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J.K. Hosiery Factory Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectCriminal
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 429 of 1963
Judge
Reported in[1971]81ITR557(All)
ActsIncome Tax Act, 1922 - Sections 4(3) and 26A
AppellantJ.K. Hosiery Factory
RespondentCommissioner of Income-tax
Appellant AdvocateAshok Sen, Adv.
Respondent AdvocateB.L. Gupta and ;R.R. Misra, Advs.
Excerpt:
criminal - reference and revision of dispute - sections 146 and 439 of the criminal procedure code, 1898 - reference of a dispute by magistrate to civil court - inability to decide which party had possession of subject - finding of court not appealable, no review or revision allowed - held, findings given by the civil court under section 146 are findings of civil jurisdiction and is not subject to jurisdiction of criminal court. - - after considering a number of authorities he came to the conclusion that in a case where the trust made provisions both for charitable and non-charitable purposes and the trustees had full powers to apply the funds to non-charitable objects alone, the entire trust failed and no portion of its income was exempt from income-tax. according to him, the assesses.....h.n. seth, j.1. this is a reference made by the income-tax appellate tribunal, allahabad bench, in accordance with the direction issued by this court on 19th of july, 1961, in an application under section 66(2) of the income-tax act, 1922, at the instance of the assessee.2. the assessee is a firm known as j. k. hosiery factory, carrying on its hosiery business at kanpur. the relevant assessment year is 1946-47. the previous year of the firm, for the purposes of assessment, is the calendar year 1946, and the chargeable accounting periods for assessment of excess profits tax and the business profits tax are january 1, 1946, to march 311946, and april 1, 1946, to december 31, 1946. the assessments for excess profits tax and business profits tax were consequential upon the income-tax.....
Judgment:

H.N. Seth, J.

1. This is a reference made by the Income-tax Appellate Tribunal, Allahabad Bench, in accordance with the direction issued by this court on 19th of July, 1961, in an application under Section 66(2) of the Income-tax Act, 1922, at the instance of the assessee.

2. The assessee is a firm known as J. K. Hosiery Factory, carrying on its hosiery business at Kanpur. The relevant assessment year is 1946-47. The previous year of the firm, for the purposes of assessment, is the calendar year 1946, and the chargeable accounting periods for assessment of excess profits tax and the business profits tax are January 1, 1946, to March 311946, and April 1, 1946, to December 31, 1946. The assessments for excess profits tax and business profits tax were consequential upon the income-tax assessment.

3. Brief facts leading to the present reference are that up to the 31st December, 1945, Sarvasri Padampat Singhania, Lakshmipat Singhania and Kailashpat Singhania, the three brothers, who hereinafter will be referred to as ' the Singhania brothers ', carried on partnership business in the name of Messrs. J. K. Hosiery Factory, Kanpur, along with one Sri J. P. Agarwal, The three Singhania brothers were entitled to annas 0-5-0 share each, and Sri J. P, Agarwal to annas 0-1-0 share in the profits of the firm.

4. There was a company incorporated under the Indian Companies Act, known as J. K. Cotton Spinning and Weaving Mills Co. Ltd,, in which the Singhania brothers held controlling interest This company purchased two plots of land from the Kanpur Improvement Trust, to be utilised for housing its workers and to set up a colony which was to be known as Kamla Town. On 27th of October, 1941. the directors of the company executed an indenture expressing a desire to settle the two plots upon the charitable trust declared by that indenture. Under this document, the three Singhania brothers were constituted the trustees, and the two plots of land were granted, conveyed and assured unto the trustees. It was also provided that the trustees were to hold and to stand possessed of the two plots of land and were to perform the duties mentioned therein.

5. Subsequently, the J. K. Cotton and Spinning and Weaving Mills Co. Ltd. instituted a suit, Suit No. 40 of 1949, under section 31 of the Specific Relief Act for rectification of the deed of trust dated 27th of October, 1941, executed by the company and the Singhania brothers. In the plaint it was mentioned that under Clause 3(19) of the memorandum of association, the company was empowered, inter alia, to subscribe or contribute or otherwise assist or guarantee money to charitable, benevolent, religious, scientific, national or other institutions. Having regard to the aforesaid objects set forth in the memorandum of association, the company intended to settle the said properties and transfer them to the trustees for the purpose of creating a public charitable trust including within the benefits thereof the employees of the company and without intending to confine the said benefits merely to them. It was intended that the benefits thereof should extend to the whole of the public of Kanpur and its surrounding areas and extensions. Due to certain misunderstandings on the part of the draftsman and through mutual mistake, the deed of trust did not truly express this intention. It was, therefore, prayed that the trust deed should be so rectified as to express the real intention. In this suit, the company impleaded the three Singhania brothers, Hanuman Prasad and J. B. Singh as defendants. Hanuman Prasad was a workman and J. B. Singh was another employee of the company working on its staff. Hanuman Prasad and J. B. Singh were impleaded as defendants in representative capacity. Necessary proceedings under Order I, rule 8, Civil Procedure Code, were taken. The defendants, Singhania brothers, filed one written statement whereas the defendants, Hanuman Prasad and J. B. Singh, filed another written statement. They admitted the claim made by the company that in executing the said trust deed the real intention was to create a public charitable trust, the benefits of which were to extend to the whole of the public of Kanpur, including the workmen of the company and that it was not intended to confine the benefits of the proposed trust to the workmen of the company alone. As there was no objection to the proposed amendment, the Civil and Sessions Judge, Kanpur, decreed the suit for rectification of the trust deed by his order dated 18th August, 1945. The revised trust deed is annexure ' C ' to the statement of case submitted by the Tribunal.

6. After the trust deed was rectified, the Singhania brothers took steps for retiring from the partnership firm, Messrs, J. K. Hosiery Factory, Kanpur, on 15th January, 1946. In this deed the three Singhania brothers were described as retiring partners, whereas the fourth partner, Sri J. P. Agarwal, was described as the continuing partner. The deed mentioned that it had been agreed between the partners that the partnership should be determined, and that the retiring partner would withdraw from the said business allowing the same to be carried on by the continuing partner along with Kamla Town Trust as a new partner. The retiring partners also made a provision assigning a sum of Rs. 1,50,000, to the Kamla Town Trust.

7. Thereafter, on 5th of February, 1946, a partnership agreement was entered into between J. P. Agarwal, the continuing partner, and the Kamla Town Trust for running the business in the name of Juggilal Kamlapat Hosiery Factory from 1st January, 1946. According to this deed a sum of Rs. 1,50,000 was contributed by the trust towards the capital of the partnership. This was the amount which had been assigned by the Singhania brothers, the retiring partners, from out of the assets to which they were entitled in the firm which stood dissolved with effect from 31st December, 1945.

8. After the creation of the new firm in the year 1946, of which J. P. Agarwal and the Kamla Town Trust were the partners, an application for registration was made under section 26A of the Income-tax Act, but this application for registration was ultimately rejected by the Income-tax Officer. The result, therefore, was that the new firm continued to be an unregistered firm for the purposes of the Income-tax Act.

9. When the assessment of this unregistered firm for the assessment year 1947-48 (accounting year being the calendar year 1946) was taken up, theIncome-tax Officer decided to assess it as a registered firm under Section 23(5)(b) of the Income-tax Act. During the course of assessment a question arose as to who were the partners of the assessee-firm. The Income-tax Officer held that the amended trust deed contained certain objects which were charitable and others which were non-charitable. The trust deed did not allocate specifically what part of the income was to be spent on charitable purposes. Relying upon certain authorities, he came to the conclusion that the trust was not a public charitable trust and was invalid. It took certain facts into consideration and came to the conclusion that the introduction of this trust in the place of the Singhania brothers had been done with the sole object of avoiding the incident of taxation. In the result, it came to the conclusion that the three Singhania brothers were partners having 0-5-0 share each in the firm and that it was in that status that the assessment of the firm was to be made. In its accounts the assessee had claimed a debit of a sum of Rs. 1,19,149 on account of the cost of needles and shrinkers. The Income-tax Officer came to the conclusion that this cost appeared to have been inflated to the extent of Rs. 59,000. In the result, amongst others, this amount of Rs. 59,000 was added back to the income of the firm which was determined at Rs. 11,69,959.

10. The Income-tax Officer also made corresponding assessments for excess profits tax for the period January 1, 1946, to March 31, 1946, and business profits tax for the period of 1st of April, 3946, to 31st December, 1946.

11. The assessee went up in appeal, before the Appellate Assistant Commissioner of Income-tax, against the assessment made under the Income-tax, Excess Profits Tax and Business Profits Tax Acts. The Appellate Assistant Commissioner was of opinion that the trust deed as rectified went beyond the provisions contained in the memorandum of association of the J. K. Cotton Spinning and Weaving Mills Co. Ltd. According to him, under the memorandum of association the company could provide for the welfare of its employees, ex-employees and the wives, widows and families of the dependants and connections of such persons by doing certain acts. The managing director had no power whatsoever to spend the funds of this company on objects wider than those permitted by the memorandum, or on persons other than those contemplated therein. The Appellate Assistant Commissioner felt that the objects mentioned in the memorandum of association did not authorise the company to make provision for the benefit of the public at large or even for the workmen in general. The trust created by the company in so far as it was for the benefit of the public in general was beyond and outside the scope of the memorandum of association. He then considered the question whether the trust survived in so far as it provided for the welfare of the employees and workmen of the company. After considering a number of authorities he came to the conclusion that in a case where the trust made provisions both for charitable and non-charitable purposes and the trustees had full powers to apply the funds to non-charitable objects alone, the entire trust failed and no portion of its income was exempt from income-tax. He also held that the provisions of the trust deed did not authorise the trustees to enter into business activities. He, therefore, came to the conclusion that the said trust did not validly enter into the partnership. According to him, the assesses had failed to establish that any genuine change in the partnership took place and, therefore, the Income-tax Officer was fully competent in holding that it was the old partnership which still continued. On the question whether the Income-tax Officer was justified in disallowing a sum of Rs. 59,000 from out of the price claimed to have been paid by the assessee for the needles purchased during the year, the Appellate Assistant Commissioner held that disallowance of that amount was quite justified in the circumstances of the case. Alter considering certain other items with which we are not concerned, the Appellate Assistant Commissioner directed that the total income of the assesses be reduced by a sum of Rs. 22,113 and certain depreciation allowance.

