Trust business treated as trust property, preserving income-tax exemption and excluding the withdrawal proviso.

Where a trust deed authorises trustees to carry on mining or lending business with trust assets and treats that business as trust property, the business is held under trust for exemption purposes under section 4(3)(i) of the Income-tax Act, 1922. The fact that the business pre-existed the trust was not treated as essential to the exemption. Once the business and its income were held to be within the trust, the proviso withdrawing exemption did not apply on the facts found, so the trust income remained outside tax under that proviso.

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Issues: (i) Whether the business of mining or lending was property held under trust so as to attract section 4(3)(i) of the Income-tax Act, 1922; (ii) Whether proviso (b) to section 4(3)(i) applied to make the trust income taxable.

Issue (i): Whether the business of mining or lending was property held under trust so as to attract section 4(3)(i) of the Income-tax Act, 1922.

Analysis: The trust deed authorised the trustees to carry on business with the trust property and funds, to use the trust assets in business, and to take mining contracts or leases for working mines. On a plain reading, the business was itself treated as trust property and held under the trust. The fact that the business existed before the trust deed was not regarded as a necessary condition for the exemption.

Conclusion: The issue was answered in the affirmative and in favour of the assessee.

Issue (ii): Whether proviso (b) to section 4(3)(i) applied to make the trust income taxable.

Analysis: Once the business and the resulting income were found to be held under the trust, the exemption under section 4(3)(i) applied. In that situation, the proviso invoked by the Revenue, which would withdraw the exemption in specified circumstances, had no application on the facts found.

Conclusion: The issue was answered in the negative and in favour of the assessee.

Final Conclusion: The reference was decided by holding that the mining and lending activities formed part of trust property and remained within the exemption, so the trust income was not brought to tax under the proviso.

Ratio Decidendi: Where the trust deed itself treats business and its income as trust property and authorises the trustees to carry on such business, the business is held under trust for purposes of exemption under section 4(3)(i), and the withdrawal proviso does not apply unless its conditions are independently satisfied.

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