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Laxmi NaraIn Lath Trust Vs. the Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberIncome-tax Reference No. 32 of 1962
Judge
Reported inAIR1966Raj154
ActsIncome Tax Act, 1922 - Sections 4(3)
AppellantLaxmi NaraIn Lath Trust
RespondentThe Commissioner of Income-tax
Appellant Advocate M.D. Bhargava, Adv.
Respondent Advocate C.M. Lodha, Adv.
Cases ReferredMadras v. East India Industries
Excerpt:
- - (iv) to maintain and arrange for proper supply of water for cattle and maintain 'posala' for serving water to passers by from the pucca well situated in the trust property. (xi) to grant aids for marriage of poor girls or for the shelter of homeless people. he observed that, as the income of the trust could also be utilised for aid to persons belonging to lath family as well and as the whole of the income was not set apart for charitable purposes, the income of the trust did not qualify itself for exemption under the act. when the income-tax officer pointed out this drawback to the assessee a supplementary trust deed dated 21-5-58 was produced before him, but the income-tax officer did not find it sufficient to overcome the difficulty so far as the relevant assessment years were.....kan singh, j.1. we have before us a reference made by the income-tax appellate tribunal (delhi branch 'b') under section 68(1) of the indian income-tax act, 1922 hereinafter to be referred as the 'act', which was so made at the instance of the assessee messrs. laxmi narain lath trust, mandrella, jhunjhunu, hereinafter to be referred as the 'assessee'. the question formulated by the tribunal was in the following terms :'whether on the facts and in the circumstances of the case, the income from the trust in question was exempt from income-tax under section 4 (3) (i) of the indian income-tax act?'2. the assessee was taxed as an association of persons and the assessment covered four assessment years namely, 1954-55, 1955-56, 1956-57 and 1957-58. the trust was created by one laxmi narain lath.....
Judgment:

Kan Singh, J.

1. We have before us a reference made by the Income-tax Appellate Tribunal (Delhi Branch 'B') under Section 68(1) of the Indian Income-Tax Act, 1922 hereinafter to be referred as the 'Act', which was so made at the instance of the assessee Messrs. Laxmi Narain Lath Trust, Mandrella, Jhunjhunu, hereinafter to be referred as the 'assessee'. The question formulated by the Tribunal was in the following terms :

'Whether on the facts and in the circumstances of the case, the income from the Trust in question was exempt from income-tax under Section 4 (3) (i) of the Indian Income-tax Act?'

2. The assessee was taxed as an association of persons and the assessment covered four assessment years namely, 1954-55, 1955-56, 1956-57 and 1957-58. The Trust was created by one Laxmi Narain Lath who had executed the indenture of trust on 25-8-1948. The settler of the trust Laxmi Narain Lath was residing at Banaras. Four trustees were appointed; one was the settler himself, the other trustee was the son of the settler, and there were two other trustees who belonged to the Lath family. A sum of Rs. 5,000 was set apart for charity and upon the trust as mentioned in the deed.

The objects of the trust were as follows :

'(2) The objects of the trust shall be :

(i) To advance, promote and encourage education amongst the Hindus (a) literal, (b) physical, (c) scientific, (d) industrial, (f) religious, (g) cultural (in fine arts) and (h) general education of all kinds at Mandrella in the Jaipur State or any other place in India,

(ii) To establish;and promote the establishment of and or to render aid to schools, colleges and other educational institutions at Mandrella, in the JaipurState and grant scholarships, stipends and prizes and other helps to students, teachers and other persons.

(iii) To arrange for or grant aid for the seva and puja of the deity Shiva and any other deities already installed or hereafter to be installed.

(iv) To maintain and arrange for proper supply of water for cattle and maintain 'Posala' for serving water to passers by from the pucca well situated in the Trust Property.

(v) To maintain and keep in repairs the immovable properties forming part of the Trust Estate.

(vi) To render aid to any persons belonging to the family of Laths and to grant monthly and other periodical aids to them.

(vii) To establish and to promote the establishment of and or to render aid to temples, Dharamshalas, hospitals, orphanage homes and other institutions for the benefit of the Hindus.