12. The assessee then went up in appeal before the Income-tax Appellate Tribunal. The Tribunal came to the conclusion that the trust created by the deed dated 27th October, 1941, which was not public and charitable in nature, was valid, the memorandum of association of the company did not permit it to utilise its funds for a public charitable purpose and, therefore, no order rectifying the original deed of trust, enabling the company to provide for public and charitable objects could be passed. In the result, even though the suit under section 31 of the Specific Relief Act had been decreed, the original trust deed dated 27th October, 1941, stood unmodified. That the trust being legal, it stood for all future times as a valid trust in favour of the employees and ex-employees of the J. K. Cotton Spinning and Weaving Mills Co, Ltd, and their families. An argument was advanced on behalf of the assessee that the rectification ordered by the civil court was legal and valid and could not be made a subject-matter of discussion before the income-tax authorities. It was contended that the original trust as rectified by the decree of the civil court could not be said to be void for uncertainty. The Appellate Tribunal, however, came to the conclusion that the civil court did not consider the legal consequences that would flow if the rectification sought by the plaintiff was allowed. In the circumstances, it thought that it had the jurisdiction to deal with that issue and to hold that the decree of rectification conferred no legal right upon the company to create a trust for public charitable purposes. If such a trust was created it would be void and would not be a trust in law. It then proceeded to decide the points involved in the case on the basis of theoriginal trust deed and ignoring the rectification made by the civil court. It came to the conclusion that the Kamla Town Trust was merely a name lender and the real partners of the assessee-firm were the three Singhania brothers. It also found that the constitution of the assessee-firm as claimed by it was also open to serious legal objections. If the two partners in the firm were the Kamla Town Trust and J. P. Agarwal, the partnership itself would be invalid, as, under the Trusts Act, a trust is merely an obligation which is incapable of entering into partnership. On this ground also it could not be held that the trust and not the Singhania brothers were partners in the assessee-firm. On the question whether the Income-tax Officer was justified in disallowing a sum of Rs. 59,000 in respect of the purchase price of needles it came to the conclusion that the disallowance should have been to the extent of Rs. 37,656 instead of Rs. 59,000. The Income-tax Officer was directed to modify the assessment order accordingly.

13. As directed by this court by its order dated July 19, 1961, the Tribunal stated the case and has referred the following four questions of law for our opinion:

' Q. 1. Whether the rectification by the decree of the Civil Judge in Suit No. 40 of 1945 on the file of the Civil Judge, Kanpur, was valid ?

Q. 2. Whether there is any material in support of the Tribunal's finding that no genuine partnership came into existence by which the Kamla Town Trust became a partner ?

Q. 3. Whether a trust as such could not be a partner in law Q. 4. Whether there was material for the finding of the Tribunal that the needles purchased in the black market during the previous year relevant to the assessment year 1947-48 were purchased at the rate of Rs. 500 per thousand '

14. After hearing the counsel for the parties we came to the conclusion that question No. 3 as mentioned above has been framed in a very general manner and that it will serve no useful purpose by answering it in an abstract form. Accordingly, with the consent of the parties, we have reframed question No. 3 so as to bring out the real controversy between the parties:

' Whether the trust as such could be a partner in law and whether the deed of partnership dated February 5, 1946, is valid '

15. Shri Brij Lal Gupta, learned counsel for the Commissioner, urged that in the circumstances of the case the first three questions referred to us for opinion by the Tribunal are academic and that it is not necessary for this court to record its opinion on those questions. He pointed out that under the Indian Income-tax Act, 1922, a firm, whether registered or not, is aunit of assessment, quite distinct from its partners. Under the law as it stood prior to its amendment in the year 1956, the total income of the firm had to be computed. In this case what has been done is to compute the total income of the firm irrespective of who its partners are. Whether the Kamla Town Trust is the partner or whether the three Singhania brothers are its partners, it will not make any difference to the assessment of the firm as such. It may be that when, in pursuance of the assessment made on the firm, the Income-tax Officer proceeds to assess the individual partners, the interest of the individual partners may be affected, but that stage has not reached so far. The first three questions concern only about the constitution of the firm and they have nothing to do with the assessment made on the firm.

16. We are unable to accept this contention. According to law as it stood prior to its amendment in the year 1956, the total income of the firm had to be computed. If the firm was not registered under Section 26A of the Income-tax Act, the tax payable by it had also to be determined as in the case of any other person. After determination of the tax, the levy was made on the firm itself. In the case of a firm registered under Section 26A of the Act, the tax payable by the firm was not assessed and it was not required to pay the same. Each partner's share in the profits of the firm was to be added to his other income and the tax payable by the individual partner on the basis of his total income was to be determined and the levy made accordingly. In the present case the assessee was an unregistered firm, but the Income-tax Officer exercised his option under Section 23(5)(b) and decided to assess the total income of each partner of the firm including therein his share of his income from the firm and to determine the tax payable by the individual partner on its basis. Section 23(5)(b) provides that, where the Income-tax Officer proceeds to assess an unregistered firm as if it was a registered firm, the provisions of Section 23(5)(a) which are applicable to a registered firm will apply to the unregistered firm also. In this view of the matter, the Income-tax Officer had to find out as to who were the partners of the assessee-firm in whose hands the proportionate share of the profits of the firm had to be assessed along with their other income. In the case of Gokuldas v. Kikabhai Abdulali, [1958] 33 I.T.R. 94 (Bom.), the Bombay High Court has held that, when assessing a firm as an unregistered firm, it is the duty of the Income-tax Officer to determine who the partners of the firm are and to give notice to all the individuals who are alleged to be partners, so that they may appear and show cause against being treated as partners. If the Income-tax Officer completes the assessment on the unregistered firm without notice to all the alleged partners, he would have no right to take recovery proceedings against an alleged partner who was not heard and whose liability as a partner has not been duly adjudicated upon. It, therefore, follows that when the Income-tax Officer proceeds to assess an unregistered firm he has also to determine who its partners are, so that in case of necessity he may proceed to recover the tax from the individual partner. The determination of the question as to who the partners in an unregistered firm are is an integral part of the assessment proceedings. In the present case the main controversy between the parties throughout has been as to who the real partners of the firm, Messrs. J. K. Hosiery Factory, Kanpur, are, and the assessment proceeding could not be completed without resolving this controversy. In a case where the Income-tax Officer determines the partners of a firm and makes an order of assessment, it is the firm consisting of those partners that becomes the assessee. If it is claimed that the Income-tax Officer has made a mistake in determining the partners of the firm, it is the same thing as claiming that no assessable unit as found by the Income-tax Officer exists, and the unit as found is not liable to be assessed Such an assessee could file an appeal against the assessment order both on the ground that the unit as determined was not liable to be assessed or that the income assessed was excessive. This is precisely what happened in this case. In appeal, the Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal had to determine whether the firm as found to be constituted by the Income-tax Officer existed as an assessable unit or not. As a matter of fact, the main arguments that were advanced by the counsel for the parties before these two authorities were directed on the question as to who were the real partners of the firm. In case the three questions are answered in favour of the assessee, and as a result of which it is found that it was really the J.K. Town Trust and not the three Singhania brothers who were the real partners in the assessee-firm, the assessment order passed against the firm consisting of the Singhania brothers and J. P. Agarwal as partners will not stand. In the circumstances, it cannot be said that the first three questions are merely academic and have no effect on the assessment made in the case. These questions do arise from the order made by the Appellate Tribunal and, therefore, this court should express its opinion on them.

17. We now proceed to express our opinion on the four questions referred to us. Question No. 1 is:

' Whether the rectification of the trust deed by the decree of the civil court in Suit No. 40 of 1945 on the file of the civil judge, Kanpur, was valid?'

18. This question has two distinct facets on which the arguments were advanced by the learned counsel before us. The first aspect of the case is whether it was competent for the civil judge to pass a decree for rectification of the trust deed in Suit No. 40 of 1945 and whether the decree passed byhim was valid. The second aspect of the case is that even assuming that the decree passed by the civil judge is valid whether the trust deed as rectified by the decree of the civil judge is valid in law.

19. The relevant facts concerning this question are that by means of two deeds dated 19th of October, 1936, and 2nd of February, 1938, Juggilal Kamlapat Cotton Spinning and Weaving Mills Co. Ltd. obtained two plots of land from the Improvement Trust, Kanpur, for constructing a settlement or colony for its workmen and other employees and to provide them with relief, recreation, aid and amenities is the shape of hospitals, schools, temples mosques, places of recreation, swimming booths, play grounds, market, etc. After acquiring the two plots the three managing directors of the company, who happened to be the three Singhania brothers, executed an indenture dated 27th of October, 1941, in which the company was described as the party of the first part and the three Singhania brothers were described as trustees and parties of the second part. This indenture recited that by virtue of its objects as mentioned in Clause 3, Sub-clause (19), of its memorandum of association the company wanted to construct a settlement or colony for the workmen and other employees and to provide them with relief, recreation, aid and amenities in the shape of hospitals, schools, temples, mosques, places of recreation, swimming booths, play grounds and market, and with that object it obtained the two plots from the Improvement Trust, Kanpur. The company was desirous of settling the two plots of land demised upon it on the charitable trust mentioned and declared therein and for that purpose it transferred the same to the trustees (the three Singhania brothers). Clause 2(b)(ii) of the trust deed required the trustees to erect, establish, equip, furnish, fit, maintain and repair on the said two plots of land residential quarters, chawls or buildings for the workmen, staff and other employees of the company or other allied concerns under the management of or in which the directors of the company may for the time being be interested and for their respective families and dependants and for such other skilled and unskilled workmen, craftsmen, traders, merchants, technical or professional men whom the trustees may permit to reside or work in the two plots with a view to supply their needs and requirements or to render their services or to cater to their wants, comforts, conveniences and amenities. It also required the trustees to make certain other constructions and to establish institutions detailed therein for the benefit of the workmen, employees of the company and the persons living in the colony to be set up by it and their children and relations.

