Subba Rao J.
1. These appeals by special leave raise the question of the construction ofthe provisions of s. 4(3)(i) of the Indian Income-tax Act, 1922, hereinaftercalled the Act, as amended by the Indian Income-tax (Amendment) Act, 1953,hereinafter called the Amending Act.
2. The facts are as follows. One P. S. Warriar, an eminent Ayurvedicphysician, carried on business in Ayurvedic drugs under the name and style of'Arya Vaidya Sala' and was also running a hospital named 'AryaSikitsa Sala' and a school called 'Arya Vaidya Pata Sala'. Thesaid Warriar died on January 30, 1944, after executing a will wherein hecreated a trust in respect of his properties, including the Arya Vaidya Sala.He gave directions to the trustees appointed under the said will to conduct thesaid business and to disburse the income therefrom in certain proportions tothe Arya Vaidya Sala, Arya Sikitsa Sala and Arya Vaidya Pata Sala and to hisdescendants. Broadly stated 60 per cent of the income was directed to be spenton the said three institutions and 40 per cent to be given to his descendants.Till the Amending Act came into force the Income-tax Department gave exemptionfrom assessment for the 60 per cent of the income under s. 4(3)(i) of the Act;but, after the Amending Act came into force, which was given retrospectiveoperation from April 1, 1952, the said Department refused to give exemptionfrom assessment even in regard to the 60 per cent of the income. For theassessment years 1954-55 and 1955-56 the Income-tax Officer assessed the entireincome from the said properties; and in respect of the income pertaining to theassessment years 1952-53 and 1953-54, which had already been assessed in theusual course giving exemption for the said 60 per cent of the income, theIncome-tax Officer issued notices under s. 34 of the Act and by two separateorders dated September 28, 1956, assessed the said 60 per cent of the income onthe basis of escaped assessment. On December 20, 1956, for the assessment year1956-57 the Income-tax Officer, in the like manner, assess the entire incomefrom the said properties. The appeals filed by the assessee against the saidorders of assessment to the Appellate Assistant Commissioner were dismissed.The appeals filed against the orders of the Appellate Assistant Commissioner tothe Income-tax Appellate Tribunal, Madras, were consolidated and by its orderdated February 28, 1958, the said Tribunal allowed the appeals exempting 60 percent of the said income from assessment to income-tax under s. 4(3)(i) of theAct. The references made to the High Court of Kerala were dismissed. Hence thepresent appeals.
3. Mr. Rajagopala Sastri, learned counsel for the Revenue, contends thatunder s. 4(3)(i) of the Act whereunder the said income is given exemption fromtaxation, the property wherefrom the income is derived shall have been heldunder trust wholly or in part for religious or charitable purposes, that thebusiness run under the name and style of Arya Vaidya Sala was not capable ofbeing held in trust, that even if it was capable of being held under trust, itwas not wholly or in part so held in trust for religious or charitablepurposes, as only a part of the income was directed to be spent for religiousor charitable purposes and that in the circumstances clause (b) of the provisowas attracted but conditions laid down thereunder were not complied with.
4. Learned counsel for the respondent, Mr. S. T. Desai, contends thatbusiness is property within the meaning of s. 4(3)(i) of the Act and that it isheld in trust in part for religous and charitable purposes and, therefore, thesubstantive part of the provision is attracted to the facts of the case andhence the proviso is excluded.
5. Before we construe the relevant provisions of the Act and consider thearguments advanced on either side, it would be convenient at the outset to readthe material part of the will and to ascertain the scope of the bequest createdthereunder. The will is marked as Annexure A2 in the case. The relevant partsof the Will read :
'1. Will executed byPanniampalli Warriath deceased Parvathi alias Kunkikutty Warassiar's son SriSankunny Warriar known as Vaidyaratnam Sri P. S. Warriar, residing at PuthanWarian in Kottakkal Amsom and Desom of Ernad Taluk.'
'7. Apart from theproperties mentioned in Schedules B, C and D all other properties, movable aswell as immovable, belonging to me I hereby constitute into a trust to bemanaged by the trustees as per the directions in the will. They are describedin Schedule E, and on my demise those properties will vest in the trustees. Itis my intention that except the properties mentioned in paras 4 and 5 (B, C andD Schedule), all my properties are to be included in the Trust and therefore,even if some item of property is left out by inadvertence, it is also to bedeemed included in the trust and vested in the Trustees.'
