SRINIVASAN J. - The assessee, the East India Industries Ltd., paid a donation of Rs. 7,500 to a trust called the Agastyar Trust and claimed exemption from tax under section 15B of the Income-tax Act. The trust had been created by the partners of a business firm, Messrs. K. Rajagopal and Co. This firm has been carrying on business in waste paper and under the terms of the partnership was setting apart 80 per cent. of the profits for charitable and religious purposes. One Venkataraman Chetti was appointed the trustee for administering these funds and on July 1, 1944, a trust deed was executed. It purports to be a declaration of trust made by the trustee, Venkataraman Chetti, and is witnessed by the two partners of the firm of Rajagopal and Co. We shall presently refer to the objects of the trust. But in so far as the assessee, who made the donation to the trust is concerned, his claim to exemption from income-tax was negatived by the Income-tax Officer on the ground that the trust does not fulfill the conditions laid down under section 15B of the Act. The Appellate Assistant Commissioner to whom an appeal was taken held likewise. Apparently, before him the question whether the trust was one which complied with the conditions is proviso (b) to clause (i) of section 4(3) was more prominently argued. But, in any event, he held that since the trust itself was not entitled to the exemption contemplated under section 4(3)(i), the donor was likewise not eligible for exemption from tax on the amount of donation made to that trust.
When the matter was taken up in further appeal to the Income-tax Appellate Tribunal, the Tribunal 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 the said trust is an allowable deduction under section 15B. The matter was not further dealt within greater detail regarding the scope of the exemption contained in section 4(3)(i) of the Act in relation to the Agastyar Trust. Thereupon, the Commissioner of Income-tax made an application under section 66(1) of the Act and the Tribunal referred the following question for the determination of this court :
'Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction under section 15B in respect of the donation paid to the Agastyar Trust ?'
Section 15B provides for exemption from tax in respect of any sums paid by the assessee as donations to any institution or fund to which this section applies. Sub-section (2) reads :
'(2) This section applies to any institution or fund established in the taxable territories for a charitable purpose -
(i) the income whereof is exempt under clause (i) of sub-section (3) of section 4....'
It is not necessary to set out the other clauses. We shall assume that to the extent to which those sub-clauses are applicable to the present trust, the trust complies with those conditions. The principal question that we have to determine is whether the trust is established for a charitable purpose, the income of which is exempt under section 4(3)(i). This accordingly takes us to a consideration of section 4(3)(i) itself. Before a donation made to the trust can be exempted under section 15B of the Act, it has to be seen whether the trust itself is one, the income of which is exempt under section 4(3)(i). Section 4(3)(i), leaving out those parts which are not relevant, reads thus :
'Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them :
(1).... 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.'
We have now to examine how far the trust complies with the requisites of this provision.
There is no doubt that the property from which the income is derived is held under trust. The trust document makes this perfectly clear. The objects of the trust broadly stated are :
(1) to establish, conduct and maintain schools, colleges, workshops and other institutions for imparting general, technical, professional, industrial or other kind of education and training for the utility and welfare of the general public;
(2) to make pecuniary grants by way of scholarship, etc., for the benefit of students, scholars or others;
(3) to establish, maintain and conduct hospitals, clinics, dispensaries, etc., for affording treatment, cure, rest and other reliefs;
(4) to manufacture, buy, sell and distribute pharmaceutical, medicinal and chemical and other preparations and articles such as medicines, drugs, medical and surgical articles, preparations and restoratives or foods;
(5) to establish choultries, rest houses, to provide food, clothes and medicines free or at concessional rates; to make money grants to the poor for celebration of marriages and to afford relief to people in distress;
(6) to engage and conduct research in, interpret and popularise nadis;
(7) to promote and encourage the study of and research in religion and to propagate religious principles;
(8) 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;
(9) to conduct worship and festivals is temples, etc.;
(10) 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 further clauses of the trust deed provide for the appointment of additional trustees, the administration and management of schools, colleges, etc., that might be set up, investment of the moneys, confer power on the trustee 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. It is seen accordingly that most of the objects set out in the declaration of the trust are either of a charitable or religious nature. Once object, however, appears to partake of neither character and that is item 4 above : '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 or foods.' It appears further that in pursuance of the power vested in the trustees to conduct or carry on any business or undertaking alone or in partnership, the trust became a partner in two firms, the Indian Metal and Metallurgical Corporation and the Indian Textile Products Corporation.
We have mentioned that in the appeal in relating to the assessment year 1955-56, the Appellate Tribunal did not examine the matter but rested its conclusion on an appeal decided by it in relation to the assessment year 1954-55. In that year, another assessee made a donation of Rs. 2,697 to the Agastyar Trust and sought for exemption from tax on the amount of that donation. The department denied the exemption on the ground that the trust was a partner in a firm carrying on business and that the income from that source was assessable in the hands of the trust. The Appellate Tribunal, in holding in favour of the assessee in that case, observed :
'Further, in our opinion, even if that income is kept apart, the other income earned by the trust on amounts donated to it and that which the trust got from the immoveable properties which it had owned belonged to entirely a different class which could never be assessable under the Income-tax Act. Since in this case the amount that was donated belonged to the latter group, it cannot be stated that the exemption contemplated by the Act under section 15B(2) was not available to the assessee.'
