The judgment of the court was delivered by

RAY C. J.--These appeals by special leave are from the judgment dated 26th May, 1970, of the High Court of Delhi.

The question referred to the High Court under section 66(1) of the Indian Income-tax Act, 1922, referred to as "the Act", was as follows:

"Whether, on the facts and in the circumstances of the case, the income of the trust which was spent on the religious and charitable purposes within the taxable territories was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922?

The main judgment was delivered in Income-tax Reference No. 40 of 1965.

The High Court answered the question in the negative.

The trust in Income-tax Reference No. 40 of 1965 was taken as typical of all the cases. The deed of trust dated April 12, 1948, was made by Ramkrishna Dalmia. The trust was called "Jaipur Charitable Trust". In Jaipur Charitable Trust Rs. 10,000 was given on trust on the terms and conditions set out in the deed.

The objects of the trust in clause 5(a) are, inter alia, as follows:

(i) To open, found, construct, establish, take over, equip, promote, conduct, maintain, support, subsidise, grant aids and make donations to Schools, colleges, Pathshalas, boarding houses, reading clubs, libraries, art, music or literary societies and other institutions, educational or otherwise, associations, printing presses, journals, newspapers, periodicals, and other publications for imparting or developing religious, commercial, industrial, legal, medical, engineering, scientific or other knowledge or training.

(ii) To give stipends, scholarships, travelling expenses, allowances and monetary aids to students and scholars in India and abroad, engaged in any of the pursuits referred to in sub-clause (i).

(iii) To found, construct, maintain, support, assist or grant aids or subscriptions to temples, prayer or congregational halls or other buildings for cultural, social or religious discourses.

(iv) To open, found, conduct, maintain, or contribute to the opening and maintaining of such institutions where work at living wages can be provided to poor and deserving people and also be conducive to the development of industries and benefit of the poor.

(v) To open, found, establish, equip, finance, assist, maintain or contribute to religious, commercial, technical, industrial, or commercial concerns, institutions, associations or bodies imparting any type of training or providing employment to persons.

(vi) To give donations, subscriptions or contributions to any other charitable trust in Jaipur State or outside.

There are other objects to help widows, orphans, lunatics, indigent persons and to give relief to the poor and distressed, to build, equip, take over, conduct, maintain and grant aids to dispensaries, maternity homes, hospitals, lunatic asylums, to construct, erect and maintain bridges, bathing ghats, to give relief by subscription or otherwise during famines, flood, earthquake, pestilence, to help or maintain institutions for the cultural, social or economic advancement of any country or countries.

For the purpose of carrying out the trust the trustees are empowered in clause 5(b), inter alia, (a) to purchase or otherwise acquire any property, rights, leases, concession; (b) to purchase or acquire, start, establish, equip or close any business undertaking or industry; (c) purchase, acquire or undertake the whole or any part of property and liabilities of any person, firm or company.

The property of the trust is vested in the trustees. Clause (9) of the trust deed provides that the trustees shall carry out the aforesaid objects from out of the net income of the trust left after meeting the expenses of management and all charges and outgoings so far as such income shall permit, and shall not utilize the income or any portion thereof for any other objects or purpose.

Section 4(3)(i) of the Act is as follows:

"Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them:

(i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, 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 business, carried on 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 ......

(ii) Any income of a religious or charitable institution derived from voluntary contributions and applicable solely to religious or charitable purposes."

Charitable purpose under section 4(3) of the Act includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) of section 4(3) applies and shall operate to exempt from the provisions of the Act that part of the income from property held under a trust or other legal obligation for private religious purposes which does not enure for the benefit of the public.

The terms of the trust deeds in all the cases are similar. The pattern of financial dealings of the various trusts is also the same.

The appellant contends that the trust is entitled to claim exemption under section 4(3)(i) of the Act because the trust is for religious and charitable purposes only. As to clauses which confer power on trustees to establish any business, undertaking or industry, it is said by the appellant that the income derived from such commercial concern is to be spent wholly for the religious and charitable purposes and, therefore, exemption is permissible. The appellant contends that the dominant purpose of the founder of the trust as expressed in the forefront of the deed is religious or charitable and even if money be spent on non-charitable purposes it should not be held that the trust is meant for non-charitable purpose. The appellant also relies on clause 30 of the trust deed where it is said that the deed should not become invalid for the reason that some object might be considered unlawful.

