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Commissioner of Income-tax, (Central), Madras Vs. Shri Agastyar Trust - Court Judgment

LegalCrystal Citation
Overruled BySriagasthyar Trust Madras v. CIT
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 1610 to 1613 of 1977 and 64 to 76 and 592 of 1978 and T.C.P. Nos. 115 of 1980 and 384
Judge
Reported in[1984]149ITR609(Mad)
ActsIncome-tax Act, 1922 - Sections 4(3); Income Tax Act, 1961 - Sections 2(15), 11, 11(4), 12, 13, 60, 61, 62 and 63
AppellantCommissioner of Income-tax, (Central), Madras
RespondentShri Agastyar Trust
Advocates:J. Jayaraman, Adv.
Cases ReferredConstitution. In Dwarkadas v. Srinivas Sholapur Spinning and Weaving Co. Limited
Excerpt:
direct taxation - charitable trust - section 4 (3) of income tax act, 1922 and sections 2 (15), 11, 11(4), 12 and 62 of income tax act, 1961 - x and y under partnership deed carried on business - deed provided that 80% of net profits shall be allotted to charitable and religious objects - trust constituted under agreement - trust claimed exemption from its income under section 4 (3) - tribunal held that trust was entitled to exemption under section 11 - whether assessee trust was entitled to exemption under section 11 - supreme court had earlier held that assessee trust was not charitable trust under section 4 (3) - statutory provisions of act of 1922 are substantially same as that of act of 1961 - held, assessee's trust not entitled to exemption under section 11. - - the religious.....ramanujam, j. 1. two persons by name k. rajagopal and v. s. nanjappa chettiar into a partnership by a deed dated november 28, 1941. under the terms of the said partnership deed they were carrying on a business in the purchase and sale of waste papers. the partnership deed provided that out of the net profits of the business after meeting all charges and expenses, 80% shall be set apart and allotted to charitable and religious objects set out therein, that the said 80% of the profits shall be kept invested in the business but the shall be separetly entered in the account of the firm under the head 'charity account' and that all disbursements made out of the said amount shall be debited to the said account and the surplus, if any, carried over to the next year. the partnership deed also.....
Judgment:
Ramanujam, J.

1. Two persons by name K. Rajagopal and V. S. Nanjappa Chettiar into a partnership by a deed dated November 28, 1941. Under the terms of the said partnership deed they were carrying on a business in the purchase and sale of waste papers. The partnership deed provided that out of the net profits of the business after meeting all charges and expenses, 80% shall be set apart and allotted to charitable and religious objects set out therein, that the said 80% of the profits shall be kept invested in the business but the shall be separetly entered in the account of the firm under the head 'Charity account' and that all disbursements made out of the said amount shall be debited to the said account and the surplus, if any, carried over to the next year. The partnership deed also declared that a sum of Rs. 9,900 which lay to the credit of the Charity account is set a part finally for the purpose of religious and charitable objects set out therein, that the sums lying to the credit of the Charity account as on the date of the partnership deed and all future amounts that will be credited to it out of the profits of the business in future years shall be disbursed by one T. N. Venkatarama Chetty as a trustee of the said fund for carrying out the religious and charitable objects mentioned therein. The religious and charitable objects contemplated by the partnership deed are the conduct to temple festivals in Madras and other places like Conjeevaram, Tirupathi, Srirangam, Salem and other places, medical relief, giving of alms including food to the poor on occasions of Hindu festivals as selected by T. N. Venkatarama Chetty in his discretion, gift of sums of money to poor deserving persons for celebration of marriages and generally on any object of general public utility like educational institutions, orphanages, choultries, work houses and hospitals, etc. The partners retained the power to revoke the trust created thereby. The partnership deed was to take effect from July 14, 1940.

2. By an agreement dated August 26, 1943, entered into between the two partners and the trustee, the trust was made irrevocable. By another document styled as 'trust deed' dated July 1, 1944, T. N. Venkataramam Chetty, the trustee appointed under the partnership deed, extended the objects of the trust and made a trust called 'Agastyar Trust'. That deed enumerated the various objects of that trust. The said trust deed was also attested by the partners. On July 7, 1944, itself the partnership came to be dissolved. Later, on June 12, 1961, another trust deed had been executed by the sons of the original partners and the sons of the trustee, T. N. Venkatarama Chetty. But we are not concerned in this case with the scope and effect of the said trust deed dated June 12, 1961.

