- (1.) State of Kerala in this appeal is challenging the judgment dated February 6, 1986 of the Division Bench of the Kerala High Court holding that MSP Family Jain Trust ('Trust' for short), of which the respondent is the President, is exempt from payment of tax on its agricultural income under Section 4 of the Kerala Agricultural Income- tax Act, 1950 ('Act' for short) as amended by Kerala Act 9 of 1974. High Court in its impugned judgment reversed the finding of the authorities under the Act that Trust was a private family trust and the dominant object of the Trust was to propagate a particular religion and to render service to the followers of that religion and it could not be treated as a public trust. The authorities had also found that most of the income of the Trust was spent outside the State of Kerala.
(2.) For the assessment year 1974-75 (Accounting year 1973-74) the Trust filed its return of agricultural income under the Act showing net profit of Rs. 53,191.39 and claimed exemption for the entire income. The Assessing Officer by his order dated March 24, 1980 assessed the income of the Trust at Rs. 63,099.00. He declined the claim of exemption made by the Trust stating that under Section 4 of the Act as amended the benefit was applicable only to the extent to which the income of the Trust was applied to charitable purposes within the State. Trust filed appeal against the assessment order before the Appellate Assistant Commissioner of Agricultural Income-tax and Sales Tax, who, by order dated September 9, 1980 dismissed the same. Further appeal was filed by the Trust before the Kerala Agricultural Income-tax Appellate Tribunal. It was also dismissed by judgment dated August 6, 1981. At the instance of the Trust following questions of law were referred to the Kerala High Court under Section 60 of the Act for the opinion of the High Court :- "1. Whether on the facts and in the circumstances of the case, this Tribunal is right in holding that Section 4 of Act 22 of 1950 as amended by Act 9/1974 is applicable for the assessment of the tax for the accounting year 1973-74 2. Whether on the facts and in the circumstances of the case, this Tribunal is right in holding that since the object of the Trust being propagation of Jain Religion and the service of its followers, the trust is not entitled for the claim of exemption from tax under Section 4 as it stands after the amendment of the Act by Act 91/74. 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that even the amount spent in this State in furtherance of the objects of the Trust cannot be treated as allowable items of expenses and 4. Whether on the facts and in the circumstances of the case, this Tribunal has any material in inferring and is it justified in entering into a finding that the object of the trust is only to spend money for the propagation of a particular type of religion and for the services of its followers."
(3.) High Court answered the first question in favour of the revenue in view of decision of this Court in Karimtharuvi Tea Estate Ltd. v. State of Kerala, (1966) 60 ITR 262 : (AIR 1966 SC 1385). High Court held that Trust was both religious and charitable and even if it construed as private religious turst the benefit to the public provided for in the trust deed took it out of the exclusion of Clause (a) of sub-section (3) of Section 4 of the Act. High Court said that taken as charitable Trust the benefits of the Trust were not confined to any particular religious community or caste and for the reason it did not fall under the exclusion in Clause (b) of sub-section (3) of Section 4 of the Act as well. High Court was, thus, of the view that the income of the Trust was entitled to exemption under Section 4 of the Act except to the extent to which its income was not applied for charitable or religious purposes within the State. High Court answered questions 2, 3 and 4 in favour of the Trust and against the revenue.;