Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Reference No. 72 of 1969

Judges

R.S Pathak
C.S.P Singh, JJ.

Acts

section 4(3)(i) of the Indian Income-tax Act, 1922.6.
section 4(3)(i) of the Indian Income-tax Act, 1922.
SECTION 90 A EVIDENCE ACT
SECTION 32 STAMP ACT
section 4(3)(ii)

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Smart Summary

Structured Summary of the Provided Opinion (C.S.P. Singh, J.)

Factual and Procedural Background

In a reference made by the Income-tax Appellate Tribunal, Delhi Bench “B”, the court was asked to answer whether, on the facts and in the circumstances of the case, the income from properties covered by a deed of trust dated 14 November 1947 (the "Chhadami Lal Jain Trust" deed) were exempt from income-tax under section 4(3) of the Indian Income-tax Act, 1922.

Relevant factual matrix (as stated in the opinion):

On 14 November 1947 Lala Chhadami Lal (Sri Chhadami Lal Jain) executed a deed purporting to create the "Chhadami Lal Jain Trust". The preamble referred to building a college hostel and maintaining an Aushadhalaya in Firozabad district, Agra.
The deed listed institutions to be under the trust (e.g., boarding house, Dharamshala, commercial/industrial institute, Jain religious school, dispensary/Aushadhalaya, scholarship fund, public library and reading room) and declared that "the expenses of the above Trust ... will be met from the income of the following properties" and that the author would have no personal interest in the trust income.
The deed described three items of immovable property (a bungalow; properties in village Sukhmalpur, Nizamabad, Firozabad; and a house in Mohalla Chhapati-Kalan, Firozabad, where a dispensary operated). A note attached valued the properties and stated maximum annual rental income.
The deed was stamped (certificate dated 17 November 1947) and registered on 30 December 1947.
Income from the properties had earlier been assessed in the hands of a Hindu undivided family up to assessment year 1949; in 1949–50 part of the income was exempted by the Income-tax Officer (ITO) on the basis that the trust was exempt under section 4(3)(i).
For assessment years 1958–59 and 1959–60 the ITO took the view that only the income (and not the properties) had been transferred to the trust, and therefore exemption under section 4(3)(i) could not be granted; the Appellate Assistant Commissioner confirmed that view. The assessee appealed to the Income-tax Appellate Tribunal which, after examining the deed and other circumstances, concluded that the donor intended to create a trust in respect of the properties (and also gave alternative reasoning under sections 4(3)(i) and 4(3)(ii)). The Tribunal then referred the question for the court's opinion.

Legal Issues Presented

“Whether, on the facts and in the circumstances of the case, the income from the properties in question covered by the deed of trust dated November 14, 1947, were exempt from income-tax under section 4(3) of the Indian Income-tax Act, 1922?”

Arguments of the Parties

Assessee's Arguments

The assessee claimed exemption under section 4(3)(i) of the Income-tax Act relying primarily on the language of the executed trust deed — effectively asserting that the deed created a trust over the properties (i.e., that the properties themselves, not merely their income, were made subject-matter of the trust).
Counsel for the assessee emphasised the various circumstances relied upon by the Tribunal (registration fee paid on property value, renunciation by the donor, receipts issued by the trust, payment of land revenue by the trust, mutation applied for, earlier acceptance by the department) as supporting the contention that the properties themselves were subject to the trust.

Revenue's Arguments

The revenue argued that the deed created a trust only in respect of the income from the properties and not the properties themselves; accordingly, exemption under section 4(3)(i) could not be claimed.
Counsel for the revenue contended that the principles underlying section 90 of the Evidence Act (referred to as of general application) should govern the inquiry — i.e., that the trust deed alone should be the primary/documentary basis for deciding whether a trust of property was created.
The revenue further argued that section 4(3)(ii) applied only where contributions were made at different points in time (and not by a single deed or one-off act); this contention was pressed against applying section 4(3)(ii) to the present deed which provided the trust with income in perpetuity via one instrument.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court considered the Tribunal's findings and the text of the trust deed in sequence and analysed the legal effect of the deed against the statutory provisions invoked by the parties.

