Charitable trust business profits remain taxable when trustees run a rice mill instead of investing trust funds as directed.

A valid charitable trust may still be liable to income tax on profits generated through a business carried on by its trustees. Where trust property is dedicated to charity but the trustees, instead of following the prescribed investment direction, run a rice mill to raise funds, the receipts retain the character of business income rather than exempt trust income. Breach of trust in the mode of investment does not change the tax character of the proceeds. Accordingly, income from the rice mill was assessable to tax even though the ultimate surplus was intended for charitable purposes.

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Issues: Whether the income arising from the rice mill was assessable to income tax notwithstanding that the underlying property had been dedicated to a charitable trust.

Analysis: A valid charitable trust had been created, but the trustees did not invest the balance funds in lands as directed and instead carried on a rice mill business. The decisive question was whether the profits so earned retained the character of income from trust property or were business profits. The breach of trust in making the investment did not alter the tax character of the receipts. An institution that carries on a business to raise funds for charitable purposes is taxable on those profits, even if the ultimate surplus is applied to charity.

Conclusion: The proceeds from the rice mill were assessable to income tax and the answer was against the assessee.

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