The Trustees of The Charity Fund Vs.
The Commissioner of Income-Tax, Bombay [1959] INSC 62 (5 May 1959)
DAS, SUDHI RANJAN (CJ) BHAGWATI, NATWARLAL H.
HIDAYATULLAH, M.
CITATION: 1959 AIR 1060 1959 SCR Supl. (2)
923
CITATOR INFO :
RF 1973 SC 623 (15)
ACT:
Income-tax-Public charitable trust-Exception-Test-Indian
Income-tax Act, 1922 (XI of 1922), S. 4(3)(i).
HEADNOTE:
The appellants were the trustees of a charity
fund known as The Charity Fund founded by Sir Sassoon David, Baronet of Bombay
". Clause 13 Of the deed of trust, after declaring that the trustees
should apply the net income for all or any of the following purposes, namely,
(a) the relief and benefit of the poor and indigent members of Jewish or any other
community of Bombay or other parts of India or of the world either by making
payments to them in cash or providing them with food and 924 clothes and/or
lodging or residential quarters or in giving education including scholarships
to or setting them up in life or in such other manner as to the said Trustees
may seem proper or (b) the institution maintenance and support of hospitals and
schools, colleges or other educational institutions or (c) the relief of any
distress caused by the elements of nature such as famine, pestilence, fire,
tempest, flood, earthquake or any other such calamity or (d) the care and
protection of animals useful to mankind or (e) the advancement of religion or
(f) other purposes beneficial to the community not falling under any of the foregoing
purposes I added by way of provisos (i) that in applying the net income for the
purposes mentioned in sub-cl. (a) the trustees must give preference to the poor
and indigent relations or members of the family of Sir Sassoon David, including
distant and collateral relatives, (2) that for the said purpose the trustees
must apply not less than half of the income for the benefit of the members of
the Jewish community of Bombay only, including the said relatives of Sir
Sassoon David and Jewish objects. The question for determination was whether
the income from the trust fund was exempt from taxation under s. 4(3)(i) Of the
Indian Income-tax Act. The High Court came to the conclusion that the trust
fund could nut be said to be held, wholly or partly, for religious or
charitable purposes involving an element of public utility and answered the
question in the negative.
Held, that there could be no doubt that each
one of the primary purposes mentioned in the deed of trust, including the one
mentioned in sub-cl. (a), properly construed, involved an element of public
utility and thus they constituted a valid charitable trust.
Although it was open to the trustees to spend
the entire income for the purpose mentioned in sub-cl. (a), that could not
detract from the validity of the trust since the relations or family members of
the founder did not come in directly under any of the other purposes and could
do so only under sub-cl. (a) as preferential beneficiaries to be selected from
out of the class of primary beneficiaries prescribed by it, in terms of the
provisos.
The test of the validity of such a public
charitable deed of trust should be whether or not at the primary stage of
eligibility it could be said to possess that character.
In re Koettgan's Will Trusts, [1954] Ch. 252,
applied.
Trustees of Gordhandas Govindram Family
Charitable Trust v. Commissioner of Income-tax (Central), Bombay, [1952]21
I.T.R.231, distinguished and held inapplicable.
The circumstance that in selecting the actual
beneficiaries 925 from the primary class of beneficiaries under sub-cl. (a),
the trustees had to give preference under the provisos, to the relations or
members of the family of Sir Sassoon David, could not therefore affect the
public charitable trust constituted under sub-cl. (a) and the income from the
trust properties was entitled to exemption under S. 4(3)(i) Of the Indian
Income-tax Act.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No.396 of 1957.
Appeal from the Judgment and Order dated the
21st February, 1956, of the Bombay High Court in Income-tax Reference No. 32 of
1954., R. J. Kolah, J. B. Dadachanji and S. N. Andley, for the appellants.
K. N. Rajagopal Sastri and D. Gupta, for the
respondent.
1959. May 5. The Judgment of the Court was
delivered by DAS, C. J.-This is an appeal brought on a certificate granted on
September 19, 1956, by the High Court of Bombay under s. 66(A)(2) of the Indian
Income Tax Act (hereinafter referred to as " the said Act ") against
its order dated February 21, 1956, in Income-tax Reference No. 32 of 1954
answering in the negative two questions of law referred to it under s. 66(1) of
the said Act at the instance of the appellants.