(viii) To grant aid for the establishment or maintenance of tube-wells and constructions of repairs to paths, roads, bridges, etc.

(ix) To provide medical aid and relief to the suffering people by aiding, establishing and maintaining hospitals, dispensaries, nursing houses, clinics, sanatorium and other institutions meant for rendering medical relief.

(x) To help people during natural calamities, such as flood, famine, pestilence, also during civil commotion and other distress.

(xi) To grant aids for marriage of poor girls or for the shelter of homeless people.

(xii) To grant aid to maternity homes and child welfare centres orphanages and widows homes.

(xiii) To help helpless widows and Narikalyan Samitis.

(xiv) To help in the preservation and improvement of cows and other cattle, to improve their breed and to take all steps for the increase of milk supply, to arrange for the same by establishing dairies and other organisations and for the protection of cows and for their improvement and taking all steps conducive to the welfare of the cows.

(xv) To do such other acts, deeds and things for the uplift of the Hindus in all ways and for the educational medical and social welfare and cultura as the Trustees may think fit and proper.'

3. Clause 5 of the trust deed lays down as to how the trustees were to utilise the trust funds and this clause reads as under :

'The trustees shall from time to time after meeting the expenses of and incidental to the management of the Trust properties and of the Trust decide the particular object or objects for which the income or corpus of the Trust properties for the time being available shall be applied.'

4. When the trustees filed their returns for the income of the trust properties they claimed that the income of the aforesaid trust should not be brought to tax as the said income was exempt under Section 4 (3) (i) of the Act. The Income-tax Officer, B-Ward, Jaipur, however, did not accept this plea. He observed that, as the income of the trust could also be utilised for aid to persons belonging to Lath family as well and as the whole of the income was not set apart for charitable purposes, the income of the trust did not qualify itself for exemption under the Act.

The Income-tax Officer, however, found as a fact that the income had not been utilised for any non-charitable purposes and had exclusively been utilised for charitable purposes. When the Income-tax Officer pointed out this drawback to the assessee a supplementary trust deed dated 21-5-58 was produced before him, but the Income-tax Officer did not find it sufficient to overcome the difficulty so far as the relevant assessment years were concerned, as, in his view, the supplementary deed, which purported to introduce new clauses in the original indenture of the trust, could not have retrospective operation. In the circumstances the Income-tax Officer rejected the plea about the exemption and brought the income ot the trust to tax. The Income-tax Officer passed separate orders for the four assessment years, but the reasoning was identical.

5. The assessee then lodged four separate appeals against the assessment orders before the Appellate Assistant Commissioner of Income-tax, Jaipur. The latter, however, disposed of the four appeals by a common judgment. He considered that Sub-clause (vi) in the objects of the trust should not be considered in isolation and the deed had to be read as a whole in order to ascertain the true meaning of the several clauses therein and the words of each clause should be so interpreted as to bring them in harmony with other provisions After trying to so read the objects of the trust the Appellate Assistant Commissioner came to the conclusion that the dominant intention of the trust was charitable. As regards Sub-clause (vi), he observed that it did not detract from the charitable nature of the dominant intention of the settlor. He drew support from a case reported as Trustees of the Charity Fund v. Commr. of Income-tax, Bombay : [1959]36ITR513(SC) . In the result the Appellate Assistant Commissioner accepted the appeal and set aside the assessments.

6. Aggrieved of this order the Income-tax Officer B-Ward, Jaipur, went up in appeal to the Appellate Tribunal. The Tribunal came to the conclusion that the assessee was not entitled to the exemption under Section 4 (3) (i) of the Act, as clause 2 (vi) in the trust deed enabled the trustees to aid persons belonging to the Lath family also. The Appellate Tribual also held that the supplementary deed of Trust which purported to change the original deed of trust could not be taken to be retrospective with the result that no benefit could be derived therefrom for the assessment years in question. The Tribunal distinguished the case of : [1959]36ITR513(SC) , relied on by the Appellate Assistant Commissioner, on the ground that in that case the dominant intention of the trust was really of charitable nature though discretion was left with the trustees in selecting the beneficiaries and for giving preference to poor and indigent relations or members of the settlor's family.

