1998 (2) TMI 7 - SC - Income Tax

Charitable Purpose - Trust Deed - Held that an irrevocable trust had been established by the partnership deed dated November 28 1941. The objects of the trust are contained in clause (8) of the deed and in our opinion none of the objects contained therein can be regarded as non-charitable. The Tribunal therefore was right in considering the said objects and in coming to the conclusion that the appellant was a public charitable trust

Issues Involved:

1. Whether the appellant-trust was constituted by the deed dated November 28, 1941, or the deed dated July 1, 1944.
2. Whether the appellant-trust's objects, as per the deed dated November 28, 1941, should be considered for determining its charitable status.
3. Whether the trust created by the partnership deed dated November 28, 1941, continued after the dissolution of the partnership.
4. Whether giving cash grants for marriage expenses is a charitable object.
5. Whether the appellant-trust was entitled to exemption under section 4(3)(i) of the Indian Income-tax Act, 1922, for the income attributable to the trust created under the deed dated November 28, 1941.
6. Whether the income of the appellant-trust was entitled to exemption under section 11 of the Income-tax Act, 1961, for the assessment years 1962-63 to 1973-74.

Issue-Wise Detailed Analysis:

1. Constitution of the Trust:

The Supreme Court examined whether the appellant-trust was constituted by the deed dated November 28, 1941, or the deed dated July 1, 1944. The Tribunal had concluded that the trust was created by the deed dated November 28, 1941, and that the subsequent deed dated July 1, 1944, was invalid. The Supreme Court agreed, noting that the trust had become irrevocable after the power to revoke was removed by a document executed on August 26, 1943. The trustee had no authority to alter the trust's objects, making the deed dated July 1, 1944, non est.

2. Determining Charitable Status:

The Supreme Court held that the High Court erred in not considering whether the appellant-trust's objects, as per the deed dated November 28, 1941, were charitable. The Tribunal had correctly observed that the objects of the trust should be determined solely by the deed dated November 28, 1941, as the deed dated July 1, 1944, was invalid. The Supreme Court supported this view, stating that the founders and trustees had no right to alter the objects of the trust once it became irrevocable.

3. Continuation of Trust Post-Dissolution:

The Supreme Court affirmed that the trust created by the partnership deed dated November 28, 1941, continued even after the dissolution of the partnership. This was based on the Madras High Court's decision in V. S. Nanjappa Chettiar v. K. Rajagopal Chetty, which held that the dedication for charitable objects was absolute and irrevocable.

4. Charitable Nature of Cash Grants for Marriage Expenses:

The Tribunal had held that giving cash grants for marriage expenses was a charitable object. The Supreme Court agreed, noting that the objects of the trust, as set out in clause (8) of the partnership deed, were charitable in nature. This included spending on temple festivals, medical relief, alms, and other charitable activities.

5. Exemption Under Section 4(3)(i) of the Indian Income-tax Act, 1922:

The Supreme Court concurred with the Tribunal's conclusion that the appellant-trust was entitled to exemption under section 4(3)(i) of the Indian Income-tax Act, 1922. The trust's income attributable to the trust created under the deed dated November 28, 1941, was exempt from tax as the objects were charitable.

6. Exemption Under Section 11 of the Income-tax Act, 1961:

For the assessment years 1962-63 to 1973-74, the Supreme Court held that the appellant-trust's income was entitled to exemption under section 11 of the Income-tax Act, 1961. The Tribunal had referred this question, and the Supreme Court answered it in the affirmative, confirming that the trust's income was not assessable to tax for these years.

Conclusion:

The Supreme Court answered all six questions of law referred by the Tribunal in the affirmative and in favor of the appellant-trust. The trust constituted by the deed dated November 28, 1941, was recognized as a public charitable trust, entitled to tax exemptions under the relevant provisions of the Indian Income-tax Act.

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