (i) has been narrowed down by the provision in Section 4 (3) (ia) which deals with income from business, and, therefore, the sub-section that really applies to the determination of the Question as to whether the income sought to be taxed in the hands of the Trustees was exempt from tax is Section 4 (3) (ia) and not Section 4 (3) (i). Now, it must be pointed out that it Is common ground that if Section 4 (3) (ia) was the section under which the exemption claimed was to be determined, the conditions laid down in that sub-section for the purpose of granting an exemption are not satisfied and, therefore, the assessees will not be entitled to an exemption. The question is, therefore, of vital importance to the assessees as to whether their case falls within Section 4 (3) (i) or Section 4 (3) (ia). This is a pure question of law on which no other facts are relevant.
3. It may be convenient at the outset to point out the history of this particular sub-section in the Income-tax Act. In the Act of 1922, Section 4 (3), which dealt with exemptions from total income had as Sub-clause (I) the same clause which is there today and that is in these words:
“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.”
Courts in India had taken the view that the word “property” in this sub-section did not include a business carried on for and on behalf of a trust (see Commissioner of Income-tax, Madras v. Thevara Patasala, ILR 49 Mad 833: (AIR 1926 Mad 949) (FB) (A), and In the matter Of Lachhman Das, Narain Das . However, in In re, Trustees of the “Tribune” , their Lordships of the Privy Council held that the business of carrying on a newspaper fell within the scope of Section 4 (3) (i) of the Income-tax Act. Their Lordships did not hold this explicitly because the only question that their Lordships were called upon to determine, and did determine, was whether the trust under which the “Tribune” newspaper was run was of general public utility; but Sir George Rankin, who delivered the judgment of their Lordships, specifically held that the income from that trust fell within Section 4 (3) (1), and implied in it is the finding that the income from the trust was derived from property held under trust within the meaning of Section 4 (3) (i), that property being the business of carrying on the newspaper “Tribune”. It is In this state of the law that by an amending Act of 1939 Clause (a) was inserted in the Indian Income-tax Act and that clause is in the following terms :
“Any income derived from business carried on 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;”
It is the contention of Mr. Joshi that the object of this sub-section was to narrow down the scope of Section 4 (3) (i) in so far as it related to businesses held on trust and to grant an exemption in respect of the income derived from such businesses only if the condition enumerated in Sub-clause (ia) were fulfilled.
4. Now, in interpreting a statute, although it is useful to keep in mind the historical background, it does not necessarily help to determine the true meaning to be attached to the language employed in the statute; because whilst Mr. Joshi urges that the object of Sub-clause (ia) was to cut down the scope of the exemption under Section 4 (3) (i), in so far as it related to businesses held on trust, the assessees may well urge that having recognised that the income from businesses held on trust wholly for religious or charitable purposes was exempted under Sub-clause (i), the Legislature wanted to extend that exemption in the case of other businesses not held on trust, but the income of which was nonetheless applied for the purposes of a religious or charitable institution and the business was carried on behalf of such religious or charitable institution. We have, therefore, really to construe the two sub-sections to find out what the exact scope of the one or the other is.