The appellants are the trustees of a charity
fund known as " The Charity Fund Founded by Sir Sassoon David, Baronet of
Bombay ". The said Sir Sassoon David, Bart. and four other persons, who
were holding certain securities of the value of Rs. 24,25,000 for the purpose
of charity and had been applying the same for and towards charitable purposes,
executed, on June 8, 1922, a Deed of Declaration of Trust declaring that the
said trust fund would be held by them on trusts more specifically therein
mentioned. Clause 13 of the said deed, on the true construction of which
depends the answer to the referred questions, runs as follows:" 13. The
Trust Fund shall be held by the Trustees upon the Trusts to apply the net
income thereof 926 after providing for all necessary expenses in relation to
the management of the Trust Funds for all or any of the following purposes, that
is to say, (a) the relief and benefit of the poor and indigent members of
Jewish or any other community of Bombay or other parts of India or of the world
either by making payments to them in cash or providing them with food and
clothes and/or lodging or residential quarters or in giving education including
scholarships to or setting them up in life or in such other manner as to the
said Trustees may seem proper or.........
(b) the institution maintenance and support
of hospitals and schools, colleges or other educational institutions
or...............
(c) the relief of any distress caused by the
elements of nature such as famine, pestilence, fire, tempest, flood, earthquake
or any other such calamity or.......................
(d) the care and protection of animals useful
to mankind or...........
(e) the advancement of religion
or...................
(f) other purposes beneficial to the
community not falling under any of the foregoing purposes...................
Provided always that in applying the income
as aforesaid the Trustees shall give preference to the poor and indigent
relations or members of the family of the said Sir Sassoon David, Bart.,
including therein distant and collateral relations; provided further that in
the application of the income of the said Charitable Trust Fund the said
Trustees for the time being shall observe the following proportions, viz.: that
not less than half the income of the said funds shall at all times be applied
for the benefit of the members of the Jewish Community of Bombay only
(including the relations of Sir Sassoon David, Bart. as aforesaid) and Jewish
objects and particularly in giving donations to the members of the Jewish
Community of Bombay on the anniversary of the death of the said Sir Sassoon
David, Bart. and his wife Lady Hannah David which falls on the Twenty-second
day of June and the remaining income for the benefit of all persons and objects
including Jewish persons and objects and in 927 such proportions as the said
Trustees may think proper.
Provided further that if the income of the
Trust Funds for any year shall not be wholly applied during that year on the
Trusts aforesaid such surplus income may be carried forward to the subsequent
year or years and be applied as the income arising during that year or years.
Provided also that during the life-time of Sir Sassoon David, Bart., in the
application of the said income the Trustees shall have regard to the wishes of
the said Sir Sassoon David, Bart., who shall also be entitled to direct if he
so desires that the income of the time being of the Trust-Funds or any part
thereof may be applied to such charitable object or objects as the said Sir
Sassoon David, Bart., shall direct and in such case the Trustees shall so apply
the income ".
This Deed of Declaration of Trust was, on
June 4, 1953, registered under the Bombay Public Trusts Act, 1950.
The Trust fund had been invested by the
trustees in inter alia 3 1/2% Government Securities. In the year 1930 a
certificate was issued by the Income-tax Officer, A Ward, Bombay, whereby the
Reserve Bank of India was authorised not to deduct at source the tax on the
interest on the said securities so held by the trustees. It was mentioned in
the said certificate that it was to enure till its cancellation.
In 1946 the 3 1/2% Government Securities were
redeemed by the Government of India and were converted into 3% Conversion Loan,
1946. Accordingly in February, 1948, the said certificate of exemption was
cancelled, as the securities covered thereby had been redeemed by the
Government. The trustees thereupon asked for a fresh certificate of exemption
from the Income-tax Officer, Bombay Refund Circle in respect of the 3%
Conversion Loan, 1946. But the said Income-tax Officer refused to issue such
certificate on the ground that the income from the trust fund in question was
not exempt from taxation under s. 4(3)(i) of the said Act which, at the
material time, was as follows:"4(1).........................................................
928 (2) .................................
(3) Any income, profits or gains falling
with-in the following classes shall not be included in total income of the
person receiving them:(i) Any income, derived from property held under trust or
other legal obligation wholly for religious or charitable purposes, and in the
case of property so held in part only for such purposes, the income applied, or
finally set apart for application, thereto:
Upon the fact of the withholding of the
certificate by the Income-tax Officer, Refund Circle, being intimated to the
Income-tax Officer, A-V Ward, Bombay, the latter Officer started proceedings
against the appellants under s. 34 of the said Act in respect of the assessment
years 1944-45 to 1947-48. He also started regular proceedings for the
assessment year 1948-49 and the succeeding years up to 195253.
