D.K. Kapur, J.
1. These are six references (Nos. 40 to 45 of 1976) before this court made under section 256(1) of the Income-tax Act, 1961, which have been referred by a common statement of case. The assessment years involved are 1962-63, 1963-64 and 1964-65. The following two questions have been referred to us for our opinion :
'1. Whether, on the facts and circumstances of the case and on a true construction of the wakf deed dated August 28, 1948, read with the declaration dated September 6, 1950, the whole or any part of the one eighth of the annual income of the wakf transferred to the reserve fund was exempt from tax under section 11(1)(a) or (b) read with section 2(15) of the Income-tax Act, 1961, in respect of the assessment years 1962-63, 1963-64 and 1964-65 ?
2. Whether, on the facts and in the circumstances of the case, 49/64ths share of the income of the wakf allocated to qaumi account was exempt from tax under the provision of section 11(1)(a) or (b) read with section 2(15) for the assessment years 1962-63, 1963-64 and 1964-65 ?'
2. In the statement of case, it is pointed out that the facts relating to this case have been set out at great length in a Full Bench judgment of this court which is reported as Hakim Abdul Hamid v. CIT : 90ITR203(Delhi) . The assessed is M/s. Hamdard Dawakhana (Wakf), Delhi, and as pointed out in the statement of case, this is an association of persons consisting of the mutawallis of the wakf. By a deed dated August 28, 1948, Hakim Haji Abdul Hameed, Hakim Hafiz Mohd. Said and Mst. Rabea Begum took certain properties which belonged to them out of their control and possession and delivered them to the God Almighty to create a wakf. The properties were movable properties belonging to the Hamdard Dawakhana (Wakf), but excluded the rights of ownership in some registered trade marks and also some buildings occupied and used in the business. The executants transferred their rights, etc., in accordance with the terms of the deed, but reserved certain rights to make alterations in the conditions relating to the duties of the mutawallis and administration of the wakf and also to make changes in the distribution of income among the objects of charity. The income was divided into two, i.e., khandani income and qaumi income. A method was set out to determine the net profits of the wakf and also provided that one eighth of this profit was to be transferred to a reserve fund. Directions were also given how this reserve fund was to be used. The remaining profits were to be divided in the following manner : one-fourth was to be spent on personal (needs) and family called khandani income and the balance was to be spent for the community and was called qaumi income. The two questions referred to us relate to the reserve fund and the qaumi income. We are not concerned with the khandani income. It may also be mentioned that in August, 1949, Hakim Hafiz Mohd. Said migrated to Pakistan and his share was acquired by the wakf and then only one-eighth remained as earmarked for khandani account. A declaration was made by Hakim Haji Abdul Hameed dated April 1, 1960, concerning this matter. The result was that 7/64ths share of the net income went to khandani account, 49/64ths share was allocated to qaumi, income and 1/8th went to the reserve account.
3. It is common ground that the income of the wakf was exempted from income-tax for a considerable period. It also appears from the Full Bench judgment of this court, Hakim Abdul Hamid v. CIT : 90ITR203(Delhi) , that the decision given by this court was that the reserve fund was to be treated exactly like the other income of the wakf, i.e., it was held that the ultimate destination of the reserve fund were the two beneficiaries, the charity and the mutawallis. The proportion in which the reserve fund was to be utilised was also the same. It was, thereforee, held that seven eighths portion of the reserve fund was exempt under section 4(3) of the Indian Income-tax Act, 1922, and the remaining one-eighth belonged to the private beneficiaries.
4. When the new Income-tax Act, 1961, came into application, the Income-tax Officer took the view that neither the qaumi income nor the reserve fund was entitled to exemption from tax under section 11(1) of the Income-tax Act, 1961. An appeal was taken to the Appellate Assistant Commissioner who held that 49/64ths share of qaumi account was exempt. He gave certain directions to the Income-tax Officer to determine the actual income of the wakf.
5. The assessed as well as the Department filed appeals to the Income-tax Appellate Tribunal. The case of the Department was that there was no absolute trust and also, it was argued that as the object of the trust was the carrying on of the business of the Hamdard Dawakhana, it was not a charitable purpose. For the contention that there was no absolute gift, reliance was placed on sections 60 to 63 of the new Act.
