Yogiraj Charity Trust Vs. Commissioner
of Income-Tax, New Delhi [1976] INSC 90 (30 March 1976)
RAY, A.N. (CJ) RAY, A.N. (CJ) BEG, M.
HAMEEDULLAH SINGH, JASWANT
CITATION: 1976 AIR 1836 1976 SCR (3) 947 1976
SCC (3) 378
ACT:
Exemption from Income-tax-Religious and
charitable purposes-Indian Income-tax Act, 1922-Section 4(3)(i)-Intent- Test
for treating a Trust income as of a charitable nature and for entitlement to
exemption under s. 4(3) (i) ibid.
HEADNOTE:
Charitable purposes under s. 4(3) of the
Income Act includes relief of the poor, education, medical relief and the
advancement of any other object of general public utility, but nothing
contained in clause (i) and (ii) of s.
4(3) applies and shall operate to exempt from
the provisions of the Act that part of the income from property held under a
trust or other legal obligation for private religious purposes which does not
ensure for the benefit of the public.
All the six income-tax references made by the
Income- tax Appellate Tribunal, Delhi Bench under s. 66 (1) of the Indian
Income-tax Act, 1922 as to "whether on the facts and in the circumstances
of the case the income of the trust which was spent on the religious and
charitable purposes within the taxable territories was exempt under s. 4(3) (i)
of the Indian Income Tax Act, 1922" were answered in the negative and in
favour of Revenue, by the Division Bench of the Delhi High Court holding
"that the property of the trust cannot be held to be wholly for religious
or charitable purposes". The terms of the trust deeds in all the cases are
similar and the pattern of financial dealing of the various trusts is also the
same as could be seen from the objects of the trusts particularly clauses
(5)(a), which are, inter alia, as follows :- (i) To open, found, construct,
establish takes over, equip, promote, conduct, maintain, support, subsidise,
grant aids and make donations to schools, colleges, Pathshalas, boarding
houses, reading clubs, libraries, art, music or literary societies and other
institutions educational or otherwise, associations, printing presses,
journals, newspapers, periodicals, and other religious, commercial, industrial,
legal, medical, engineering scientific or other knowledge or training.
(ii) To give stipends, scholarships,
travelling expenses allowances and monetary aids to students and scholars in
India and abroad engaged in any of the pursuits referred to in sub-clause (i).
(iii)To found, construct, maintain, support,
assist or grant aids or subscriptions to temples, prayer or congregational
halls or other buildings for cultural, social or religious discourses.
(iv) To open, found conduct, maintain, or
contribute to the opening and maintaining of such institutions where work at
living wages can be provided to poor and deserving people and also be conducive
to the development of industries and benefit of the poor.
(v) To open, found, establish, equip, finance
assist, maintain or contribute to religious commercial technical industrial or
commercial concerns, institutions, associations or bodies imparting any type of
training or providing employment to persons.
(vi) To give donations, subscriptions or
contributions to any other Charitable Trust in Jaipur State or outside.
Clauses 11 and 16 of the deed give an
uncontrolled discretion to the trustees to spend the whole of the trust fund on
any of the non-charitable objects of the trust. The non-charitable objects
authorise the opening and maintaining of commercial institutions where work at
living wages can be provided to the 948 poor and also to contribute to
commercial, technical, industrial or commercial concerns, institutions
associations or bodies imparting any type of training or providing employment
to persons.
Dismissing the appeals by Special Leave, the
Court ^ HELD :
(1) In order to claim the benefit of
exemption under s.
4(3)(i) of the Act the property must be held
under trust or other legal obligation wholly for religious or charitable
purposes. The only relaxation is that all the primary objects of the trust must
be of religious and charitable nature and the existence of any ancillary or
secondary object which is not of a religious or charitable nature but which is
intended to subserve the religious and charitable objects may not prevent the
grant of an exemption. This is because such an ancillary or secondary object
even though not of a religious or charitable nature is intended to effectuate
the main and primary objects of the trust. A clear distinction must be drawn
between the object of a trust and the powers conferred upon the trustees as
incidental to the carrying out of the object. Mere application of income to
charity on the other hand will not avail to secure exemption if under the terms
of the will or deed the income is applicable in the first instance to non-
charitable objects and only the residue will go to charity.
[953-A-B, C, D] Commissioner of Income Tax v.
