# Lakshminarayan Rain Gopal and Son Ltd v. The Govenment of

- **Citation:** [1958] 1 S.C.R. 65
- **Court:** Supreme Court of India
- **Decided:** 1958
- **Bench:** Bhagwati, Venkatarama Aiyar, J. L. Kapur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/lakshminarayan-rain-gopal-and-son-ltd-v-the-govenment-of-1413
- **Pages:** 14

## Headnote

Income Tax-Trust-Exemption from taxation-Trustees conducting business of Managing Agency for the Trust-Business,
whether "property"-Incomefrom Managing Agency, whether income
derived from property held on trust-Indian Income-tax Act, 1922
(XI of 1922), s. 4(3) (i) and (ia).
A deed of trust whereby a sum of Rs. 1 lac was settled on
various charities specified therein provided for the acquisition of
the business of managing agency on behalf of the trust and with
the help of the trust fund. The trustees of the said trust
(appellant) became the managing agents of a public company.
The agreement for the agency provided,
inter alia, that
the
agency was for a period of twenty years but that it was open to
the trustees to give up the agency on giving three month's notice
and that the managing agents were to get a remuneration of 10
per cent. of the net annual profits subject to a minimum of
Rs. 50,000 and an office allowance of Rs. 1,000 per mensem. The
appellant claimed that the income derived from the managing
agency was income from property held under trust to be applied
wholly for charitable purposes., and was, in consequence, exempt
from taxation under S. 4(3)(i) of the Indian Income-tax Act, 1922.
It was contended on behalf of the Income-tax authorities (1) that
the income in question was remuneration for services rendered and
was not derived from any property, as a managings agency could
not be considered to be property, and that, therefore, it did not
fall within S. 4(3)(i) of the Act, (2) that on the terms of the deed.
of trust the managing agency could not be property held on trust,
as no part of the sum of Rs. 1 lac was utilised in the acquisition
of the business so as to impress it with the character of accretion,
and (3) that even it the managing agency business could be
regarded as property within s. 4(3)(i) it was governed by the
special provision contained in s. 4(3)(ia), and as the conditions
laid down therein had not been satisfied, no exemption could be
claimed.
Held : (1) A managing agency is business which would be
property within s. 4(3)(i) of the Act.
Lakshminarayan Rain Gopal and Son Ltd. v. The Govenment of
Hyderabad, (1955) I.S.€.R. 393, followed.
All India Spinners' Association v. Commissioner of Income-tax
Bombay (1944) 12 l.T.R. 482, relied on.
1957
May 22
66
SUPREME COURT REPORTS
[1958]
1957
(2) Though the office of managing agency carries with it
J. K. Trust
certain obligations, in law there can be not objection to creating a
Bombay
trust over property burdened with obligations,
though, if it is
Th c:: •·
.
onerous by reason of such obligations, the trustee may be entitled
e ornmisswner to disclaim it
of Income-tax/
·
Excess Profits Tax,
(3) When trustees carry on busines with the aid of trust
Bombay
fund the position in law is the same as if they actually employed
it in the business, though, in fact, it be not actually invested
therein and, taking the provisions of the deed of trust and the
agreement of agency together, the managing agency must be held
to be property held on trust.
Venkatarama
AiyarJ.
Rocke v. Hart, (1805) 32 E.R. 1009 and Moons v. De Berna/es,
(1826) 38 E.R. 117, relied on.
The case was remanded to the High Court for a decision on
the question whether profits from business would be exempt from
taxation under S. 4(3)(i) of the Act when the conditions laid down
in S. 4(3)(ia) were not satisfied.
C1v1L APPELLATE JURISDICTION : Civil Appeal No.
246 of 1954.
Appeal by special leave from the judgment and
order dated October 6, 1952 of the Bombay High
Court in Income-tax Reference No. 1of1952.
N.A. Palkhivala,
J.B.
Dadachanji, S.N. Andley
Rameshwar Nath and P.L. Vohra for the appellant.
G.N. Joshi and R.H. Dhebar, for the respondent.
