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Ma Shree Kishoriji Bishwa Vs. Wealth-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Allahabad
Decided On
Judge
Reported in(1984)7ITD90(All.)
AppellantMa Shree Kishoriji Bishwa
RespondentWealth-tax Officer
Excerpt:
.....wto did not accept this claim. he was influenced by the fact that in the income-tax assessment the trust income was not exempted under section 11 of the income-tax act, 1961 ('the 1961 act'), which order was also upheld by the learned aac for the assessment year 1973-74. the wto, accordingly, completed the wealth-tax assessment for the assessment year in question on a net wealth of rs. 3,56,135.25.3. in appeal, the learned aac was influenced by the fact that section 13(b)(ii) of the 1961 act, had been substituted by the finance act, 1966, with effect from 1-4-1966. the learned aac also thought that the trust under consideration was created after 1-4-1962 and that it was disentitled to exemption under section 11. for this purpose reliance was placed on the observations contained at page.....
Judgment:
1. The assessee is aggrieved of the order dated 15-12-1980 of the learned AAC.2. The assessee is a trust by the name of Ma Shree Kishoriji Bishwa Hitkarak Trust, 1-Way Road, Lucknow. It was constituted under a deed dated 18-8-1961. The assessment year in question is 1968-69 and the relevant valuation date is 30th June. The wealth of the trust consists of immovable property No. 1, Ram Mohan Rai Marg (Way Road) and the movable property consists of shares, fixed deposits, account in GPO, Hazratganj, Lucknow and cash in hand. The assessee disputed the liability to wealth-tax on the ground that the properties being trust properties, no wealth-tax was leviable. However, the WTO did not accept this claim. He was influenced by the fact that in the income-tax assessment the trust income was not exempted under Section 11 of the Income-tax Act, 1961 ('the 1961 Act'), which order was also upheld by the learned AAC for the assessment year 1973-74. The WTO, accordingly, completed the wealth-tax assessment for the assessment year in question on a net wealth of Rs. 3,56,135.25.

3. In appeal, the learned AAC was influenced by the fact that Section 13(b)(ii) of the 1961 Act, had been substituted by the Finance Act, 1966, with effect from 1-4-1966. The learned AAC also thought that the trust under consideration was created after 1-4-1962 and that it was disentitled to exemption under Section 11. For this purpose reliance was placed on the observations contained at page 295 of Kanga and Palkhivala's Law and Practice of Income-tax, 7th edition, Volume I.Reliance was also placed on the decision of the Hon'ble Bombay High Court in the case of Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1952] 21 ITR 231. Accordingly, the appeal was dismissed.

4. The assessee, being aggrieved, has come up in appeal before us. Shri A.C. Sinha, the learned counsel for the assessee, firstly submitted that the wealth-tax authorities had erred in examining the controversy with reference to the provisions of the 1961 Act and not with reference to the provisions of the Wealth-tax Act, 1957 ('the Act') He pointed out that there was not material difference between the provisions of Sections 11 and 13 and the provisions of Section 5(1)(i) of the Act. He referred to the provisions of the deed of trust and pointed out that it was not created after 1-4-1962 but before 1-4-1962. He also referred to the decision of the Hon'ble Bombay High Court in the case of Trustees of K.B.H.M. Bhiwandiwalla Trust v. CWT [1977] 106 ITR 709 and the decision of the Hon'ble Calcutta High Court in the case of Managing Shebaits of Bhukailash Debutter Estate v. WTO [1977] 106 ITR 904 for the proposition that unlike the provisions of the 1961 Act, the holding of a property by the assessee either under a trust or other legal obligation for public purpose of a charitable or religious nature was the only statutory requirement under Section 5(1)(i) entitling the assessee to exemption under the Act and that the application of the money held under the trust or under legal obligation was not a relevant consideration for such exemption. It was also pointed out that there was a difference in the matter between the Indian Income-tax Act, 1922 ('the 1922 Act') and the Act, inasmuch as under Section 4(3)(i) of the 1922 Act (which corresponds to Section 11 of the 1961 Act), in order to earn exemption, income should have been derived from property held under trust wholly or in part for religious or charitable purposes, whereas in the Act, the word 'wholly' does not exist in Section 5(1)(i) and there is no provision for exempting only part of the property held for religious or charitable purposes. Shri Sinha pointed out that the intention of the Legislature in omitting the word 'wholly' in Section 5(1)(i) as a qualifying word as regards the requirement concerning the objects of the trust is that if it can be said that primarily or predominantly the objects of a trust are of a public charitable nature, the corpus would qualify for exemption. He also pointed out that since under the trust deed in question the trustees had not been given the discretion to use the whole income of the trust on any one of the specified objects, the property of the trust was held primarily for a public purpose of a charitable nature and was, therefore, wholly exempt under Section 5(1)(i). Shri Sinha also referred to the proviso to Section 21A of the Act for the proposition that in the case of a trust created before 1-4-1962 the provisions of Clause (i) shall not apply to any use or application, whether directly or indirectly, of any part of such property or any income of such trust for the benefit of any person referred to in Sub-section (3) of Section 13, if such use or application is by way of compliance with a mandatory term of the trust.

