Skip to content


Additional Commissioner of Income-tax Vs. Sherwani Charitable Trust - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 263 of 1972
Judge
Reported in[1975]99ITR284(All)
ActsIncome Tax Act, 1961 - Sections 11(1)
AppellantAdditional Commissioner of Income-tax
RespondentSherwani Charitable Trust
Appellant AdvocateDeokinandan, Adv.
Respondent AdvocateB.L. Gupta and ;Ashok Gupta, Advs.
Excerpt:
- - in the case of a trust like the present one, where the original corpus of the trust was held partly for charitable purposes, the income derived by such property would be governed by clause (b). under the trust deed the properties which constitute the corpus of the trust were mentioned in schedules a and b. if the condition, namely, that the property held under trust only in part for charitable purposes is satisfied, clause (b) becomes applicable and the income to the extent to which it is utilised for wholly charitable purposes is exempt......applied to such purposes in india ;......' 5. clause (a) applies to income derived from property held in trust wholly for charitable or religious purposes ; while clause (b) applies to income derived from property held in trust in part only for such purposes. in the case of a trust like the present one, where the original corpus of the trust was held partly for charitable purposes, the income derived by such property would be governed by clause (b). under the trust deed the properties which constitute the corpus of the trust were mentioned in schedules a and b. one-third of the income derived from such properties was liable to be spent for purposes which were held to be non charitable. even in such a case, the income derived from such property, namely, the property held under trust in.....
Judgment:

Satish Chandra, J.

1. The Income-tax Appellate Tribunal, Allahabad, has submitted a consolidated statement of the case for the assessmentyears 1965-66 to 1968-69. The common question of law referred for our opinion is :

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that no portion of the income arising out of the donations of Rs. 11,61,775 given by the four donor-companies to the trust and specifically earmarked by the respective donors for object 2(A) of the trust, which is wholly charitable, and donations of Rs. 60,250 not so earmarked, but actually spent for charitable purposes only, was liable to tax as assessable income of the trust ?'

2. It appears that during the assessment years in question the Geep Flash Light Industries Ltd., Messrs. Sherwani Sugar Syndicate (P.) Ltd., Mahalakshmi Syndicate (P.) Ltd. and Great Eastern Commercial Corporation Ltd. made voluntary donations to Messrs. Sherwani Trust, Allahabad (which was constituted in 1956), amounting to Rs. 11,61,775 on the express condition that the income arising out of these moneys shall be spent for the objects mentioned in paragraph (2A) of the trust deed constituting Messrs. Sherwani Charitable Trust. It is admitted between the parties that the objects mentioned in paragraph 2(A) aforesaid were wholly charitable in nature. It appears that the aforesaid four companies made additional donations to the trust amounting to Rs. 60,250. But these donations were not earmarked to be spent for any specific object with the result that the income from these donations could be utilised by the trust for one or more of the objects mentioned in the trust deed, and in accordance with its provisions.

3. The Income-tax Officer held that one-third of the income derived from these donations was not entitled to be exempted from income-tax because one-third of the income was liable to be spent on the objects mentioned in paragraph 2(B) of the trust deed which were not charitable. This view was affirmed by the Appellate Assistant Commissioner on appeal. The assessee took the dispute to the Tribunal. The Tribunal construed the document constituting the trust as not laying down any particular obligation upon the assessee to apportion the income arising out of the donations received by the trust subsequent to its constitution, on each of the objects mentioned in paragraphs 2(A), 2(B) and 2(C). It held that the limitations of apportionment of income apply to the income from the properties mentioned in schedules A and B to the deed only. The subsequent donations of properties permitted by paragraph 5 of the trust deed were not amenable to the same conditions. So, to the extent to which the income from the properties received by the trust subsequent to its creation was concerned, the same would be exempt from income-tax to the extent it is utilised for charitable purposes only. At the instance of the Commissioner of Income-tax the Tribunal has referred the question mentioned above for our opinion.

4. Section 11 of the Income-tax Act, 1961, in so far as it is material for our purposes, reads :

'11. (1) Subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-

(a) income derived from property held under trust wholly for charitable or religions purposes, to the extent to which such income is applied to such purposes in India';......

(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India ;......'

5. Clause (a) applies to income derived from property held in trust wholly for charitable or religious purposes ; while Clause (b) applies to income derived from property held in trust in part only for such purposes. In the case of a trust like the present one, where the original corpus of the trust was held partly for charitable purposes, the income derived by such property would be governed by Clause (b). Under the trust deed the properties which constitute the corpus of the trust were mentioned in schedules A and B. One-third of the income derived from such properties was liable to be spent for purposes which were held to be non charitable. Even in such a case, the income derived from such property, namely, the property held under trust in part only for charitable purposes, would be governed by Clause (b) and would be exempt from being included in the total income of the trust, to the extent to which it is applied for wholly charitable purposes in India. On the plain language of Clause (b) of Section 11(1) income which is actually applied for wholly charitable purposes is exempt from income-tax, no matter that it is derived from property which is held under a trust which is charitable in part only. In view of this construction of Clause (b) it will serve no useful purpose to determine whether the subsequent acquisitions of property by the trust would also be governed by paragraph 2 of the deed in relation to the application of income arising out of such property. Even if it be assumed that the department was right in contending that such subsequent acquisitions of property will be governed by paragraph 2, with the result that one-third of the income would be liable to be applied for maintenance and support of the members of the Sherwani family and relatives (which was held to be partly not a charitable purpose), yet to the extent to which the income derived from it was applied to wholly charitable purposes, it will be exempt under Clause (b) or Section 11(1). Hence, we deem it unnecessary to go into the merits of the question whether on a proper construction of the trust deed the limitations mentioned in Clause 2 would be applicable to the acquisition of properties received after the creation of the trust, under Clause 5 'of the trust deed.

6. As already seen, the income arising out of the donations, namely, Rs. 11,61,775, was specifically earmarked for wholly charitable purposes. The other donations, namely, Rs. 60,250, were not so earmarked. In our opinion, in view of the plain language of Clause (b) of Sub-section (1) of Section 11 it is immaterial whether the donor of the property had specifically earmarked the manner in which the income from that property was to be spent by the trustees. If the condition, namely, that the property held under trust only in part for charitable purposes is satisfied, Clause (b) becomes applicable and the income to the extent to which it is utilised for wholly charitable purposes is exempt. It is, in fact, the application of the income which is material. The fact that the donor of the property had earmarked his property for wholly charitable purposes will not be decisive for determining whether it would be exempt from being included in the total income. In the present case the question referred to us proceeds on the basis that the entire income from both the categories of donations was actually spent for charitable purposes only. In the context of this fact it is apparent that all such income would be exempt.

7. In the result, we answer the question referred to us in the affirmative, in favour of the assessee and against the department. The assessee will be entitled to costs, which we assess at Rs. 200.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //