1. This is a reference under section 66(1) at the instance of the Commissioner of Income-tax, Gujarat.
2. By an indenture of trust dated July 28, 1945, one Bhailal Dajibhai Amin settled certain shares of the then market value of Rs. 2,50,000 and certain immovable properties situate at Virsad in District Kaira upon certain trust therein more particularly set out. By another indenture of trust dated August 2, 1945, he conveyed, transferred and assigned unto the trustees certain immovable properties belonging to him and situate at Baroda and certain shares and securities standing in his name of the then market value of Rs. 4,50,000 upon the same trust set out therein. Since both the trust deeds contain identical terms, it would be sufficient if the relevant terms of one of them were to be set out for the purpose of indicating the objects of the two trusts. Clause 5 of the trust deed relating to the Kaira properties provides that the trustees shall spend and apply the net balance of the income of the said trust fund and trust property for the benefit of the public in general of the Baroda State and of Kaira District of Bombay Presidency including Cambay State within its geographical limits in Gujarat without distinciton of caste, creed or colour in the advancement of education, commerce, industry, public health and medical relief and particularly :
(A) by establishing and maintaining a good and well-equipped hospital at Baroda or nearby;
(B) by establishing and maintaining either an industrial home or industrial classes or maternity home for women at village Virsad in Borsad Taluka in Kaira District;
(C) by awarding prizes and scholarships to deserving students;
(D) by granting scholarships, travelling fellowships or loans with or without interest to qualified persons for higher education and training in various branches of technology, applied sciences and agricultural subjects and more particularly medicines, chemical and pharmaceutical, engineering and other allied subjects;
(E) by giving grants to schools, colleges, and technical institutions;
(F) by giving aid to institutions for carrying on scientific and other industrial researches and also by giving donations to establish similar institutions in Baroda City;
(G) by grants for public health and medical relief in villages.
3. The clause gave power to the trustees to apply the corpus of the said trust fund or any portion thereof as they may from time to time think fit for any one or more of the above objects. Clause 12 empowered the trustees to take over the superintendence, management and administration of any trust or institution 'having allied objects whether endowed or not by the settlor on such terms and conditions as the trustees may in their absolute discretion think fit' and may thereafter superintend, manage and administer the same and may apply such portion of the income of the trust fund as they may in their absolute discretion think fit for the support and conduct of such trust or institution. Clause 13 runs as follows :
'13. The trustees may accept donations and/or contributions either in cash or kind from any person, company, firm or institution upon such terms and conditions as they may deem proper and may carry out such terms and conditions and may apply any portion if the income of the trust fund for the purpose thereof.'
4. The two trusts are referred to for the sake of convenience as Rajmitra Bhailal Amin Charitable Trust (Kaira Property) and Rajmitra Bhailal Amin Charitable Trust (Baroda Property), the two trusts being the assessees herein.
5. The years of assessment in respect of the trust of Kaira properties are 1949-50 to 1958-59, the corresponding accounting periods being the years ending December 31, 1948, to December 31, 1950, and the years ending March 31, 1952, to March 31, 1958. The assessment years in the case of the trust for the Baroda properties are 1947-48 and 1956-1957 relating to the accounting years ending December 31, 1946, to December 31, 1950, and the years ending March 31, 1952, to March 31, 1956. The two trusts made applications for refund on the ground that they were entitled to exemptions in respect of their incomes under section 4(3)(i) of the Act. The Income-tax Officer held that the assessee-trusts were neither religious nor charitable trusts, and relying upon that finding, as also upon the provisions of clause 13 of the trusts deeds, declined to grant the exemption. The Appellate Assistant Commissioner set aside the order of the Income-tax Officer and held that the trust were entitled to exemption under section 4(3)(i) and granted exemption in conformity with the restrictions imposed by the amendment to the Act by the Income-tax (Amendment) Act, 1953, which was brought into effect from the 1st of April, 1952, and also by the Finance Act of 1955, which came into force as from the 1st of April 1955. The Commissioner thereafter filed appeals before the Income-tax Tribunal, raising therein two contentions : (1) that one of the objects set out in clause 5 of the trust deed, namely, advancement of commerce and industry, was not a charitable object and since the trustees had discretion under that clause to utilise the corpus as also the income of the trust properties for any of the objects including the aforesaid object the trust was not a charitable trust, and (2) that clauses 12 and 13 of the trust deeds gave power to the trustees, to take over other institutions and to accept donations and/or contributions, that such donations might carry with them terms and conditions inconsistent with the objects of the trust and if the trustees were under these powers to accept such donations and/or contributions, they would have to carry out such terms and conditions which might not be charitable in nature. The Tribunal rejected both these contentions and confirmed the order passed by the Assistant Commissioner. Thereupon, the Commissioner applied to refer the question of law arising under section 4(3)(i) of the Act and the Tribunal in consequence has referred to us the following question, namely :
'Whether, on the facts and in the circumstances of the case, the assessee-trust is entitled to exemption under section 4(3)(i) of the Indian Income-tax Act, 1922 ?'
