# MADRAS & ANR v. THE COMMISSIONER OF INCOME TAX, MADRAS

- **Citation:** [1967] 3 S.C.R. 356
- **Court:** Supreme Court of India
- **Decided:** 1967-04-03
- **Case number:** Civil Appeal No. 1399 of 1966
- **Bench:** J. C. Shah, S. M. Sjkri, V. Ramaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/madras-anr-v-the-commissioner-of-income-tax-madras-4055
- **Pages:** 9

## Headnote

Indian Income-tax Act, 1922 (Act 11 of 1922), Ss. 4(3)(1) Olld 15B-DoMtion to Trust-One object not charitable in Mture, and income
to be utilised for any one of the objects-I/ exempted.
The assessee claimed exemption from tax under s. 14-B of the Income1ax Act, 1922 for a sum donated to a Trust, whose most of tbe objects
were charitable and religious in nature. but one was not, and it was open
lo the tru!W'.es to utilise the income of any one of the objects to the exclusion of all other objects.
Tbe Revenue rejected the claim for exemption, but the Appellate Tribunal allowed it as it had in relation to the
previous assessment year held that the Trust was a public
trust.
On
reference, the High Court answered the question against the assessee. In
appeal to this Court, the assessee contended that ( i) this particular object must not be read isolated from the other objects of the
trust but
having regard to the immediately preceding object which
was
to run
hospitals and dispensaries, the impugned object,
vi:., the
manufacture
of pharmaceutical and medicinal preparations must be deemed to be for
the purpose of carrying out the earlier object, and (ii) the High Court
acted in excess of jurisdiction in raising a new question which was not
raised by the Appellate Tribunal, namely, whether the trust itsdf was
constituted for wholly religious or charitable purposes within the meaning
of s. 4 (3) (i) of the Act.
HEID :-The appeal must fail.
(i) There was no connection between the two objects of the trust
and upon an interpretation of the document as a whole, it could not be
said that the earlier object was the dominant object of the trust and the
latter was a subsidiary object. In view of the absolute power of selection
granted to the trustees to select between charitable
and non-<:haritable
objects, the provision of s. 4 ( 3) ( i) of the Act could not be applied to the
Trust and no exemption could be granted to the assessee under s. 15-B
of the Act.
[360D-E, G]
Mohammad Ibrahim Riza v. Commissioner of Income-tax, Nagpur, 57
I.A, 260; Oxford Group v. Inland Revenue Commissioners (1949] 2 All.
E.R. 537 and Keren Kayen1eth Le Jisroel. Ltd. v. Inland Revenue Con1rs.
17 T.C. 27, 40 applied.
(i) The High Court was within its jurisdiction in examining the question whether the Trust was eligible for exemption from income-tax under
s. 4(3) (i) of the Act. Even where a question of law was not raised before the Tribunal but the Tribunal deals with it, it must be deemed lo be
one arising out of its order.
[364B-D]
Commissioner of Income-tax, Bombay
v.
Scindia Steam Navigation
Co. Ltd, 42 I.T.R. S89, followed.

## Text

THE E,\Sl' INDIA INDUSUlQ':S (MAl>RAS) PRIVATE LTD.,
A
MADRAS & ANR.
v.
THE COMMISSIONER OF INCOME TAX, MADRAS
April 3, 1967
[J. C. SHAH, S. M. SJKRI AND V. RAMASWAMI, JJ.]
Indian Income-tax Act, 1922 (Act 11 of 1922), Ss. 4(3)(1) Olld 15B-DoMtion to Trust-One object not charitable in Mture, and income
to be utilised for any one of the objects-I/ exempted.
The assessee claimed exemption from tax under s. 14-B of the Income1ax Act, 1922 for a sum donated to a Trust, whose most of tbe objects
were charitable and religious in nature. but one was not, and it was open
lo the tru!W'.es to utilise the income of any one of the objects to the exclusion of all other objects.
Tbe Revenue rejected the claim for exemption, but the Appellate Tribunal allowed it as it had in relation to the
previous assessment year held that the Trust was a public
trust.
