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Commissioner of Income-tax Vs. Chhadami Lal JaIn Trust - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 72 of 1969
Judge
Reported in[1977]106ITR179(All)
ActsIncome Tax Act, 1922 - Sections 4(3)
AppellantCommissioner of Income-tax
RespondentChhadami Lal JaIn Trust
Appellant AdvocateR.R. Misra, Adv.
Respondent AdvocateJ. Swarup and ;V. Swarup, Advs.
Excerpt:
- - clause (3) of the deed clearly lays down that expenses of the trust will be met from the income of the properties, which were thereafter set out towards the end of the deed. we are clearly of the view that the trust deed, when it ensured the income from the properties in perpetuity for the charitable institution, in fact amounted to the making of voluntary contributions by the author of the trust as envisaged by section 4(3)(ii). in view of the fact that we have held that the exemption could be claimed under section 4(3)(ii) of the act, it is not necessary for us to pursue the second reason given by the tribunal for upholding the exemption......lal jain, by a deed dated november 14, 1947, purported to create a trust known as 'chhadami lal jain trust'. in the preamble to the deed in question, reference is made to the necessity for building a college hostel and for maintaining an aushadhalaya in firozabad district, agra. the relevant portion of the deed runs as follows :'1. that the name of this trust shall be chhadami lal jain trust. 2. that the following institutions shall be under this trust: (a) boarding house, (b) dharamshala including temple, (c) commercial and industrial institute, (d) jain religious school, (e) jain dispensary including medicine department, (f) scholarship fund, (g) public library and reading room. 3. that the expenses of the above trust and those of fulfilling the objects mentioned above, will be met.....
Judgment:

C.S.P. Singh, J.

1. The Income-tax Appellate Tribunal. Delhi Bench 'B', has in respect of the assessment years 1958-59 and 1959-60 referred the following question for our opinion :

'Whether, on the facts and in the circumstances of the case, the income from the properties in question covered by the deed of trust dated November 14, 1947, were exempt from income-tax under Section 4(3) of the Indian Income-tax Act, 1922 ?'

2. The facts necessary for the decision of this question may now be stated. One Sri Chhadami Lal Jain, by a deed dated November 14, 1947, purported to create a trust known as 'Chhadami Lal Jain Trust'. In the preamble to the deed in question, reference is made to the necessity for building a college hostel and for maintaining an Aushadhalaya in Firozabad district, Agra. The relevant portion of the deed runs as follows :

'1. That the name of this trust shall be Chhadami Lal Jain Trust.

2. That the following institutions shall be under this Trust:

(a) Boarding House, (b) Dharamshala including temple, (c) Commercial and Industrial Institute, (d) Jain Religious School, (e) Jain Dispensary including Medicine Department, (f) Scholarship Fund, (g) Public Library and Reading Room. 3. That the expenses of the above Trust and those of fulfilling the objects mentioned above, will be met from the income of the following properties. I shall have no personal interest/concern with the income of the Trust nor shall it be utilised for my personal use. The same will be utilised solely for the purposes of the Trust.'

3. Thereafter, details of three items of immovable property were given, viz., (a) a bungalow, (b) properties situated in village Sukhmalpur, Nizamabad, Sub-Division Firozabad, district Agra, and (c) a house situated in Mohalla Chhapati-Kalan, Firozabad, district Agra, where a dispensary called 'Motilal Jain Aushadhalaya' was running. There was a note attached to this deed which stated that Rs. 18,000 was the maximum annual rental income of the aforesaid properties which were valued at Rs. 6,12,000. The deed purported to have been written out by the pen of one Master Sunharilal Jain, general attorney of Lala Chhadami Lal. The deed, it appears, was submitted under Section 32 of the Stamp Act to the Additional Collector and he issued a certificate under that section certifying that a sum of Rs. 28-2-0 was the proper stamp duty in respect of the deed and that the deed was duly stamped. This certificate of the Collector is dated 17th November, 1947. The deed was thereafter registered on the 30th December, 1947. The income from the properties which were mentioned in the trust deed was assessed in the hands of the Hindu undivided family up to the assessment year 1949. In the year 1949-50, a part of the said income was exempted by the Income-tax Officer, Firozabad, holding that the trust was exempt under Section 4(3)(i) of the Indian Income-tax Act, 1922. In the assessment years 1958-59 and 1959-60, with which the present reference is concerned, the Income-tax Officer took the view that inasmuch as the income from the property was transferred to the trust and not the properties, no exemption could be granted in respect of the income under Section 4(3)(i) of the Act. On appeal, the Appellate Assistant Commissioner confirmed the view of the Income-tax Officer. The assessee, thereafter, filed an appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal considered the trust deed and came to the conclusion that the wordings of the deed were not clear and as such there was scope for doubt as to whether the properties mentioned in the deed were the subject-matter of trust or only the income of the aforesaid properties. It, however, on a consideration of a number of circumstances, which we shall presently set out, came to the conclusion that the intention of the founder of the trust was to create a trust in respect of the properties detailed in the deed and not only in respect of their income. The various circumstances relied upon by the Tribunal to reach this conclusion were :

(1) The registration fee paid was on the value of the properties and not on the amount of income of the properties.

(2) The renunciation of Chhadami Lal Jain to the effect that he would have nothing to do with the income from the aforesaid property for Ms life.

(3) The fact that the trust had started issuing receipts in respect of various amounts received in respect of the properties.

(4) The payment of land revenue by the trust.

(5) The fact that the trust applied for mutation in respect of certain properties.