He argued that since the trust in question was created before 1-4-1962, this proviso was fully applicable and the wealth of the assessee-trust was entitled to exemption. Shri Sinha, however, pointed out that though the question of status in which the assessee had been assessed had been agitated before the learned AAC and was also mentioned in the grounds of the assessee's appeal, that ground was not being pressed.

5. On the other hand, Shri K.K. Rai, the learned departmental representative placed reliance on the orders of the wealth-tax authorities. At the same time he fairly conceded that the case was governed by Section 5(1)(z) and not under the provisions of the 1961 Act. However, he referred to Sub-clauses (a) to (g) of Clause 4 of the trust deed as well as Clauses (6) to (10) thereof and urged that it is a private trust and not a public trust. He particularly placed reliance on Clause (6) of the trust deed, which is to the following effect : Another condition of the trust hereby declared is that the trustees are not authorised to treat this trust as a public trust or incur expenditure on strangers so long as the descendants or caste fellows the executant are available.

He also placed reliance on the decision of the Hon'ble Allahabad High Court in the case of Chintamani Ghosh Trust v. CWT [1971] 80 ITR 331 as also the decisions of the Hon'ble Supreme Court in the case of Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 and in the case of CWT v. Trustees of H.E.H. Nizam's Family Trust [1977] 108 ITR 555.

6. In reply, Shri Sinha submitted that in the case of Trustees of K.B.H.M. Bhiwandiwalla Trust (supra), the decision of the Hon'ble Supreme Court in the case of Trustees of Gordhandas Govindram Family Charity Trust (supra) had been examined and applied.

7. We have considered the rival submissions as also the decisions referred to above. It is not under dispute before us that the assessee is a trust. It is also clear that the matter required to be examined in the light of the provisions of Section 5(1)(i) and the proviso to Section 21A. Section 5(1)(i), inter alia, provides that wealth-tax shall not be payable by an assessee in respect of any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in, India and that such assets shall not be included in the net wealth of the assessee. Section 21A relates to wealth-tax assessment in cases of diversion of property or of income from property held under trust for public charitable or religious purposes. The proviso to Section 21A is in the nature of Explanation to Section 5(1)(i) and it is to the effect that in case of a trust created before 1-4-1962 the provisions of Clause (i) shall not apply to any use or application, whether directly or indirectly, of any part of such property or any income of such trust for the benefit of any person referred to in Sub-section (3) of Section 13 if such use or application is by way of compliance with a mandatory term of the trust. Here it may be noticed that the trust deed in question having been executed indisputably on 18-8-1961, the learned AAC was not right in observing that the trust under consideration was created after 1-4-1962. Section 13(3) enumerates the following persons for whose benefit directly or indirectly any part of the income or property of the trust is used or applied : (c) where such author, founder or person is a Hindu undivided family, a member of the family ; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid ; (e) any concern in which any of the persons referred to above has a substantial interest.