1957. May 22. The Judgment of the Court was
delivered by
VENKATARAMA AIYAR J.-This is an appeal by
special leave against the judgment of the Bombay
High Court passed in a reference under s. 66(1) of the
Indian Income-tax Act 1922, (hereinafter referred to
as the

## Text

S.C.R.
SUPREME COURT REPORTS
J. K. TRUST, BOMBAY
v.
65
THE COMMISSIONER OF INCOME-TAX/EXCESS
PROFITS TAX, BOMBAY
(BHAGWATI, VENKATARAMA AIYAR and
J. L. KAPUR JJ.)
Income Tax-Trust-Exemption from taxation-Trustees conducting business of Managing Agency for the Trust-Business,
whether "property"-Incomefrom Managing Agency, whether income
derived from property held on trust-Indian Income-tax Act, 1922
(XI of 1922), s. 4(3) (i) and (ia).
A deed of trust whereby a sum of Rs. 1 lac was settled on
various charities specified therein provided for the acquisition of
the business of managing agency on behalf of the trust and with
the help of the trust fund. The trustees of the said trust
(appellant) became the managing agents of a public company.
The agreement for the agency provided,
inter alia, that
the
agency was for a period of twenty years but that it was open to
the trustees to give up the agency on giving three month's notice
and that the managing agents were to get a remuneration of 10
per cent. of the net annual profits subject to a minimum of
Rs. 50,000 and an office allowance of Rs. 1,000 per mensem. The
appellant claimed that the income derived from the managing
agency was income from property held under trust to be applied
wholly for charitable purposes., and was, in consequence, exempt
from taxation under S. 4(3)(i) of the Indian Income-tax Act, 1922.
It was contended on behalf of the Income-tax authorities (1) that
the income in question was remuneration for services rendered and
was not derived from any property, as a managings agency could
not be considered to be property, and that, therefore, it did not
fall within S. 4(3)(i) of the Act, (2) that on the terms of the deed.
of trust the managing agency could not be property held on trust,
as no part of the sum of Rs. 1 lac was utilised in the acquisition
of the business so as to impress it with the character of accretion,
and (3) that even it the managing agency business could be
regarded as property within s. 4(3)(i) it was governed by the
special provision contained in s. 4(3)(ia), and as the conditions
laid down therein had not been satisfied, no exemption could be
claimed.
Held : (1) A managing agency is business which would be
property within s. 4(3)(i) of the Act.
Lakshminarayan Rain Gopal and Son Ltd. v. The Govenment of
Hyderabad, (1955) I.S.€.R. 393, followed.
All India Spinners' Association v. Commissioner of Income-tax
Bombay (1944) 12 l.T.R. 482, relied on.
1957
May 22
66
SUPREME COURT REPORTS
[1958]
1957
(2) Though the office of managing agency carries with it
J. K. Trust
certain obligations, in law there can be not objection to creating a
Bombay
trust over property burdened with obligations,
though, if it is
Th c:: •·
.
onerous by reason of such obligations, the trustee may be entitled
e ornmisswner to disclaim it
of Income-tax/
·
Excess Profits Tax,
(3) When trustees carry on busines with the aid of trust
Bombay
fund the position in law is the same as if they actually employed
it in the business, though, in fact, it be not actually invested
therein and, taking the provisions of the deed of trust and the
agreement of agency together, the managing agency must be held
to be property held on trust.
Venkatarama
AiyarJ.
Rocke v. Hart, (1805) 32 E.R. 1009 and Moons v. De Berna/es,
(1826) 38 E.R. 117, relied on.
The case was remanded to the High Court for a decision on
the question whether profits from business would be exempt from
taxation under S. 4(3)(i) of the Act when the conditions laid down
in S. 4(3)(ia) were not satisfied.
C1v1L APPELLATE JURISDICTION : Civil Appeal No.
246 of 1954.
Appeal by special leave from the judgment and
order dated October 6, 1952 of the Bombay High
Court in Income-tax Reference No. 1of1952.
N.A. Palkhivala,
J.B.
Dadachanji, S.N. Andley
Rameshwar Nath and P.L. Vohra for the appellant.
G.N. Joshi and R.H. Dhebar, for the respondent.
