1985 PLP 341 (PTD)

"There is no presumption that because the institution is a religious or charitable trust, all of its activities must be supposed to be for the carrying out of a religious or charitable purpose. The proviso is carefully worded to distinguish activities whose object is to implement or effectuate directly a religious or charitable purpose, from all other activities, and clearly the plying of launches by itself cannot be brought within any of the religious or charitable purposes which are specified in the Trust Deed." The main purposes of the Trust were also referred to in that judgment in order to show that running of any business was not included among the purposes of the Trust. The purposes of the Trust included relief e to the poor, promotion of education, establishment of schools, provision of medical assistance and relief to the distressed persons, erection of mosques and maintenance of place of public worship. The income producing business was indeed owned by the Trust, and also carried on by the Trust or on behalf of the Trust, but this business was not the main purpose of the Trust as set down in the Trust Deed and hence the exemption given by the main provision of clause (i) has been restricted by the proviso by a conscious act of the legislature, it was observed.

7. Mr. Rafiq‑ul‑Haq, learned Advocate for the respondent contends that the launches were dedicated to the Trust so that by carrying on business with these launches fund could be derived so that the purposes of the Trust could be achieved and in fact the entire income has been spent for carrying out the religious purposes, and if the 'proviso' is given effect in the way the Pakistan Supreme Court has interpreted, the main purpose of the exemption will be defeated. This aspect of question also received due consideration from that Court and the learned Judges cited a number of probable reasons for such statutory restriction on the exemption. Learned Judges observed that it would be entirely reasonable to discourage the trust from entering into commercial pursuits in view of the danger of aversion of trust fund or diversion from its main objects. Another consideration might be that of ensuring equal condition of competition to all enterprises in the commercial sphere. In their view, the proviso was intended to exempt the income of a trust business which is itself one of the trust objectives, as for instance, when it is the purpose of a Trust to give training to the poor persons it any trade or profession, such as Handloom industries, then the Trust will be required to enter into the business of buying raw materials, and producing goods and selling them in the market and in doing so some profit might he derived and it is this profit or income which is intended to be exempted from taxation, and it is this business which might be termed a business for the carrying out of the main purpose of the trust.

8. Mr. Rafiq‑ul‑Haq has mainly concentrated on the nature of business carried on by or on behalf of the Trust and has argued that this proviso does not apply to the business which belongs to and is held by a Trust. He argues that business as referred to in the proviso is one, which is not held by the trust, but is one which is carried on, on behalf of the trust; the business of launch‑plying in this case being directly held and owned by the Trust is outside the ambit of the proviso. In support of this contention, he has referred to a decision of the Indian Supreme Court in Commissioner of Income‑tax v. P. Krishna Warriar (1964) 53 I T R

167. In that case it has been held that business is property and if a business is held in trust wholly or partly for religious or charitable purposes it falls clearly under the substantive part of section 4(3)(i) of the Income‑tax Act and in that event this proviso cannot be attracted as that clause applies only to a business not held in trust but is carried on, "on behalf of a religious or charitable institution". Facts of ft e case are that the testator, who has carrying on the business of manufacturing and selling Ayurvedic medicines under the name and style of "Arya Badyashala", dedicated the business to a religious and welfare trust and its income was also applied for such religious or charitable purposes. The question raised was whether the income derived from this business was exempted from income‑tax in view of the proviso to clause (i) of subsection (3) of section 4 of the Indian Income‑tax Act as it stood after Amendment of 1953. This provision of the Indian Income‑tax Act was similar to the Pakistan Income‑tax Act as stood amended in 1951. Section 4(3)(i) of the India Act is quoted below: "4.(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. Provided that such income shall be included in the total income‑‑ (b) in the case of income derived from the 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." The question was first answered in the affirmative by the Kerala High Court in the same case‑‑Commissioner of Income‑tax v. Krishna Warriar (1962) 44 I T R 828 whose decision was upheld by the Indian Supreme Court, in appeal, observing that when a property in the nature of a business is itself a trust property that is, held under trust and income there from is applied wholly for the trust purposes then the income is totally exempted from taxation; as such, the proviso is not applicable to such case. In that view of the matter, the Indian Supreme Court did not think it necessary to consider the other question whether the business was carried on "in the course of the carrying out of a primary purpose of the institution".

