TMI Blog1962 (9) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars of the sacred buildings which are directed to be maintained, are set out. The provisions of the indenture relevant for the present case are as follows: 2. This trust shall be called 'H.E.H. the Nizam's Religious Endowment Trust'. 3. The trustees shall hold and stand possessed of the trust fund Upon Trust- (a) To manage the trust fund and to recover the interest and other income thereof. (b) To pay and discharge out of the income of the trust fund all expenses and charges for collecting and recovering the income of the trust fund and all other costs, charges, expenses and outgoings of and incidental to the administration thereof. (c) During the lifetime of the settlor the balance of the income shall be accumulated and shall be added to the corpus of the trust fund. (d) On and after the death of the settlor the trustees shall hold the accumulated corpus of the trust fund upon trust to spend the income thereof for any one or more of the following religious or charitable objects in such shares and proportions and in such manner as the trustees shall in their absolute discretion deem proper. (i) For annual religious offerings to the sacred p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing 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- (a) if it is applied to religious or charitable purposes without the taxable territories, but in the following cases, namely : (i) where the property is held under trust or other legal obligation created before the commencement of the Indian Income-tax (Amendment) Act, 1953 (XXV of 1953), and the income therefrom is applied to such purposes without the taxable territories; and (ii) where the property is held under trust or other legal obligation created after such commencement, and the income therefrom is applied without the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions are satisfied: (1) that the property from which the income is derived is impressed with and held under a trust or other legal obligation, (2) that the property so held is wholly for the effectuation of religious and charitable purposes, (3) that the income from the properties so held is applied or accumulated for application to religious or charitable objects as relate to anything done within the taxable territories, and (4) that in the case of property held under trust or other legal obligation in part only for religious or charitable purposes, the exemption is confined only to the income so applied or finally set apart for application thereto. We are not concerned here with the last condition, as the securities referred to in the schedule to the instrument of trust, are wholly for religious and charitable purposes. There is no question of the properties being held in part only for such religious and charitable purposes. Nor are we concerned with the terms of sub-clauses (i) and (ii) of clause ( a) of the proviso to section 4(3)(i) of the Act, as they refer only to a case where the income is in fact applied for charitable and religious objects outside the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the exemption under section 4(3)(i) of the Act. In support of the contention, the learned counsel placed strong reliance upon the decision of the Bombay High Court in Commissioner of Income-tax v. Walchand Diamond Jubilee Trust [1958] 34 ITR 228 . The facts of that case are briefly these: An industrialist of Bombay created a trust in a sum of over ₹ 4,11,111 for certain charitable objects, and providing, Inter alia, that the trust fund should be invested in the Premier Construction Company Ltd., and that on the expiry of a period of eighteen years from the date of the indenture, the income should be applied for giving scholarships, medical relief, monetary help to the poor and the needy and relief of the poor and distressed in times of famines, cyclones, floods, earthquakes, etc. There was a direction in the deed of trust that, in giving the bounty, the trustees may give preference to the employees of the Premier Construction Company Ltd., past and present. The question for decision was whether the income for the assessment year 1949-50, which fell within the period of accumulation as directed by the maker of the trust, was entitled to exemption from tax under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case cited above. In that case, the trustees were empowered to give preference to the employees of the Premier Construction Company Ltd. It was contended for the revenue that that provision was a device really to help the employees of the Premier Construction Company Ltd., in which case, of course, the trust would not be a charitable trust within the meaning of section 4(3)(i). That argument was not accepted by Chagla C.J. upon the ground that the trustees were not bound to select the employees in preference to the general class of beneficiaries and, therefore, it cannot be said that the trust was not a charitable trust. In the trust deed, which fell to be construed in that case, the employees of the Premier Construction Company Ltd. were not the direct recipients of the bounty. All that was provided for was, in giving benefit to the four classes enumerated, preference may be given to the employees. In such a situation, it cannot be said that the direction to give preference to the employees of the Premier Construction Company Ltd. affects its character as a charitable trust. In a recent case in The Trustees of the Charity Fund v. Commissioner of Income-tax [1959] 36 ITR 513 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in proviso to section 4(3). We are not concerned in this case with the proviso, for the stage of application of the income had not yet been reached. We are concerned only with accumulation of income. In our view, the words to such religious or charitable purposes as relate to anything done within the taxable territories occurring in section 4(3)(i) must govern both the actual application of the income and the accumulation thereof for its eventual application. The same considerations, as relate to the application of the income, must also govern its accumulation. Accumulation is a process ancillary to the application. It is a mode of investment. It is not an end. It is a means to an end, the end being its application to religious and charitable objects within the taxable territories. So long as it cannot be predicated with certainty that the income is wholly to be applied for religious or charitable purposes within the taxable territories, the accumulation of the income for such application cannot fall within the ambit of section 4(3)(i) of the Act. It is then contended that in construing a fiscal enactment, in all cases of doubt, that construction should be preferred, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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