1957. May 22. The Judgment of the Court was
delivered by
VENKATARAMA AIYAR J.-This is an appeal by
special leave against the judgment of the Bombay
High Court passed in a reference under s. 66(1) of the
Indian Income-tax Act 1922, (hereinafter referred to
as the Act) and ss. 21 and 19 of the Excess Profits Tax
Act, 1940, and of the Business Profits Tax Act, 1947,
respectively read with s. 66(1) of the Act. The dispute
between the parties relates to the assessment of
income-tax for the assement years 1946-47,
1947-48
and 1948-49 and of excess profits tax for the chargeable accounting periods, September 3, 1945, to March
31, 1946, April 1, 1946, to March 31, 1947 and Aprill
1947, to March 31, 1948, and it arises out of the same
facts and involves the same points for determination.
•
••
•
-
S.C.R.
SUPREME COURT REPORTS
67
On June 15, 1945, three brothers Sir Padampat
1957
Singhania, Lala
Kailashpat Singhania and Lala ,
_
J. K. Trust,
Lakshmipat Singhania who were carrying on business
Bombay
under the name of Juggilal Kamlapat, executed a TheCo;;,missioner
deed of trust, Ex. A, whereby they settled a sum of of Income-tax/
Rs. 1,00,000 on various charities specified therein and Exc;:::;:f's Tax,
called the J.K. Trust, Bombay, and appointed themselves and two other persons Lala Ramdeo Podar and vem:i~:;.°'J',a
Sir Chunnilal Mehta as its trustees. The trust deed
provided inter alia that "the trustees may with the
help of the trust fund, for and on behalf of 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 re-start such. business and
utilise the profit for all or any of the objects aforesaid." Large powers were conferred on them in the
conduct of the business and they were also authorised
to "raise or borrow money required for the purpose of
the trust".
At this time, Messers. E.D. Sassoon and Co., Ltd.
were the Managing agents of a public Company called
the Raymond Woollen Mills Ltd. The firm of Juggilal
Kamalapat of which the three Singhania brothers were
the partners, acquired a controlling interest in the said
Mills by purchase of the shares of Messers. E.D. Sassoon and Co. therein; and following on this, the shareholders passed a special resolution on September, 3
1945, appointing the trustees of the J.K. Trust
as
managing agents of the Company in the place of
Messers. E.D. Sassoon and Co., Ltd., who resigned.
On September 10, 1945, a memorandum of agreement,
Ex. B, was duly executed by the Company constituting
the trustees of the J.K. Trust, Bombay as its managing agents on the terms and conditions set out therein.
[tis to be noted that the five persons named as trustees
under Ex. A were appointed as managing agents in
their character as trustees, and it is expressly provided
therein that the expression 'managing agents', "unless
excluded by or repugnant to tb.e context shall include
the Trustees for the time being of the said Trust or
68
SUPREME COURT REPORTS
[1958]
1957
any·other Trust with which the rame may be amalgaJ. x. Tr.,.,
mated". The agency was to be for a period of20 years;
Bombay'
but it was open to the trustees to throw it up on giving
:n.. c:inm1u1oner three months' notice. The managing agents were to
Ef 1ncop::j;tax~ get a remuneration of 10 per cent. of the net annual
~
"
ax profits subject to a minimum of Rs. 50,000 and an office
allowance of Rs. 1000 per mensem. Clause 7 of the
agreement provided that,
Venkatarama
Aiyar J.
"During the continuance of this agreement, the
Mannaging Agents shall maintain with the Company a
deposit of Rs. 1,00,000 (Rupees one lac only) in cash
by way of security for due fulfilment of their obligations
as specified therein and shall be entitled
to
charge interest at 3J; per cent. per annlJm on the
amount of such deposit in addition to their remuneration."
Clause 8 laid an obligation on the managing agents
"to arrange loans and advances to the Company as
and when .required up to and not exceeding Rs. 10
lacs at any time and if necessary to guarantee such
loans or advances from time to time". Under cl. 14,
"Notwithstanding anything herein contained all
the terms and conditions of this Agreement including
the period of appointment of the Managing Agents
may be varied or abrogated by mutual agreement".
