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Commissioner of Income-tax Vs. Adarsh Gram Trust - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberB.C. Civil Wealth-tax Reference No. 53 of 1972
Judge
Reported in(1985)45CTR(Raj)251; [1986]159ITR41(Raj)
ActsIndia Income Tax Act, 1922 - Sections 4(3); Income Tax Act, 1961 - Sections 2(15) and 11(1); Wealth Tax Act, 1957 - Sections 5(1)
AppellantCommissioner of Income-tax
RespondentAdarsh Gram Trust
Appellant Advocate C.R. Mehta, Adv.
Respondent Advocate M.S. Singhvi, Adv.
Cases ReferredPemsel v. Commissioners
Excerpt:
- - he also held that the objects of the trust were too vague and the trust must fail for uncertainty, both as regards its objects and with regard to its beneficiaries. the tribunal set aside the order passed by the appellate assistant commissioner dated november 23, 1971, and held that the dominant object of the trust was to undertake constructive activities in accordance with the doctrines put forward by mahatma gandhi for the uplift of the poor and backward village people and as such exploitation of the villagers to earn an income for the trust could not be thought of as one of the objects of the trust. after carefully considering the notification dated january 4, 1949, creating thetrust, it appears to us that the dominant object of the trust is to give practical shape to the ideas.....dwarka prasad, j. 1. this reference has been made under section 27(1) of the wealth-tax act, 1957, by the income-tax appellate tribunal, jaipur bench, jaipur, by its order dated august 22, 1972, referring the following question of law arising out of its order dated january 29, 1972, to this court for its opinion :'whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the net wealth of m/s. adarsh gram trust is exempt under section 5(1)(i) of the wealth-tax act in view of the objects mentioned in the notification no. 11, dated january 4, 1949 ?'2. the facts which have given rise to the aforesaid reference, are as under :before the merger of sirohi state with other states to form the bigger state of rajasthan, sirohi, was an indian state and the.....
Judgment:

Dwarka Prasad, J.

1. This reference has been made under Section 27(1) of the Wealth-tax Act, 1957, by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, by its order dated August 22, 1972, referring the following question of law arising out of its order dated January 29, 1972, to this court for its opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the net wealth of M/s. Adarsh Gram Trust is exempt under Section 5(1)(i) of the Wealth-tax Act in view of the objects mentioned in the Notification No. 11, dated January 4, 1949 ?'

2. The facts which have given rise to the aforesaid reference, are as under :

Before the merger of Sirohi State with other States to form the bigger State of Rajasthan, Sirohi, was an Indian State and the then Ruler of Sirohi issued the following Notification No. 11, on January 4, 1949, which was published in the Sirohi State Gazette :

'No. 11, Ord. : With a view to promote manufacture of khadi, removal of untouchability, uplift of women and other constructive activities on the whole lines of Mahatma Gandhi's doctrines in the whole of the State and in order to found a self-sufficient 'ADARSH GRAM' (Model village) a sum of Rs. 6,00,000 (Rupees six lakhs) is hereby granted for the purpose and ordered to be deposited in a bank as fund of the 'ADARSH GRAM' and constructive activities in the name of Her Highness Pujya Shree Rajmata Sahiba Shree Krishna Kanverbha Sahiba, Maharaj Shri Abhey Singhji Sahib and Shriman Gokulbhai Daulatram Bhatt of Sirohi State, This money will be utilised by grants to the committee formed to carry out the objectives under their directions.

The land of grass Jod of Kiaria, near Abu Road, is hereby granted forthwith for the site and erection of the model village and the activities connected therewith and other lands lying near about the Jod would be granted thereafter in due course of time as the village and activities grow.

It is further ordered that pucca patta of the Kiaria Jod land be issued in the name of Adarsh Gram (Model village). The head office of the 'ADARSH GRAM ' (Model village) will be housed in Mill Kothi, Abu road, and the whole building with its land will be used for this purpose.'

3. A sum of Rs. 6,00,000 was deposited by the Government of Sirohi State with the Punjab National Bank at Sirohi in accordance with the aforesaid notification. The Ruler of Sirohi also transferredthe lands mentioned in the aforesaid notification to the trust by registered deeds Nos. 26 and 27 dated January 4, 1949.