9. Decision of the Kerala High Court was considered by the Pakistan Supreme Court which however was not inclined to the Indian view that business property referred to in the proviso was different from property referred to in the substantive provision in clause (i). The ground taken for not accepting this view is that the purpose of the amendment by which this 'proviso' has been brought in would be defeated if business referred to in the proviso included from the 'property' referred to in clause (i). To appreciate this point it will be necessary to refer to a much earlier case on the subject Charitable Gadodia Swadeshi Stores, 1944 I T R 385 decided by the Lahore High Court under the unlamented section 4(3)(i) when it was in force in undivided India.

10. A business concern 'styled "Charitable Gadodia Swadeshi Store" was held in trust and its income was wholly applied for religious and charitable purposes, but the Revenue disallowed the claim of the Trust for exemption on the strength of clause (i‑a) as it was in the section 4 before amendment (of 1951 in Pakistan and of 1953 in India), subsection (3) including its clauses before amendment is quoted below: "(3) This Act shall not be applied to the following classes of income‑‑ (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: (i‑a) any income derived from business carried on behalf of a religious or charitable institution when the income is applied solely for 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." In that case the Revenue contended that general exemption allowed under clause (i) was brought under a restriction as laid down in clause (i‑a) as the business was not carried on "in the course of the carrying out of any primary purpose of the trust". This contention was rejected by the Lahore High Court which found that clause (i) is not governed by clause (i‑a), that these two provisions are independent of each other, that two separate clause of exemption were provided in these provisions, clause (i) and clause (i‑a), and that clause (i‑a) did not derogate from the exemption granted by clause (i) but, on the contrary, it provided an additional exemption for certain type of business which did not fall within clause (i). It was held: "Viewed in its proper perspective, therefore, clause (i‑a) can be taken to apply only to such business as is carried 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 institution as were held under trust. If it was intended to narrow down the scope of clause (i) so as to destroy 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." In view of this observation of the Lahore High Court, subsection. (3) of section 4 of the Income‑tax Act was amended and clause (i‑a) was replaced by the present proviso which has been quoted at para 3 of this judgment. Now, this proviso is clearly intended to govern, qualify and detract from, the exemption provided in the main part of the subsection that is clause M; otherwise, there will be no sense in bringing in this proviso. Therefore decision in the Charitable Gadodia Case will not be applicable in the instant case governed by the amended clause. Similarly, the Indian decision is also not helpful since the main question whether the business was carried on in the carrying out of the purpose of the trust was not determined.

11. Mr. Rafiq‑ul‑Haq does not question the correctness of the decision of the Pakistan Supreme Court in the previous case relating to different assessment years namely 1955‑56 and 1957‑58, but contends that the facts and circumstances of that case were different in that the assessee could not establish the relevant facts necessary for claiming the exemption. In the previous case, the trust property consisted of two launches which were plied alongwith three other launches belonging to the trustee who ran joint business therewith for' his personal benefit. There was no separate organisation to run launch business of the two trust launches independently of the private business with the other three launches, as such it was not established beyond doubt whether the income from the two trust launches was exclusively applied for the trust purposes. But since then, the other three launches were also dedicated to the Trust and all the five lay aches were used in the business for deriving it come which was applied wholly for charitable and religious purposes and together that the trustee did not run any other business of his own but he devoted himself entirely to the business of the Trust. This argument is found to have found favour with the 'earned Judges of the High Court Division; but on careful examination, it is found that the question of exclusive use of the fund for religious and extraditable purposes is not a contentious issue in the instant case since it is not disputed by the Revenue that the income from the business of these five launches was wholly applied for religious are, charitable purposes. By exclusive application of the income for the trust purposes, one condition has been fulfilled, the other condition that the business should have been carried on in the course of the carrying out of the main purpose of the trust has not been fulfilled.

