JAGDISH SAHAI J. - This reference under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) has been made by the Income-tax Appellate Tribunal, Bombay Bench (hereinafter referred to as the Tribunal), and the following question of law has been referred to this court for its opinion :
'Whether, on the facts and in the circumstances of the case, such income derived from the trust property as is spent on the maintenance and support of the members of the Shervani family and relatives is exempt under section 4(3)(i) of the Income-tax Act, 1922 ?'
The reference has been made in respect of the assessment years 1957-58, 1958-59 and 1959-60. The corresponding previous years are the financial years ending in 31st March, 1957, 31st March, 1958, and 31st March, 1959.
From the statement of the case it is clear that on 13th April, 1956, Shri M.R. Shervani and Shri N.A. Shervani jointly made a declaration of the trust which was registered on the following day. A copy of that trust deed has been annexed to the statement of the case and had been marked as annexure 'A'. The third paragraph of the trust deed reads :
'And Whereas the aforesaid donors are desirous of settling a Trust to be named Shervani Charitable Trust the several properties and assets mentioned in schedules A and B for the purposes of providing a trust to devote the income of the property partly on charitable objects and partly towards the maintenance of the members of the donors family.'
In the objects of the trust it is stated as follows in clause B :
'B. To devote one-third of the net income on the maintenance and support of the members of Shervani family and relatives and those who in the discretion of the trustees deserve such support.'
On the 17th of May, 1956, the board of trustees passed the following resolutions :
'Clause 2(B) of the trust deed was considered. It was noted that the intention of the donors was never to strictly limit the benefit of expenditure under this head for the members of the family and relatives only, but that there should be no bar against the relatives and family members to apply for maintenance and that any one without restriction of caste, creed or religion if he was considered to deserve support can be paid out of proportion of this income set aside for maintenance of the families.'
They passed another resolution on the same day which is as follows :
'Resolving that no remuneration be paid to the trustees and that the entire 1/3rd income be credited to object 2(A) to be spent for charitable purposes.'
Clause 2(A) of the objects reads :
'(A) After defraying the management expenses to devote one-third of the income of the trust properties and assets mentioned in schedules A and B on the charitable purposes mentioned below :
(a) Donations to public institutions, schools, collages, dispensaries, hospitals, private vocational schools, Madrasas for religious education and technical training centres.
(b) To grant scholarships to needy and deserving students for purposes of education in schools, colleges within or outside India.
(c) To grant medical aid and pay expenses for the treatment of poor and needy persons.
(d) To give long term loans to needy and poor persons for building for residential houses at reasonable interest.
(e) To contribute to the construction of roads, public gardens or any object for the betterment of cities, villages or towns within India.
(f) To donate to societies, associations, organisations or institutions for mental, physical, political or spiritual advancement of the people of the country.
(g) To donate or spend moneys for general benefit of the people and causes considered charitable by the trustees in their absolute discretion.'
On the strength of the trust settlement read with the two resolutions, the trustees made an application for refund of the entire income-tax that was deducted from the dividend income received by the trustees. Reliance was placed on section 4(3)(i) of the Act which reads :
'4. (3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them :
(i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto.
Provided that such income shall be included in the total income....
(c) if it is applied to purposes other than religious or charitable purposes or ceases to be accumulated or set apart for application thereto in which case it shall be deemed to be the income of the year in which it is so applied or ceases to be so accumulated or set apart.'
It was contended on behalf of the trustees before the Income-tax Officer that not only one-third income of the trust covered by clause 2(A) was exempt from taxation but also the one-third referred to under clauses 2(B) and 2(C). The Appellate Assistant Commissioner accepted the contention of the assessee that it was entitled to exemption of the income applied under clause 2(C) but rejected the claim in respect of the income applied under clause 2(B). They then filed an appeal before the Tribunal who allowed the appeal in part and remanded the case. The Judicial Member of the Tribunal in his judgement observed :
'...In view of the decision mentioned above certainly the amounts spent on the maintenance and support of the members of Shervani family and relatives are not entitled to the exemption contemplated under section 4(3)(i) of the Act, but any amount that was given to outsiders whom the trustees considered deserving of such support, will certainly be exempt from taxation. Hence, we direct the Income-tax Officer to find out what amount has been spent on outsiders and grant exemption from taxation in regard to that amount alone. The assessment will be revised in accordance with above.'
The Accountant Member agreed with the conclusions of the Judicial Member but dictated a separate order in which he stated that he agreed with the conclusions of the Judicial Member but not without hesitation.
The result of the order of the Tribunal was that the trustees did get some relief but not the entire relief claimed by them.