4. As proposals were made that some portions of the then State of Sirohi should be merged with the State of Bombay, while the remaining portions thereof should be merged with the State of Rajasthan, the Ruler of Sirohi State was divested of his powers on January 5, 1949, and an administrator was appointed by the Government of India to administer the areas comprised in the State of Sirohi, pending a decision regarding the State or States in which those areas would eventually be merged. The Government of Bombay issued orders freezing the account of the assessed with the Punjab National Bank. The transfer of lands made by the then Ruler of Sirohi was also frozen by the Government.

5. Subsequently, the then State of Sirohi was merged in the State of Rajasthan in the year 1956, on the basis of the recommendation of the States Reorganisation Commission. The Government of Rajasthan thereafter constituted an Advisory Committee for the Adarsh Gram Trust with the Collector of Sirohi as its Member Secretary.

6. The Adarsh Gram Trust (hereinafter called 'the assessee') did not file any returns of wealth. The Wealth-tax Officer initiated proceedings under Section 17 of the Wealth-tax Act, as in his view the net wealth of the assessee had escaped assessment and he called upon the assessee-trust to file its returns of net wealth. The assessee filed a nil return and contended that the net wealth of the assessee-trust was not liable to tax under the Wealth-tax Act because the same was entitled to exemption under Section 5(1)(i) as a public charitable trust. The assessee took the stand that the land of the grass Jod of Kiaria, near Abu road, was agricultural land and a pucca patta had not been issued in respect thereof in favour of the assessee-trust. The possession of the land has also not been given to the assessee-trust. The Wealth-tax Officer was of the view that the objects of the assessee-trust, as specified in the Gazette notification, were too vague and wide and it is not possible to deduce therefrom any precise or specific public charitable purpose which could be enforced. He, therefore, held that the objects of the trust were neither charitable nor religious in character, as the trustees could under the trust deed validly spend the entire income of the trust on a non-charitable object. He accordingly held that the trust property was not held wholly for religious or charitable purposes and, as such, the assessee-trust was not entitled to exemption under Section 5(1)(i) of the Wealth-tax Act. Therefore, wealth-tax assessment orders were passed by the Wealth-tax Officer, Sirohi, on October 15, 1971, in respect of the assessment years 1962-63, 1963-64, 1964-65, 1965-66, 1966-67, 1967-68, 1968-69 and 1969-70.

7. The assessee-trust filed an appeal before the Appellate Assistant Commissioner and raised two contentions. In the first place, it was submitted on behalf of the assessee that the trust was entitled to exemption under Section 5(1)(i) of the Wealth-tax Act. In the second place, it was contended on behalf of the assessee that if exemption was not granted, then the income-tax and wealth-tax dues of the assessee should be deducted in arriving at its net wealth.

8. The Appellate Assistant Commissioner agreed with the Wealth-tax Officer that some of the objects for which the Trust was created were not charitable in character, such as manufacture of khadi and setting up of a Adarsh Gram (model village). It was also held that constructive activities on the lines of Mahatma Gandhi's doctrine is too vague an object to be construed as a charitable purpose/object. According to the Appellate Assistant Commissioner, the advancement of constructive activities on the lines of Mahatma Gandhi's doctrines were based on political considerations and could not constitute a charitable purpose. He also held that the objects of the trust were too vague and the trust must fail for uncertainty, both as regards its objects and with regard to its beneficiaries. Thus, the first contention advanced on behalf of the assessee was rejected by the Appellate Assistant Commissioner. The second contention was also rejected on the ground that the assessee had disputed its liability in the appeals filed by it against the income-tax and the wealth-tax assessments. The Appellate Assistant Commissioner passed a consolidated order on November 23, 1971, dismissing the appeals in respect of all the aforesaid assessment years.