On
reference, the High Court answered the question against the assessee. In
appeal to this Court, the assessee contended that ( i) this particular object must not be read isolated from the other objects of the
trust but
having regard to the immediately preceding object which
was
to run
hospitals and dispensaries, the impugned object,
vi:., the
manufacture
of pharmaceutical and medicinal preparations must be deemed to be for
the purpose of carrying out the earlier object, and (ii) the High Court
acted in excess of jurisdiction in raising a new question which was not
raised by the Appellate Tribunal, namely, whether the trust itsdf was
constituted for wholly religious or charitable purposes within the meaning
of s. 4 (3) (i) of the Act.
HEID :-The appeal must fail.
(i) There was no connection between the two objects of the trust
and upon an interpretation of the document as a whole, it could not be
said that the earlier object was the dominant object of the trust and the
latter was a subsidiary object. In view of the absolute power of selection
granted to the trustees to select between charitable
and non-<:haritable
objects, the provision of s. 4 ( 3) ( i) of the Act could not be applied to the
Trust and no exemption could be granted to the assessee under s. 15-B
of the Act.
[360D-E, G]
Mohammad Ibrahim Riza v. Commissioner of Income-tax, Nagpur, 57
I.A, 260; Oxford Group v. Inland Revenue Commissioners (1949] 2 All.
E.R. 537 and Keren Kayen1eth Le Jisroel. Ltd. v. Inland Revenue Con1rs.
17 T.C. 27, 40 applied.
(i) The High Court was within its jurisdiction in examining the question whether the Trust was eligible for exemption from income-tax under
s. 4(3) (i) of the Act. Even where a question of law was not raised before the Tribunal but the Tribunal deals with it, it must be deemed lo be
one arising out of its order.
[364B-D]
Commissioner of Income-tax, Bombay
v.
Scindia Steam Navigation
Co. Ltd, 42 I.T.R. S89, followed.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1399 of
1966.
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BAST INDIA INDUSTRIES v. C.I.T. (Ramaswami, J.)
357
Appeal by special leave from the judgment and order dated
October 25, 1961 of the Madras High Court in Tax Case No.
62 of 1958 (Reference No. 37 of 1958).
S. Swamlnathan and R. Gopa/krishnan, for the appellant.
Veda Vya.sa, S. K. Aiyar, S. P. Nayyar and R. N. Sachihey,
for the respondent.
The Judgment of the Court was delivered by
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.
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. 14-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 l, 1944, a
trust deed was executed,,liy 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 lncometax Appellate Tribunal which observed that in relation to the previous assessment year, it had held that the Agastyar Trust was a
public trus! 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 cirmustances of the
case the assessee is entitled to claim deduction under Section 15-B in respect of the donation paid to the Agastyar Trust ?"
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The High Court answered the question against the assessee who
bas brought the present appeal to this Court by special leave.
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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--
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SUPREME COURT .REPORTS
[1967] 3 s.c.R.
(i) the income whereof is exempt under clause (i)
of sub-section (3) of section 4;
..
Section 4(3)(i) of the Act states as follows :
"(3) An): 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 clause (c) of subsection (1) of section 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 :
..
Paragraph 2 of the trust deed dated July 1, 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 resthouses, 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 ceremonies of, for other purposes, floods.
famine, pestilence, and other causes;
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EAST INDIA INDUSTRIES v. C.l.T. (Ramaswami, !.)
359
(f) to collect, encourage, conduct research in, interpret and popularise Nadis (ancient manuscripts inscribed on palm leaves in Indian languages with authorship
ascribed to Deva.~. rishis, saints, sages and seers);
(g) to promote and encourage the study of and research in religion and to propagate religious principles;
(h) to buy, print, publish, sell for profit or distribute
free or at concessional rate such literature as may be
thought beneficial for the objects of the trust;
(i) to conduct worship and festivals in temples,
shrines and other places of worship, to build, maintain,
administer and manage temples, shrines and other places
of worship;
G) to do all such other things as may be necessary,
incidental conducive or convenient to the attainment of
the above objects or any of them and the decision of the
trustees that any particular thing is necessary, incidental,
conducive or convenient to the attainment of the above
objects or any of them shall be conclusive."