20. After executing the said indenture, the company felt that it did not represent the true intention of the company and therefore a Suit No. 40 of 1945, under Section 31 of the Specific Relief Act, was filed. It was claimed that through a misunderstanding on the part of the draftsman andthrough a mutual mistake the deed of trust did not truly express their intention. The true intention of the parties in executing the deed was to create a charitable trust and, therefore, in order to effectuate that intention certain amendments had to be made in the trust deed. In this suit the three trustees along with Hanuman Prasad and J. B. Singh were made defendants. Hanuman Prasad was a workman and he was impleaded in a representative capacity. Similarly, J. B. Singh, who was a member of the staff of the mills, was also impeaded in a representative capacity. Proceedings under Order 1, Rule 8, of the Code of Civil Procedure were taken. The three trustees filed one written statement whereas Hanuman Prasad and J. B. Singh filed another written statement. They admitted the claim made by the plaintiff. In the result. the rectification sought for by the company was allowed by an order dated 8th of August, 1945. The result of the rectification was that the class of persons intended to be benefited by the trust was extended from the workmen, staff and other employees of the company or other allied concerns in which the director of the company had for the time being any interest, etc., to the workmen in general including the aforementioned persons and the institutions like schools, hospitals and temples were to be established for the benefit of the public at large or for the benefit of workmen, staff and employees of the company, their families and the persons living in the colony.

21. Learned counsel appearing for the Commissioner of Income-tax questioned the validity of the rectification decree on the ground that the court had no jurisdiction to grant it when the circumstances mentioned in Section 31 of the Specific Relief Act did not exist. The decree for rectification was obtained in a collusive manner, and that the civil court could not rectify the trust deed in such a manner that it went beyond the scope of the memorandum of association.

22. In order to show that the rectification ordered by the court was beyond its jurisdiction, learned counsel for the Commissioner of Income-tax argued that the civil court could direct rectification of an instrument only if itcame to the conclusion that because of fraud or mutual mistake of parties the instrument did not truly express their intention. According to him the rectification admittedly was not made us some fraud had been practised by any one. The civil court did not go into the question of mutual misunderstanding and granted the rectification merely because the case of the plaintiff was admitted by the defendants. According to him, the facts as stated in the judgment of the civil judge showed that the case of the parties was that the documents did not represent the true intention of the parties because of a misunderstanding on the part of the draftsman, which could not provide a reason for the rectification of the document, as the mistake on the part of the draftsman could not be said to be a mutual mistake of the parties. Learned counsel then pointed out a number of circumstances for showing that in fact when the trust deed dated October 27, 1941, was executed the parties did not labour under any misapprehension. They put into the document what they actually wanted to do. It was only when they realised that the document could not achieve the purpose of evading the tax that they modified the object of the trust so as to give it an appearance of public and charitable trust.

23. A perusal of the order made by the Appellate Tribunal shows that the only ground on which the validity of the decree rectifying the trust deed was challenged was that in allowing rectification the court went beyond the objects mentioned in the memorandum of association, which could not be done in law. The ground that there was no material before the court on which it could come to a conclusion that the conditions mentioned in Section 31 of the Specific Relief Act did not exist was not taken. The question, whether there was in fact a mutual mistake of the parties or not as a result of which the instrument did not truly express their intention, is a question of fact which is to be decided on the materials available in each case. In this view of the matter it is too late to urge that the circumstances appearing in the case indicate that the document dated 27th of October, 1941, was deliberately executed without there being any misconception on the part of the parties concerned. Learned counsel relied upon the case of Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., [1961] 42 I.T.R. 589, [1962] 1 S.C.R. 788 (S.C.) wherein the Supreme Court observed as follows :

' The question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect requiring to be tackled from different standpoints. All that Section 66(1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal, and it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purposes of Section 66(1) of the Act.'

24. He contended that the argument that in fact there was no misapprehension on the part of the executants of the trust deed is a different aspect of the same question, namely, whether the decree directing the rectification of the trust deed was valid or not and therefore it is open to him to support the conclusion arrived at by the Tribunal on an additional ground, even though these grounds might not have been specifically urged before the Tribunal. In our opinion the observations made by the Supreme Court in the case of Scindia Steam Navigation Co. Ltd. do not support this contention of the learned counsel. It is true that according to the observations made by the Supreme Court when a question of law has been referred for opinion to the High Court the various aspects required to be tackled from different standpoints may be urged before the court even though they might not have been argued before the Tribunal. These observations, however, do not mean that while answering such questions the High Court should record fresh findings of fact and then answer the question on the basis of argument which was never raised before the Tribunal. Since there are no findings recorded by the Tribunal to the effect that there was no mistake on the part of the executants because of which the instrument did not represent the true intention of the parties, it is not possible for us to say that the decree passed by the court below was invalid for this reason. Moreover, it was for the civil court itself to go into the question before directing rectification and it is not possible for the Income-tax Officer to question the validity of the rectification on the ground that this condition did not in fact exist.

25. The argument that the rectification was obtained collusively by the Singhania brothers by impleading their own nominees as defendants in the case and then by getting admission from them also cannot be permitted to be raised at this stage. The question whether the decree was invalid as it was obtained collusively will again depend on facts which have not been investigated by the Tribunal and, therefore, the validity of the rectification cannot be questioned on this ground.

26. We now come to the question whether the rectification ordered by the civil court went to create a trust for charitable and public purposes which was not permissible under the memorandum of association and to see whether the rectification ordered by the court can be said to be invalid on that ground. In our opinion, while rectifying an instrument under Section 31 of the Specific Relief Act, the thing which the court is required to examine is whether on account of fraud or mutual mistake the instrument does not truly express the intention of the parties. At that stage the court is not concerned with the validity of the instrument as rectified. The order of rectification does not put a seal of validity on the rectified instrument. If, to begin with, the parties intended to create a public and charitable trust and they wanted to execute a document for that purpose, but by some mistake the document did not represent their true intention a decree for rectification could be passed irrespective of the fact whether it was competent for the parties to execute the document so rectified. The validity of the decree for rectification, therefore, cannot be questioned on the ground that by permitting rectification the court enabled the company to travel beyond the objects mentioned in its memorandum of association. This will, however, not preclude the learned counsel for the Commissioner of Income-tax from arguing that the trust as created by the rectified instrument went beyond the objects of the company as mentioned in its memorandum of association and as such it was invalid.

27. In view of the aforesaid discussion, we are of opinion that the invalidity of the decree in Suit No. 40 of 1945 cannot be challenged on the ground that the rectification ordered by the court was beyond its jurisdiction.

28. We now proceed to consider the second aspect of the question, namely, whether the trust created by the rectified deed is invalid On this aspect, the learned counsel for the department advanced a two-fold argument. He contended that the trust created by the rectified deed was invalid as (i) it went beyond the scope of Clause 19 of the memorandum of association of the company, and (ii) it was vague inasmuch as it was a trust the object of which was a mixture of charitable and non-charitable purposes and it was open to the trustees to appropriate its entire income for non-charitable purposes.

29. Clause 19 of the memorandum of association reads as follows :

' To provide for the welfare of the employees or ex-employees of the company and wives, widows and families of the dependants or connections of such persons by building or contributing for the building of houses, dwellings or chawls or by grants of money, pensions, allowances, bonus or other payments; or by creating and from time to time subscribing or contributing to provident and other associations, institutions, funds or trusts and by providing or subscribing or contributing towards places of instruction and recreation, hospitals and dispensaries, medical and other attendants and other assistance as the company shall think fit and subscribe or contribute or otherwise to assist by or to guarantee money to charitable, benevolent, religious, scientific, national or other institutions or objects which shall have any moral or other claim to support or aid by the company either by reasons of locality or operation or of public and general utility or otherwise. '

30. Learned counsel for the department argued that the opening words of this clause show that the provision mentioned in this clause is to be made by the company for the purposes of providing for the welfare of the employees or ex-employees of the company, etc. According to him this clause does not authorise the company to make any provision or to create trust for the benefit of the general public. Clauses 2(b)(ii) and (iii) of the rectified trust deed provide that the trustees are to erect, establish, equip, furnish, fit, maintain and repair public schools, hospitals and other institutions of general public utility for promoting and providing the social, religious and other welfare and uplift centres. These clauses in the rectified deed purport to authorise the trustees to spend money for the welfare of the public at large and not merely for the welfare of the employees or the ex-employees of the company, etc., as contemplated by Clause 19 of the memorandum of association. Since the provisions in the trust deed went beyond the scope of the objects of the association, creation of the trust was invalid.

