Commissioner of Taxes Vs. Ghaus-i-Pak-i-Azam Welfare Trust, 36 DLR (AD) (1984) 163

Case No: Civil Appeals Nos. 52 to 57 of 1981

Judge: Shahabuddin Ahmed ,

Court: Appellate Division ,,

Advocate: Mr. Rafique-ul-Huq,A.M. Mahmudur Rahman,,

Citation: 36 DLR (AD) (1984) 163

Case Year: 1984

Appellant: Commissioner of Taxes

Respondent: Ghaus-i-Pak-i-Azam Welfare Trust

Subject: Income Tax, Fiscal Law,

Delivery Date: 1984-2-6

 
Supreme Court
Appellate Division
(Civil)
 
Present:
Shahabuddin Ahmed J
Chowdhury ATM Masud J
Syed Md. Mohsen Ali J
 
Commissioner of Taxes
..........................................Appellant (In all the cases)
Vs.
Ghaus-i-Pak-i-Azam Welfare Trust
........................Respondent (In all the cases)
 
Judgment
February 6, 1984.
 
The Income Tax Act (II of 1922)
Section 4(3)(i)
For an income derived from business of a trust the exemption under the Income Tax Act will not be available unless among other things the business is carried on “in the course of the carrying out of a religious or charitable purpose of the institution.”……….(2)
 
Cases Referred to-
7 ITR 415; PLD 1963 (SC) 209; Commissioner of Income tax vs. P. Krishna Warrior, ITR Vol. LIII—167 (1964); Commissioner of Income-tax Vs. Krishna Warriar, (1962) 44 ITR 828; Commissioner of Income-tax, Chittagong Vs. Mr. Saifuddin Ahmed, B.L.D. Vol. VIII 100.
 
Lawyers Involved:
A.M. Mahmudur Rahman, Advocate, instructed by Md. Sajjadul Huq, Advocate-on-Record—For the Appellant.
Rafiq-ul-Huq, Senior Advocate, instructed by Abu Backkar, Advocate-on-Record—For the Respondent.
 
Civil Appeals Nos. 52 to 57 of 1981
(From the judgment and order dated 9-6-80 passed by the High Court Division in Reference Application Nos. 127 to 130 of 1971 and 40 to 51 of 1973 respectively).
 
JUDGMENT
 Shahabuddin Ahmed J.
 
1. These six appeals by the Commissioner of Income-tax have been brought before us by a Certificate granted by the High Court Division and raise the question whether the High Court Division allowed the respondent exemption of income tax on correct interpretation of section 4(3) (i) of the Income-tax Act.
 
2. The Assessment in question relates to the assessment years 1958-59, 1959-60, 1960-61, 1963-64, 1966-67 and 1967-68. The respondent-assessee is a Welfare Trust known as Ghaus-e-Pak-i-Azam. It was created by its sole trustee, Mr. Abdur Rouf Khan, by a Deed of Trust dated 13 February 1955. The property dedicated to the Trust for charitable and religious purposes originally consisted of two motor launches and one Insurance Policy of Tk. 50,000/-. Later on, three more launches were brought in and since then the entire income derived from the business of plying these five launches for hire was applied wholly for charitable and religious purposes and the said business was also carried on by the trustee himself who had no business of his own. In these circumstances, the respondent claimed exemption from income-tax under section 4(3) (i) of the Income-tax Act. But the Income tax Officer rejected the claim taking the ground that in view of the proviso of this section the exemption is not available. Order of the Income-tax Officer was upheld by the Assis­tant Commissioner and thereafter by the Income-tax Appellate Tribunal; but on a reference under section 66(1) the High Court Division, by its impugned judgment dated 9 June 1980, reversed the Tribunal's order and allowed the exemption. Sub-section (3) (1) provides that any income derived from pro­perty held under trust for religious or chari­table purposes is exempted from income-tax; but the proviso thereto is to the effect that income derived from business the exemption will not be available unless, among other things, the business is carried on "in the course of the carrying out of a religious or charitable purpose of the institution". The Revenue took the view that though the launches, or for that purpose, the business in plying the launches, was held under trust and though the income derived therefrom was applied for charitable and religious purposes, yet this business was not carried on "in the course of the carrying out of a religious or charitable purpose of the Trust". The pur­poses for which the Trust has been created do not include, it has been pointed out, the carrying out of any business, nor the business of launch-plying in this case was directly con­nected with the purposes of this Trust. But the view taken by the High Court Division is that this business which was run for the sole purpose of producing income for the Trust is directly connected with its religious and charitable purposes—and in fact its entire income has been applied to this pur­pose. So the crux of the whole matter is whether the proviso to the general exemption shall apply in this case.
 