The other clauses of the trust deed provide for the appointment of
additional trustees, the administration and management of schools,
colleges, etc., that may be set up, investment of the moneys, the
power conferred on the trustees to alter the form of the properties
and re-invest the funds, to grant leases, to borrow, and lastly to
conduct or carry on any business or undertaking alone or in partnership with any other person for the benefit of the trust.
The question to be considered is whether the property from
which the income of the Agastyar trust is derived is held under
trust or other legal obligation wholly for religious or charitable
pw:poses within the meaning of s. 4(3)(i) of the Act. Iii the present case, it appears from the deed of trnst that one of the objects
of the trust, namely item 4, is not for charitable or religious purposes.
Item No. 4 is "to manufacture, buy, sell and distribute
ph~m1aceutical, medi~i~al, chemical, and other preparations and
arl!cles such as med1cmcs, drugs, medical and surgical articles
preparati.ons and restoratives of food". It may be that most of th~
?!~er obii:cts of the ~rust are religious and charitable in nature but
1f. item 4 1s not charitable, then the conditions envisaged by s. 4(3)
( 1) of the Act are not fulfilled and the exemption conferred by
~. 15-B of the Act cannot be applied. Clause 5 ( i) of the trust deed
states that "the trustee shall have power to apply the whole or any
part of the trust property or fund whether capital or income in or
towards payment of the expenses of the trust or for or towards
aU or any o~ the p~rposes of the trust provided any property or
money he-Id m ~pc;;ial trust shall be applied only for that purpose
,ind not otherwise . Jn the present case, there is no special trust,
360
SUPREME COURT REPORTS
[1967] 3 S,C.R.
that is to say, no particular item of property has been burdened
with the performance of any specific object of the trust. It is therefore manifest that under cl. 5(i) of the trust deed it is open to the
trustees to utilise the income for any one of the objects of the trust
to the exclusion of all other objects. In other words, it would not
be a violation of the trust if the trustees devoted the entire income
to the carrying on of a business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations. In
our opinion, this particular object of the trust is neither charitable
nor religious in character. If the trustees can, under a trust held
validly, spend the entire income of the trust on this non-charitable
object, it is difficult to hold that the trust property is held under a
trus.t or other legal obligation wholly for religious or charitable purposes within the meaning of s. 4(3)(i) of the Act.
It was argued by Mr. Swaminathan on behalf of the appellant
that this particular object must not be read isolated from the other
objects of the trust but having regard to the immediately preceding
object which is to run hospitals and dispensaries, the impugned object, viz., the manufacture of pharmaceutical and medicinal preparations must be deemed to be for the purpose of carrying out
the earlier object, viz., running of hospitals and dispensaries. We
are unable to hold that there is any connection between the two
objects of the trust and upon an interpretation of the document
taken as a whole, it is impossible to accept the appellant's contention that cl. 2(c) is the dominant object of the trust and cl. 2(d) is
a subsidiary object. The argument of the appellants is, in fact,
contradictory of the last clause of para 2 of the trust deed which
states that the objects shall be independent of each other, notwithstanding that any of the objects shall be void for any reason whatsoever, the trust shall be valid and operative with respect to the
other objects. This clause expressly provides that the trustees shall
have discretion "to apply the property of the trust in carrying out
all or any of such objects of the trust as the trustees may deem
fit".
Having regard to the language of paragraph 2 of the trust
deed in the context of other paragraphs of the document, we are of
opinion that th,e trust deed, on a proper interpretation, gives an
absolute power of selection to the trustees to choose between charitable and non-charitable objects of the trust for spending the entire
income of the trust properties. It follows that the Agastyar trust
does not fulfil the conditions imposed by s. 4(3)(i) of the Act and
the donation made by the assessee to the Agastyar trust cannot
therefore be exempted under s. 15-B of the Act.
The view that we have expressed is borne out by the decision of
the JudiCial Committee in Mohammad Ibrahim Riza v. Commissioner of Income-tax, Nagpur(') in which it was held that if there
(I} 57 I.A. 260.
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BAST !NOIA INDUSTRIES v. C.l.T. (Ramaswami, !.)