6. The assessed, however, contended that there was no revocable transfer of assets and the wakf could not reassume power over the income or the assets. There was a difference between the Vice President and the Judicial Member, so a reference was made to the President of the Appellate Tribunal under section 255(4) of the Act. The President agreed with the Vice President to hold that the entire qaumi income is exempt from tax and as far as the reserve fund is concerned, it has to be split in the ratio that the qaumi income bears to the khandani income and that portion of the income earmarked for the reserves proportionate to the qaumi income would be exempt. This is exactly the same decision as the Full Bench judgment of this court already referred to.
7. The decision of the Tribunal has been challenged by means of these references. Mr. Wazir Singh, learned standing counsel for the Department, submits that the object of the trust is to establish and run a commercial institution such as the Hamdard Dawakhana and there is power under clause 49 to 'establish, run or close down any institution'. This is not a charitable purpose at all.
8. It is further submitted that the objects of the trust are not purely charitable and are not restricted to the relief of the poor, education and medical relief. They also include the construction of laboratories, graveyards, research institutions, etc. Hence, the object is one of general public utility. If an object of general public utility is carried on for profit, then the trust is not entitled to any exemption.
9. It is submitted that the dominant object of the trust is the carrying on of a business and is not charitable. Furthermore, remuneration is payable to the mutawallis in the form of khandani income and the business may also be closed down, if profits are not made for three years. In that case, a new profitable business can be started. Then there is a possibility of entering into partnership with others and there is a reserve fund for increasing the profits.
10. There is also a discretion to make suitable alterations in the aims and objects of expenditure of the qaumi income.
11. It is further submitted that the setting up of research institutions are objects of general public utility and not medical relief. Furthermore, there have been modifications in the wakf deed which are not valid as the objects cannot be deleted even by the beneficiaries. For this purpose, reliance was placed on the judgment of the Madras High Court in Shakti Charities v. CIT : 149ITR624(Mad) . An examination of that case shows that the modification in that case was the result of a suit under section 92 of the Code of Civil Procedure. In the reference, the High Court held that the court under section 92 of the Code of Civil Procedure could not alter the objects of the trust.
12. It was further urged that sections 62 and 63 of the Act operated when there was no transfer of any building or trade mark and especially when there is no transfer leading to the creation of a valid trust.
13. We have examined the contentions with some care, but we think we are dealing with an unusual case inasmuch as the trust has been in existence for a very long time. The trust has already been held to be a charitable trust for a number of years under the Indian Income-tax Act, 1922. There is a Full Bench judgment of this court under the 1922 Act pointing out that the Income-tax Officer had granted exemption under section 4(3) (i) of the Indian Income-tax Act 1922, in respect of the income set apart for being spent for charities. There, it is pointed out that the khandani income was assessed in the personal hands of Hakim Abdul Hamid. The following words occur :
'There is no dispute with regard to the exemption granted in respect of the income set apart for charities and there is no dispute also with regard to the assessment of the khandani income in the hands of Hakim Abdul Hamid.'
14. Thus, we are concerned with a case in which there was a settled position for number of years. We are, thereforee, not fully convinced that there is any alteration in the 1961 Act which changes the position as existed in the 1922 Act.
15. The main point urged by Mr. Wazir Singh was based on the definition of 'charitable purpose' stated in section 2(15) of the Act. This definition as in the 1961 Act is as follows :
''charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit.'
16. Thus, the emphasis is on the fact that this charity is carrying on a business, namely, the Hamdard Dawakhana. In fact, the dedication is of a business because the dedicated property is neither any building, nor any trade mark, but the business of the Hamdard Dawakhana. It is, thereforee, urged that this is not a charitable purpose at all and hence no exemption can be granted. It is pointed out that out of the business of this trust, the khandani income is being earned by the mutawallis themselves, so there is no scope for saying that this is a charitable purpose.
