TMI Blog1968 (2) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the assessees, however, have been that the trust being a public charitable trust, the assets held under trust are exempt from wealth-tax under the provisions of section 5(1)(i) of the Act, that the trustees being more than one cannot be an assessable entity under the Wealth-tax Act and that they could not be brought to tax under section 21 of the Wealth-tax Act. These contentions have been negatived by the departmental authorities and by the Tribunal and on an application of the assessees under section 27(1), the following two questions have been referred to this court by the Tribunal as arising out of its order : " 1. Whether on a true construction of the indenture of trust dated June 11, 1941, the trustees of the trust constitute an assessable unit under the provisions of the Wealth-tax Act? 2. Whether the property held by the trustees under the indenture of trust dated June 11, 1941, is held for any public purpose of a charitable or religious nature in India within the meaning of section 5(1)(i) of the Wealth-tax Act?" Mr. Kolah, the learned counsel appering for the assessees, has submitted that the first question as framed by the Tribunal does not clearly bring out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denture of trust, which was executed on the 11th June, 1941, sets out in its preamble that a sum of Rs. 11 lakhs out of the joint family property belonging to the joint family firm of Messrs. Gordhandas Govindram carrying on business at Navalgadh had been earmarked and set apart for the benefit of the charitable objects mentioned in the deed in memory of Seth Gordhandas Seksaria and trust was being created of the said sum by transferring it to the trustees. Clause (1) of the trust provides that the trust will be known as " Gordhandas Govindram Family Charity Trust ". Clause (2) states that the income of the trust estate, after payments of the necessary outgoings, will be applied by the trustees in giving help or relief to such poor Vaishya Hindus or other Hindus as the trustees may consider deserving of help in the manner and to the extent thereinafter specified and subject to the conditions and directions stated in the next following clause and/or for the charitable object or objects thereinafter mentioned. Clause (3) enumerates the conditions and directions referred to in clause (2), which are required to be observed and followed by the trustees in the execution of the trust. Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so much of it as they in their absolute discretion think proper to use and apply for giving monetary help or relief to the poor members of the Hindu community in general or for such charity or charities for the benefit of the Hindu community in such way as they may consider most advantageous to the objects of the charity and they would have the liberty to hand over the whole of the unspent balance of the net income, if any, or so much of it as has not been used and applied for the aforesaid purposes, to another trust named " Goverdhandas Govindram Charity Trust " to be applied and spent by the trustees of the said trust for the charitable objects or any of them mentioned in the deed of trust relating to that trust. Clause (5) authorises Govindram Gordhandas Seksaria, as the senior member of the joint family, so long as he would be the turstee under the trust deed, to give such instructions both as regards the selection of persons and/or the charitable objects to be benefited under or by virtue of the trusts therein declared and the manner in which such benefit shall be conferred as he may in his discretion think proper and also to require that a particular charity shall be done in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit is to be given to persons falling in the earlier categories mentioned in conditions (a) to (u) in preference to the later categories. It will thus be seen that the object of giving help or, relief under the trust is to be so carried out so as to give relief to the poor relatives of the Seksaria family first before considering the others, who do not belong to the said family and if the income is not sufficient, the others, who are outside the family, do not come in for consideration at all. The Tribunal held that the trust created under the indenture of trust was not one for any public purpose of a charitable nature within the meaning of section 5(1)(i) and, in so holding, it relied on the decision of this court in Trustees of Gordhandas Govindaram Family Charity Trust v. Commissioner of Income-tax in which this court had to consider this very same indenture of trust for the purpose of deciding whether the property held thereunder by the trustees was wholly for religious or charitable purposes so as to make the income exempt from income-tax under section 4(3)(i) of the Indian Income-tax Act. " Charitable purpose " within the meaning of section 4(3)(i) is defined as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es generally, such as, for instance, when the population of a country has gone down as a result of war, an individual marriage can never be regarded as an object of public utility and, since the provision made under the trust is for providing marriage expenses to the poor male and female descendants of the settlor, it could not be regarded as a provision made for a charitable purpose of general public utility. As to the other