12. Reading subsection (3) as whole it , found clearly that though, in general, income from property held in trust wholly for religious or charitable purpose is exempted from income‑tax, but when the said property is a 'business' the two alternative conditions have been imposed for getting that exemption, one condition being that the business is carried on in the course of tile carrying out of the purpose of the trust. Intention behind this condition is clear that a religious or charitable institution, or a trust should be discouraged from entering into business with trust properties unless such business is directly related to the objectives of the trust or institution. Such as, the business is intended to give training to the beneficiaries of the trust or to some poor persons so that they can earn their livelihood by learning a profession or acquiring skill in a trade or industry. It is only such business whose income is exempted from taxation. This proviso certainly restricts drastically the scope and field of the general exemption under the main provision of the law, but this restriction having been imposed by conscious act on the part of the law‑makers it is not within the Court's power to dilate the restriction by liberal interpretation ignoring the language of the statute. Subsequently, however, this proviso has been repealed by an Amendment in 1973 altogether and now all income from any property, whether a business or not, if held in trust, is totally exempted from income‑tax. The assessment in question relates to a period prior to this Amendment and as such the exemption is not available to the respondent in view of the proviso‑‑the business is to be carried on in the course of carrying out of the religious or charitable purpose of an institution.

13. The learned Judges of the High Court Division took the view that income of this trust falls under the main statute, clause (i) of subsection (3) of section 4, and sought reliance on a decision of this Court in the case of Commissioner of Income‑tax, Chittagong v. Mr. Saifuddin Ahmed, P T D Vol. VIII

100. In that case this Court observed that when a property is held under trust, income there from is totally exempted from income‑tax under section 4 (3)(i) but both law and fact of that case are different from those involved in the instant one. In that case 2/3rd income of a trust property was set apart in the Trust Deed itself for being applied to religious and charitable purposes. But there was a proviso that nothing in clause (i) shall apply to an income, profit or gain, which is not expended during the previous year or set apart for being expended in the country. The dispute raised there was one of fact, whether there was any unexpended income or surplus at all in the relevant assessment years. On this question we observed: "On consideration of the points urged before us we are clearly of the view that the income of a property held under trust wholly for religious or charitable purposes is exempted from tax, but this exemption will not apply to case where so much of the income as remains unexpended during the previous year. In the instant case the Income‑tax return submitted by the estate did not show any unexpended income but it is the Income‑tax Officer who artificially worked out an unexpended income or surplus . . . . . . . . . . As to the question of setting apart of the unexpended income for being expended in future, Mr. Rafiqul Haq contends that even if there were any such income left unexpended, it should be deemed to have been set apart for being expended in future as the wakf deed has itself earmarked it for charitable or religious purposes." This decision has got no direct bearing on the instant case whether the crucial point centers round the interpretation of a different proviso to the exemption clause (i), which is that the business is carried on in the course of the carrying out of the main purpose of trust. The proviso on which our decision in that case was rested as already indicated is: "Provided further that nothing in this clause shall apply to so much of the income as is not set apart for being expended in Bangladesh." Learned Judges of the High Court Division are not found to have properly appreciated the crucial point decided by the Pakistan Supreme Court in the earlier case. We find, therefore, no ground to reconsider the decision of the Pakistan Supreme Court on the interpretation of subsection (3)(i) of section 4 of the Income‑tax Act. We also do not see any reason for the respondent to re‑agitate the same issue in a subsequent case. The view taken by the Tribunal is correct and that of the High Court Division is erroneous.

14. In the result, all the appeals, which involve the same are allowed. The impugned decision of the High Court Division is set aside and that of the Tribunal is restored. No order as to costs. M.B.A. Appeal allowed.