Primary textual analysis of the deed:
The court observed that the deed's clause (3) expressly provides that "the expenses of the above Trust ... will be met from the income of the following properties" and that the donor would have no personal interest in that income. The court held that a reading of the deed leaves no doubt that only the income from the properties was made the subject-matter of the trust; it is not possible to read the deed otherwise.
On the Tribunal's reliance upon surrounding circumstances:
The Tribunal had relied on several circumstances (registration fee paid on property value, donor's renunciation, receipts issued by the trust, payment of land revenue by the trust, mutation applications, and earlier departmental acceptance) to conclude the donor intended to create a trust in respect of the properties themselves. The court found error in the Tribunal's approach because the assessee had relied on the deed alone for exemption under section 4(3)(i), and therefore the matter had to be primarily decided with reference to that deed. The court held the Tribunal erred in resorting to extrinsic circumstances to alter the deed's clear language.
On the legal requirement to claim exemption under section 4(3)(i):
The court explained that mere intention to create a trust in respect of certain properties is insufficient to bring the case within section 4(3)(i). For that subsection to apply the property must be "held under trust" — i.e., the trust as to the property must be complete and all formalities required by law for creation of a trust in respect of property must be complied with. Since the deed did not create a trust over the properties but only over their income, exemption under section 4(3)(i) could not be allowed.
On applicability of section 4(3)(ii):
The court accepted the Tribunal's alternative reasoning under section 4(3)(ii). It reasoned that section 4(3)(ii) requires that the religious or charitable institution derive the relevant income from "voluntary contributions." The court explained "voluntary" means an act done of one's own free will and the statute does not prescribe a particular form or timing for the contribution. A deed by which a donor makes a contribution (whether single or recurring) is sufficient. Here the deed voluntarily ensured that the trust would receive in perpetuity the income of the properties; that, the court held, amounted to "voluntary contributions" within the meaning of section 4(3)(ii).
On revenue's contention concerning timing/frequency of contributions:
The court rejected the revenue's argument that section 4(3)(ii) applies only to contributions made at different points in time rather than by a single deed or act. The court found no support for that restrictive interpretation in the language of section 4(3)(ii) and observed that no authority was cited to sustain the revenue's contention.
Conclusion of analysis:
Because the court found that the deed clearly made only the income the subject of the trust (and therefore section 4(3)(i) did not apply), but that the transfer of income by the donor to the trust constituted voluntary contributions within section 4(3)(ii), it held that exemption was properly claimable under section 4(3)(ii). The court therefore did not need to pursue further the Tribunal's second reasoning for upholding exemption under section 4(3)(i).

Holding and Implications

Holding: Income from the properties in question covered by the trust deed dated November 14, 1947, were exempt from income-tax under section 4(3)(ii) of the Act.

Direct implications and immediate consequences:

The assessee (Chhadami Lal Jain Trust) was entitled to exemption of the income derived from the properties for the purposes of the relevant assessment years under section 4(3)(ii) of the Income-tax Act, 1922.
The court awarded costs to the assessee in the amount of Rs. 200 and assessed counsel's fee at the same figure (Rs. 200).

Broader implications: The opinion does not purport to establish a new general precedent beyond the case's reasoning; it confines its decision to the construction of the particular trust deed and the statutory interpretation of sections 4(3)(i) and 4(3)(ii) as applied to the facts before the court.

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Commissioner Of Income-Tax, U.P v. Chhadami Lal Jain Trust.

C.S.P Singh, J.:— The Income-tax Appellate Tribunal, Delhi Bench “B”, has in respect of the assessment years 1958-59 and 1959-60 referred the following question for our opinion;

“Whether, on the facts and in the circumstances of the case, the income from the properties in question covered by the deed of trust dated November 14, 1947, were exempt from income-tax under section 4(3) of the Indian Income-tax Act, 1922?”

2. The facts necessary for the decision of this question may now be stated. One Sri Chhadami Lal Jain, by a deed dated November 14, 1947, purported to create a trust known as “Chhadami Lal Jain Trust”. In the preamble to the deed in question, reference is made to the necessity for building a college hostel and for maintaining an Aushadhalaya in Firozabad district, Agra. The relevant portion of the deed runs as follows:

“1. That the name of this trust shall be Chhadami Lal Jain Trust.