31. In our opinion the interpretation placed by the learned counsel on Clause 19 of the memorandum of association is not correct. The objects mentioned in this clause can be divided into two parts. The first part is to provide for the welfare of the employees or ex-employees of the company and wives, widows and families of the dependants or connections of such persons by making certain constructions or by granting money, pensions, allowances, etc. The second part of the clause clearly empowers the company to subscribe, contribute or otherwise to assist or to guarantee money to charitable, benevolent, religious, scientific, national or other institutions or objects which shall have any moral or other claim to support or aid by the company either by reasons of locality of operation or of public and general utility or otherwise. This part clearly entitles the company to create a charitable, benevolent or religious trust which may have any moral or other claim to support or aid by the company because of its public or general utility. It has not been disputed that establishment and maintenance of public schools, hospitals and other institutions, of general public interest, would be covered by the expression ' charitable ', benevolent or ' religious' objects.

32. Learned counsel for the department urged that a reading of the second part of Clause 19 shows that the company was authorised to contribute money to or otherwise assist certain types of institutions which had some sort of claim for support by the company by reason of the facts mentioned therein. It did not authorise the company to create fresh institutions and to earmark properties for these purposes. In our opinion this argument raised by the learned counsel is not correct. The second part of the clause clearly gives wide powers to the company to make provision for charitable, benevolent, religious, scientific, national and other purposes. The provision that the subscription or contribution may be made or assistance may be given to a charitable, benevolent, religious, scientific, national or other institution or object makes it clear that the company was being authorised not only to help the existing institutions of the type but also to assist in achieving charitable and other objects mentioned therein. The company could, therefore, take steps and establish schools, hospitals, dispensaries.etc., for the benefit of the public at large, which is clearly an object of a charitable nature.

33. Learned counsel for the department then argued that under the second part of Clause 19 of the memorandum of association, the company could create a trust for an object which, in addition to being charitable in nature, was such that it had any moral or other claim to support or aid by the company either by reason of locality of operation or of public and general utility or otherwise. He contended that in this case nothing has been shown from which it may appear that there was any moral or other obligation on the part of the company to make provision for such a charity, and as such the trust created certainly went beyond the objects of the company. In our opinion this argument unduly restricts the scope of the second part of Clause 19. The clear intention of this clause is to enable the company to make provision for charitable objects of general utility. All that the words 'which shall have any moral or other claim to support or aid of the company either by reason of locality of operation or of public and general utility or otherwise' mean is that the company can make provision for charitable, benevolent, religious and other purposes mentioned therein for benefiting the populace of the locality in which it is operating or if such purposes are of public and general utility. These words were not used so as to confine the powers of the company only in respect of such objects for which there is some sort of legal obligation on the part of the company to support or aid. In our opinion, while making a provision for the establishment of public schools, patshalas, hospitals and other works of general public utility the company did not go beyond its objects as mentioned in Clause 19 of the memorandum of association. The rectified trust deed, therefore, cannot be held to be invalid on this ground.

34. Learned counsel for the department then contended that clause 2(b)(i) required the trustees to erect, establish, equip, furnish, fit, maintain and repair residential quarters, chawls or buildings for the workmen in general and in particular for the workmen, staff and other employees of the company for other allied concerns under the management of or in which the directors of the company may for the time being be interested and for their respective families and dependants and for such other skilled and unskilled workmen, craftsmen, traders, merchants, technicians or professional men whom the trustees may permit to reside or work in the said two plots with a view to supply their needs and requirements or to lender them services or to cater to their wants, comforts, conveniences and amenities. He contended that the object of making constructions for the purposes mentioned in this clause cannot be said to be a public, charitable or other religious purpose. Inasmuch as the trustees have been authorised to spend money for public charitable purposes as mentioned in the other sub-clausesof Clauses 2(b)(ii) and 2(b)(iii) of the trust deed, and the trustees have been left with a discretion to spend all the monies for the purposes mentioned in Clauses 2(b)(i) which is not a charitable purpose, the trust deed is invalid. Learned counsel for the assessee, however, argued that setting up of residential quarters, chawls or buildings for the workmen in general while giving preference to the workmen, staff and other employees of the company would still be charitable purpose and the trust deed as a whole is for public charity. According to him there is no mixture of charitable and non-charitable objects in the trust deed and as such the trust deed cannot be said to be invalid as being vague.

35. An analysis of Clause (2)(b)(i) shows that the trustees have been empowered to erect, establish, equip, furnish, fit, maintain and repair on the two plots of land, residential quarters, chawls or buildings for the use of-

(1) Workmen in general and in particular for the workmen of the company or other allied concerns under the management of or in which the directors of the company may for the time being be interested.

(2) In particular for the staff and other employees of the company or other allied concerns under the management or in which the directors of the company may for the time being be interested.

(3) Families and dependants of the workmen, staff and other employees of the company or other allied concerns under the management of or in which the directors of the company may for the time being be interested.

(4) For other skilled and unskilled workmen, craftsmen, traders, merchants, technicians and professional men whom the trustees may permit to reside or work in the two plots, with a view to supply to the needs and requirements of and to render services or to cater to the wants, comforts, conveniences and amenities of the workmen residing in the constructions set up in the plots.

36. The question that arises for consideration is whether the provision for any or all the four clauses of persons can be said to be a provision for public or charitable purpose.

37. The expressions 'charity' or ' charitable purpose ' do not admit of rigid definition. In order to understand what these expressions legally convey, one can merely enumerate its various aspects and characteristics as they have been recognised by the laws of a particular country. In Umar Baksh v. Commissioner of Income-tax, A.I.R. 1931 Lah. 578, it was observed that for construing the words ' religious or charitable purpose ', it is necessary to investigate the meaning of these words in the particular system of jurisprudence that may be followed by the assessee.

38. In the Hindu system, there is no line of demarcation between religion and charity. The system regards charity as a part of the religion itself.

39. Courts of law in India have been inclined to look to the decisions of English courts for guidance for determining what would constitute a charitable purpose in cases where indigenous authorities are scanty or insufficient (See B.K. Mukkerjea en the Hindu Law of Religious and Charitable Trusts, third edition, pages 10 and 38). In Commissioners for Special Purposes of Income Tax v. John Frederick Pemsel, [1891] A.C. 531, 3 T.C. 53 (H.L.), Lord Macnaghten (at page 583) laid down that charitable purposes could be put under the following four heads:

1. For the relief of poverty,

2. For the advancement of education,

3. For the advancement of religion, and

4. For other purposes beneficial to the community not falling under any of the preceding heads.

40. Indian courts have fully utilised the aforesaid classification made by Lord Macnaghten for determining whether a particular purpose is charitable or not. Even various statutes have recognised the purposes set out by Lord Macnaghten as charitable purposes.

41. The Societies Registration Act (XXI of I860) provided for registration of societies for preservation of literature, science or fine arts or for diffusion of knowledge or for charitable purposes. In Anjuman Islamia of Muttra v. Nasir-Ud-Din, [1906] I.L.R. 28 All. 384 a Division Bench of this court, while interpreting the words ' charitable purposes ', observed :

' It is clear that a religions purpose may be a charitable purpose, and that a society for religions purposes would ordinarily be a society for charitable purposes .... As observed in In re While : White v. White, [1893] 2 Ch. 41 (C.A.), any mode of promoting the welfare of mankind would be a charitable object. . . It is well-known that charitable purposes are not restricted to the giving of alms or other charitable reliefs, but the words have a much wider legal meaning. We do not think that the Indian legislature makes a distinction between religious purposes and charitable purposes. '

42. In Charitable Endowments Act, 1890 (VI of 1890), the expression ' charitable purpose ' has been defined so as to include relief of the poor, education, medical relief and the advancement of any other object of general public utility.

43. In almost all systems of law, properties dedicated for religious and charitable purposes are excluded from the operation of the rule against perpetuity. In order to achieve this object, Section 18 of the Transfer of Property Act provides that the rule against perpetuity as well as other limitations laid down in Sections 16 and 17 of the Act shall not apply in the case of transfer of property for the benefit of the public, for the advancement of religion, knowledge, commerce, health, safety and other objects beneficial to mankind. It is clear that in making the aforesaid provision the legislature intended to recognise the aforesaid objects as charitable.

44. Similarly, under section 4 of the Indian Income-tax Act, 1922, any income derived by a religious or charitable institution is exempt from taxation under certain circumstances. The expression ' charitable purpose ' has been described as including relief of the poor, education, medical relief, and advancement of any other object of public utility.

45. It is, therefore, clear that the law in India recognises the four objects as laid down by Lord Macnaghten in the case of Commissioners for Special Purposes of Income Tax v. Pemsel, as charitable purposes. According to Halsbury's Laws of England, 3rd edition, volume 4 (pages 209 and 210), all the purposes falling under the aforementioned four classes would be, prima facie, charitable, provided they are of a public nature, that is to say, when the object is to benefit the community or some part of it, and not merely of private individuals or fluctuating class of private individuals pointed out by the donor, would also be charitable.

46. Sri Ashok Sen, learned counsel appearing for the assessee, argued that a provision for effecting, establishing, equipping, furnishing, fitting, maintaining and repairing residential quarters, chawls or buildings for the workmen in general is a work which is beneficial to the community of workmen and is a work of public utility, and, as such, it should be considered to be a charitable purpose. Sri Brij Lal Gupta, learned counsel for the Commissioner, however, argued that making provision for setting up residential quarters, chawls and other buildings for the workmen cannot be considered to be a work which is either beneficial to the community as such, or of public utility. Under the circumstances, the object underlying Clause 2(b)(i) cannot be said to be charitable in nature. He further argued that the real object underlying Clause 2(b)(i) is to enable the trustees to erect, equip, furnish and maintain residential buildings, etc., for the use of workmen, staff and other employees of the company or of any other allied concern under the management of, or in which the directors of the company may, for the time being, be interested. According to him, making provision for such workmen, staff and other employees of the company or the allied concerns is not a provision for the benefit of the public at large, or a work which can be described to be a work of public utility. It is more or less a provision for private individuals or fluctuating class of private individuals and it cannot come within the ambit of the expression ' public charity '.

