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Issues: (i) Whether the Arya Vaidya Sala business was itself property held under trust for charitable purposes so that its income was exempt under the Income-tax Act; (ii) whether the amounts earmarked or spent for the Arya Vaidya Sala, Arya Vaidya Hospital and Arya Vaidya Patasala were entitled to exemption and whether the earlier contrary view required reconsideration.
Issue (i): Whether the Arya Vaidya Sala business was itself property held under trust for charitable purposes so that its income was exempt under the Income-tax Act.
Analysis: The will, read as a whole, showed that the business of the Arya Vaidya Sala was itself constituted into trust property, distinct from a business merely carried on for trust objects. The trust was directed primarily towards carrying on the Sala and the Hospital, with substantial application of income to medical relief, education and relief of the poor. The earlier distinction between business held under trust and business carried on for a trust purpose was reaffirmed, and the later contrary approach treating the arrangement as a mixed trust was held to have overlooked that distinction. The dominant character of the trust was charitable, and the residuary concept of general public utility did not control a trust whose objects included medical relief and allied charitable purposes.
Conclusion: The business itself was held under trust for charitable purposes and the income was exempt; the contrary view was overruled.
Issue (ii): Whether the amounts earmarked or spent for the Arya Vaidya Sala, Arya Vaidya Hospital and Arya Vaidya Patasala were entitled to exemption and whether the earlier contrary view required reconsideration.
Analysis: The allocation scheme under the will showed that the income set apart for the Sala, the Hospital and the Patasala formed part of the charitable trust administration and was not merely discretionary business income. The court held that the Tribunal had proceeded on an incorrect interpretation by treating the relevant amounts as taxable merely because of the scale of business receipts or the existence of other non-charitable dispositions. The earlier decision refusing exemption for the Sala-related income was therefore unsound on the true construction of the trust deed and the governing exemption provisions. Accordingly, the questions framed in the later references were answered on the basis that the earmarked amounts retained their exempt character.
Conclusion: The amounts devoted to the Sala, Hospital and Patasala were entitled to exemption, and the assessee's claim substantially succeeded.
Final Conclusion: The court restored the charitable character of the Arya Vaidya Sala trust arrangement, held the business itself to be trust property, and accepted exemption for the relevant income allocations, subject to the specific answers given on the individual references.
Ratio Decidendi: Where the business itself is impressed with a charitable trust, exemption depends on the trust's predominant charitable object, and the proviso aimed at business carried on for an institution does not apply to a business held under trust.
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