3. For the assessment years 1957-58 to 1961-62 the said trust claimed exemption for the entirety of its income under s. 4(3) of the Indian I.T. Act, 1922. That claim having been rejected by the ITO, the matter was taken to the AAC but without success. Thereafter, the trust took the matter in appeal to the Income-tax Appellate Tribunal. The Tribunal upheld the assessee's claim for exemption under s. 4(3). Aggrieved by the decision of the Tribunal, the Revenue sought a reference to this court on certain questions. The Tribunal referred all the questions asked for by the Revenue in T.C. Nos. 1610 to 1613 of 1977, and those questions are as follows :

'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was a trust constituted by the deed, dated November 28, 1941, and not by the deed dated July 1, 1944

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the question whether the assessee was a trust whose objects are wholly charitable and religious has to be determined solely with reference to the trust deed dated November 28, 1941, and not with reference to the trust deed dated July 1, 1944

(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the trust created by the partnership deed dated November 28, 1941, continued even after the dissolution of the partnership and the assessee-trust was the trust constituted by the deed dated November 28, 1941

(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that giving cash grants for the needy and deserving persons to met marriage expenses is a charitable object and the assessee was entitled to exemption under section 4(3)(i) of the Indian Income-tax Act, 1922

(5) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee-trust was entitled to the exemption under section 4(3)(i) of the Indian Income-tax Act, 1922 in respect of the income attributable to the trust created under the deed dated November 28, 1941 ?'

4. For the assessment years 1962-63 to 1973-74, the assessee-trust claimed exemption under s. 11 of the I.T. Act, 1961. The ITO having rejected the claim, the matter was taken in appeal. That appeal having failed the assessee went before the Income-tax Appellate Tribunal. The Tribunal, however, following its earlier decision relating to the assessment years however, following its earlier decision relating to the assessment years 1957-58 to 1961-62 held that the assessee is entitled to the exemption under s. 11 of the 1961 Act as it is a charitable institution. As against the said decision of the Tribunal, the Revenue sought to refer very many questions but the Tribunal referred only one question in T.C. Nos. 64 to 76 of 1978 and that question is as follows :

'Whether, on the facts and in the circumstances of the case, the income of the assessee was entitled to exemption under section 11 of the Income-tax Act, 1961, read with section 13 and was not, therefore, assessable to tax for the assessment years 1962-63 to 1973-74 ?'

5. Aggrieved by the order of the Tribunal not referring the other questions raised by the Revenue, the Revenue has filed T.C.Ps. Nos. 384 to 394 of 1982, under s. 256(2) of the I.T. Act, 1961 seeking a direction from this court to the Tribunal to refer all the questions suggested by the Revenue to this court for opinion.

6. A similar claim for exemption was put forward by the same trust for the assessment year 1974-75. With reference to this year, the Tribunal held following its decision in the earlier years that the trust it entitled to exemption under s. 11. When the Revenue sought a reference on many questions touching the point, the Tribunal referred only one question in T.C. No. 592 of 1978 as follows and refused to refer the other questions :

'Whether, on the facts and in the circumstances of the case, the assessee-trust was entitled to exemption under section 11 of the Income-tax Act, 1961, read with section 2(15) thereof ?'

7. Against the refusal to refer the other questions, the Revenue had filed T.C.P. No. 115 of 1980, under s. 256(2) of the I.T. Act, 1961, seeking a direction from this court to the Tribunal to refer another eight questions.

8. Since the tax cases arising out of the reference already made by the Tribunal were ready or hearing the reference application T.C.Ps. Nos. 384 to 394 of 1982 and T.C.P. No. 115 of 1980, filed by the Revenue in relation to the tax cases have been directs to be posted along with the tax cases. However, we would like to dispose of the said reference applications before we proceed to deal with the questions raised in the tax cases.