3. The Income-tax Act has under gone several amendments since 1951. So only the relevant provisions will be reproduced to appreciate the point raised in this case. Sub­-section (3) of section 4 reads, thus:
 
"(3) Any income, profits or gains falling within the following classes shall not, to such extent as may be specified in this sub-section or prescribed in this behalf, be included in the total income of the person receiving them,—
(i) Any income derived from pro­perty held under trust or other legal obligation wholly for religious or cha­ritable purposes, and in the case of property so held in part for such purposes, the income applied, or finally set apart for application, thereto:
Provided that in the case of income derived from business this clause shall not apply unless the business is carried on, on behalf of a religious or chari­table institution and the income is applied solely for a religious or charitable purpose of the institution; and either-
(i) The business is carried on in the course of the carrying out of a religious or charitable purpose of the institution; or
(ii) The work in connection with the business is mainly carried on by bene­ficiaries of the institution." 
 
4. As has been shown above, income from a property held under trust wholly for religious or charitable purposes is totally exempted from income-tax, but this exemp­tion has been placed under restriction by the proviso, and a proviso to a statute is always intended to abridge, restrict or negative the benefit given under the statute for certain purposes. It should be noted that in the main provision of this clause (i), the word 'property' has been used, but in the proviso the word 'business' has been used. Nevertheless, there is no difficulty to hold that 'business' is also a property. That business is a property is an established fact; it was held so as far back as in the case of the Trustees of Bombay Tribune, by the Privy Council, reported in 7 ITR 415. In the Bangladesh Statute, after the amendment brought about in 1973, it has been specifically laid down that for the purpose of this clause (i) property held under trust "includes a business undertaking so held". The property in this case, consisting, as stated above, of the running business of launch-plying is held under trust, and income derived therefrom has been applied wholly for a religious or charitable purpose. But the proviso is to the effect that in the case of income from business this clause shall not apply, even if the income has been applied wholly for reli­gious or charitable purpose, unless the busi­ness has been run in the course of the carry­ing out of a religious or charitable purpose of the trust. It should be noted that the proviso contains two other conditions; one is that the business is carried on "on behalf of a religious or charitable institution", and the other is that ‘‘the work in connection with the business is carried on by the bene­ficiaries" of the trust or institution. So far as the first condition is concerned, it has been fully satisfied inasmuch as the business was carried on by the sole trustee for the Trust. The second condition is not relevant here since the Work of the business was not left to be done by any "beneficiary". As to the "institution”, this Welfare Trust is itself an Institution for religious or charitable pur­poses. It is now to be seen whether the run­ning of a business, such as launch-plying, could be held to be included among the purposes of this Trust.
 
5. This very question once before came up for consideration by the Pakistan Supreme Court in a previous case between the same parties, but in respect of two different Assessment years 1955-56 and 1957-58. In that case, the sole trustee. Mr. Abdur Rauf Khan was one of the parties and it has been repor­ted in PLD 1963 (SC) 209. Arguments advan­ced on behalf of the respondent-assessee in the instant case were also advanced in the previous case before the Pakistan Supreme Court and it was contended firstly, that the 'business' in the proviso means a property other than the property held under trust as referred to in the main part of clause (i), that is, a business which is not owned or held by the Trust but is a business simply carried on 'on behalf of a religious or chari­table trust', and secondly, that the business of plying the launches belonging to the trust for producing income to carry out the pur­poses of the Trust was by itself the main objective of the Trust, Both these arguments were repelled by the Pakistan Supreme Court giving cogent reasons which will be consi­dered now.
 