Concentrating on the terms of the objects specified in the trust deed under consideration and in particular that there was no provision for offering aid only to the poor members of the family the tribunal held that the trustees could give preference to the members of the family of Laths as such. In the result the Tribunal reached the conclusion that the view taken by the Income-tax Officer was correct and that taken by the Appellate Assistant Commissioner was erroneous. Consequently all the four appeals were accepted and the orders passed by the Income-tax Officer were restored.

7. From the above narration it will be evident that the question depends on the applicability of Section 4 (3) (i) of the Act. Relevant portion of the section reads as under :

Section 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 :

(i) 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 for religious or charitable purposes, in so far as such income is applied or accumulated for application to which religious or charitable purposes are related to anything done within the taxable territories and in the case ot property so held in part only for such purposes, the income applied for finally set apart for application thereto.

8. The essential conditions which enable an assessee to earn exemption are : (i) the property from which the income is derived should be held under trust or other legal obligation; (ii) the property should be held for religious or charitable purposes ; (iii) then where the property is held wholly for religious or charitable purposes the exemption will be available if the income is, in fact, applied or accumulated for application to such purposes ; and (iv) where property is held in part only for religious or charitable purposes the exemption is confined to income in fact applied for or finally set apart for application for such purposes. There is no difficulty in dealing with the cases where the property is wholly set apart for charitable or religious purposes. In that event the actual application or accumulation for that purpose alone has to be established to qualify for exemption. Again there is no difficulty when any portion of a property is clearly set apart and then the portion so set apart will be deemed to be one unit and that much property will be said to be wholly set apart. There may again be no difficulty when any particular portion of the income of a property is required to be spent over the charitable purposes. A difficulty arises when charitable objects and non-charitable objects for which the property or the income thereof could be utilised are mixed up and a discretion is left to the trustees to utilise the property or the income thereof for any of the objects of the trust.

Mr. Bhargava, learned counsel for the assessee, adopts the line of reasoning that prevailed with the Appellate Assistant Commissioner and contends that where the charitable object and the so-called non-charitable object co-exist in a deed of trust then the dominant intention of the settlor has to be found put and where the dominant intention is one of charity, in general, the trust will still be held to be wholly charitable in character and will qualify for exemption. He placed reliance on Commr. of Income-tax, Bombay City II v. Walchand Diamond Jubilee Trust : [1958]34ITR228(Bom) ; Commr of Income-tax, West Bengal v. Sardar Bahadur Sardar Indra Singh-Trust : [1956]29ITR781(Cal) ; Commr.of Income-tax, Kerala and Coimbatore v. P. Krishna Warriar : [1964]53ITR176(SC) , Commissioner of Income-tax, Madras v. Andhra Chamber of Commerce, Madras : [1965]55ITR722(SC) and Re Khetteen (deceased), Westminster Bank, Ltd. v. Family Welfare Association, Trustees, Ltd. 1954 (1) All E R 581.

9. Mr. Lodha, learned counsel for the department, on the other hand, has reiterated before us the argument that has prevailed with the Appellate Tribunal and the Income-tax Officer. He has relied on Mohammad Ibrabim Riza v. Commr. of Income-tax, Nagpur AIR 1930 P C 228, Commissioner of Income-tax, Nagpur v. M.E.R. Malak ; Commr. of Income-tax, Bombay v. Karim Bros., Charity Fund : [1943]11ITR603(Bom) and Commr. of Income tax Madras v. East India Industries (Private) Ltd : [1962]46ITR1086(Mad) . Mr. Lodha has also sought support from one of the cases cited by Mr. Bhargava, namely : [1964]53ITR176(SC) .

10. In Section 4 the last para thereof lays down as to what charitable purposes are included in this section. It reads as under :

'In this sub-section 'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility, but nothing contained in Clause (i) or Clause (ii) shall operate to exempt from 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 enure for the benefit of the public.'