In the assessment proceedings for those nine
years the Income-tax Officer took the view that the income from the trust fund
was not exempt from taxation under s. 4(3)(i) and accordingly he assessed the appellants
for the first four assessment years (1944-45 to 1947-48) on the ground that the
income for those years had escaped assessment. He also assessed the appellants
to tax for the subsequent five years (194849 to 1952-53). On appeal the
Appellate Assistant Commissioner confirmed the said assessments. On further
appeal by the appellants, the Income-tax Appellate Tribunal set aside the
assessments for the first four years (1944-45 to 1947-48) holding that s. 34
had been wrongly invoked, for it was only a case of difference of opinion of
one Income tax Officer from his predecessor on the same set of facts.
The department did not take any further steps
in the matter and accepted that view of the Tribunal as regards the assessments
of those years and we are not in this appeal concerned with them. As regards
the assessments for the five years (1948-49 to 1952-53) the Tribunal upheld the
decision of the Appellate Assistant 929 Commissioner who had confirmed the
assessments made by the Income-tax Officer.
On application being made by the appellants,
under s. 66(1) of the said Act, the Tribunal drew up a statement of case and
referred two questions of law arising out of its order to the High Court for
its opinion. The said questions are as follows :(1) Whether the Trust property
is held wholly for religious or charitable purposes within the meaning of
section 4(3)(i) of the Indian Income-tax Act ? (2) If the answer to question
(1) is in the negative, whether the trust property is held in part only for
religious or charitable purposes ? The said reference came up for hearing
before the said High Court and both the referred questions were answered in the
negative. The High Court, however, gave the appellants a certificate of fitness
for appeal to this Court and the present appeal has been filed on the strength
of such certificate.
A perusal of cl. 13 of the deed shows that
the trust fund is declared to be held by the trustees upon trusts to apply the
net income thereof for all or any of the six purposes enumerated therein. It
was conceded before the High Court and it has not been disputed before us-that
if there was nothing else in this clause, then each of these six purposes would
have to be upheld as a charitable purpose involving an element of public
utility and consequently within the protection of s. 4(3)(i). The fact that the
trustees could expend the net income on any of the six purposes to the
exclusion of the other five purposes would not, it is also conceded, have made
the slightest difference in the matter of such exemption from income-tax. For
instance, if the trustees spent the net income solely and wholly for the
purposes mentioned under sub-cl. (a) to the exclusion of those mentioned in
sub-cls. (b) to (f)such income would still be exempt from taxation under s.
4(3)(i). The High Court, however, took the view that cl. 13 should be read as a
whole along with the provisos -and that so read the trust is primarily for the
benefit of the relations or members of the family 117 930 of Sir Sassoon David,
Bart. It is pointed out that in applying the net income for the purposes
mentioned in sub cl. (a), the trustees are bound, under the first proviso, to
give preference to the poor and indigent relations or members of the family of
the said Sir Sassoon David, Bart.
including therein distant and collateral
relations. The second proviso, it is urged, makes it further clear that in the
application of the income for the said purpose, the trustees are enjoined to
apply not less than half the income for the benefit of the members of the
Jewish community of Bombay only " including the relations of Sir Sassoon
David, Bart., as aforesaid " and the Jewish objects. Emphasis is laid on
the words not less than half " as indicating that it is permissible for the
trustees to spend more than half and indeed the whole of the net income for the
benefit of the said relations or members of the family of the said Sassoon
David, Bart. It is also pointed out that, although the remaining income, if
any, has to be spent for the benefit of all persons and objects including
Jewish persons and objects, the trustees could, if they so wished, spend the
same also for the relations or members of the family of Sir Sassoon David,
Bart. as Jewish persons. The argument, which found favour with the High Court,
is that the provisos impose a mandatory obligation on the trustees (i) to give
preference to the poor and indigent relations or members of the family of Sir
Sassoon David, Bart. and (ii) to spend not less than half the income, which may
extend to the entire income, for the benefit of the relations or members of the
family of Sir Sassoon David, Bart. The High Court points out that in view of
the language of el. 13 of the deed read as a whole, it is open to the trustees,
without being guilty of any breach of trust, to spend the entire net income of
the trust fund for the purpose of giving relief to the poor and indigent
relations or members of the family of the said Sir Sassoon David, Bart.,
including therein the distant and collateral relations and such being the
position, the High Court came to the conclusion that it could not be said that
the property was held wholly or partly for religious or 931 charitable purposes
involving an element of public utility.