6. The second line of argument advanced in that case will be considered first here. Cornelius, CJ. who delivered the main judg­ment, observed that though the income deri­ved from the launch-plying business was ap­plied wholly for realising the main objectives of the Trust, but this business was not the primary or main object of the Trust and that there was no direct relation between the two. It was further observed that it is not every kind of running business operated by a Trust whose income would be held free of income-tax and that statute requires a number of conditions which are to be com­plied with to take the exemption. It was further observed: 
 
"There is no presumption that be­cause the institution is a religious or charitable trust, all of its activities must be supposed to be for the carrying out of a religious or charitable purpose. The proviso is carefully worded to distinguish activities whose object is to implement or effectuate directly a religious or charitable purpose, from all other activities, and clearly the plying of launches by itself cannot be brought within any of the religious or charitable purposes which are specified in the Trust Deed." 
 
The main purposes of the Trust were also referred to in that judgment in order to show that running of any business was not included among the purposes of the Trust. The purposes of the Trust included relief to the poor, promotion of education, establishment of schools, provision of medical assistance and relief to the distressed persons, erection of mosques and maintenance of places of public worship. The income-producing business was indeed owned by the Trust, and also carried on by the Trust or on behalf of the Trust, but this business was not the main purpose of the Trust as set down in the Trust Deed and hence the exemption given by the main provision of clause (i) has been restric­ted by the proviso by a conscious act of the legislature, it was observed.
 
7. Mr. Rafiq-ul-Huq, learned Advocate for the respondent contends that the launches were dedicated to the Trust so that by carrying on business with these launches fund could be derived so that the purposes of the Trust could be achieved and in fact the entire income has been spent for carrying out the religious purposes, and if the 'proviso' is given effect in the way the Pakistan Supreme Court has interpreted, the main purpose of the exemption will be defeated. This aspect of question also received due consideration from that Court and the learned Judges cited a number of probable reasons for such statutory restriction on the exemption. Learned Judges observed that it would be entirely reasonable to discourage the trust from enter­ing into commercial pursuits in view of the danger of mal-version of trust fund or diver­sion from its main objects. Another consideration might be that of ensuring equal condition of competition to all enterprises in the commercial sphere. In their view, the proviso was intended to exempt the income of a trust business which is itself one of the trust objectives, as for instance, when it is the purpose of a Trust to give training to the poor persons in any trade or profession, such as Hand-loom industries, then the Trust will be required to enter into the business of buying raw materials, and producing goods and selling them in the market and in doing so some profit might be derived; and it is this profit or income which is Intended to be exempted from taxation, and it is this business which might be termed a business for the carrying out of the main purpose of the trust.
 
8. Mr. Rafiq-ul-Huq has mainly concen­trated on the nature of business carried on by or on behalf of the Trust and has argued that this proviso does not apply to the busi­ness which belongs to and is held by a Trust. He argues that business as referred to in the proviso is one which is not held by the trust, but is one which is carried on, on behalf of the trust; the business of launch playing in this case being directly held and owned by the Trust is outside the ambit of the proviso. In support of this contention, he has referred to a decision of the Indian Supreme Court in Commissioner of Income tax vs. P. Krishna Warrior, ITR Vol. LIII—167 (1964). In that case it has been held that business is property and if a business is held in trust wholly or partly for religious or charitable purposes it falls clearly under the substantive part of section 4(3) (i) of the Income-tax Act and in that event this proviso cannot be attracted as that clause applies only to a business not held in trust but is carried on, "on behalf of a religious or charitable institution". Facts of the case are that the testator, who was carrying on the business of manufacturing and selling Ayurvedio medicines under the name and style of "Arya Badyashala', dedicated the business to a religious and welfare trust and its income was also applied for such religious or charitable purposes. The question raised was whether the income derived from this business was exempted from income-tax in view of the proviso to clause (i) of sub­section (3) of section 4 of the Indian Income-tax Act as it stood after Amendment of 1953. This provision of the Indian Income-tax Act was similar to the Pakistan Income tax Act as stood amended in 1951. Section (4)(3)(i) of the Indian Act is quoted below :
 
"4. (3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them:
(a) any income derived from pro­perty held under trust or other legal obligation wholly for religious or chari­table purposes, and in the case of pro­perty so held in part only for such purposes, the income applied, or finally set apart for application, thereto:
Provided that such income shall be included in the total income—
(b) in the case of income derived from the business carried on behalf, of a religious or charitable institution, unless the income is applied wholly for the purposes of the institution and either—
(i) the business is carried on in the course of the actual carrying out of a primary purpose of the institution, or
(ii) the work in connection with the business is mainly carried on by bene­ficiaries of the institution." 
 
