1. By this reference under section 66 (1) of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the Act'), at the instance of the assessee the following two questions of law are referred to us for our determination :
'1. Whether, on the facts and in the circumstances stated in the statement of case, the income derived by letting out the space on Ambalal (sic Jhaverbhai) Patel Bridge at Chowpatty is exempt from tax under section 4 (3) (i) of the Indian Income-tax Act, 1922?
2. Whether, on the facts and in the circumstances stated in the statement of case, the income from the advertisements on the said overbridge could be added as income of the assessee?'
2. The questions referred for our determination relate to the assessment years 1954-55, 1955-56, 1959-60 and 1957-58, for which the previous years are calendar year ending December 31, 1953, 1954, 1958 and 1956, respectively.
3. Assessee, Ambalal J. Patel, died in June 1961. During his lifetime he was assessed in the status of an 'individual'. He used to derive income from several sources, such as salary from M/s. Patel India (Private) Ltd. (a family limited concern), M/s. Associated Film Industries Private Ltd., dividends, director's fees and a dairy farm. For all these sources of income, the previous year was the calendar year. While completing the assessments in respect of the above years, income from advertisement business at Chowpatty Bridge was included according to the financial year ended March 31. For this advertisement business, a separate set of account books was maintained and those books were also got audited by chartered accountants. The income and expenditure accounts of the advertisement business for several financial years concerned showed the receipts from advertisers on the credit side and the expenses on account of salaries, municipal taxes, licence fees, electricity charges, printing, stationery, etc., as well as cost of 'construction of super-structure for hoardings' on the debit side. The correctness of these income and expenditure accounts was not disputed at any time by the Income-tax Officer nor before the Appellate Assistant Commissioner or the Appellate Tribunal.
4. It was sought to be contended on behalf of the assessee before the Income-tax Officer that the income from advertisement business was exempt under section 4 (3) (i) of the Act. The Income-tax Officer rejected the contention of the assessee holding that there was neither a valid trust nor any legal obligation of whatever kind on the part of the assessee to spend income from the advertisement business for charitable purposes. In appeal by the assessee the contention of the assessee to claim exemption in respect of income from advertisement business was rejected by the Appellate Assistant Commissioner and the said decision was confirmed by the Tribunal in appeal. The Tribunal, inter alia, took the view that since there was no trust settlement actually in operation the assessee had taken resource to the fact that there was legal obligation i.e., a legal obligation to spend the income, not that any property from which income was derived was held under a legal obligation. Relying upon several decisions the Tribunal took the view that the assessee was not entitled to exemption under the provisions of section 4 (3) (i). It also rejected the alternative contention of the assessee that in any event the income did not belong to the assessee personally irrespective of the fact whether it was exempt or not under section 4 (3) (i) of the Act.
5. The first question that arises for our determination is whether having regard to the provisions of section 4 (3) (i) the income derived from advertisements is liable to be assessed as the personal income of the assessee or it is exempt in view of the provisions of section 4 (3) (i) of the Act. Section 4 (1) of the Act specifies the income, profits and gains which are liable to be included in the total income of any previous year of any assessee. Sub-section (3) thereof provides for exemption and we are concerned with clause (i) of that sub-section. Under that clause, inter alia, 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, shall not be included in the total income of the person receiving the same while calculating his income, profits and gains for the purpose of assessment. In order that the benefit of this exemption can be claimed by any assessee, the following conditions must be fulfilled :
