TMI Blog1965 (11) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... trust, Laxmi Narain Lath, was residing at Banaras. Four trustees were appointed ; one was the settlor himself, the other trustee was the son of the settlor, and there were two other trustees who belonged to the Lath family. A sum of Rs. 5,000 was set apart for charity and upon the trust as mentioned in the deed. The objects of the trust were as follows : " (2) The objects of the trust shall be : (i) To advance, promote and encourage education amongst the Hindus (a) literal, (b) physical, (c) scientific, (d) industrial, (f) religious, (g) cultural (in fine arts) and (h) general education of all kinds at Mandrella in the Jaipur State or any other place in India. (ii) To establish and promote the establishment of and/or to render aid to schools, colleges and other educational institutions at Mandrella, in the Jaipur State and grant scholarships, stipends and prizes and other help to students, teachers and other persons. (iii) To arrange for or grant aid for the seva and puja of the deity Shiv and any other deities already installed or hereafter to be installed. (iv) To maintain and arrange for proper supply of water for cattle and maintain 'Posala' for serving water to pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , B-Ward, Jaipur, however, did not accept this plea. He observed that, as the income of the trust could also be utilised for aid to persons belonging to the Lath family as well and as the whole of the income was not set apart for charitable purposes, the income of the trust did not qualify itself for exemption under the Act. The Income-tax Officer, however, found as a fact that the income had not been utilised for any non-charitable purposes and had exclusively been utilised for charitable purposes. When the Income-tax Officer pointed out this drawback to the assessee a supplementary trust deed dated 21st May, 1958, was produced before him, but the Income-tax Officer did not find it sufficient to overcome the difficulty so far as the relevant assessment years were concerned as, in his view, the supplementary deed, which purported to introduce new clauses in the original indenture of trust, could not have retrospective operation. In the circumstances, the Income-tax Officer rejected the plea about the exemption and brought the income of the trust to tax. The Income-tax Officer passed separate orders for the four assessment years, but the reasoning was identical The assessee then l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken by the Income-tax Officer was correct and that taken by the Appellate Assistant Commissioner was erroneous. Consequently, all the four appeals were accepted and the orders passed by the Income-tax Officer were restored. From the above narration it will be evident that the question depends on the applicability of section 4(3)(i) of the Act, The relevant portion of the section reads as under : " 4. (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) 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. " The essential conditions which enable an assessee to earn exemption are : (i) the property from which the income is derived should be held und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Tribunal and the Income-tax Officer. He has relied on Mohammad Ibrahim Riza Malak v. Commissioner of Income-tax, Commissioner of Income-tax v. M. E. R. Malak, Commissioner of Income-tax v. Karim Bros. Charity Fund and Commissioner of Income-tax v. East India Industries (Private) Ltd. Mr. Lodha has also sought support from one of the cases cited by Mr. Bhargava, namely, Commissioner of Income-tax v. P. Krishna Warriar. In section 4 the last paragraph thereof lays down as to what charitable purposes are included in this section. It reads as under : " 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) or clause (ii) shall operate to exempt from the provisions of this Act that part of the income from property held under a trust or other legal obligation for private religious purposes which does not ensure for the benefit of the public. " It will be clear from the above that for a purpose to be a charitable purpose, it must have a public character. In other words, it must be directed to the benefit of the community or a section o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cretion is vested in the trustees in the matter of utilisation of funds. Both the learned counsel placed reliance on Commissioner of Income-tax v. P. Krishna Warriar. The material passage on which both the learned counsel lean is as follows : " The expression 'in part' does not refer to an aliquot part ; if half a house is held in trust wholly for religious or charitable purposes, it would be covered by the first part of the substantive clause of section 4(3)(i), for in that event the subject-matter of the trust is only the said half of the house and that half is held wholly for religious or charitable purposes. The expression 'in part', therefore, must apply to a case other than a property a part of which is wholly held for religious or charitable purposes. In India there are a variety of trusts wherein there is no complete dedication of the property but only a partial dedication. A property may be dedicated entirely to a religious or charitable institution or to a deity. This is an instance of complete dedication. A property may be dedicated to a deity, subject to a charge that a part of the income shall be given to the grantor's heirs. A property may be given to an individua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable purpose. The division between the two expressions " wholly " and " in part " is not based on the question whether the property as a whole is dedicated or only a part of it is dedicated for religious or charitable purpose. But, the distinction is based between the dedication of the said property wholly for religious or charitable