361
are several objects of the trust, some of which are charitable and
some non-charitable, and the trustees have unfettered discretion to
app1y the income to any of the object, the whole trust would fail
and no part of the income would be exempt from tax. The same
view has 1'een expressed by the Court of Appeal in Oxford Group
v. Inland Revenue Commissioners('). In that case, the memorandum of association of the Oxford Group, a company limited by
guarantee, set out the following as the objects of the company :
"3(A) The advancement of the Christian religion,
and, in particular, by the means and in accordance with
the principles of the Oxford Group Movement, founded
in or about the year 1921 by Frank Nathan Daniel
Buclunan. (B) The maintenance, support, development
and assistance of-the Oxford Group Movement in every
way ...... (C) (9) To establish and support or aid in
the establishmellt and support of any charitable or bene-
. volent associations or institutions, and to subscribe or
guarantee money for charitable or benevolent purposes
in any way connected with the purposes of the association
or calculated to further its objects. (10) To do all such
other things as are incidental, or the association may
think conducive, to the attainment of the above objects
or any of them."
The Oxford Group sought exemption from income tax on the
ground that it was a body of persons established for charitable purposes only. It was admitted by the. Crown that, if object A of the
objects clause of the company's memorandum of association stood
alone, the company would be established for charitable purposes
only. It was, however, held by the Court of Appeal that the words
in cl. 3(B) of the memorandum of association, "the maintenance,
support, development and assistance of the Oxford Group Movement in every way," extended beyond purely religious activities, permitted the company to engage in secular activities, and authorised
the expenditure of its funds on matters which were not charitable,
and, therefore, the company could not be said to be formed for
charitable purposes only. It was ii!so observed that although a
~eligious body might, without losing its religious character, engage
ma numb~r of subsidiary activities which were not purely religious,
a trust which was so worded as to permit the expenditure of income
by such a body in such subsidiary activities was not a good charitable trust.
It was further held that the objects set forth in cl.
3(C), paras. (9), (10), of the memorandum of association were not
merely ancillary to the main objects expressed in suh-cls. (A) and
(B), ~ut themselves conferred powers on the compa11y which were
so wide that they could not be regarded as charitable. The pdn-
<ll (1949) 2 All. B.R. 537.
362
SUPREME COURT REPORTS
[1967] 3 S.C.ll.
ciple has been clearly expressed by Lawrence, L.J. in Keren Kayemeth Le Jisroel, Ltd. v. Inland Revenue Comrs. (1) as follows :
"The instrument with which this case is concerned
consists of the memorandum of association of the company and it is essential to bear in mind that in order to
obtain exemption from income tax under the section it is
not enough that the purposes described in the memorandum should include charitable purposei;, the memorandum must be confined to those purposes so that any application by the company of its funds to non-charitable
purposes would be ultra vires . ... The extensive powers
conferred on the company by sub-els. ( 2) to ( 22) (to
some of which I have referred in order to indicate their
character), although purporting to be secondary to the
object mentioned in sub-cl. (2), are nevertheless objects
for which the company is established. The company can
exercise any or all of these powers whenever in its opinion
such an exercise would be conducive to the attainment of
the so-called primary object which, from a practical point
of view, means that it can exercise them whenever it is
minded to do so, and whether such exercise is in fact
conducive to the attainment of that object or not, as
neither the court nor any one else can control the company's opinion, or otherwise interfere with the manner in
which it chooses to carry out its objects. It would be
difficult in any case to determille whether any particular
enterprise undertaken by the company under its wide
powers was or was not in fact conducive to the attainment of the primary object, but when the question of
whether it is or is not so conducive is left to the decision
of the company itself, I cannot avoid the conclusion
that the objects mentioned in sub-els. (2) to (22) can be
carried out by the company just as freely as the object
mentioned in sub-cl. ( 1) and that there is no substantial
difference in degree between them."