6. The definition of what is a charity is one which is not a definition that it would receive in ordinary parlance. As has often been pointed out by courts, the expression charitable purpose as used in enactment is a term of art and for the purposes of income-tax it has to be given the meaning the Act affords to it in the Explanation to section 4(3) which Explanation is an inclusive and not an exhaustive definition. Section 4(3)(1) provides that :
'4. (3) Any income, profits or gains falling within the following clauses shall not be included in the total income of the person receiving them : (1) 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 fir 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 for such purposes, the income applied or finally set apart for application thereto...'
7. The first part of sub-section (3) of section 4 furnishes an explanation to the expression 'charitable purpose' and it runs as follows :
'In this sub-section 'charitable purpose' includes relief of the poor, education, medical relief, and advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) shall operate to exempt form 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 ensure for the benefit of the public.'
8. Section 4(3)(i), as it stood prior to the enactment of the Income-tax (Amendment) Act, 1953, and the Finance Act of 1955 was in some represents different from what it is now. But it is conceded that so far as the present reference is concerned, these changes do not make any material differences, for the entire reference really turns : (1) upon the question whether advancement of commerce and industry is a charitable purpose within the meaning of sub-section (3)(i) of section 4, and (2) the interpretation of clause 12 in the two trusts deeds.
9. So far as the question as to whether the expression 'advancement of commerce and industry' contained in clause 5 of the trust deeds is concerned, no difficulty arises because of the concession made by the learned Advocate-General, in view of the decisions such as All India Spinner's Association v. Commissioner of Income-tax, Commissioner of Income-tax v. Radhaswami Satsang Sabha, Commissioners of Inland Revenue v. Yorkshire Agricultural Society, In re Town and Country Planning Act, 1947 : Crystal Palace Trustees v. Minister of Town and Country Planning and Andhra Chamber of Commerce v. Commissioner of Income-tax that such a clause cannot be held to be objectionable and a trust for the advancement of commerce and industry would be trust for a charitable purpose within the meaning of section 4(3)(i) and the Explanation attached thereto and that such an object satisfies the statutory test, namely, advancement of any other object of general utility as contemplated by the Explanation of sub-section (3) of section 4 of the Act.
10. The main grievance of the learned Advocate-General appearing for the commissioner, however, was with regard to clauses 12 and 13. His contention first was as regards the power of the trustees to take over the superintendence, management and administration of any trust or institution having allied objects, whether endowed or not by the settlor, on such terms and conditions as the trustees may, in their absolute discretion, think fit, as also the power of the trustees thereunder to apply such portion of the income of the trust fund as they may, in their absolute discretion, think for the support of such trust or institution, etc., etc. The learned Advocate-General contended that the trustees, under the powers reserved to them under this clause may take over the management or administration of any trust or institution having objects which may be allied to the objects of the present trust deeds, but though the objects may be allied, they may not necessarily be for charitable purpose, and in that event the power given to the trustees to expend such portion of the income of the trust fund as may, in their absolute discretion, think fit, for the support and conduct of such trust or institution, would be objectionable and therefore would preclude the trust from claiming the benefit of section 4(3)(i) as such a trust in that event cannot be said to be one wholly for religious or charitable purposes. The learned Advocate-General, however, was fair enough to concede that the expression 'allied objects' used in clause 12 would mean objects which are similar in nature or akin to the objects of the present trusts and such objects then would go hand in hand with the objects of the present trust. In other words, clause 12 on such a construction merely empowers the trustees to take over the superintendence, management and administration of such trust or institution whose objects are similar to, or consistent with, the objects of the assessee-trusts. The trustees would not, therefore, by reason of the power reserved to them under clause 12, be entitled to take over any trust or institution whose objects are not for charitable purposes. No objection therefore can be taken to such a clause if the power of the trustees, by the use of the expression, 'allied objects', is clearly circumscribed to accepting administration and management of such trusts or institutions which have objects similar to those of present trusts.