9. Thereafter, the assessee-trust filed further appeals before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur. The Tribunal observed that after the merger of the former Indian State of Sirohi with the State of Rajasthan, the Government of Rajasthan constituted on March 5, 1959, an Advisory Committee for the assessee-trust of which the Collector, Sirohi, was made the member-secretary and it was only thereafter that the State Government directed the release of the frozen bank accounts of the assessee-trust to the trustees thereof. It was held by the Tribunal that the assessee-trust was bound to chalk out its activities and execute its programme according to the decisions of the Advisory Committee. The Tribunal, in this context, relied upon a letter dated December 1, 1966, written to the Collector, Sirohi, by the Deputy Secretary, General Administration Department, Government of Rajasthan, Jaipur, in which the State Government advised the Collector that the Advisory Committee should adopt a resolution investing the funds of the assessee-trust in National Savings Certificates to the extent of Rs. 1,00,000 and the remaining amount which may not be required for immediate utilisation as per the schemes approved by the StateGovernment may be invested in any of the Rajasthan State Development Loans under an intimation to the General Administration Department and Finance Department. Thus, the Tribunal came to the conclusion that the investment of the funds of the assessee-trust or their utilisation for the purposes of the trust was to be made in accordance with the approval of the Government of Rajasthan and the funds could be utilised only for the schemes approved by the Government. The Tribunal set aside the order passed by the Appellate Assistant Commissioner dated November 23, 1971, and held that the dominant object of the trust was to undertake constructive activities in accordance with the doctrines put forward by Mahatma Gandhi for the uplift of the poor and backward village people and as such exploitation of the villagers to earn an income for the trust could not be thought of as one of the objects of the trust. The Tribunal accordingly held by its consolidated order dated January 29, 1972, that the assessee was a charitable trust entitled to exemption under Section 5(1)(i) of the Wealth-tax Act.

10. Thereafter, the Commissioner of Wealth-tax, Rajasthan, Jaipur, filed an application under Section 27(1) of the Wealth-tax Act before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, with the request that a statement of the case be drawn up and the question of law arising out of the order of the Tribunal dated January 29, 1972, be referred to this court for its opinion. Separate applications were made for each one of the assessment years from 1962-63 to 1969-70. The Tribunal has by its consolidated order dated August 22, 1972, referred the aforesaid question of law to this court for its opinion.

11. According to the document which created the trust and which has been reproduced in extenso by us above, namely, the Notification No. 11 dated January 4, 1949, the objects for which the Trust was created are as under :

1. promote manufacture of khadi ;

2. promote removal of untouchability ;

3. uplift of women ;

4. other constructive activities on the lines of Mahatma Gandhi's doctrines ; and

5. the formation of an 'Adarsh Gram' or model village.

12. Now, so far as the question of promotion of manufacture of khadi is concerned, the submission of the learned counsel for the Department is that it is a commercial activity or business to be carried on with the motive of earning profits and the same is, therefore, a non-charitable purpose. After carefully considering the notification dated January 4, 1949, creating thetrust, it appears to us that the dominant object of the trust is to give practical shape to the ideas put forward by Mahatma Gandhi for the upliftment of the poor and backward people residing in the villages. The object of promotion of manufacture of khadi is to provide employment and means of livelihood to the poor village folk residing in the area. Mahatma Gandhi had advanced the idea of the manufacture of khadi and wearing clothes made out of khadi and hand-woven cloth mainly with the object of improving the living conditions of the village people and providing relief to them, the majority of whom he found to be extremely poor and unable to maintain themselves. Thus, exploitation of the villagers to earn income for the trust or the motive to earn profits could not be seriously considered as an object of the trust and, in our view, the argument of the learned counsel for the Department in this respect is without any force.

13. We may here briefly discuss the change in law on the subject brought about on account of the coming into force of the Income-tax Act, 1961. Section 4(3) of the Indian Income-tax Act, 1922 (hereinafter referred to as 'the Act of 1922') read as under :

' 4. (3) Any income, profits or gains falling within the following classes 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 such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto :

Provided that such income shall be included in the total income...

(b) in the case of income derived from business carried on on behalf of a religious or charitable institution, unless the income is applied wholly for the purposes of the institution and either--

(i) the business is carried on in the course of the actual carrying out of a primary purpose of the institution, or

(ii) the work in connection with the business is mainly carried on by beneficiaries of the institution.'

14. The provision corresponding to Section 4(3)(i) of the old Act as contained in the Income-tax Act, 1961 (hereinafter referred to as 'the Act of 1961'), is Section 11(1)(a) which reads as under :

'11. Income from property held for charitable or religious purposes.--(1) Subject to the provisions of Sections 60 to 63, the following income shallnot 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.'

15. Besides Section 11(1)(a), the definition of the expression 'charitable purpose' has been included in Section 2(15) of the 1961 Act, which runs as under :

'2. In this Act, unless the context otherwise requires,--...