5. Now, in construing these two sub-sections, we must first remember that Sub-section (3) contains an enumeration of classes of income which shall not be included in the total income of an assesses, Prima facie, therefore, they are Independent exemptions from total income and any one of these sub-items of exemptions ought not to be treated as an exception to any other unless the language used is such that no other result is possible as a matter of interpretation. It must also be borne in mind again that where the Legislature desires to enact an exception to any provision, it normally does so by way of a proviso or an exception to the section itself; and it is seldom that an exception to the particular exemption is in itself a separate exemption. Keeping these principles in mind, when one turns to the two sub-clauses with which we are concerned, it has now been finally held by their Lordships of the Supreme Court that business is included within the word “property” in Section 4 (3) (i). Therefore, the exemption granted by Sub-clause (i) is in respect of property held under trust, which includes also business held under trust, Turning to Sub-clause (ia), it deals with income from business “carried on behalf of a religious or charitable institution”. Now, such a business, quite obviously, may or may not be held on trust. If such a business was held on trust, the income from it would be income which would be covered by Section 4 (3) (i) and the argument of Mr. Joshi would have validity, that if Section 4 (3) (i) related to income from the general class of property held under trust and Section 4 (3) (ia) related to a particular species of such property, namely, business held on trust, then the special class would exclude the general to that extent and, therefore, Section 4 (3) (i) would have to be read as excluding from its scope business held under trust. But Clause (ia) not only includes income from business that is held under trust, it also includes income from business which may not be held under trust. Therefore, it is not possible to say that Section (ia) was intended to be an exception to Section 4 (3) (i) at all. It deals with a different class of income, namely, income from business carried on behalf of a religions and charitable institution; and, therefore, since the requirement that the business should be held on trust does not appear in Clause (ia) would it not be reasonable so to interpret Clause (ia) as to restrict it to a business carried on behalf of a religious or charitable institution which, is not held on trust? Such a construction leads to the result that whilst Section 4 (3) (i) includes within its scope income from business held under trust, the true scope of Section 4 (3) (ia) is to include within its scope business carried on behalf of a religious or charitable institution, which business is itself not held under trust, although the words used in Clause (ia) are prima facie capable of including within its scope business which may be held under trust. In our opinion, it is possible to reconcile these two sub-clauses by reading them in this manner, so that the ambit of these sub-clauses is different and does not overlap. – Clause (i) relates to income from business held under trust and Clause (ia) relates to income from business carried on on behalf of a religious or charitable institution where that business itself is not held on trust.
6. We are strengthened in this view of ours by decisions of two other High Courts. We have first the decision of the Lahore High Court in Charitable Gadodia Swadeshi Stores Delhi v. Commr of Income-Tax, Punjab , in which a Division Bench of that High Court took a view similar to the view that we have indicated. In the judgment of the High Court the following passage appears at page 390 (of ITR): (at p. 468 of AIR) :
“Clause (ia) as it stands cannot in any way derogate or subtract anything from Clause (i). It rather adds to the list of exceptions and provides immunity for a certain kind of business which in the view of the Legislature had not already been provided for. A new clause inserted by the Legislature cannot be presumed to be inconsistent with or repugnant to a foregoing clause in the same sub-section unless it is so expressly provided. Viewed in its proper perspective, therefore, Clause (ia) can be taken to apply only to such business as is carried on on behalf of religious or charitable institutions which were not held under trust and not to such business as was itself held under trust or was conducted by or on behalf of such charitable or religious institutions as were held under trust. If it was intended to narrow down the scope of Clause (i) so as to withdraw the exemption enjoyed by a business held in trust or conducted by or on behalf of a religious or charitable trust, the new clause should have been added as a proviso to the old clause. It would then have mentioned that the scope of the original clause was being restricted to that extent. But this not being the case here, it cannot reasonably be urged that something that was already included in Clause (i) has been removed by the insertion of an additional clause.”
With these observations we are in respectful agreement. We have then a decision of the Allahabad High Court reported in Commr, of Income Tax v. Radhaswami Satsang Sabha, , in which Chief Justice Malik, in his Judgment, after considering the relevant sub-sections and the Lahore decision that we have referred to above, observes at page 521 (of ITR) : (at p. 303 of AIR):
“….. Clause (i) of Sub-section (3) of section 4 deals with income derived from property held under trust or other legal obligation for religious or charitable purposes, while Clause (ia) deals with income derived from business carried on on behalf of a religious or charitable institution. The two clauses, therefore, do nob necessarily overlap. Clause (i) of Sub-section (3) of Section 4 of the Act, as we have already pointed out, applies to cases where the business itself is held under trust for religious or charitable purposes, while Clause (ia) applies only to such business as is carried on on behalf of a religious or charitable Institution which was not held under trust.”