'8. Provisions regarding theTrust. I hereby nominate the following persons as the first Board of Trustees:- .... (Names of 7 personsgiven).
'9. The above Trust is to bemanaged and conducted according to the terms and conditions detailed below :-
(A to F)...........................
G. The primary and chiefobjects of the Trust are to carry on for ever the two institutions viz., theArya Vaidya Sala and the Arya Vaidya Hospital on the lines followed now withthe object of enlarging and increasing their scope and utility. The work ofArya Vaidya Sala now consists of,
1. preparation of Ayurvedicmedicines,
2. sale of the same,
3. treatment of patients,receiving from them compensation according to their capacity and means,
4. to conduct research intoArya Vaidyam with a view to make it more and more useful to the public.
H. The following are thematters conducted in the institution called the Arya Vaidya Hospital.
1. To examine poor patientsfree of charge, to prescribe treatment for them and give medicines gratis(out-patient Department).
2. To take in at least 12 poorpatients at any time, give them lodging and board and also free medicines andtreatment free (the in-patient Department).
3. To carry out the saidservices with the help of an Arya Vaidya and necessary operations with the helpof an Allopathi doctor.
4. Give treatment and medicinesto all persons seeking them, receiving from such of them as are able suchremuneration as they can afford including cost of medicines. The Arya VaidyaHospital is now carried on with the medicines supplied by and taken from theArya Vaidya Sala and the incidental expenses are now met from out of the fundsof the Arya Vaidya Sala.
J. The trustees are to run theabove institutions according to the intentions expressed above with suchmodifications as the circumstances may warrant.
K. In the Arya Vaidya Patasalarun under the auspices of the Arya Samajam, Aryavaidyam is taught in accordancewith the science of Ayurveda. I have been meeting the expenses of the saidinstitutions, not covered by its income. From out of the profits of Arya VaidyaSala.
L. Out of the net profits ofthe Arya Vaidya Sala 25 per cent is to be devoted to the development of theArya Vaidya Sala, 25 per cent for meeting the expenses of the Arya VaidyaHospital and 25 per cent for division equally between the two tavazhies (thisonly for 25 years) out of the remaining 25 per cent a sum not exceeding 10 percent may be according to requirements, utilised for the purposes of the AryaVaidya Patasala. The balance, if any, that may remain out of the 10 per centafter disbursement to the Arya Vaidya Patasala, may be used for the Arya VaidyaSala itself. The balance 15 per cent are to be deposited by the Trustees eachyear in approved banks as a Reserve fund for the two tavazhies for a period of20 years and the fund thus accumulated inclusive of interest is to be dividedequally among the two tavazhies equally i.e., in moiety and it will be the dutyof the Trustees to invest the same on the authority of immovable properties.
M. The Trustees are not boundto pay any amount to the said two tavazhies after the expiry of 20 years. The40 per cent of the profit so earmarked for 20 years and so released after theexpiry of 20 years are therefore to be utilised for the development of the AryaVaidya Sala and Arya Vaidya Hospital according to the discretion of theTrustees.
