9911796707
TMI Blog1971 (12) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... realisation of the income of the subject-matter of trust and incurred in the maintenance of the trust property at the end of each Hindu year ending Asho Vad Amas, 75 per cent. of the balance of the income will be spent by the trustees as under:- (a) The trustees shall use a maund and a quarter (a maund equal to 40 kacha seers) of the juwar daily in feeding the pigeons on the terrace of the trust property, but shall not use more than a maund and a quarter for the same purpose on a single day. (b) If any balance remains out of the balance of the 75 per cent. of the balance net income after the amount spent in feeding the pigeons as above-mentioned, it will be spent by the trustees on Akhatrij and Ganesh Chauth and Ashadi Bij of every Kikram Samvat year, in distributing sweets to the children, in feeding cows and dogs. The trustees shall decide as to the amount to be spent on each of the three days for each of the specific purpose mentioned in clause (b) but it will be decided upon by the trustees in such a way that the amount to be spent for specific purposes as mentioned in this paragraph (b) shall not exceed the total of the amount which is the balance remaining unspent after fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok the view that all these immovable properties including the dharamshala property originally settled upon trust were held under trust wholly for charitable purposes and the entire income of the trust was, therefore, exempt from tax under section 4(3)(i) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the old Act"), and they accordingly did not file any return of income for the assessment years 1955-56 to 1961-62. The Income-tax Officer while assessing the trustees for the assessment years 1962-63 and 1963-64 was, prima facie, of the view that the income from the immovable properties purchased by the trustees was not exempt from tax since "that income is not from the use of the trust property for carrying out the objects of the trust" and, in any event, 25 per cent. of the income of the trust which was to be accumulated as forming part of reserve fund under clause 7, was not eligible for exemption since there was no legal obligation on the trustees to utilise it for charitable purposes. The Income-tax Officer, on this view, entertained the belief that the income of the trust had escaped assessment by reason of failure on the part of the trustees to file a return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of both categories of income for the assessment years 1955-56 to 1961-62. The Commissioner was obviously dissatisfied with this decision of the Tribunal and he accordingly applied for a reference and on his application, the Tribunal referred the following question of law for the opinion of this court: "(1) Whether the income from property other than the original dharamshala property and 25% of trust property in general qualified for exemption under section 4(3)(i) of the Income-tax Act of 1922 so far as the assessment years 1955-56 to 1961-62 are concerned?" This was the controversy between the parties in regard to the assessments for the assessment years 1955-56 to 1961-62. But there was also another controversy between the parties and that related to the assessments for the assessment years 1962-63 and 1963-64. These assessments were governed by the provisions of the new Act. Section 11 of the new Act exempts from tax income from property held for charitable or religious purposes. We are concerned in this reference only with clause (a) of sub-section (1) of section 11, which reads as follows: " 11. (1) Subject to the provisions of sections 60 to 63, the following income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for Samvat years 2017 and 2018 that the income of the trust for the two Samvat years was not utilised for construction of the new dharamshala but it was constructed from accumulations of past income and the condition of section 11, sub-section (1), clause (a), which requires that income in respect of which exemption from tax is claimed should have been applied to the charitable purposes for which the trust property is held under trust was not satisfied. The Tribunal also pointed out, and that was the second reason given by the Tribunal, that even if the income of the trust for Samvat years 2017 and 2018 was utilised for the construction of the new dharamshala, it represented merely an investment of the trust funds and could not be said to be application of the income to the charitable purposes for which the trust properties were held by the trustees. The last reason given by the Tribunal was that, on a proper reading of clauses 7 and 8, only 25 per cent. of the net income of the trust could be utilised for construction of the new dharamshala and the remaining 75 per cent. could not be utilised for that purpose and, therefore, the net income of the trust to the extent of 75 per ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of two sub-clauses (a) and (b). Sub-clause (a) of clause 6 provides that the trustees shall use one and a quarter maunds of juwar daily in feeding pigeons but at the same time carries an injunction that on no account more than a maund and a quarter shall be used on a single day. It would, therefore, be apparent that if the net income arising from "the subject-matter of the trust" is fairly large, 75 per cent. of the net income would not be exhausted in carrying out the charitable purpose set out in sub-clause (a) of clause 6 and a large part of it would remain for being utilised for carrying out the charitable purpose set out in sub-clause (b) of clause 6. Now the charitable purpose specified in sub-clause (b) of clause 6 is distributing sweets to the children and feeding cows and dogs on three festival days, namely, Akhatrij, Ganesh Chauth and Ashadi Bij. This charitable purpose also may not, having regard to its limited scope, be sufficient to exhaust the balance of 75 per cent. of the net income and some part of it may still remain unutilised. This situation is in fact so cited in the last sub-clause of clause 6. That sub-clause contemplates that the trustees may not spend the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 is that 25 per cent. of the net income of the trust properties shall be deposited in a scheduled bank or invested in a Government security "as reserve fund to be utilised in case of emergency in accordance with the unanimous opinion of the trustees expressed in the joint meeting of the trustees or as may be directed by the court". The argument of the revenue was that the purpose specified in clause 7 is vague and indefinite and it permits the trustees to utilise 25 per cent. of the net income of the trust properties for non-charitable purpose; there is nothing in clause 7 or in any other clause of the declaration of trust to show precisely as to what is the kind of emergency contemplated in clause 7 for which 25 per cent. of the net income of the trust properties may be utilised by the trustees. The description of the purpose by using the word "emergency" is so shadowy and indefinite that the trustees can, without committing a breach of their obligation under clause 7, apply 25 per cent. of the net income of the trust properties to a non-charitable purpose. The trust properties cannot, therefore, contended the revenue, be said to be held on trust for charitable purposes so far