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PETITIONER: STATE OF KERALA

       Vs.

RESPONDENT: M.P. SHANTI VERMA JAIN

DATE OF JUDGMENT:       08/05/1998

BENCH: SUJATA V. MANOHAR. D.P. WADHWA

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T D.P. Wadhwa, J.      State of  Kerala in  this  appeal  is  challenging  the judgment dated February 6, 1986 of the Division Bench of the Kerala  High  Court  holding  that  MSP  Family  Jain  Trust (’Trust’  for   short),  of  which  the  respondent  is  the President, is exempt from payment of tax on its agricultural income under Section 4 of the kerala Agricultural Income Tax Act, 1950  (’Act’ for  short) as amended by Kerala Act 9 off 1974. High  Court in  its  impugned  judgment  reversed  the findings of  the authorities  under the Act that Trust was a private family  trust and  the dominant  object of the Trust was to propagate a particular religion and to render service to the  followers of  that religion  and  it  could  not  be treated as  a public  trust. The  authorities had also found that most  of the  income of the Trust was spent outside the State of Kerala.      For the  assessment year 1974-75 (Accounting Year 1973- 74) the  Trust filed its return of agricultural income under the Act  showing net  profit of  Rs. 53,191,39  and  claimed exemption for  the   entire income. The Assessing Officer by his order  dated March  24, 1980  assessed the income of the Trust at  Rs. 63,099.00.  He declined the claim of exemption made by the Trust stating that under Section 4 of the Act as amended the  benefit was  applicable only  to the  extent to which the  income of  the Trust  was applied  to  charitable purposes within  the State.  Trust filed  appeal against the assessment order before the Appellate Assistant Commissioner of Agricultural  Income Tax  and Sales  Tax, who,  by  order dated September  9, 1980, dismissed the same. Further appeal was filed by the Trust before the kerala Agricultural Income Tax Appellate  Tribunal. It  was also  dismissed by judgment dated August 6, 1981. At the instance of the Trust following questions of  law were  referred to  the Kerala  High  Court under Section  60 of  the Act  for the  opinion of  the High Court :-      " 1.  Whether on  the facts  and in           the circumstances of the case,           this  Tribunal   is  right  in           holding that  section 4 of Act

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         22 of  1950 as  amended by Act           9/74  is  applicable  for  the           assessment of  the tax for the           accounting year 1973-74?      2.   Whether on  the facts  and  in           the circumstances of the case,           this  Tribunal   is  right  in           holding that  since the object           of the Trust being propagation           of  Jain   Religion  and   the           service of  its followers, the           trust is  not entitled for the           claim of  exemption  from  tax           under section  4 as  it stands           after the amendment of the Act           by Act 9/74.      3.   Whether on  the facts  and  in           the circumstances of the case,           this  Tribunal   is  right  in           holding that  even the  amount           spent   in   this   State   in           furtherance of  the objects of           the Trust cannot be treated as           allowable  items  of  expenses           and      4.   Whether on  the facts  and  in           the circumstances of the case,           this Tribunal has any material           in   inferring   and   is   it           justified in  entering into  a           finding that the object of the           trust is  only to  spend money           for  the   propagation  of   a           particular  type  of  religion           and for  the services  of  its           followers."      High Court   answered  the first  question in favour of the  revenue   in  view   of  decision   of  this  Court  in Karimtharuvi Tea  Estate Ltd.  Vs. State  of Kerala  (60 ITR ts262). High Court  held that Trust was both religious and charitable and  even if  it construed  as private  religious trust the  benefit to  the public  provided for in the trust Deed took  it out  of the  exclusion of  clause (a)  of Sub- section (3)  of Section  4 of the Act. High Court  said that taken as charitable Trust the benefits of the Trust were not confined to  any particular religious community or caste and for the reason it did not fall under the exclusion in clause (b) of  Sub-section 3  of Section 4 of the Act as well. High Court was  , thus,  of the view that the income of the Trust was entitled  to exemption under Section 4 of the Act except to the  extent to  which its  income  was  not  applied  for charitable or  religious purposes  within  the  State.  High Court answered  questions 2,3  and 4  in favour of the Trust and against the revenue.      Relevant part  of Section 4 of the Act, on the basis of which Trust claimed exemption, is as under:      " 4.  Total agricultural income (1)      subject to  the provisions  of this      Act, the  total agricultural income      of any  previous year of any person      comprises all  agricultural  income      derived from  land situated  within      the  State   and  received  by  him      within or  without the  State , but      does not include-