6. E Schedule : All remaining properties constituted into the Trust.
7. It will be seen from the said recitals of the Will that the testatorcreated a trust in respect of his entire properties, including those mentionedin Schedules B, C and D and specifically vested them in the trustees appointedthereunder. The properties so vested included the business carried on in thename and style of Arya Vaidya Sala. The main objects of the trust were to carryon the said two institutions, namely, Arya Vaidya Sala and Arya Vaidya Hospitaland also the other objects mentioned thereunder. Out of the income from thebusiness so vested in the trustees, he directed the trustees to spend 25 percent for the development of Arya Vaidya Sala, 25 per cent to meet the expensesof the Arya Vaidya Hospital, not exceeding 10 per cent for the Arya VaidyaPatasala, 25 per cent to be shared equally by the two branches of the family ofthe testor for a period of 20 years and thereafter to be utilized for thepurpose of the Arya Vaidya Sala and Arya Vaidya Hospital and 15 per cent to begiven to the said branches; that is to say, 60 per cent of the total propertiesfor a period of 20 years from the demise of the testator should be utilized forreligious and charitable purposes and thereafter 85 per cent to be utilized forthe said purposes and the rest to be spent on non-religious and non-charitablepurposes. Therefore, under the Will the E Schedule properties, including thebusiness, were held under trust and the object of the trust was to utilize 60per cent of the profits of the business for 20 years and 85 per cent thereafterfor religious and charitable purposes. The assessment years in question fellwithin 20 years from the death of the testator and, therefore, we are concernedonly with 60 per cent of the income from the trust properties. The question iswhether the 60 per cent of the income from the trust properties is exempt fromassessment to income-tax under s. 4 (3)(i) of the Act. The relevant provisionsof the Act read :
8. Section 4. (3) Any income, profits of gains falling within the followingclasses shall not be included in the total income of the person receiving them:
(i) any income derived fromproperty held under trust or other legal obligation wholly for religious or charitablepurposes, and in the case of property so held in part only for such purposes,the income applied, or finally set apart for application, thereto :
Provided that such income shallbe included in the total income.....
(b) in the case of income derivedfrom the business carried on behalf of a religious or charitable institutions;unless the income is applied wholly for the purpose of the institution andeither -
(i) the business is carried onin the course of the actual carrying out of a primary purpose of theinstitution, or
(ii) the work in connectionwith the business is mainly carried on by beneficiaries of the institution.
9. A brief history of the proviso may not be out of place here. Before theamendment of this clause by the Amending Act of 1953 the proviso was in theform of a separate substantive clause and was numbered as clause (i-a). Thesaid clause (i-a) came under judicial scrutiny. It was argued on behalf of theRevenue that though a business was held under trust for religious or charitablepurposes, it would fall under clause (i-a) and the income therefrom could notbe exempted from income-tax unless the conditions laid down in the said clausewere complied with. In Charitable Gadodia Swadeshi Stores v. Commissioner ofIncome-tax, Punjab , the Lahore High Court rejected thatcontention, and one of the reasons given for the rejection was that if the saidclause was intended to narrow down the scope of clause (i), the said clauseshould have been added as a proviso to the old clause. Presumably on the basisof this suggestion the Amending Act of 1953 substituted clause (i-a) by clause(b) of the proviso. But it is not an inflexible rule of construction that aproviso in a statute should always be read as a limitation upon the effect ofthe main enactment. Generally the natural presumption is that but for theproviso the enacting part of the section would have included the subject-matterof the proviso; but the clear language of the substantive provision as well asthe proviso may establish that the proviso is not a qualifying clause of themain provisions, but is in itself a substantive provision. In the words ofMaxwell, 'the true principle is that the sound view of the enactingclause, the saving clause and the proviso taken and construed together is toprevail'. So construed we find no difficulty, as we will indicate later inour judgment, in holding that the said clause (b) of the proviso deals with acase of business which is not vested in trust for religious or charitablepurposes within the meaning of the substantive clause of s. 4(3)(i).