1. The income must be derived from property.
2. Such property should be held under trust or other legal obligation.
3. Such trust or other legal obligation should be wholly for religious or charitable purposes, and
4. Such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories.
6. Unless the above ingredients are fulfilled the assessee cannot successfully claim exemption under this clause.
7. Before considering whether the above ingredients are fulfilled in the present case, it will be necessary to state the relevant facts over which there is no controversy as the same are to be found in the statement of case prepared by the Tribunal. On September 19, 1951, the assessee wrote a letter to the special engineer of the Bombay Municipal Corporation as regards his proposal for construction of a bridge over Marine Drive joining the present railway overbridge on Mathew Road. As stated in this letter he anticipated that the finance regarding the construction of the overbridge would be approximately over a lakh of rupees and he stipulated a condition that the amount that can be realised by selling in advance the advertising spades on either side both illuminated and un illuminated type should be permitted to be taken by him. This proposal was taken up for consideration by the Municipal Corporation with the above object. On September 29, 1951, the Municipal Commissioner made a proposal for approval in principle by the Corporation. In this letter it is pointed out by the Municipal Commissioner that the assessee has stipulated that the spaces on either side of the bridge should be leased out to him by the Municipality on a permanent basis so that it could fetch reasonable income from prospective advertisers. Up to the stage when this proposal was forwarded to the Corporation for its approval, there does not appear to be any indication as regards the purpose for which the net income that could be derived from advertisements was to be utilised. On November 15, 1951, the works committee of the Municipal Corporation passed a resolution that the proposal made by the Commissioner by his letter dated September 29, 1951, should be forwarded to the Corporation with the recommendation of the works committee. The works committee in this resolution has reiterated the position that the assessee has stipulated that the spaces on either side of the bridge should be leased out to him by the Municipality on a permanent basis so that it could fetch him reasonable income from prospective advertisers. Thereafter, on January 30, 1952, the assessee wrote a letter to the chairman of the works committee of the Bombay Municipality stating that when the bridge was constructed he was prepared to offer the complete savings from his income (in view of the fact that the Municipality or other departments will not levy any tax) towards any charitable cause which might mutually be decided upon. Had the matter rested at this stage, it could have been argued with some force on behalf of the revenue that as indicated by this letter the income that was to be received from advertisements was to be treated as the income of the assessee and it was thereafter to be applied by him towards any charitable cause which might be mutually decided upon. The resolution of the works committee as well as the letter of the assessee dated January 30, 1952, were considered by the Corporation at its meeting held on February 21, 1952. After referring to the same the Corporation, inter alia, resolved that the Commissioner's proposal to accept the offer of the assessee to provide at his cost a foot overbridge across the Marine Drive in front of the Mafatlal Swimming Pool near Chowpatty subject to the stipulation put by the assessee in his letter dated September 29, 1951, be approved in principle and Commissioner be requested to submit a definite proposal for the approval of the Corporation in the matter. After this resolution it appears that the construction of the bridge was completed some time in February, 1953, and the bridge was actually thrown open to the public on March 14, 1953. Negotiations, however, continued between the assessee and the Municipal Commissioner. As a result of the discussion that took place between them, on October 28, 1953, the special engineer of the Municipal Corporation sent a revised memorandum of conditions which at the discussion were agreed upon between the assessee and the Municipal Commissioner. The assessee was also requested to send one copy of the terms so sent duly signed by him in token of the acceptance, but it does not appear from the record that any such copy was sent by the assessee duly signed by him. It, however, appears very clear from the revised memorandum of terms and conditions as to what was agreed between the assessee and the Municipal Commissioner. This revised memorandum of terms and conditions is annexure 'F' in the statement of case. It was agreed under these terms and conditions that the overbridge shall be named in memory of the father of the assessee as Shri Jhaverbhai Patel Bridge. Some of the terms and conditions which were agreed upon at the discussion are very relevant and it will be useful to quote them for out purpose :
'4. The trustee and/or the person authorised or permitted by them to advertise on the bridge shall be allowed to use the bridge with or without workmen and appliances for purposes of fixing boards, pictures, appliances, etc., for advertisement, provided that no obstruction shall be cased to the public using the bridge under any circumstances and provided further that no damage shall be caused to the structure or any portion thereof.'
8. Clause 5 provides for four trustees and how they are to be appointed. Clause 6 provides as under :
'6. The donor shall be manager of the trust during his lifetime, to manage the business of advertisement, etc., but this right shall be passed on to his heirs and thereafter the trustees shall appoint a manager.'
9. Clauses 7, 8 and 9 provide as under :
'7. The trustees shall be entitled to settle all matters in regard to the advertisement, including rates, and other questions and making rules and regulations in connection therewith provided that in issuing permits for advertisements prior consent of the superintendent of licences of this Corporation shall be taken and all taxes and licence fees are duly paid.
8. The revenue realised by and as a result of the advertisement shall be credited to a fund which will be held in trust. The fund shall be administered under the control of the trustees, the donor being the manager during his lifetime.
9. The amount to the credit of the fund shall be utilised solely for providing works of public amenities and in furtherance of this object at the discretion of the trustees provided that sanction of the competent municipal authorities as may be required under the provisions of the Bombay Municipal Corporation Act shall be always taken in every such case.'