A perusal of the trust deed in question shows that references are made therein to money being spent on the upbringing, education and maintenance of deserving descendants of the executant and on the marriage expenses of deserving female descendants of the executant.

Therefore, the proviso to Section 21A applied to the case of the assessee on facts since the use or application of the income of such trust for the benefit of the aforesaid persons is a mandatory term of the trust and the trust has been created before 1-4-1962. Further, as rightly pointed out on behalf of the assessee, the word 'wholly' which appears in Section 11 not being there in Section 5(1)(i), it follows that if it can be said that primarily or predominantly the objects of the trust are of a public charitable nature, the corpus would qualify for exemption. Under Section 5(1)(i) all the objects need not fall within the expression 'public purpose of a charitable or religious nature in India. It would be sufficient if the objects of the trust, considered as a whole, could be regarded to be within the expression.

In the case of Trustees of K.B.H.M. Bhiwandiwalla Trust (supra) the Hon'ble Bombay High Court found that out of the five objects of the trust, four fell within Section 5(1)(i) and that the objects specified in the deed were conjunctive and not disjunctive. The Hon'ble High Court further found that the trustees had not been given discretion to use the whole of the income of the trust on any one of the specified objects. On these facts, after applying the decision of the Hon'ble Supreme Court in the case of Trustees of Gordhandas Govindram Family Charity Trust (supra), it held that the property of the trust was held primarily for a public purpose of a charitable nature in India and that it was wholly exempt under Section 5(1)(i). In the persent case, Clause 4 of the trust deed is to the following effect : One of the conditions, of the trust hereby declared is that the trustees have to prudently manage the trust properties and after meeting the expenses of the management and payment of the dues, legally payable, have to utilise the balance in the following proportion for objects noted against each : (a) 15 percent to be expended to meet emergent expenses like damages caused by natural calamities, illness, relief of distress among the deserving, fire victims, sufferers from earthquakes, flood, devastation by enemy action and epidemics. If deserving persons are not available in any year, the amount has to be saved to be sepnt in suitable occasions to give relief at later times.

(b) 20 per cent to be reserved for the maintenance of the executant for her lifetime and after her death unless the executant nominates any beneficiary or designates any beneficiary for DHARMIC, SOCIAL OR CHARITABLE object, the said percentage of the income shall be expended in such manner as the trustees deem, expedient.

(c) 20 per cent to be expended on the upbringing, education and maintenance of deserving descendants of the executant and if God forbid no such descendants of the executant exist the amount should be utilised for grant of marriage expenses and scholarship to deserving students who might be connected with the executant, at the discretion of the trustees.

(d) 10 per cent to be expended on performance of religious duties, celebration of Dasehra, pilgrimage, yatra, pooja, feeding of poor and similar dharmic objects. Any savings in any one year to be carried over to the next year and expended at the discretion of the trustees for similar objects whenever suitable occasions arise.

(e) 10 per cent to be expended on the maintenance, improvements, additions, accretions and alterations of the trust property. If no occasion arises for such expenditure in any year the amount shall be saved to be utilised when suitable occasion arises.

(f) 15 per cent to be expended on providing marriage expenses to deserving female descendants of the executant or other persons preferably of caste fellows. If no suitable persons are available in any year the money shall be saved for expenditure when a suitable occasion arises.

(g) 10 per cent to be expended at the discretion of the trustees for the maintenance and support of the deserving persons.

