J. K. TRUST, BOMBAY versus THE COMMISSIONER OF INCOME-TAX/EXCESS PROFITS TAX, BOMBAY

Citation: [1958] 1 S.C.R. 65 · Decided: 22-05-1957 · Supreme Court of India · Bench: NATWARLAL HARILAL BHAGWATI · Disposal: Appeal(s) allowed
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Judgment (excerpt)

S.C.R. 
SUPREME COURT REPORTS 
J. K. TRUST, BOMBAY 
v. 
65 
THE COMMISSIONER OF INCOME-TAX/EXCESS 
PROFITS TAX, BOMBAY 
(BHAGWATI, VENKATARAMA AIYAR and 
J. L. KAPUR JJ.) 
Income Tax-Trust-Exemption from taxation-Trustees con-
ducting business of Managing Agency for the Trust-Business, 
whether "property"-Incomefrom Managing Agency, whether income 
derived from property held on trust-Indian Income-tax Act, 1922 
(XI of 1922), s. 4(3) (i) and (ia). 
A deed of trust whereby a sum of Rs. 1 lac was settled on 
various charities specified therein provided for the acquisition of 
the business of managing agency on behalf of the trust and with 
the help of the trust fund. The trustees of the said trust 
(appellant) became the managing agents of a public company. 
The agreement for the agency provided, 
inter alia, that 
the 
agency was for a period of twenty years but that it was open to 
the trustees to give up the agency on giving three month's notice 
and that the managing agents were to get a remuneration of 10 
per cent. of the net annual profits subject to a minimum of 
Rs. 50,000 and an office allowance of Rs. 1,000 per mensem. The 
appellant claimed that the income derived from the managing 
agency was income from property held under trust to be applied 
wholly for charitable purposes., and was, in consequence, exempt 
from taxation under S. 4(3)(i) of the Indian Income-tax Act, 1922. 
It was contended on behalf of the Income-tax authorities (1) that 
the income in question was remuneration for services rendered and 
was not derived from any property, as a managings agency could 
not be considered to be property, and that, therefore, it did not 
fall within S. 4(3)(i) of the Act, (2) that on the terms of the deed. 
of trust the managing agency could not be property held on trust, 
as no part of the sum of Rs. 1 lac was utilised in the acquisition 
of the business so as to impress it with the character of accretion, 
and (3) that even it the managing agency business could be 
regarded as property within s. 4(3)(i) it was governed by the 
special provision contained in s. 4(3)(ia), and as the conditions 
laid down therein had not been satisfied, no exemption could be 
claimed. 
Held : (1) A managing agency is business which would be 
property within s. 4(3)(i) of the Act. 
Lakshminarayan Rain Gopal and Son Ltd. v. The Govenment of 
Hyderabad, (1955) I.S.€.R. 393, followed. 
All India Spinners' Association v. Commissioner of Income-tax 
Bombay (1944) 12 l.T.R. 482, relied on. 
1957 
May 22 
66 
SUPREME COURT REPORTS 
[1958] 
1957 
(2) Though the office of managing agency carries with it 
J. K. Trust 
certain obligations, in law there can be not objection to creating a 
Bombay 
trust over property burdened with obligations, 
though, if it is 
Th c:: •· 
. 
onerous by reason of such obligations, the trustee may be entitled 
e ornmisswner to disclaim it 
of Income-tax/ 
· 
Excess Profits Tax, 
(3) When trustees carry on busines with the aid of trust 
Bombay 
fund the position in law is the same as if they actually employed 
it in the business, though, in fact, it be not actually invested 
therein and, taking the provisions of the deed of trust and the 
agreement of agency together, the managing agency must be held 
to be property held on trust. 
Venkatarama 
AiyarJ. 
Rocke v. Hart, (1805) 32 E.R. 1009 and Moons v. De Berna/es, 
(1826) 38 E.R. 117, relied on. 
The case was remanded to the High Court for a decision on 
the question whether profits from business would be exempt from 
taxation under S. 4(3)(i) of the Act when the conditions laid down 
in S. 4(3)(ia) were not satisfied. 
C1v1L APPELLATE JURISDICTION : Civil Appeal No. 
246 of 1954. 
Appeal by special leave from the judgment and 
order dated October 6, 1952 of the Bombay High 
Court in Income-tax Reference No. 1of1952. 
N.A. Palkhivala, 
J.B. 
Dadachanji, S.N. Andley 
Rameshwar Nath and P.L. Vohra for the appellant. 
G.N. Joshi and R.H. Dhebar, for the respondent. 
1957. May 22. The Judgment of the Court was 
delivered by 
VENKATARAMA AIYAR J.-This is an appeal by 
special leave against the judgment of the Bombay 
High Court passed in a reference under s. 66(1) of the 
Indian Income-tax Act 1922, (hereinafter referred to 
as the Act) and ss. 21 and 19 of the Excess Profits Tax 
Act, 1940, and of the Business Profits Tax Act, 1947, 
respectively read with s. 66(1) of the Act. The dispute 
between the parties relates to the assessment of 
income-tax for the assem
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