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Managing Shebaits of Bhukailash Debutter Estate Vs. Wealth-tax Officer, F-ward and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 32 of 1973
Judge
Reported in[1977]106ITR904(Cal)
ActsWealth-tax Act, 1957 - Section 5(1); ;Income Tax Act, 1961 - Sections 2(15) and 11(1); ;Indian Income Tax Act, 1922 - Section 4(3)
AppellantManaging Shebaits of Bhukailash Debutter Estate
RespondentWealth-tax Officer, F-ward and anr.
Excerpt:
- .....under section 4(3)(i) of the indian income-tax act, 1922, as the properties were held under a public religious endowment. for the assessment years 1953-54, 1954-55 and 1955-56 the income-tax officer, thereafter, had issued notices under section 34 of the indian income-tax act, 1922, for taxing the income from the said debutter properties. the income-tax officer in the said assessment proceeding held that the main purpose of the endowment was puja of the deity established by the settlor in his own premises and the feeding of the poor was incidental to the puja. he, therefore, held that the endowment could not be considered to be a public charitable trust. the said assessment ultimately came up in appeal before the income-tax appellate tribunal, calcutta bench 'a'. the income-tax.....
Judgment:

Sabyasachi Mukharji, J.

1. In this application under Article 226 of the Constitution the petitioners who are the managing shebaits of Bhukailash Debutter Estate challenge several notices dated November 23, 1972, issued under Section 17 of the Wealth-tax Act, 1957, for the assessment years 1964-65, 1965-66, 1966-67 and 1967-68. It appears that Maharaja Joynarain Ghosal, a pious Brahmin of immense wealth and great learning, had founded in 1188 B.S. what is known as Bhukailash Debutter Estate in Kidderpore near Calcutta. He had originally gifted certain properties to Shree Shree Rakta Kamaleswar Sib Thakur and, thereafter, there was an installation of the Thakurani called Shree Shree Patit Paban. Temples were constructed and from time to time the properties were dedicated and the temples so constructed and directed to be managed had continued to exist. It appears that there are substantial properties attached to the said temples. The income from the properties belonging to the Debutter Estate was not taxed under the Indian Income-tax Act, 1922, for the assessment years 1953-54, 1954-55 and 1955-56, on the ground that income from the debutter estate was exempt under Section 4(3)(i) of the Indian Income-tax Act, 1922, as the properties were held under a public religious endowment. For the assessment years 1953-54, 1954-55 and 1955-56 the Income-tax Officer, thereafter, had issued notices under Section 34 of the Indian Income-tax Act, 1922, for taxing the income from the said debutter properties. The Income-tax Officer in the said assessment proceeding held that the main purpose of the endowment was puja of the deity established by the settlor in his own premises and the feeding of the poor was incidental to the puja. He, therefore, held that the endowment could not be considered to be a public charitable trust. The said assessment ultimately came up in appeal before the Income-tax Appellate Tribunal, Calcutta Bench 'A'. The Income-tax Appellate Tribunal disposed of the appeal holding that the debutter estate was a public religious endowment and was eligible for exemption under the provisions of Section 4(3)(i) of the Indian Income-tax Act, 1922. Thereafter, there were applications under Section 66(1) of the Indian Income-tax Act, 1922, for referring certain questions of law. The Tribunal rejected the said applications on December 3, 1968. The revenue did not proceed further. Following the said decision of the Tribunal in all the subsequent years up to the assessment year 1963-64, the said debutter trust was treated as a public religious endowment eligible for exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922. On November 23, 1972, under Section 17 of the Wealth-tax Act, 1957, in respect of the assessment years 1964-65, 1965-66, 1966-67 and 1967-68, the notices were issued. The said notices are the subject-matter of challenge in this application. The petitioners contend that there were no materials for believing that any income of the assessee had escaped assessment during the relevant years. Under Section 5(1)(i) of the Wealth-tax Act, 1957, it is provided as follows:

'5. (1) Wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee-

(i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India.' In this connection it would be relevant to refer to Section 4(3)(i) of the Indian Income-tax Act, 1922, which was as follows:

'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:.........