47. We are doubtful whether the construction of residential colony for workmen in general can be regarded as an object of public charity. While enabling the trustees to construct residential quarters, etc., for the benefit of the workmen in general, the settlor made it clear that such buildings were not to be constructed for the benefit of the public in general. The expression 'workmen in general' does not fix a definite class of public which is intended to be benefited under the deed. What types of employees or workers can be said to be covered by this expression is not at all clear. Moreover, the precise language used by the settlor is 'to erect. .. residential quarters, etc., for the workmen in general and in particular for the workmen, staff and other employees of the company or other allied concerns under the management of ...' This shows that the expression ' workmen in general' was not intended to mean merely poor labourers. The expression was intended to cover even such classes of persons who might be employed in any concern in any capacity whatsoever and who may be drawing high salaries. Making a provision for constructing residential quarters, etc., for the benefit of the employees irrespective of whether they are poor or not, can hardly be said to be a charitable object or a work of general public utility.

48. It is also to be noticed that there is no indication in Clause 2(b)(i) that the trust is not expected to earn profit by providing residential quarters, etc., for the workmen in general. The trust deed does not exclude the element of profit earning by the trustees from the workers' colony, intended to be set up under Clause 2(b)(i). Even if the trust sets up residential colonies exclusively for the workmen in general, but the idea of profit earning is not excluded, the act of setting up such colony can hardly be described as an act of charity or of general public utility. In the circumstances, we feel that erecting or establishing residential quarters, etc., for the workmen in general cannot be said to be a work of public charity or of general public utility. Mr. Sen has not been able to cite any case where it has been held that making residential quarters, chawls or other buildings for the use of the workmen in general is a purpose, which has been recognised as a work of public charity.

49. We may, however, proceed to examine whether Clause 2(b)(i) provides for an object which is wholly charitable even if a provision for the benefit of workmen in general may be considered as a provision for public charity. According to Mr. Sen, in case it is held that a provision for workmen in general is an act of public charity, then the further provision that the residential quarters, etc., may be erected or constructed in particular for the workmen, staff and other employees of the company will not convert the charitable object into one which may be non-charitable. In this connection he placed strong reliance on the case of Trustees of the Charity Fund v. Commissioner of Income-tax, [1959] 36 I.T.R. 513, [1959] Supp. 2 S.C.R. 923 (S.C.). In this case, one Sir Sassoon David Bart, along with 4 others executed a deed of declaration of trust, the object of which was to provide for :

' (a) the relief and benefit of the poor and indigent members of the Jewish or any other community of Bombay or other parts of India or of the world either by making payments to them in cash or providing them with food and clothes and/or lodging or residential quarters or in giving education including scholarships to or setting them up in life or in such other manner as to the said trustees may seem proper, or ....

(b) the institution, maintenance and support of hospitals and schools, colleges or other educational institutions, or ....

(c) the relief of any distress caused by the elements of nature such as famine, pestilence, fire, tempest, flood, earthquake or any other such calamity, or ....

(d) the care and protection of animals useful to mankind, or....

(e) the advancement of religion, or ....

(f) other purposes beneficial to the community not falling under any of the foregoing purposes. ....'

50. The trust deed further provided that in applying the income of the trust, the trustees were to give preference to the poor and indigent relations or members of the family of the said Sir Sassoon David, Bart., including therein the distant and collateral relations. It was argued before the Supreme Court that the provision, inasmuch as it gave preference to the poor and indigent relations or members of the family of Sir Sassoon David, Bart., was not a charitable purpose, and, as such, the property was not being held wholly for religious or charitable purpose. The Supreme Court repelled this argument. It held that under the deed the trustees were at liberty to hold the trust fund and to apply the net income thereof for all or any of the six purposes mentioned therein, and the relations or members of the family of the said Sir Sassoon David, Bart., including therein distant and collateral relations, did not figure as direct recipients of any benefit under sub-clauses (b) to (f), and, therefore, in so far as those purposes are concerned, the trust certainty involved an element of public utility. Although it was open to the trustees to utilise the net income of the trust entirely for the purposes referred to in Clause (a) to the exclusion of the other clauses, but the fact that the relations or members of the family did not come in directly under any of the later sub-clauses could not be ignored as it certainly had some bearing on the question as to who or what were the primary objects of the trust as a whole. The purpose of Sub-clause (a) was the relief and benefit of the poor and indigent members of the Jewish or any ether community of Bombay or other parts of India or of the world. That clause expressed a general charitable intention involving an element of public utility. The main clause constituted a valid public charitable trusthaving as its beneficiaries several classes of persons referred to therein. The proviso required the trustees to give preference to the poor and indigent relations or members of the family of Sir Sassoon David, Bart., in applying the income of the trust for the relief and benefit of the poor and indigent members of the Jewish or any other community of Bombay. The provision for giving preference involved an idea of selection of some persons from out of the bigger class envisaged in Sub-clause (a). The poor and indigent relations or members of the family of Sir Sassoon could claim to participate in the benefits under the trust deed only if they came within one of the several clauses enumerated in Clause (a). The Supreme Court approved the following principle of law laid down in In re Koettgen's Will Trusts: Westminster Bank Ltd. v. Family Welfare Association Trustees Ltd., [1954] Ch. 252 (Ch. D.):

' In my judgment it is at the stage when the primary class of eligible persons is ascertained that the question of the public nature of the trust arises and falls to be decided, and it seems to me that the will satisfies that requirement and that the trust is of a sufficiently public nature. If, when selecting from that primary class the trustees are directed to give a preference to the employees of the company and members of their families, that cannot affect the validity of the primary trust... '

51. It held that although in selecting persons to be benefited under Clause (a), preference had to be given, under the proviso, to relations or members of the family of Sri Sassoon David, Bart., that could not affect the validity of the public charitable trust. A perusal of the judgment of the Supreme Court shows that it WAS of opinion that the real object for the creation of the trust was to do charity, and not to benefit the relations or members of the family of Sir Sassoon David, Bart. The money could be spent on the family members or relations of Sir Sassoon David, Bart., as a part of the charity intended to be done under Clause (a).

52. It may be mentioned that the case of Gordhandas Govindram Family Charity Trust was brought to the notice of the Supreme Court. In that case, a trust known as ' Gordhandas Govindram Family Charitable Trust ' was created. Clause 2 of the trust deed provided for the application of the net income in giving help or relief to such poor Vaisbyas and other Hindus as the trustees might consider deserving of help in the manner and to the extent specified in the trust deed and subject to the conditions and directions stated in the next following clauses. Sub-clause (a) of Clause 3 provided that Vaishya Hindus who were members of the Seksaria family should be preferred to paor Vaishyas not belonging to the said family. Under Sub-clauses (b) and (c) of Clause 3, provision had been made for the maintenance of the male and female descendants of the settlor. Sub-clauses (d) and (e) of Clause 3 made provision for the marriage expenses of poor male and female descendants. It may thus be seen that, in that case, the testator, while making a provision for indigent Vaishyas and other Hindus, provided that before the money was spent on such persons, it should first be utilised for the purpose of indigent persons belonging to the family of the settlor. After considering the entire circumstances of that case, the High Court observed that the particular trust they were dealing with was a fairly blatant illustration of the settlor trying to benefit his own family and his own relations and that benefit to the public was too remote and too illusory. The High Court, accordingly, held that it was not a trust which had, as its object, a general public utility. The Supreme Court did not hold that the case of Gordhandas Govindram Family Charitable Trust, [1952] 21 I.T.R. 231 (Bom.) was wrongly decided. It distinguished that case with the case of the Trustees of the Charity Fund, on the ground that while giving benefit under Clause (a), preference had to be given to the poor and indigent relations or members of the family of Sir Sassoon David, Bart., yet the real charitable object under that sub-clause did not disappear, and as such the trust created by Sir Sassoon David, Bart., was not a subterfuge for benefiting his own family.

53. In this view of the matter, the phraseology used in a deed for achieving the charitable object by giving certain benefits to the poor and indigent persons indicated by the settlor, does not conclude the matter. The real object of the settlor in this connection has to be gauged.

54. In the case before us, we find that according to Clause 19 of the memorandum of association of the settlor company, it was authorised to set up buildings, etc., for the welfare of its employees, ex-employees, their families and dependants. Although there was a general provision in Clause 19, authorising the company to subscribe or contribute or otherwise assist or to guarantee money to charitable, benevolent, religious, scientific, national or other institutions or objects, which had any moral or other claim to support or aid by the company, the fact remains that under this clause the company was required to construct and set up buildings, houses, dwellings, or chawls which were primarily for the benefit and welfare of its employees or ex-employees. The wordings of Clause 19 of the memorandum of association, however, do not conclusively show that the company was not competent to set up dwelling houses, chawls and other constructions for the benefit of the general public.