9. The learned counsel for the Revenue contends that in T.Cs. Nos. 1610 to 1613 of 1977, all the questions sought for by the Revenue have been referred but with reference to the assessment orders for the later years, the Tribunal had chosen to refer only one question and refused to refer the other questions without giving any substantial reason and all the questions referred to in the reference applications have to be referred as they admittedly arise out of the relevant orders of the Tribunal. However, after hearing the parties at some length on these reference application, we are satisfied that the questions already referred in T.C. Nos. 64 to 76 of 1978 and T.C. No. 592 of 1978 are comprehensive enough to include the questions sought to be referred to this court by the Revenue in the reference applications. The questions sought to be referred in the reference applications are only different facets of the main question already referred. The common question that has already been referred is whether, on the facts and circumstances of the case, the assessee-trust was entitled for exemption under s. 11 read with s. 2(15) of the I.T. Act, 1961. The question sought to be referred in T.C.Ps. Nos. 384 to 394 of 1982 and T.C.P. No. 115 of 1980 merely deal with the character of the trust and the extent to which the exemption could be claimed, even if the trust is treated as a charitable institution. Therefore, we are of the view that there is no necessity to make a separate reference on the questions set out in the above reference applications. Hence, we dismiss the reference applications as unnecessary as the common question referred in T.Cs. Nos. 64 to 76 of 1978 and 592 of 1978 is comprehensive enough to include these questions as well.

10. Then we come to the main tax cases which can be grouped under two heads : cases arising under the 1922 Act and the cases arising under the 1961 Act. T.Cs. Nos. 1610 to 1613 of 1977 are covered by the provisions of the 1922 Act. The question whether the assessee, Agastyar Trust, is entitled to claim exemption as a charitable institution will have to be considered with reference to the provisions in the old and the new Acts. Section 4(3) of the 1922 Act so far as it is relevant is as follows :

'(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 :....

(ii) Any income of religious or charitable institution derived from voluntary contributions and applicable solely to religious or charitable purposes.'

11. Section 15B(1) of the Indian I.T. Act, 1922, which gave exemption in respect of donations made for charitable purposes was as follows :

'The tax shall not be payable by an assessee in respect of any sums paid by him on or after the 1st day of April, 1953, as donations to any institution or fund to which this section applies or in respect of any sums paid by him on or after the first day of April, 1960, as donations to the Government or to any local authority to be utilised for any charitable purpose as defined in sub-section (3) of section 4 .....'

12. As per the above provision, any income derived from property held under trust or other legal obligation wholly for religious or charitable purpose, in so far as such income is applied or accumulated for application to such religious or charitable purpose will not be included in the total income of the person receiving the income. Similarly, any income derived from voluntary contributions and applicable only to religious and charitable purposes as also the income of an association cannot also be included in the total income. The corresponding provision under the 1961 Act is s. 11 which so far as it is relevant is as follows :

'11. Income from property held for charitable religious purposes. -

(1) Subject to the provisions of section 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income -

(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent. of the income from such property;

(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty-five per cent. of the income from such property.'

13. Section 12 of the 1961 Act deals with income of trusts or institutions from contributions and that section is as follows :

'12. Income of trusts or institutions from contributions. - Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.'

14. The expression 'property held under trust' has been defined in s. 11(4). Section 13 excluded the operation of s. 11 in certain cases and that section to the extent relevant is extracted below :

'13. Section 11 not to apply in certain cases. - (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof -

(a) any part of the income form the property held under a trust for private religious purposes which does not ensure for the benefit of the public;

(b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste;

(bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business, any income derived from such business, unless the business is carried on the course of the actual carrying out of a primary purpose of the trust or institution;

(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof -

(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income ensures, or

(ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied,

directly or indirectly for the benefit of any person referred to in sub-section (3)......'

'Charitable purpose' has been defined in section 2(15) thus :

'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.'

it is in the light of these provisions the claim of the assessee-trust for exemption in respect of its entire income should be considered.