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.'

2. Section 11(1)(a) of the Income-tax Act, 1961, provides as follows;

'11. Income from property held for charitable or religious purposes.--(1) Subject to the provisions of Sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income- (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated for application to such purposes in India, to the extent to which the income so accumulated is not in excess of 25% of the income from the property or Rs. 10,000, whichever is higher,'

3. In Section 2(15) of the Act 'charitable purpose' has been defined to mean as follows:

''Charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit.' Similarly, the Explanation to Section 13 provides that for the purpose of Sections 11, 12 and 13 'trust' includes any other legal obligations.

4. In the affidavit-in-opposition in answer to the rule nisi the grounds for reopening have been stated as follows:

'......I state that in the course of income-tax assessments of the petitioners for the assessment years 1969-70 and 1970-71, it came to my notice that the petitioners who are related to the author of the said trust, had been and still are not only using and utilising the properties of the said trust for their own personal purposes, but had also been and still are using and applying income therefrom directly or indirectly for their own personal benefit and/or had been acting contrary to the express provisions of the said trust. I have also duly recorded reasons for the issue of the said notices to which I crave reference if necessary at the time of hearing of this application......'

5. Under Section 11(1)(a) of the Income-tax Act, 1961, in order to be entitled to exemption income must not only be derived from the property held under trust only for charitable or religious purposes but the income entitled to exemption must be to the extent to which such income is applied to such purposes, i.e., charitable or religious purpose in India or where such income is accumulated for application to such purpose in India, i.e., religious or charitable purpose to the extent the income so accumulated is not in excess of 25 per cent. of income from the property or Rs. 10,000, whichever is higher. Therefore, two separate independent conditions are required to be fulfilled, that is to say, the income must be derived from the property held under trust wholly for charitable or religious purposes, and, secondly, the application or accumulation of such income in the manner indicated in Clause (a) of Sub-section (1) of Section 11 of the Act. 'Charitable purpose' or 'purpose of charitable or religious nature' have not been defined in the Wealth-tax Act, 1957. Therefore, it must bear the same meaning as in the Income-tax Act but under the provisions of the Income-tax Act not only should the income be derived from a trust or legal obligation of public purpose of a charitable or religious nature but the income so derived must to a certain extent be so applied. The position under the Wealth-tax Act seems to be a little different. Wealth-tax Act assessed the owning or having or possessing of the property and Section 5(1)(i) of the Act as indicated before stipulated that the condition for exemption was that the property must be held by the assessee under a trust or other legal obligation for a public purpose of a religious or charitable nature in India. Therefore, the holding of a property by the assessee either under a trust or other legal obligation for public purpose of a charitable or religious nature is the statutory requirement entitling the assessee to exemption under the Act. In the ground for reopening as noted before it is not disputed that the assessees upon whom the impugned notices have been issued are not holding the property under a trust or other legal obligation for a public purpose of a charitable or religious nature. What is being suggested is that holding the property as trustees or under obligation for public purpose of a charitable or religious nature the assessees are committing breaches of trust in acting contrary to the trust and misusing the funds of the trust for their personal benefit. The application of the money held under a trust or under legal obligation is not a relevant consideration for exemption under Section 5(1)(i) of the Act. Therefore, in my opinion, the revenue has no material to believe that the income of the assessee has escaped assessment. This position manifests a lacuna in the present provision of law. The position, therefore, is that if the trustees hold the property for public purpose of a charitable or religious nature and if they misapply or commit breach of trust, they will continue to enjoy exemption under the Wealth-tax Act. This position should receive consideration by the legislature in order to bring it at par with the provisions of the Income-tax Act. But until that is done, in my opinion, the petitioners are entitled to succeed on the point that there were no grounds for believing that the wealth of the assessee had escaped assessment or had been under-assessed.

6. In the aforesaid view of the matter the notices are hereby quashed and the respondents are restrained from giving effect to the same. If any assessment has been completed pursuant to the said notices, the same are quashed and set aside. The rule is made absolute to the extent indicated above.

7. There will be no order as to costs. Operation of this order is stayed for six weeks.


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