conditions, the learned judge was of the opinion that those conditions showed that it was not a case of preference being given to the members of the settlor's family at all but under the said conditions the members of the settlor's family were considered as a class excluding the other members of the community irrespective of whether there were poorer or more deserving persons amongst them. According to the learned judge, the settlor in the present case desired that his descendants should have the benefit in main and if there was anything left over, then alone the other members of the Vaishya community should come in. In view of the conclusion to which this court has come on the constrution of this very trust deed, it would normally be difficult for us to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of this court with regard to the nature of the trust in the latter case, which was based on the reasoning adopted by this court in the earlier case, has not found favour with the Supreme Court, it would follow that the reasoning adopted by this court in trustees of Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax is erroneus. In order to appreciate these submissions of Mr. Kolah, we have to consider the Supreme Court case in Trustees of the Charity Fund v. Commissioner of Income-tax, and the other cases to which the learned counsel has referred. Now in the case Trustees of the Charity fund v. Commissioner of Income-tax, clause (13) of the trust deed provided that the trustees should apply the net income for all or any of the purposes mentioned thereafter. These purposes were six in number, enumerated in sub-clauses (a) to (f). The first was relief and benefit of the poor and indigent members of the Jewish or any other community of Bombay or other parts of India or of the world either by making payments to them in cash or providing them with food and clothes and/or lodging or residential quarters or in giving education including scholarships or setting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by it. In deciding whether the trust was a public charitable trust, the Supreme Court proceeded to consider whether the trust for its objects had general public utility. It pointed out that six purposes were mentioned in the trust, which were all charitable purposes of general public utility. The trustees were at liberty to hold the trust fund and apply the net income for all or any of the six purposes mentioned therein. The relations or members of the family of Sir Sassoon David, Bart., including therein the distant and collateral relations, did not figure as direct recipients of any benefit under five of the six purposes and, therefore, in so far as those five purposes were concerned, the trust certainly involved an element of public utility. So far as sub-clause (a) was concerned, the Supreme Court pointed out that that sub-clause by itself expressed a general charitable intention involving an element of public utility. What had only to be considered was whether by reason of the proviso, which operated on the sub-clause, it could be said to be not for such purposes. Their Lordships held that the provision for giving preference involved the idea of selection of persons out of a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed about the terms in the Gordhandas Govindram Family Charity Trust that the trust " was a fairly blatant illustration of a settlor traying to benefit his own family and his own relations " and that the benefit of the public was too remote and too illusory. Their Lordships said that that could not be said of the trust in the case before them, and that on the terms, of the trust deed, the case was on fact similar to the English case in In re Koettgen's Will Trusts and different from the case of Gordhandas Govindram Family Charity Trust decided by this court and relied on by this court. It would thus be seen that the view taken by the Supreme Court in Trustees of the Charity Fund v. Commissioner of Income-tax cannot be taken as overruling by implication the view taken by this court in Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax. As a matter of fact, the case in Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax was before their Lordships of the Supreme Court. They distinguished that case on facts and held that the reasons on the basis of which the conclusion in that case was arrived at by the Bombay High Court were not obtainable in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the beneficiaries contained the necessary element of benefit to the public and that it was when that class was ascertained that the validity of the trust had to be determined, so that the subsequent direction to prefer, as to the 75% of the income, a limited class did not affect the validity of the trust which was accordingly a valid and effective charitable trust. The principle expounded there was that, if the purpose under the trust was a public purpose involving the necessary element of public utility, a further direction as to selection of beneficiaries for the application of the income of the trust would not invalidate the primary object of the trust from being a public object involving the necessary element of public utility. It was observed in that case as follows : " ...... it is at the stage when the primary class of eligible persons is ascertained that the question of the public nature of the trust arises and falls to be decided, ......." On the terms of