TaxTMI 
TaxTMI 
1959 (6) TMI 24
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....ce company to the firm, and the terms and conditions were accepted by the firm. By the first condition of the letter the firm was to act as the principal agent on behalf of the insurance company and was at all times to be the holder of a certificate from the Controller of Insurance to act as principal agent. By condition No. 6 the appointment was subject to termination at the will of either party by one party giving to the other one month's notice in writing. By the seventh condition the company invited the attention of the firm to sections 41 and 102(1) of the Insurance Act, 1938. On February 17, 1951, Kilachand brothers styling themselves as "the founders" executed a deed of trust of the business carried on by them in the name of Dharma Vijaya Agency as principal agents of the New Great Insurance Co., of Indian Ltd. It was recited by the first paragraph of the deed that the "founders" so long as they shall respectively remain trustees of the deed and all persons thereafter becomings trustees held and shall hold the business of principal agency and all the benefits and profits to arise from the said business and the realisation and proceeds thereof and all ....
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....ble as per the agreement", and accordingly there arose no trust and the title of the trustees was "inchoate". He also observed that the account opened on 21st August, 1951, with the Bank of Baroda Ltd., authorising any one of the four "attorneys" to operate was opened by Kilachand brothers as insurance agents and not on behalf of a religious or charitable institution. Against the order refusing to grant to the income earned in the business of the Dharma Vijaya Agency exemption under section 4(3)(i) of the Income- tax Act Dharma VIjaya Agency preferred an appeal to the Appellate Assistant Commissioner. That officer held that in the first instance no valid trust was created, but because the insurance company had ratified the trust it must be regarded as valid. He further observed that the Controller of Insurance had been duly informed that the business of Dharma Vijaya Agency was settled upon trust and no objection had been raised by the Controller in that behalf. He finally observed that if certain property was held under trust or a legal obligation wholly for religious or charitable purposes, all that was required for exemption under section 4(3)(i) was tha....
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....f 1953? We may observe that the second branch of the question falls to be determined only in respect of the assessment years 1952-53, 1953-54 and 1954-55. Kilachand brothers had entered into a partnership to trade in the name of the assessees. After the partnership agreement the assessees were appointed by deed, dated 28th September, 1950, principal agents of the New Great Insurance Co., of India Ltd. and this business conducted by the assessees as principal agents was settled on trust by the deed, dated 17th February, 1951. It is now not disputed that within the meaning of the Income-tax Act the expression "property" is a term of the widest import and, subject to any limitation or qualification which the context might require, signifies every possible interest which a person can acquire, hold and enjoy. By the terms of appointment of the assessees as principal agents for conducting the business of the principal agency, remuneration was to be paid. In J.K. Trust v. Commissioner of Income-tax [1957] 32 I.T.R. 535, their Lordships of the Supreme Court observed that "business" will be property unless there is something to the contrary in the enactment. Mr. Joshi,....
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....f Part A of the Sixth Schedule the principal agent has to procure or cause to be procured through insurance agents such an amount of general insurance business as will yield a gross premium income of not less than ₹ 20,000 in each calendar year. Under clause 4, in the event of the principal agent failing to comply with the requirements of clause 2 in any two successive calendar years, the contract shall, without prejudice to the provision of clause 3, terminate on the 31st day of March immediately following the second calendar year. Under clause 3 the agency is also liable to be forfeited in the events set out in sub-clauses (i) and (ii) thereof. By claused 5 certain restrictions are placed upon the principal agent. But on account of these provisions, which impose certain restrictive conditions upon the principal agent, we are unable to hold that the appointment of a principal agent gives rise to a bare service agreement and that the remuneration paid is not for the conduct of a business but for performance of personal service. The circumstance that the appointment was liable to be terminated at short notice and the agency was not permanent and was liable to be forfeited in ....
