1962-VIL-143-MAD-DT

Equivalent Citation: [1963] 50 ITR 798 (Mad)

MADRAS HIGH COURT

Dated:22.10.1962

THIAGESAR DHARMA VANIKAM

COMMISSIONER OF INCOME-TAX, MADRAS

K.R. Ramamani for Subbaraya Aiyar, Sethuraman and Padmanabhan for the Appellant

S. Ranganathan for the Respondent

Bench

JAGADISAN and SRINIVASAN, JJ.

JAGADISAN J.

The question referred under section 66 of the Indian Income-tax Act is "whether the income derived by the assessee-trust from business is exempt from tax under the provisions of section 4(3)(i) of the Act for the assessment years, 1952-53 to 1955-56?"

The assessee is a religious and charitable trust called "Thiagesar Dharma Vanikam". It was founded by one Karumuthu Thiagarajan Chettiar under a deed of trust dated May 13, 1948. The founder furnished the trust with a sum of Rs 61,000 as a nucleus fund to be augmented and utilised for the purpose of the trust set out in the deed. A business in cotton yarn and cloth was started by the board of trustees or the managing trustee of the said trust with the help of this sum of Rs 61,000. Even during the first year of business a net profit of Rs 5,94,493 was earned and this was added to the capital account. In the next year, 1949-1950, a profit of Rs 85,105 accrued and this was also capitalised. During the year ended June 30, 1951, the previous year for the assessment year 1952-53, the trust acquired a printing press and carried on business as printers. For the years ended June 30, 1951, to June 30, 1954, the previous years for the assessment years, 1952-53 to 1955-56 respectively, the assessee submitted returns to the department showing nil income. The income from the business carried on by the trust was not returned as the assessee claimed exemption under section 4(3)(i) of the Act. The Income-tax Officer, however, held that the business income of the trust was not exempt from taxation as claimed by the assessee and passed orders of assessment as per particulars given below:

Assessment year	Date of assessment by Income-tax Officer	Income computed and taxed
		Rs.
1952-53	30-10-1954	5,15,634
1953-54	30-10-1954	21,349
1954-55	28-01-1958	2,19,430
1955-56	28-01-1958	75,062
		(Business)

The view of the Income-tax Officer was that the income from the business of the trust which was carried on by the managing trustee on behalf of the trust would fall within proviso (b) to section 4(3)(i) and would not be covered by section 4(3)(i), the main provision, and that the necessary conditions required to be fulfilled for the operation of the proviso (b) were not present.

The assessee preferred appeals to the Appellate Assistant Commissioner. The appeals in respect of the assessment years, 1952-53 and 1953-54, were dismissed by order of the Assistant Commissioner dated December 23, 1957. In his view, it was not the trust or the institution, which was carrying on the business from which the income was earned, that the business was carried on by the managing trustee on behalf of the trust, and that therefore the application of section 4(3)(i) was excluded by the operation of proviso (b) to that section. The appeals in respect of the other two years, 1954-55 and 1955-56, were also dismissed by another Appellate Assistant Commissioner by order dated December 2, 1958, who followed the same reasoning as that adopted by the Assistant Commissioner who dismissed the earlier appeals.

The assessee preferred further appeals to the Income-tax Appellate Tribunal. The appeals arising out of the assessment for the assessment years, 1952-53 and 1953-54, were dismissed by the Tribunal by its order dated January 15, 1959. The appeals in respect of the other two years were also dismissed by the Tribunal by a separate order dated October 21, 1959. The Tribunal also took the view that the business of the trust was carried on by the managing trustee on behalf of the trust, that therefore only proviso (b) to section 4(3)(i) was applicable, that the proviso operated as an exception to the main provision, and that the assessee not having fulfilled the conditions prescribed under the proviso could not claim exemption from taxation. On an application by the assessee under section 66(1) of the Act a consolidated reference in respect of the four years has been made to this court raising the question of law set out above.