10. Even though these revised terms and conditions were duly agreed upon between the assessee and the Municipal Commissioner, an actual trust deed was not executed at any time prior to the relevant assessment years with which we are concerned. In fact it was much later that a draft of the trust deed to be executed was duly approved by the attorneys of the assessee and those of the Municipal Corporation. Even an engrossment of the trust deed to be executed was prepared, but it was signed only by the assessee but it has not been signed by anybody on behalf of the municipal Corporation. There is, however, no controversy between the parties that this draft trust deed was registered under the provisions of the Bombay Public Trusts Act and Deputy Charity Commissioner issued a certificate of registration on November 30, 1961. Later on, on January 22, 1963, the Deputy Municipal Commissioner (Improvements) issued a certificate as under :
'This is to confirm that the Jhaverbhai Patel Overbridge at Chowpatty does not belong to Shri Ambalal Patel or his personal property, but it has been constituted into a trust on which the municipal officer are also represented. The income by way of advertisements, etc., on the bridge belongs to the trust, and during the lifetime of Shri Ambalal Patel, he was the managing trustee.'
11. The question arises whether on these facts a case is made out for claiming exemption under the provisions of clause (i) of section 4 (3) of the Act. The argument on behalf of the revenue is that it is the net income derived from advertisements by the assessee that has been made subject to the trust. In other words, the contention on behalf of the revenue is that when the advertisement income is realised it is a part of the income of the assessee and it is thereafter impressed with the character of a trust. In our opinion, if regard be had to the revised memorandum of the terms and conditions that were agreed upon between the assessee and the Commissioner, there is no doubt that what is impressed with the character of trust is the right to exploit either side of the overbridge as advertising space so as to yield income. The fact that this was so is made amply clear when ultimately a declaration of trust was prepared, because Schedule 'A' in this declaration of trust contains every relevant term which was contained in the revised memorandum of terms and conditions. In this context is should not be overlooked that the word 'property' is a term of the widest import, and subject to any limitation or qualification which the context might require, it signifies every possible interest which a person can acquire, hold and enjoy. It is not as if that the income is to be derived by the assessee and thereafter it is to be impressed with the character of trust. In fact under an agreement arrived at between the assessee and the Municipal Commissioner the right to exploit the advertisements was vested in the trustees as such and that was not to be done by the assessee in his personal capacity. The trustees were authorised to settle all matters in regard to advertisements including the rates and everything. This term, therefore, clearly shows that the property which was impressed with the trust was the right to exploit either side of the overbridge as advertising space so as to yield income.
12. It was urged on behalf of the revenue that in the absence of a proper deed of trust the property cannot be regarded as held under trust or other legal obligation. It is well-settled that in order that a property may be impressed with trust or legal obligation as contemplated under section 4 (3) (i), a formal document is unnecessary. The forwarding of the revised terms and conditions which were agreed upon as a result of the discussion between the assessee and the Municipal Commissioner itself is sufficient to show that the property, namely, the right to exploit either side of the overbridge as advertising space so as to yield income, was held under trust or legal obligation for the purpose which is mentioned in condition No. 9 hereinbefore referred to.
13. There cannot be much controversy between the parties as regards the purpose for which the net income of this trust was to be utilised, having regard to the revised terms and conditions agreed upon between the assessee and the Municipal Commissioner. That object is set out in revised condition No. 9 (part of annexure 'F'). It is amply made clear by this condition that the amount that was credited to the fund shall be utilised solely for providing works of public amenities. If that is so, then the property is not only impressed with the character of a trust or legal obligation, but the trust or the legal obligation is of such a nature that the entire net income is to be used for charitable purposes.
14. In order to claim exemption it is not necessary that in fact the net income should be utilised for a charitable purpose. At the relevant time as the provisions of section 4 (3) (i) stood, even if the income was accumulated for application to such charitable purpose within the taxable territories the benefit of exemption could be claimed. That it was so accumulated is made ample clear if regard be had to what was one to the net income derived from advertisements. It was kept in a separate account and was not mixed by the assessee with any of his personal estate. Thus, the very object of keeping it in a separate account was to only utilise it in the manner contemplated by the revised condition No. 9.
15. In that view of the matter, all the conditions necessary for claiming exemption under the provisions of section 4 (3) (i) are fulfilled in the present case. Accordingly, we answer question No. 1 referred to us in the affirmative.
16. In view of our answer to question No. 1 above, question No. 2 has to be answered in the negative. The revenue shall pay the costs of the assessee.