15. The question whether the same assessee-trust was entitled to exemption under s. 4(3) of the 1922 Act came up for consideration before this court in CIT v. East India Industries (P.) Ltd. : [1962]46ITR1086(Mad) , Sri Agastyar Trust v. CIT : [1963]48ITR673(Mad) and before the Supreme Court in East India Industries (Madras) Pvt. Ltd. v. CIT : [1967]65ITR611(SC) . In CIT v. East India Industries (P.) Ltd. : [1962]46ITR1086(Mad) , one M/s. East India Industries (P.) Ltd. had made a donation of Rs. 7,500 the Sri Agastyar Trust and claimed exemption from tax under s. 15B of the 1922 Act. Taking note of the fact that the trust had been created by the partners of a business firm, M/s. K. Rajagopal and Co., by setting apart 80% of the profits for charitable and religious purpose and that one Venkatarama Chetty was appointed as a trustee for administering the said fund and he had executed a trust deed on July, 1, 1944, and the various objects set out in the said trust deed, the court held that as one of the objects set out in the trust deed of July 1, 1944, was to manufacture, buy, sell and distribute pharmaceutical, medicinal, chemical and other preparations and articles such as medicines, drugs, medical and surgical articles, preparations and restoratives or foods and that was not a charitable purpose, the trust was not for wholly religious and charitable purposes and, therefore, the trust is not entitled to exemption under s. 4(3)(i), as under the provisions of the trust deed, the Agastyar Trust had unfettered discretion to spend whole of the income to a non-charitable object and, therefore, the property cannot be taken to be held in trust wholly for charitable purpose. Of course, Agastyar Trust was not a party before the court in the above case and it is only the donor who had made a donation to the trust who was a party therein and the decision was against it. Agastyar Trust itself claimed the benefit of exemption under s. 4(3)(i). Following the decision in CIT v. East India Industries (P.) Ltd. : [1962]46ITR1086(Mad) , another Division Bench of this court has held in Sri Agastyar Trust v. CIT : [1963]48ITR673(Mad) , that the Trust having been formed as a multipurpose trust with objects religious or charitable mixed with object non-religious and non-charitable, cannot come within the scope of s. 4(3)(i), if there is no compelling obligation on the trustee to devote any portion of the income of the trust for religious or charitable purpose and that, therefore, the main provision in s. 4(3)(i) cannot apply to the trust. The decision in CIT v. East India Industries (P.) Ltd. : [1962]46ITR1086(Mad) , was taken in appeal before the Supreme Court and the Supreme Court in East India Industries (Madras) P. Ltd. v. CIT : [1967]65ITR611(SC) , held that one of the objects of the trust being the manufacture of pharmaceutical and medicinal preparations which is not strictly charitable and religious in nature and as the trustee had absolute discretion to spend the entire income for such a non-charitable object, the provisions of s. 4(3)(i) would not be applicable to the trust and no exemption could be granted to the trust under s. 15B of the Act. After setting out the various clauses in the trust deed dated July 1, 1944, the Supreme Court observed (p. 615) :

'The question to be considered is whether the property from which the income of the Agastyar trust is derived is held under trust or other legal obligation wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Act. In the present case, it appears from the deed of trust that one of the objects of the trust, namely, item 4, is not for charitable or religious purpose. Item No. 4 is 'to manufacture, buy, sell and distribute pharmaceutical, medical, chemical, and other preparation and articles such as medicines, drugs, medical and surgical articles, preparations and restoratives of food'. It may be that most of the other objects of the trust are religious and charitable in nature but if item No. 4 is not charitable, then the conditions envisaged by section 4(3)(i) of the Act are not fulfilled and the exemption conferred by section 15B of the Act cannot be applied. Clause 5(i) of the trust deed states that 'the trustee shall have power to apply the whole or any part of the trust property or fund whether capital or income in or towards payment of the expenses of the trust or for or towards all or any of the purposes of the trust provided any property or money held in special trust shall be applied only for that purpose and not otherwise'. In the present case, there is no special trust, that is to say, no particular item of property has been burned with the performance of any specific object of the trust. It is, therefore, manifest that under clause 5(i) of the trust deed it is open to the trustee to utilise the income for any one of the object of the trust to the exclusion of all other objects. In other words, 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. In our opinion, this particular object of the trust is neither charitable nor religious in character. If the trustees can, under a trust held validly, spend the entire income of the trust on this non-charitable object, it is difficult to hold that the trust property is held under a trust or other legal obligation wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Act.'