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.... could be created in respect thereof, observing that the plea proceeded upon a confession between charity and properties devoted to charity. In their Lordships' opinion a public charity was perpetual in character even though some of the objects may become incapable of performance or the trust property itself may be destroyed by reason of operation of law, and that the circumstance that the trustees had the option at any time to throw up the agency was not a legal impediment to its being property which could be held on trust. Following the observations made by their Lordships off the Supreme Court in J.K. Trust's case [1957] 32 I.T.R. 535, we are of the view that the principal agency conducted by the assesses was a business and, therefore, "property" within the meaning of section 4(3)(i) of the Income-tax Act. Being property which is capable of being settled upon trust, by the deed of trust, dated 17th February, 1951, it was lawfully settled upon trust for charitable purposes. But Mr. Joshi for the Revenue contends that by the agreement dated 28th September, 1950, the partnership of Kilachand brothers was appointed the principal agents, and that at some time afte....
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.... Officer that he had been informed by the company that the Dharma Vijaya Agency had been converted into a trust and that the company had forwarded a copy of the trust deed, dated 17th February, 1951. On the record there is no clear evidence as to whether at the time of renewal of the principal agency certificate, intimation was given to the authorities concerned about the alteration in the constitution of the agency. But evidently neither the company or the Assistant Controller of Insurance raised any objection to the conduct of the trust business of principal agents by the Dharma Vijaya Agency from which some of the original trustees has ceased to function and in which another trustee was introduced. Even assuming that these arose some irregularity by the alteration in the constitution of the Dharma Vijaya Agency, we are unable to hold that this circumstance affects the character of the income received as remuneration for conducting the business of the agency as income received from property held for a public charitable trust. The taxing authorities are primarily concerned with the question whether the income sought to be taxed is income from property which is held on trust for a ....
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....erted by the Legislature cannot be presumed to be inconsistent with or repugnant to a foregoing clause it the same sub-section unless it is so expressly provided. Viewed in its proper perspective, therefore, clause (ia) can be taken to apply only to such business as is carried on on behalf of religious or charitable institutions whichever not held under trust and not to such business as was itself held under trust or was conducted or on behalf of such charitable or religious institutions as were held under trust." These observations were approved of by this court in J.K. Trust's case [1958] 53 I.T.R. 32, after it was remanded by the Supreme Court. The income from the trust in the present case clearly falls within the terms of clause (i) of section 4(3) before it was amended by act 25 of 1953, and it was, therefore exempt from payment of tax. By Act 25 of 1953, section 4(3)(i) was substantially altered. In so far as it is material, that section (as if stands now) provides: "Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them: (i)....any income derived from property held under tru....
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....mainly carried on by beneficiaries of the institution. Mr. Joshi for the Revenue contends that the Legislature intended by the proviso merely to incorporated certain conditions cumulative with those prescribed by the operative part of clause (i), and not to prescribe an excepted category. Mr. Joshi says that where property held under trust is a business, the income derived from that business is exempt from tax only if the business is carried on on behalf of a religious or charitable institution and the income thereof is applied wholly for the purposes of the institution and one of the two conditions prescribed by clause (b) of the proviso is fulfilled. In asking us to accept this interpretation, Mr. Joshi is asking us substantially to re-write the material provision. The Legislature has attempted to carve out certain categories of income from the operative part of the exception and has made them liable to tax despite the fact that they are derived from property held under a trust created for religious or charitable purposes. Mr. Joshi's argument is that if business is property within the meaning of section 4(3)(i), and that business is held on trust, the business in clause (b)....
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....easons. We are, therefore, of the view that the business of the assessee, not being one which is carried on behalf of a religious or charitable institution, is not governed by the proviso to section 4(3)(i) of the Income-tax Act as amended by Act 25 of 1953, and that the income is governed by the operative part of section 4(3)(i). On that view of the case, the answer to the question submitted by the Tribunal will be in the affirmative in respect of all the four assessment years. The Commissioner of Income-tax to pay the costs of the assessee. S.T. DESAI, J.--A question of construction, rather fine and not without some difficulty, arises for our determination in this reference. The facts leading up to this reference have been stated by my learned brother and I need not refer to the same. The question submitted to us has invited rather elaborate arguments on either side, and the arguments rally fall to be considered under two heads: firstly, whether the insurance agency business which was carried on y the assessee firm and in respect of which a charitable trust was created is "property" within the meaning of that expression to be found n section 4(3)(i) of the Income-tax ....
