1969 PLP 386 (PTD)

JAGADISAN, J.‑The question referred to us for decision under section 66 of the Indian Income‑tax Act is whether, on the facts and in the circumstances of the case, the income derived by the assessee trust as a partner in the firm of Indian Metal and Metallurgical Corporation is exempt from tax under the provisions of section 4(3)(i) of the Act. The relevant facts giving rise to this reference can be briefly stated. Sri Agastyar Trust, Madras, is a trust constituted under the registered deed dated 2nd July 1944, by one T. N. Venkata rama Chetti. The objects of the trust are many, and some of them are of religious and charitable character. One of the objects of the trust is thus set out in the deed of trust : "To manufacture, buy, sell and distribute pharmaceutical, medicinal, chemical, and other preparations and articles such as medicines, drugs, medicinal and surgical articles, preparations and restoratives or foods." An item of property held by this trust is a one‑third share in a registered firm of partnership styled Indian Metal and Metallurgical Corporation of Madras. This firm is carrying on business, and, admittedly, the share income of the trust from this business is business income. For the year ending 31st August 1955, relevant to the assessment year 1956‑57, in submitting the return of income, the Agastyar Trust (the assessee) did not include its share income as the partner of Indian Metal and Metallurgical Corporation and claimed that such income was exempt from taxation under the provisions of section 4(3) (i) of the Income‑tax Act. The Income- Tax Officer rejected this claim and the assessee preferred an appeal to the Appellate Assistant Commissioner. The appellate authority held that the business did not belong to the assessee and that the partnership cannot be said to have been held in trust for charitable purposes as the assessee was only one of the partners of the firm. The result was that the decision of the Income‑tax Officer was affirmed. The assessee went up in further appeal to the Income‑tax Appellate Tribunal, but failed to establish that the income was not taxable. On an application by the assessee to the Tribunal for a reference under section 66 (1) of the Act, the above question has been referred to us. The contention of the assessee before the Tribunal was really twofold. The first contention was that the share of the firm of Indian Metal and Metallurgical Corporation was property held for religious and charitable purposes and that the income from such property was covered by section 4(3) (i) of the Act and was, therefore, exempt from taxation. The second contention was that, in any event, proviso (b) to section 4(3) (i) was applicable and would enable the assessee to prevent the income from being taxed. We are unable to see how the assessee can see to bring itself within the proviso if the main provision section 4(3) (i) cannot apply. The exemption of income of trust properties from taxation is provided for in section 4(3) (i). One of the essential requisites of' such immunity to tax is that the income must be from property held under trust or other legal obligation wholly for religious or charitable purposes. A multipurpose trust with objects religious or charitable, mixed with objects not religious or charitable, cannot come within the scope of that section, if there is no compelling obligation on the trustee administering the trust to devote any portion of the income for religious or charitable purposes. If the property is held wholly for religious or charitable purposes, the exemption is available only to such portion of the income therefrom as is actually applied or accumulated for application for such purposes. If the properties are held in part only for religious and charitable purposes, what is not taxable is the income applied or finally set apart for such purposes. But a trust with several objects, some of which alone are religious and charitable, cannot be said to be a trust in which the trust property is held wholly or in part for religious and charitable purposes, if the trust can be performed by fulfilling the other objects and purposes, not religious and charitable in character, without laying open to a charge of breach of trust. The question whether Sri Agastyar Trust is a trust of such a character as would fall within the ambit of section 4(3) (i) of the Act has been considered by this Court T. C. No. 62 of 1958 : Commissioner of Income‑tax v. East India Industries (Pte.) Ltd. ((1962) 46 I T R 1086) by a Division Bench, to which one of us was a party. The conclusion of the learned judges in this matter is set out in these terms "Our conclusion accordingly is that, since it is open to the trustees of the Agastyar Trust to utilise the whole of the income of the trust in their unfettered discretion to an object which is a non‑charitable one, the property cannot be deemed to be held in trust wholly for charitable or religious purposes. The Agastyar Trust is thus ineligible to the exemption contemplated by section 4(3) (i)". We have again perused the provisions of the trust deed constituting the trust and we see no reason to differ from the above conclusion. We are, therefore, of opinion that Sri Agastyar Trust is not a trust, in respect of which the income from its properties can be exempted from taxation under section 4(3) (i) of the Act. Learned counsel for the assessee contends that, in the present case, both the Department and the Tribunal proceeded on the basis that the trust is one which falls within the ambit of section 4(3)(i) and that the only question mooted was whether proviso (b) to section 4(3)(i) was or was not applicable. We do not see any basis for this contention. It seems to us that the question whether section 4(3)(i) can govern the assessee was raised and considered by the Tribunal, though, ultimately, the decision seems to have been rested on the ground that even the proviso cannot help the assessee. But it is quite obvious that the assessee cannot succeed unless and until it is able to show that section 4(3)(i) grants the necessary exemption in its favour. There is no necessity to consider the applicability of the proviso at all in case the assessee fails to bring itself within the scope of the main provision (section 4(3)(i) ). As stated already, the trust, which has for one of its objects the carrying on of a pharmaceutical business, which can be properly and lawfully performed by dev3ting the entire income of the property to the carrying on of the said business, cannot be called a trust, in respect of which the property is held wholly or partly for religious and charitable purposes. With respect, we follow the decision of this Court in T. C. No. 62 of 1958 : Commissioner of Income‑tax v. East India Industries (Pte.) Ltd. In this view of the matter, it is not necessary for us to go into the question as to how far the assessee can successfully invoke proviso (b) to section 4(3)(i). The question is answered against the assessee, who will pay the costs of the department. Counsel's fee Rs.

250. Question answered accordingly.