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1952 Supreme(Bom) 115
HIGH COURT OF BOMBAY
CHAGLA,TENDOLKAR, JJ.
J. K. Trust, Bombay
Versus
Commr. of Income-tax and Excess Profits Tax, Bombay City
Income-tax Ref. No.1 of 1952
Decided On : 06-10-1952
Sir Jamshedji Kanga, with R.J. Kolah, and D.H. Dwarkadas, for Applicant; Sir Noshir-wan Engineer, with R.J. Joshi, for Respondent.
Income derived from property held under trust is exempt from tax under S.4(3)(i), Income-tax Act. However, the property must be the effective source from which the income arises. It is not sufficient that the property should be indirectly responsible for the income.
Headnote:
INCOME TAX - Exemption - Charitable trust - Managing agency commission - Whether exempt under S.4(3)(i), Income-tax Act - Held, no - Commission not derived from property held under trust - Managing agency business not carried on with trust fund.
Fact of the Case:
A trust known as J.K. Trust, Bombay, was created by a trust deed dated 15-6-1945, by Sir Padmapat Singhania, Lala Kailashpat Singhania and Lala Lakshmipat Singhania in respect of a sum of Rs.1 lac. The income from this sum was to be utilized for charitable purposes. The three settlors appointed themselves along with Lala Ramdeo Podar and Sir Chunilal Mehta, as the five trustees of the trust. The firm Juggilal Kamalapat which consisted of the three Singhania brothers who were-the settlors, purchased the "controlling interest" in the Raymond Woollen Mills, Ltd., from, the Sassoon group. According to an arrangement between the vendors and the firm, after the purchase of the shares of the. Raymond; Woollen Mills from the Sassoon group, E.D. Sassoon and Co., Ltd., resigned as the managing, agents and by a deed of agreement dated 10-9-1945, the Raymond Woollen Mills appointed J.K. Trust, as the managing agents of the Mills, as from 3-9-1945 for a fixed period of 20 years. Under the managing agency agreement, the managing agents were entitled to the-payment of commission of 10 per cent, of the net annual profits "of the Raymond Woollen Mills, Ltd., subject to a minimum of Rs.50,000 per annum. In addition to the above commission, the managing agents were also entitled1 to an office allowance of Rs.1,000 per month. The managing agents were to undertake the-management of the companys affairs subject to the control and supervision of the directors of the managed company. All out-of-pocket expenses incurred by the managing agents were, to be paid by the managed company. Under Cl.7 of the managing agency agreement, the managing agents had to maintain a deposit of Rs.1 lac with the company and the deposit was to bear interest at 3½ per cent, per annum.
Finding of the Court:
The commission earned by the managing agents was not exempt under S.4(3)(i), Income-tax Act, as it was not derived from property held under trust. The managing agency business was not carried on with the trust fund.
Issues: Whether on the facts of the case the commission earned by the managing agents for managing the Raymond Woollen Mills was income earned by the managing agents for services rendered and not income derived from property held under trust or other legal obligations and therefore not exempt under S.4(3) (i), Income-tax Act? Whether on the facts of the case the business carried on by the trustees falls to be considered under S. 4(3)(i) or S.4(3)(i), Income-tax Act?
Ratio Decidendi: The managing agency commission was derived from the services rendered by the trustees as managing agents and not from the trust fund. The managing agency business was not carried on with the trust fund. Therefore, the commission was not exempt under S.4(3)(i), Income-tax Act.
Final Decision: Question (1) is answered in the negative. Question (2) is unnecessary. Assessee to pay the costs.
FACTS :- A TRUST known as J.K. Trust, Bombay, (assessee), was created by a trust deed dated 15-6-1945, by Sir Padmapat Singhania, Lala Kailashpat Singhania and Lala Lakshmipat Singhania in respect of a sum of Rs.1 lac. The income from this sum was to be utilized for charitable purposes. The three settlors appointed themselves along with Lala Ramdeo Podar and Sir Chunilal Mehta, as the five trustees of the trust. Clause 3 of the deed of trust which empowered the trustees to do-business provided as follows: "The Trustees may with the help of the trust fund for and on behalf and for the benefit of the trust carry on such business including, the taking up and conducting the managing, agency or selling agency of any company in such name or names as they in their absolute discretion may think fit and proper and may close and restart any such business and utilise the profits derived therefrom for all or any of the objects aforesaid with power to the trustees in the conduct and management of such business to do all such acts, deeds and things as they may consider necessary or expedient and in particular to appoint and at their discretion remove, or suspend such agents, managers, secretaries, officers, clerks, servants and any other person or persons for permanent, temporary or special services as they may from time to time think fit and to determine their powers and duties and to remunerate them or any of them either with salary or with a share of profits or income-arising out of such business and to require security in such instances and to such amounts as they consider appropriate."
2. The firm Juggilal Kamalapat which consisted of the three Singhania brothers who were-the settlors, purchased the "controlling interest" in the Raymond Woollen Mills, Ltd., from, the Sassoon group. According to an arrangement between the vendors and the firm, after the purchase of the shares of the. Raymond; Woollen Mills from the Sassoon group, E.D. Sassoon and Co., Ltd., resigned as the managing, agents and by a deed of agreement dated 10-9-1945, the Raymond Woollen Mills appointed J.K. Trust, as the managing agents of the Mills, as from 3-9-1945 for a fixed period of 20 years. Under the managing agency agreement, the managing agents were entitled to the-payment of commission of 10 per cent, of the net annual profits "of the Raymond Woollen Mills, Ltd., subject to a minimum of Rs.50,000 per annum. In addition to the above commission, the managing agents were also entitled1 to an office allowance of Rs.1,000 per month. The managing agents were to undertake the-management of the companys affairs subject to the control and supervision of the directors of the managed company. All out-of-pocket expenses incurred by the managing agents were, to be paid by the managed company. Under Cl.7 of the managing agency agreement, the managing agents had to maintain a deposit of Rs.1 lac with the company and the deposit was to bear interest at 3½ per cent, per annum.
3. In the assessment for the years 1946-47, 1947-48 and 1948-49 the assessee contended that the income derived from the agency business; was the income of the trust and was, therefore,. exempt from taxation under S.4(3)(i) of the Act. The Income-tax Officer held that the income was not exempt.
4. On appeal the Tribunal held that the sum of Rs.1 lac was property held under trust wholly for charitable purposes; interest income accruing thereon was exempt under S.4(3)(i), Income-tax Act. As regards remuneration received by the trustees as managing agents of the Raymond Woollen Mills, the Tribunal held that the payment of the remuneration was a payment made for services rendered by the trustees; it was, therefore, not income derived from property held under trust and S.4(3)(i) had therefore no application. The Tribunal also held that the income from business could only be considered under S.4(3)(i) of the Act. As it was common ground that the business was not carried on in the course of carrying out th
