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TMI Blog1968 (2) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot 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 the contentions of the assessees and the points of law involved thereunder. The contentions of the assessees in respect of which the question was asked were that they do not form an assessable unit under section 3 of the Wealth-tax Act, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gadh 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. Condition (a) provides as follows: " Poor Vaishya Hindoos who are members of Sekaria families shall be preferred to poor Vaishya Hindoos not belonging to the said families and poor Vaishya Hindoos of Navalgadh shall be preferred to poor Vaishya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the name or names of a particular individual or individuals, etc., and provides that the other trustees shall be bound to observe, carry out and comply with such instructions and/or requisitions of the said Govindaram Gordhands Seksaria. It wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 including relief of the poor, education, medical relief and the advancement of any other object of general public utility. The court held, on a consideration of the several terms of the trust deed, that the property under the trust was not held wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rriage 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 persuaded to take a different view. Mr. Kolah, however, has argued that in the first place the view taken by this court was in the context of the provisions of section 4(3)(i) of the Indian Income-tax Act, which are not the same as the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 them up in life or in such other manner as the trustees may deem proper. The second sub-clause related to the setting up of institutions, maintenance and support of hospitals and schools, colleges or other educational institutions. The third was rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 bigger class envisaged in sub-clause (a). According to their Lordships, the persons to be preferred had to belong to the class envisaged by sub-clause (ay before they could be given any preference. In their opinion, therefore, sub-clause (a) prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the case before them. It is important to note that they did not say that the view taken by the Bombay High Court in Gordhandas Govindram's case proceeded on the application of wrong tests or wrong principles. As a matter of fact, so far as we can se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come, 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. In the case before their Lordships, on the construction of the terms of the trust deed, they came to the same conclusion that even under sub-clause (a), on which the proviso operated, the primary class of eligible persons was ascertained and constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass, 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 proviso to sub-clause (a) of the trust deed in the case before the Supreme Court, and cannot, therefore, affect the charitable nature of the trust. Mr. Kolah, therefore, has argued that having regard to the principles laid down by the Supreme Court an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf, 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 Seksaria family, the second who belong to Navalgadh and the third those who belong to other places. The further conditions from (b) to (u) proceed to make a further classification in each of the three broad classes, both in respect of priority as well as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation 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 directions in the present trust deed was that the trust created a first charge in favour of the members of the settlor's family to the exclusion of others and made them the first objects of the charity. We do not think, therefore, that the principle of Sassoon's cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aching 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, utilising the funds for charitable purposes, to select certain beneficiaries on the ground that they belonged to the members of the family or relatives of the settlor. The proviso, in the opinion of the court, operated only after the purpose or object was select ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 relatives of the settlor and such a-direction had not the effect of invalidating the charitable object of the trust on the principle laid down in Sassoon's case. It will be seen that even in this case the view taken by this court on the construction of the deed w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 4(3)(i) of the Indian Income-tax Act will also fail to qualify as a trust for a public purpose of a charitable nature in India. Moreover, on the view we have taken of the construction of the trust deed, viz., that its primary object is to provide maintenance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax 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 entity to be charged is other than an individual, a Hindu undivided family or a company. He has in that connection invited our attention to the provisions of sections 6 and 8 of the Act and the forms of returns required to be filled in and verified under the Act. We d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 41, which provided for the determination of the liability to pay tax of the trustee, was a mandatory section and the assessment of income returned by a trustee, whether it was derived from property held by him or from a business carried on by him or from the ownership of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds 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 included the words " or for whose benefit " which cover the case of a trustee also. In support of his submission, he has relied on a case of the Patna High Court in Kripashankar, Howrah v. Commissioner of Wealth-tax , in which, relying on W. O. Holds worth v. State of Uttar P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 this conclusion the Supreme Court observed : " The expressions 'for the benefit of ' and ' on behalf of ' are not synonymous with each other. They convey different meanings. The former connotes a benefit which is enjoyed by another thus bringing in a relationship as between a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, 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 leviable upon and recoverable from the person on whose behalf the assets were held, and the question to be considered was whether in giving effect to the said provision a trustee could be said to hold the property on behalf of the beneficiaries. The learned judges took the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, 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 right and not on behalf of the beneficiaries and section 41 therefore did not apply, with the result the Income-tax Officer had rightly assessed the surplus income in the hands of such trustees as an association of persons. In the context of this contention that the properties vested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on behalf of others. A trustee, however, does not hold the property on behalf of the beneficiaries but holds it on his own behalf, though for the benefit of the beneficiaries. It was, therefore, not possible to include him within the ambit of the section in the absence of clear words. O ..... 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