a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g out of this emergency, in order to enable the trustees to properly and effectually carry out the main object of the trust. Clause 7 contains an ancillary or subsidiary provision intended to be utilised in furtherance of the main object of the trust and it does not, therefore, contemplate any and every kind of emergency but merely emergency which has some connection or relation to the carrying out of the main object of the trust. The words "as may be directed by the court" are also very significant. These words indicate that the emergency contemplated in clause 7 is not something shadowy or indefinite, but it is a concept recognizable and identifiable by the court as emergency and in the context this can mean only emergency having connection or relation to the carrying out of the main object of the trust. Moreover, even if the words "emergency" were vague or indefinite, the court must construe it in a sense which would include only charitable purpose and exclude what is non-charitable. It is a well-settled principle of law that where there is general overriding trust for charitable purposes but some of the particular purposes to which the trust fund may be applied are not strictly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words which are not there. The only requirement of section 11, sub-section (1), clause (a), is that the income of the trust must be applied to the charitable purposes for which the properties are held on trust by the trustees. It does not say that the application of the income should be such that it necessarily results in revenue expenditure. The charitable purpose may, in a given case, require for its fulfilment, purchase of a capital asset and where income is applied for purchase of such a capital asset, it would still be application of income to the charitable purpose. Take, for example, a case where there is a trust for maintenance of a hospital and the trustees are bound to apply the net income of the trust properties for maintaining the hospital. The trustees of such a trust may, for the purpose of making the hospital a well-equipped medical unit and improving the efficiency of medical service at the hospital, purchase costly X-ray equipment or order medical or surgical appliances out of the income of the trust properties. Can it be suggested for a moment, in such a case, that merely because income of the trust properties is applied for purchasing a capital asset, it represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes set out in clause 6 and whatever surplus remained-which was carried to the "liabilities" side of the balance-sheet-was spent by them in the construction of the new dharamshala and, therefore, the whole of the income of the trust properties was applied to the charitable purposes for which the trust properties were held by the trustees and it was accordingly exempt from tax under section 11, sub-section (1), clause (a). The revenue sought to repel the applicability of section 11, sub-section (1), clause (a), by putting forward a two-fold contention. One contention was that no part of the income of the trust properties for the relevant previous years was applied in the construction of the new dharamshala and the other was that, in any event, only twenty-five per cent of the net income of the trust properties could be spent under the trust for construction of the new dharamshala and the remaining seventy-five per cent. of the net income to the extent to which it was applied in construction of the new dharamshala, did not qualify for exemption under the section. These rival contentions we shall now proceed to consider. So far as the first contention is concerned, we have a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the relevant previous years was applied in constructing the new dharamshala. This question must, therefore, be held to be implicit in the broad framework of the third question. It may also be noted that the language in which the third question is framed is of sufficient width and amplitude to cover all questions bearing on the applicability of section 11, sub-section (1), clause (a). It is, therefore, open to us to consider whether the surplus net income of the trust properties for the relevant previous years was applied in constructing the new dharamshala or the new dharamshala was constructed out of accumulations of past income. The finding reached by the Tribunal was that no part of the surplus net income of the trust properties for the relevant previous years was utilised in constructing the new dharamshala and the new dharamshala was constructed out of the accumulations of past income. This finding was challenged on behalf of the trustees and their contention was that it was based on an erroneous inference drawn from the accounts maintained by the trustees. Now, it is clear from the judgment of the Tribunal that what strongly impressed the Tribunal in taking a view against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new dharamshala was made out of the net income of the relevant previous years except of course to the extent to which such expenditure was in excess of the net income. The revenue has not been able to point out any countervailing circumstance which would offset the weight of this presumption. The balance-sheets of the trust in fact show that the expenditure on the construction of the new dharamshala in Samvat years 2017 and 2018, being the relevant previous years, could not have come wholly out of the accumulations of past income and that the entire net surplus income of the trust properties for those Samvat years was utilised in constructing the new dharamshala. Take, for example, the expenditure incurred in constructing the new dharamshala in Samvat year 2018. The amount expended by the trustees was Rs. 61,141.53. The balance-sheet of the trust for Samvat year 2018 shows that at the commencement of the year there was a balance of Rs. 2,34,132.14 to the credit of the income and expenditure account. That was the accumulation of past income but all of it was invested in the assets shown on the assets side of the balance-sheet for Samvat year 2017. Barring outstanding loans to the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clauses 7 and 8 of the declaration of trust contemplate application of only twenty-five per cent. of the net income of the trust properties in the construction of a new dharamshala but it must be remembered, and we have already adverted to this fact earlier, that the dominant object of the settlors in creating the trust was to establish dharamshala for the benefit of Hindus and that being the overriding charitable. intention manifest in the declaration of trust, the utilisation of net surplus income of the trust properties in the construction of the new dharamshala, even if it exceeded twenty-five per cent. of the net income of the trust properties, could not be said to be application to purposes other than the charitable purposes of the trust. Even apart from clauses 7 and 8 of the declaration of trust, the trustees were entitled to spend the net surplus income of the trust properties for constructing the new dharamshala. So long as the application of the net surplus income of the trust properties to the construction of the new dharamshala could not be said to be outside the purposes of the trust, and indeed it could not be, for, otherwise, it would amount to breach of trust whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