(15) '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. Under Section 4(3)(i) of the Act of 1922, income derived from property held under trust for religious or charitable purposes was exempt from taxation in so far as such income was applied for those purposes. Section 11(1)(a) of the Act of 1961 contains an identical provision. Section 5(1)(i) of the Wealth-tax Act is also similar. However, it cannot be denied that the law governing exemption from taxation of income derived from property held for religious or charitable purposes has undergone significant changes after the enactment of the Act of 1961. Section 2(15) of the Act of 1961 defines charitable purpose so as to include 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. On account of the aforesaid definition contained in Section 2(15), income derived from a business which is carried on for the advancement of an object of general public utility has to be included in the assessee's total income, if it involves carrying on of any activity for profit. It may be pointed out that the words 'not involving the carrying on of any activity for profit' contained in Section 2(15) have been omitted by the Finance Act of 1983, with effect from April 1, 1984. Under the Act of 1922, income derived from a business carried on for the purpose of advancing an object of general public utility was excludible from the assessee's total income, even if such business involved the carrying on of an activity for profit, if the income therefrom was applied wholly for the purposes of the trust or institution and either the business was carried on in the course of the actual carrying out of the primary purpose of the institution or the work in connection with the business was mainly carried on by the beneficiaries of the institution. In this respect, a significant change was brought about by the Act of 1961.

17. As early as in the year 1944, their Lordships of the Privy Council in All India Spinners' Association v. CIT [1944] 12 ITR 482 held that the object of development of village industries of hand-spinning and hand-weaving, namely, manufacture of khaddar, to help and open khaddar stores and to establish a khaddar service were primarily objects for providing relief to the poor and the purpose was one of general public utility. The question in that case related to the income of All India Spinners' Association, formed by the All-India Congress Committee. The Privy Council held in the aforesaid case that although the Association was set up by a political organisation and was connected with it, still its real object being relief of poverty, its connection with the political organisation did not make its real object any the less charitable. Their Lordships of the Judicial Committee held that the income of the Association was thus exempt under Section 4(3)(i) of the Indian Income-tax Act, 1922. Lord Wright, speaking for the Privy Council, observed in that case that Lord Macnaghten's definition of 'charity' in Pemsel v. Commissioners for Special Purposes of Income-tax [1891] AC 531 and the English decisions on the law of charities have no binding authority on the construction of the Indian statute and though they may sometimes afford help or guidance, yet the Indian courts could not be relieved from their responsibility of applying the language of the Act to the particular circumstances that emerge under conditions of Indian life. Their Lordships emphasised that the words of Section 4(3)(i) 'for the advancement of any other object of general public utility' are words of wide import. They necessarily exclude the object of private gain such as an undertaking for commercial profit, although it may subserve general public utility. But where private profit was eliminated and the primary object was to benefit the poor agriculturists in the villages, it was enough to prima facie satisfy the language employed in the statute.

18. We may also observe that if the Privy Council, even in the year 1944, held that promotion of manufacture and sale of khadi was an object to benefit the poor agriculturists in the villages and was, therefore, one of general public utility, it cannot be argued now, after the country attained independence under the guidance of Mahatma Gandhi, that the promotion of manufacture and sale of khadi is not an object of general public utility.

19. In East India Industries (Madras) Private Limited v. CIT : [1967]65ITR611(SC) the facts were that a trust was established for various objects, one of which was to manufacture, buy, sell and distribute pharmaceutical, medical, chemical and other preparations and other articles. The other objects of the trust included several charitable and religious purposes. In that case, the question was raised whether the property of the trust washeld wholly for religious or charitable purposes within the meaning of Section 4(3)(i) of the Act of 1922. Their Lordships of the Supreme Court held that it was open to the trustees to utilise the income of the trust for any one of the objects of the trust to the exclusion of all other objects and that it would not be a violation of the trust if the trustees devoted the entire income to the carrying on of a business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations. It was held that as the last mentioned object of the trust was neither charitable nor religious in character and as the trustees could, under the trust deed, validly spend the entire income of the trust on this non-charitable object alone, it could not be held that the trust property was held under a trust or other legal obligation wholly for religious or charitable purposes.

20. In Addl. CTT v. Surat Art Silk Cloth Manufacturers Association : [1980]121ITR1(SC) the assessee was a company whose objects included promotion of commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth. The Tribunal held in that case that the primary purpose for which the assessee company was established was to promote commerce and trade in art silk, silk yarn and cloth and the other objects were merely subsidiary and that the aforesaid primary purpose was plainly for advancement of an object of general public utility. Their Lordships of the Supreme Court upheld the view taken by the Tribunal that the dominant and primary purpose of the assessee company was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth and cotton cloth and the remaining objects of the company were merely incidental to the carrying out of that dominant and primary purpose. Their Lordships also held in that case that the promotion of commerce and trade in art silk, etc., was an object of public utility not involving the carrying on of any activity for profit, within the meaning of Section 2(15) of the Income-tax Act, 1961. Bhagwati J., speaking for the majority of the Judges of the Supreme Court constituting the Bench, observed that if the primary or dominant purpose of the trust or the institution is charitable, another object, which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose, could not prevent the trust or institution from being a valid charity. In the aforesaid case, their Lordships of the Supreme Court clarified the law on the subject as under (p. 11) :

