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Commissioner of Income-tax, Bombay City-i Vs. Lad Parishad Karyalaya - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 36 of 1964
Judge
Reported in[1974]94ITR359(Bom)
ActsIncome Tax Act, 1922 - Sections 4(3)
AppellantCommissioner of Income-tax, Bombay City-i
RespondentLad Parishad Karyalaya
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateV.H. Patil, Adv.
Excerpt:
.....(3) of income tax act, 1922 - whether properties of assessee-association held under trust or other legal obligation so as to qualify for exemption under section 4 (3) - it is not open for revenue to argue that object is not for a charitable purpose in view of fact that such contention was not raised either before income tax officer or appeal before appellate assistant commissioner - held, provisions of section 4 (3) are directly applicable. - - 4. the short question then arises is, are the properties which are held by the assessee held under trust or other legal obligation as contemplated by section 4(3)(i ? it is now well-settled that a formal deed of trust is not absolutely essential in order to come to a conclusion that any particular property is held under trust or other legal..........the assessee-association, the properties of the assessee-association are held under trust or other legal obligation so as to qualify for exemption under section 4(3)(i) ?' 2. the question arises in respect of the assessment years 1958-59 and 1959-60, for which the relevant previous years ended on december 31, 1957, and december 31, 1958, respectively. lad parishad karyalaya, bombay, the assessee, is assessed as an association of persons for these assessment years. it was formed or it came into existence in or about the year 1947 under a written constitution which is in gujarati. the object for which the assessee is constituted is set out in clause 1 thereof. there is a provision for an elected standing committee and the constitution, functions and duties of the standing committee are.....
Judgment:

Kantawala, C.J.

1. This is a reference under section 66(1), of the Income-tax Act, 1922, (hereinafter referred to as 'the Act'), at the instance of the revenue. The question referred for our determination is :

'Whether having regard to the terms of the constitution of the assessee-association, the properties of the assessee-association are held under trust or other legal obligation so as to qualify for exemption under section 4(3)(i) ?'

2. The question arises in respect of the assessment years 1958-59 and 1959-60, for which the relevant previous years ended on December 31, 1957, and December 31, 1958, respectively. Lad Parishad Karyalaya, Bombay, the assessee, is assessed as an association of persons for these assessment years. It was formed or it came into existence in or about the year 1947 under a written constitution which is in Gujarati. The object for which the assessee is constituted is set out in clause 1 thereof. There is a provision for an elected standing committee and the constitution, functions and duties of the standing committee are provided in clause 8 of the constitution. The constitution also provides for a smaller body which is entitled managing committee and its constitution and other functions are laid down in clause 9 of the constitution. Clause 18 of the constitution is as under :

'18. To carry out the objects of the Parishad, the standing committee can raise funds and accept donations, presents, charities, etc., and will have power to administer them.'

3. It may be stated at the outset that neither before the Income-tax Officer nor at the stage of appeal before the Appellate Assistant Commissioner was any contention raised on behalf of the revenue that the object for which the assessee was constituted was not a charitable one. In the application for reference the revenue desired the question for reference to be framed in such a manner that they can contend for the first time before us that the object for which the assessee is constituted is not for a charitable purpose and character. That application has been rejected by the Tribunal. A notice of motion to achieve the same object had been taken out at the instance of the revenue and we have dismissed the same. Accordingly, we have to proceed on the footing that the object for which the assessee is constituted is for a charitable purpose.

4. The short question then arises is, are the properties which are held by the assessee held under trust or other legal obligation as contemplated by section 4(3)(i It is now well-settled that a formal deed of trust is not absolutely essential in order to come to a conclusion that any particular property is held under trust or other legal obligation. It will be useful in this connection to refer to the observations of the Privy Council in All India Spinners' Association v. Commissioner of Income-tax :

'The constitution is a written instrument, the terms of which bind not only the trustees and council, but the members who by their application for membership accept its rules. Any departure either by the trustees or council or members from the rules would be a breach of trust or legal obligation which the court could restrain. A formal deed is not necessary to constitute a trust, still less to constitute a legal obligation binding the trustees, the council and the members inter se. Their Lordships hold that there is such a trust or at least that there is a legal obligation, which is all that the section requires.'

5. Every statement made in these observations is directly applicable to the facts of the present case. The provisions contained in the constitution of the assessee bind not only the standing committee and the managing committee but they equally bind every member of the assessee. In view of the provisions of clause 18 of the constitution, even counsel on behalf of the revenue found it impossible to urge that it will be open either to the standing committee or the managing committee or even the members of the assessee to use the property of the assessee for any purpose except that covered by the object clause of the assessee. In that view of the matter, no other view is possible save and except to hold that the property of the assessee is held under trust or under a legal obligation.

6. As it is not open to the counsel for the revenue to urge that the object is not for a charitable purpose is view of the fact that such a contention was not raised either before the Income-tax Officer or at the stage of appeal before the Appellate Assistant Commissioner on behalf of the revenue, the provisions of section 4(3)(i) are directly applicable. Accordingly, we answer the question referred to us in the affirmative.

7. The revenue shall pay the costs of the reference.

8. Question answered in the affirmative.


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