The trustees entered on their duties as managing
agents under this agreement, and by an agreement
dated May 14, 1946, they appointed one Tej Narain
Khaitan, son-in-law of one of the three Singhania
brothers as their representative to carry on the
managing agency work on a remuneration of 30. per
cent of the annual income which would be payable
to them under Ex. B. Before the Income-tax authorities, the appellant claimed that the income derived
from the managing agency was income derived from
property held under trust to be applied wholly for
charitable purposes, and was, in cosequence, exempt
from taxation under s. 4.(3)(i) of the Act The
Income-tax authorities held that the income in question
was remuneration for services rendered and was not
derived from any property, and that, therefore, it did
not fall within s. 4 (3)(i) of the Act. They further held
'
-
S.C.R.
SUPREME COURT REPORTS
69
that even if the managing agency business could be
1957
regarded as property within s. 4(3)(i), it was governed
J. K. Trust/
by the special provision contained in s. 4(3)(ia), and
Bombay
as the CQnditions laid down therein had not been The co-::imissio11er
satisfied, no exemption could be claimed. In this view, E 01 lncp,m~tax,
they allowed a sum of Rs. 30,000 per annum for re- xce:,mb:/s-Tax,
muneration of Mr. Khaitan as a deduction under s. 10
( ( )
A
Id h
l
Venkatarama
2) x of the
ct, and he
t at the ba ance of the
Aiyar J.
income, Rs. 23,287 in 1946-47, Rs. 36,786 in 1947-48 and
· Rs. 2,16,460 in 1948-49 was liable to be taxed under
the provisions of the taxing statutes.
On applications made by the assessee under s. 66(1)
of the Act and the corresponding provisions in the
Excess Profits Tax Act and the Business Profits Tax
Act, the Tribunal referred the following questions for
the decision of the High Court of Bombay:
1. "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 for other
legal obligations and therefore not exempt under s. 4
(3)(i) of the Income-tax Act?
2. 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) (ia) of the Income-tax Act?"
The reference was heard by Chagla, C.J., and Tendolkar, J ., who held that no part of the sum of Rs. 1,00,000
which was the only property settled on trust under
Ex. A was actually invested in the managing agency
business, which could not, therefore, be regarded as
trust property, and that the income received from that
business was not within the exemption enacted in
s. 4(3) (i). They accordingly answered the first question
against
the
appellant. As regards
the
second
question, the learned Judges held that it was unnecessary to express any opinion therein, as it was common
ground that even if s. 4(3) (ia) applied, neither of the
conditions laid down in sub-cl. (a) or (b) had been
fulfilled, and that accordingly no relief could be granted
thereunder.
70
SUPREME COURT REPORTS
[1958]
1957
The points that arise
far determination in this
J.K.Trust,
appeal are (1) whether the income received by the
Bombay
trustees of J.K. Trust, Bombay, as mana~ing agents of
Thec:"mmissioner Raymond Woollen Mills, Ltd., is income derived from
Exof Inconm~1
1
ax,(. property held on trust or on an obligation in the nature
cessrro,, s ,ax, f
d (2)
h h
h
l .
,.
.
.
Bombay
o trust; an
w et er t e c aim 1or exr.mpt10n m
venkatarama
respect of such income is to be determined under
Aiyar J.
s. 4(3) {i) or s. 4(3) (ia).
With reference to the first question, the contention
of Mr. Palkhivala is that- managing agency is businesi; ·
and therefore it is property and that it is property
held on trust because it is conducted by the trustees on
behalf of the trust with the help of trust properties and
in accordance with the directions contained in the trust
deed. He also contends that even ifthe business is not
held on trust, it is at least held, on the principle laid
down in s. 88 of the Trusts Act, on an obligation in the
nature of trust, and that s. 4(3)(ii) is, in consequence,
attracted. For the respondent, Mr. Joshi does not
dispute that managing agency is to be regarded as
business, but he contends that there can be no trust of
such agency, because it really involves rendering of
services and cannot be said to be property in respect
of which alone trust can be created, and further
because managing agency is an office, and that again
is not property. He also contends that, in any event,
the managing agency created under Ex. B could not
be held to be trust property, because it could be terminated at any time, if the trustees so desired, on three
months' notice and that there could be no trust of such
a precarious ephemeral or evanescent kind of property,
if indeed it could be held to be property. He also
contends that s. 88 was inapplicable, as there was no
property which was held on an obligation in the nature
of a trust.