17. We find that on a proper construction of the Act, this is not the meaning to be given to the definition. In order to have a charity, you must have a source of income. The income may come from gifts, or it may come from running a business. In this case, the trust is of a portion of the income of the Hamdard Dawakhana. Although the source of the income is a business, the object of the trust is not to run that business, but to utilise the income of that business for a charitable purpose. The income has been divided into two portions, i.e., khandani income and the qaumi income. That portion of the income which is not earmarked for charity is subject to tax, but the remaining portion has to be used for charitable purposes.
18. In our view. the entire point is now covered by the Supreme Court's judgment in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association : 121ITR1(SC) . The court pointed out in that case that when the object of a trust was the carrying on of an object of general public utility, it is that object of general public utility which must not involve the carrying on of an activity for profit. It was pointed out that it was immaterial how the money for achieving or implementing such purpose was found. Whether that money was obtained by the running of an activity for profit or not, did not make the charity not charitable. Thus, in the present case, no doubt, the trust earns the money from the Hamdard Dawakhana. If that money is used for charitable purpose and not for the carrying on of any business at a profit, then the object of the trust is charitable, not with standing the source of the income.
19. It is hardly possible for a charitable trust to work with no source of income. So, the makers of the trust in the present case, dedicated a portion of the income of the business for being used for charitable purpose As long as the user of that money is charitable, then the exemption has to be granted.
20. It is useful now to refer to the opening words of section 11(1) of the Act :
'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 religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent. of the income from such property;
(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; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty-five per cent. of the income from such property;... The provisions reproduced above show that there can be a partial trust, but the income must be applied for charitable purposes in order to be exempt. Assuming that, in the present case, there is a partial trust inasmuch as the entire income from the business has not been given to charity, we have to deal with that portion which is applied to charity That portion is 49/64ths part which relates to the qaumi income and out of the reserve set apart and accumulated. It is that portion, i.e., seven eighths which has been held to be charitable by the Full Bench of this court.
21. The other submission made by Mr. Wazir Singh was that section 11 was subject to sections 60 to 63. It was submitted that section 62 and 63 would directly apply to the facts of the present case. Section 62 reads as follows :
'62. (1) The provisions of section 61 shall not apply to any income arising to any person by virtue of a transfer -
(i) by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee; or
(ii) made before the 1st day of April, 1961, which is not revocable for a period exceeding six years :
Provided that the transferor derives no direct or indirect benefit from such income in either case.
(2) Notwithstanding anything contained in sub-section (1), all income arising to any person by virtue of any such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises, and shall then be included in his total income.'
22. We cannot see in what way this section applies to the facts of the present case. As far as we can see there is no power in the wakf deed to withdraw the business from the trust. The following words occur in the wakf deed :
'Neither we, the Executants, nor our heirs and legal representatives shall have any right, power or authority to cancel or impugn the validity of this wakf or to go behind the basic objects of the same. However, we, the Executants No. 1 and 2, jointly during our lifetime and on the death of one of us, the survivor alone, shall have full shall right to make at his or their discretion suitable alterations in the conditions relating to the duties of mutawalli and the administration of the wakf and the modes of division of 'khandani' income and 'Qaumi' income or to make changes in the distribution of income among the various items and objects of charity or in the matter of allocation of rights and shares of his or their heirs or legal representatives in regard to the benefit from the income of the wakf.'
23. The main point is regarding the nature of the reserved right to make alterations in the wakf deed. We do not think that the wakf can at all be withdrawn in the light of the language used. The provision is for making alterations in the conditions relating to the duties of the mutawallis and the administration of the wakf. The khandani income has to be treated quite separately from the qaumi income. The khandani income is personal to the mutawallis, i.e., it is not to be used for charity, it is to be used for the family of the executants. It has to be distributed amongst the various members of the family. The reserved right regarding khandani income has no effect at all on the charitable part of the trust deed. As far as the qaumi income is concerned, no doubt, this visualises changes in distribution of the income among the various objects of charity. In any event, when you have a charitable trust with several specified objects, there has to be some division between the various items of charity. The document is an extremely complex one regarding how the income is to be used and who are the trustees or mutawallis and how the income is to be divided. Clause 44 deals with the qaumi income. It is stated there as follows :
'44. The 'Qaumi Income' of the wakf, that is, the 3/4ths (three-fourths) share of divisible net profits earmarked for the purposes of public charity and relief, shall be spent only on such objects as come within the purview of public and charitable objects, according to the principles of the true teachings of Islam but in spending it, priority shall be given to the collective needs of the community and country or to such needs as may benefit the largest number of persons or their future generations and so far as possible, it shall be specially borne in mind that not more than 1/4th (one-fourth) of the qaumi income is spent on individual needs.'
