The Commissioner of Income Tax vs Thevara Patasala by Manager, Arunachalam Chettiar

Murray Coutts Trotter, C.J.—The facts in this case are quite sufficiently set out in the case stated by the Commissioner, and they are shortly

these, that a Hindu joint family entered into a partition and agreed among themselves that Rs. 15,000 of the family property should be set aside for

a trust purpose, which purpose was to establish a Thevara Patasala, that is, a school for teaching Hindus Tamil hymns, and that the income from

the balance of the amount after erecting a building was to be used for the upkeep and carrying on of the school.The direction was that that balance

was to be invested in the purchase of lands and that it was on the income arising from those lands the Patasala should be run. Now in these

circumstances we entertain no doubt that there was a creation of a valid trust and one from which none of the parties or its members could possibly

have resiled without committing a breach of trust. The question now arises in consequence of what the trustees did. Instead of investing the balance

after building the school in lands they in some shape or form invested them in a rice mill apparently they purchased it and they carried on there the

business of milling rice and derived income from it. The point taken by the Crown is that on that income they are liable to be taxed as being the

profits of the business. It is quite clear to our minds that if they are the profits of a business they cannot at the same time be income derived from

property held under trust wholly for religious or charitable purposes. The question was at first sight a little complicated by the fact which appears

on the face of the document that this was a forbidden investment and that to put the money into this rice mill was a clear breach of trust on the part

of the trustees. But the answer of the Crown appears to be on reflection that even assuming it to be a breach of trust, that is a matter which raises

questions no doubt as between the cesti qui trust and the trustees and it may be that the trustees will not be able to charge the institution with any

part of the profits that is taken from them by the Crown in the form of taxes. On that we express no opinion. But it does not in the least affect the

position. The English authorities are quite clear that if an institution which primarily exists for charitable purposes chooses to raise funds for those

purposes by carrying on a business in competition with other persons who have to pay Income Tax, they like them will have to pay Income Tax

notwithstanding the fact that the ultimate surplus of the profits is all going to the charitable object. In our opinion, that is clearly laid down in the

Rotunda Hospital case [Common v. Governors of the Rotunda Hospital, Dublin (1921) 1 A.C. 1.] which has been followed in the subsequent

cases, and only the other day in In the matter of Lachman Das Narain Das ILR (1924) A. 68 We think that that principle applies quite clearly to

the Indian Act as the Allahabad High Court hold and that the answer to this reference must be that the proceeds derived from the carrying on of

this rice mill are assessable to Income Tax. The person whom we declare to be assessable and whom we make to pay the costs of this reference

including a pleader''s fee of Rs. 150 is the manager Arunachalam Chetty.