Whether a managing agency could be regarded as
business was considered by this Court in La~shminara
yan Ram Gopal and Son Ltd., v. The Govrenment of
Hyderabad ('), where the question arose with reference
to assessment of excess profits tax on the remuneration
received by managing agents, tax being Jeviable under
(') [1955) I S.C.R. 393·
..
S.C.R.
SUPREME COURT REPORTS
71
that Act only on business income and it was held that
1951
it was business, and that the profits therefrom were J; K. Trust
rightly assessed to tax under the Act. The law must
JJombay
.
.
v
therefore be taken to be settled beyond controversy T/ieCom"missioner
that managing agency is itself business.
of Income-tax/
Excess Profits 'fax
Then the question is whether that business can be
Bombay
held to be property within s. 4(3)(i) of the Act. Now
ven;;;t;,ama
'property' is a term of the widest import, and subject
Aiyar .r'
to any limitation or qualification which the context
might require, it signifies every possible interest which
a person can acquire, hold and enjoy. Business would
undoubtedly be property, unless there is something to
the contrary in the enactment. Section 4(3) ( i) of the
Act under which exemption is claimed runs as follows:
"4. (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) any income derived from property held under
trust or other legal obligation wholly for religibus or
charitable purpose, and in the case of property so held
in part only for such pruposes, the income applied, or
finally set apart for application thereto".
Now, confining ourselves solely to the language of s. 4
(3)(i), there is nothing in it which restricts in any
manner the normal and accepted meaning of the word
'property', and excludes business from its connotation.
There is also authority in support of the view
that business is property within the intendment of
s. 4(3) (i). In In re The Tribune (1), the question was
whether a trust created over the Tribune press and
newspaper was for a charitable purpose as defined in
s. 4(3)(i) of the Act. The majority of the learned
Judges of the High Court took the view that the object
of the trust was not wholly religious or charitable and
that accordingly the exemption under that section
could not be claimed. This decision was taken in
appeal to the Privy Council, which held reversing the
judgement of the High Court that the object of the trust
was in its entirety charitable and that it came within
the exemption enacted in s. 4(3)(i). Vide In re The
Trustees of the Tribune (2). That is a question with
(1) [1935] 3 I.T.R, 2.16.
(2) [1939·! 7 l.T.R. 413; LR. 66 L\. 2.p.
72
SUPREME COURT REPORTS
[1958]
1957
which we are not concerned in this appeal, and the
J. K. Trust,
actual decision of the Privy Council does not bear on
80":-Y
the present controversy. What is relevant to
our
1 ne co,;,,,,issioner purposes is that before the High Court a contention
01 Incom•·tax/ was raised that the word 'property' must bear the same
Excess Profits Tax,
•
b h .
9
d 4(J)(.) h
.
9 . .
Bombay
meanmg ot m ss.
an
1 , t at m s.
IS It was
Venkataraf1la
Aiyar J.
used in contradistinction to business which was dealt
with under s. 10, and that therefore, 'property' in
s. 4(3)(i) could not include business. This contention
was repelled by the High Court, which held that the
meaning of the word, 'property' in s. 4(3)(i) could not
be controlled by the connotation of that word in s. 9.
Vide In re The Tribune (').
Before the Privy Council
however, the question whether business of the Tribune
press and newspaper was property was not raised, the
Board merely observing that in the letter of reference
there was 'no suggestion' that the income under assessment is not derived from property held under trust
declared in the 20th and 21st paragraphs of the will".
