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14. In Dharmadeepti v. CIT [1978] 114 ITR 454, the Supreme Court clearly approved the view taken in Dharmodayam Co.'s case [1974] 94 ITR 113 (Ker) regarding the construction of the residuary clause in Section 2(15) of the 1961 Act. It was observed that the words "not involving the carrying on of any activity for profit" governed the words "the advancement of any other object of general public utility" and not the words "relief of the poor, education and medical relief" in Section 2(15) of the I.T. Act, 1961. It was ruled that the income of the appellant from the kuri business was income held under trust for charitable purposes and the appellant was entitled to exemption under Section 11(1)(a) of the Act. The decision of this court in CIT v. Dharmadeepti [1975] 100 ITR 375 [FB] was reversed. In Dharmaposhanam Co. v. CIT [1978] 114 ITR 463 (SC), it was ruled that whether the trust is for a charitable purpose or not, falls to be determined by reference to all the objects for which the trust had been brought into existence and not merely to the activity actually conducted by the assessee. Applying the principle, it was ruled that the claim for exemption failed.

15. Considerable reliance was placed on the decision of this court in CIT v. P. Krishna Warrier [1972] 84 ITR 119. A Division Bench of this court held that the objects of the Vaidyasala did not constitute a charitable purpose within the meaning of Section 2(15) of the Act. It was also held that the intention of the testator was that the Vaidya Sala by its working must apply the financial resources essential for the existence of all the three institutions and should also pay the other bequests. It was, therefore, a trust of mixed objects of charitable and non-charitable purposes and, therefore, fell outside the definition of Section 2(15) of the Act. The principle and the test thus formulated by the Division Bench seems to be open to objection. It appears to us that there can be no question of the trust being with mixed objects. On a construction of the deed of trust as a whole, the court has to come to the conclusion whether the trust is for a charitable purpose or not. On that would depend its claim for exemption. That, in its turn, must essentially depend on the predominant object or the primary purpose of the trust. So viewed, we are of the opinion, that the predominant object of the trust in the instant case was charitable in nature. The order of reference in the instant case has itself expressed considerable doubts on the principle of the decision in CIT v. P. Krishna Warrier [1972) 84 ITR 119 (Ker) and stated that the decision requires reconsideration. The order of reference observed that too much emphasis was placed on the vast income derived from the preparation and sale of medicines by the Arya Vaidya Sala and the negligible amount spent for the treatment of apparently affluent persons in the Vaidya Sala itself. Besides, in this case, a conspectus of the provisions of the will leave us in no doubt that the business of the Arya Vaidya Sala itself, which is property, was constituted into a trust. The basic distinction of the business itself being impressed with the character of the trust, and of the business having been carried on for the purpose of the trust seems to have been lost sight of in CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker). It was this distinction that was succinctly and lucidly stressed by the Division Bench in CIT v. Krishna Warriar [1962] 44 ITR 828 (Ker), and by the Supreme Court in the decision which affirmed it in CIT v. P. Krishna Warriar [1964] 53 ITR 176 (SC). The principle was repeated by this court in Dharmodayam Co.'s case [1962] 45 ITR 478 and again in Dharmodayam Co.'s case [1974] 94 ITR 113. This last decision was affirmed on appeal by the Supreme Court in CIT v. Dharmodayam Co. [1977] 109 ITR 527. The principle was again restated in Dharmadeepti's case [1978] 114 ITR 454 (SC) and Dharmaposhanam's case [1978] 114 ITR 463 (SC). In the last of these cases, the Supreme Court observed (at page 470):

"It has been urged on behalf of the appellant that what should be taken into consideration is the activity actually conducted by the assessee, and not what is open to it under the provisions of its memorandum of association. We do not agree. Whether a trust is for charitable purposes falls to be determined by reference to all the objects for which the trust has been brought into existence. See Tennent Plays Ltd. v. Commissioners of Inland Revenue [1948] 30 TC 107 (CA) and Incorporated Council of Law Reporting for England and Wales v. Attorney-General and Commissioners of Inland Revenue [1971] 47 TC 321 (CA). In Rex v. Special Commissioners of Income-lax [1922] 8 TC 286 (CA), it was pointed out by the Court of Appeal in England that if the settlor reserves to himself the power of appointment under which he might appoint to non-charitable purposes, the trust cannot claim exemption even though the power of appointment is in fact exercised in favour of a charitable object. It would be a different case where one or more of the objects mentioned in the memorandum of association, although included therein, were never intended to be undertaken. If there is evidence pointing to that conclusion, clearly the court will ignore the object and proceed to consider the case as if it did not exist in the memorandum. In Commissioner of Income-tax v. Dharmodayam Co. [1977] 109 ITR 527 (SC), it was that basis on which this court proceeded when it observed that the assessee had never engaged itself in any industry or in any other activity of public interest."

17. Counsel for the revenue placed strong reliance on the decision in CIT v. Dharmodayam Co. [1977] 109 ITR 527 (SC). We have dealt with the decision. He further relied on the decision of the Supreme Court in East India Industries (Madras) P. Ltd. v. CIT [1967] 65 ITR 611 (SC). There the trust was established for various objects, one of which was to manufacture, buy, sell and distribute pharmaceutical, medicinal, chemical and other preparations. The objects included several charitable and religious purposes. The last clause of para. 2 of the trust deed provided that the objects shall be independent of each other and that the trustees shall have discretion to apply the property of the trust in carrying out all or any of such objects of the trust as the trustees may deem fit. The question was whether the property was held wholly for religious or charitable purposes. It was held that it was carrying on the business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations which was neither charitable nor religious in character. The trustees could validly spend the entire income of the trust on the non-charitable object and, therefore, the trust property was not held wholly for religious or charitable purposes within the meaning of Section 4(3)(i) of the Act. The assessee was held not entitled to deduction under Section 15B in respect of donations made by the trust. The decision is surely distinguishable. There was no question of the business itself having been impressed with the character of the trust as in the present case and as was stressed by the principle of the decision in CIT v. P. Krishna Warrier [1962] 44 ITR 828 (Ker) and the other cases that we have referred to. Counsel for the revenue repeatedly stressed the decisions in CIT v. Dharmodayam Co. [1977] 109 ITR 527 (SC), CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker) and Dharmaposhanam's case [1978] 114 ITR 463 (SC) at 466 and 468. We have examined these decisions and showed how the principle of those decisions can have no application.