24. There were clarifications and modifications to this on 24th March, 1964. One was that there was a power to donate to other public charitable institutions ad hoc sums and the second was that the expenditure contemplated in clauses forty-five, forty-six, forty-seven, forty-eight and forty-nine, shall be exclusively used for charitable purposes, and no part of it would directly or indirectly benefit the wakifs.
25. The clauses 45, 46, 47, 48 and 49 are detailed directions regarding how the qaumi income is to be spent. The entire set of terms with their modifications and clarifications of 24th March, 1964, is set out hereunder :
'45. The necessities relating to the improvement of health and physical soundness of our countrymen and of serving the cause of medicine, which we the wakifs have specially in view at present and the fulfillment of which out of the 'Qaumi Income' of the wakf is regarded as primary and most essential are as follows :
(1) To establish and run a research institute for the purpose of discovering the properties, action and active principles of herbs and simple medicines.
(2) To establish and successfully conduct a Tibbia College in conformity with our own standard.
(3) To establish and run charitable hospitals and clinics where poor patients are given free treatment, according to the principles of indigenous system of medicine.
We shall prefer that at least 2/3rds (two-thirds) of the money out of the 3/4ths (three-fourths) share of the 'Qaumi Income' devoted to collective needs, is spent on the above-mentioned objects and the remaining 1/3rd (one-third) shall be spent on establishing and running such industrial and technical institutions and laboratories as may tend to reduce poverty and unemployment in the country.
46. It shall not be necessary that the 3/4ths (three-fourths) of the 'Qaumi Income' shall in all cases be spent on the collective needs referred to above and only 1/4th (one-fourth) of it on the individual needs of deserving people in the community and country. It shall be possible to make suitable alterations in this proportion in conformity with the needs and requirements of the time and the following items of expenditure and needs shall not be considered as excluded from the collective needs of the community and country.
46. (I) To establish and run educational, commercial, industrial and cultural institution or to aid those which are already in existence.
(2) To build schools, laboratories, inns, wells, mosques, khanghas, graveyards or such other buildings of a public nature as may benefit the community and country or those which have as their object the perpetuation of the memory of important historical incidents or historic personages or to aid in the repairs, supervision, extension and improvement of those already in existence.
(3) To publish books, pictures, maps or literature or to aid in publication of the same by the publication of which the community and country are likely to benefit.
47. The fulfillment of the individual needs of deserving people in the community and country shall include all such expenses as may directly benefit an individual or his family, i.e., helping our relations (vide also Appendix H), orphans, travellers, helpless persons, authors, research scholars, victims of unforeseen accidents and calamities, etc., etc. The relief of our relations shall as far as possible have precedence over the individual needs of other deserving persons among the charitable purposes of the wakf, and
48. We the wakif Mutawallis jointly and in case only one of us is alive, then he alone shall have full right, power and authority to make suitable alterations in the aims and objects of the expenditure of the 'Qaumi Income' in conformity with the requirements and exigencies of the situation, But after us, any alteration in the above-mentioned objects shall only be effected by an extraordinary resolution of the Majlis-E-Ayan, provided that the alteration is not contrary to the basic objects and purposes of charity (vide also xvii below).
Modification dated 24th March, 1964 : (vide Appendix M)
48-(xvii) And, the powers vested in the mutawallis, per clauses forty eight and forty-nine, shall, under any circumstances, not be exercised so as to benefit the wakifs and/ or their heirs.