The revenue denies the claim for exemption on the ground that some objects are non-charitable and the trustees are given an unfettered discretion with regard to the utilisation of the income. Some of the objects of the trust according to the revenue give absolute discretion to the trustees to apply the funds of the trust for purposes which cannot be regarded as charitable in the eye of law. The revenue contends that if out of several objects of the trust some are found to be non-charitable, the whole trust will fail. The revenue also contends that it is not a genuine charitable trust but its creation and existence are a camouflage and are meant only as a device for the benefit of the settlor and the industrial and commercial concerns controlled by him.

Clauses 11 and 16 of the deed give an uncontrolled discretion to the trustees to spend the whole of the trust fund on any of the non-charitable objects of the trust. The non-charitable objects authorise the opening and maintaining of commercial institutions where work at living wages can be provided to the poor and also to contribute to commercial, technical, industrial or commercial concerns, institutions, associations or bodies imparting any type of training or providing employment to persons. The revenue contends that these clauses are clearly non-charitable. Each clause is independent and distinct. According to the revenue it is neither ancillary nor secondary to the primary dominant purpose of the trust nor can it be said that these clauses subserve the main object of the trust. Engagement in commercial institutions giving employment on wages cannot be said to be charitable object. Some of the objects of the trust are non-charitable. The trustees have been authorised to utilize the income of the trust for any purpose mentioned in the trust deed.

The question is whether exemption can be granted where some objects are charitable and some non-charitable. Where there are several objects of a trust, some of which, are charitable and some non-charitable, and the trustees in their discretion are to apply the income to any of the objects, the whole trust fails and no part of the income is exempt from tax. Where the objects are distributive, each and every one of the objects must be charitable in order that the trust might be upheld as a valid charity. If no definite part of the property or its income is allocated to charitable purposes and it would be open to the trustees to apply the whole income to any of the non-charitable objects, no exemption can be claimed. (See East India Industries (Madras) Pvt. Ltd. v. Commissioner of Income-tax and Mohammad Ibrahim Riza Malak v. Commissioner of Income-tax).

In order to claim the benefit of the exemption under section 4(3)(i) of the Act the property must be held under trust or other legal obligation wholly for religious or charitable purposes. The only relaxation which may arise in some cases is that all the primary objects of the trust must be of a religious and charitable nature and the existence of any ancillary or secondary object which is not of a religious or charitable nature but which is intended to subserve the religious and charitable objects may not prevent the grant of an exemption. This is because such an ancillary or secondary object, even though not of a religious or charitable nature, is intended to effectuate the main and primary objects of the trust.

If the primary or dominant purpose of a trust is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust from being a valid charity. A clear distinction must be drawn between the object of a trust and the powers conferred upon the trustees as incidental to the carrying out of the object. If the only object of a trust is the construction and maintenance of a swimming bath which is a purpose of general public utility, the fact that the trustees are given the power to supply or sell refreshments to persons who resort to the bath would not make the trust any the less charitable. Mere application of income to charity on the other hand will not avail to secure exemption if under the terms of the will or deed the income is applicable in the first instance to non-charitable objects and only the residue will go to charity. (See Commissioner of Income-tax v. Andhra Chamber of Commerce).

The appellant contended that if any income from the trust is utilized and applied wholly in carrying out the primary purposes of the trust the trust is entitled to claim exemption under proviso (b) to section 4(3)(i) of the Act. The appellant relied on the recent decision of this court in Sole Trustee, Loka Shikshana Trust v. Commissioner of Income-tax . The Loka Shikshana Trust was engaged in the business of printing and publication of newspaper and journals and the further fact that the activity yielded profit and there were no restrictions on the trust earning profits in the course of its business went to show that the purpose of the trust did not satisfy the requirement that it was one not involving the carrying on of any activity for profit. This court relied on the decision in All India Spinners' Association v. Commissioner of Income-tax namely, that the charitable purposes exclude objects of private gain.