The question was first answered in the affirmative by the Kerala High Court in the same case—Commissioner of Income-tax Vs. Krishna Warriar, (1962) 44 ITR 828 whose decision was upheld by the Indian Supreme Court, in appeal, observing that when a property in the nature of a business is itself a trust property that is, held under trust and income therefrom is applied wholly for the trust purposes then the income is totally exempted from taxation; as such, the proviso is not applicable to such case. In that view of the matter, the Indian Supreme Court did not think it necessary to consider the other ques­tion whether the business was carried on "in the course of the carrying out of a primary purpose of the institution".
 
9. Decision of the Kerala High Court was considered by the Pakistan Supreme Court which however was not inclined to the Indian view that business property re­ferred to in the proviso was different from property referred to in the substantive pro­vision in clause (i). The ground taken for not accepting this view is that the purpose of the amendment by which this 'proviso' has been brought in would be defeated if business referred to in the proviso included from the 'property' referred to in clause (i). To appreciate this point it will be necessary to refer to a much earlier case on the subject Charitable Gadodia Swadeshi Stores, 1944 I.T.R 385 decided by the Lahore High Court under the unamended section 4(3)(i) when it was in force in undivided India.
 
10. A business concern styled "Charitable Gadodia Swadeshi Store" was held in trust and its income was wholly applied for religious and charitable purposes, but the Revenue disallowed the claim of the Trust for exemp­tion on the strength of clause (i-a) as it was in the section 4 before amendment (of 1951 in Pakistan and of 1953 in India), Sub-section (3) including its clauses before amendment is quoted below:
 
"(3) This Act shall not be applied to the following classes of income—
(i) any income derived from property held under trust or other legal obligation wholly for religious or charitable pur­poses, and in the case of property so held in part only for such purposes, the income applied, or finally set apart for application, thereto:
(i-a) any income derived from business carried on behalf of a religious or charitable institution when the income is applied solely for the purposes of the institution and—
(a) the business is carried on in the course of the carrying out of a primary purpose of the institution, or
(b) the work in connection with the business is mainly carried on by bene­ficiaries of the institution." 
 
In that case the Revenue contended that gene­ral exemption allowed under clause (i) was brought under a restriction as laid down in clause (i-a) as the business was not carried on "in the course of the carrying out of any primary purpose of the trust". This contention was rejected by the Lahore High Court which found that clause (i) is not governed by clause (i-a), that these two provisions are independent of each other, that two separate classes of exemption were provided in these provisions, clause (i) and clause (i-a), and that clause (i-a) did not derogate from the exemption granted by clause (i) but, on the contrary, it provided an additional exemption for certain type of business which did not fall within clause (1). It was held: 
 
"Viewed in its proper perspective, therefore, clause (i-a) can be taken to apply only to such business as is carried 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 such charitable or religious institutions as were held, under trust. If it was intended to narrow down the scope of clause (i) so as to destroy the exemption enjoyed by a business held in trust or conducted by or on behalf of a religious or charitable trust, the new clause should have been added as a proviso to the old clause." 
 
In view of this observation of the Lahore High Court, sub section (3) of section 4 of the Income-tax Act was amended and clause (i-a) was replaced by the present proviso which has been quoted at Para 3 of this judgment. Now, this proviso is clearly intended to govern, qualify and detract from, the exemption provided in the main part of the sub-section that is clause (i); otherwise, there will be no sense in bringing in this proviso. There­fore decision in the Charitable Gadodia Case will not be applicable in the instant case gover­ned by the amended clause. Similarly, the In­dian decision is also not helpful since the main question whether the business was carried on in the carrying out of the purpose of the trust was not determined.
 
11. Mr. Rafiq-ul-Huq does not question the correctness of the decision of the Pakistan Supreme Court in the previous case relating to different assessment years namely 1955-56 and 1957-58, but contends that the facts and circumstances of that case were different in that the assessee could not establish the relevant facts necessary for claiming the exemption. In the previous case, the trust property consisted of two launches which were plied along with three other launches belonging to the trustee who ran joint business therewith for his personal benefit. There was no separate organization to run launch business of the two-trust-launches independently of the private business with the other three launches, as such it was not established beyond doubt whether the income from the two trust launches was exclusively applied for the trust purposes. But since then, the other three launches were also dedi­cated to the Trust and all the five launches were used in the business for deriving income which was applied wholly for charitable and religious purposes and further that the trustee did not run any other business of his own but he devoted himself entirely to the business of the Trust. This argument is found to have found favour with the learned Judges of the High Court Division; but on careful examination, it is found that the question of exclusive use of the fund for religious and charitable purposes is not a contentious issue in the instant case since it is not disputed by the Revenue that the income from the business of these five laun­ches was wholly applied for religious and charitable purposes. By exclusive application of the income far the trust purposes, one condition has been fulfilled, the other con­dition that the business should have been carried on in the course of the carrying out of the main purpose of the trust has not been fulfilled.
 