2. That the following institutions shall be under this Trust:

(a) Boarding House, (b) Dharamshala including temple, (c) Commercial and Industrial Institute, (d) Jain Religious School, (e) Jain Dispensary including Medicine Department, (f) Scholarship Fund, (g) Public Library and Reading Room.

3. That the expenses of the above Trust and those of fulfilling the objects mentioned above, will be met from the income of the following properties. I shall have no personal interest/concern with the income of the Trust nor shall it be utilised for my personal use. The same will be utilised solely for the purposes of the Trust.”

3. Thereafter, details of three items of immovable property were given, viz., (a) a bungalow, (b) properties situated in village Sukhmalpur, Nizamabad, Sub-Division Firozabad, district Agra, and (c) a house situated in Mohalla Chhapati-Kalan, Firozabad, district Agra, where a dispensary called “Motilal Jain Aushadhalaya” was running. There was a note attached to this deed which stated that Rs. 18,000 was the maximum annual rental income of the aforesaid properties which were valued at Rs. 6,12,000. The deed purported to have been written out by the pen of one Master Sunharilal Jain, general attorney of Lala Chhadami Lal. The deed, it appears, was submitted under section 32 of the Stamp Act to the Additional Collector and he issued a certificate under that section certifying that a sum of Rs. 28-2-0 was the proper stamp duty in respect of the deed and that the deed was duly stamped. This certificate of the Collector is dated 17th November, 1947. The deed was thereafter registered on the 30th December, 1947. The income from the properties which were mentioned in the trust deed was assessed in the hands of the Hindu undivided family up to the assessment year 1949. In the year 1949-50, a part of the said income was exempted by the Income-tax Officer, Firozabad, holding that the trust was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922. In the assessment years 1958-59 and 1959-60, with which the present reference is concerned, the Income-tax Officer took the view that inasmuch as the income from the property was transferred to the trust and not the properties, no exemption could be granted in respect of the income under section 4(3)(i) of the Act. On appeal, the Appellate Assistant Commissioner confirmed the view of the Income-tax Officer. The assessee, thereafter, filed an appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal considered the trust deed and came to the conclusion that the wordings of the deed were not clear and as such there was scope for doubt as to whether the properties mentioned in the deed were the subject-matter of trust or only the income of the aforesaid properties. It, however, on a consideration of a number of circumstances, which we shall presently set out, came to the conclusion that the intention of the founder of the trust was to create a trust in respect of the properties detailed in the deed and not only in respect of their income. The various circumstances relied upon by the Tribunal to reach this conclusion were:

(1) The registration fee paid was on the value of the properties and not on the amount of income of the properties.

(2) The renunciation of Chhadami Lal Jain to the effect that he would have nothing to do with the income from the aforesaid property for his life.

(3) The fact that the trust had started issuing receipts in respect of various amounts received in respect of the properties.

(4) The payment of land revenue by the trust.

(5) The fact that the trust applied for mutation in respect of certain properties.

(6) The fact that the department itself had in the earlier years accepted the position that the properties themselves were the subject of trust.

4. After coming to this conclusion, the Tribunal gave two other reasons for holding that the income derived from the properties was exempt from tax. Firstly, it took the view that the right to receive income from the trust properties constituted property within the meaning of section 4(3)(i) of the Act and was as such exempt under section 4(3)(i). Secondly, that in any event, the income which the trust received fell under section 4(3)(ii) of the Act, for it could be said that the amounts received were in the nature of voluntary contribution by Lala Chhadami Lal Jain, and there being no dispute that the said income was applied for charitable purposes, the income was entitled to exemption under this section.

5. We propose to consider the reasons given by the Tribunal in seriatim for the purpose of answering the question referred to us. A reading of the trust deed does not leave any doubt that only the income from the properties was made the subject-matter of trust. Clause (3) of the deed clearly lays down that expenses of the trust will be met from the income of the properties, which were thereafter set out towards the end of the deed. It is not possible to read the deed in any other manner. The Tribunal itself has not given a finding to the contrary. It has supported its conclusion by referring to a number of circumstances which it thought was permissible for the purposes of holding that the intention of the donor was to create a trust in respect of properties described in the deed. In the first place, the assessee relied on the trust deed alone for claiming exemption under section 4(3)(i) of the Act and as such the matter had to be primarily decided with reference to that deed. This fact is clear from the order of the Tribunal where it is stated as below:

“In view of the said deed of trust, the assessee, Chhadami Lal Jain Trust, claimed that its income from the concerned properties were exempt from income-tax under section 4(3)(i) of the Indian Income-tax Act, 1922.”

