COMMISSIONER OF INCOME TAX Vs. KRISHNA WARRIER P

JUDGEMENT

(1.) THE income-tax referred cases relate to the assessment years 1971-72 to 1975-76 and the original petitions under Section 256(2) of the Income-tax Act, 1961, relate to the assessment years 1965-66 to 1970-71. THE income-tax references cases are at the instance of the assessee and the petitions under Section 256(2) of the Income-tax Act, 1961, are filed by the Revenue.

(2.) A few facts are necessary for dealing with the questions arising in these referred cases and the original petitions. Vaidyaratnam P.S. Warriyar executed a will dated September 3, 1939, in respect of his properties including the Kottakkal Aryavaidyasala. P. S. Warriyar died on January 30, 1944. Under the will, P. S. Warriyar created a trust. The object of the trust is set out in the will. It is not necessary to refer to the various terms of the will at this stage since the said questions stand settled by earlier decisions of this court as confirmed by the Supreme Court. Suffice it to say, the object of the trust was charitable. For 20 years after the will came into effect, 40 per cent. of the profits of the property was to be enjoyed by the two tavazies of the tarwad and only 60 per cent. was to be utilised for charitable purposes. But after the expiry of 20 years, the entire 100 per cent. of the income was to be utilised for the purpose of charity. Under Section 4(3)(i) of the Indian Income-tax Act, 1922, 60 per cent. of the income set apart for charity was being exempted by the authorities under the Act. This was being done until the amendment brought to Section 4(3)(i) of the Act by the addition of a proviso thereto. By the addition of this proviso which came into force with effect from April 1, 1952, according to the Income-tax Department, the position changed and the Department took the view that the trust was hit by the proviso and hence was not entitled to exemption. The matter ultimately came to this court by way of a reference and this court in the decision in CIT v. Krishna Warriar [1962] 44 ITR 828 held, after a reference to the terms of the will, that the proviso had no application and upheld the claim of the assessee. The question that was referred to this court was "whether 60 per cent. of the income of the assessee applied to the development of Aryavaidyasala and the conduct of the hospital and school aforesaid is not exempt under Section 4(3)(i) having regard to Clause (b) of the proviso to that sub-section. This court answered the said question in favour of the assessee and held that the income in controversy is exempt under Section 4(3)(i) of the Indian Income-tax Act, 1922. On appeal, this decision was affirmed by the Supreme Court by the decision in CIT v. P. Krishna Warriar [1964] 53 ITR 176. Thus 60 per cent. of the income set apart under the will for the purpose of the vaidyasala, hospital and padasala was enjoying exemption until the Income-tax Act, 1961, came into force. The 1961 Act contained a definition of charitable purpose in Section 2(15) of the Act. The essential difference was that it was stipulated that the activity should not involve the carrying on of any activity for profit. For the assessment years 1962-63 and 1963-64, the Department denied exemption to the assessee by holding that the definition in Section 2(15) was not satisfied. But the Tribunal on appeal by the assesses upheld the claim of the assessee and held that 60 per cent. of the income set apart under the will was liable to be exempted since it qualified for exemption under the Act. At the instance of the Revenue, the question of exemption was referred to this court and a Division Bench of this court in the decision in CIT v. P. Krishna Warrier [1972] 84 ITR 119 held that the predominant object was the running of the business in the preparation and sale of Ayurvedic medicines and hence the trust is one which has a mixed object of charitable purpose and non-charitable purpose and hence it fell outside the ambit of the definition in Section 2(15) of the Income-tax Act, 1961. Though an application for special leave was filed by the assessee before the Supreme Court challenging the said decision, it appears to have been withdrawn.

(3.) THE submission of learned counsel for the assessee in these income-tax references is that a Full Bench of this court had already held relating to the assessment years 1964-65 to 1970-71, that the assessee was entitled to full exemption of its income as pleaded and earmarked or spent for Aryavaidyasala, Aryavaidya Hospital and Aryavaidya Padasala and that the said answer should govern the subsequent years also in view of the principle of res judieata applicable to the cases. According to learned counsel, what is earmarked under the will is the entire income of the trust and the question that has to be answered is identical and the rule of res judieata is not excluded in such a situation. In fairness to learned senior counsel appearing for the Department we must observe that he did not controvert this proposition as such and his arguments were directed against the scope of the answer given by the Full Bench of this court. According to learned counsel for the assessee, if the answer given by the Full Bench is properly appreciated the Tribunal should not have added a rider to the order of remand by asking the Income-tax Officer to see whether the other requirements of Section 11 of the Income-tax Act are found satisfied, Learned counsel for the Revenue submitted that the order of remand was essentially a direction to make fresh assessments following the ratio of the judgment of the Full Bench of this court and in accordance with the provisions of Section 11 of the Income-tax Act. It is, therefore, necessary at this stage to consider the scope of the questions referred to this court and the answers given by the Full Bench in the decision in P. Krishna Warrier v. CIT [1981J 127 ITR 192.