'The law is well settled that if there are several objects of a trust or institution, some of which are charitable and some non-charitable and the trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would beexempt from tax. In other words, where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust or institution might be upheld as a valid charity : vide Mohd. Ibrahim v. CIT [1930] 57 IA 260 and East India Industries (Madras) Pvt. Ltd. v. CIT : [1967]65ITR611(SC) . But if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity : vide CIT v. Andhra Chamber of Commerce : [1965]55ITR722(SC) . The test which has, therefore, to be applied is whether the object which is said to be non-charitable is the main or the primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is charitable.' (emphasis* added).

21. In Laxmi Narain Lath Trust v. CIT one of the objects of the trust was that of rendering aid to any person belonging to the family of the donor and to grant monthly and other periodical aids to them, besides several charitable purposes. It was held by this court, following the decision of their Lordships of the Supreme Court in CIT v. Andhra Chamber of Commerce : [1965]55ITR722(SC) that as the trustees have the full discretion to spend the trust fund for any one of the objects of the trust, they could spend the entire funds only for one object to the exclusion of the others and within the framework of the trust deed, the trustees may spend the entire funds of the trust for the aid of the members of the settlor's family and, hence, the exemption under Section 4(3)(i) of the Act of 1922 was not available to the assessee-trust. In the aforesaid case, the objects were distributive and the trustees had unfettered discretion to utilise the whole income of the trust even for objects which were non-charitable and, as such, the property of the trust was not deemed to be held wholly for charitable or religious purpose.

22. In Mohammad Ibrahim Riza Malak v. CIT AIR 1930 PC 226 some of the objects or purposes of the trust were religious or charitable, while some others were neither religious nor charitable and no specific property was exclusively set apart for charitable or religious purposes. Their Lordships of the Privy Council observed as under in the aforesaid circumstances (headnote) :

'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.'

23. In CIT v. Andhra Chamber of Commerce : [1965]55ITR722(SC) the assessee was an association and the object of the association was to promote and protect trade, commerce and industries in Andhra and to aid, stimulate and promote the development of trade, commerce and industries, to keep a watch over and protect general commercial interests of India. Their Lordships of the Supreme Court, while considering the ambit of the expression 'object of general public utility' occurring in Section 4(3)(i) of the Act of 1922, held that the objects of the association were one of public utility and as such the same, were charitable objects within the meaning of Section 4(3)(i) of the Act of 1922.

24. In the case of Trustees of the Charity Fund v. CIT : [1959]36ITR513(SC) one Sir Sassoon David, Bart., held securities of the value of Rs. 24 lakhs in respect of which he declared a trust. The trust deed provided that half of the income from the funds of the trust shall at all times be applied for the benefit of the members of the Jewish community of Bombay and Jewish objects and particularly for giving donations to the members of the Jewish community of Bombay. It was also provided in the trust deed that besides other purposes beneficial to the Jewish community, preference shall be given in applying the income of the trust to the poor and indigent relations and members of the family of Sir Sassoon David, Bart., including therein distant and collateral relations. Their Lordships of the Supreme Court, while construing the trust deed in the aforesaid case, held that the ambit of the benefit was primarily intended for a much larger circle of the Jewish community though within the framework of that purpose, preference was to be given to the relations or members of the settlor's family, but the same could not affect the charitable character of the trust and so the trust was qualified for exemption.

25. Therefore, the test to be applied in such cases is as to whether the main or primary objects of the trust or dominant purpose thereof are charitable or the main or primary objects are distributive, some of which may be charitable and some of them are non-charitable. In a case where the main or primary objects of the trust are charitable, the other objects may be merely ancillary or incidental to the dominant purpose of the trust and such a trust shall be considered to be a charitable one. On the other hand, if the main objects of a trust are distributive and some of them are non-charitable, then the trust or the institution cannot be held to be a valid charity. If the other objects are ancillary or incidental to the dominant purpose of the trust, then the trust would still remain as a valid charity because the main object or the dominant purpose thereof is charitable.

