1. These appeals are disposed of by a common order as they involve common contentions about the charitable nature of the trust. One Madhavrao Gangadharrao Chitnavis created a trust by virtue of a deed dated 22-6-1967 constituting himself as the sole trustee. The trust property consisted of some houses, plots and lands in Nagpur valued at Rs. 1,04,460 and movable property such as cash and shares of the value of about Rs. 2,00,000. The object of the trust was to form a Medical Research Institute for conducting research in various branches of medical science which were specified in the deed. The beneficiaries were the granddaughters and grandson of the founder and such of nearest relatives and employees of the founder as the trustee may nominate.
Whereas the founder has always had a keen and an earnest desire to serve his family members and relatives by founding a Medical Research Institute.
Whereas the founder has considered that the above objects of conducting a research on the lines indicated by him could be better achieved by creating a private medical research trust for the benefit of the following members of his family and their issues : (1) Smt. Ardhana R. Dhanwate (granddaughter of the founder), Ramdaspeth, Nagpur.
(2) Kumari Pratibha R. Deshmukh (granddaughter of the founder), C/o Shri R.P. Deshmukh, 18/2, Alipore, Calcutta-27.
(3) Kumari Sandhya H. Junnarkar (granddaughter of the founder), C/o Shri H.S. Junnarkar, Imperial Tobacco Co. Ltd., Tiruvattiyur Madras-19.
(4) Kumar Sandeep H. Junnarkar (grandson of the founder), C/o Shri H.S. Junnarkar, Imperial Tobacco Co., Tiruvattiyar, Madras-19.(5) Nearest relatives } who will be nominated and issues of all these beneficiaries 1 to 6 through a Medical Research Institute formed out of the funds and property that would be allotted or dedicated to such trust, and The persons mentioned at item Nos. 1 to 6 were declared as beneficiaries vide Clause 4 of the deed. Clause 26 of the deed declared that the trust was irrevocable.
3. By an amendment deed dated 17-11-1969, relevant for the assessment year 1972-73 onwards, certain changes were brought about in the trust deed. It may be mentioned that there were further amendments on 5-4-1972 and finally on 28-4-1975. By the deed of 17-11-1969 the preamble was amended as follows : Whereas, the founder has always had a keen and earnest desire to serve the public at large indisputably including his family members, other relatives and such others who rendered services to the founder by founding a Medical Research Institute, in which researches of internal functions of life relating to sex and other connected matters having a direct bearing upon the procreation of life, its progress, its well-being, its prolongation and wherein researches analogous to the main objects on the lines indicated directly or indirectly by the founder as per Schedule I appended to the said trust deed as well as appended hereto as mentioned in the operative part of the deed will be undertaken, and Whereas the founder has considered that the above objects of conducting a research on the lines indicated by him could be better achieved by creating a medical research trust, for the benefit of such of the researchers and scholars including descendants in the line of the founder-male or female and other deserving employees or other relatives of the founder, the latter three categories of beneficiaries to be preferred...over others.
The sole managing trustee and those who shall come after him to manage and administer the trust, shall always give the benefit of any advanced or other researches, carried on by this trust or institute, here or elsewhere, preferably to the members of the founder's family and their issues if found on merits to be deserving from among several researchers and scholars to the members of the founder's family, their issues, nearest relatives and employees of the founder or their issues shall always be deemed to have been substituted, from the inception of the trust, to the entire exclusion of the founder.
In the original trust deed, Clause 25 stipulated that the sole trustee shall have the right to set right any technical error or omission in the body of aims and objects or in the body of the trust deed. This was substituted by the following clause : The sole managing trustee shall have the right to set right any technical flaw or omission that may be detected any time in future in this trust deed which may be repugnant to any law of the land in force and further he shall also have power to add, alter or modify the terms and conditions of this trust deed for better and efficacious management of the trust and trust properties and for achieving maximum benefits for the beneficiaries.
