JUDGMENT

1. This is a case stated by the Income-tax Appellate Tribunal under sub-section (1) of Section 66 of the Indian Income-tax Act.

Before discussing the question of law formulated by the Tribunal, it will be necessary to set out in some detail the circumstances in which it has arisen.

On the 30th January 1928, Seth Laxminarayan Gadodia executed a deed of trust which was registered on the 2nd February 1928. Its preamble runs as follows :-

"Whereas the said Seth Laxminarayan Gododia intends to create a trust in respect of the sum of a lac of rupees and whereas the said sum of a lack of rupees was handed over to the Trustees hereinafter mentioned on Katak Sudi Its September 1984, and whereas the said trustees have utilised a part of the said one lac and rupees in the purchase of the Gadodia Swadeshi Stores hereinafter described as the Stores, and whereas it is necessary to provide rules and regulations for the governance of the said Trust."

2. That is flowed by a paragraph detailing the purposes for which the trust is created bad they are stated in the following terms :-

"Deviating the income derived from the said amount of a lac of rupees in the education of students reading in schools, colleges, and patasalas, and in opening schools, colleges or any class or classes in the existing college or colleges, school or schools, in any subject or subject or subjects, in opening and helping libraries and in establishing and assisting boarding houses, and in other charitable and religious institutions and also towards the maintenance on one or more of the said institutions and for the support of the inmates on any orphanage or orphanages."

Then follow eighteen clauses mentioning the names of the trustees and laying down the regulations which would govern them in the discharge of the obligations. It is inter alia provided that "the trustees shall have the right of winding up the business of the said Stores which has been purchased out of a part of the funds of the trusts and on investing the sums realised therefrom in some other business or businesses according to their discretion" and that "the trustees shall have full discretion in employing the funds of the trust in such trader or business or other investments and securities, etc., as they may deem proper." It is further laid down that the author of the trust "reserves to himself the right of augmenting the funds of the trust and dots further empower the trustees to augment the said fund from any source whatsoever by accepting help from outside if they think such acceptance is in the interest of the trust."

It is common ground that since the certain of this trust up to the assessment year 1938-39, the income, profits or gains derived therefrom were exempted from income-tax under the provision of Section 4 (3) (i) of the Income-tax Act, 1922, which stated inter alia that the Act shall not apply to any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes. By Act VIII of 1939, however, another clause was inserted after clause (i) and numbered (ia), which reads as follows :-

"Any income derived from business carried 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 caring out of the primary purpose of the institution, or

(b) the work in connection with the business is mainly carried on by beneficiaries of the institution."

On the score of this amendment, the Income-tax authorities in the assessment year 1939-40 held that the income, profits or gains derived from this trust could not be excluded, first because income from business was not contemplated in Section 4 (3) (i) and secondly if Section 4 (3) (ia) was invoked, the conditions laid down therein were not satisfied. It may be stated that this decision of the Income-tax Officer was not challenged by the assessee beyond the stage of appeal to the Appellate