TMI Blog1981 (3) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... instruction and diffusion of useful knowledge and maintain the ordinances of religion among the European employees of the jute, cotton, paper and other industrial establishments in Bengal, and amongst the European officers and crews of vessels visiting the Port of Calcutta and the fostering of religious interests and activities among the' same ". The management of the association has been entrusted to a governing body called the court of governors, which shall ordinarily include at least one representative of the owners or managing agents of subscribing mills, one representative of the works managers, one representative of the European assistants at the mills and two representatives from St. Andrews Church, Calcutta, appointed by its Kirk Session. At the meeting of the court of governors of the association held on 24th August, 1964, the association resolved to pay to the Kirk Session of St. Andrews Church a sum of Rs. 3,000 monthly in consideration of the latter undertaking to carry out the main objects of the association set out in cl. 3(a) of the memorandum of association, i.e., to maintain the ordinances of religion among the employees of the jute, cotton, paper and other in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icated for those religious objects., But when the association, in course of time acquired properties by way of donations or otherwise, it was under a legal obligation to hold those properties in trust for religious purposes set out in its memorandum of association. The attention of the Tribunal was drawn to Expln. I to s. 13 which lays down, inter alia, that for the purpose of ss. 11, 12 and 13 " trust " includes any other legal obligation. Therefore, in the opinion of the Tribunal, since the association was under legal obligation to hold the properties as and when acquired by it, for the religious purposes specified in the objects clause of its memorandum of association, there can be no difficulty in holding that cash and other properties as and when acquired by the association, were invested with the character of trust properties. The Tribunal also rejected the contention of the departmental representative that the beneficiaries of alleged trust were not an identifiable and well-defined section of the public but a fluctuating or floating of mass individuals, and, therefore, the income of the association was in any case not entitled to the benefit of exemption under s. 11 in vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by it from the member mills ? " Mr. Balai Pal, the learned advocate for the Revenue, places before us ss. 5 and 6 of the Indian Trusts Act, 1882, for the purpose of showing what are the ingredients for the creation of a valid trust. Section 5 of the Act lays down that no trust in relation to immovable property is valid unless declared by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee. Section 6 of the Act reads as follows : " Subject to the provisions of section 5, a trust is created when the author of the trust indicates with reasonable certainty by any words or acts, (a) an intention on his part to create thereby a trust, (b) the purpose of the trust, (c) the beneficiary, and (d) the trust-property and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust-property to the trustee. " On the basis of these two sections, it is contended by Mr. Pal that in the case of a trust of immovable property only a declaration is necessary. The declaration itself vests the property in the trustee and is a " t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The next branch of argument of Mr. Pal is that there was no existence of any binding relationship between the association and the creators of the trust. According to him, under s. 6 of the Trusts Act, a trust cannot be created in favour of a society or an association unless there is in existence of any binding relationship between the society and the creator of the trust by which the association gets an interest in the property settled. He makes a reference to the decision of the Madhya Pradesh High Court in the case of Smt. Krishna Kumari v. Board of Revenue, AIR 1971 MP 201. At p. 203 of the report, it is observed that no trust could be deemed to have been created in favour of the society unless there came into existence binding relationship between the society and the proprietors of the bank by which the society got an interest in the property of the bank. Merely by registration of the society it cannot be said that any interest was created in favour of the society. The proprietors of the bank still had the power not to transfer the bank to the society and in that case the society would have had no connection with the bank and would not have been in position to say that it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge Club Ltd., a social and sporting club, had as one of its activities, running gymkhana racing, i.e., horse races, in which amateur riders took part. In 1945, a resolution was passed at a general meeting of the company to charge a flat rate of Rs. 4-8-0 for admission to the races plus a surcharge of 8 annas for the Red Cross Fund. By a later resolution it was decided that the surcharge of 8 annas on entrance tickets be earmarked for " local charities " and not solely for the " Red Cross two seperate tickets were issued in respect of these amounts. One ticket stated that the ticket-holder has to be admitted and the price is indicated Rs. 4-50 inclusive of tax. The other ticket stated that the surcharge on admission to Tollygunge Gymkhana Races for local charities of the Rs. 4-8-0 enclosure, was written on the ticket as surcharge Rs. 0-8-0. The receipts from the surcharge were not credited to the profit and loss account but were credited directly to the charity account. It was not disputed that the amount realised by way of surcharge has been disbursed to local charities. The ITO held that the surcharge levied on the entrance tickets were receipts of a revenue nature and could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of CIT v. Tollygunge Club Ltd. [1977] 