12. Reading sub-section (3) as a whole it is found clearly that though, in general, income from property held in trust wholly for religious or charitable purpose is exem­pted from income-tax, but when the said property is a 'business' then two alternative conditions have been imposed for getting that exemption, one condition being that the business is carried on in the course of the carrying out of the purpose of the trust. In­tention behind this condition is clear that a religious or charitable institution, or a trust should be discouraged from entering into business with trust properties unless such business is directly related to the objectives of the trust or institution, such as, the business is intended to give training to the beneficiaries of the trust or to some poor persons so that they can earn their livelihood by learning a profession or acquiring skill in a trade or industry. It is only such business whose income is exempted from taxation. This proviso certainly restricts drastically the scope and field of the general exemption under the main provision of the law, but this restriction having been imposed by con­scious act on the part of the law-makers it is not within the Court's power to dilate the restriction by liberal interpretation ignor­ing the language of the statute. Subsequently, however, this proviso has been repealed by an Amendment in 1973 altogether and now all income from any property, whether a busi­ness or not, if held in trust, is totally exem­pted from income-tax. The assessment in question relates to a period prior to this Amendment and as such the exemption is not available to the respondent in view of the proviso—the business is to be carried on in the course of carrying out of the religious or charitable purpose of an institution.
 
13. The learned Judges of the High Court Division took the view that income of this trust falls under the main statute, clause (i) of sub-section (3) of section 4, and sought reliance on a decision of this Court in the case of Commissioner of Income-tax, Chittagong Vs. Mr. Saifuddin Ahmed, B.L.D. Vol. VIII 100. In that case this Court observed that when a property is held under trust, income therefrom is totally exempted from income-tax under section 4 (3) (i) but both law and fact of that case are different from those involved in the instant one. In that case 2/3rd income of a trust property was set apart in the Trust Deed itself for being applied to religious and charitable purposes. But there was a proviso that nothing in clause (i) shall apply to an income, profit or gain, which is not expended during the previous year or set apart for being expended in the country. The dispute raised there was one of fact, whether there was any unexpended income or surplus at all in the relevant assessment years. On this question we observed: 
 
"On consideration of the points urged before us we are clearly of the view that the income of a property held under trust wholly for religious or charitable purposes is exempted from tax, but this exemption will not apply to case where so much of the income as remains unexpended during the previous year. In the instant case the Income-tax return submitted by the estate did not show any unexpended income but it is the Income-Tax Officer who artificially worked out an unexpen­ded income or surplus.............As to the question of setting apart of the unexpended income for being expended in future, Mr. Rafiqul Huq contends that even if there were any such income left unexpended, it should be deemed to have been set apart for being expended in future as the wakf deed has itself earmarked it for charitable or religious purposes." 
 
This decision has got no direct bearing on the instant case whether the crucial point centres round the interpretation of a different proviso to the exemption clause (i) which is that the business is carried on in the course of the carrying out of the main purpose of trust. The proviso on which our decision in that case was rested as already indicated is: 
 
"Provided further that nothing in this clause shall apply to so much of the income......as is not set apart for being expended in Bangladesh." 
 
Learned Judges of the High Court Division are not found to have properly appreciated the crucial point decided by the Pakistan Supreme Court in the earlier case. We find, therefore, no ground to re-consider the decision of the Pakistan Supreme Court on the interpretation of sub-section (3) (i) of section 4 of the Income-tax Act. We also do not see any reason for the respondent to re-agitate the same issue in a subsequent case. The view taken by the Tribunal is correct and that of the High Court Division is erroneous.
 
14. In the result, all the appeals which involve the same are allowed. The impugned decision of the High Court Division is set aside and that of the Tribunal is restored No order as to costs.
 
Ed.