Clause 26 of the original trust deed which declared the trust to be revocable was amended as follows : The trust so created by the deed of trust dated 22-6-1967, shall be deemed to have always been intended to be irrevocable and shall for all times to come be an irrevocable creation of the founder.
Clause 27 of the original deed stipulated that in case there are difficulties in carrying out the objects of the trust, the governing body and the advisory board shall find out proper ways and means to maintain and carry out the objects of the trust but should see that the trust never failed, This was substituted by a new clause as follows: In case the sole managing trustee and the governing body at any time find it impossible or impracticable or disadvantageous to continue to work the trust, or it is not possible to carry out and achieve the aims and objects of the trust, hereinabove mentioned, the trust shall be dissolved and in that case, the governing body of trustees shall by a majority of at least two-thirds shall divide and distribute the trust property and its funds then available in the following manner, viz. : (i) 50 per cent of the value of the aggregate trust property shall be formed into a FUND and invested in some sound Government security allowed by law, or considered absolutely safe and interest thereon shall be utilised for rendering help or assistance to the direct descendants, other relatives and those who served the founder, in the matter of rendering medical relief, education facilities, or such other matter requiring heavy costs.
(ii) The other half of the trust property of the value of 50 per cent shall be utilised for educational, charitable and such other public and religious purposes by creating a public trust by the then governing body of the trustees, with power to spend on other properties which this founder has already settled upon trust or may so settle upon trust.
(iii) That trust shall be named in memory of the founder trustee as 'Shri Madhav Gangadhar Chitnavis, Public and Charitable Trust'. The decision of two-thirds majority for both the clauses above-mentioned shall be final.
4. On the basis of these amendments, the assessee claimed before the ITO that the trust was a public charitable trust and its income was, therefore, entitled to exemption from income-tax and wealth-tax. The ITO observed : As per the wording employed, the benefit of advance research has to go preferably to the members of the founder's family. The benefit of an advanced research can possibly be patent drugs and other inventions. Research is after all a long drawn out process and it results in a few, not many tangible benefits. If the fruits of such long drawn out research are to go preferably to the members of the settlor's family, it can only be a private trust. As I see it, the deed dated 17-11-1969 does not convert the original private trust into a public trust.
Regarding the assessee's contention that the intention of the settlor was to give an opportunity of carrying out research work and the preference was to be given to the founder's family members who on merit were found to be deserving from amongst several researchers and scholars, the ITO held that this, in effect, reduced the effect of Clause 4 of the deed to give preference to the members of the settlor's family in respect of employment benefits generated by the trust. The clause determines the destination of the benefit of research carried on in the institute and does not refer to who could or not be employed by the institute for conducting the institute. He further observed that Clause 25 of the deed dated 17-11-1969 gave wider discretionary powers to the sole managing trustee to modify the terms of the deed to achieve maximum benefit to the beneficiaries. This clause, according to the ITO, further made it clear that the trust was a private trust. He also distinguished the decision of the Supreme Court in Trustees of the Chanty Fund v. CIT  36 ITR 513 and other cases cited by the counsel for the assessee. The ITO then referred to the provisions of Clause 27 of the amended deed. In the ITO's analysis the trust could be wound up whenever in the opinion of the managing trustee, it was disadvantageous to work, the trust. The word 'disadvantageous' covered all contingencies and vested unhampered discretionary powers in the trustees in choosing the time and occasion for winding up the trust. 50 per cent of the trust property was to be used for helping the direct descendants of the founder, etc. and the other 50 per cent could also be added to the other properties which the founder had already settled.
He, accordingly, concluded that the trustees could utilise the entire corpus for the benefit of the members of the settlor's family either directly or indirectly. The argument on behalf of the assessee that the dissolution of the trust could be done only in accordance with the provisions of the Indian Trust, Act, 1882 and the Bombay Public Trusts Act was rejected. He held that although the ultimate destination of the corpus could be known only after the directions of the Court, the specific directions contained in the trust deed made it clear that the properties were held in trust for the benefit of the family members of the founder. The argument that registration under the Bombay Public Trusts Act made the trust a public trust was also rejected by the ITO.He similarly held that the registration of the trust under Section 12A of the Income-tax Act, 1961 ('the Act') did not automatically grant exemption under Section 11 of the Act.