The point, however arose directly for decision· in
All India Spinners' Association v. Commissioner
of
Income-tax, Bombay ('). There, the assessee was an
unregistered association called the All India Spinners'
Association, and it was formed for the purpose of
development of the village industries of handspinning
and handweaving. The association colletced subscriptions from its members and also donations and invested
· them in the purchase of raw cotton which was supplied
to poor labourers for being· spun into yarn, the yarn
being then supplied to them for being woven into cloth
which was then sold and the sale proceeds appropriated
to the funds of the Association for the purposes aforesaid. The assessee claimed exemption under s. 4(3)(i)
on the ground that its income was derived from
property held under trust. The High Court was of the
opinion that the yarn and the cloth the sale of which
yielded the income, could not be regarded as property
held in trust, and that, in consequence, s. 4(3)(i) did
not apply. In reversing this Judgement, the Privy
Council held that "the property consisted of the
organisation and the undertaking as well as in the
(t) [1935] 3 l.T.R. 246.
(:.z) f1944) 12 I.T.R. 4.B2; L.R. 71 I.A. 1:1!1·
..
..
S.C.R.
SUPREME COURT REPORTS
73
fluctuating stock of yarn and cloth", and that the
1957
exemption in s. 4(3)(i) applied. This is direct authority J. K. Trust,
in support of the contention of the appellant.
Bo"::°y
As against these authorities the respondent relied The Commlssion.r
h d · ·
· E
C
• ·
if L
of Income-tax/
on t e ec1s1on m ggar v.
ommzsswner o
ncome- Excess Profits Tax
tax (1). There, a certain professor agreed to hand over
Bombay
'
the remuneration which would be payable to him by
Venkataroma
the University for lectures to be delivered by him, for
Aiyar J.
certain. charitable purposes, but, in fact, no deed of
trust was executed. The question was whether the
amounts actually paid to him by the University were
exempt from taxation, and it was held that they were
not, and that the income in question was at the time of
the receipt of the private property of the assessee being
re.muneration for services . rendered by him. There
could be no question in this case of any source of income
being dedicated to trust, and the decision accordingly · has no bearing on the point, which falls to
be decided here. The weight of authority is therefore
clearly in favour of the view that business would be
•property' for purposes of s. 4(3)(i) of the Act.
It is next contended for the respondent that even if
business could in general be held to be property within
s. 4(3)(i), managing agency cannot be so regarded,
because having regard to ss. 2(9A), 87A and 87B of
the Indian Companies Act, it is merely an office which
consists in the performance of services and discharge of
certain obligations, and that that could not be regarded
as property which could be the subject.matter' of trust.
We are unable to accede to this contention. In Angurbala Mullick v. Debabrata Mullick, (2), land The
Commissioner, Hindu Religious Endowments, Madras v.
Sri Lakshmindra Thirtha Swamiar of Sri Shirur
Mutt (3), even an office of trusteeship was held to be
property especially when emoluments were attached
to it, and that must afortiori be the position in the
case of office of managing agency, which is clearly one
of profit and even alienable under certain circumstances.
The Office requires no doubt the performance of
services; but there is no antithesis between service
(1) [1926] 2 I.T.C. 286.
(3) [1954] S.C.R. ICl05, I019.
(2) [1951] S.C.R. n25.
74
SUPREME COURT REPORTS [1958]
t 957
and business, as there are several kinds of bu$iness.
J. K. Trust,
which involves the performance of services, such as.
Bombzy
insurance and commission agency. The true test is.
The co::nissioner whether the services are a regular source of income.
of Income-tax/ And if mana<>ing agency is business as was held in
Excess Profits Tax,
.
o...
'
Bombay
Lakshmznarayan
Ram Gopal and Son Ltd. v. The
Venkatarama
Government of Hyderabad ('), then there is no reason
Aiyar J.
why it should not be property for purposes of s. 4(3)(i)
of the Act. Nor is it an accurate statement of the
true position to describe trust of the managing .Q1jency
as a trust of an obligation. It is in truth a trust of
property, which carries with it certain obligations, and
in law, there is no objection to creating a trust over
property burdened with obligations, though, if it is
onerous by reason of such obligations, the turstee m!lY
be entitled to disclaim it.
It is then contended that even if managing agency
could be the subject of trust, the managing agency
created by Ex. B must be held to be incapable of being
held on trust because it is of the essence of public, as
distinguished from private, charity that it must be
permanent and incapable of being revoked or put an
end to at the option of the trustee, whereas the managing
agency created by Ex. B could be terminated by
the trustees by giving three months' notice. This is
to confuse charity with properties devoted to charity.