11. The real controversy, however, centres round the interpretation of the provisions of clause 13. The contention of the learned Advocate-General was that the power granted to the trustees under clause 13 was an unlimited power under which the trustees were entitled to accept donations and/or contributions from any person, company, firm or institutions and upon such terms and conditions as they may deem proper. Under this clause, the trustees have also the power to carry out such terms and conditions upon which they accept such donations and/or contributions and they are authorised to apply any portion of the income of the trust fund for the purposes thereof, the meaning of the word 'thereof' being the purposes laid down or prescribed under the terms and conditions under which the trustees accept the donations and/or contributions. The learned Advocate-General argued that the power under clause 13 being unclaimed, the trustees would be even entitled to accept donations and/or contributions on terms and conditions which might be inconsistent with the objects of the trust, and having accepted such donations and/or contributions on such terms and conditions, they are also authorised to expend the income of the trust fund or any portion thereof upon such purposes as laid down by the terms and conditions which may be inconsistent with the objects of the present trusts. In that event, the trusts themselves would be rendered, and would have to be treated as those for non-charitable purposes. He also argued that if the trustees, by virtue of the power reserved to them under clause 13, were to receive donations and/or contributions, they would be entitled under the provisions of this clause, to divert the trust funds and, in that event, it would not be incumbent upon them to spend the trust funds or the income thereof wholly for charitable purposes. Since clause 12 contains uncontrolled discretion to the trustees, the trust deeds made it open to the trustees to divert and apply any portion of the income of the trust funds for such other purposes, that is to say, purposes other than those or inconsistent with the objects of the two trust deeds. This argument, however, is founded upon an assumption that the provisions of clause 13 empower the trustees to divert the funds to objects and purposes inconsistent with the objects and purposes of the two trust deeds, in other words, to purposes which are of a non-charitable character. The real question, therefore, is, do the provisions of clause 13 empower the trustees to do so
12. The predominant object of the trust is undoubtedly for charitable purposes and, prima facie, therefore, it would appear the notwithstanding the power conferred upon the trustees by clause 13 to accept donations and/or contributions upon such terms and conditions as they may deem proper and also the power to expend any portion of the income of the trust fund for the purpose thereof, that power can only be exercised by them consistently with the objects of the trust as set out in clause 5 of the trust deeds. This conclusion is supported by the provisions of the other clauses of the trust deeds, namely, clauses 1, 2, and 4. Clause 1, inter alia, provides that the trustees shall stand possessed of the shares specified in Schedule A thereto and the investments into which, in exercise of the power contained in the trust deed whereunder, the same or any part thereof respectively may from time to time be invested 'upon the trusts and subject to the powers, provisions, agreements and declarations hereinafter contained and concerning the same'. Similarly, clause 2 provides that the settlor thereby conveyed, assigned, and transferred upon the trustees the immovable property set out therein and called the trusts property 'to have and to hold the same upon the trusts and subject to the powers and provisions, agreements and declarations hereinafter contained of and concerning the same.' Clause 4 of the trust deeds then provides that the trustees shall from time to time collect and get in dividends, interest, income, rents, and profits of the said trust fund and trust property and after defraying the necessary expenses shall, out of the dividends, income, rents and profits, pay the charges and expenses of and incidental to the administration, management and execution of trusts and powers herein contained'. In our view, clause 13 cannot be read singly but must be read in conjunction with these provisions in the trust deeds, and, therefore, the power given to the trustees under both clauses 12 and 13 must be read and construed in the light of not only the provisions of these clauses, but also in the light of the other provisions in the trust deeds. In other words, the expression 'such terms and conditions as they deem proper' appearing in clause 12 cannot be read as terms and conditions de hors the trust, but in consonance with the objects of the trusts as set out in clause 5 of the trust deeds. Donations and/or of the contributions that the trustees may receive would be donations and contributions to the trust fund and they would be received as and by way of accretions thereto, and since the trust fund and the trust property are themselves stamped with the objects of the trusts under clause 5, the donations and/or contributions which would be accepted by the trustees as accretions to the trust fund would also be similarly stamped with the objects of the trusts set out in clause 3. It follows, therefore, that the trust fund as also the accretions cannot be used in any manner contrary to the objects of the trust. There is a distinction between an object of a trust and a condition set out in the trust deed. When trustees, by virtue of the power in clause 13, accept donations and/or contributions, they cannot be deemed to be accepting them for a trust separate or distinct from the trust of which the objects are laid down in clause 5 of the trust deeds. What clause 13 really provides is that the trustees shall have the power to accept donations and contributions for the purposes of the objects set out in clause 5, but they may accept such donations and/or contributions upon such terms and conditions as they may deem proper. The objects for which such donations and/or contributions would be accepted must necessarily