26. Thus, it is well settled that the essential conditions which are necessary for an assessee-trust to obtain exemption from tax are :

(i) the property from which the income is derived should be held under trust or other legal obligations,

(ii) the property should be held for religious or charitable purposes ;

(iii) where the property is held wholly for religious or charitable purposes, the exemption will be available if the income thereof is applied to or is accumulated for application to religious or charitable purposes ; and

(iv) where property is held in part only for religious or charitable purposes, the exemption is confined to income which is in fact applied or finally set apart for application for such religious or charitable purposes.

27. Where the property is wholly set apart for religious or charitable purposes, the case presents no difficulty. In that event, the actual application or accumulation for that purpose alone has to be established by the assessee in order to qualify for exemption. Again, when a portion of the property held by the trust is clearly set apart for religious or charitable purposes, the portion so set apart will be deemed to be one unit and that portion of the property of the trust will be considered to be wholly set apart for religious or charitable purposes. There may also be no difficulty in a case where any particular portion of the income from a property is required to be spent for religious or charitable purposes. The difficulty, however, 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. In such cases, where the charitable and non-charitable objects co-exist in a deed of trust, the dominant intention of the settlor has to be found out and if 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. But where the charitable and non- charitable objects are mixed up and the deed of trust authorises the trustees to utilise the entire income for any one of the objects or purposes of the trust, it is open to the trustees to utilise the entire income or set apart such income exclusively for use for non-charitable objects alone and in such cases, the income of the trust may not qualify for exemption under the Act.

28. One of the objections raised in the present case is that 'other constructive activities on the lines of Mahatma Gandhi's doctrine are vague and uncertain objects and as the entire income of the trust could be spent by the trustees on such objects, the property of the trust should not be considered to be held wholly for charitable purposes. It may be observed that the other objects mentioned in the trust deed, like promotion and manufacture of khadi, removal of untouchability and upliftment of women are illustrative of the type of charitable objects to which the trusteeswould apply the funds of the trust and so 'other constructive activities' merely incorporates ancillary or incidental purposes which could be similar to those which have been specifically mentioned in the trust deed and precede the 'other constructive activities'. The residuary provision relating to 'other constructive activities' must take its colour from the preceding objects specified in the trust deed and as there can be no doubt that the preceding three objects specified in the trust deed are essentially charitable purposes, the ancillary object specified in the trust deed as 'other constructive activities' must likewise be construed as a charitable object, in furtherance of and in consonance with the other objects of the trust.

29. In Vallabhdas Karsondas Natha v. CIT : [1947]15ITR32(Bom) a trust was created for religious and charitable objects such as relief to the poor, famine relief, medical and surgical relief to the needy and poor, supply of fodder to animals and cattle, advancement of education, advancement of Hindu religion, upkeep and maintenance of charitable institutions and lastly an ancillary object was added as 'such other purposes beneficial to the Hindu community and Indians in general not falling under preceding heads'. It was held by the Bombay High Court that the last mentioned object directly came within the definition of 'charitable purpose'. Chagla J. observed in the aforesaid case that it was almost a verbatim of the fourth head of Lord Macnaghten's famous definition in Pemsel's case [1891] AC 531.

30. In CIT v. Trustees of Shri Cutchi Lohana Panchtade Mahajan Trust : [1975]98ITR448(Bom) one of the objects mentioned in the deed of trust along with other charitable objects was the welfare of the persons belonging to Cutchi Lohana community of Bombay, It was held that the welfare of the caste people must be held to be a charitable purpose in the context of other objects of the trust being of charitable nature. Their Lordships of the Bombay High Court observed in that case that the entire object clause should not be interpreted in an isolated manner. It was pointed out that the word 'welfare' had to be read in conjunction with the other objects specified, namely, rendering help to the poor and destitute and rendering assistance to maintain the Daryalal temple. Their Lordships pointed put that the word 'welfare' should take its colour from the earlier objects which preceded it and is really used in the sense of welfare of the poor, needy and destitute members of the community and as such the object could not be regarded as other than charitable.

