TMI Blog1984 (12) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was published in the Sirohi State Gazette : "No. II, Ord., With a view to promote manufacture of khadi, removal of untouchability, uplift of women and other constructive activities on the whole lines of Mahatma Gandhi's doctrines in the whole of the State and in order to found a self-sufficient "ADARSH GRAM" (Model village) a sum of Rs. 6,00,000 (Rupees six lakhs) is hereby granted for the purpose and ordered to be deposited in a bank as fund of the " ADARSH GRAM " and constructive activities in the name of Her Highness Pujya Shree Rajmata Sahiba Shree Krishna Kanverbha Sahiba, Maharaj Sbri Abhey Singhji Sahib and Shriman Gokulbhai Daulatram Bhatt of Sirohi State. This money will be utilised by grants to the committee formed to carry out the objectives under their directions. The land of grass Jod of Kiaria, near Abu Road, is hereby granted forthwith for the site and erection of the model village and the activities connected therewith and other lands lying near about the Jod would be granted thereafter in due course of time as the village and activities grow. It is further ordered that pucca patta of the Kiaria Jod land be issued in the name of . Adarsh Gram (Model vill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -trust, as specified in the Gazette notification, were too vague and wide and it is not possible to deduce therefrom any precise or specific public charitable purpose which could be enforced. He, therefore, held that the objects of the trust were neither charitable nor religious in character, as the trustees could under the trust deed validly spend the entire income of the trust on a non-charitable object. He accordingly held that the trust property was not held wholly for religious or charitable purposes and, as such, the assessee-trust was not entitled to exemption under section 5(i)(i) of the Wealth-tax Act. Therefore, wealth-tax assessment orders were passed by the Wealth-tax Officer, Sirohi, on October 15, 1971, in respect of the assessment years 1962-63, 1963-64, 1964-65, 1965-66, 1966-67, 1967-68, 1968-69 and 1969-70. The assessee-trust filed an appeal before the Appellate Assistant Commissioner and raised two contentions. In the first place, it was submitted on behalf of the assessee that the trust was entitled to exemption under section 5(1)(i) of the Wealth-tax Act. In the second place, it was contended on behalf of the assessee that if exemption was not granted, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-trust in National Savings Certificates to the extent of Rs. 1,00,000 and the remaining amount which may not be required for immediate utilisation as per the schemes approved by the State Government may be invested in any of the Rajasthan State Development Loans under an intimation to the General Administration Department and Finance Department. Thus, the Tribunal came to the conclusion that the investment of the funds of the assessee-trust or their utilisation for the purposes of the trust was to be made in accordance with the approval of the Government of Rajasthan and the funds could be utilised only for the schemes approved by the Government. The Tribunal set aside the order passed by the Appellate Assistant Commissioner dated November 23, 1971, and held that the dominant object of the trust was to undertake constructive activities in accordance with the doctrines put forward by Mahatma Gandhi for the uplift of the poor and backward village people and as such exploitation of the villagers to earn an income for the trust could not be thought of as one of the objects of the trust. The Tribunal accordingly held by its consolidated order dated January 29, 1972, that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the Department in this respect is without any force. We may here briefly discuss the change in law on the subject brought about on account of the coming into force of the Income-tax Act, 1961. Section 4(3) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act of 1922") read 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: Provided that such income shall be included in the total income... (b) in the case of income derived from business carried on on behalf of a religious or charitable institution, unless the income is applied wholly for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in section 2(15), income derived from a business which is carried on for the advancement of an object of general public utility has to be included in the assessee's total income, if it involves carrying on of any activity for profit. It may be pointed out that the words " not involving the carrying on of any activity for profit" contained in section 2(15) have been omitted by the Finance Act of 1983, with effect from April 1, 1984. Under the Act of 1922, income derived from a business carried on for the purpose of advancing an object of general public utility was excludible from the assessee's total income, even if such business involved the carrying on of an activity for profit, if the income therefrom was applied wholly for the purposes of the trust or institution and either the business was carried OD in the course of the actual carrying out of the primary purpose of the institution or the work in connection with the business was mainly carried on by the beneficiaries of the institution. In this respect, a significant change was brought about by the Act of 1961. As early as in the year 1944, their Lordships of the Privy Council in All India Spinners' Assocatian v. CIT [1944 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adras) Private Limited v. CIT [1967] 65 ITR 611 (SC), the facts were that a trust was established for various objects, one of which was to manufacture, buy, sell and distribute pharmaceutical, medical, chemical and other preparations and other articles. The other objects of the trust included several charitable and religious purposes. In that case, the question was raised whether the property of the trust was held wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Act of 1922. Their Lordships of the Supreme Court held that it was open to the trustees to utilise the income of the trust for any one of the objects of the trust to the exclusion of all other objects and that it would not be a violation of the trust if the trustees devoted the entire income to the carrying on of a business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations. It was held that as the last mentioned object of the trust was neither charitable nor religious in character and as the trustees could, under the trust deed, validly spend the entire income of the trust on this non-charitable object alone, it could not be held that the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ibrahim v. CIT [1930] 57 IA 260 and East India Industries (Madras) Pvt. Ltd. v. CIT [1967] 65 ITR 611 (SC). But if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to, the primary or dominant purpose would not prevent the trust or institution from being a valid charity: vide CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC). The test which has, therefore, to be applied is whether the object which is said to be non-charitable is the main or the Primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is charitable." (emphasis added). In Laxmi Narain Lath Trust v. CIT [1969] 73 ITR 402 (Raj), one of the objects of the trust was that of rendering aid to any person belonging to the family of the donor and to grant monthly and other periodical aids to them, besides several charitable purposes. It was held by this