the will, the court held that the primary class of eligible persons was ascertained by the clause itself without the proviso and in view of the class so ascertained, the purpose of the trust was a public purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court. It is argued by Mr. Kolah that the test applied by Supreme Court following the English decision is that, if the primary class of eligible persons is so ascertained on the terms of the trust as to constitute relief against poverty to such class, a charitable object involving the necessary element of public utility, it would be a trust for a charitable purpose and the directions given in the selection of the individuals from the primary class to give preference to the members of the settlor's family would not affect the charitable nature of the trust. Applying this test, says the learned counsel, the trust deed in the case before us in clause (2) thereof ascertains the primary class as poor Vaishya Hindus or other Hindus, which is a section of the public and relief of poverty of this class would constitute a charitable purpose invoking the necessary element of public utility. Conditions and directions referred to therein are in respect of the distribution of the relief and relate to the selection of the individuals from the primary class of poor Vaishya Hindus. The conditions and directions specified in the trust deed serve the same purpose and have the same effect as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Vaishya Hindus or other Hindus but the relief contemplated is subjected to the conditions and directions contained in the subsequent clauses. In Sassoon's case reported as Trustees of the Charity Fund v. Commissioner of Income-tax , sub-clause (a) itself, which was neither too wide, vague nor unenforceable, as pointed out by Das C.J., disclosed a charitable object and ascertained the primary class of eligible persons for the benefit contemplated by it. In the present case before us the help and relief to the poor Vaishya Hindus or other Hindus being subject to the conditions and directions contained in the following clauses as to the manner in which and the extent to which the relief was to be given, both for deciding whether the relief of poverty constitutes a charitable object and for ascertaining the primary class of persons eligible for benefit, clause (2) itself will not suffice and the conditions and directions will have to be examined. Now, when we come to the conditions contained in clause (3), the condition (a) lays down that the poor Vaishya Hindus would be divided into three broad categories in order of priority: the first category being those who belong to the Sek ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers of the settlor's family vitiated the charitable nature of the wakf. We do not, therefore, think that the said cases can help him to contend for a view contrary to that taken by this court and the Calcutta High Court. It will thus be seen on an examination of the terms of the trust deed before us that although clause (2) started by professing to give help and relief to the poor Vaishya Hindus or other Hindus, the effect of all the terms of the deed was that the relief and help to the poor Vaishya Hindus or other Hindus was primarily and predominatingly confined to the members of the settlor's family and the members of the Seksaria families of Navalgadh and elsewhere. The object of the trust as a whole was predominantly to provide maintenance and marriage expenses to the members of the settlor's family and remotely, if any, to the Vaishya Hindus or other Hindus. The effect of the conditons and directions in the present deed did not relate to the preference in the selection of the individuals belonging to the primary class in the application of the income of the trust as did the provisos in the Sassoon's case before the Supreme Court. The effect of the conditions and direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, starting, maintaining and conducting schools, colleges, etc., and awarding scholarships or prizes, etc. The third was founding, maintaining and conducting institutions for the benefit of the three upper or twice-born classes of the Hindu community for teaching and practice of arts and crafts. The fourth provided for giving reliefs against distress or bodily ailment by opening, starting, maintaining and conducting hospitals and dispensaries, etc., and the fifth for the purposes of founding, maintaining, conducting or helping charitable institutions like orphanages, boarding schools, etc. A proviso then followed, which stated: " Provided, however, that in carrying out any one of the above charitable intentions the trustees shall always prefer the members of my caste, viz., the Bhatia caste, to the members of any other caste in the Hindu community and shall further prefer members of my family and my relatives to those who are not such members or relatives ....." It was held by this court that the five purposes, which were set out in the deed of trust, were charitable in character and disclosed a dominant intention to benefit the poor. The proviso only required the trustees, ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to by Mr. Kolah in this connection, is a decision of this court in Commissioner of Wealth-tax v. Trustees J . P. Parditvala Charity Trust . Clause 6 of the trust deed authorized the trustees to pay money towards the maintenance and support of the