The High Court accordingly held that the income
from the trust fund was not exempt from taxation under s. 4(3)(i) and answered
both the questions in the negative. The problem before us is whether the High
Court was right in so answering the questions.
In coming to the decision that it did, the High
Court relied on its own earlier decision in the case of Trustees of Gordhandas
Govindram Family Charitable Trust v. Commissioner of Income-tax (Central),
Bombay (1). The facts in that case, however, were somewhat different from the
facts now before us. In that case the trust was significantly enough described
as " Gordhandas Govindram Family Charitable Trust ". Clause 2 of that
trust deed provided for the application of tile net income in giving help or
relief to such poor Vaishyas and other Hindoos as the trustees might consider
deserving of help in the manner and to the extent specified in the said trust
deed and subject to the conditions and directions stated in the next following
clauses. Sub-clause (a) of cl. 3 provided that Vaishya Hindoos who were members
of Seksaria family should be preferred to poor Vaishyas not belonging to the
said family. Maintenance had to be provided under sub-cl. (b) for the poor male
descendants of the settlor and under sub-cl. (c) for the poor female
descendants of the settlor. Marriage expenses were provided under sub-el. (d)
for the poor male descendants and under sub-cl. (e) for the poor female
descendants of the settlers There were other subclauses providing for payment
of money to the poor male or female descendants of the other members of the
Seksaria family. In the present judgment now under appeal, the High Court
recognises that the particular trust they were dealing with in the earlier case
" was a fairly blatant illustration of a settlor trying to benefit his own
family and his own relations " and states that in the earlier case it had
pointed out " that the benefit to the public was too remote and too
illusory and accordingly held that was (1) [1952] 21 I.T.R. 231.
932 not a trust which had for its object a
general public utility ". Such, however, cannot be said of the provisions
of the present Deed of Declaration of Trust. Under el. 13 the trustees are at
liberty to hold the trust fund and to apply the net income thereof for all or
any of the six purposes mentioned therein. The relations or members of the
family of the said Sir Sassoon David, Bart., including therein distant and
collateral relations do not figure as direct recipients of any benefit under
sub-cls. (b) to (f) and, therefore, in so far as those purposes are concerned
the trust certainly involves an element of public utility.
We are not unminaful of the fact that it is
open to the trustees to spend the net income entirely for the purpose referred
to in sub-cl. (a) to the exclusion of the other clauses. But the very fact that
the relations or members of the family do not come in directly under any of
those latter sub-clauses cannot be ignored, for they certainly have some
bearing on the question as to who or what were the primary objects of the trust
as a whole. In the next place, the purpose of sub-cl. (a) is the "relief
and benefit of the poor and indigent members of Jewish or any other community
of Bombay or other parts of India or of the world ". It is conceded by
learned counsel that this sub-clause clearly expresses a general charitable
intention involving an element of public utility. It follows, therefore, that
sub cl.(a) constitutes a valid public charitable trust having as its
beneficiaries the several classes of persons referred to therein. This is the
first position. We then pass on to the provisos. The first proviso opens with
the words " in applying the income as aforesaid ". This takes us back
to sub-cl. (a). The meaning of the proviso obviously is that in applying the
income for the purpose of sub-el. (a), the trustees shall give preference to
the poor and indigent relations or members of the family of Sir Sassoon David,
Bart. The proviso does not operate independently but comes into play only
" in applying the income as aforesaid".. The provision for giving
preference involves the idea of selection of some persons out of a bigger class
envisaged in sub el. (a). The poor and indigent relations or members of 933 the
family can claim to participate in the benefits under the trust only if they come
within one of the several classes enumerated in sub-el. (a). To take an extreme
example: If a poor and indigent relation of Sir Sassoon David, Bart. abjures
the faith held by the Jewish community and does not adopt any other faith and
thus ceases to be a member of the Jewish community but does not become a member
of any other community, he will certainly not be entitled to the benefits of
sub-el. (a) although he is a poor and indigent relation or member of the family
of Sir Sassoon David, Bart. within the meaning of the first proviso. In other
words, sub-cl. (a) prescribes the primary class of beneficiaries out of which
the actual beneficiaries are to be selected by the application of the
provisions of the provisos, that is to say, by giving preference to the
relations or members of the family of the said Sir Sassoon David, Bart. The
case of In re Koettgan's Will Trusts (1) appears to us, on the facts, to be
more in point than the case of Gordhandas Govindram Family Charity Trust case
(2) relied on by the High Court. In the last mentioned English case the
testatrix bequeathed her residuary estate upon trust for the promotion and
furtherance of commercial education. The persons eligible as beneficiaries
under the fund were stated to be ,persons of either sex who are British born
subjects and who are desirous of educating themselves or obtaining tuition for
a higher commercial career but whose means are insufficient or will not allow
of their obtaining such education or tuition at their own expense..." The testatrix
further directed that in selecting the beneficiaries " it is my wish that
the ... trustees shall give preference to any employees of John Batt & Co.