16. Before the Supreme Court it was contended by the assessee that one particular object cannot be isolated from the other objects of the trust, that having regard to the immediately preceding object which is to run hospitals and dispensaries, the impugned object, viz, the manufacture of pharmaceutical and medicinal preparations, must be deemed to be for the purpose of carrying out the earlier object, viz., running of hospitals and dispensaries. Dealing with this contention, the Supreme Court held that there is no connection between the two objects of the trust and upon an interpretation of the document taken as a whole, it is impossible to accept the assessee's contention that the dominant object of the trust is charity and that the manufacture of pharmaceutical and medical preparations is only a subsidiary object and that the trust deed itself has specifically stated that the various objects shall be independent of each other.

17. One of the questions that has been canvassed before us is whether the Tribunal or this court can go behind the said judgment of the Supreme Court and hold that the Agastyar Trust is a charitable institution entitled to the benefit of exemption under s. 4(3)(i) of the 1922 Act. According to the Revenue, the Tribunal as well as this court is bound by the said decision of the Supreme Court and, therefore, the assessee in this case, namely, the Agastyar Trust, should be held not entitled to the exemption under s. 4(3)(i). The learned counsel for the assessee, however, contends that since the Supreme Court has proceeded on an erroneous basis that the trust was constituted for the first time under the document dated July 1, 1944, executed by the trustee, overlooking the fact that the trust had been earlier constituted in the year 1941 under a deed of partnership, it is open to the Tribunal and this court to go behind the said decision and give their decision by taking note of the objects mentioned in the partnership deed which created the trust for the first time. According to the learned counsel for the assessee, both this court in CIT v. East India Industries (P.) Ltd. : [1962]46ITR1086(Mad) and Sri Agastyar Trust v. CIT : [1963]48ITR673(Mad) and the Supreme Court in East India Industries (Madras) P. Ltd. v. CIT : [1967]65ITR611(SC) , were not aware of the creation of the trust earlier and have proceeded on an erroneous basis that the trust has been created only by the document dated July 1, 1944, and, therefore, it is possible for this court to decide the case on the correct basis that the trust has been constituted earlier by the terms of the partnership deed dated November 28, 1941, for the objects mentioned therein and the objects mentioned in the partnership deed will clearly establish that the trust has been created only for a charitable purpose and there is no non-charitable object involved. However, as a matter of fact, a perusal of the judgments of this court in CIT v. East India Industries (P.) Ltd. : [1962]46ITR1086(Mad) and Sri Agastyar Trust v. CIT : [1963]48ITR673(Mad) and of the judgments of the Supreme Court in East India Industries (Madras) P. Ltd. v. CIT : [1967]65ITR611(SC) , indicates that while rendering those decisions, the courts were aware of the fact that the trust has been constituted by a partnership deed, but they proceeded on the basis that the object of the trust has been set out only by the letter document dated July 1, 1944, executed by the trustee and it is only on that basis they have gone into the question as to whether the objects contained therein are charitable or whether they cover non-charitable objects also. According to the learned counsel for the assessee, the trust has in fact been constituted by the partnership deed for the objects set out therein and all those objects are exclusively charitable and, therefore, the character of the trust should be determined only with reference to the terms of the partnership deed and not with reference to the later deed executed by the trustee on July 1, 1944. The learned counsel further contends that the trust deed executed by the trustee expanding the objects of the trust so as to cover non-charitable objects should be taken to be illegal and that even the founder of the trust himself cannot alter the objects so as to make it a non-charitable trust and the attestation by the partners who had founded the trust of the latter document executed by the trustee is of no consequence and it cannot be taken to validate the trust deed. The learned counsel refers to the decision in Thanthi Trust v. ITO : [1973]91ITR261(Mad) , in support of his contention that once a trust had been validly created for certain specified purposes, any deviation by the founder of the trust or the trusteesfrom the declared purpose would amount only to a breach of the trust and would not detract from the declaration of the trust, and that therefore, the subsequent conduct of the founder or the trustees in dealing with the funds of the trust long after its creation may not put an end to the trust itself.

