http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: THE EAST INDIA INDUSTRIES (MADRAS) PRIVATE LTD.,MADRAS & ANR

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME TAX, MADRAS

DATE OF JUDGMENT: 03/04/1967

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. SIKRI, S.M.

CITATION:  1967 AIR 1554            1967 SCR  (3) 359  CITATOR INFO :  D          1976 SC  10  (43)  F          1976 SC1836  (16)  R          1977 SC1548  (3)  RF         1977 SC2211  (11)  R          1978 SC1443  (9)  R          1980 SC 387  (5)

ACT: Indian  Income-tax Act, 1922 (Act 11 of 1922), Ss. 4(3)  (1) and  15B-Donation  to  Trust-One object  not  charitable  in nature,  and  income  to  be utilised for  any  one  of  the objects-If exempted.

HEADNOTE: The assessee claimed exemption from tax under s. 14-B of the Incometax Act, 1922 for a sum donated to a Trust, whose most of the objects were charitable and religious in nature,  but one was not, and it was open to the trustees to utilise  the income  of  any one of the objects to the exclusion  of  all other objects.  The 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 particularobject must  not be read isolated from the other object.-,  of  the trust but having regard to the immediately preceding  object which  was 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, 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  itself  was  constituted  for   wholly religious or charitable purposes within the meaning of s.  4 (3) (i) of the Act. HELD :-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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

object.  In view of the absolute power of selection  ,ranted to  the  trustees  to select  between  charitable  and  non- charitable objects, the provision of s. 4 (3) (i) of the Act could not be ipplied to the Trust and no exemption could  be granted to the assessce under s. of the; Act. [360D-E, G] Mohammad Ibrahim Riza v. Commissioner of Income-tax, Nagpur, 57  I.A.  260; Oxford Group v. Inland  Revenue  Commissioner [1949] 2 All.  E.R. 537 and Keren Kayemeyh Le jisroel.  Ltd. v. lnland Revenue Comrs. 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 to be one  arising out of its order. [364B-D] Commissioner  of  Income-tax, Bombay v.  Scindia  Steam  Co. Ltd. 42 T.T.R. 589, followed.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1399  of 1966. 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. Swaminathan and R. Gopalkrishnan, for the appellant. Veda  Vyasa, S. K. Aiyar, S. P. Nayyar and R.  N.  Sachthey, 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 1, 1944, a trust deed  was executed by 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 Incometax Appellate  Tribunal  which observed  that in relation to the previous assessment  year, it  had held that the Agastyar Trust was a public trust  and that  any  donation  made to that  trust  was  an  allowable deduction   under   s.  15-B.   At  the  instance   of   the Commissionerof   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 ?"               The  High Court answered the question  against               the assesee who has brought the present appeal               to this Court by special leave.               Section 15-B of the Act provides for exemption

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

             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 taxtble territories               for a charitable purpose- 358                (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)  Any  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 anythincg 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,   in-               dustrial  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 othe rwise  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               rest-houses,to    provide    food,    clothes,               medicines and other articlesof    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;               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  Devas,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

             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, shrinesand   other   places   of               worship,  to  build,  maintain,administer  and               manage  temples, shrines and other  places  of               worship;               (j)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  part- nership 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 purposes within the meaning of S. 4(3)(i)  of the  Act.  In the present case, it appears from the deed  of trust  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  pharmaceutical, medicinal,  chemical,  and other preparations  and  articles such  as  medicines, drugs, medical and  surgical  articles, preparations and restoratives of food".  It may be that most of  the  other  objects  of  the  trust  are  religious  and charitable  in nature but if item 4 is not charitable,  then the conditions envisaged by S. 4(3) (i) of  the Act are  not fulfilled and the exemption conferred by s.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 of 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 all or any of the purposes of the trust provided any property  or  money held in special trust shall  be  applied only  for that purpose and not otherwise".  In  the  present case, there is no special trust, 360 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

entire income of the trust on this non-charitable object, it is difficult to hold that the trust property is held under a trust  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 the 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(1) in which it was  held that if there (1)57 I.A. 260. 361 are  several  objects  of  the  trust,  some  of  which  are charitabel  and some non-charitable, and the  trustees  have unfettered  discretion  to apply 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 been  expressed by  the  Court of Appeal in Oxford Group v.  lnland  Revenue Commissioners(1).    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 Buchman.  (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  establishment   and               support   of  any  charitable  or   benevolent               associations or institutions, and to subscribe               or   guarantee   money   for   charitable   or

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

             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 also observed that although a religious body might,  without losing  its  religious  character, engage  in  a  number  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  sub-cls.  (A)  and  (B),   but themselves  conferred  powers on the company which  were  so wide  that  they could not be regarded as  charitable.   The primi- (1)[1949] 2 All.  E.R. 537. 362 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               purposes,  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-cls. (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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

             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  determine  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-cls. (2)  to               (22) can be carried out by the company just as               freely as the object mentioned in sub-cl. (I )               and that there is no substantial difference in               degree between them." As we have already stated, on a proper interpretation of the terms of 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 charitable and non-charitable objects, the provisions 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 (1)  17 T. C. 27, 40. 363 accordingly  hold that the High Court rightly  answered  the question  of law against the assessee and in favour  of  the Commissioner of Income-tax. It  was, however, contended by Mr. Swaminathan on behalf  of the  assessee that the High Court had no jurisdiction to  go into the question 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 the only question 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  Tribunal was  confined  to the question whether the income  from  the business owned by the trust was entitled to exemption  under s. 4(3)(i)(b) of the Act and whether the conditions of  that proviso  were  satisfied.  It was submitted  that  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 itself was constituted 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  an  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

stated that one of the conditions 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 1.955-56 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               said  trust is an allowable  concession  under               Section  15-B.   Therefore, the claim  of  the               assessee is allowed on this 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 Commissioner of  Income-tax, Bombay  v. Scindia Steam Navigation Co. Ltd.(1)  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 appellants 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. (1) 42 I.T.R. 589. 365