We are not quite clear about the scope of this discussion. But apparently, the Tribunal thought that the income of the trust could be placed under two difference categories, one which would not be assessable by reason of the use to which it was put, and the other realised by the association of the trust in a business which would be taxable. It is not necessary to pursue this line of reasoning any further as we consider it desirable to examine the question afresh.
What is requisite under section 4(3)(i) is that the property from which the income is derived should be held under trust or other legal obligation wholly for religious or charitable purposes. If the property is not so held wholly for religious and charitable purposes, in so far as the charitable and religious purposes are concerned, it should be so held in part, that is to say, there should be a clear indication in the document of trust setting apart certain properties in trust for the achievement of religious or charitable purposes, though in that same document other properties might be held for purposes other than religious or charitable. It would not be in compliance with the terms of this provision if the property is only held generally both for charitable and for non-charitable purposes. Before this provision or any part of it can be invoked, there should be a clear indication that the property is specifically held for charitable or religious purposes.
We have pointed out that one at least of the objects of the trust is certainly a non-charitable one. Learned counsel for the assessee claims however that the manufacture, sale and distribution of medicinal, chemical and other preparations must be deemed to come within the scope of the expression 'charitable purpose' in view of the Explanation to section 4 as falling within the scope of the expression 'advancement of any other object of general public utility'. It is true that this expression is of very wide import. But we are certainly unable to see how the manufacture, purchase, sale and distribution of pharmaceutical, medicinal, chemical or other preparations and such similar articles would advance any object of general public utility. This object of the trust is obviously linked up with the power vested in the trustee to conduct or carry on any business or undertaking for the benefit of the trust, that is to say, to engage in such enterprises would yield income to the trust and enable the trust to expend the income for purposes of the trust. It must not be forgotten that the manufacture, purchase, sale and distribution of these articles is indicated as one of the objects of the trust, disassociated with any other charitable purposes that also formed part of the objects of the trust. The trust would accordingly be in a position to utilise the income which it derives from the properties paced under trust for the purpose of an business, viz., the manufacture, sale, etc., of medicinal, chemical and other preparations. The most important of the powers given to the trustees is contained in clause 5(i) which reads :
'The trustees 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 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, that is to say, no particular item of property has been burdened with the performance of any specific object of the trust. It follows, therefore, from the above clause that it is open to the trustees to utilise the income for any one of the objects of the trust to the exclusion of all others, that is to say, 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. If this object of the trust is neither charitable nor religious and if the trustees can expend the entire income of the trust on this non-charitable object, the question then would arise whether the property can be deemed to be held under trust or other legal obligation wholly for religious or charitable purposes.
This question has undergone judicial examination. In Md. Ibrahim v. Commissioner of Income-tax, it has been held that if there are several objects of the trust, some of which are charitable and some non-charitable, and the trustees have unfettered discretion to apply the income to any of the objects, the whole trust would fail and no part of the income is exempt from tax. It has even been held that if there are several distributive objects, one of which is paramount and is of a charitable kind, the fact that the non-charitable nature of the other objects may be immaterial, cannot be accepted as justifying the grant of exemption under section 4(3)(i). On this short ground alone, viz., that the property in the present case cannot be deemed to be held under a legal obligation wholly or in part for the performance of charitable objects and that the trustees in their discretion can apply the income even to non-charitable objects to the exclusion of charitable objects, it necessarily follows that the trust is not entitled to the exemption under section 4(3)(i).
Learned counsel for the assessee, however, argues that this particular object which we have held to be of a non-charitable nature must not be read isolated from the rest of the objects but that, having regard to the immediately preceding object which is to run hospitals and dispensaries, the impugned object, viz, the manufacture of pharmaceutical and medicinal prepartions, must be deemed to be for the purpose of carrying out the earlier object, viz., running of hospitals and dispensaries. We are unable to spell out any connection between the two objects and indeed on the terms of the deed of trust it is impossible to predicate that one is a dominant object which alone should be had regard to in determining the object of the trust as charitable. This argument is against the tenor of the decisions which lay down that such a canon of construction is a dangerous one and cannot, as a general rule, be accepted.