Andhra Chamber of Commerce (1965) 55 I.T.R. 722 applied.
Sole Trustee Loka Shikshana Trust v.
Commissioner of Income-tax, Mysore [1976] 1 SCR 461; All India Spinner's
Association v. Commissioner of Income-tax (1944) 12 I.T.R.
482; C.I.T. v. Krishna Warriar [1964] 8 SCR
36; Commissioner of Income Tax v. Bengal Home Industries Association 48 I.T.R.
181; Hyderabad Stock Exchange Ltd. v. C.I.T. 66 I.T.R. 195; and Commissioner of
Income Tax v. Radhaswami Satsang Sabha 25 I.T.R. 472, discussed and
distinguished.
(ii) The test is that if one of the objects
of the trust deed is not of a religious or charitable nature and the trust deed
confers full discretion on the trustees to spend the trust funds for an object
other than of a religious or charitable nature, the exemption under s. 4(3) (i)
of the Act is not available to the assessee. [955D] Lakshmi Narain Nath Trust
v. Commissioner of Income Tax (1969) 73 I.T.R. 402, followed.
(iii) Where there are several objects of
trusts some of which are charitable and some non-charitable and the trustees in
their discretion are to apply the income to any of the objects, the whole trust
fails and no part of the income is exempt from the tax. Where the objects are
distributive, each and every one of the objects must be charitable in order
that the trust might be upheld as a valid charity. If no definite part of the
property or its income is allocated to charitable purposes and it would be open
to the trustees to apply the whole income to any of the non-charitable objects
no exemption can be claimed [952F-G] East India Industries (Madras) Pvt. Ltd.
v. Commissioner of Income Tax (1967) 65 I.T.R. 611 and Mohammed Ibrahim Riza v.
C.I.T. 57 I.A., 260 applied.
(iv) In the instant case the various
industrial and commercial concerns were not started by Ram Krishna Dalmia in
furtherance of the objects of trusts. The concerns were started for the purpose
of earning profits which were to be distributed to the share holders who had
invested share money in those concerns. The trust property could not be said to
be wholly for religious or charitable purposes within the meaning of s. 4(3)(i)
of the Act. [954G-H, 955-C] Arguments for the appellant.
(1) The Trust is entitled to claim exemption
under s. 4(3) (i) of the Act because the trust is for religious and charitable
purposes only.
949 (2) As to clauses which confer power on
the trustees to establish any business, undertaking or industry the income
derived from such commercial concern is to be spent wholly for the religious
and charitable purposes and therefore exemption is permissible under s. 4(3)(i)
of the Act.
(3) The dominant purpose of the founder of
the trust as expressed in the forefront of the Deed is religious or charitable
and even if money be spent on non-charitable purposes it should not be held
that the trust is meant for non-charitable purposes and the founder has
expressly provided in Clause 30 of the Trust deed that the deed should not
become invalid for the reason that some object might be considered unlawful.
(4) If any income from the trust is utilised
and applied wholly in carrying out the primary purposes of the trust, the Trust
is entitled to claim exemption under proviso (b) to section 4(3)(i) of the Act
and there was no bar on the trust to carry on business under the Act provided
the profits of business were utilised only for charitable purposes.
Arguments for the respondents :
(1) The Trust was not entitled to claim exemption
under s. 4(3) (i) of the Indian Income-tax Act, 1922 for the simple reason that
some of the object of the Trust gave a discretion to the Trustees to apply the
funds of the Trust to purporses which could not be regarded charitable in the
eye of law.
(2) If out of several objects of the Trust
some of them were found to be non-charitable, the whole trust would fail and no
part of its income would be exempt from tax.
(3) It was not a genuine charitable trust as
claimed by the assessee but its creation and existence were a camouflage and
were meant only as a device for the benefit of the settlor Shri Ram Krishna
Dalmia and the industrial and commercial concerns controlled by him.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 937 to 966 of 1971 Bishamber Lal, D. N. Banerjee, Pramod Dayal and M. Iyengar,
for the appellant.
Hardyal Hardy (In CA 937/71), S. P. Nayar (In
CAs. 938- 966) for the respondent.
The Judgment of the Court was delivered by
RAY, C.J. These appeals by special leave are from the judgment dated 26 May,
1970 of the High Court of Delhi.