5. The ITO then referred to Clause 8(iii) of the deed dated 5-4-1972 which empowered the sole managing trustee and thereafter the board of trustees to carry on business except money-lending or industry out of the trust fund as also to receive donations and apply the income from the said business or industry or the corpus or the interest of such donations to the purposes of such trust, except money-lending business.
He held that the object of the trust was advancement of an object of general public utility and as the amending deed of 5-4-1972 included carrying on a business, the trust was not entitled to exemption as the object did not come within the definition of charitable purpose as given in Section 2(15) of the Act. For these reasons he rejected the assessee's claim for exemption.
6. The AAC accepted the claim of the assessee that the benefit under the trust deed was the facility to conduct research and the preference given to deserving family members did not adversely affect the claim of the assessee for exemption under Section 11, he further held that the dominant purpose was to establish a Medical Research Institute and a library for the purpose. Thus, the object was educational or a charitable purpose. Clause 25, as amended on 17-11-1969, did not empower the founder or trustees to alter the objects. Clause 27 also did not empower the founder to revoke the trust at his sweet will. The condition that 50 per cent corpus would go to the family members at the time of dissolution has no bearing on the claim for exemption as long as the trust existed which was for a charitable purpose. The power given to the trustees to carry on business was not an object of the trust but was only ancillary for the main purpose of the trust. He also held that the object of the trust was education and so the last limb of Section 2(15) was not attracted. On these grounds he held that the assessee was a Public Charitable Trust. As the assessee had not applied any part of income for establishing research institute, he held that no portion of the income for his year was entitled for exemption under the said section. He, however, directed that tax should be levied at. the rate appropriate to an AOP and not at the maximum rate. The revenue is in appeal.
7. The learned departmental representative submitted that the entire approach of the AAC to the question of exemption is wrong. This matter has to be examined from three angles, namely, the beneficiaries, the special power of the trustees and the clauses regarding winding up. His grievance against the AAC's orders is that he has considered the provisions of the deed de hors the beneficiaries. The entire scheme of the trust is to benefit the near relatives and employees of the founder. Therefore, the object of the trust though ostensibly might appear charitable, has to be judged in the light of the provisions of the trust deed which determine to whom the ultimate benefit of the trust was to go. Secondly, the special power of the trustees was meant to be exercised when ultimately the trust could not be carried on for the benefit of the beneficiaries. Lastly, the clauses regarding winding up showed that the corpus was also to go to the beneficiaries of the trust. Expanding the above arguments he referred to the clause regarding the beneficiaries which stipulated that the benefit of any advanced or other researches should go to the members of the founder's family, etc. Thus, if the institute could achieve a break through in any particular branch of the medical research undertaken by it, the discovery could be patented and passed on to the beneficiaries for commercial exploitation. Thus, the hollowness of the claim of the assessee that the research was meant for the benefit of the public was exposed. The special power of the sole managing trustee made it clear that he could add, alter or modify the terms and conditions of the trust for achieving maximum benefits for the beneficiaries. It was, thus, clear that the entire trust existed for the benefit of the beneficiaries who are none other than the members of the founder's family and his employees. The winding up clause also made it clear that the sole managing trustee and the governing body could wind up the trust if they found it disadvantageous to continue to work the trust.
Obviously the disadvantage contemplated here was that of the beneficiaries and nothing else. He also argued that the AAC erroneously concluded that the object of the trust was education without taking into account whom the so-called education was to benefit. Another point sought to be made out by the learned departmental representative was that the very fact that the last deed dated 28-4-1975 removed all the offending clauses was a pointer to the fact that the founder himself recognised that the earlier deeds did not remove the defects disentitling the trust for exemption.