18. Though we can prima facie agree with the submission of the learned counsel for the assessee that a charitable trust once validly created for certain charitable objects and properties have been dedicated for those objects, it is not open to the founder or the trustees appointed by him to enlarge the objects of the trust so as to make it a non-charitable trust, it is unnecessary for us to go into that question in detail as the Supreme Court has already rendered a decision regarding the constitution and the nature of the Agastyar trust in East India Industries (Madras) P. Ltd. v. CIT : [1967]65ITR611(SC) , and it is not open to us to go behind that decision on the ground that the said decision was render on an erroneous basis that the trust was created only by the trust deed dated July 1, 1944, while in facts the trust has been created under an earlier partnership document containing objects which are alleged to be purely charitable. The decision of the Supreme Court has been rendered on identical facts though in relation to an earlier assessment year. In view of article 141 of the Constitution of India, this court cannot go behind the said decision of the Supreme Court to see whether it proceeds on a correct basis or not. It is not the case of the assessee that new facts have been brought to light or subsequent events have taken place after the decision of the Supreme Court. Even if new facts are brought to light, it may not be possible for this court to go behind the decision of the Supreme Court because of article 141. Even otherwise, it is well established that a decision rendered by the Supreme Court on the same set of facts is entitled to great weight and this court cannot easily brush aside the judgment of the Supreme Court on the ground that the facts brought to light now were not placed before the Supreme Court. Though the principle of estoppel or res judicata cannot strictly apply to the decision rendered in proceedings under the I.T. Act on a reference, they have a binding effect both on the assessee as well as on the Revenue if the point on which the decision has been given is the same. But that principle will not apply if the facts are variable from year to year and the new facts warrant a different and contrary decision. In V. R. N. M. Subbayya Chettiar v. CIT : [1951]19ITR168(SC) , the Supreme Court observed that where a case was decided mainly with reference to the question of onus of proof, the decision must be confined to the year of assessment to which the case related and it is open to the assessee to show in subsequent years by proper evidence that a different or contrary decision is warranted on the facts of that case. In Sankaralinga Nadar (T. M. M.) and Bros. v. CIT AIR 1930 Mad 209; 4 ITC 226, a Full Bench of this court, dealing with the question as to how far the principle of res judicata applies to the decision of the court on a reference, had expressed the view that where the question relating to assessment does not vary with the income every year but dependeds on the nature of the property or on any other question on which the rights of the parties to be taxed are based, that is, whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income and that such questions if decided by a court on a reference made to it would be res judicata in that the same question cannot be subsequently agitated. The Full Bench has relied on the decision in Hoystead v. Commissioner of Taxation [1926] AC 155, wherein their Lordships of the Privy Council observed (p. 165) :

'Very numerous authorities were referred to. In the opinion of their Lordships it is settled, first, that the admission of a fact fundamental to the decision arrived at cannot be withdrawn and a fresh litigation started, with a view of obtaining another judgment upon a different assumption of fact; secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal quality of that fact. Parties are not permitted to begin fresh litigations because of new views that they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances..... Thirdly, the same principle - namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.'

19. The decisions in In re Ramji Das Jain , Kamlapat Motilal v. CIT : [1950]18ITR812(All) and CIT v. L. G. Ramamurthy [1977] 110 ITR 435 , all take the same view. Thus, it appears to be well-established that a decision on the question as to whether a certain trust is a charitable trust or not which has nothing to do with the fluctuations in its income year after year, will operate as res judicata and the same question cannot subsequently be reagitated.