31. In CIT v. All India Hindu Mahasabha : [1983]140ITR748(Delhi) a question arose about the eligibility of an organisation known as All India Hindu Mahasabha for exemption from tax under Section 11(1) read withsection 2(15) of the Income-tax Act. A Bench of the Delhi High Court held that for the purpose of exemption under Section 11(1), the assessee should prove either that all its objects are charitable within the meaning of Section 2(15) or that a specific or identifiable part of its income has been set apart and it is obligatory to apply it for such purposes. It is not sufficient that some of the objects are charitable while some others are non-charitable, and if the trustees have discretion to apply the income to any of the objects, charitable or non-charitable, they can legitimately utilise the entire income for non-charitable purposes alone and so it cannot be held that the trustees were under a legal obligation to apply the income wholly or in part for charitable purposes. Thus, in a case where the objects of the trust or institution are distributive, each and every one of the ob-jects must be charitable in order that the trust may be upheld as a valid charity. Following the decisions of their Lordships of the Supreme Court in CIT v. Krishna Warriar : [1964]53ITR176(SC) East India Industries (Madras) Pvt. Ltd. v. CIT : [1967]65ITR611(SC) and the Additional CIT v. Surat Silk Manufacturers Association : [1980]121ITR1(SC) it was held by the Delhi High Court that as some of the objects were not charitable but were political objects, no part of the income of the association was exempt from tax. The aforesaid case has no application to the facts of the present case as the objects of promotion of manufacture of khadi, removal of un-touchability and upliftment of women and as also the formation of 'adarsh village' are essentially charitable. Thus, the only question which hereafter remains for consideration is whether the 'other constructive activities' should be considered as charitable objects or it is vague and uncertain and cannot be held to be a charitable object.

32. In J.K. Charitable Trust v. CIT : [1955]28ITR110(All) the object of the trust was 'such religious and charitable purpose of public nature as the trustees may think fit'. The trust deed also enumerated some of the charitable purposes and the last object was specified as under :

' the advancement of any other object of general public utility as the trustees may in their sole discretion deem fit '.

33. It was argued that the objects were vague and uncertain and there was no valid trust and as such the income of the trust cannot be exempted from tax. It was held by their Lordships of the Allahabad High Court in the aforesaid case, following the decision of the Bombay High Court in Vallabhdas Karsondas Natha's case : [1947]15ITR32(Bom) that if the trust deed sets out a number of objects, most of which are admittedly religious or charitable and the deed further provides that the list is not exhaustive and other religious or charitable objects of public utility can also be undertaken by the trust at the discretion of the trustees, then the objects cannot beheld to be vague or Uncertain but such objects must be considered to be of the same nature as are specified in the trust deed. It was held that the deed clearly provides that the income of the trust is to be incurred for religious or charitable purposes of public nature and in case the trustees spend the income on objects which are not religious or charitable objects of public nature, they would be guilty of breach of trust.

34. In CIT v. Radhaswami Satsang Sabha : [1954]25ITR472(All) it was held that when the dedication is for religious and charitable objects, then the trustees have no discretion to apply any part of the trust's income' for any other purpose except for religious and charitable objects. If any of the objects specified in the trust deed by way of illustration do not fall within the category of religious and charitable objects, then the trustees may discard such objects and apply the trust income only to religious and charitable objects.

35. In Yogiraj Charity Trust v. CIT : [1976]103ITR777(SC) the same question arose that when some objects are non charitable while some others are charitable, could the trust be entitled to claim exemption from tax Their Lordships of the Supreme Court observed as under in the aforesaid case (pp.781 and 782) :

'The question is whether exemption can be granted where some objects are charitable and some non-charitable. Where there are several objects of a trust, some of which are charitable and some non-charitable, and the trustees in their discretion are to apply the income to any of the objects, the whole trust fails and no part of the income is exempt from tax. Where the objects are distributive, each and every one of the objects must be charitable in order that the trust might be upheld as a valid charity. If no definite part of the property or its income is allocated to charitable purposes and it would be open to the trustees to apply the whole income to any of the non-charitable objects, no exemption can be claimed......Ifthe primary or dominant purpose of a trust is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust from being a valid charity. A clear distinction must be drawn between the object of a trust and the powers conferred upon the trustees as incidental to the carrying out of the object. If the only object of a trust is the construction and maintenance of a swimming bath, which is a purpose of general public utility, the fact that the trustees are given the power to supply or sell refreshments to persons who resort to the bath would not make the trust any the less charitable.'

36. Their Lordships again reiterated the test laid down in the earlier cases referred to above, that if any one of the objects of the trust is not ofreligious or charitable nature and the trust deed confers full discretion upon the trustees to spend the trust fund for objects other than religious or charitable nature alone, the exemption from tax is not available to the assessee, but if the primary or dominant purpose of the trust is charitable, another object which by itself may not be charitable, but which is merely an ancillary or incidental to the primary or dominant object, would not prevent the trust from becoming a valid charity entitled to exemption from tax.

