TMI Blog1970 (5) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent-trusts were created by Seth Ramakrishna Dalmia. The first four trusts were created as per trust deeds dated April 12, 1948, March 7, 1949, June 14, 1948, and March 9, 1949, respectively. The trust, which is the subject-matter of the fifth and sixth references, was created as per trust deed dated June 1, 1946. The following question has been referred to this court in all the six cases : " Whether, on the facts and in the circumstances of the case, the income of the trust which was spent on religious and charitable purposes within the taxable territories was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922 ? " Reference No. 40 of 1965 relates to assessment years 1954-55, 1955-56, 1956-57, 1957-58, 1958-59, 1959-60 and 1960-61. The assessment years covered by Reference No. 25 of 1965 are 1953-54, 1954-55, 1955-56, 1956-57, 1957-58 and 1958-59. Reference No. 42 of 1965 pertains to assessment years 1956-57, 1957-58 and 1958-59, while Reference No. 43 of 1965 is in respect of assessment years 1953-54, 1954-55, 1955-56, 1956-57, 1957-58 and 1958-59. Reference No. 38 of 1965 relates to assessment years 1948-49 and 1949-50, while Reference No. 37 of 1965 relates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions, educational or otherwise, associations, printing presses, journals, newspapers, periodicals, and other publications for imparting or developing religious, commercial, industrial, legal, medical, engineering, scientific or other knowledge or training. (ii) To give stipends, scholarships, travelling expenses, allowances and monetary aids to students and scholars in India and abroad engaged in any of the pursuits referred to in sub-clause (i). (iii). To found, construct, maintain, support, assist or grant aids or subscriptions to temples, prayer or congregational halls or other buildings for cultural, social or religious discourses. (iv). To open, found, conduct, maintain or contribute to the opening and maintaining of such institutions where work at living wages can be provided to poor and deserving people and also be conducive to the development of industries and benefit of the poor. (v). To open, found, establish, equip, finance, assist, maintain, or contribute to religious, commercial technical, industrial, or commercial concerns, institutions, associations or bodies imparting any type of training or providing employment to persons. (vi). To give donations, subsc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard of trustees. Clause 9 reads as under : " 9. The trustees shall carry out the aforesaid objects from out of the net income of the trust left after meeting the expenses of management and all charges and outgoings so far as such income shall permit, and shall not utilize the income or any portion thereof for any other objects or purpose. " Clause 10 provides for the utilization of the income of the trust within the Jaipur State up to a prescribed minimum while clause 11 is as under : " 11. The trustees are hereby authorised and invested with powers to acquire, hold, carry on and manage any trade or business or any share thereof or utilise the trust property or funds belonging to the trust, and the income, profits and gains thereof shall be utilised and applied only for and on behalf of the trust. The trustees shall have full power and discretion in employing the whole or any portion of the trust property or any funds of the trust in such trade or business or running business concerns or managing agencies or other investments or shares or securities as they may deem proper. They shall have full right and power to carry on such trade or business for as long a time as they may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at as cancelled such provision so that the other provisions hereof may not be rendered invalid or otherwise affected. We are not concerned with the other clauses. It was claimed before the Income-tax Officer that the income of the trust was exempt under section 4(3)(i) of the Act on the ground that the property was held under trust for religious or charitable purposes. The Income-tax Officer referred to the various clauses of the trust deed and held that some of the objects of the trust gave a discretion to the trustees for applying funds of the trust for purposes which could not be regarded as charitable in the eye of law. It was further observed that if out of several objects of the trust some of them were found to be non-charitable, the whole trust would fail and no part of its income would be exempt from tax. The Income-tax Officer further considered the financial dealings of the trust and observed that they gave the appearance of a sham affair. It was also observed that it was not a genuine charitable trust as claimed by the assessee but its creation and existence were only meant to be devices for the benefit of the settlor and the concerns controlled by him. On appeal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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... " According to the last clause of sub-section (3) of section 4, " 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 ensure for the benefit of the public ". The use of the word " include " shows that the definition of " charitable purpose " is inclusive and not exhaustive. The words used are, however, of wide amplitude. The expression " object of general public utility ", in the definition of charitable purpose, is not restricted to objects beneficial to the whole of mankind. An object beneficial to a section of the public is an object of general public utility. It is sufficient if the intention is to benefit a section of the public as distinguished from specified individuals. The section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Ibrahim Riza Malak v. Commissioner of Income-tax, some property was vested in the assessee as the head of the