10. With these introductory remarks we shall proceed to construe theprovisions of s. 4(3)(i) of the Act, along with clause (b) of the proviso.Under clause (i), so far as it is relevant to the question raised before us, toearn the exemption the income shall have been derived from property under trustwholly or in part held for religious or charitable purposes. Under clause (b)of the proviso to that clause, in the case of income derived from businesscarried on on behalf of a religious or charitable institution, unless thecondition laid down thereunder are complied with, the said income cannot beexempted. If business is property and is held under trust wholly or partly forreligious or charitable purposes, it falls squarely under the substantive partof clause (i) and in that event clause (b) of the proviso cannot be attracted,as under that clause of the proviso the business mentioned therein is not heldunder trust but one carried on on behalf of a religious or charitableinstitution. To take a business out of the substantive clause (i) of s. 4(3)and place it in clause (b) of the proviso, it is suggested that business is notproperty and that even if it is property the said property is not wholly orpartly held in trust for religious or charitable purposes. That business isproperty is now well settled. The Privy Council in In re Trustees of theTribune (1939) I.T.R. 415 (P.C.) did not question the view expressed by the BombayHigh Court that business of running the newspaper Tribune was property heldunder trust for charitable purposes. This court in J.K. Trust, Bombay v. Commissioner of Income-tax.. Excess profits Tax Bombay : 1SCR65 endorsed the said view and held that 'property' is a term of thewidest import and that business would undoubtedly be property unless there wassomething to the contrary in the enactment. If business was property, it couldbe held under trust for religious and charitable purposes. As the business ofrunning the Arya Vaidya Sala vested under trust for religious and charitablepurposes, it would fall under clause (i), if the other conditions laid downtherein were satisfied. The necessary condition for the application of clause(i) of s. 4(3) of the Act is that the said property, namely, the business,shall have been wholly or in part held for religious or charitable purposes. As40 per cent of the profits in the business would be given to purposes otherthan religious or charitable purposes it cannot be said that the business washeld wholly for religious or charitable purposes. But as 60 per cent of theprofits thereof would be spent for religious or charitable purposes, thequestion is whether it can be held that the business was held in trust in partfor religious or charitable purposes. The argument advanced on behalf of theRevenue is that the expression 'in part' in clause (i) applies onlyto a case where an aliquot part of property is vested in trust and that is notlegally possible in the case of business. It is said that a business is one andindivisible and, therefore, the subject-matter of trust can only be the shareof the profits payable to a partner during the continuance of the partnershipor after its dissolution. Reliance is placed in support of the said propositionon the decisions in K. A. Ramachar v. Commissioner of Income-tax, Madras : 42ITR25(SC) , David Burnet v. Charles P. Leininger (1932) 76 L.Ed.665., and Mohammad Ibrahim Riza v. Commissioner of Income-tax, Nagpur (1930) 57 I.A. 260.. The first two decisions dealt with a different problem, viz.,whether an assessee is liable to tax on his share of profits in a firm aftersetting or assigning the same in favour of a third party and the courts haveheld that the profits accrued to the assessee before the assignments couldoperate on them and he was liable to be assessed to tax on the said profits. Inthe third decision, the Judicial Committee held that there was no valid trustfor charitable purposes, as the utilization of the income to charitable orsecular purposes was left to the absolute discretion of the head of thecommunity. None of the three decisions has any bearing on the question whethera business could be held in trust wholly or in part for religious or charitablepurposes. That question falls to be considered on different considerations.
11. In our view, the expression 'in part' does not refer to analiquot part; if half a house is held in trust wholly for religious orcharitable purposes, it would be covered by the first part of the substantiveclause of clause (i), for in that event the subject-matter of the trust is onlythe said half of the house and that half is held wholly for religious orcharitable purposes. The expression 'in part', therefore, must applyto a case other than a property a part of which is wholly held for religious orcharitable purposes. In India there are a variety of trusts wherein there is nocomplete dedication of the property but only a partial dedication. A propertymay be dedicated entirely to a religious or charitable institution or to adeity. This is an instance of complete dedication. A property may be dedicatedto a deity, subject to a charge that a part of the income shall be given to thegrantor's heirs. A property may be given to an indivisual subject to, orburdened with, a charge in favour of an idol or a religious institution or forcharitable purposes. An owner of property may retain the property for himselfbut carve out a beneficial interest therefrom in favour of the public by way ofeasement or otherwise. There may be many other instance, where though there isa trust, it involves only a partial dedication of the property held under trustin the sense that only a part of the income of that property is utilized forreligious or charitable purposes. The dichotomy between the two expressions'wholly' and 'in part' is not based upon the dedication ofthe whole or a fractional part of the property, but between the dedication ofthe said property wholly for religious or charitable purposes or in part forsuch purposes. It so understood, the two limbs of the substantive clause fallinto a piece. The first limb deals with a property or a part of it held intrust wholly for religious or charitable purposes, and the second limb providesfor such a property held in trust partly for religious or charitable purposes.On the said reading of the provision it follows that the entire business ofArya Vaidya Sala is held in trust for utilizing 60 per cent of its profits, i.e.,a part of the income, for religious or charitable purposes. The present case,therefore, falls squarely within the scope of the substantive part or clause(i) of s. 4(3) of the Act.