55. Wordings of Clause 2(b)(i) of the rectified trust deed show that the trustees were required to erect and establish residential quarters, chawls or buildings for the workmen in general and in particular for the workmen, staff and other employees of the company or other allied concerns under the management of or in which the directors of the company may for the time being be interested. The argument raised on behalf of the assessee was that the primary intention underlying this clause was to erect and establish buildings, etc., for workmen in general, and while doing this, preference was to be given for setting up constructions for the benefit of the workmen of the company, in the same way as preference was to be given to the poor and indigent relations or members of the family of Sir Sassoon David, Bart., in the case of the Trustees of the Charity Fund. The deed clearly provides that though it is open to the company to set up residential quarters, etc., for the benefit and welfare of the workmen in general, yet such constructions should be made particularly for the workmen, staff and other employees of the company or other allied concerns under the management of or in which the directors of the company may for the time being be interested. The language of Clause 2(b)(i) does not justify a conclusion that the workmen, staff and other employees of the company are a part of the wider class of ' workmen in general '. If the expression ' workmen in general ' was intended to include in its ambit other classes of persons who could be described as employees or being on the staff of other allied concerns, the object of making a provision for the benefit of the ' workmen in general ' irrespective of their poverty would obviously not be a charitable purpose. If, on the other hand, the expression ' workmen in general ' was confined to ' poor labourers ', members of the staff and other employees of the company would not be covered by the wider class of ' workmen in general'. The real object underlying Clause 2(b)(i) appears to be that the buildings, etc., are to be setup primarily for the benefit of the workmen, staff and other employees of the company or other allied concerns under the management of or in which the directors of the company may, for the time being, be interested and any surplus accommodation may be given or utilised for the workmen in general. In this view of the matter the primary object underlying Clause 2(b)(i) does not appear to be charitable.

56. Learned counsel for the assessee then relied upon Commissioner of Income-tax v. Andhra Chamber of Commerce, [1965] 55 I.T.R. 722, [1965] 1 S.C.R. 565 (S.C.), in which the Supreme Court held that if the primary purpose of a trust is the advancement of the objects of general public utility, then an incidental entry into the political domain for achieving that purpose would not take away the charitable nature of the trust.

57. Learned counsel argued that looking to the trust deed as a whole and the various objects mentioned in Clause 2(b)(i) to (iv), the primary object of the trust, in the present case, appears to be charitable, and, if incidentally some benefit has been given under it to the workmen belonging to the company, it will not render the trust deed invalid. In our opinion, the contention raised by the learned counsel for the assessee is not supported by the decision of the Supreme Court in the case mentioned above. In that case, the primary object of the Andhra Chamber of Commerce was charitable. The memorandum of association provided that, in order to achieve that charitable purpose, the chambers could take steps to urge or oppose legislation or other measures affecting trade, commerce or manufacture, thereby providing a method for achieving the ultimate charity. In the case before us, the object mentioned in Clause 2(b)(i) has not been stated in order to achieve other charitable objects mentioned in Clause 2(b)(ii) to (iv). It cannot be described as an incidental or subsidiary object of the objects mentioned in other clauses. The object mentioned in Clause 2(b)(i) is a distinct and independent object quite different from those mentioned in Clause 2(b)(ii) to Clause 2(b)(iv).

58. Learned counsel for the assessee next relied upon the case of Commissioner of Wealth-tax v. Trustees of J. P. Pardiwala Charily Trust, [1965] 58 I.T.R. 46 (Bom.). In this case, under a deed of settlement certain properties were transferred to a trust. Clause (v) of the deed authorised the trustees to spend money on certain religious ceremonies for the repose of the souls of the members of the settlor's family. Clause 6 of the deed authorised the trustees to pay money for the maintenance and support of the settlor's relatives and/or other indigent persons. The Wealth-tax Officer held that the properties settled on trust were not entitled to exemption from wealth-tax as the object of the trust was not charitable inasmuch as the money could be spent on the settlor's relatives who were not indigent persons. The Bombay High Court held the entire trust to be charitable. Learned counsel, therefore, argued that, since some of the objects of the trust, in the present case, were charitable in nature, the trust did not cease to be a charitable trust merely because one of the objects of the trust was not found to be charitable. This argument is not borne out by the decision of the Bombay High Court. In that case the High Court did not find any of the objects as non-charitable. It interpreted clause 6, and came to the conclusion that, on a correct interpretation, the trustees were authorised to spend money for the maintenance and support of the settlor's relatives who were indigent persons. According to the learned judges, the case was similar to that of the Trustees of the Charity Fund v. Commissioner of Income-tax. It will thus be seen that the decision in that case turned on the interpretation of the deed of trust, and it cannot be utilised in support of the proposition urged by the learned counsel for the assessee.

59. In view of the aforesaid discussion, we are clearly of the opinion that the object underlying Clause 2(b)(i) of the rectified trust deed cannot be said to be a charitable object. At any rate, it is a mixture of charitable and non-charitable objects. It is open to the trustees to utilise the trust funds only for non-charitable purpose.

60. The next question that arises for consideration is as to what is the effect of mixing up the charitable and non-charitable objects in a trust deed, while giving full discretion to the trustees to spend any amounts on any of the purposes. Leading case on the point is the case of Bowman v. Secular Society Ltd., [1917] A.C. 406 (H.L.) In that case, Lord Parker observed at page 441 as follows :

'A trust to be valid must be for the benefit of individuals, which this is certainly not, or must be in that class of gifts for the benefit of the public which the courts in this country recognize as charitable in the legal as opposed to the popular sense of that term. Moreover, if a trustee is given a discretion to apply trust property ior purposes some of which are and some are not charitable, the trust is void for uncertainty. A simple instance of this is a gift for charitable or benevolent purposes. Such a gift is void, for benevolent purposes are, as is well-settled, not necessarily charitable. '

61. In In re Diplock: Wintle v. Diplock, [1940] Ch. 988, 109 L. J. (Ch.) 407, [1941] 1 All E.R. 193 (Ch. D.)'', it has been held that a trust which is a mixture of charitable and benevolent purposes is void on account of uncertainty.

62. The case of Dwarkadas Bhimji v. Commissioner of Income-tax, [1948] 16 I.T.R. 160 (Bom.) is an authority for the proposition that in a case where some of the objects on which the trustees spend the trust income are not charitable and it is open to the trustees to apply the whole of the income on a non-charitable object, the trust is not a good and valid charitable trust and that it is void on the ground of uncertainty. In such cases, courts cannot compel the trustees to spend the whole of the trust income on charitable purposes and become incapable of administering it.

63. In view of the aforesaid authorities, it is clear that the trust created by the document dated 27th October, 1941, as rectified by the decree, of the civil court dated 18th August, 1945, which is a mixture of charitable and non-charitable objects and in which the trustees cannot be compelled to spend the total income of the trust on charitable purposes alone, is invalid in law.

64. At this stage, it will be convenient to consider the third question reframed by us. This question is in two parts:

(i) Whether the trust as such could be a partner in law ?

and

(ii) Whether the deed of partnership dated 4th February, 1947, is valid

65. So far as the first part of the question is concerned, Sri Brij Lal Gupta, learned counsel for the Commissioner of Income-tax, argued that only such persons, who are capable of entering into a contract, can agree to share the profits of a business and become partners in a firm. Since a trust is merely an obligation as defined in the Indian Trusts Act, it is not a person and cannot enter into a contract, and form a partnership. The argument, however, overlooks the fact that the Indian Trusts Act is not applicable to religious or charitable endowments. The expression ' trust ' in connection with such an institution is not used in the same sense in which it is used in the Indian Trusts Act.

66. Religious and charitable trusts are found to exist in some shape or the other in almost all civilised countries, and their origin can be traced to the instinct of piety and benevolence which are implanted in nature. Sri B.K. Mukherjea in his Tagore Law Lectures pointed out that, amongst Hindus, there may be a gift to the deity for religious purpose, for which no acceptance is necessary (see page 29 of B. K. Mukherjea on the Hindu Law of Religious and Charitable Trusts, 3rd edition). In the case of such gifts, renunciation or utsarg by the donor is sufficient to complete the gift. While dealing with the question as to in whom the property gifted for a charitable purpose vests, the learned writer (at page 30) pointed out as follows :

' As has been pointed out already, the Roman law recognised the foundation or institution itself as juristic person. Under the Roman law an individual by dedicating property for a charitable purpose could bring into existence & foundation or institution which in law would be regarded as the owner of the dedicated property. A similar conception is present in the German ' stiftung ' where a fund earmarked for a special purpose is deemed to be its own owner. There is no such conception in English law which recognises only one class of legal person, viz., the corporations which are really personifications or groups or series of individuals, and are classified into corporation aggregate and corporation sole. Obviously, neither a Hindu religious institution nor a Hindu idol can, come within the scheme of artificial persons as framed and adopted by English law. Mr. Justice West in his classic judgment in Manohar Ganesh v. Lakhmiram, [1887] I.L.R. 12 Bom. 247 pointed out that:

' The Hindu law, like the Roman law and those derived from it, recognises, not only corporate bodies with rights of property vested in the corporation apart from its individual members, but also the juridical persons or subjects called foundations '. The religious institutions like mutts, choultries and other establishments obviously answer to the description of foundations in Roman law. The idea is the same, namely, when property is dedicated for a particular purpose the property itself upon which the purpose is impressed is raised to the category of a juristic person so that the property which is dedicated would vest in the person so created . . . . '

67. The aforesaid view expressed by Sri B. K. Mukherjea clearly brings out that, as against the English conception about the persons who could be recognised as legal peisons, the Hindu law recognised a class of juristic persons which is capable of holding property. It also recognised that whenever the property is dedicated for a charitable purpose, the property itself upon which the purpose is impressed, is raised to the category of a juristic person, and the property so dedicated would vest in the person so created and a religious and charitable trust comes into existence.

68. In Ganga Metal Refining Co. Pvt. Ltd. v. Commissioner of Income-tax, [1968] 67 I.TR. 771 (Cal.), a Bench of the Calcutta High Court held that a company which is an artificial person can become a partner in a firm. If an artificial person like a company can enter into partnership with another individual, there is no reason why a juristic person should also not be able to enter into partnership. Just as a company would enter into partnership through a person entitled to act on its behalf, in the same way, a juristic person will also be able to enter into partnership through an individual who is capable of acting on its behalf. We are, therefore, of opinion that a trust for religious and charitable purposes, if it has been raised to the status of a juristic person, can, as such, enter into partnership, and can become a partner in law.