We shall at first refer to the terms of the deed of trust dated May 13, 1948. The author or the founder of the trust is one Karumuthu Thiagarajan Chettiar. The object of the trust is to establish, maintain and run schools, colleges, libraries, hospitals, maternity homes and other institutions of a public charitable nature. The objects also include renovation of places of worship and temples dedicated to Hindu religion and the establishment of institutions devoted to the propagation of Hindu religion. Karumuthu Thiagarajan Chettiar constituted himself as the first trustee of the trust. He made over and delivered to the trust a sum of Rs 61,000 to form the nucleus of the trust funds (vide clause 3). The number of trustees was not to exceed 5 exclusive of the trustees appointed for their special knowledge or technical skill, whose number was not to exceed 2. Clause 6 is in these terms: "The said Karumuthu Thiagarajan Chettiar shall be the first managing trustee and he shall, subject to the provisions of clause 8 hereof, hold that office for life and upon his death the senior most male descendant of the members of his family according to the rule of primogeniture shall hold the office in succession for life...". The term of office of a trustee except that of the managing trustee shall be one year from the date of the appointment. All the trustees constituted the board of trustees and they are vested with full power of management of the trust properties. Clause 17, however, provides that the administration, direction and management of the several institutions and establishments created in terms of the trust shall be in the managing trustee. Power has been given to the board to employ the trust funds in such industry, trade or business as the trustees or a majority amongst them may deem fit and proper. Even a cursory perusal of the terms of the deed would show that the managing trustee is the heart and soul of this trust. Indeed clause 35 provides as follows: "No act of the managing trustee in exercise of the powers hereby specifically conferred on him whether done before the constitution of the board or thereafter shall be called in question or interfered with by the board except on the ground of its manifest impropriety or on the ground that it is a gross breach and neglect of duty on the part of the managing trustee." It is, however, clear that the terms of the trust deed expressly provide for the trust funds being employed in any trade, industry or business, which means that the trust can carry on the business just like an individual or a firm or a limited company. It is not the contention of the department that the trust is a mere fiction or that it is illusory and we have therefore to proceed on the footing that a valid trust has been constituted and that the trust carried on the business during the relevant accounting years.

We shall now turn to the provisions of the statute. It is necessary to trace the history of this provision from the beginning in order to understand the precise scope of the statute as it now stands. Under the Act of 1922, before its amendment in the year 1939, section 4(3) exempted from taxation the following income:

"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."

Considering this provision the Judicial Committee held in In re Trustees of the Tribune([1939] 7 I.T.R. 415 (P.C.)) that the business of carrying on a newspaper falls within the scope of the section. It was also held in that case that the income from property, which term includes business, held wholly for religious or charitable purpose was exempt from taxation irrespective of the fact whether or not the income was in fact applied or accumulated for application to the purposes of the trust.

The legislature amended the Act in 1939 and clause (ia) was inserted. 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."

The exact scope of clause (ia) raised a controversy. The department contended that the object of this sub-section was to limit the scope of section 4(3)(i) in so far as it related to business held on trust and that the business income of a trust would be immune from taxation only if the conditions prescribed in clause (ia) were fulfilled. On the other hand it was contended for the assessee that section 4(3)(i) related to business held on trust, and that clause (ia) was introduced by the legislature to extend the exemption to the case of other businesses not held on trust, but the income of which was applied for the purposes of a religious or a charitable institution and the business was carried on on behalf of such institution. The view point of the department was however not accepted by several decisions of the various High Courts.

In Charitable Gadodia Swadeshi Stores v. Commissioner of Income-tax([1944] 12 I.T.R. 385.) the Lahore High Court observed thus at page 390:

"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."

The Allahabad High Court took the same view in Commissioner of Income-tax v. Radhaswami Satsang Sabha([1954] 25 I.T.R. 472.). At page 521 the learned judges observed as follows:

"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 not necessarily overlap."