court, following the decision of their Lordships of the Supreme Court in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722, that as the trustees have the full discretion to spend the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t deed provided that half of the income from the funds of the trust shall at all times be applied for the benefit of the members of the Jewish community of Bombay and Jewish objects and particularly for giving donations to the members of the Jewish community of Bombay. It was also provided in the trust deed that besides other purposes beneficial to the Jewish community, preference shall be given in applying the income of the trust to the poor and indigent relations and members of the family of Sir Sassoon David, Bart., including therein distant and collateral relations. Their Lordships of the Supreme Court, while construing the trust deed in the aforesaid case, held that the ambit of the benefit was primarily intended for a much larger circle of the Jewish community though within the framework of that purpose, preference was to be given to the relations or members of the settlor's family, but the same could not affect the charitable character of the trust and so the trust was qualified for exemption. Therefore, the test to be applied in such cases is as to whether the main or primary objects of the trust or dominant purpose thereof are charitable or the main or primary objects ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty or the income thereof for any of the objects of the trust. In such cases, where the charitable and non-charitable objects co-exist in a deed of trust, the dominant intention of the settlor has to be found out and if the dominant intention is one of charity in general, the trust will still be held to be wholly charitable in character and will qualify for exemption. But where the charitable and non-charitable objects are mixed up and the deed of trust authorises the trustees to utilise the entire income for any one of the objects or purposes of the trust, it is open to the trustees to utilise the entire income or set apart such income exclusively for use for non-charitable objects alone and in such cases, the income of the trust may not qualify for exemption under the Act. One of the objections raised in the present case is that " other constructive activities on the lines of Mahatma Gandhi's doctrine are vague and uncertain objects and as the entire income of the trust could be spent by the trustees on such objects, the property of the trust should not be considered to be held wholly for charitable purposes. It may be observed that the other objects mentioned in the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, namely, rendering help to the poor and destitute and rendering assistance to maintain the Daryalal temple. Their Lordships pointed out that the word " welfare " should take its colour from the earlier objects which preceded it and is really used in the sense of welfare of the poor, needy and destitute members of the community and as such the object could not be regarded as other than charitable. In CIT v. All India Hindu Mahasabha [1983] 140 ITR 748 (Delhi), question arose about the eligibility of an organisation known as All India Hindu Mahasabha for exemption from tax under section 11(1) read with section 2(15) of the Income-tax Act. A Bench of the Delhi High Court held that for the purpose of exemption under section 11(1), the assessee should prove either that all its objects are charitable within the meaning of section 2(15) or that a specific or identifiable part of its income has been set apart and it is obligatory to apply it for such purposes. It is not sufficient that some of the objects are charitable while some others are non-charitable, and if the trustees have discretion to apply the income to any of the objects, charitable or non-charitable, they can legitimatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain but such objects must be considered to be of the same nature as are specified in the trust deed. It was held that the deed clearly provides that the income of the trust is to be incurred for religious or charitable purposes of public nature and in case the trustees spend the income on objects which are not religious or charitable objects of public nature, they would be guilty of breach of trust. In CIT v. Radhaswami Satsang Sabha [1954] 25 ITR 472 (All), it was held that when the dedication is for religious and charitable objects, then the trustees have no discretion to apply any part of the trust's income for any other purpose except for religious and charitable objects. If any of the objects specified in the trust deed by way of illustration do not fall within the category of religious and charitable objects, then the trustees may discard such objects and apply the trust income only to religious and charitable objects. In Yogiraj Charity Trust v. CIT [1976] 103 ITR 777 (SC), the same question arose that when some objects are non-charitable while some others are charitable, could the trust be entitled to claim exemption from tax? Their Lordships of the Supreme Court obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it was observed that the profit must necessarily feed a charitable purpose under the terms of the trust. The mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The condition that the purpose of the trust should not involve the carrying on of any activity for profit would be satisfied if the profit making is not the real object of the trust. Their Lordships held in the aforesaid case that the determining factor is as to whether the primary or dominant object of the trust or institution is charitable; any other object which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or the institution from being valid charity. A review of the aforesaid decisions leads to the conclusion that if the objects or purposes of the trust or institution are wholly religious or charitable, then there would be no difficulty in holding that the trust has been created for advancement of the object of general public utility and is entitled to exemption from tax. However, if some of the objects or purposes of the trust are charitable while some others are not charitable, the dominant or primary obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er constructive activities " is vague and uncertain. As we have already pointed out above that this object must be read ejusdem generis with the other objects of the trust and " other constructive activities " which the trustees can undertake in accordance with the terms of the trust deed must be of similar nature as the activities specified earlier in the trust deed. It may also be observed that the object of the trust is not to carry on commercial activities with a profit-making motive and if any commercial activity is undertaken by the trust, the income thereof would necessarily have to be spent on works of general public utility or charitable purposes. We are, therefore, in agreement with the view taken by the Tribunal and hold that there is no valid reason for not treating the trust as eligible for exemption under section 5(1)(i) of the Wealth-tax Act. The Tribunal was thus fully justified in rejecting the submissions made on behalf of the Revenue that the object of " other activities " in accordance with the doctrine of Mahatma Gandhi is either vague or uncertain or the same is non-charitable on the ground that it would amount to advancement of political objects as Mahatma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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