(London) Ltd. or any members of the families of such employees;
failing a sufficient number of beneficiaries
under such description then the persons eligible shall be any persons of
British birth as the trustees may select provided that the total income to be
available for benefiting the preferred beneficiaries shall not in anyone year
be more than 75% of the total available income for that (1) [1954] Ch. 252,
257.
(2) [1952] 21 I.T.R. 231.
934 year". It was held, on a
construction of the will, that the gift to the primary class from which the
trustees could select the beneficiaries contained the necessary element of
benefit to the public and that it was when that class was ascertained that the
validity of the trust had to be determined, so that the subsequent direction to
prefer, as to the 75% of the income, a limited class did not affect the validity
of the trust which was accordingly a valid and effective charitable trust.
Referring to the first part of the will Upjohn, J., at p. 257 said:" If
the will concluded there, the trust would clearly be a valid charitable trust,
having regard to the admission that a gift for commercial education is for the
advancement of education." Then after stating that the next task was to
make a selection from that primary class of eligible persons, the learned Judge
continued:" It is only when one comes to make a selection from that
primary class that the employees of John Batt & Co. and the members of
their families come into consideration, and the question is, does that
direction as to selection invalidate the primary trust ? In my judgment it does
not do so." Further down he said:"In my judgment it is at the stage
when the primary class of eligible persons is ascertained that the question of
the public nature of the trust arises and falls to be decided, and it seems to
me that the will satisfies that requirement and that the trust is of a
sufficiently public nature." The learned Judge then concluded:" If,
when selecting from that primary class the trustees are directed to give a
preference to the employees of the company and members of their families, that
cannot affect the validity of the primary trust, it being quite uncertain
whether such persons will exhaust in any year 75%. On the true construction of
this will, that is not (as to 75%) primarily a trust for persons connected with
John Batt & Co., and the class of persons to benefit is not " confined
" to them, and in my judgment the trust contained in clauses 7 935 and 8
of the will of the testatrix is a valid charitable trust." It is true that
this is a judgment of a Single Judge but it does not appear to have been
departed from or over ruled in any subsequent case and appears to us to be
based on sound principle. Applying this test, there can be no question indeed
it has been conceded that the earlier part of el. 13, omitting the provisos,
constitutes a valid public charitable trust. The circumstance that in selecting
the beneficiaries under subel. (a) preference has to be given, under the
provisos, to the relations or members of the family of Sir Sassoon David,
Bart., cannot affect that public charitable trust. In our judgment, the facts
of this case come nearer to the facts of the English case referred to above
than to the facts of the earlier decision of the Bombay High Court in
Gordhandas Govindram Family Charity Trust case (1). As we have already stated
the relations of members of the family are clearly not the primary object
contemplated by sub-cls. (b) to (f). The first part of sub-cl. (a), omitting
the provisos, is not said to be too wide or vague and unenforceable. The
provision for giving preference to the poor and indigent relations or the
members of the family of Sir Sassoon David, Bart., cannot affect the public
charitable trust constituted under sub-cl. (a). In our opinion the income from
the trust properties comes within the scope of s. 4(3)(i) and is, therefore,
entitled to exemption. Therefore the negative answer given by the High Court to
question No. I cannot be supported and that question should be answered in the
affirmative. In this view of the matter, question No. 2 does not arise and needs
no answer. The result is that this appeal must be allowed and the question No.
I must be answered in the affirmative.
The appellants will have the costs of the
reference in the High Court and of this appeal in this Court.
Appeal allowed.
(1) [1952] 21 I.T.R. 231.
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