We have already reproduced section 4(3)(i) of the Act earlier in this judgment. For the purposes of section 4 of the Act the expression 'charitable purposes' has been defined under clause (xxii) of that provision. It reads :
'... In this sub-section charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act that part of the income from property held under a trust or other legal obligation for private religious purposes which does not enure for the benefit of the public.'
The factual position that emerges from the statement of the case submitted to this court by the Tribunal is that during the period May, 1956, to 31st March, 1957, the amount spent on maintenance aid was only Rs. 560 and that sum was given to four different persons. In the accounting period April 1, 1957, to March 31, 1958 (relevant to the assessment year 1958-59) such maintenance aid amounted in all to Rs. 2,870. The maximum payment of Rs. 1,250 was made to one Mrs. Sayed Jahan Begum at the rate of Rs. 250 per month from November 1, 1957, to March 31, 1958. The statement of the case clearly shows that this lady is related to the Shervani family. In the accounting year ending on March 31, 1959 (relevant to the assessment year 1959-60), the maintenance paid was to the extent of Rs. 4,200 inclusive of a payment of Rs. 3,000 to the said Mrs. Sayed Jahan Begum at the rate of Rs. 250 per month.
We are of the opinion that the resolutions passed on 17th May, 1956, were not relevant for interpreting the trust deed and in any case could not override the provisions of the trust deed. In our opinion, the Income-tax Officer was right in taking this view. It is clear from the third part of the preamble to the trust deed that the trustees themselves have definitely stated that the purpose of creating the trust was to utilise the income of the trust property 'partly on charitable objects and partly towards the maintenance of the members of the donors family'. Clause 2(B) of the trust deed clearly shows that one-third of the income from the trust property was to be spent on the maintenance and support of the members of the Shervani family and relatives. The trustees have also the discretion of supporting people whom they considered deserving. It is not clear from the trust deed as to in what sense the persons have to be deserving before the trustees could exercise their discretion and give them some amount from the one-third of the income secured for the maintenance and support of the Shervani family. It is clear that the qualification to deserve such support has not been stated to be indigence or poverty. The trustees have absolute discretion unqualified by any considerations of indigence or charity in granting sums in their discretion to such persons as they choose. The word 'those' is comprehensive enough to include any person and expression 'deserving such support' can admit of the discretion being exercised on considerations not necessarily charitable.
We have already quoted the definition of charitable purposes given in clause (xxii) of section 4 of the Act. The definition and the judicial precedents make it clear that relief to a person would not be a charitable object unless it involves an object of general public utility. In our opinion, all that clause 2(B) provides for is that one-third of the net income of the trust property shall be spent for the maintenance and support of the members of the Shervani family and their relatives, though the trustees have been given the discretion of giving some help to persons who, in their opinion, are deserving. We are clear in our minds that the amounts spent or provided to be spent on the maintenance and support of the Shervani family cannot be a charitable object and cannot, therefore, fall under section 4(3)(i) of the Act. We have already said earlier that the provision giving the trustees discretion to give money to those whom they considered to be deserving cannot also be treated as an expenditure for a charitable object. In these circumstances we are satisfied that the question referred to us must be answered against the assessee and in favour of the department. The view that we are taking finds support from Commissioner of Income-tax v. M. Jamal Mohamad Sahib, Commissioner of Income-tax v. Aga Abbas Ali Shirazi, Trustees of Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax, Commissioner of Income-tax v. East India Industries (Private) Ltd. and Kedia Jatiya Sahayak Sabha and Fund v. Commissioner of Income-tax. We would also like to point out that the decision in Commissioner of Income-tax v. East India Industries (Private) Ltd. has been affirmed by the Supreme Court in East India Industries (Madras) Privated Ltd. v. Commissioner of Income-tax.
Mr. Jagdish Swarup, who has appeared on behalf of the assessee, has placed reliance upon Trustees of the Charity Fund v. Commissioner of Income tax and Commissioner of Income-tax v. Moosa Haji Ahmed. Both these cases are clearly distinguishable and are based upon their own facts. In the Trustees of the Charity Fund v. Commissioner of Income-tax the provisions were very different from the one before us and there the object was clearly charitable. The Commissioner of Income-tax v. Moosa Haji Ahmed has followed the decision in Trustees of the Charity Fund v. Commissioner of Income-tax but there also the terms of the deed of agreement were different from those before us and on their it was held that the object was charitable.
In view of what we have said above, we answer the question referred to us in the negative, in favour of the department and against the assessee. We direct the assessee to pay a sum of Rs. 200 by way of costs of these proceedings to the Commissioner of Income-tax. We fix the fee of the learned counsel for the department at the same figure.
Question answered in the negative.