be the objects which are set out in the trust deeds. The donations and/or contributions would be accepted by the trustees subject to those objects, but for those objects donations may be accepted on such terms and conditions as the trustees think proper. This appears to be somewhat clear from the provisions of clause 12 which empower the trustees to take over the superintendence, management, administration of any trust or institution having allied objects on such terms and conditions as the trustees may, in their absolute discretion, think fit. Clause 12 itself makes a clear distinction between the objects on the one hand and the terms and conditions on the other. The trustees, under the provisions of that clause, are entitled to take over the management, administration etc., of any trust or institution provided that such trust and institution have objects which are allied to the objects of the present trusts. They have, therefore, no power under clause 12 to take over any trust or institution of which the objects are contrary to or inconsistent with these of the present trusts. If the objects, however, of such trust or institution are allied objects, the trustees can take over the management or administration of such trust or institution and clause 12 then empowers them to take over the management or the administration of such trust or institution upon such terms and conditions as the trustees may, in their absolute discretion, think fit. Though the discretion granted to the trustees in clause 12 is also unlimited and absolute, it is clear that they cannot take over the management, administration or superintendence of any trust or institution which does not have objects which are akin to those of the present trusts and though, therefore, the discretion conferred upon the trusts apparently appears to absolute and unlimited, it is circumscribed by the use of the expression 'allied objects' in clause 12. The learned Advocate-General however pointed out that unlike clause 12 clause 13 does not contain any such qualifying expression as the one found in clause 12 and, therefore, there is no reason to think that the discretion conferred upon the trustees under clause 13 is is any way limited or circumscribed, as is the case under clause 12. That argument in reality begs the question, namely, whether by virtue of the provisions of clause 13 the trustees can accept donations and/or contributions upon terms and condition which are contrary to or inconsistent with the objects laid down in clause 5 of the trust deeds. As we have already pointed out, the trustees while accepting donations and/or contributions under clause 13, would not be entitled to accept such donations or contributions upon such terms and conditions as would thereby impose upon them a new or a distinct trust contrary to or inconsistent with the trusts of which they are the trustees. A trustee appointed under a trust deed and who accepts the duties of a trustee thereunder cannot, while administering that trust, accept another separate trust under the same trust deed. The donations and/or contributions that the trustees would receive under clause 13 cannot, therefore, be independent of the two trust deeds and the trusts upon which the trust funds are settled. The question also may be looked at from another aspect. The assessee, by their application, sought exemption under section 4(3)(i) in respect of their income which accrued during the relevant accounting periods upon the ground that the income in question derived from the properties held under the trusts was under a legal obligation wholly and exclusively for religious or charitable purposes. The question is : Were the trust funds and the trust properties and their income stamped during the assessment years and the relevant accounting periods, with the legal obligation set out in section 4(3)(i) There is no question that any donations under clause 13 were in fact accepted by the trustees during the relevant accounting periods. Equally, there is no question that the trust properties or the income thereof or any portion thereof were used in any way inconsistent with the admittedly charitable purposes of the trusts. That being so, there is nothing on record to show that the corpus or the income of the property was in any way applied for purposes inconsistent with the provisions of section 4(3)(1) or the Explanation to sub-section (3) of section 4 of the Act during the accounting periods or any of them. In fact, in answer to the letter dated December 12, 1958, by the Income-tax Officer, making certain enquiries form the assessee and suggesting an amendment of clause 13, the assessees by their letter dated December 27, 1958, stated : '.... and they could not and were not accepting any contributions or donations to which were attached conditions contrary to the objects of the trusts as such acceptance would be contrary to the terms of the deed and would be ultra vires of their powers'. It is no doubt true that the trustees subsequently wrote a letter March 16, 1959, to the effect that they were taking steps to delete article 12 from the trust deeds. But that suggestion would not make any material difference. There is, therefore, nothing to show and in fact there is positive evidence to indicate, that the assesses had not accepted any donations and/or contributions to which there were attached any conditions contrary to the objects of the trust and, therefore, so far as the relevant assessment years concerned, no objection could possibly be taken by reason of the provisions of clause 13 of the trust deed.
13. In our view, on a proper construction of clause 13, the trustees are not entitled to accept any donations and/or contributions on conditions or terms which would be contrary to the objects set out in clause 5 of the trust deeds and the power conferred on them by clause 13 in limited by the other provisions of the trust deeds including those contained in clause 5. For the reasons aforesaid, it is not possible for us to accept the contention urged on behalf of the Commissioner by the learned Advocate-General.
14. Our answer consequently to the question referred to us is in the affirmative. The Commissioner will pay the assessee the costs of this reference.
15. Question answered in the affirmative.