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....and weighty observation of the Supreme Court, and there is every reason why I should find myself in respectful and dutiful agreement it that observation of the Supreme Court. A valiant attempt was made by Mr. Joshi, learned counsel for the Department, to persuade us to take a view different from the view expressed in the passage just quoted by me. The distinction sought to be drawn was rather fine and not permissible in the context of the expression "business" and "property" which have a very wide connotation in income-tax law. Therefore, the conclusion seems in escapable to me that the business of insurance agency carried on by the assessee-firm is property within the meaning of that expression in the relevant provision before us. To turn to the other head on which considerable arguments have been urged before us on either side. It will be convenient to set out the relevant and material part of sub-section (3) of section 4. Section 4(3) of the Income-tax Act, as amended by Act 25 of 1953, provides, in so far as it is material: "Any income, profits or gains falling within the following classes shall not be included in the total income of the person recei....
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....wn that income, profits or gains falling within the classes enumerated in that sub-section are not to be included in the total income of the person receiving them. That is clearly an exclusion from the total income of an assessee to be computed in accordance with the provisions of the Act. A perusal of section 4, which follows upon section 3 (which is the charging section) and itself defines the gamut of total income, shows that its arrangement is not logical and its provisions have no lucidity of expression. It was for this reason that we permitted ourselves to be taken to the history of the legislation contained in sub- section (3), tough I propose to be very brief in examining it. Before, however, I do so, I should prefer to examine the language of the sections it stands today. It is now established law that business itself may be held on trust. If a business itself may be held on trust, as, for instance, in the present case, where a trust is created of property which consists of business, it is abundantly clear and not now disputable that income derived from property consisting of business held on trust for religious or charitable purposes is within the ambit of the exclusion ....
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....ness held under trust wholly for religious or charitable purposes. It must of necessity and that we have in clauses (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 which is carried don by or on behalf of a religious or charitable institution. This, to my mind, is the plain reading of clause (i) of section 4(3) read with the proviso: and if this be the position, it is extremely difficult to accede to the argument pressed before us on behalf of the Department that although the insurance agency business, of which a trust was created, is within the operation of clause (i) of section 4(3), it is yet hit by the initial words of proviso (b) to clause (i). I have stated that the observations which I have made from follow from a plain reading of section 4(3)(i) read with the relevant proviso. I have also mentioned that there was an amendment in section 4(3)(i) in 1953, and it is on the language of section 4(3)(i) as it stood before the amendment that the learned counsel for the Department has very strongly relied. Learned counsel has also relied on a decision of Lahore High Court in a case to which I sh....
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....t examining the language of any proviso in that case, though, it is true, the language of the two clauses is, if not identical, almost in pari materia with the language of clause (i) of section 4(3) and the proviso with which we are here concerned. The passage from the decision of the Lahore High Court which we quoted is as follows: "Clause (ia) as it stands cannot in any way derogate or subtract anything from clause (i). It rather adds to the list of exceptions and provides immunity for a certain kind of business which in the view of the Legislature had not already been provided for. A new clause inserted by the Legislature cannot be presumed to be inconsistent with or repugnant to a foregoing clause in the same sub-section unless it is so expressly provided. Viewed in its proper perspective, therefore, clause (ia) can be taken to apply only to such business as is carried on on behalf of religious or charitable institutions which were not held under trust and not to such business as was itself held under trust or was conducted by or on behalf of the such charitable or religious institutions as were held under trust. If it was intended to narrow down the scope of the clause ....