It is true that a public
charity is perpetual
in
character, and that means that it is capable of enforcement, so long as there is any property left which can
be appropriated for its objects. And even if some or
all of the objects become incapable of fulfilment, the
trust properties will be devoted to the performance of
similar or allied charitable purposes on the doctrine of
cy pres. But so far as the trust properties themselves
are concerned, they will be held only on the incidents
to which they are subject under the law. Thus, if the
property is a leasehold interest; it must cease on the
termination of the lease. Likewise, if trust property
is alienated under circumstances binding on the trust,
it will go out of the trust. But that does not operate
(<) [1955) I S.C.R. 393.
•
• •.
S.C.R.
SUPREME COURT REPORTS
75
as an extinction of the trust, unless there is no property
1957
at all left, with which the trust could be carried
J. K. Trust,
-0ut. That is the principle enacted in s. 77(c) of
Bombay
the Indian Trusts Act, 1882, which in terms, however, Theco:niissioner
applies only to private trusts. We must therefor(( hold Exof lncgm:,;t~
t'.
h
h
h
h
·
cess rro,.ts ,ax
that the 1act t at t e trustees ave t e option at any
&mbay
'
time to throw up the managing agency is no legal
Venkatarama
impediment to its being property which could be held
Aiyar 1.
on trust.
Lastly, it is contended that on the terms of Ex. A,
the properties which the trustees are "to hold
an
stand possessed of" are "the sum of Rupees One Lac
and any donations or contributions received by the
Trustees and all accretions thereto and thereof and the
investments in securities for the time being and from
time to time representing the same", that on the terms
aforesaid, the managing agency cannot be held to be
property held in trust, as no part of the sum of
Rs. 1,00,000 was utilised in the acquisition of the business so as to impress it with the character of accretion. It is argued that though the sum of Rs. 1,00,000
was given
as security by the trustees under Ex. B,
that
was
only
for
the
due
performance
of their obligations as managing agents, and that the
amount itself was not actually thrown into the business. But it is to be observed that cl. 3 of the trust
deed expressly provides for the acquisition of the
business of managing agency on behalf of the trust and
"with the help of the trust fund", and that precisely
is what has happened and indeed, reading together
Exs. A and B, it is impossible to resist the conclusion
that both the documents formed part of an integral
scheme, and that what the settlers had in view in cl. 3
-0f Ex. A is the very managing agency
which was
acquired under Ex. B. There is considerable authority
in England that when trustees carry on business with
the aid of trust fund, the position in law is the same
as if they actually employed it in the business, though,
in fact, it be not actually invested therein. Thus, in
Rocke v. Hart (1), Sir William Grant observed:
(1) [1805J 11 Ves. Jim. 58; 32 E.R. ioog, IOIO.
76
SUPREME COURT REPORTS
[1958]
1957
"I rather, agree with Lord Loughborough that, if
J. K. Trust,
a trader lodges money at his banker's , he has in effect
Bombay
a benefit from that. As he must generally keep a
The c0",;,,,,1s,ioner balance in his banker's, it answers the purpose of his
of Incom~tax/ credit; as if it was his own money; and I should hold
Excus Pro,.,, Tax, that to be employment in his trade."
Bombay
There are similar observations by Lord Gifford, in
Venkatarama
Moons v. De Berna/es (').
AiyarJ.
In the result, we are of opinion that the word 'property' in s. 4(3) (i) of the Act is of sufficient amplitude
to comprehend 'business', and if the question fell to
be decided solely on the terms of that sub-section, the
managing agency constituted under Ex. B must be
treated as property held on trust within s. 4(3)(i) of
the Act.
This conclusion, however, is not sufficient to dispose
of the appeal in favour of the appellant, because there
is still the question raised by the respondent that even
if under the general law, the word 'property' is wide
enough in its significance to include business, in its
context in s. 4(3)(i) read along with s. 4(3) (ia) it bears a
more restricted sense as meaning only property other
than business. And it is this contention that forms
the subject-matter of the second question under
reference. In order to understand this question, it is
necessary, to state that in the Act as originally passed,
the only provision for exemption from taxation of
income derived from property dedicated to religious or
charitable trust was contained in s. 4(3)(i). On this
section, the question arose whether when a business
was carried on for and on behalf of a trust, the profits
derived therefrom were exempt from taxation. It was
held in Commissioner. of Income-tax, Madras v.
