Business held in trust partly for religious or charitable purposes falls under the substantive part of S. 4(3)(i) of the Act and not under proviso (b) thereof.

Judgment

SUBBA RAO, J. :

These appeals by special leave raise the question of the construction of the provisions of S. 4 (3)(i) of the Indian Income-tax Act, 1922, hereinafter called the Act, as amended by the Indian Income-tax (Amendment) Act, 1953, hereinafter called the Amending Act.

2. The facts are as follows. One P. S. Warriar, an eminent Ayurvedic physician, carried on business in Ayurvedic drugs under the name and style of "Arya Vaidya Sala"and was also running a hospital named "Arya Sikitsa Sala" and a school called "Arya Vaidya Pata Sala". The said Warriar died on January 30, 1944, after executing a will wherein he created a trust in respect of his properties, including the Arya Vaidya Sala. He gave directions to the trustees appointed under the said will to conduct the said business and to disburse the income therefrom in certain proportions to the Arya Vaidya Sala, Arya Sikitsa Sala and Arya Vaidya Pata Sala and to his descendants. Broadly stated per cent of the income was directed to be spent on the said three institutions and 40 per cent, to be given to his descendants. Till the Amending Act came into force the Income-tax Department gave exemption from assessment for the 60 per cent, of the income under S. 4 (3) (i) of the Act; but, after the Amending Act came into force,which was given retrospective operation from April 1, 1952, the said Department refused to give exemption from assessment even in regard to the 60 per cent, of the income. For the assessment years 1954-55 and 1955-56 the Income-tax Officer assessed the entire income from the said properties; and in respect of the income pertaining to the assessment years 1952-53 and 1953-54, which had already been assessed in the usual course giving exemption for the said 60 per cent of the income, the Income-tax Officer issued notices under S. 34 of the Act and by two separate orders dated September 28, 1956, assessed the said 60 per cent, of the income on the basis of escaped assessment. On December 20, 1956, for the assessment year 1956-57 the Income-tax Officer, in the like manner, assessed the entire income from the said properties. The appeals filed by the assessee against the said orders of assessment to the Appellate Assistant Commissioner were dismissed. The appeals filed against the orders of the Appellate Assistant Commissioner to the Income-tax Appellate Tribunal, Madras, were consolidated and by its order dated February 28, 1958, the said Tribunal allowed the appeals exempting 60 per cent, of the said income from assessment to income-tax under S.4 (3)(i) of the Act. The references made to the High Court of Kerala were dismissed. Hence the present appeals.

3. Mr. Rajagopal Sastri, learned counsel for the Revenue, contends that under S. 4 (3) (i) of the Act whereunder the said income is given exemption from taxation, the property wherefrom the income is derived shall have been held under trust wholly or in part for religious or charitable purposes, that the business run under the name and style of Arya Vaidya Sala was not capable of being held in trust, that even if it was capable of being held under trust, it was not wholly or in part so held in trust for religious or charitable purposes, as only a part of the income was directed to be spent for religious or charitable purposes and that in the circumstances cl. (b) of the proviso was attracted but the conditions laid down thereunder were not complied with.

4. Learned counsel for the respondent. Mr. S. T. Desai, contends that business is property within the meaning of S. 4(3) (i) of the Act and that it is held in trust in part for religious and charitable purposes and, therefore, the substantive part of the provision is attracted to the facts of the case and hence the proviso is excluded.

5. Before we construe the relevant provisions of the Act and consider the arguments advanced on either side, it would be convenient at the outset to read the material part of the will and to ascertain the scope of the beque