69. There may, however, be cases where the trust as such may not have been raised to the position of a juristic person. As observed by the Madras High Court in Thiagesar Dharma Vanikam v. Commissioner of Income-tax, [1963] 50 I.T.R. 798 (Mad.), the word 'trust' is a convenient and a compendious description of the trustees, the beneficiaries and the subject-matter of the trust. Very often, the expression ' trust ' in such cases is used to denote the trustees. For example, when the trustees carry on a business, we generally say that the trust is doing so. When we refer to the fact that the trust is owning properties, we only refer to the interest of the beneficiaries in the property.

70. Similarly, in Commissioner of Income-tax v. P. Krishna Warriar, [1964] 53 I.T.R. 176, [1964] 8 S.C.R. 36 (S.C.), the Supreme Court approved the observation, made in the aforesaid Madras case, that when the trustee acts, it is only the trust that acts, as the trustee fully represents the trust.

71. In such cases even where a trust is not raised to the status of a juristic person, if a question is raised whether it can enter into partnership or not, it would mean just the same thing as saying whether the trustee can enter into partnership. We see no difficulty in trustees becoming a partner in a firm. It is, therefore, clear that if a valid charitable trust has come into existence and even if it has not been raised to the status of a juristic person, there would be no difficulty in saying that the trust can become a partner, for, in such case, it would be equivalent to saying that' the trustees can become partners.

72. In this connection, the learned counsel for the assessee relied upon the case of Commissioner of Income-tax v. Juggilal Kamlapat, [1967] 63 I.T.R. 292, [1967] 1 S.C.R. 784 (S.C.). The case related to this very trust, which is involved in the present case. In that case, the three Singhania brothers were partners along with one Jhabarmal Saraf, all having equal shares. In the year 1942, the three Singhania brothers executed a deed, by which they relinquished their rights and claims to all the properties and assets of the firm in favour of the trust. A fresh partnership deed was executed between Jhabarmal Saraf and the trustees, by which a new arm was got constituted. The question that arose for consideration was whether the firm as constituted by the deed executed between Jhabarmal Saraf and the trustees was legal and could be registered as such under Section 26A of the Indian Income-tax Act, 1922. The Supreme Court ultimately came to the conclusion that the partnership so created was legal and could be registered as such under Section 26A. Learned counsel for the assessee contended that this is a clear authority for the proposition that a trust as such could be a partner in law. A perusal of the decision of the Supreme Court shows that validity of the partnership firm consisting of Jhabarmal Saraf and the trust was not questioned on the ground that the trust not being a person was not capable of entering into an agreement of partnership. Its validity was questioned on the ground that the deed of relinquishment which had been executed by the three Singhania brothers ia favour of the trustees could not be relied upon as the same had not been registered. The Supreme Court discussed the matter and came to the conclusion that, in the circumstances of the case, the deed of relinquishment was not invalid. Be that as it may, this is a case in which the fact that the trust bad entered into partnership with an individual had been recognised.

73. Coming now to the second aspect of the question, namely, whether the deed of partnership dated 5th February, 1946, was valid or not, we find that it has been entered into between Sri J. P. Agarwal on the one band and the Kamla Town Trust, created by the deed of trust dated 27th October, 1941, on the other. The partnership deed was signed by Sri Jagdishwar Prasad Agarwal and Sri Padam Pat Singhania as the chairman of the trustees. As we have found that the deed of trust dated 27th October, 1941, as rectified by the decree of the civil court dated 18th August, 1945, was invalid, there was no public charitable trust in existence on whose behalf a partnership agreement could be entered into. In the circumstances, Sri Padam Pat Singhania could also not have entered into an agreement of partnership either on behalf of the trust or on behalf of the other trustees as chairman of the trustees. In the circumstances, there is no escape from the conclusion that no valid partnership came into existence under the partnership deed dated 5th February, 1946.

74. Coming now to the second question, namely, whether there is any material in support of the Tribunal's finding that no genuine partnership came into existence, by which the Kamla Town Trust became a partner, we find that once under question No. 3, it is held that the partnership deed dated 5th February, 1946, is not valid, there would be hardly any escape from the position; that no genuine partnership came into existence and the question whether there is any material in support of this finding will not arise.

75. Even if it be assumed that the trust deed dated 27th October, 1941, survived even after its rectification in August, 1945, it will be seen that after considering various aspects of the case, the Income-tax Appellate Tribunal recorded a finding that the three Singhania brothers exploited their final capacity and made an arrangement by which it was made to appear that the trust was doing business, although, in fact, the same was conducted by the three Singhania brothers in their individual capacity. In other words, the finding recorded by the Tribunal was that, although on paper it was the trust which was doing the business, in fact, it was the three Singhania brothers who were doing business for themselves. For this purpose, the Tribunal relied upon a number of circumstances. The Tribunal noticed that the three Singhania brothers, who were the three trustees, were in a position to manage the affairs of the trust in any manner that they liked. They made the trust to retire from a firm called J. K. Bankers in Samvat 2002, and gave a donation of Rs. 50,000 to the trust. This donation was not given in cash, but was effected by making certain book entries in the account books of the assessee's firm. While giving this donation, the three Singhania brothers did not leave it to the trustees to utilise this fund in any manner, but the money was gives to the trust as a conditional gift, the condition being that the trust was to carry on the business of running J. K. Hosiery firm. There was nothing on the record to show that in withdrawing from the firm J. K. Bankers and in becoming a partner in the assessee's firm, the trustees took any steps to satisfy themselves about the desirability of taking such a step. The Tribunal also did not appear to be satisfied that the three Singhania brothers suddenly retired from such a prosperous business of J. K. Hosiery in favour of the trust as they wanted to do charity. As a matter of fact, about three years later, the three Singhania brothers again made the trust to retire from the business of J. K. Hosiery and became partners in their individual capacity.

76. This also showed that the three Singhania brothers were utilising the name of the trust at their sweet will. The Tribunal attached importance to the fact that when the trust entered into partnership with J.P. Agarwal, it was agreed that the goodwill of the firm would always remain with the trust, but when the trust retired from this business and the three Singhania brothers became partners in their individual capacity, the goodwill was again got revested in the original partners. According to the Tribunal, all these faces indicated that the transaction of partnership between the trust and J. P. Agarwal was a mere camouflage and the business of the firm was, in fact, being conducted by the original partners and not by the Kamala Town Trust.

77. The Tribunal also noticed that according to the release deed dated 15th January, 1946, by which the three Singhania brothers retired from the firm, it was mentioned that a balance-sheet as on 31st December, 1945, had been prepared and that the same had been accepted by the parties concerned. The record showed that the assesses filed its return for the year in question on 4th November, 1946, that is, about 10 months after the release deed. Daring this long interval, the assessee obtained adjournments from time to time for filing the return, saying that the accounts were not ready. One such application was dated 3rd June, 1946, wherein it was stated that the accounts were still not ready. It was followed by another application of 31st July, 1946, wherein it was stated that the accounts were not completely audited. The last application saying that the accounts were not ready was sent on 2nd September, 1946. The Tribunal reasoned that if the accounts were not ready and complete on September 2, 1946, it was difficult to believe that the balance-sheet could have been prepared and accepted as early as 15th January, 1946. It, therefore, came to the conclusion that the release deed dated 15th January, 1946, must have been prepared some time after September 2, 1946, and before the return was actually filed. In the circumstances, the Tribunal found it difficult to hold that the release deed could have genuinely come into existence on 15th January, 1946. It observed that if the document was not genuine, the deed of partnership dated 5th February, 1946, would also become equally unreliable.

78. It will be seen that the Tribunal has drawn certain inferences from the circumstances appearing in the case, which it was competent to do. The circumstances relied upon by the Tribunal in this connection are certainly materials on the basis of which it could have come to the conclusion that the deed of release dated 15th January, 1946, as also the deed of the partnership dated 5th February, 1946, were not genuine documents. Sri Ashok Sen, learned counsel for the assessee, vehemently criticised this finding, on the ground that the Tribunal was in error in drawing anyinference against the assessee from the fact that it sought certain adjournments on 3rd June, 1946, 31st July, 1946, and 2nd September, 1946, on the ground that the accounts were not completely ready and that they had not been audited by that time. He contended that the averments made in those applications that the accounts were not ready and completely audited did not run counter to the averments made in the deed of release dated 5th January, 1946, wherein it had been mentioned that the balance-sheet as on 31st December, 1945, had been prepared and accepted as correct by theparties concerned. According to him, the preparation of balance-sheet is quite different from preparing the accounts and getting them audited forthe purpose of filing income-tax return. It was for the assessee to have advanced a proper explanation before the Tribunal, which could either accept or reject it. There is nothing to show that this explanation was advanced by the assessee before the Tribunal. It is not possible for us tosay that the circumstances pointed out by the Tribunal did not furnishto it the material for coming to the conclusion that the deed of release dated 15th January, 1946, and the partnership deed dated 5th February, 1946, are not genuine documents.

79. Sri Ashok Sen then strongly contended that the Tribunal was not justified in relying upon these circumstances without affording the assessee an opportunity to explain them. It has not been shown to us that theassessee at any stage raised any objection that, in arriving at its finding, the Tribunal has relied upon certain circumstances in respect of which no opportunity was afforded to the assessee to furnish its explanation. In ouradvisory jurisdiction, it is not possible for us to travel beyond the state-merit of the case. The question referred to us is whether there was anymaterial in support of the Tribunal's finding that no genuine partnership deed came into existence. The question is not whether the material relied upon by the Tribunal was such which had been taken into consideration without giving an opportunity to the assessee to meet that material. We would, therefore, proceed on the footing that the material relied upon by the Tribunal was such which bad been validly brought on the record. The only question to be investigated in this connection will be to see whether the material relied upon by the Tribunal was such that on its basis the finding that the partnership deed was not genuine could be recorded.