20. The learned counsel for the assessee, however, points out that the doctrine of res judicata or estoppel by record does not apply to the proceedings arising under the I.T. Act and, therefore, the finding or decision rendered by the income-tax authorities in one year may be departed from in a subsequent year and relies on the decision of the Supreme Court in New Jehangir Vakil Mills Co. Ltd. v. CIT : [1963]49ITR137(SC) and the decision of the Calcutta High Court in CIT v. Brijlal Lohia : [1967]66ITR97(Cal) , in his support. But the view taken in the above cases has been clarified in subsequent cases by saying that ITO is not bound by the rule of res judicata or estoppel by record and he can reopen a question previously decided only and only if fresh facts come to light on investigation that would entitle him to come to a conclusion different from the one previously reached or if the earlier decision had been rendered without taking into consideration material evidence. According to the learned counsel for the assessee, the earlier decisions rendered by this court and the Supreme Court regarding the Agastyar Trust should be taken to be a evidence such as the deed of partnership under which the original trust has been created for the purposes set out therein and, therefore, the assessee is entitled to go behind the said judgment of the Supreme Court and seek a fresh adjudication regarding the nature of the trust taking the partnership deed as the basis deed creating the trust. In this case a decision has been rendered by the Supreme Court regarding the constitution and nature of the trust. That cannot change from year to year though the actual income in respect of which exemption is claimed year after year may differ. There are no additional or new facts placed by the assessee for the subsequent years so as to call for a fresh decision on the constitution and the nature of the trust. The Supreme Court was aware of and in fact has referred to the terms of the partnership deed executed under which the trust is said to have been created earlier. None the less, it has taken the later trust dated July 1, 1944, as constituting and setting out the terms of the trust and issues relating to the nature of the trust have been decided with reference to the terms of the trust deed. Though the learned counsel seeks to convince us that the later document of the year 1944 is invalid to the extent it modifies the objects set out in the partnership deed and that the nature of the trust has to be determined only with reference to the objects set out in the partnership deed, it is not possible for us to go behind the decision of the Supreme Court on the ground that the Supreme Court on the ground that the Supreme Court has proceeded on an erroneous basis and that on a correct basis a different conclusion could have been arrived at.

21. It is no doubt true, the decision in East India Industries (Madras) P. Ltd. v. CIT : [1967]65ITR611(SC) , rendered by the Supreme Court in the assessee's own case holding that the trust is not exclusively a charitable one was in a case arising out of reference proceedings. Notwithstanding the same, the decision will have a binding effect on this court under article 141 of the Constitution. In Dwarkadas v. Srinivas Sholapur Spinning and Weaving Co. Limited : [1954]1SCR674 , it has been held that all courts in India are bound to follow the decisions of the Supreme Court even though they are contrary to the decisions of the Privy Council. In this case, the decision of the Supreme Court is not on a collateral matter but on the identical question which arises before us. If we are to accept the contention of the learned counsel for the assessee, we will in fact be invalidating the judgment of the Supreme Court on the ground that it is rendered on an erroneous basis, which we cannot do.

22. For the reason stated above, we cannot go behind the judgment of the Supreme Court in East India Industries (Madras) P. Ltd. v. CIT : [1967]65ITR611(SC) and hold accepting the assessee's case that the trust has been created under the terms of the partnership deed dated November 28, 1941, and the objects set out therein are purely charitable and, therefore, it is entitled to exemption as a charitable institution. It is no doubt true, the decision was rendered by the Supreme Court with reference to s. 4(3) of the 1922 Act. But s. 11 of the 1961 Act is merely a successor of s. 4(3) except for certain minor changes but those changes are not material with reference to the question canvassed before us as to whether the Agastyar Trust is a charitable institution or not. On that question the statutory provisions in the 1961 Act are substantially the same as in the 1922 Act. Therefore, the decision of the Supreme Court holding that the Agastyar Trust is not exclusively a charitable institution should be taken to apply to the assessments arising under the 1961 Act as well. Since we have taken the view that we are bound by the decision of the Supreme Court referred to above, it is not necessary to go into the other questions referred to and canvassed before us in T.Cs. Nos. 1610 to 1613 of 1977.

23. The result is that the common question referred in T.Cs. Nos. 1610 to 1613 of 1977 and 64 to 76 of 1978 and T.C. No. 592 of 1978 is answered in the negative and against the assessee. The other questions referred in T.Cs. Nos. 1610 to 1613 of 1977 are returned unanswered as they have become unnecessary in view of the answer which we have given on the main question. The Revenue will have its costs from the assessee, Rs. 500 (one set).


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