12. Even so it is contended that clause (b) of the proviso imposes furtherlimitations before the exemption can be granted. But the said clause of theproviso only applies to the case of income derived from business carried on onbehalf of a religious or charitable institution. A business held in trustwholly or in part for religious or charitable purposes is not a businesscarried on on behalf of a religious or charitable institution, for the businessitself is held in trust. A few decisions cited at the Bar bringing out thedistinction between the substantive part of clause (i) of s. 4(3) and clause(b) of the proviso may usefully be referred to at this stage. Where a businesswas held in trust for charitable purposes, a Division Bench of the Bombay HighCourt in Dharma Vijiya Agency v. Commissioner of Income-tax, Bombay City : 38ITR392(Bom) held that it was not business which wascarried on on behalf of religious or charitable institutions within the meaningof clause (b) of the proviso. Shah J., after considering the relevantauthorities and the provisions of the Act, observed :
'In our view, the business referred to in clause(b) of the proviso need not be business which is held for religious orcharitable purposes, provided it is business carried on on behalf of areligious or charitable institution.'
13. Desai J., stated thus :
'... it is impossible to equate the scope ofproviso (b) with the scope of property consisting of business held under trustwholly for religious or charitable purposes. It must of necessity mean that wehave in clause (i) a very wide category of business which is trust property,and we have in proviso (b) a restricted and a lesser category of business whichis carried on by or on behalf of a religious or charitable institution.'
14. A Division Bench of the Kerala High Court in Dharmodayam Co. v.Commissioner of Income-tax, Kerala : 45ITR478(Ker) expressed much tothe same effect. A Division Bench of the Madras High Court, in Thiagesar DharmaVanikam v. Commissioner of Income-tax, Madras : 50ITR798(Mad) , after considering the decisions of the various High Courts and therelevant provisions of the Act, observed :
'When the trustee acts, it is only the trust thatacts, as the trustee fully represents the trust. A business carried on onbehalf of a trust rather indicates a business which is not held in trust, thana business of the trust run by the trustees.'
15. It concluded thus :
'In our opinion proviso (b) to section 4(3)(i) doesnot restrict the operation of the main provision in section 4(3)(i). If a trustcarried on business and the business itself is held in trust and the incomefrom such business is applied or accumulated for application for the purpose ofthe trust, which must of course be of a religious or a charitable character,the conditions prescribed in section 4(3)(i) are fulfilled and the income isexempt from taxation. This exemption cannot be defeated even if the businesswere to be conducted by somebody else acting on behalf of the trust. Proviso(b) to section 4(3)(i) has application only to businesses which are not held intrust, and the field of its operation is, therefore, distinct and separate fromthat covered by section 4(3)(i).'
16. Emphasis is laid upon the expression 'such income' in theopening words of the proviso and a contention is raised that the income dealtwith in the proviso is income derived from property held under trust. To stateit differently, the adjective 'such' in the expression 'suchincome' refers back to the income in the substantive clause. There is someplausibility in the contention, but if the interpretation be accepted, we willbe attributing an intention to the legislature to make a distinction betweenbusiness and other property though both of them are held under trust. There isno acceptable reason for this distinction. That apart, the expression'such' may as well refer to the 'income' in the openingsentence of sub-s. (3). The said sub-section says that the incomes mentionedthereunder shall not be included in the total income, but the proviso lifts theban and says that such incomes shall be included in the total income if theconditions laid down are satisfied. We think that the expression 'suchincome' only means the income accruing or arising in favour of the trust.
17. The legal position may briefly be stated thus. Clause (i) of s. 4(3) ofthe Act takes in every property or a fractional part of it held in trust whollyfor religious or charitable purposes. It also takes in such property held onlyin part for such purposes. Business is also property within the meaning of the saidclause. Clause (b) of the proviso to s. 4(3)(i) applies only to a business notheld in trust but carried on on behalf of religious or charitable institutions.
18. For the foregoing reasons we hold that the High Court has correctlyanswered the question referred to it.
19. In the result, the appeals fail and are dismissed with costs. One set ofhearing fees.
20. Appeal dismissed.