The Bombay High Court followed these decisions in J.K. Trust v. Commissioner of Income-tax([1958] 33 I.T.R. 32). The learned judges observed 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.

In this state of judicial pronouncements, the legislature brought in the amendment to the section by Act XXV of 1953. This amendment took effect from April 1, 1952. The amended provision is in these terms:

"Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them:

(i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, 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, 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 business carried on 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;..........."

It may be noted that the provisions of old clause (ia) are now enacted in the form of the proviso (b) to clause (i).

The question for consideration now is whether the terms of the proviso (b) operate to exclude income from business altogether though the business is property held under trust or other legal obligation wholly or partly for religious or charitable purposes. In other words, can it be said that no income derived from business which is property held under trust or other legal obligation wholly or partly for religious or charitable purposes would be exempt from taxation though the requirements of section 4(3)(ia) are fulfilled, because of the language of the proviso (b) which in terms refers to business carried on on behalf of a religious and charitable institution. Learned counsel for the department contends that the very object of the proviso is to exclude business income altogether from the operation of the exemption under section 4(3)(i) of the Act, and that the terms of the proviso make the object of the legislature quite manifest and clear. As we have already pointed out the terms of proviso (b) are almost the same as the terms of clause (ia) of the Act as they stood prior to the amendment of 1953. The only difference is that what was in the shape of a substantive provision has been re-enacted in the form of a proviso.

It is not an invariable canon of construction that the proviso in a statute should be read as a qualification or limitation upon the effect of the main enactment. The function of the proviso is very often to deal with an excepted class of cases, which may be within the principal enactment but for it. It would not however be correct to say that a proviso should always be assumed to be and read as an exception. A substantive provision may also appear in the form of a proviso and if the clear meaning of the proviso establishes that it is not a qualifying clause of the main provision the court is bound to give effect to it without straining to attribute to it the character of a segment of that main enactment. The unambiguously clear language of the main provision cannot be controlled or overridden by mere implication from the existence of a proviso unless the words of the proviso have necessarily that effect. The meaning of the proviso should be derived from its own terms without any predilection that the subject-matter of the proviso is already covered by the main provision and that its object is to exclude something out of that main provision.

Bearing this principle of statutory interpretation in mind we have to find out whether proviso (b) to section 4(3)(i) covers an independent category not within the main provision or whether it is merely an exception to such provision. The word "property" in section 4(3)(i) includes business. Income from business held in trust for a religious or charitable purpose applied or earmarked for application for the purpose of the trust falls within the exemption provided for under section 4(3)(i). A business owned and carried on by the trust is of course held in trust. A trust is an institution which has no corporate personality. It is not a legal person. The word "trust" is a convenient and a compendious description of the trustees, the beneficiaries and the subject-matter of the trust. Sometimes the expression "trust" is used to denote the trustees. For example, when the trustees carry on a business, we generally say that the trust is doing so. When we refer to the fact that the trust is owning properties, we only refer to the interest of the beneficiaries in the property, as in Indian law there is no line dividing title into legal and equitable. The trustees of a trust in India have no title to the trust properties; the properties only vest in them for administration and management. The instrumentality of the trustees to hold and manage trust properties should not cause any misapprehension of the real position of the trustees vis-a-vis the trust. They occupy a representative position representing the trust and they are not strangers to the trust. When the trustee acts, it is only the trust that acts, as the trustee fully represents the trust. A business carried on on behalf of a trust rather indicates a business which is not held in trust, than a business of the trust run by the trustees.

Learned counsel for the department laid considerable stress on the words "such income" in the proviso. He also submitted that the intention of the legislature in enacting the proviso was to exclude business income of the trust from the main provision and to limit the exemption only to cases satisfying the conditions prescribed in the proviso. In our opinion, the language of the proviso is sufficiently clear and should prevail. The words "such income" in the context only mean the income accruing to or arising in favour of the trust. We cannot give effect to the supposed intention of the legislature if the words of the statute do not manifest that intention. The court can only interpret the written statute and cannot undertake the responsibility of presuming an unwritten statute.