The question referred to the High Court under
section 66(1) of the Income Tax Act, 1922 referred to as the Act was as follows
:
"Whether on the facts and in the
circumstances of the case the income of the trust which was spent on the
religious and charitable purposes within the taxable territories was exempt
under section 4 (3) (i) of the Indian Income Tax Act, 1922".
The main judgment was delivered in Income Tax
Reference No. 40 of 1965.
The High Court answered the question in the
negative.
The trust in Income Tax Reference No. 40 of
1965 was taken as typical of all the cases. The deed of trust dated 12 April,
1948 950 was made by Ramkrishna Dalmia. The trust was called "Jaipur
Charitable Trust". In Jaipur Charitable Trust Rs. 10,000 was given on
trust on the terms and conditions set out in the deed.
The objects of the trust in clause 5(a) are,
inter alia, as follows :
(i) To open, found, construct, establish,
take over, equip, promote, conduct, maintain, support, subsidise, grant aids
and make donations to schools, colleges, Pathshalas, boarding houses, reading
clubs, libraries, art, music or literary societies and other institutions,
educational or otherwise, associations, printing presses, journals, newspapers,
periodicals, and other publications for imparting or developing religious,
commercial, industrial, legal medical, engineering scientific or other
knowledge or training.
(ii) To give stipends, scholarships,
travelling expenses allowances and monetary aids to students and scholars in
India and abroad, engaged in any of the pursuits referred to in sub-clause (i).
(iii)To found, construct, maintain, support,
assist or grant aids or subscriptions to temples, prayer or congregational
halls or other buildings for cultural, social or religious discourses.
(iv) To open, found conduct, maintain, or
contribute to the opening and maintaining of such institutions where work at
living wages can be provided to poor and deserving people and also be conducive
to the development of industries and benefit of the poor.
(v) To open, found, establish, equip,
finance, assist, maintain or contribute to religious, commercial technical,
industrial, or commercial concerns, institutions, associations or bodies imparting
any type of training or providing employment to persons.
(vi) To give donations, subscriptions or
contributions to any other Charitable Trust in Jaipur State or outside.
There are other objects to help widows,
orphans, lunatics, indigent persons and to give relier to the poor and
distressed, to build, equip, take over, conduct, maintain and grant aids to
dispensaries, maternity homes, hospitals, lunatic asylums, to construct, erect
and maintain bridges, ghats, to give relief by subscription or otherwise during
famines, flood, earthquake, pestilence, to help or maintain institutions for
the cultural, social or economic advancement of any country or countries.
For the purpose of carrying out the trust the
trustees are empowered in clause 5(b), inter alia, (a) to purchase or otherwise
acquire any property, rights leases, concession;
(b) to purchase or acquire, start establish,
equip or close any business undertaking or industry; (c) purchase, acquire or
undertake the whole or any part of property and liabilities on any person, firm
or company.
951 The property of the Trust is vested in
the trustees.
Clause (9) of the Trust Deed provides that
the Trustees shall carry out the aforesaid objects from out of the net income
of the Trust left after meeting the expenses of management and all charges and
outgoings so far as such income shall permit, and shall not utilize the income
or any portion thereof for any other objects or purpose.
Section 4(3) (i) of the Act is as follows:-
"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.
(a) xx xx xx (b) in the case of income
derived from business, carried on behalf of a religious or charitable
institution, unless the income is applied wholly for the purpose of the
institutions and either- (i) the business is carried on in the course of the
actual carrying out of a primary purpose of the institution, or (ii) the work
in connection with the business is mainly carried on by beneficiaries of the
institution.
(iii)any income of a religious or charitable
institution derived from voluntary contributions and applicable solely to
religious or charitable purposes." Charitable purpose under section 4(3)
of the Act includes relief of the poor, education, medical relief and the
advancement of any other object of general public utility, but nothing
contained in clause (i) or clause (ii) of section 4(3) applies and shall
operate to exempt from the provisions of the Act that part of the income from
property held under trust or other legal obligation for private religious
purposes which does not ensure for the benefit of the public.
The terms of the Trust Deeds in all the cases
are similar. The pattern of financial dealings of the various Trusts is also
the same.
The appellant contends that Trust is entitled
to claim exemption under section 4(3) (i) of the Act because the trust is for
religious and charitable purposes only. As to clauses which confer power on
trustees to establish any business, undertaking or industry it is said by 952
the appellant that the income derived from such commercial concern is to be
spent wholly for the religious and charitable purposes and therefore exemption
is permissible.