Clarification and, modification both dated 24th March, 1964 : (vide Appendix L and M)
(xiv) In regard to the various provisions of this wakf deed, I solemnly affirm that these modifications and clarifications have been made as authorised, by clause two (second para.), of this wakf deed. (vide Appendix L and M). Any para, text or provision of these modifications and clarifications if found at variance with the relevant (or otherwise), para, text or provision of this wakf deed, interpretation and guidance shall be taken from these modifications and clarifications as final and complied with accordingly.
49. We, the Wakf-Mutawallis shall, jointly and severally, have full power and authority, without any let or hindrance to spend the wakf income according to our own discretion and to establish, run or close down any institution of a public nature according to our independent judgment and during the lifetime of any of us, mutawallis, the only duty of the Majlis-E-Ayan shall be to scrutinise and supervise the accounts relating to 'Qaumi Income' and from time to time to give us the benefits of its advice.'
26. It was submitted before us that clause 46 shows that it is possible to use the trust even for running profitable businesses such as commercial institutions, schools, laboratories, inns and also by publication of books. Thus, a non-charitable purpose was visualised by this trust.
27. No doubt, the words actually used do suggest that conceivably the trust income could be used for non-charitable purposes. At the same time, we think that the object of the trust was not to use the income for no charitable purposes. When one visualises that education and medical relief are themselves charitable purposes within the meaning of section 2(15), we do not see why the charitable income cannot be used for running such educational and commercial institutions. What is visualised is the running of institutions for the employment of the poor. Similarly, the inns referred to in clause 46 are really not hotels run for commercial purposes, but sera is for the housing of the poor. The context in which the objects have been specified shows that the income has to be used for charitable purposes. The enumeration of charitable purposes, if not read in the context in which they are used, can give rise to an inference that the money is to be used for non-charitable purposes. The proper way to construe the document is to visualise the fact that the executants wanted to make a charitable trust and they also specified in what way the charitable income was to be used. You can use income to set up a factory at a profit and you can also use the income to set up a poor house for employment of poor people. The effect may be the same, i.e., the setting up of a commercial establishment, but the object is different. One is to run an institution for profit and the other is to provide employment to the poor by giving them work and income. Similarly, in making a graveyard or a mosque or an inn, the money is used for charitable purposes or it may be used for profit by selling the space, e.g., by making income from the inn. If you read it in the context in which the utilisation of the charitable money is being indicated, then you can infer that the real purpose is not to run a charitable institution, but one which results in a charity. The ambiguity of reading one or the other meaning has been removed by the clarification dated March 24, 1964, made by the executants, to the effect that the money will only be used for charitable purposes and clauses 45 to 49 will be read a denoting only a charitable utilisation of the money of the trust.
28. Reverting now to the discussion regarding the transfer, it is necessary to quote section 63 of the Act, which reads as follows :
'63. 'Transfer' and 'revocable transfer' defined. - For the purposes of sections 60, 61 and 62 and of this section, -
(a) a transfer shall be deemed to be revocable if -
(i) it contains any provision for the retransfer directly or indirectly of the whole or any part of the income or assets to the transferor, or
(ii) it, in any way, gives the transferor a right to reassume power directly or indirectly over the whole or any part of the income or assets;
(b) 'transfer' includes any settlement, trust, covenant, agreement or arrangement.'
29. On an examination of the trust deed, we cannot find any way in which the income of the trust can be retransferred to the transferor especially after the clarification which forbids any of the benefits of the qaumi income coming to the executants or mutawallis. Keeping in view, the fact that this trust has been accepted to be a charitable trust for a long period, we do not think that the 1961 Act has made any change which affects the validity of the charitable purposes. We would, thereforee, answer the two questions referred to us as follows.
30. As far as the first question is concerned, we would merely follow the Full Bench judgment of this court to hold that seven-eighths portion of one-eighth portion of the annual income of the wakf transferred to the reserve fund is exempt from tax under section 11(1)(a) or (b) read with section 2(15) of the Income-tax Act, 1961, in respect of these assessment years.
31. As far as the second question is concerned, we would hold that the 49/64ths share of the income allocated to the qaumi account is exempt.
32. As this case is the result of the changes made in the 1961 Act as compared to the 1922 Act, we would leave the parties to bear their own costs.