Mr. Swaminathan, for the assessee, cites Commissioner of Income-tax v. Breach Candy Swimming Bath Trust. That was a case where a trust was administered under a scheme framed by the High Court. The object of the trust was the construction and maintenance of a salt water swimming bath at a certain place for the use and benefit of the European public of Bombay. Power was given to the trustees to make provision for the supply of refreshments including alcoholic liquors to those resorting to the bath at the bar and the restaurant which were already in existence. The question arose whether the income from the sale of tickets for admission to the bath and from the bar and the restaurant was exempt on the ground that the trust was a charitable trust. The Bombay High Court held that the object of the trust was the maintenance of a swimming bath for the benefit of the European public and it was object of general public utility. In dealing with the contention that the supply of refreshments to persons resorting to the bath cannot be said to be a charitable object, the learned judges observed :
'Mr. Joshi would be perfectly right if could satisfy us that one of the objects of the trust was to supply refreshments to the persons who went to the swimming bath, but, in our opinion, a clear distinction must be drawn between the object of the trust and the powers conferred upon the trustees of the trust which powers are incidental to the carrying out of the object of the trust. Now, the only object of the trust, and that is perfectly clear both from the original indenture of trust and the scheme framed by the High Court, is the maintenance and construction of a salt water swimming bath at Breach Candy. The provision with regard to the supply of refreshments is a power conferred upon the trustees to exercise it or not according to their discretion in the carrying out of the object of the trust.'
The above passage clearly sets out the distinction. If the supply of refreshments was an object of the trust itself, it is clear that the trust would not then be carrying out a charitable purpose and would not have been eligible for the exemption. The claim to exemption in that case was upheld because the supply of refreshments was no one of the objects of the trust but was only incidental to that object which it was not incumbent on the trustees to provide. The present case is however different in that the manufacture and sale of pharmaceutical, medicinal and chemical preparations it itself an object of the trust.
Reliance has also been placed upon in In re the Trustee of the 'Tribune', where it was held that the provision of an organ of educated public opinion was an object of general public utility. The trust in that case was for the single purpose of maintaining a press and newspaper which the Privy Council held to be an object of general public utility. A similar view was taken in All India Spinners Association v. Commissioner of Income-tax. But there again, the objects of the trust were wholly confined to the furnishing of financial and other assistance to Khadar organisations, to held and open Khadar stores and establish Khadar service, etc. These objects were held to promote the advancement of purposes of general public utility. We are unable to see anything in these decisions which justifies their application to the facts of the present case.
Our conclusion accordingly is that, since it is open to the trustees of the Agastyar Trust to utilise the whole of the income of the trust in their unfettered discretion to an object which is a non-charitable one, the property cannot be deemed to be held in trust wholly for charitable or religious purposes. The Agastyar Trust is thus ineligible to the exemption contemplated by section 4(3)(i). It should, therefore, follow that any donation made to the Agastyar Trust is also not entitled to the exemption from tax under section 15B of the Act.
Learned counsel for the assessee contends that this is not the question that was examined by the department and the officers below and that this court is therefore prevented from considering the eligibility of the Agastyar Trust to exemption under section 4(3)(i) in its fuller scope, but that the question of law arising from the order of the Tribunal must be confined to the examination of such eligibility only under section 4(3)(i)(b). In putting forward this argument, reliance is apparently placed upon the limited consideration which the Tribunal gave to the matte. We have referred to the fact that in so far as the assessment year 1955-56 is concerned, the matter was not considered by the Tribunal at length. It referred only to an earlier case it had dealt with. The judgment of the Tribunal in that case is printed as annexures 'C'. The Tribunal thought that the income of the trust could be classified under two heads : (1) income derived from donations made to it and income from the immovable properties which it owned and (2) income which it earned in business. The Tribunal apparently took the view that even if the income which the trust earned in business was not exempt, the income derived from donations which was utilised for charitable purposes would be eligible for exemption. But in order to determine what question of law arises from the order of the Tribunal, we must necessarily refer to the scope of the appeal that was before the Tribunal in relation to the assessment year in question. We have pointed out that the Income-tax Officer held that the trust does not fulfill the conditions laid down in section 15B of the Income-tax Act. The Assistant Commissioner referred to the earlier decisions of different Benches of the Income-tax Appellate Tribunal, which were conflicting and he proceeded to consider the question afresh. He specifically stated that one of the conditions is that the income of the institution or fund should be exempt under clause (i) of sub-section (3) of section 4 and dealt with the argument relating to the business carried on by the trust and observed :
'Property as used is 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 15B.'
It will this order of the Appellate Assistant Commissioner that came up in appeal before the Tribunal. The question that was, therefore, before the Tribunal was whether the trust income was exempt under section 4(3)(i). That was the question which the Tribunal answered in favour of the assessee. It seems to us that in the light of the above, that very question in its broadest sweep is also before us and we are unable to agree with the learned counsel for the assessee that only one aspect of the matter, viz., whether the conditions requisite for the application of section 4(3)(i)(b) should be deemed to arise as a question of law from the order of the Tribunal. We may point out that in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., the scope of the jurisdiction of the High Court under section 66(1) of the Act was examined at length, and it was held that in a case where a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with and is therefore one arising out of the order. If, therefore, the eligibility to exemption from income-tax under section 4(3)(i) of the Agastyar Trust was the question raised before the Tribunal, but the Tribunal dealt with only one aspect of the matter, it nevertheless follows that the entire question is available for examination by the High Court as a question of law arising from the order of the Tribunal.
In the light of the above observations, the question is answered in the negative and against the assessee. The assessee will pay the costs of the department. Counsels fee Rs. 250.
Question answered in the negative.