The scope of the proviso was the subject-matter of a decision of the Bombay High Court in Dharma Vijaya Agency v. Commissioner of Income- tax([1960] 38 I.T.R. 392). In that case four brothers entered into a partnership to carry on business in the name of Dharma Vijaya Agency. The partnership was appointed as the principal agents of an insurance company. The partners executed a deed of trust of the business carried on by them declaring that they held the business and all benefits and profits arising therefrom upon trust "to pay and apply the same for the relief of the poor, education, medical relief and the advancement of any other object of public utility as the trustees shall from time to time think fit". The question was whether the income earned in the business in respect of the assessment years, 1951-52 to 54-55, was exempt from tax under section 4(3)(i). It was held by the Bombay High Court that the word "business" referred to in clause (b) of the proviso need not be business which is held for religious or charitable purpose and that there is nothing in that proviso which in any manner touches the case of a business which is held under trust for religious or charitable purposes. The income derived from the business was held exempt from tax under section 4(3)(i). At page 405 Shah J., as he then was, observes thus:

"Mr. Joshi's argument is that if business is property within the meaning of section 4(3)(i), and that business is held on trust, the business in clause (b) of the proviso must also be held on trust, and if it is not so held on trust the income thereof will not be exempted as income derived from property held under a trust for religious or charitable purposes. But we do not think that there is any warrant for this submission on the plain language used by the legislature......The expression 'such income' in the proviso refers to the income derived from property (which expression includes a business) held for religious or charitable purposes. But that does not, in our view, justify the submission that the business which is referred to in clause (b) of the proviso must be business which is held for charitable or religious purposes. In our view, the business referred to in clause (b) of the proviso need not be business which is held for religious or charitable purposes, provided it is business carried on on behalf of a religious or charitable institution."

At page 412 Desai J. observes as follows:

"In these cases, where the language is clear, we have to look merely at what is stated. As has often been said, there is no room for any intendment in such cases and it is not permissible to us to read in the relevant provisions something which is not there. We can only look at the language used and construe the provision on a fair reading of the same. On a fair reading of clause (i), it must be held, in my judgment, that there is nothing in proviso (b) to clause (i) of section 4(3) which in any manner touches the case of a business which is held under trust for religious or charitable purposes. The income derived from such business is not to be included in the total income of the person receiving it."

The Kerala High Court has considered the scope of the proviso and has agreed with the Bombay view. In Commissioner of Income-tax v. Krishna Varier([1962] 44 I.T.R. 828.), it was held that where a business or institution is itself held under trust for religious or charitable purposes, it is property held under trust within the meaning of section 4(3)(i) of the Act, and its income is exempt from taxation. Such income is not brought back within taxation by proviso (b) to section 4(3)(i), as proviso (b) applies only to income derived from a business carried on on behalf of a religious or charitable institution. This decision has been followed by that High Court in a subsequent decision in Dharmodayam Co. v. Commissioner of Income-tax(.[1962] 45 I.T.R. 478).

In our opinion proviso (b) to section 4(3)(i) does not restrict the operation of the main provision in section 4(3)(i). If a trust carries on business and the business itself is held in trust and the income from such business is applied or accumulated for application for the purpose of the trust, which must of course be of a religious or a charitable character, the conditions prescribed in section 4(3)(i) are fulfilled and the income is exempt from taxation. This exemption cannot be defeated even if the business were to be conducted by somebody else acting on behalf of the trust. Proviso (b) to section 4(3)(i) has application only to businesses which are not held in trust, and the field of its operation is, therefore, distinct and separate from that covered by section 4(3)(i). This is the view taken by the Bombay and the Kerala High Courts, in the decisions referred to above and we find ourselves in respectful agreement with that view.

The question is answered in the affirmative and in favour of the assessee. The department will pay its costs. Counsel's fee Rs 250.