A trust that has both charitable and non-charitable objects, and where the trustees have absolute power to select between them, is not held wholly for religious or charitable purposes within the meaning of S. 4 (3) (i) of the Income-tax Act, 1922.

Judgement

RAMASWAMI, J. : This appeal is brought. by special leave, from the judgment of the Madras High Court dated October 25, 1961 in T. C. No. 62 of 1958.

2. The assessee, the East India Industries Limited, paid a donation of Rs. 7,500 to a trust called "the Agastyar Trust" and claimed exemption from tax under S. 15-B of the Income-tax Act, 1922,hereinafter called the Act . The trust had been created by the partners of a business firm K. Rajagopal and Company. This firm had been carrying on business in waste paper. Under the terms of the partnership it was setting apart 80 per cent of the profits for charitable and religious purposes. On July 1, 1944, a trust deed was executed by Venkatarama Chetti. The claim of the assessee to exemption from tax was rejected by the Income-tax Officer on the ground that the trust did not fulfil the conditions laid down under S. 15-B of the Act. The Appellate Assistant Commissioner to whom an appeal was preferred took the same view. The matter was taken up in further appeal to the Income-tax Appellate Tribunal which observed that in relation to the previous assessment year, it had held that the Agastyar Trust was a public trust and that any donation made to that trust was an allowable deduction under S. 15-B. At the instance of the Commissioner of Income-tax the Tribunal referred the following question of law for the determination of the High Court under S. 66 (1) of the Act:

Whether on the facts and in the circumstances of the case the assessee is entitled to claim deduction under S. 15-B in respect of the donation paid to the Agastyar Trust ?"

The High Court answered the question against the assessee who has brought the present appeal to this Court by special leave.

3. Section 15-B of the Act provides for exemption from tax in respect of any sums paid by the assessee as donations to any institution or fund to which the section applies. Sub-section (2) reads as follows:

"(2) This section applies to any institution or fund established in the taxable territories for a charitable purpose

(i) the income whereof is exempt under Cl. (i) of sub-s. (3) of S. 4;

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Section 4 (3) (i) of the Act states as follows :

"(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) Subject to the provisions of Cl. (c) of sub-s. (1) of S. 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:

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Paragraph 2 of the trust deed, dated July l, 1944 sets out the objects of the Agastyar Trust as follows:

"(a) to establish, conduct and maintain residential schools, colleges, workshops and other institutions for imparting general technical, vocational, professional, industrial or other kind of education and training for the utility and welfare of the general public :

(b) to make pecuniary grants by way of scholarship, donation, subscription, allowance, gratuity, guarantee or otherwise to and for the benefit of students, scholars and other persons;;

(c) to establish, maintain and conduct hospitals, clinics, dispensaries, maternity houses and other institutions for affording treatment, cure, rest, recuperation and other reliefs;

(d) to manufacture, buy, sell and distribute pharmaceutical, medicinal chemical , and other preparations and articles such as medicines, drugs, medical and surgical articles, preparations and restoratives of food;

(e) to establish and maintain choultries and rest-houses, to provide food, clothes, medicines and other articles of necessity free or at concessional rates and to make money grants to the poor, needy for celebration of marriages or cerem