11. It will be clear from the above that for a purpose 'to be a charitable purpose', it must have a public character. In other words, it must be directed to the benefit of the community or a section of the community and not to the benefit of particular private individuals.

12. In : [1965]55ITR722(SC) , which is a Supreme Court case the assessee was an Association and the object of that Association was to promote and protect trade, commerce and industries in Andhra country and to aid, stimulate and promote the development of trade, commerce and industries, to watch over and protect general commercial interests of India. The income of the Association was obtained from subscriptions and donations of members and rents received from the buildings. The question for consideration of their Lordships of the Supreme Court was whether such an income from property qualifies for exemption under Section 4 (3) (i) of the Act. Their Lordships considered the ambit of expression 'object of general public utility' occurring in Section 4 (3) and held that as the object of the Association was one of public utility, the same was charitable object within the meaning of this section. Learned counsel placed reliance on para. 10 of this judgment which is as under:

'Income from property qualifies for exemption under Section 4 (S) (i) if two conditions co-exist (i) the property is held under trust or other legal obligation: and (ii) it so held wholly or in part for religious or charitable purposes. The building which the assessee owns is by virtue of Clause 4 of the Memorandum of Association held under a legal obligation to apply its income to purposes specified in the Memorandum of Association. It is not the case of the assessee that the objects of incorportion are relief of the poor, education or medical relief, and the only question canvassed at the Bar is whether the purposes for which the assessee stands incorporared are objects of general public utility, within the meaning of the expression 'charitable purpose' in Section 4 (3).'

13. He contended that the assessee in the present case satisfied both the conditions. In other words, property was held under trust and it was so held wholly or in part for religious or charitable purpose. We have given our earnest consideration to this passage. Provisions of Section 4 (3) (i) have undoubtedly been analysed, but this passage will be of little help in a case like the present one where the trust had purposes which are charitable as well as those which are non-charitable and a wide discretion is vested in the trustees in the matter of utilisation of funds.

14. Both the learned counsel placed reliance on : [1964]53ITR176(SC) . The material passage on which both the learned counsel lean is as follows :

'The expression 'in part' does not refer to an aliquot part; if half a house is held in trust wholly for religious or charitable purposes, it would be covered by the first part of the substantive clause of Section 4 (3) (i), for in that event the subject-matter of the trust is only the said half of the house and that half is held wholly for religious or charitable purposes. The expression 'in part', therefore, must apply to a case other than a property a part of which is wholly held for religious or charitable purposes. In India there are a variety of trusts wherein there is no complete dedication of the property but only a partial dedication. A property may be dedicated entirely to a religious or charitable institution or to a deity. This is an instance of complete dedication. A property may be dedicated to a deity, subject to a charge that a part of the income shall be given to the grantor's heirs. A property may be given to an individual subject to, or burdened with, a charge in favour of an idol or a religious institution or for charitable purposes. An owner of property may retain the property for himself but carve out a beneficial interest therefrom in favour of the public by way of easement or otherwise. There may be many other instances where though there is a trust, it involves only a partial dedication of the property held under trust in the sense that only a part of the income of that property is utilized for religious or charitable purposes. The dichotomy between the two expressions 'wholly' and 'in part' is not based upon the dedication of the whole or a fractional part of the property but between the dedication of the said property wholly for religious or charitable purposes or in part for such purposes. If so understood, the two limbs of the substantive clause fall into a piece. The first limb deals with a property or a part of it held in trust wholly for religious or charitable purposes, and the second limb provides for such a property held in trust partly for religious or charitable purposes. Clause (i) of Section 4 (3) of the Act takes in every property or a fractional part of it held intrust wholly for religious or charitable purposes. It also takes in such property held only in part for such purposes.

It cannot therefore be held that as the expression 'in part' in Clause (i) applies only to a case where an aliquot part of property is vested in trust that is not legally possible in the case of business because a business is one and indivisible.'