Arunachalam Chettiar ('), following a decision of the
House of Lords in Coman v. Governors of the Rotunda
Hospital, Dublin ('), that they were not . That was also
the view taken by the Allahabad High Court in Lachhman Dass Narain Das, In re (4). Then came the decision
in In re The Tribune (') already referred to, wherein the
Lahore High Court held that 'property' in s. 4(3)(i) was
(1) [•826] • Russ. 301 ; 38 E.R. • 17.
(3) [192'] A.C. l.
(2) I.L.R, (>926) 49 Mad. 833.
(4) LL.R. (1925) 47 All. 68.
(5) [1935] 3 I.T.R. 246.
,
•
..
S.C.R.
SUPREME COURT REPORTS
77
sufficiently comprehensive to include business, and
1957
that profits from business carried on by trustees would J. K. 1l-1Ut,
be exempt from taxation. As already stated, though
Bomboy
the matter was taken in appeal to the Privy · Council The co;;;,,,,,,,,'*"
this question was not raised. It was in this state of Ef I~
the law that the Legislature intervened and enacted a
C:,~ unew provision, s. 4(3)(ia), which is as follows :
Venkatarama
"4(3) Any income, profits or gains falling within
Alyar 1.
the following classes shall not be included in the total
income of the person receiving them :
(ia) 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 insitution."
Under this provision, the profits of business would be
exempt only if the conditions laid down therein are
satisfied. It is the contention of the Department that
as this is a special provision dealing with the topic of
exemption in respect of business carried on for and on
behalf of a trust, any claim for exemption as regards
profits qerived from any such business can be made only
under that provision, and when the conditions laid
down therein are not satisfied, it is not open to the
assessee to fall back upon the general provision contained in s. 4(3)(i) and claim exemption thereundel' on the
ground that business is property. The basis of this contention is the well-known maxim, Generalia specialibus
non derogant. In Charitable Gadodia Swadeshi Stores v.
Commissioner of Income-tax, Punjab (1), tliis question
came up for consideration before the Lahore High
Court. It was held by the learned Judges that the fact
. that the business failed to satisfy the two conditions
laid down in s. 4(3)(ia) was no reason why it should
not
be exempt from taxation if it fell
within
(1) [1944] 12 I.T.R. 385.
78
SUPREME COURT REPORTS
[1958]
19s1
s. 4(3)(i), and the main ground of the decision was that
J. x. Trust,
the two categories mentioned ins. 4(3)(i) ands. 4(3)(i)(a)
Bombay
having been enacted as two different clauses, it must
The co;:,'missioner be taken that the one did not exclude the other.
of Income-tax/
It
th· d · ·
th t
l' d
b th
Excess Profits Tax
was
IS
ec1s1on
a was re 1e
upon y
e
Bombay
appellant before the Tribunal which, however, con-
,venkatarama
sidered it distinguishable. A reading
of its order,
Aiyar J.
however, shows that it was not really satisfied about
its correctness. Accordingly, when the
appellant
applied for reference under s. 66(1) of the Act, the
Tribunal
referred the second question also for the
decision of the High Court. But in the view which
the learned Judges of the Bombay High Court took
that business was not. property within s. 4(3)(i), it
became unnecessary for them to express an opinion on
that question. Now that we have held that the word
'property' in s. 4(3)(i) standing by itself, is susceptible
of a wider connotation so as to include business, it
becomes necessary to consider the second question
under reference. Learned counsel on both sides agree
that it would be more satisfactory that this question
should be remitted to the High Court for determination.
In the result, we remand the case to the High
Court of Bombay for a fresh disposal of the reference
on a consideration of the second question. As for
costs, we direct that the respondent do pay the appellant the costs of this appeal as also the costs of the
hearing before the High Court. The costs of the further
hearing which we have directed will be dealt with by
the High Court on remand.
Appeal allowed.
Case remanded.
•