There are also certain observations of this High Court in a judgment, to which I was a party, in Commr, of Income Tax v Breach Candy Swimming Bath Trust, (F). The question that we had there to determine was whether the income from the sale of tickets for admission to the bath and from the bar and restaurant which was run in connection with a trust for the maintenance of the Breach Candy Swimming Bath was exempt from tax. The Tribunal had held that the income of the Trust was exempt under Section 4 (3) (ia) and the High Court had come to the conclusion that Section 4 (3) (i) applied and not Section 4 (3) (ia). In the judgment of Chagla, C. J,. at page 292 (of ITR): (at pp 254-255 of AIR), the following passage appears with regard to the true scope of the two sub-clauses :
“Our object, therefore, should be to give an Interpretation to Section 4 (3) (ia) and Section 4 (3) (i) which removes these difficulties and anomalies and which is an interpretation which reconciles Clauses (i) and (ia) and presents a fairly complete and coherent picture of this aspect of the Income-tax Act. Now, it seems to us that Section 4 (3) (i) deals with property which is held under trust or other legal obligation from which an income is derived, and the property may be even business which may be settled on trust or which may be an integral part of the trust If that is the position and if the trust is wholly for religious or charitable purposes, then no difficulty whatsoever would arise with regard to the income of any property whether it is business or other property. In this very case, if the case were to fall under Section 4 (3) (i), then admittedly the trust is wholly for religious or charitable purposes and whatever income is derived by this trust, whether it is from securities or from immoveable property or from business, would be income derived from property held under trust or other legal obligation wholly for religious or charitable purposes and therefore exempt from tax. There is no difficulty in taking the view that a business may be property hold under trust for the purposes of this sub-section because the Privy Council in the Tribune’s case did hold that the business of running the newspaper “Tribune” was property held under trust for a charitable object.
“In this view of the case Section 4 (3) (la) would only apply to an activity which was not an integral activity of the trust itself. If the trustees carried on a business which was not a part of the property of the trust, then only that income of the business would be exempt from taxation which was applied solely to the purposes of the institution. If such a business made a profit, and only part was spent for religious or charitable Institution and the other pan was kept in surplus or in reserve, then the part which was kept in surplus or in reserve would be liable to tax. Therefore the Legislature, as far as Section 4 (3) (ia) was concerned, looked upon a business falling under this sub-section as something independent of the trust itself; and looking upon that business as something independent of the trust itself, it naturally wanted to tax the income of the business to the extent that that income was not applied solely to the purposes of the charitable or religious institution, if we take this view of Section 4 (3) (i) and 4 (3) (ia), then no difficulty would be experienced in the way or the trustees who were carrying on the activity as a part of the trust itself and which activity made profits which the trustees may keep in reserve in order to strengthen the financial position of the institution. As such income would fall under the first pan of Section 4 (3) (1), no question could then arise of that Income being necessarily applied for the purposes of the institution in order to earn exemption under Section 4 (3) (ia).”
Now, with regard to the second paragraph set out above from this judgment, I was a party to that judgment and accept my full responsibility for the views therein expressed; but upon a fuller examination of the true scope of Section 4 (3) (ia), it appears to me that the view that we then took was a more restricted view than is warranted. We restricted Section 4 (3) (ia) to a business which was an integral activity of the trust itself. There does not appear to me to be any warrant for so restricting it. A religious or charitable institution is not required to be necessarily a trust and there are many religious or charitable institutions which are not trusts. Therefore, a business, carried on on behalf of religious or charitable institutions does not necessarily mean a business carried on as an integral activity of any trust at all. The observations in paragraph 2 of the extract from the judgment, in so far as they relate to a business carried on as an integral activity of the trust itself, do not fall for consideration on the present reference; but in so far as those observations indicate that the scope of Section 4 (3) (ia) is restricted to a business carried on as an Integral activity of the trust itself, upon a fuller consideration of the matter I am of opinion that the correct view is as we have indicated in this judgment, that the true scope of Section 4 (3) (ia) is that it includes within its scope income from business carried on on behalf of a religious or charitable institution, whether Or not there is any trust either in regard to the business or in regard to the institution.
7. The result, therefore, is that the answer to Question No. 2 will be: “Under Section 4 subSection (3) Clause (i).”
8. Income-tax Commissioner to pay costs.
9. Reference answered.
