1. Following two question are referred in terms of s. 66 of the Indian I.T. Act, 1922, at the instance of the Revenue :
1. Whether, on the facts and in the circumstances of the case, and on a true construction of Annex. 'A', the business of mining or of making loans was property held under trust so as to attract the provisions of s. 43(i) of the Indian I.T. Act, 1922 ?
2. Whether, on the facts and in the circumstances of the case, in the event of question No. 1 being answered affirmatively, whether the proviso (b) of s. 4(3)(i) was applicable to this case so as to render the income earned by the trust assessable to tax ?
3. The reference arises out of assessments for the assessment years 1954-55, and 1956-57. The accounting years relevant for the years ended on Diwali of Samvat Years 2009, 2010 and 2011. The assessee is an association of persons consisting of trustees appointed under a deed of trust dated September 1,1952, executed by one Shri Beharilal Jhunjhunwala. Inasmuch as the factum and validity of the trust is not disputed and the points are based on the construction of the recitals of the trust deed, it will be worthwhile noticing a few important and relevant portions out of the same. A sum of Rs. 50,000 was conveyed to the trust by Shri Beharilal Jhunjhunwala who was carrying on mining business. It was charitable trust and the object was to utilise the property as also its income for charitable purposes enumerated in the trust deed. The trustees have been authorised to start, open and carry on such business with the properties and funds owned by the trust (barring a speculation business) and also have been authorised to deal with the properties movable as well as immovabler, to sell them and to deal with them in any manner as they chose and to use the property owned by the trust in business of trust or to let out to others or to take mining lease or contract for working mines or any other work connected with the working of the mines. It is further provided that the income derived from such business shall also be the property of the trust and shall be subjected to the conditions of the trust deed in the same way in which the original amount of Rs. 50,000 was subjected to. In pursuance of the powers conferred on the trustees, they undertook to carry on the business of raising manganese ore under certain contracts from mines belonging to the author of the trust Beharilal Jhunjhunwala. This contract was entered into during the previous year relevant to the assessment year 1954-55. As a result of execution of this contract and making of certain advances of loans, the trust earned a net profit of Rs. 47,133-2-3, which included a sum of Rs. 686-10-6 as interest on advances made to various parties in the course of the business. For the subsequent accounting years, relevant to the assessment years 1655-56 and 1956-57, the assessee did not derive any income from the execution of any mining contracts, but the funds available with the trustees were utilised for giving loans to several parties. Certain income was derived from such loans during those years.
4. Before the ITO reliance was placed on behalf of the assessee on s. 4(3) (i) of the I.T. Act,1922 and exemption was claimed on that basis. The ITO however arrived at a conclusion that the business itself was not held in trust and, consequently, exemption could not be granted in view of proviso (b) to s. 4(3)(i) as the necessary conditions were not satisfied. Appeal was carried to the AAC for each of these three years. He was pleased allow the same and to record a finding that the exemption contemplated under s. 4(3)(i) was attracted. The Department, feeling aggrieved by the order of the AAC, came up in appeal before the Tribunal which was also pleased to confirm the view taken by the AAC. Reference application was, therefore, field. Three question were suggested but later hearing parties, the questions noted above were framed for the purposes of the reference.
5. Shri Joshi the learned counsel for the Revenue, has taken us through some of the relevant precedents on the subject right from J.K. Trust v. CIT : 32ITR535(Bom) , Dharma Vijaya Agency v. CIT : 38ITR392(Bom) and CIT v. P. Krishna Warriar : 53ITR176(SC) . Now, the fact that such a trust deed was executed and that Shri Beharilal Jhunjhunwala was carrying on mining business, are not questioned. The fate of this reference thus depends very much on cl. 18 of the trust deed which may be reproduced verbatim :
'18. The trusted may start, open and carry on such business with the properties and funds owned by the trust (except speculation business of any kind) as they shall think fit and proper and to acquire properties movable and immovable and sell them, or to enter into partnership with other individuals or firms or to firms or to purchase and sell shares of the registered companies or to invest their funds in deposits with banks, Government securities, or in the purchase or mortgage of any property movable or immovable or any trust security or in any shares, stocks and debentures any other security, or with businessmen of repute, on suitable conditions, or to raise or borrow money from banks or other individuals or firms, whenever necessary and to use the properties owned by the trust in business of the trust or let out to others or to take mining lease or contracts for working mines or any other work connected with working of the mines and carry on such other trade and industries as will be found proper and expedient for increasing the properties of the trust, and its income and that all such properties shall be the property of the trust and the same shall also be subject to the conditions of this trust deed as if they were originally declared as properties of this trust'.
6. That business is property is no more in dispute. On a plain reading of the trust deed it is clear that the business itself was held in trust. The existence of the business before the execution of the trust deed has also been held to be not a prerequisite condition for attracting the provisions of s. 4(3)(i). Under the circumstances, we see no difficulty in recording a finding that not only for the assessment years 1955-56 and 1956-57 in which income income is of interest directly from trust fund but also for the assessment year 1954-55 in which the income is also from the business, s. 4(3)(i) was attracted. As a result, the consideration of proviso (b) to sub-s. (3) which takes away the exemption under certain circumstances does not arise.
7. In the result, question No. 1 is answered in the affirmative and against the Revenue; and question No. 2 in the negative and against the Revenue inasmuch as the proviso does not apply. The assessee to get costs of this reference.