B.S. Dhillon, J.
1. This judgment will dispose of references Nos. 38 to 40 of 1977, 18 of 1978 and 13 and 14 of 1978. References Nos. 38 to 40 of 1977 pertain to the assessment years 1971-72, 1972-73 and 1973-74; whereas Reference No. 18 of 1978 pertains to the assessment year 1974-75, under the Income-tax Act, 1961 (hereinafter referred to as ' the Act').
2. References Nos. 13 and 14 of 1978 pertain to the assessment years 1973-74 and 1974-75, under the Wealth-tax Act, 1957. The assessee in all the cases is M/s. Rattan Trust, Amritsar.
3. The brief facts giving rise to the abovementioned references are that the assessee trust 'was created in 1942. The dispute relates to the interest income received in each assessment year by the assessee from M/s. Gokal Chand Rattan Chand Woollen Mills Private Ltd. Exemption in respect of this income was claimed by the assessee under Section 11 of the Act. The ITO did not agree with the contention of the assessee that the interest income is to be exempted under Section 11 of the Act and consequently the claim of the assessee was rejected by the ITO. The ITO found that the trust has violated the provisions of Section 13 of the Act inasmuch as the trust funds have been invested in the interested concerns of the trustees, i.e., M. S. Gokal Chand Rattan Chand Woollen Mills Private Ltd. in shares and deposits. It was found that the assessee violated Clauses (a) and (h) of Sub-section (2) of Section 13 of the Act. The assessee claimed that its case was covered by the first proviso to Sub-section (1) of Section 13 of the Act and, therefore, there is no violation of Section (a) and (h) of Sub-section (2) of Section 13 of the Act. It was claimed that the investments in question were made in compliance which the mandate provided in the trust deed.
4. Aggrieved, the assessee filed an appeal before the AAC, but the same was dismissed. The assessee then filed a second appeal before the Income-tax Appellate Tribunal, Amritsar Bench (hereinafter referred to as ' the Tribunal'), which was accepted by the Tribunal. At the instance of the revenue, the following questions of law have been referred to this court for opinion by the Tribunal in References Nos. 38 to 40 of 1977 and Reference No. 18 of 1978:
'1. Whether, in view of Clause 41 of the trust deed, Clause 39 of the trust deed can be legally amended. If so whether such amendment would give rise' to a legally enforceable mandate, as contemplated by the first proviso to Sub-section (1) of Section 13 of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the interest income of the assessee trust is exempt from tax under Section 11 read with first proviso to Sub-section (1) of Section 13 of the Income-tax Act, 1961 '
5. The following question of law has been referred to this court for opinion in references Nos. 13 and 14 of 1978 :
' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee-trust is exempt from wealth-tax under Section 21A of the Wealth-tax Act, 1957?'
6. Clause 41 of the rules pertaining to the trust deed rules is as follows:
'41. Except as to the names and aims and objects of the trust the trustees shall have the power by the majority of 75% of their total number to change, modify or amend any of the rules, regulations, any provision hereinbefore contained with regard to the conduct and management of the trust and with regard to any matter in respect of which any power is confirmed or duty imposed. '
7. Clause 39 of the rules of the trust deed dated 28th March, 1942, is asfollows:
' 39. All the monies with the trustees or sub-committees except interest sums to be determined by the trustees shall be invested by the trustees in such banks or securities in such manner as may be approved of by the trustees. The trustees may from time to time purchase immovable property with the surplus funds in their hands. '
8. In pursuance of the powers conferred on the trustees in Clause 41 of the rules of the trust deed, reproduced above, the trustees of the trust passed a resolution dated 13th March, 1971, whereby they resolved unanimously that Clause 39 of the rules of the trust deed be deleted and new clause be added in its place, which is as under:
' That the trustees may from time to time purchase immovable property with the funds of the trust. The funds of the trust which are not required for immediate needs of the trust shall be kept with M/s. Gokal Chand Rattan Chand Woollen Mills Private Ltd., provided that the trustees may keep not exceeding Rs. 2,00,000 in Government securities, Bank accounts and/or cash in hand. '
9. Section 11 of the Act deals with the income from property held for charitable or religious purposes. Section 12 deals with the income of trusts or institutions from contributions; whereas Section 12A of the Act deals with the conditions as to registration of trusts, etc. Section 13 provides for exigencies when the provisions of Section 11 will not be applicable. Proviso to Section 13(1)(b) of the Act, before it was amended by Section 6 of the Finance Act, 1970, was as follows :
'13. Nothing contained in Section 11 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof--...