(6) The fact that the department itself had in the earlier years accepted the position that the properties themselves were the subject of trust.

4. After coming to this conclusion, the Tribunal gave two other reasons for holding that the income derived from the properties was exempt from tax. Firstly, it took the view that the right to receive income from the trust properties constituted property within the meaning of Section 4(3)(i) of the Act and was as such exempt under Section 4(3)(i). Secondly, that in any event, the income which the trust received fell under Section 4(3)(ii) of the Act, for it could be said that the amounts received were in the nature of voluntary contribution by Lala Chhadami Lal Jain, and there being no dispute that the said income was applied for charitable purposes, the income was entitled to exemption under this section.

5. We propose to consider the reasons given by the Tribunal in seriatim for the purpose of answering the question referred to us. A reading of the trust deed does not leave any doubt that only the income from the properties was made the subject-matter of trust. Clause (3) of the deed clearly lays down that expenses of the trust will be met from the income of the properties, which were thereafter set out towards the end of the deed. It is not possible to read the deed in any other manner. The Tribunal itself has not given a finding to the contrary. It has supported its conclusion by referring to a number of circumstances which it thought was permissible for the purposes of holding that the intention of the donor was to create a trust in respect of properties described in the deed. In the first place, the assessee relied on the trust deed alone for claiming exemption under Section 4(3)(i) of the Act and as such the matter had to be primarily decided with reference to that deed. This fact is clear from the order of the Tribunal where it is stated as below :

'In view of the said deed of trust, the assessee, Chhadami Lal Jain Trust, claimed that its income from the concerned properties were exempt from income-tax under Section 4(3)(i) of the Indian Income-tax Act, 1922.'

6. Apart from this, it does not appear that the assessee took up the stand that a trust was created by Lala Chhadami Lal Jain in any other manner than by the execution of the disputed trust deed. The Tribunal was thus in error in adverting to other circumstances for the purpose of considering as to whether the trust deed embraced the properties set out or was confined to the income from these properties. Even if it be assumed that the Tribunal could take into consideration the various circumstances relied upon by it, the conclusion which the Tribunal has reached is that the intention of the author of the trust was to create a trust in respect of the properties themselves. The mere intention to create a trust in respect of certain properties is not by itself sufficient to bring the case under Section 4(3)(i) of the Act. Before advantage of Section 4(3)(i) of the Act can be taken, the property must be held under trust, which implies that the trust in respect of the property must be complete, i.e., all the formalities which are required under the law for creation of a trust in respect of the property must be complied with. In the present case, whatever the intention of the author of the trust might have been, it is clear that the deed of trust did not create a trust in respect of properties, but was confined to the income accruing from them. This was not sufficient to enable the assessee to claim exemption under this sub-section.

7. Counsel for the assessee has drawn our attention to the various circumstances relied upon by the Tribunal as also some others and has tried to impress upon us that the deed in question in effect created a trust in respect of the properties. We are unable to see how it is possible to deviate from the clear language of the deed by reference to various circumstances and facts some of which were subsequent to the deed. Whatever might have been the intention of the author of the trust, the deed executed by him did not create a trust in respect of the properties described therein. In this view of the matter, it is not necessary to consider the argument raised on behalf of the revenue that the principles underlying Section 90 of the Evidence Act being of general application should be made applicable to the present case, and once recourse is had to these principles, the trust deed alone be looked into for the purposes of finding out whether the trust was in respect of properties or the income arising therefrom.

8. The third reason given by the Tribunal for holding that the income was exempt appears to be sound. The Tribunal has relied on Section 4(3)(ii) of the Act for granting exemption. It has been found as a fact that there was no dispute that the income was being applied for the purposes of the trust and that the trust was for a religious or a charitable purpose. In order that Section 4(3)(ii) of the Act should apply, all that is necessary is that the religious or charitable institution should derive the relevant income from 'voluntary contributions'. The word 'voluntary' means an act done of one's own free will. The section does not insist on any particular manner in which 'the voluntary contribution' should be made to the charitable institution, and that being so, a deed by which a donor makes a single contribution or a contribution which recurs from year to year, would be sufficient to meet the requirements of the section. In the present case, the trust deed ensures that the income of the properties will be utilised for the expenses of the trust. Thus, the trust became entitled in perpetuity to the income accruing from the properties. The deed undis-putedly was executed by the author 'voluntarily', i.e., out of his own free will, and inasmuch as it purports to grant the income from the properties to the trust, it would be covered by the phrase 'voluntary contributions' occurring in Section 4(3)(ii) of the Act.

9. Counsel for the revenue has, however, urged that Section 4(3)(ii) applies only to cases where contributions are made not on one single occasion or by one deed but at different points of time. We do not see how this contention can be sustained in view of the language of Section 4(3)(ii) of the Act. No authority has been cited in support of the contention made. We are clearly of the view that the trust deed, when it ensured the income from the properties in perpetuity for the charitable institution, in fact amounted to the making of voluntary contributions by the author of the trust as envisaged by Section 4(3)(ii). In view of the fact that we have held that the exemption could be claimed under Section 4(3)(ii) of the Act, it is not necessary for us to pursue the second reason given by the Tribunal for upholding the exemption.

10. Our answer to the question referred to us is that income from the properties in question covered by the trust deed dated November 14, 1947, were exempt from income-tax under Section 4(3)(ii) of the Act. The assessee will be entitled to his costs which we assess at Rs. 200. Counsel's fee is assessed at the same figure.


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