80. The Tribunal also observed that as on 31st March, 1946, and 31st March, 1947, the total funds of the Kamla Town Trust amounted to Rs. 10,85,535 and Rs. 2,66,887, respectively. Out of this total fund, a sum of Rs. 6,74,604 and Rs. 20,70,905 (sic) stood utilised in the business of the Singhania brothers as on 31st March, 1946, and on 31st March, 1947, respectively. The learned counsel for the assessee tried to explain these huge investments in thebusiness of the Singhania brothers on the ground that the funds could not be utilised by the trust for its charitable objects for want of availability of the building materials at the relevant time. It appears that this explanation was not given by the assessee before the Tribunal. From the order of the Tribunal, it appears that what was argued before it was that merely because the trustees utilised the trust money for their own business in violation of the conditions upon which the trust was being held, the remedy of the trust was by way of a suit against the trustees personally, and that could not provide a basis for coming to the conclusion that the business was not being done by the trust itself. The Tribunal did not accept this argument, and pointed out that this fact could be taken into consideration for coming to the conclusion that the money that was being earned in the name of the trust was the money belonging to the three Singhania brothers. It appears that subsequently by a deed dated 10th January, 1949, the trust retired from the assessee's firm. Clause 9 of that document provided that a sum of Rs. 21,98,828 credited to the account of the trust in the books of the firm was to remain with the firm even after the trust has ceased to be a partner and was to bear an interest only at the rate of 1 per cent. From this fact, the Tribunal drew an inference that the major portion of the income of the trust said to have been earned by it by doing business was utilised as an investment upon which the three Singhania brothers and Sri J. P. Agarwal could earn income. It observed that as the original partners were also the three trustees of the trust, it became possible for them to enter into such an agreement. They exploited this dual capacity and made an arrangement by which the trust was shown as doing business, although, in fact, the business was being conducted by them in their individual capacity. The learned counsel for the assessee strongly contended that the document dated 10th January, 1949, came into existence even after the order of the Appellate Assistant Commissioner of Income-tax dated 22nd December, 1948. According to him, the Tribunal could not utilise the same, as it had not been admitted in evidence in accordance with the provision of Rule 29 of the Rules framed under the Income-tax Act. As has been pointed out by us, the question whether any material that has been relied upon by the Tribunal was collected contrary to the provisions of law or in respect of which no opportunity was given to the assessee to explain the same, has not been referred to us, and we are proceeding on the footing that the material relied upon by the Tribunal has been properly brought on the record. It goes without saying that the circumstance that the Singhania brothers continued to enjoy the profits alleged to have been made by the trust for their own purpose on payment of a nominal interest of 1 per cent. only, could be relied upon by the Tribunal for coming to the conclusion that the business carried on in the name of thetrust was really a business which was being carried on by the Singhania brothers in their individual capacity,

81. Another significant fact noticed by the Tribunal was that by means of the document dated 25th February, 1949, the three Singhania brothers again became partners with J. P. Agarwal, with the shares of five annas each, which they originally had in the firm before they retired on 31st December, 1945. Clause 7 of this partnership deed provided that the assets of the new firm that came into existence on January 1, 1949, would be the assets of the old firm which dissolved on 31st December, 1945. The new firm on January 1/1949, therefore, ignored the depreciations and appreciations of the assets between January 1, 1946, and December 31, 1948. The Tribunal observed that if this new firm was a genuine one, it could not accept the assets as they stood on 31st December, 1945, without any modification. All this showed that the three Singhania brothers who were partners up to 31st December, 1945, continued to be partners during the subsequent period and remained so till the indenture dated 10th January, 1949, was executed. We are of opinion that on the basis of this material, the Appellate Tribunal could record a finding that no genuine partnership came into existence under which the Kamla Town Trust became a partner and that, in fact, the three Singhania brothers, who were the original partners, continued to be so.

82. Learned counsel for the assessee argued before us that some of the circumstances relied upon by the Appellate Tribunal were such that they were quite consistent with a genuine transaction of partnership between the Kamla Town Trust and J. P. Agarwal. It may be so, but what the Tribunal was to see was the cumulative effect of all the circumstances taken together. We find that the material pointed out by the Tribunal were such on the basis of which a reasonable person could have arrived at a conclusion that the partnership entered into between the trust and J. P. Agarwal was merely a cloak, and the real partners were the three Singhania brothers and J. P. Agarwal.

83. In the result, we find that there was material in support of the Tribunal's finding that no genuine partnership came into existence by which the Kamla Town Trust became a partner.

84. We now come to the last question about the disallowance of Rs. 59,000 towards the cost of needles. Brief facts in connection with this question are that a sum of Rs 1,22,072-7-0 was debited during the accounting period as cost of needles, etc. Assessee's case was that it did not have a permit for making purchases of all needles that it required from the market at controlled rates, and, therefore, it was obliged to make purchases at black market rates. In the circumstances, it could not produce vouchers of needles purchased by it in the black market. The Income-tax Officer foundthat the market price of needles varied between Rs. 100 and Rs. 200 per thousand needles. Calculating the price of needles on this basis he found that the assessee's claim for deduction on this account was exaggerated to the extent of Rs. 59,000. He, therefore, disallowed this amount of Rs. 59,000. This decision was affirmed by the Appellate Assistant Commissioner. After taking into consideration the rates allowed in the preceding years and having regard to the market conditions in the previous years, the Appellate Tribunal decided that the price of needles purchased by the assesses in the black market should be calculated at the rate of Rs. 500 per thousand needles. The cost of needles was recalculated and the Tribunal held that instead of Rs. 59,000 the amount disallowed should have been Rs. 37,656 and directed the modification of the assessment order accordingly.

85. The assessee's account showed cash purchase of 1,00,091 needles for Rs. 87,657-7-0 and credit purchase of 1,22,412 needles for Rs. 34,415, the total amount debited being Rs. 1,22,072-7-0. The credit purchases made by the assessee were verifiable. The average price of needles purchased by the assessee, which were verifiable, comes to about Rs. 282 per thousand needles whereas, that for which no verification was available came to Rs. 876 per thousand needles. Learned counsel for the assessee relied upon a decision of this court in Misc. Case No. 217 of 1959 in the matter of J. K. Hosiery Factory, Kanpur v. Commissioner of Income-tax, , dated 5th April, 1966. In this case, in respect of earlier accounting years, a question whether there was any material for the estimate by the Tribunal that the needles purchased in the black market in the previous years or chargeable accounting periods in question were purchased at the rate of Rs. 500 per thousand was referred to this court for opinion. After considering the facts of that case, the court came to the conclusion that in view of the fact that vouchers which were available in respect of certain number of needles purchased by the assessee during the months of January and August, 1944, showed a rate of Rs. 1,102-5-4 per thousand, there was no material available on the basis of which the Tribunal could estimate the price of needles purchased in the black market at Rs. 500 per thousand. The question whether there is material for estimating the price of an article or not depends upon the circumstances and the evidence produced in respect of each individual year and any conclusion arrived at during the assessment for the earlier years will not constitute res judicata. The judgment given by this court in respect of the year in question in that case shows that even some of the purchases made in the black market were vouched. In the absence of any such voucher for the black market purchases made during the assessment year in question in the present case, the revenue authoritieswere justified in holding that the amount spent in black market purchases, for which there were no vouchers, might well have been exaggerated.

86. The authorities, therefore, had to estimate the rate at which the purchases might have been made by the assessee. For this purpose, they could look into the rates determined for such purchases in the earlier years. At the time of making the assessment, the rates for such purchases made in the earlier year stood determined at Rs 500 per thousand needles. Although the assessee was agitating about the correctness of the rates fixed in the earlier years, yet those rates constituted material, on the basis of which the revenue authorities could determine the rates of similar purchases made by the assessee during the subsequent year, namely, the assessment year in question. Further, we find that in determining the rates of such purchases, what the Tribunal has done is to choose a mean between the average rates of purchases which were vouched and those which were not vouched. After having come to the conclusion that the assessee may have exaggerated its expenditure in respect of the purchases of needles for which no vouchers were available, it was open to the Tribunal to estimate the rates at a figure which was the mean between the two average rates. In this view of the matter, we find that there was material for the finding of the Tribunal that the rates of needles purchased in the black market during the previous years were relevant to the assessment year, and that the assessee had purchased needles at the rates of Rs. 500 per thousand needles.

87. In the result, we answer the four questions as follows :

Question No. 1.

Whether the rectification by the decree of the civil judge in Suit No. 40 of 1945 of the file of the civil judge, Kanpur, was valid ?

Answer.

Yes, in favour of the assessee.

Question No. 2.

Whether there is any material in support of the Tribunal's findings that no genuine partnership came into existence by which the Kamla Town Trust became a 'partner ?

Answer.

Yes, in favour of the department.

Question No. 3(i).

Whether the trust as such could be a partner in law ?

Answer.

Yes, in favour of the assessee.

Question No. 3(ii).

Whether the deed of partnership dated 5-2-1946 is valid ?

Answer.

No, in favour of the department.

Question No. 4.

Whether there was material for the finding of the Tribunal that the needles purchased in the black market during the previous year relevant to the assessment year 1947-48 were purchased at the rate of Rs. 500 per thousand ?

Answer.

Yes, in favour of the department.

88. In view of the fact that some of the answers have gone in favour of the assessee and, others in favour of the department, we direct the parties to bear their own costs of this reference.


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