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    (a) ....................           (b)  any   agriculture  income                derived   from   property                held under  trust  wholly                for     charitable     or                religious  purposes,   to                the extent  to which such                income is applied to such                purposes in the State.           (c)  any  agricultural  income                derived   from   property                held under  trust in part                only for  such  purposes,                to the  extent  to  which                such income is applied to                such  purposes   in   the                State.      (2)  ....................      (3) Nothing contained in clause (b)      or clause  (c) of  sub-section  (1)      shall operate so as to exclude from      the total  agricultural  income  of      the previous year of the persons in      receipt thereof-           (a)   any    part    of    the                agricultural income  from                the property  held  under                trust     for     private                religious purposes  which                does not  enure  for  the                benefit of the public;           (b) in the case of a trust for                charitable purposes  or a                charitable   institution,                any  agricultural  income                thereof, if  the trust or                institution is created or                established    for    the                benefit of any particular                religious  community   or                case;      .........................."      It is  not disputed that the Trust derived agricultural income from  the property held under the Trust. The question is if  the Trust  is  wholly  for  charitable  or  religious purposed to  seek exemption  from payment  of  tax  on  such income and  further  if  such  income  is  applied  to  such charitable and  religious purposes  in the  State of Kerala. Exemption provided  under Section  4(1) (b)  can  be  denied under 4(3)  (a)  if any part of the agricultural income from property held under the Trust for private religious purposes is not  meant for  the benefit  of the public and (b) in the case of agricultural income of Trust for charitable purposes if it  is established  only for  the benefit  of  particular religious community  or caste.  As noted  above the tribunal found that  the Trust  was a  private family trust. That was not the  subject matter of reference in any of the questions referred to the High Court. But the High Court’s finding was that the  Trust was a public Trust. High Court fell in error in going  into the  question if  the assessee  was a  public trust or a private trust. That being so Section 4(1) (b) and Section 4(1)  (c) were not applicable to the assessee Trust. The authority under the Act including the Appellate Tribunal minutely examined  various terms of the Trust Deed and found that for  all intents  and purposed  the object of the Trust

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was to  propagate particular  religion and to render service to  the  followers  of  that  religion,  particularly,  with reference to  the families, who created the Trust, Assessee, therefore, could  not be  considered for  exemption, being a private trust, set up to promote a particular religion whose agricultural income  does  not  enure  for  the  benefit  of general public  . It  was also  found that  most part of the agricultural income  was spent  for several purposes outside the State  of kerala. The exemption is allowed to the extent to  which  such  agricultural  income  is  applied  to  such purposes within  the State  of Kerala,  if it  is  a  public trust. High  Court decided the questions referred to it only in abstract  without considering as to how much agricultural income of  the Trust  was spent  in  Kerala.  We  have  also examined the  Trust Deed  which was  produced at the time of arguments. The  Deed of  Trust and  the rules  run into more than thirty  pages out  of which six pages of the Trust Deed narrate philosophy  of Jain  Dharma. Objects  of the   Trust clearly show  that Trust  is meant  for propagation  of Jain religion  and  rendering  help  to  the  followers  of  Jain religion. Even the medical aid and similar facilities are to be rendered  to persons devoted to Jain religion and to non- Jains if  suffering from  ailments but the medical aid could be given  to them  only  if  any  member  of  the  families, managing the  Trust, shows  sympathy and  is  interested  in their treatment.  Tribunal, in our opinion, was right in its conclusion that  the dominant  purpose of  the trust  in the present case  was propagation  of Jain religion and to serve its followers  and any  part of  agricultural income  of the Trust spent in the State of Kerala also could not be treated as allowable item of he expenses.      Accordingly we  will set aside the impugned judgment of the High Court and the answer the questions 2 to 4 in favour of the revenue and against the assessee Trust. There will be no order as to costs.