37. The same principle was affirmed by their Lordships of the Supreme Court in CIT v. Federation of Indian Chambers of Commerce and Industry [1980] 130 ITR 186 following their earlier decision in Surat Art Silk's case : [1980]121ITR1(SC) and it was observed that the profit must necessarily feed a charitable purpose under the terms of the trust. The mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The condition that the purpose of the trust should not involve the carrying on of any activity for profit would be satisfied if the profit making is not the real object of the trust. Their Lordships held in the aforesaid case that the determining factor is as to whether the primary or dominant object of the trust or institution is charitable ; any other object which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or the institution from being a valid charity.

38. A review of the aforesaid decisions leads to the conclusion that if the objects or purposes of the trust or institution are wholly religious or charitable, then there would be no difficulty in holding that the trust has been created for advancement of the object of general public utility and is entitled to exemption from tax. However, if some of the objects or purposes of the trust are charitable while some others are not charitable, the dominant or primary object or objects are the determining factors. If the primary or dominant object of the trust or institution is charitable, other objects which are merely ancillary or incidental to the primary or dominant purpose, even if they are non-charitable, would not prevent the trust or institution from being a valid charity qualifying for exemption from tax. But the situation would be different if the objects of the trust are distributive and the trustees have the sole discretion to apply the income of the trust to any one of the objects of the trust. In such cases, where charitable or non-charitable objects co-exist in a deed of trust and all the objects are distributive, then the trustees may, if they so like, utilise the entire income of the trust for purposes or objects which are wholly non-charitable. In those cases, the income of the trust would not be qualified for exemption under the Act. However, in cases where the trust deedspecifies that a definite amount out of the income of the trust properties or a specified part of such income would be spent for purposes which are religious or charitable in nature, then the trust would be entitled to exemption from tax to the extent of the amount or portion of its income so specified.

39. In the present case, the objects of the trust, namely, the promotion of manufacture of khadi, promotion of removal of untouchability, uplift-ment of women and formation of a modern village or 'Adarsh Gram' are essentially charitable objects being matters of general public utility. The residuary object specified in the deed of trust as 'other constructive activities on the lines of the doctrine of Mahatma Gandhi' should take its colour from the preceding objects specified in the trust deed, as that is, an ancillary or incidental purpose which must be read in conjunction with and in the light of the other objects of the trust which have been specifically mentioned. It is not permissible to read any one object of the trust in an isolated manner, but all the objects specified in the deed of trust have to be read together. It appears clearly from a combined reading of all the objects of the trust in the present case that the trust was created with the primary or dominant purpose of charitable nature or for objects of general public utility.

40. We are also unable to agree with the contention raised on behalf of the Revenue that the object 'other constructive activities' is vague and uncertain. As we have already pointed out above that this object must be read ejusdem generis with the other objects of the trust and 'other constructive activities' which the trustees can undertake in accordance with the terms of the trust deed must be of similar nature as the activities specified earlier in the trust deed. It may also be observed that the object of the trust is not to carry on commercial activities with a profit-making motive and if any commercial activity is undertaken by the trust, the income thereof would necessarily have to be spent on works of general public utility or charitable purposes.

41. We are, therefore, in agreement with the view taken by the Tribunal and hold that there is no valid reason for not treating the trust as eligible for exemption under Section 5(1)(i) of the Wealth-tax Act. The Tribunal was thus fully justified in rejecting the submissions made on behalf of the Revenue that the object of 'other activities' in accordance with the doctrine of Mahatma Gandhi is either vague or uncertain or the same is non-charitable on the ground that it would amount to advancement of political objects as Mahatma Gandhi was a political leader. With the advent of freedom, the argument is absolutely baseless as Mahatma Gandhi was not only a political leader but was the very embodiment of theaspirations of the people of India and the constructive programme envisaged by him for the upliftment of the poor and the down-trodden masses of our country by no stretch of imagination can be considered as a political activity. The upliftment of the poor and down-trodden people is undoubtedly a charitable purpose and the constructive activities in accordance with the doctrine of Mahatma Gandhi must necessarily be held to be activities of general public utility.

42. As a result of the aforesaid discussion, we answer the reference in the affirmative, in favour of the assessee and against the Revenue.


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