107 ITR 776. It is also held in Benarasilal Rajgharia v. Central Bank of India [1972] 76 CWN 8079 Cal), that a trust may and often does arise out of a contract. If the parties, by an agreement, intend to create a trust in respect of a property and the property is subsequently transferred to the proposed trustee by a conveyance, the court will treat the two deeds as part of the same transaction and hold that by the combined operation of the deeds a trust came into effect. Having regard to the point of law discussed above, the Tribunal was justified in holding that the cash and other properties as and when acquired by the association were invested with the character of trust properties. It is also contended by Mr. Balai Pal that the beneficiaries under the so-called trust are not an identifiable and well-defined section of the public but a fluctuating or floating of mass individuals and, therefore, the income of the trust is not entitled to the benefit of exemption under s. 11 of the Act. It goes without saying that the exemption under s. 11 of the Act does not extend to private religious trust which does not enure to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this case, after the death of J.P. and his wife, E.M.P., the question arose whether the trust was charitable. Lord Simonds, at p. 33 of the report, observes that it is a clearly established principle of the law of charity that a trust is not charitable unless it is directed to the public benefit. This is sometimes stated in the proposition that it must benefit the community or a section of the community. Negatively, it is said that a trust is not charitable if it confers only private benefits. At p. 34 of the report his Lordship proceeds on to state that the difficulty arises where the trust is not for the benefit of any institution either then existing or by the terms of the trust to be brought into existence, but for the benefit of a class of persons at large. Then the question is whether that class of persons can be regarded as such a " section of the community " as to satisfy the test of public benefit. These words " section of the community " have no special sanctity, but they conveniently indicate that the possible beneficiaries must not be numerically negligible, and that the quality which distinguishes them from other members of the community, so that they form by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704, on which the Tribunal relied. In this case, the assessee, an association of persons, held properties for various purposes including management of the movable and immovable properties of the Rana caste or community of the city of Ahmedabad, doing acts to improve the education of the community, giving medical help to the community, etc. Under the constitution of the assessee, the beneficiaries were members of the Rana caste or community who were natives of Ahmedabad and other members of the community accepted by the caste according to its old custom and usage and staying in Ahmedabad. The question was whether for the purpose of exemption under s. 4(3)(i) of the Indian I.T. Act, 1922, and s. 1l(1)(a) of the I.T. Act, 1961, the beneficiaries constituted a section of the public. It is held that between the members of the Rana caste or community of Ahmedabad and those who had to get admitted to that community according to custom and usage there was a common quality which united them, namely, of being members of the Rana caste or community. The mere fact that a person of the Rana community who was not an original native of Ahm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht annas per Rs. 100 of the price of cotton sold through its constituents which was shown on the liabilities side of its balance-sheet. The assessee-firm contended before the ITO that the amount of " laga receipt " collected by it was not liable to tax as it was held by way of trust for application to charitable purposes, but the ITO added the amount of " laga receipts " to the income of the assessee-firm. On appeal, the AAC excluded the " laga receipts " from the taxable income of the assessee-firm. On further appeal to the Tribunal, the Revenue contended that the assessee-firm retained dominion over the amount collected by it and no trust was created and, therefore, it amounted to assessee's income but the Tribunal confirmed the order of the AAC. On a reference to the High Court, it was held that, on the facts and circumstances of the case, having regard to the nature of the impost, it was a diversion of the amount before it became the income of the assessee. The very nature of the impost described as gam laga, which term had a definite connotation in the sense that it was an impost either under the statute or under custom, indicates that the payment made by the brokers to the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22, one has to ask oneself whether, having regard to all the circumstances surrounding the particular payments and receipts in question, what is received is of the character of income according to the ordinary meaning of that word in the English language or whether it is merely a casual receipt or mere windfall." Last of all, Mr. Balai Pal refers to the decision in the case of IRC v. New University Club [1887] 2 TC 279. In this case, club property acquired within thirty years by, (i) money raised on debentures, and (ii) entrance fees and subscriptions. Exemption claimed on the ground that the property was acquired by or with funds voluntarily contributed within the period of thirty years immediately preceding, according to the meaning of sub-s. (6) of s. 11 (48 49 Vict. Cap 51). It was held that the entrance fees and subscriptions were payments of money for value received, or to be received, in consideration of the right to enjoy the benefits and privileges of the club. Consequently, in both cases the payments made were not sums to voluntarily contributed " within the meaning of sub-s. (6). On the basis of such decision, it is contended by Mr. Pal that the Tribunal was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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