settlor's relatives and/other indigent persons. Clause 5, which preceded clause 6, empowers the trustees to expend money on certain religious ceremonies for the repose of the soul of the members of the settlor's family. It was argued that the purpose specified in the aforesaid two clauses did not disclose charitable purposes. The court held that the ceremonies performed for the repose of the soul of the deceased individual enured for the benefit of mankind at large and as such the purpose mentioned in clause 5 of the deed was a public purpose of a religious nature. It also held that the use of the word "other " in clause 6 showed that the reference to the relatives of the settlor wag a reference to indigent persons and not to all the relatives irrespective of their financial condition. Clause 6, therefore, only contained a direction that in considering the case of all Indigent personals, preference should be given to the indigent r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vince of Bombay ", wherein instances of general public utility work were mentioned including, amongst them, marriages of poor maidens. He has, therefore, argued that providing for marriage expenses would constitute a valid charitable object involving an element of public utility. We may, however, point out that the instance of public utility mentioned is the marriage of maidens and not all marriages. Moreover, the definition of a " public trust " under the Bombay Public Trusts Act was contemplated to be a wider definition than what public trust would ordinarily mean. There is, however, no warrant for introducing this larger definition of a public trust in the expression " public trust used in section 5(1)(i) of a special Act. In our opinion, the expression trust for any public purposes of a charitable or religious nature " connotes a trust for charitable objects involving an element of public utility. Marriage expenses, as we have already pointed out and as held by this court in the earlier case, do not normally involve any element of public utility. In our view, therefore, a trust property which could not be regarded as held wholly for charitable purposes within the meaning of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual and a group of individuals, which may be acting as an individual and whenever they want to bring within the ambit of taxing statutes such groups of individuals, they have taken care to specify them expressly as assessable entities. The legislature in the Wealth-tax Act, however, has selected only three entities, viz., an individual, Hindu undivided family and a company for being liable to be charged to wealth-tax. The scheme of the Wealth-tax Act, and the provisions, of the several sections in the Act as also the forms of the returns, etc., will show that it is only the individual, a Hindu undivided family and a company that are dealt with under the Wealth-tax Act and groups of individuals acting as an association of persons or firms, etc., are not brought within the ambit of the said Act. It is, no doubt, true, says the learned counsel, that there are provisions in the Act which speak of " trustee " but those provisions speak of a single trustee, who can very well come within the expression of " individual ". Group of trustees would not be covered by the expression " trustee " as used in the Act inasmuch as there are no provisions in the Act, which deal with cases where the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not capable of being re-agitated before us. The next argument advanced by Mr. Kolah in connection with this question is that even though the trustees could be regarded as an assessable unit, the assessment could only be made, if possible, under section 21 of the Wealth-tax Act, which is a special mandatory provision enacted by the legislature to apply to the assessment of a trustee. The argument of the learned counsel in this connection is that even though a group of turstees can be treated as an individual turstee and, therefore, assessable under section 3, the liability to pay tax is to be determined only under section 21 and not under any other provision. He has in that connection invited our attention to the case in Commissioner of Income-tax v. Balwantrai Jethalal. This case related to the consideration of section 41 of the Indian Income-tax Act, which is analogous to section 21 of the Wealth-tax Act. The question was whether it was obligatory to follow the previsions of section 41 in making the assessment on the trustees or was it optional either to follow the said provisions of to have resort to the general provisions of the taxation Act. The court held that section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho holds the assets on behalf of the beneficiary. Now, in view of the legal concept of trust, a trustee is the legal owner of the property, the property vests in him and be is the owner thereof on his own behalf and not on behalf of the beneficiaries. It is true that he holds the property for the benefit of the beneficiaries, but that is not the same as holding it on behalf of the beneficiaries. The expression "on behalf of " and " for the benefit of " are not synonymous as held by the Supreme Court in W.O. Holdsworth v. State of Uttar Pradesh. A trustee, therefore, although mentioned in section 21 cannot come within the ambit of section 21 inasmuch as he is not a trustee who is holding on behalf of the beneficiaries as required under