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1963 (9) TMI 79

..... CJ. This is a reference under section 66(1) at the instance of the Commissioner of Income-tax, Gujarat. By an indenture of trust dated July 28, 1945, one Bhailal Dajibhai Amin settled certain shares of the then market value of ₹ 2,50,000 and certain immovable properties situate at Virsad in District Kaira upon certain trust therein more particularly set out. By another indenture of trust dated August 2, 1945, he conveyed, transferred and assigned unto the trustees certain immovable properties belonging to him and situate at Baroda and certain shares and securities standing in his name of the then market value of ₹ 4,50,000 upon the same trust set out therein. Since both the trust deeds contain identical terms, it would be sufficient if the relevant terms of one of them were to be set out for the purpose of indicating the objects of the two trusts. Clause 5 of the trust deed relating to the Kaira properties provides that the trustees shall spend and apply the net balance of the income of the said trust fund and trust property for the benefit of the public in general of the Baroda State and of Kaira District of Bombay Presidency including Cambay State within its geographi .....

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..... rs of assessment in respect of the trust of Kaira properties are 1949-50 to 1958-59, the corresponding accounting periods being the years ending December 31, 1948, to December 31, 1950, and the years ending March 31, 1952, to March 31, 1958. The assessment years in the case of the trust for the Baroda properties are 1947-48 and 1956-1957 relating to the accounting years ending December 31, 1946, to December 31, 1950, and the years ending March 31, 1952, to March 31, 1956. The two trusts made applications for refund on the ground that they were entitled to exemption in respect of their incomes under section 4(3)(i) of the Act. The Income-tax Officer held that the assessee-trusts were neither religious nor charitable trusts, and relying upon that finding, as also upon the provisions of clause 13 of the trust deeds, declined to grant the exemption. The Appellate Assistant Commissioner set aside the order of the Income-tax Officer and held that the trusts were entitled to exemption under section 4(3)(i) and granted exemption in conformity with the restrictions imposed by the amendment to the Act by the Income-tax (Amendment) Act, 1953, which was brought into effect from the 1st of Apri .....

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..... ate 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 last part of sub-section (3) of section 4 furnishes an explanation to the expression "charitable purpose" and it runs as follows : "In this sub-section 'charitable purpose' includes relief of the poor, education, medical relief, and 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 enure for the benefit of the public." Section 4(3)(i), as it stood prior to the enactment of the Income-tax (Amendment) Act, 1953, and the Finance Act of 1955 was in some respects different from what it is now. But it is conceded that so far as the present reference is concerned, these changes do not make any material difference, for the entire reference really turns: (1) upon the question whether advancement of commerce and industry is a ch .....

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..... in their absolute discretion, think fit, for the support and conduct of such trust or institution, would be objectionable and therefore would preclude the trust from claiming the benefit of section 4(3)(i) as such a trust in that event cannot be said to be one wholly for religious or charitable purposes. The learned Advocate-General, however, was fair enough to concede that the expression "allied objects" used in clause 12 would mean objects which are similar in nature or akin to the objects of the present trusts and such objects then would go hand in hand with the objects of the present trust. In other words, clause 12 on such a construction merely empowers the trustees to take over the superintendence, management and administration of such trust or institution whose objects are similar to, or consistent with, the objects of the assessee-trusts. The trustees would not, therefore, by reason of the power reserved to them under clause 12, be entitled to take over any trust or institution whose objects are not for charitable purposes. No objection therefore can be taken to such a clause if the power of the trustees, by the use of the expression, "allied objects", .....

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..... provisions of clause 13 empower the trustees to divert the funds to objects and purposes inconsistent with the objects and purposes of the two trust deeds, in other words, to purposes which are of a non-charitable character. The real question, therefore, is, do the provisions of clause 13 empower the trustees to do so? The predominant object of the trust is undoubtedly for charitable purposes and, prima facie, therefore, it would appear that notwithstanding the power conferred upon the trustees by clause 13 to accept donations and/or contributions upon such terms and conditions as they may deem proper and also the power to expend any portion of the income of the trust fund for the purpose thereof, that power can only be exercised by them consistently with the objects of the trust as set out in clause 5 of the trust deeds. This conclusion is supported by the provisions of the other clauses of the trust deeds, namely, clauses 1, 2, and 4. Clause 1, inter alia, provides that the trustees shall stand possessed of the shares specified in Schedule A thereto and the investments into which, in exercise of the power contained in the trust deed whereunder, the same or any part thereof respec .....

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..... eemed to be accepting them for a trust separate or distinct from the trust of which the objects are laid down in clause 5 of the trust deeds. What clause 13 really provides is that the trustees shall have the power to accept donations and contributions for the purposes of the objects set out in clause 5, but they may accept such donations and/or contributions upon such terms and conditions as they may deem proper. The objects for which such donations and/or contributions would be accepted must necessarily be the objects which are set out in the trust deeds. The donations and/or contributions would be accepted by the trustees subject to those objects, but for those objects donations may be accepted on such terms and conditions as the trustees think proper. This appears to be somewhat clear from the provisions of clause 12 which empower the trustees to take over the superintendence, management, administration of any trust or institution having allied objects on such terms and conditions as the trustees may, in their absolute discretion, think fit. Clause 12 itself makes a clear distinction between the objects on the one hand and the terms and conditions on the other. The trustees, un .....

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..... rust deed. The donations and/or contributions that the trustees would receive under clause 13 cannot, therefore, be independent of the two trust deeds and the trusts upon which the trust funds are settled. The question also may be looked at from another aspect. The assessees, by their application, sought exemption under section 4(3)(i) in respect of their income which accrued during the relevant accounting periods upon the ground that the income in question derived from the properties held under the trusts was under a legal obligation wholly and exclusively for religious or charitable purposes. The question is : Were the trust funds and the trust properties and their income stamped during the assessment years and the relevant accounting periods, with the legal obligation set out in section 4(3)(i) ? There is no question that any donations under clause 13 were in fact accepted by the trustees during the relevant accounting periods. Equally, there is no question that the trust properties or the income thereof or any portion thereof were used in any way inconsistent with the admittedly charitable purposes of the trusts. That being so, there is nothing on record to show that the corpus .....

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