(b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof,...
Provided that in a case where this section applies by reason only that under the terms of the trust or the rules governing the institution any part of such income enures directly or indirectly or that any part of the income or any property of the trust or institution is, during the previous year,used or applied directly or indirectly, for the benefit of any relative of suchauthor, founder, person or member, and the amount of income so enuringor used or applied for the benefit of such relative, together with the valueof the benefit derived by him from the user or application of such property,if any, during the previous year, does not exceed a sum calculated at therate of twenty-five per cent. of the income of the trust or institution of theprevious year, the provisions of this section shall have effect only in respectof that part of the income of the trust or institution which does not exceedthe amount so enuring or used or applied together with the value of thebenefit aforesaid.'
10. This provision was amended with effect from 1st April, 1971, and the amended proviso to Section 13(1)(c) of the Act is as follows:
' Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of Sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in Sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution. '
11. The answers to the questions referred to us would depend on the interpretation of the first proviso to Section 13(1)(c) of the Act, as amended. We have to see if the provisions of the trust deed fall within the ambit of the proviso, if so, no fault can be found with the conclusions arrived at by the Tribunal. It is not disputed that the assessee-trust was created before the commencement of the 1961 Act. It is no doubt true that Clause 39 of the trust deed, as it stood then, did not make mandatory provisions regarding the investments of the funds of the trust and it was. by amending the said clause on 13th March, 1971, that a mandatory provision was made that the funds of the trust, which are not required for immediate needs of the trust, shall be kept with M/s. Gokal Chand Rattan Chand Woollen Mills Private Ltd., but the question will still remain as to whether the trust is entitled to the benefit under the first proviso to Section 13(1)(c) of the Act.
12. After hearing the learned counsel for the parties we are inclined to agree with the view taken by the Tribunal. In view of the provisions of Clause 41 of the rules of the trust deed, the trustees had the power to amend the rules, regulations or any provision contained in the trust deed and Clause 39 was duly amended by the trustees before the enforcement of the Finance Act No. 19 of 1970. The provision so made is mandatory and is part and parcel of the trust deed.
13. The contention of Shri Awasthy, the learned counsel for the revenue, that the object of the Finance Act No. 19 of 1970, which amended theprovisions of Section 13 of the Act, was to tighten the rope over the neck of the trust and, therefore, the proviso he construed in favour of the revenue, has not found favour with us. We have gone through the statement of objects and reasons of the Finance Act No. 19 of 1970 and we do not find any mention about the object with which the first proviso to Section 13(1)(c) of the Act was sought to be enacted in the amended form.
14. The other contention of the learned counsel for the revenue that Clause 39 of the rules of the trust deed should be seen as it existed before the 1961 Act was enforced is equally without any merit. The language of the proviso nowhere suggests that the provision regarding the mandatory nature of the rule governing the institution, should be in the rules of the trust deed as pertained before the enforcement of the 1961 Act. Even if two interpretations are possible, the one in favour of the assessee has to be taken. The Tribunal has taken that view and we have no reason to take a different view from the one taken by the Tribunal in this regard.
15. It has been conceded by the learned counsel for the parties that the interpretation given to the proviso to Section 13(1)(c) of the Act, will equally apply to the provisions of Section 21A of the W.T. Act, 1957.
16. For the reasons recorded above, all the questions referred to us in the references which are being disposed of by this common judgment, are answered in the affirmative, i.e., in favour of the assessee and against the revenue. We order accordingly. However, there will be no order as to costs, keeping in view the facts and circumstances of the cases.