the said section. Mr. Kolah says that section 21 as it stood at the material time, though it intended to cover the case of a trustee, failed to achieve the object by reason of the language used in the said section. The learned counsel further points out that the legislature has amended the section and instead of the words "on whose behalf ", which only related to the other persons specified in section 21, apart from the trustee, they have also now i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me derived therefrom. Since the trustees do not hold on behalf of persons, but hold on their own behalf, being the legal owners of the trust property, they could not come within the category of " person specified in section 11(1). It was contended on behalf of the assessee that although the word "trustee" was not used in the section 11(1) itself, the word " person " used therein as defined in section 2(11) of the Act included a "trustee". It could not, therefore, be said that a trustee was not capable of coming within the ambit of section 11(1). On the other hand, by the use of the word " person " at the outset of the section, a trustee could also be said to have been included in the said section. The court, however, held that it was not enough that the word " person " was capable of including a trustee within its connotation, and whether the trustee was included within the section or not, had to be determined on the language of the section and inasmuch as the words used in the section were " on behalf of " and not " for the benefit of ", no intention to include a trustee by the use of the word " person " in the section could be said to be intended by the legislature. In coming to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coverable from any such beneficiary'." The Supreme Court case in W. O. Holdsworth v. State of Uttar Pradesh was considered by the Calcutta High Court also. They, however, pointed out that there was difference in the language of section 11(1), which the Supreme Court was considering, and the language of section 21(1) of the Wealth-tax Act, which they had to consider. In section 11(1) of the U. P. Agricultural Income-tax Act, which the Supreme Court was considering, the word "trustee" has not been mentioned, but a trustee was capable of coming within the expression "or the like", if the trustee can be said to hold land or income " on behalf of " the persons interested therein. The question that was decided was as to whether the trustees could be said to hold land " on behalf of " the beneficiaries and the court held that section 11(1) did not operate in the case of trustees because the trustees were the legal owners of the trust estate and did not hold land "on behalf of " the annuitants. The Calcutta High Court, however, pointed out that under section 21(1) of the Wealth-tax Act, wealth-tax was to be levied upon the trustee in the like manner and to the same extent as it would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits or gains chargeable under this Act, which the courts of wards, the administrators-general, the official trustees or any receiver or manager (including any person whatever his designation who in fact manages property on behalf of another) appointed by or under any order of a court, or any trustee or trustees appointed under a trust declared by a daily executed instrument in writing whether testamentary or otherwise (including the trustee or trustees under any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913), are entitled to receive on behalf of any person, the tax shall be levied upon and recoverable from such court of wards, administrator-general, official trustee, receiver or manager or trustee or trustees, in the like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such income, profits or gains are receivable, and all the provisions of this Act shall apply accordingly." The argument advanced before the Supreme Court on behalf of the revenue was that the properties of the Durga vested in the trustees and, therefore, they or the managing trustee administered the trust properties in their own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the Supreme Court is more in point for the consideration of the contention, which has been raised before us, because it dealt with a similar contention raised in connection with an analogous section of the Income-tax Act. In both these sections, there was no doubt whatsoever that the " trustee " was intended to be included within the ambit of the section and the difficulty was only created by an inappropriate language used in so far as the trustee was concerned. In section 11(1) of the U. P. Agricultural Income-tax Act, however, there was no express mention of the trustee in the section itself and the question as to whether the said provision could apply to the case of a trustee had to be considered because of the use of the word " person " or the expression of or the like " occurring in the section. The court held in W.O. Holdsworth v. State of Uttar Pradesh, that a trustee could not be said to be included inferentially because the word " person " and the expression " or the like which are used in the section, clearly indicate the nature of the right in which the property was being held by the persons specifically enumerated in the section, who hold and manage the property ..... X X X X Extracts X X X X X X X X Extracts X X X X
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