8. The learned counsel for the assessee, Shri M.M. Jain, argued that the objects of the trust should not, in the first instance, be confused with the beneficiaries of the trust. Once the objects are found to be charitable, exemption would be available to the trust under Section 11.
If the income of the trust is not applied for charitable purposes, to that extent exemption would be denied. It may be taken that the income is not applied for charitable purposes if the benefit is passed on to private individuals and not to the members of the public. But that is not to say that the objects of the trust themselves are not charitable.
He pleaded that the case has to be considered on the above lines. The aims and objects of the trust are : To prosecute studies, carry out researches, submit thesis or publish literature conducive to the general well being of the humanity at large, particularly in the subjects and topics mentioned hereunder for the time being or such as may be allied, akin, incidental to the achievements desired by the founder in general, while making the trust as may be resolved from time to time.
The later portion of the deed elaborates on the subjects for ' medical research. The objects clearly indicate that they were related to the field of medicine and education and, therefore, were of a charitable nature. The objects were not objects of general public utility. The residuary classification in Section 2(15) has, therefore, no application in this connection.
9. Next he clarified that the benefit of research mentioned in Clause 4 of the deed has to be read in the light of the aims and objects of the trust. It was meant that the benefit of conducting research in the institute should be given preference to the members of the founder's family and that too if found on merits to be deserving from amongst several researchers and scholars. The words 'if found on merits to be deserving from amongst several researchers and scholars, could only mean the facility to carry on the research in the institute and not the commercial exploitation of any discovery patented by the institute. He, therefore, submitted that if preference is given to qualified members of the family of the founder to carry on research in the institute to be established for medical research, the object of the trust was not rendered non-charitable in the light of the Supreme Court's decision in Trustees of the Charity Fund's case (supra).
10. The founder had handed over the source of income to start the research institute. Regarding the revocability of the trust, the IAC had already given a direction that the trust was irrevocable. Thirdly, it was argued that if the public are the beneficiaries, the clauses regarding the disposal of the property on the winding up of the trust have to be ignored as non est, particularly, since the trust was registered as a public trust under the Bombay Public Trusts Act. Even if the trust is considered as a private trust, Sections 77 and 78 of the Indian Trusts Act would apply. The trust could be revoked only by the consent of all the beneficiaries and no power is given to the founder in this behalf. An argument was also advanced that the trust having been registered as a Public Charitable Trust, the revenue has to accept that it is a charitable trust. If they wanted to hold that the trust was not charitable, the registration before the Charity Commissioner should have been challenged by the revenue. Lastly, it was submitted that the power to carry on business to augment the funds of the trust did not, in any way, affect the exemption of its income by virtue of the Supreme Court's decision-Addl. CIT v. Surat Art Silk Cloth Mfrs. Association  121 ITR 1.
11. We first dispose of the contention that the revenue has to accept the trust as a Public Charitable Trust when it is registered under the Bombay Public Trusts Act. It is well settled that the revenue matters are to be determined independently by the concerned authorities irrespective of the decision taken in such matters by the civil courts and the other authorities. The leading case in this connection is Vandervell Trustees Ltd. v. White 46 TC 341. In a dispute between the executors of an estate and a company which had been given an option to purchase certain shares settled in trust, the company being the trustee, the question came up whether the Commissioners of Inland Revenue could be impleaded as respondents. The Court of Appeal had held that where the Commissioners of Inland Revenue consent-ed to be joined as defendants in the proceedings, their names could not be struck out on the ground that the joinder was not authorised. On further appeal, the House of Lords reversed this decision. It was held that all matters in dispute could be effectually and completely disposed of without the Crown being added as a party. The Special Commissioners were not bound by any finding of fact made by the Court in action between the executors and the trustees. The functions of the Special Commissioners on an appeal against an assessment of surtax differ from that of a court of law on hearing of a civil action. Thus, it was decided that the revenue could not be impleaded as a respondent in civil matters even on its own concession.