On its basis Mr. Bhargava contends that even if the property is to be utilised only in part for religious or charitable purposes it can qualify for exemption. To our mind, this passage shows that where in respect of a property, a clearly indicated portion of the property, is dedicated in trust then that portion considered as a unit by itself will constitute the whole of the property as can be said to have been dedicated within the meaning of Section 4 (3) (i) of the Act. The distinction is also pointed out between cases where there is complete dedication of a property and cases where there is dedication of property, but it is burdened with a charge laying down that a portion of its income will be given to grantor's heirs; likewise there may be properties which are given to individual but a charge is created for a religious or charitable purpose.

The division between the two expressions 'wholly' and 'in part' is not based on the question whether the property as a whole is dedicated or only a part of it is dedicated for religious or charitable purpose. But, the distinction is based between the dedication of the said property wholly for religious or charitable purposes or in part for such purposes. This passage, to our mind, is hardly applicable to a case where there is no division either of the property or of its income. In the present case the property as a whole is dedicated in trust and nothing is reserved by the settlor. Therefore, in terms of this passage the whole of the property is dedicated property, but this passage is hardly sufficient to solve the problem before us, which is to the effect that several objects in the trust deed are set out and one of such objects is said to be a secular one as opposed to that of public utility and neither the property has been divided or earmarked for the several purposes between the charitable and secular purposes; nor has the income been divided.

To get over this difficulty Mr. Bhargava submitted that the purpose indicated in Clause 2 (vi) of the trust deed can itself be regarded as a charitable purpose. He led particular emphasis on the term 'aid' occurring therein. In this view, 'aid' means help to a person who really needs it and this object takes its hue from the other objects of public utility indicated therein. Mr. Lodha, on the contrary joins issue on such a narrow interpretation of the word 'aid'. Mr. Bhargava also submitted that this object was very much similar to the object set out in the trust deed executed by one Sir Sassoon David, Bart. The case is reported as : [1959]36ITR513(SC) .

15. In that case the settlor had some securities of the value of Rs. 24 lakhs in respect of which he declared a trust. The settlor laid down that after providing for all necessary expenses of the management the trustee shall expend the funds for the several objects indicated therein and the clause that fell for consideration was as follows :

'The trustees fund shall be held for other purposes beneficial to the community not falling under any of the foregoing purposes: Provided always that in applying the income as aforesaid the trustees shall give preference to the poor and indigent relations or members of the family of the said Sir Sassoon David, Bart, including therein distant and collateral relations; provided further that in the application of the income of the said charitable trust fund the said trustees for the time being shall observe the following proportions, viz., that not less than half the income of the said funds shall at all times be applied for the benefit of the members of the Jewish Community of Bombay only (including the relations of Sir Sassoon David, Bart., as aforesaid) and Jewish objects and particularly in giving donations to the members of the Jewish Community of Bombay ......'

Their Lordships in construing the trust deed observed that Sir Sassoon David, Bart, did not figure as direct recipient of any benefits under sub-clauses (b) to (f) and the circumstances that in selecting the beneficiaries under Sub-clause (a) preference had to be given to the relations or members of the settlor could not affect the charitable character of the trust and consequently it was held that that trust satisfied the requirements of Section 4 (3) (i) of the Act.

This case, in our view, is clearly distinguishable from the present case. In that case it was clearly laid down that the benefit was intended for the poor and indigent relations or members of the family of Jewish origin. Then the ambit of the benefit was not only limited to such members of the family, but primarily it was intended for the benefit of the much larger circle of Jewish community, though within the frame-work of this purpose preference was to be shown to members of the settlor's family. If we contrast the purpose of that trust with that of Clause 2 (vi) of the trust deed executed by Laxmi Narain Lath it will be clear that in this trust aid may be given to any member of the family irrespective of the fact whether he is affluent or poor. We are unable to accept the argument advanced by Mr. Bhargava that the use of the word 'aid' implies that as it will be for the needy members of the family this provision will still fall in the ambit of dominant intention of the settlor. We have to construe the provision as it is, according to its language and not on the basis of what might have been at the back of the mind of the settlor.

