TMI Blog1945 (3) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... swer to the first question must depend solely on whether the trusts or the settlement are wholly for charitable purposes within the meaning of Section 4(3)(i) of the Indian Income-tax Act. That sub-section 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) Any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied, or finally set apart for application, thereto. At the end of all the clauses of sub-section 4(3) there is the following definition of charitable purposes : 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), clause (ia) or clause (ii) shall operate to exempt from the provisions of this Act that part of the income of a private religious trust which does not enure for the benefit of the public. It is to be observed that this definition is not an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fund shall be distributed in scholarships in the following manner:- i. 5 scholarships of the value of ₹ 5 each a month; ii. 3 scholarships of the value of ₹ 10 each a month; iii. 1 scholarship of the value of ₹ 20 a month and iv. 1 scholarship of the value of ₹ 25 a month. Provided, however, the trustees are empowered where necessary to accumulate two or more scholarships in favour of one scholar or to split the existing number of scholarships into a greater number or to alter the amount or the number of scholarships in their discretion, after ascertaining the needs of the students. (b) The cash amount of ₹ 650 mentioned in para. 2 above shall be utilised for the award of the scholarships duly every month until the realisation of the half yearly interest on ₹ 36,000 in G.P. Stock Note and it shall be recouped as soon as the interest is realised and it shall be utilised for a similar purpose whenever necessary. (13) The scholarships contemplated are to be defrayed from the interest accruing on the fund of ₹ 36,000. If after allowing the scholarships any surplus interest has accumulated, the trustees out of such accumulation ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the matter. No question arises with regard to this trust being for a religious purpose, but it is submitted on behalf of the assessee that the trust is educational in character and, therefore, is of a charitable purpose within the meaning of sub-section 4(3)(i) of the Act. Whilst reliance was placed upon the fact that by sub-clause (11)(b) of para. 6 of the trust deed it is permissible to award scholarships outside the Arurkar family, pro- it is not suggested that any part of the ₹ 1,263 was so applied. Looking at the scheme of the trust deed as a whole, it is clear that the dominant object is the provision of scholarships for young members of the Arurkar family, in the case of females limited to three degrees of relationship from the donor. The power to use surplus income for scholarships for deserving members of the Saraswat community and the power to make advances to enable a start in life to be made by a scholar are subsidiary objects. In my opinion the trust though educational in character is of a private and limited scope. Great reliance was placed by Sir Jamshedji Kanga on behalf of the assessee on the English case of In re Compton: Powell v. Compton [1944] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alth, safety, or any other object beneficial to mankind ; in the Income-tax Act of 1886 by sub-section 5(1) nothing in Section 4 shall render liable to the tax...any income derived from property solely employed for religious or public charitable purposes ; in the Charitable Endowments Act of 1890, Section 2, 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching and worship ; in the Civil Procedure Code of 1908, Section 92, which concerns the commencement of proceedings for an alleged breach of express or constructive trusts created for public purposes of a charitable or religious nature ; in the Income-tax Act of 1918, Section 3(2) provides that the Act shall not apply to certain classes of income including income derived from property held under trust or other legal obligation wholly for religious or charitable purposes and in that section 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. The preamble to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... community of a Province is a matter of public utility. Public utility must always be a matter of degree, so that circumstances must be examined to ascertain whether the section or class of the community to be benefited can be said to be public as opposed to being private. In my opinion a trust for the benefit of the members of a family or for the descendants of a named individual imports a conception or notion of something which is private and not something which is public. This view is supported by various cases in the Indian High Courts and in particular by Commissioner of Income-tax v. Jamal Mohamad Sahib [1941] 9 I.T.R. 375, Mercantile Bank of India (Agency) Ltd., In re [1942] 10 I.T.R. 512 and Commissioner of Income-tax, Madras v. Aga Abbas Ali Shirazi 1944] 12 I.T.R. 179. Accordingly, in my opinion, the first question should be answered in the negative. With regard to the second question, I have had the advantage of reading the judgment about to be delivered by my learned brother Kania with which I entirely agree and there is nothing I desire to add with regard to the second question beyond what is stated by him. I agree that the question should be answered in the affirmat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her there was a difference between cases of poverty and cases of education. Relying on Attorney-General v. Sidney Sussex College [1869] 4 Ch. App. 722, in which the bequest of lands to the college for the only use, education in piety and learning of ten descendants of the brothers and sisters of the testator and of his two wives and in default of such to their poor kindred, was upheld as a charitable bequest, he held that the same principle applied to education also. From the judgment of Cohen, J., it is clear (as he in terms stated) that but for the current of authorities which compelled him to hold that the trust was a valid charitable trust he would have held otherwise. On the other side it is contended that on the construction of the word charity English decisions are of no use here. As pointed out by the Privy Council in All India Spinners' Association v. Commissioner of Income-tax [1944] 12 I.T.R. 482, the meaning of the word charity in England has developed according to the decisions of English Courts and there is no statute which defines that word. It was pointed out that where, as in India, there exists a statute which in terms defines the word charity , it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia (Agency) Ltd., In re [1942] 10 I.T.R. 512 held that relief of poor must be also of the public or a specific section of it, and if it was limited to a family, it was not for a charitable object within the meaning of Section 4 (3) (i). Counsel further relied on Section 14 of the Transfer of Property Act which contained the rule against perpetuity. The exception is provided in respect of charity in Section 18 in these terms:- The restrictions in Section 14...shall not apply in the case of a transfer of property for the benefit of the public in the advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind. It was contended that, having regard to this provision in the Transfer of Property Act, unless the settlement was for the benefit of mankind and was covered by the words of Section 18, the transfer would be bad in law and no question could arise under the Income-tax Act in respect of the income of such settlement beyond the period prescribed by Section 14 of the Transfer of Property Act. In my opinion the arguments advanced on behalf of the Commissioner are sound. In England there is no definition of charity and the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t portions are set out in the judgment of the learned Chief Justice. It was argued on behalf of the assessee that the name itself indicates that it is an education fund, not limited to the members of the family. That argument cannot help in the true construction of the deed of settlement because the Court has to find whether the property is held under trust wholly for charitable purposes. Counsel for the assessee relied on clause (2) to show that in the recital it was stated that interest of the fund was to be appropriated in awarding the scholarship mentioned in clause (12) (a) of the scheme (written hereunder in para. 6) that under clause (12) there was no restriction to give the scholarships only to members of the family. While clause (12) mentions how many and what amounts were to be given, it does not indicate to whom the same were to be given. This argument therefore does not help the assessee. The relevant clause is the fifth clause where it expressly stated that the amount was transferred to the trustees upon trust to collect the interest of such investments upon trust to apply and devote the net collections in the manner set out in clause (6).n Lower down in the same clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances the idea of benefiting a section of the public in any way is excluded. It has been recognised that the line dividing public and private settlements is difficult to define, but on a true construction of this deed it seems clear that the settlement was for the education of the members of the Arurkar family of which Devapana was the founder. On the true construction of the words charitable objects, therefore, this settlement does not fall within the class of excepted settlements under the Income-tax Act. Moreover the words of Section 4(3)(i) require that the settlement should be wholly for charitable purposes. Clause (13) of the scheme allows the trustees, out of the accumulations of interest, where necessary and expedient, to make a reasonable advance of money to a scholar of Arurkar family to start in life. Although under clause (14) it is provided that sufficient guarantee should be taken to secure the return of the amount, it is clear that clause (13) provides an object which is clearly not a charitable one. To start a person in life cannot be considered a charitable object within the meaning of the Income-tax Act. That loan again is limited to scholars of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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