Dawood Borah Tribe. The profits from the property were to be treated as part of the income of the community. On a reference to the trust deeds it was found that some of the purposes were not of a religious or charitable to nature. It was held that the income derived from the property was not entitled to exemption under section 4(3)(i) of the Act and that it was assessable to income-tax. A case of which the facts are more akin to those of the present case is East India Industries (Madras) P. Ltd. v. Commissioner of Income-tax. In that case a trust was established for various objects, one of which was to manufacture, buy, sell and distribute pharmaceutical, medicinal, chemical and other preparations and articles. The object included several charitable and religious purposes. According to one of the clauses of the trust deed, the objects shall be independent of each other and the trustees would have discretion to apply the property of the trust in carrying out all or any of such objects of the trust as the trustees might deem fit. The question arose whether the property of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. " A similar view was taken in the case of Lakshmi Narain Lath Trust v. Commissioner of Income-tax. One of the objects of the trust deed in that case was not of a religious or charitable nature though in fact it was found that the income of the trust had been used exclusively for charitable purposes. It was held that in view of the full discretion in the trustees to spend the trust funds for an object other than of a religious or charitable nature, the exemption under section 4(3)(i) of the Act was not available to the assessee. In the case of Commissioner of Income-tax v. Andhra Chamber of Commerce, the primary objects of the Andhra Chamber of Commerce were to promote and protect trade, commerce and industries, to aid, stimulate and promote the development of trade, commerce and industries, and to watch over and protect the general commercial interests of India or any part thereof. It was provided that the income and property of the Chamber of Commerce w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a valid object of the trust to open and establish an industrial or commercial concern providing employment to persons. Under clause 5(b) of the deed, for the purpose of carrying out the objects of the trust, the trustees may purchase or otherwise acquire any property rights, leases or concessions or might acquire or start, establish, equip or close any business, undertaking or industry. Power has also been given for that object to the trustees to purchase, acquire or undertake the whole or any part of the property and/or liabilities of any person, firm or company. According to clause 11 of the trust deed the trustees are authorised to acquire, hold, carry on and manage any trade or business or any share thereof. The trustees have also been given full power and discretion in employing the whole or any portion of the trust property or any funds of the trust in such trade or business or running business concerns or managing agencies or other investments or shares or securities of property as they may deem proper. The trustees have further been given power to change investment of the trust property into such trade or business or investments or shares of public or private limited com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust partly for charitable purposes within the meaning of the main part of section 4(3)(i) and that clause (b) of the proviso did not apply to a business held in trust. 60 per cent. of the income from the business was held to be exempt from income-tax under section 4(3)(i) of the Act. Section 4(3)(i), it was further observed, takes in every property or fractional part of property held in trust wholly for religious and charitable purposes. Subba Rao J. (as he then was), who spoke for the court, in the above case, dealt with the expression " in part " as used in section 4(3)(i) and held that it did not refer to an aliquot part and that it must apply to a case other than a property a part of which is wholly held for religious or charitable purposes. It would thus appear that the question which arose in that case was different from that which needs determination in the present case. As such, the assessee, in our opinion, cannot derive much help from the above authority. Reference has been made on behalf of the assessee to the case of All India Spinners' Association v. Commissioner of Income-tax. The assessee in that case, the All India Spinners' Association, was formed as an unregiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The profits were not to be distributed between the members but were to be utilized for the promotion of the objects of the exchange. It was held by the Andhra Pradesh High Court that an object beneficial to a section of the public is an object of general public utility and as that test was satisfied by the stock exchange its income was exempt from tax under section 4(3)(i) of the Act. In the case of Commissioner of Income-tax v. Radhaswami Satsangh Sabha, the assessee was an association of the followers of Radhaswami faith of the Dayalbagh School of Satsangis. The Sabha was a body registered under the Charitable Societies Registration Act, 1860. Under the guidance of the Guru and as a result of the contributions made by his followers several industrial and commercial concerns were started for the benefit of satsangis but they were not run by the sabha for individual profit nor were the profits divided among the members. One of the questions, which arose in that case, was whether the income of the industrial and commercial concerns started by the Sabha was exempt under section 4(3)(i) of the Act. The Allahabad High Court answered this question in the affirmative. It was held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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