Sub-clause (a) requires 15 per cent to be spent to meet emergent expenses like damages caused by natural calamities, illness, relief of distress among the deserving fire victims, sufferers from earthquakes, flood, devastation by enemy action and epidemics. It also provides that if deserving persons are not available in any year, the amount has to be saved to be spent on suitable occasions to give relief at later times. The object mentioned in this clause is a public purpose of a charitable nature. Sub-clause (b) refers to reservation of 20 per cent for the maintenance of the executant for her lifetime and after her death and in the absence of a beneficiary nominated by the executant, in such manner as the trustees deem expedient. This would be covered under the proviso to Section 21 A. Sub-clause (c) provides for 20 per cent to be spent on the upbringing, education and maintenance of deserving descendants of the executant and in their absence for the grant of marriage expenses and scholarship to deserving students who might be connected with the executant at the discretion of the trustees. The position of this Sub-clause is also similar to that of Sub-clause (b). In fact, Sub-clause (c) is not restricted to descendants of the executant. So far as Sub-Clause (d) is concerned, 10 per cent is to be spent on the performance of the religious duties, celebration of Dasehra, pilgrimage, yatra, pooja, feeding of poor and similar dharmic objects. This object is indisputably a public purpose of a charitable or religious nature in India. Sub-Clause (e) requires 10 per cent to be spent on the maintenance, improvements, additions, accretions and alterations of the trust property. This object would be ancillary to the public purpose of a charitable or religious nature.

Sub-clause (f) requires 15 per cent to be spent on providing marriage expenses to deserving female descendants of the executant or other persons, preferably of caste fellows. Firstly, the object is not to benefit the female descendants of the executant wholly but also the caste fellows. If a purpose is directed to the benefit of the community or a Section of the community, the purpose is to be treated as charitable. Moreover, the position of Sub-clause (f) would be the same as that of Sub-clauses (b) and (c). Lastly, Sub-clause (g) provides for spending 10 per cent by the trustees at their discretion for the maintenance and support of the deserving persons. This is a public purpose of a charitable nature unconnected with the executant or his family. No doubt Clause (6) (which has been quoted above) says that the trustees are not authorised to treat the trust as a public trust or to incur expenditure on strangers so long as the descendants or the caste fellow of the executant are available. However, this is not an overridring provision but only in the nature of a residuary provision since the objects of the trust have been fully dsecribed in the various Sub-clauses of Clause (4) referred to above and utilisation of the entire income is provided for therein. In fact, in terms of the decision of the Hon'ble Bombay High Court in the case of Trustees of K.B.H.M. Bhiwandiwalla Trust (supra) the trustees have no discretion to use the whole income of the trust on any one of the specified objects.

Therefore, notwithstanding the existence of Clause (6) referred to above, the trust remains a trust for a public purpose of a charitable or religious nature. We have to be guided by the provisions of the trust deed taken as a whole and not by an isolated provision like Clause (6) torn out of context. Clause (7) of the trust deed refers to the power of the trustees to dispose off the trust property and to utilise the profits thereof. Clause (8) gives the power to reserve or utilise a sum not exceeding Rs. 50,000 for the purposes of construction of some building at any place of pilgrimage for a charitable or other religious purposes. This is undoubtedly a public purpose of a charitable or religious nature in India. Clause (9) enables other properties or moneys to be added to the assets of the trust. Clause (10) refers to the modification of the trust deed if need be. Thus, Clauses 7 to 10 also do not militate against the purpose of the trust being of a charitable or religious nature in India. No doubt in the case of Trustees of Gordhandas Govindram Family Charity Trust (supra), the Hon'ble Bombay High Court had held that a trust of which the paramount and dominant object was relief of the settlor's poor relatives (including provisions for their marriage expenses) was not charitable even though the trust provided for a remote benefit to the community and this view has now been placed beyond the pale of controversy by the Supreme Court vide its decision in the case of Trustees of Gordhandas Govindram Family Charity Trust (supra) in the case of the same trust. However, a trust for the benefit of the public with a direction that preference should be given to the members of the settlor's family in the selection of beneficiaries, is nonetheless a valid charity if the trust is created before 1-4-1962 as in the present case. In the present case, it could not be said that in the trust deed the benefit to the community was remote or that the paramount and dominant object was the relief of the settlor's relatives. Therefore, in the light of the provisions of Section 5(1)(i) read with the proviso to Section 21A as explained by the various decisions referred to above and in the light of the provisions of the trust deed, we are of the view that the wealth-tax authorities were not justified in not granting exemption to the assessee-trust under Section 5(1)(i). In our view, the assessee was duly entitled to the said exemption and wealth-tax assessment should be modified for the assessment year in question, accordingly.


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