TMI Blog1980 (5) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire income on the non-charitable object(s), the assessee would not be entitled to the exemption envisaged in s. 4(3)(i) of the I.T. Act, 1961. In a recent decision rendered on April 14, 1980, in Jaipur Charitable Trust v. CIT (I.T.R. No. 55/72) [1981] 127 ITR 620 (Delhi), where the trust deeds were couched in similar words, a Bench of this court (consisting of one of us) has held that the above objections would continue to stand in the way of the availability of the corresponding exemption under s. II (1) read with s. 2(15) of the I.T. Act, 1961. In the two cases presently under consideration, which relate to the assessment years 1966-67 and 1967-68, respectively, the assessee claimed that the original " objectionable. " trust deed had since been got " rectified " with retrospective effect, by deletion of the offending clauses in appropriate proceedings and that, therefore, there was no longer any justification to reject the assessee's claim for exemption. This argument did not find favour with the AAC and the Appellate Tribunal. At the instance of the assessee, however, the Tribunal has referred the following question for our opinion in each of the two cases: "Whether, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the income, profits and gains thereof shall be utilized and applied only for and on behalf of the trust as provided herein." It was primarily with reference to a clause which had been similarly worded that the High Court and the Supreme Court had negatived that earlier claim of the trust to exemption. The judgment of the High Court was delivered on May 26, 1970. On January 11, 1972, the founder of the trust, Ram Krishna Dalmia, filed a suit for rectification of the trust deed under s. 26 of the Specific Relief Act. The Yogiraj Charity Trust as well as two of its trustees were made defendants to the suit. In the plaint it was stated that the plaintiff had been desirous of creating a charitable trust for the amelioration of the public and that in order to satisfy his intention, will and understanding the trust had been founded by the deed executed on March 7, 1949. It was stated that the intention and belief of the plaintiff since the creation of the trust was to maintain the trust as charitable trust for the well being of the public. However, the judgment of the High Court had held that due to the provisions contained in certain clauses of the deed the same is non-charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to create a religious and charitable trust. Though there was a reference to commercial concerns in sub-cl. (iii) of cl. 5 and there was a clause empowering the trustees, if necessary, to carry on business, it was not the intention of the author of the trust that the trust should carry on any activity for profit. The context in which the reference to commercial concerns occurs in sub-cl. (iii) of cl. 5 would itself make this position clear. Under the 1922 Act it had been held in a series of decisions that there was no prohibition against trust carrying on business and in fact even under the 1961 Act a trust entitled to exemption under s. 11 may derive income from a business held by it. The provisions of the trust deed make it quite clear that the author of the trust deed was not to derive any private profit out of the activities of the trust and though a casual reference was made to commercial activities also, the intention of the author was only to create a religious and charitable trust. But due to some infelicitous words in the trust deed, counsel said, the court held, when the matter came up for their consideration, that the clauses were widely worded and that on a proper constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other instrument is sought to be rectified under sub-section (1), the court finds that the instrument, through fraud or mistake, does not express the real intention of the parties, the court may, in its discretion, direct rectification of the instrument so as to express that intention, so far as this can be done without prejudice to rights acquired by third persons in good faith and for value ........." A bare perusal of the section would show that several difficulties could arise in applying its provisions to a case of this type. Counsel for the respondent contended that it would apply only to contracts or other documents executed by at least two parties but not to a unilateral document like a trust deed. We do not, however, see much difficulty in holding that the rectification of a trust deed would be within the ambit of the above section. The word " instrument " used in the section has a very wide meaning and includes every document by which any right, or liability is, or is purported to be created, transferred, limited, extended, extinguished or recorded. A decree, an award, a will, a promissory note and various other-types of documents have been held to fall within the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust but that, due to the powers conferred on the trustees under certain clauses, the Delhi High Court has held the trust to be non-charitable and not entitled to exemption from income-tax. It is to remove the difficulties created by the above interpretation that extensive amendments have been sought for which are listed in para. 10 of the application. We are unable to see how any " mistake " (" fraud " being out of the picture) can be said to have been committed, while drafting the instrument, in bringing out the author's true intention, much less a " mutual mistake " of the parties. At least, so far as the trustees are concerned they accepted the office of trust only on the basis of the language of the document including the terms of cl. (iii) and cl. (iv) of the principal cl. 5, and there was nothing placed before the court to show that their intention was to administer the trust without power to start or carry on any business. Even so far as the author of the trust is concerned we do not see how it is said that the clauses now sought to be deleted or amended were included by mistake and were contrary to the " intention " of the author. All that can be said is that the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was the appropriate procedure for the parties to remedy the situation. However, we think, that for the purposes of the present case, what concerns us is not whether the provisions of s. 26 of the Specific Relief Act could have been properly invoked but the effect, vis-a-vis the I.T. dept., of the order which has been passed by the sub-court under that section. The author of the trust has filed a suit and, after giving notice to the trustees who have been administering the trust, has obtained an order of rectification. Right or wrong, and, whether within the purview of s. 26 or not, there is an order of the sub-court which is binding on both the parties, namely, the author and the trustees. In the face of this order which is binding on both of them, neither the author of the trust nor the trustees could go contrary to the terms of the trust deed as amended. After the document has been amended by the court in the terms mentioned above, it will not be open to the trustees to ignore the amended document and to proceed to invest the trust funds in commercial concerns or to carry out business transactions. In this context, it appears to us that the failure to give notice to the depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject to one important reservation Under the provisions of the 1961 the Act the exemption for purposes of income-tax depends not merely on the objects of the trust deed but also on the actual application of the income to religious and charitable purposes. In the present case some of the objects of the original trust deed had been held to be non-charitable. During the accounting years relevant for the assessment years 1966-67 and 1967-68 the original trust deed was factually in operation and the trustees might have acted in accordance with the clauses of the original trust deed which included the power to start and run a business. Mr. Sharma, learned counsel, states that no business was ever carried on by the trustees. He may be correct. On the other hand, it could be that between the original date of trust deed, namely, March, 1949, and June, 1972, when the order of amendment was passed by the sub-court the trustees might have acted on the footing of the original trust deed and might have embarked on certain activities under the clauses which had been held to be non-charitable by the High Court and the Supreme Court. If that were so the mere fact that the trust deed had been ret ..... X X X X Extracts X X X X X X X X Extracts X X X X
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