The appellant contends that the dominant
purpose of the founder of the trust as expressed in the forefront of the Deed
is religious or charitable and even if money be spent on non-charitable
purposes it should not be held that the trust is meant for non-charitable
purpose. The appellant also relies on clause 30 of the trust deed where it is
said that the deed should not become invalid for the reason that some object
might be considered unlawful.
The Revenue denies the claim for exemption on
the ground that some objects are non-charitable and the trustees are given an
unfettered discretion with regard to the utilisation of the income. Some of the
objects of the Trust according to the Revenue give absolute discretion to the
Trustees to apply the funds of the Trust for purposes which cannot be regarded
charitable in the eye of law. The Revenue contends that if out of several
objects of the Trust some are found to be non-charitable, the whole trust will
fail.
The Revenue also contends that it is not a
genuine charitable trust but its creation and existence are a camouflage and
are meant only as a device for the benefit of the settlor and the industrial
and commercial concerns controlled by him.
Clauses 11 and 16 of the deed give an
uncontrolled discretion to the trustees to spend the whole of the trust fund on
any of the non-charitable objects of the trust. The non-charitable objects
authorise the opening and maintaining of commercial institutions where work at
living wages can be provided to the poor and also to contribute to commercial,
technical, industrial or commercial concerns, institutions, associations or
bodies imparting any type of training or providing employment to persons. The
Revenue contends that these clauses are clearly non-charitable. Each clause is
independent and distinct, According to the Revenue it is neither ancillary nor
secondary to the primary dominant purpose of the trust nor can it be said that
these clauses sub-serve the main object of the trust. Engagement in commercial
institutions giving employment on wages cannot be said to be charitable object.
Some of the objects of the trust are non-charitable. The trustees have been
authorised to utilize the income of the trust for any purpose mentioned in the
Trust Deed.
The question is whether exemption can be
granted where some objects are charitable and some non-charitable. Where there
are several objects of a trust, some of which are charitable and some
non-charitable, and the trustees in their discretion are to apply the income to
any of the objects, the whole trust fails and no part of the income is exempt
from tax. Where the objects are distributive, each and every one of the objects
must be charitable in order that the trust might be upheld as a valid charity.
If no definite part of the property or of its income is allocated to charitable
purposes and it would be open to the trustees to apply the whole income to any
of the non-charitable objects no exemption can be claimed. (See East India
Industries (Madras) Pvt Ltd. v. Commissioner of Income Tax(1)and Mohammad
Ibrahim Riza v. C.I.T.(2) 953 In order to claim the benefit of the exemption
under section 4(3) (i) of the Act the property must be held under trust or
other legal obligation wholly for religious or charitable purposes. The only
relaxation which may arise in some cases is that all the primary objects of the
trust must be of a religious and charitable nature and the existence of any
ancillary or secondary object which is not of a religious or charitable nature
but which is intended to sub-serve the religious and charitable objects may not
prevent the grant of an exemption. This is because such an ancillary or
secondary object even though not of a religious or charitable nature is
intended to effectuate the main and primary objects of the trust.
If the primary or dominant purpose of a trust
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 from being a valid charity. A clear distinction must be drawn
between the object of a trust and the powers conferred upon the trustees as
incidental to the carrying out of the object. If the only object of a turst is
the construction and maintenance of a swimming bath which is a purpose of
general public utility, the fact that the trustees are given the power to
supply or sell refreshments to persons who resort to the bath would not make
the trust any of the less charitable. Mere application of income to charity on
the other hand will not avail to secure exemption if under the terms of the
will or deed the income is applicable in the first instance to non-charitable
objects and only the residue will go to charity. (See Commissioner of Income
Tax v. Andhra Chamber of Commerce (1).
The appellant contended that if any income
from the Trust is utilised and applied wholly in carrying out the primary
purposes of the Trust, the Trust is entitled to claim exemption under proviso
(b) to section 4(3) (i) of the Act. The appellant relied on the recent decision
of this Court in Sole Trustee Loka Shikshana Trust v. Commissioner of Income
Tax, Mysore(2). The Loka Shikshana Trust was engaged in the business of
printing and publication of newspaper and journals and the further fact that the
activity yielded profit and there were no restrictions on the trust earning
profits in the course of its business went to show that the purpose of the
trust did not satisfy the requirement that it was one not involving the
carrying on of any activity for profit. This Court relied on the decision in
All India Spinners' Association v. Commissioner of Income Tax(3) namely, that
the charitable purposes exclude objects of private gain.