Aid may be given not only to the poor, but even to those who are not poor, for example, for starting a business or say by advancing an interest free loan for going abroad for higher studies. The object may be philanthropic but all the same one cannot say that aid is always charity. A loan on easy terms may be as good aid as a free gift, but while the latter in certain circumstances may be considered charitable, the former may not be so construed to be coming in the purview of the term 'charity', for example, if a country is accepting economic aid from foreign countries that is not charity. In this light we are unable to construe that Clause 2 (vi) envisages a charitable purpose in tune with the other charitable purposes contained in that clause.

16. Mr. Bhargava then drew our attention to : [1958]34ITR228(Bom) . The recitals in the trust deed that fell for consideration in this case was that the settlor was anxious to strengthen the hands of the organisation which controlled the companies in which he had an interest and considered it necessary to maintain a uniform control over one of the companies by centralising the voting. power in the company in the hands of a certain definite body instead of having it spread over individuals or small groups. The trust fund was to be invested in the purchase of shares of a particular company and for 18 years the income was to be invested in the shares of that company. After the expiry of 18 years the income from investment was to be utilised for certain charitable objects like giving scholarships to deserving students, medical relief, monetary help to the poor and the needy and for relief of the poor and distressed in times of famine, cyclone, floods, earthquakes, etc.

The question that fell for consideration was whether in the circumstances exemption under Section 4 (3)(i) was permissible It was held that the anxiety of the settlor to control the voting power of the company was not relevant for seeing whether Section 4 (3) (i) of the Act applied. It was also held that the purpose of the trust was charitable, though for 18 years there was to be accumulation of income. It was contended that as the object of the trust was to benefit the employees of a particular concern or their children, it was not a charitable trust within the meaning of Section 4 (3) (i). The learned Judges did clearly observe that, if the object of the trust was to benefit the employees of a particular concern or their children only, the trust would not be a charitable trust within the meaning of Section 4 (3) (i). But, as in that case there was no obligation cast upon the trustees to prefer the employees of the company and they were not bound to select such employees, the trust was one which fell within the ambit of Section 4 (3) (i).

The reasoning of the learned Judges will be clear from the following passage :

'But the question is whether on a fair reading of this trust it could be said that the objects of the settlor's bounty were only the employees of the Premier Construction Co. Ltd. In this connection Mr. Joshi puts emphasis upon the proviso which gives the power to the trustees to give preference to the employees of the Premier Construction Co. Ltd. Now, undoubtedly, we would have taken a different view of this trust if there was an obligation upon the trustees to prefer the employees. In other words, if the other members of the public were postponed to the employees of the Premier Construction Co. Ltd., then, looking to the other provisions of the deed, we might easily have taken the view that the main purpose of the trust was to benefit the employees and the charity to the public was merely illusory. But there is no obligation cast upon the trustees by this proviso to prefer the employees ot the Premier Construction Co. Ltd. It is for the trustees to exercise their discretion. In the first place, they have to utilise the income for carrying out the four objects, and any member of the public who comes within these four objects would be qualified to receive the bounty of the settlor. If a member of the public also happens to be an employee of the Premier Construction Co. Ltd., it is open to the trustees to give him preference. Therefore, the trustees would not be guilty of committing any breach of trust if they selected for the bounty of the settlor such members of the public as did not fall in the category of employees of the Premier Construction Co. Ltd. That is the real test which we have got to apply. We must not assume that the trustees will exercise their discretion dishonestly or improperly. The test is whether the exercise of the discretion of the trustees is so fettered that they are bound to select particular persons in preference to others. That is clearly not the case here. They may or they may not give preference to the employees. They may say that, other things being equal, an employee of the Premier Construction Co. Ltd., may be preferred. On the other hand, they may say that there is a member of the public who is more deserving than the employee and they would prefer him to receive the bounty.'

17. Clause 2 (vi) of the present trust cannot be taken to be at par with the provision that fell for consideration in the above passage. If we summarise the effect of the provisions of the present trust deed it comes to this : (i) a trust has been created; (ii) its objects are as set out in Clause 2 thereof; (iii) the trustees have full discretion to spend the trust fund and in doing so they may spend their entire funds on one object to the exclusion of the other and thus within the framework of the trust deed they may be able to spend the entire funds for the aid of the members of the settlor's family. If they decide to spend for the particular object mentioned in Clause 2 (vi) of the trust deed then the trustees are under no obligation to spend it over persons other than the family of the settlor. The case cited by Mr. Bhargava is, therefore, distinguishable.