As we have already stated, on· a proper interpretation of the terms
<Jf .the trust deed in the present case we are satisfied that paragraph
2(d) is not subsidiary in character to paragraph 2(c) and the trustees have been expressly granted the discretion to apply the income
of the trust wholly to a non-charitable object to the exclusion of
charitable objects. It follows therefore that in view of the absolute power of selection granted to the trustees to select between
chairtable and non-charitable objects, the provisi0ns of s. 4(3)(i)
of the Act cannot be applied to the Agastyar trust and no exemption can be granted to the assessee under s. 15-B of the Act. We
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(!) 17 T.C. 27, 40.
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EAST INDIA INDUSTRIES v. C.I.T. (Ramaswami, !.)
363
accordingly hold that the High Co1,1rt rightly answered th~ 9uestion of law against the assessee and m favour of the Comn11ss1oner
of Income-tax.
It was, however, contended by Mr. Swaminathan on behalf of
the assessee that the High Court had no jurisdiction to go in!o. the
que5tion whether the Agastyar trust was held for a wholly religious
or charitable purpose under s. 4(3)(i) of the Act. It was pointed
out that tlJe only q!leition of law arising from the order of the
Tribunal was with respect to the examination of the eligibility of
the Agastyar trust for exemption under s. 4(3)(i)(b) of the Act. It
was contended that the scope of the appeal from the order of the
Tribwal was confined to the question whether the income from
the business owned by the trust was entitled to exemption under
s. 4(3)(i)(bJ of the Act and whether the conditions of that proviso
were satisfied. It was submitted that the High Court acted in
eJtcaa of jurisdiction in raising a new question which was not
ralscd by the Appellate Tribunal, namely, whether the trust itself
was coniitituted for wholly religious or charitable purposes within
the meaning of s. 4(3)(i) of the Act. We are unable to accept the
argument put forward on behalf of the appellants as correct. It
appears that before the Appellate Tribunal there was no detailed
examination of the question of law. The Tribunal merely referred
to all earlier case it had dealt with regarding the same assessee.
The Tribunal apparently took the view in the earlier case that even
if the income which the trust earned in business was not exempt
from tax, the income derived from donations which was utilised
for charitable purposes would be eligible for exemption. So far
as the assessment for the year 1955-56 is concerned, the question
was not considered by the Appellate Tribunal at any length. But
the Income Tax Officer held that the trust did not fulfil the conditions laid down by s. 15-B of the Act. The Assistant Commissioner, however, in appeal specifically stated that one of the condi·
tions was that the income of the institution or fund should be
exempt under cl. (1) of sub-s. (3) of s. 4 and dealt with the argument relating to the business carried on by the trust and observed :
~· 'Property' as used in section 4(3)(i) includes business also and unless the business also is exempt, donation
to such an institution will not be eligible for concession
given in Section 15-B."
The question therefore before the Tribunal was whether the trust
income was exempt under s. 4(3)(i) of the Act. In the course of
its order dated July 27, 1957 for the assessment year 1955-56 the
Appellate Tribunal stated as follows :
"With reference to the first contention, we have held
in I.T.A. No. 5707 of 1955-56 that the Agastyar Trust
was a public trust and hence any donation made to the
364
SUPREME COURT REPORTS
[1967] 3 S.C.R.
said trust is an allowable concession under Section 15-B.
Therefore, the claim of the assessee is allowed on thili
contention."
We are therefore unable to accept the contention of the appellants
that the question whether s. 4(3)(i) of the Act applies to the Agastyar trust was not within the scope of the question referred to the
High Court by the Appellate Tribunal or that the High Court went
beyond its jurisdiction in answering that question. In Commissio.~er of Income-tax, Bombay v. Scindia Steam Navigation Co.
Ltd.(') this Court examined the scope of the jurisdiction of the
High Court in a reference under s. 66(1) and it was pointed out
that even where a question of law was not raised before the Tribunal but the Tribunal deals with it, it must be deemed to be
one arising out of its order.
Applying the principle to the present case, we hold that the High Court was within its jurisdiction
in examining the question whether the Agastyar trust was eligible
for exemption from income-tax under s. 4(3)(i) of the Act. We
accordingly reject the argument of the appellant~ on this aspect
of the case.
For these reasons we hold that this appeal is without merit
and must be dismissed with costs.
Y.P.
Appeal dismissed.
(I) 421.T.R. 589.
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