The appellant contended that there was no bar on the trust to carry on business under the Act provided the profits of business were utilized only for charitable purpose. The appellant relied on the decision of this court in Commissioner of Income-tax v. P. Krishna Warriar. In Krishna Warriar's case, the trustees were directed to apply 60 per cent. of the income of the business vested in trustees to charitable purposes and 40 per cent. for the benefit of the family. The question was whether 60 per cent. of the income was liable to tax under proviso (b) to section 4(3)(i) of the Act on the ground that the entire income was not applied for charitable purposes. The question that arose in that case dealt with the meaning of the expression "part" as used in section 4(3)(i) of the Act that "in the case of profit so held in part only for such purposes the income applied or finally set apart for application thereto shall not be included in the total income of the person receiving them". Krishna Warriar's case does not deal with the effect of a deed which has charitable as well as non-charitable objects and the trustees have been given the power to apply the whole of the trust fund for non-charitable objects excluding charitable objects.

The decisions in Commissioner of Income-tax v. Bengal Home Industries Association, Hyderabad Stock Exchange Ltd., v. Commissioner of Income-tax, Commissioner of Income-tax v. Radhaswami Satsang Sabha on which the appellant relied are all applications of the ruling in All India Spinners' Association case that what has to be found out is whether the object clause has any non-charitable object. In Bengal Home Industries case, the object was to promote and develop home industries, arts and crafts. The income of the Association was to be applied solely towards the promotion of and carrying out of its objects. No portion of the income could be paid or transferred directly or indirectly by way of dividends to the members. In the case of winding up the surplus could not be distributed to the members but were to be transferred to the institution.

In the Hyderabad Stock Exchange case, the aims and objects were not only to further the interests of brokers and' dealers but also to assist, regulate and control the trade in securities, to maintain high standards of commercial honour and integrity, to discharge and suppress malpractices, to settle disputes and decide all questions of usage, custom or courtesy in the conduct of trade or business. The objects were found beneficial to a section of the public and of general public utility. The profits were not to be distributed to the members but were to be utilized for the promotion of the objects of the Exchange. Therefore, the object was charitable and the income was applied wholly for charitable purposes.

In Radhaswami Satsang Sabha case several industrial and commercial concerns were started for the benefit of the Satsanghis. Those were not run for individual profits nor were the profits distributed among the members. The concerns were started in furtherance of its objects of religious and charitable nature.

In the present case, the income-tax authorities found that the various industrial and commercial concerns were not started by Ram Krishna Dalmia in furtherance of the objects of the trusts. The concerns were started for the purpose of earning profits which were to be distributed to the shareholders who had invested share money in those concerns.

This court in East India Industries (Madras) P. Ltd. v. Commissioner of Income-tax found that one of the objects of the trust was not for charitable or religious purposes. The object was to manufacture, buy, sell and distribute pharmaceutical, medicinal, chemical and other preparations. The other objects were charitable in nature. The trust deed in East India Industries (Madras) P. Ltd. case conferred power on the trustees to apply the whole or any part of the trust property or fund for all or any other purposes of the trust. This court found that there was no special trust and no particular item of property had been burdened with the performance of any specific object of the trust. It was open to the trustees to utilize the income for any one of the objects of the trust to the exclusion of all other objects. It would not be a violation of the trust if the trustees devoted the entire income to the carrying on of a business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations. This court held that the trust Property could not be said to be wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Act. The present appeals are all of the type of East India Industries (Madras) P. Ltd. and fall within the ruling in that case.

The test is that if one of the objects of the trust deed is not of a religious or charitable nature and the trust deed confers full discretion on the trustees to spend the trust funds for an object other than of a religious or charitable nature, the exemption under section 4(3)(i) of the Act is not available to the assessee. (See Lakshmi Narain Lath Trust v. Commissioner of Income-tax).

For these reasons the appeals are dismissed. In view of the fact that the