The appellant contended that there was no bar
on the trust to carry on business under the Act provided the profits of
business were utilized only for charitable purpose. The appellant relied on the
decision of this Court in C.I.T. v. Krishna Warriar(4) In Krishna Warriar's
case the trustees were directed to apply 60 per cent of the income of the
business vested in the trustees to charitable purposes and 40 per cent for the
benefit of the family. The question was whether 60 per cent of the 954 income
was liable to tax under proviso (b) to section 4(3) (i) of the Act on the ground
that the entire income was not applied for charitable purposes. The question
that arose in that case dealt with the meaning of the expression
"part" as used in section 4(3) (i) of the Act that "in the case
of profit so held in part only for such purposes the income applied or finally
set apart for application thereto shall not be included in the total income of
the person receiving'. Krishna Warriar's (supra) case does not deal with the
effect of a deed which has charitable as well as non-charitable objects and the
trustees have been given the power to apply the whole of the trust fund for
non- charitable objects excluding charitable objects.
The decision in C.I.T. v. Bengal Home
Industries Association (1) Hyderabad Stock Exchange Ltd. v. C.I.T.(2) C.I.T. v.
Radhaswami Satsang Sabha(3) on which the appellant relied are all applications
of the ruling in All India Spinners' Association (supra) case that what has to
be found out is whether the object clause has any non-charitable object. In the
Bengal Home Industries (supra) case, the object was to promote and develop home
industries, arts and crafts. The income of the Association was to be applied
solely towards the promotion of and carrying out of its objects. No portion of
the income could be paid or transferred directly or indirectly by way of
dividends to the members. In the case of winding up the surplus could not be
distributed to the members but were to be transferred to the institution.
In the Hyderabad Stock Exchange (supra) case,
the aims and objects were not only to further the interests of brokars and
dealers but also to assist, regulate and control the trade in securities, to
maintain high standards of commercial honour and integrity, to discharge and
suppress mal-practices to settle disputes and decide all question of usage,
custom or courtesy in the conduct of trade or business. The objects were found
beneficial to a section of the public and of general public utility. The profit
were not to be distributed to the members but were to be utilized for the
promotion of the objects of the Exchange. Therefore, the object was charitable
and the income was applied wholly for charitable purposes.
In Radhaswami Satsang Sabha (supra), case
several industrial and commercial concerns were started for the benefit of the
Satsanghis. Those were not run for individual profits nor were the profits
distributed among the members.
The concerns were started in furtherance of
its objects of religious and charitable nature.
In the present case, the Income Tax
Authorities found that the various industrial and commercial concerns were not
started by Ram Krishna Dalmia in furtherance of the objects of the trusts. The
concerns were started for the purpose of earning profits which were to be
distributed to the share- holders who had invested share money in those
concerns 955 This Court in East India Industries (Madras) Private Limited v.
C.I.T.(1) found that one of the objects of the trust was not for charitable or
religious purposes. The object was to manufacture, buy, sell and distribute a
pharmaceutical medicinal, chemical and other preparations.
The other objects were charitable in nature.
The Trust Deed in East India Industries (Madras) Pvt. Limited (supra) case
conferred power on the trustees to apply the whole or any part of the trust
property or fund for all or any other purposes of the trust. This Court found
that there was no special trust and no particular item of property had been
burndened with the performance of any specific object of the trust. It was open
to the trustees to utilize the income for any one of the objects of the trust
to the exclusion of all other objects. 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. This Court held that the trust property could not be said to be
wholly for religious or charitable purposes within the meaning of section 4(3)
(i) of the Act. The present appeals are all of the type of East India
Industries (Madras) Private Limited (supra) case and fall within the ruling in
that case.
The test is that if one of the objects of the
trust deed is not of a religious or charitable nature and the trust deed
confers full discretion on the trustees to spend the trust funds for an object
other than of a religious or charitable nature, the exemption under section
4(3) (i) of the Act is not available to the assessee. (See Lakshmi Narain Nath
Trust v. Commissioner of Income Tax(2).
For these reasons the appeals are dismissed.
In view of the fact that the High Court directed that the parties will bear
their own costs, the same order is made as to costs.
S.R. Appeals dismissed.
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