TMI Blog1956 (1) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... rustees received payments of dividend on the shares which constituted the trust fund, but the companies which paid the dividend did so after making the usual deductions of income-tax. Thereafter, the assessee claimed from the Department refund of the tax so deducted on the ground that the property held by it was held wholly for charitable purposes and, accordingly, the income derived therefrom was exempt from taxation under section 4(3)(i) of the Income-tax Act. The objects of the trust and the directions for its administration are embodied in clause 2 of the trust deed which reads thus: The trustees shall henceforth hold the said property and all capital moneys and investments arising or resulting from any sale or conversion of the same (all which original property and resulting or substituted moneys and investments are hereafter included in the term 'the trust fund' that term being intended to mean from time to time the constituents for the time being of that fund) and the income therefrom respectively upon trust to pay and apply the said income from time to time and at such times in such manner and in accordance with such scheme or arrangement as the trustees may in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to this Court and a question has been referred in the following terms: Whether on a true construction of clause 2 of the trust deed dated the 19th December, 1944, executed by Indra Singh Sons Ltd., a valid trust had been created wholly for charitable purposes and whether the income of the trust from the shares thereby settled was exempt from income-tax? The reference concerns five assessment years, namely 1946-47, 1947-48, 1948-49, 1949-50 and 1950-51, but, as I have said, the question referred is common to all those years. Mr. Meyer, who appeal for the Commissioner of Income-tax, informed us at the beginning of his argument that in view of the uniform current of authorities he found himself unable to contend that the trust in the present case was invalid for the reason that the choice of the charitable objects, for the benefit of which the income was to be applied, had been left to the trustees. That concession practically disposes of the point actually raised before the authorities below, but Mr. Meyer invited us to consider certain other provisions of the trust deed which, in his submission, made the trust an illusory one. I would, however, say a few words abou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form which deals with the objects of the trust reads thus: The trustee shall stand possessed of the said premises hereby assured and use and apply the same and the rents and profits thereof and the proceeds of any lease mortgage charge or sale hereby authorised thereof upon such charitable trusts and for such charitable purposes as the trustees shall in their uncontrolled discretion from time to time determine. [See the Encyclopaedia of Forms and Precedents, Second Edition, Volume III, page 178 at page 179. See also the decisions referred to at page 178 under Note (cc) in support of the proposition that property may well be assured to trustees to be held on such charitable trusts as they shall determine.]. The reason lying behind these propositions obviously is that, under such language, application of the fund for charitable purposes is obligatory, the trustees being given a discretion only to choose, from amongst charitable objects, such objects as they might consider it proper to benefit, but no discretion to choose any object which is not charitable. The intention to benefit charities and charities alone is thus clear and if that be so, there is a valid trust and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngh and his relatives and that the trustees under the trust deed were the same Sardar Indra Singh and two of his sons. Mr. Meyer contended further that the object of creating a trust in that form was perfectly clear. Clauses 6 was inserted with the third proviso to section 16(1)(c) of the Act in view, so that the trust could not be condemned as a revocable trust; and at the same time, liberty had been given to the trustees to postpone the expenditure of the income up to any length of time. The clear scheme was that, for the space of six years, the shares constituting the so-called trust fund would be held by a trust which would not be a revocable trust for the purposes of the Income-tax Act and the income from which would thus escape taxation, while, on the other hand, no part of the income would have to be spent and, at the end of the period of six years, the settlor would reap the benefit of this scheme in the shape of getting back the corpus of the trust fund, together with its income undiminished by tax payments. The main basis of this branch of Mr. Meyer's argument is the provision in the trust deed I have already quoted. He would read it as conferring an unlimited libe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place, they are directed to frame a scheme or arraignment for the actual application of the income, although they may vary the form of the scheme or arrangement enjoined to pay the income at such times and in such manner as may be laid down in the scheme framed by themselves. I am, therefore, unable to read the clause as giving an unfettered discretion to the trustees not to make nay payment at all to any charity so long as thy may wish. In my view, although the direction is couched in language of a general character and no specific limits of time are laid down, the trustees are nevertheless required to carry out the directions in a reasonable manner. Should they fail to choose any charity or frame any scheme or make any payment for an unreasonable length of time and thereby fail to administer the trust at all, the court, in my view, will be quite entitled to intervene and compel them to administer the trust by itself framing a scheme or it may be, should it be necessary, by taking over the administration of the trust in its own hands. If I may again refer to Halsbury, schemes may be directed even where there is an unlimited discretion as to distribution left to the trustees -see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus expressed: and I direct them, at any time or times, or from time of time, as and when the said residue or any part thereof becomes available, as they may deem proper, to pay over or divide the said residue, or any part or parts thereof, to or amongst such local or Scottish charitable institutions and scheme already constituted, or which may hereafter be constituted (and which may include these hereinbefore named) as they may select, or any one or more of such institutions and schemes and that at such time, in such manner, or in such proportions all as they, in their absolute discretion, may deem proper. The last clause in the will which is here material provided that the trustees would be free to retain the investment of which the testator's estate might consist at the time of this death for such time or times as they may think fit or indefinitely. It was contended before the House of Lords that the trust was bad, because when it said that the trustees would have to apply any part or parts of the trust estate for the benefit of charity, if left them free to apply other part or parts for non-charitable purposes. That contention was repelled and in spite of the absol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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