purposes or in part for such purposes. This passage, to our mind, is hardly applicable to a case where there is no division either of the property or of its income. In the present case the property as a whole is dedicated in trust and nothing is reserved by the settlor. Therefore, in terms of this passage the whole of the property is a dedicated property, but this passage is hardly sufficient to solve the problem before us, which is to the effect that several objects in the trust deed are set out and one of such objects is said to be a secular one as opposed to that of public utility and neither the property has been divided or earmarked for the several purposes between the charitable and secular purposes, nor has the income been divided. To get over this difficulty, Mr. Bhargava submitted that the purpose indicated in clause 2(vi) of the trust d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly laid down that the benefit was intended for the poor and indigent relations or members of the family of Jewish origin. There the ambit of the benefit was not only limited to such members of the family, but primarily it was intended for the benefit of the much larger circle of Jewish community, though within the framework of this purpose preference was to be shown to members of these settlor's family. If we contrast the purpose of that trust with that of clause 2(vi) of the trust deed executed by Laxmi Narain Lath, it will be clear that in this trust aid may be given to any member of the family irrespective of the fact whether he is affluent or poor. We are unable to accept the argument advanced by Mr. Bhargava that the use of the word " aid " implies that as it will be for the needy members of the family this provision will still fall within the ambit of the dominant intention of the settlor. We have to construe the provision as it is, according to its language and not on the basis of what might have been at the back of the mind of the settloor. Aid may be given not only to the poor, but even to those who are not poor, for example, for starting a business or say by advancing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be a charitable trust within the meaning of section 4(3)(i). But, as in that case there was no obligation cast upon the trustees to prefer the employees of the company and they were not bound to select such employees, the trust was one which fell within the ambit of section 4(3)(i). The reasoning of the learned judges will be clear from the following passage : " But the question is whether on a fair reading of this trust it could be said that the objects of the settlor's bounty were only the employees of the Premier Construction Co. Ltd. In this connection Mr. Joshi puts emphasis upon the proviso which gives the power to the trustees to give preference to the employees of the Premier Construction Co. Ltd. Now, undoubtedly, we would have taken a different view of this trust if there was an obligation upon the trustees to prefer the employees. In other words, if the other members of the public were postponed to the employees of the Premier Construction Co. Ltd., then, looking to the other provisions of the deed, we might easily have taken the view that the main purpose of the trust was to benefit the employees and the charity to the public was merely illusory. But there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d argued that a trust for charitable purpose does not become invalid, if the choice of the specific charitable objects to be benefited is left to the trustees. This case, to our mind, is wholly inapplicable. We are not considering the validity of the trust. The trustees may certainly be entitled to spend on any of the objects set out in the trust. The point here is whether the exemption under section 4(3)(i) will be admissible when charitable and non-charitable objects are mixed up without clear demarcation. He also referred to In re Koettgen's Will : Westminster Bank Ltd. v. Family Welfare Association Trustees Ltd. There was no question of exemption being granted from income-tax in that case. The learned judge had to consider the question whether the trust can be said to be of public nature. A fund was created by the settlor for promotion and furtherance of commercial education and prescribed rules for the administration of the funds where the prescribed persons eligible as beneficiaries were British-born subjects of either sex and it was laid down that in selecting beneficiaries the trustees shall give preference to any employees of a particular company or members of their famili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust to any of the objects. In that connection the learned judges reached the following conclusion about the applicability of section 4(3)(i) : " Where a trust is created for charitable and non-charitable objects and gives an unfettered discretion to the trustees to utilise the whole of the income of the trust to objects which are non-charitable, the property in respect of which the trust is created cannot be deemed to be held in trust wholly for charitable or religious purposes, and the trust would not be eligible to the exemption contemplated by section 4(3)(i) of the Income-tax Act, 1922. It would also follow that any donation made to such a trust is not entitled to exemption from tax under section 15B of the Act. " We find ourselves in agreement with this view. We have been mindful of the fact that for all these four assessment years the trustees had not spent anything for the purposes of their family members and the entire amount had been expended on charitable objects only, but, in spite of our anxious consideration, that cannot induce us to take any view different from that warranted by the language of the section. It is for an assessee to show that his case is cover ..... X X X X Extracts X X X X X X X X Extracts X X X X
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