The decision of the Supreme Court in Narendrakumar J. Modi v. CIT  105 ITR 109 is also similar. There it was held that even a preliminary decree in a partition suit was not binding on the income-tax authori-ties and that the income-tax authorities had their view to take in the matter. We, therefore, reject this particular argument raised by the counsel for the assessee.
12. On a careful consideration of the argument advanced on both sides, we accept the proposition that the applicability of Section 11 will have to be determimed primarily with reference to the objects of the trust. If the fruits of the trust are to go to private hands, the exemption is to be denied on the grounds of non-application of income of the charitable trust. But that does not mean that the objects are not charitable. A distinction has to be drawn between the objects of the trust and the application of its income In this view of the matter, we have to examine the objects of the trust. The objects of the trust as indicated in Clause 2 of the trust deed have already been reproduced in* para 8 of this order. Carrying on of research, etc., in subjects relating to medicine clearly comes under the category of medical relief and education. We, therefore, hold that the object of the trust is charitable.
13. As already stated, if the trustee is given power to alter the conditions under which the objects of the trust are carried on for the benefit of its family members, it would amount to application of income of the trust for non-charitable purposes. Thus, as and when it is found that the result of any research carried on by the institute is passed on for commercial exploitation to the members of the founder's family, the ITO can hold that the application clause in Section 11 has not been satisfied and bring the income of the trust to tax. Although the trust deed has been very clumsily drafted, it does appear that the main purpose of establishing the research institute is to carry on research in various subjects related to medicine and given an opportunity to deserving relatives, etc., to work in the institute. The preference being given to qualified members of the founder's family for carrying on research would not disentitle the trust to exemption in the light of the Supreme Court's decision in Trustees of the Charity Fund's case (supra). We have also made it clear that if the result of any research is handed over for commercial exploitation by the members of the founder's family, etc., it would amount to non-application of the income for charitable purposes. As it is, even if that be the founder's intention, that appears to be a remote possibility. The funds placed by the founder at the disposal of the institute could hardly expect it to carry the research to a stage comparable to that achieved in advanced countries. As a matter of fact, the institution is still to get off its feet. The immovable property was proposed to be sold and the proceeds invested for research. The sale of the building has been stalled for various reasons and the trust is yet to start a research institute. On these grounds we hold that the AAC was justified in holding that the objects of the trust were charitable.
14. The AAC has, however, given a finding that during the year no part of the income of the trust has been applied for charitable purposes.
The revenue authorities are, therefore, justified in taxing the income of the trust on the grounds of non-application of charity.
15. This takes us to the ground regarding the application of Section 164(2) of the Act. The ITO has applied Section 164(1) on the ground that the beneficiaries are not known or their shares are indeterminate and as such the trust is put to tax at the maximum rate. This section is applicable only to private trusts. Since we have held that the trust is charitable, Section 164(2) applies and the AAC was right in directing the ITO to tax the trust at the rate applicable to an AOP.16. We now come to the last ground regarding relief under section SOL of the Act. The revenue's contention is that Section 80L is not applicable to an AOP. We have held that Section 11 applies to the case.
Hence, the entire income is exempt except the portion not applied for charities. The ground raised is academic and we reject the same.
17. Since the charitable object of the trust is not to be considered under the residuary clause, the provision in the trust deed for carrying on business will not, in any way, affect the grant of exemption. In any event, the assessee's case is supported by the Supreme Court's decision in Swat Art Silk Cloth Mfrs. Association's case (supra).
19. Since we have held that the institution is a charitable trust its wealth is exempt under Section 5(1)(i) of the Wealth-tax Act, 1957. It is also made clear that the wealth of the trust is exempt for the assessment year 1971-72 also since the valuation date for that assessment is subsequent to the deed of amendment, namely, dated 17-11-1969. In the result, the wealth-tax appeals are also dismissed.