18. Mr. Bhargava also placed reliance on (S) : [1956]29ITR781(Cal) and argued that a trust for charitable purpose does not become invalid, if the choice of the specific charitable objects to be benefited is left to the trustees. This case, to our mind, is wholly inapplicable. We are not considering the validity of the trust. The trustees may certainly be entitled to spend on any of the objects set out in the trust. The point here is whether the exemption under Section 4 (3) (i) will be admissible when charitable and non-charitable objects are mixed up without clear demarcation. He also referred to 1954 1 All E R 581. There was no question of exemption being granted from income-tax in that case. The learned Judge had to consider the question whether the trust can be said to be of public nature. A fund was created by the settlor for promotion and furtherance of commercial education and prescribed rules for the administration of the funds where the prescribed persons eligible as beneficiaries were British born subjects of either sex and it was laid down that in selecting beneficiaries the trustees shall give preference to any employees of a particular company or members of their families. It was laid down by the learned Judge that this was a public trust inasmuch as the primary class of persons eligible to the benefit was sufficiently wide though in making the selection the trustees had to give some priorities. Present is not a case of this type.

19. Mr. Lodha, learned counsel for the department, placed reliance on AIR 1930 P C 226. In that case in terms of the trust deed head of the Borah community was constituted the trustee in whom the trust property was vested. While some of the purposes of the trust were religious and charitable, there were many such purposes as were neither religious nor charitable. No specific property was exclusively set aside for charitable or religious purposes. In those circumstances their Lordships of the Privy Council, in considering the applicability of Section 4 (3) (i) of the Act, observed as follows :

'Where the property is vested in the head of a community under deeds of trust, but the trust property is applicable to purposes, many of which are neither religious nor charitable, and it is not suggested that any part of the property is set aside for any charitable or religious purposes, so that it can be identified as appropriated exclusively for such purposes, then the income of the whole of the property is assessable to income-tax.'

This pronouncement was made by their Lordships in affirming a judgment of the Nagpur High Court in AIR 1928 Nag 10. The facts of that case no doubt show that the learned Judges came to the conclusion that there was no trust property even in part for religious or charitable purposes. They also observed that there was no permanent dedication of the property for religious or charitable purposes Consequently the background of facts which led to the propounding of the above view is not very helpful. Anyway, the observations of their Lordships of the Privy Council are weighty and in our view govern a situation as has been presented in the case before us.

20. Mr. Lodha, however, called our attention to the case reported as (1962) 46 I T R 1066, which contains observations which are pertinent. It was a case where charitable and non-charitable objects set out in a trust deed were mixed up and the trustees had unfettered discretion to utilise the income of the trust to any of the objects. In that connection the learned Judges reached the following conclusion about the applicability of Section 4 (3) (i) :

'Where a trust is created for charitable and non-charitable objects and gives an unfettered discretion to the trustees to utilise the whole of the income of the trust to objects which are non-charitable, the property in respect of which the trust is created cannot be deemed to be held in trust wholly for charitable or religious purposes, and the trust would not be eligible to the exemption contemplated by Section 4 (3) (i) of the Income-tax Act, 1922. It would also follow that any donation made to such a trust is not entitled to exemption from tax under Section 15B of the Act.' We find ourselves in agreement with this view.

21. We are mindful of the fact that for all these four assessment years trustees had not spent anything for the purposes of their family members and the entire amount had been expended on charitable objects only, but in spite of our anxious consideration that cannot induce us to take any view different from that warranted by the language of the section. It is for an assessee to show that his case is covered by the exemption and in view of the nature of the objects specified in the trust deed the exemption under Section 4 (3) (i) of the Act, to our mind, is not available to the assessee. The amendments made in the trust deed cannot be held to be retrospective in operation.

22. We are, therefore, in agreement with the view that has prevailed with the Tribunal and answer the question referred to us in the negative. In the circumstances of the case we order the parties rehear their own costs.


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