6. Apart from this, it does not appear that the assessee took up the stand that a trust was created by Lala Chhadami Lal Jain in any other manner than by the execution of the disputed trust deed. The Tribunal was thus in error in adverting to other circumstances for the purpose of considering as to whether the trust deed embraced the properties set out or was confined to the income from these properties. Even if it be assumed that the Tribunal could take into consideration the various circumstances relied upon by it, the conclusion which the Tribunal has reached is that the intention of the author of the trust was to create a trust in respect of the properties themselves. The mere intention to create a trust in respect of certain properties is not by itself sufficient to bring the case under section 4(3)(i) of the Act. Before advantage of section 4(3)(i) of the Act can be taken, the property must be held under trust, which implies that the trust in respect of the property must be complete, i.e, all the formalities which are required under the law for creation of a trust in respect of the property must be complied with. In the present case, whatever the intention of the author of the trust might have been, it is clear that the deed of trust did not create a trust in respect of properties, but was confined to the income accruing from them. This was not sufficient to enable the assessee to claim exemption under this sub-section.

7. Counsel for the assessee has drawn our attention to the various circumstances relied upon by the Tribunal as also some others and has tried to impress upon us that the deed in question in effect created a trust in respect of the properties. We are unable to see how it is possible to deviate from the clear language of the deed by reference to various circumstances and facts some of which were subsequent to the deed. Whatever might have been the intention of the author of the trust, the deed executed by him did not create a trust in respect of the properties described therein. In this view of the matter, it is not necessary to consider the argument raised on behalf of the revenue that the principles underlying section 90 of the Evidence Act being of general application should be made applicable to the present case, and once recourse is had to these principles, the trust deed alone be looked into for the purposes of finding out whether the trust was in respect of properties or the income arising therefrom.

8. The third reason given by the Tribunal for holding that the income was exempt appears to be sound. The Tribunal has relied on section 4(3)(ii) of the Act for granting exemption. It has been found as a fact that there was no dispute that the income was being applied for the purposes of the trust and that the trust was for a religious or a charitable purpose. In order that section 4(3)(ii) of the Act should apply, all that is necessary is that the religious or charitable institution should derive the relevant income from “voluntary contributions”. The word “voluntary” means an act done of one's own free will. The section does not insist on any particular manner in which “the voluntary contribution” should be made to the charitable institution, and that being so, a deed by which a donor makes a single contribution or a contribution which recurs from year to year, would be sufficient to meet the requirements of the section. In the present case, the trust deed ensures that the income of the properties will be utilised for the expenses of the trust. Thus, the trust became entitled in perpetuity to the income accruing from the properties. The deed undis-putedly was executed by the author “voluntarily”, i.e, out of his own free will, and inasmuch as it purports to grant the income from the properties to the trust, it would be covered by the phrase “voluntary contributions” occurring in section 4(3)(ii) of the Act.

9. Counsel for the revenue has, however, urged that section 4(3)(ii) applies only to cases where contributions are made not on one single occasion or by one deed but at different points of time. We do not see how this contention can be sustained in view of the language of section 4(3)(ii) of the Act. No authority has been cited in support of the contention made. We are clearly of the view that the trust deed, when it ensured the income from the properties in perpetuity for the charitable institution, in fact amounted to the making of voluntary contributions by the author of the trust as envisaged by section 4(3)(ii). In view of the fact that we have held that the exemption could be claimed under section 4(3)(ii) of the Act, it is not necessary for us to pursue the second reason given by the Tribunal for upholding the exemption.

10. Our answer to the question referred to us is that income from the properties in question covered by the trust deed dated November 14, 1947, were exempt from income-tax under section 4(3)(ii) of the Act. The assessee will be entitled to his costs which we assess at Rs. 200. Counsel's fee is assessed at the same figure.

Commissioner Of Income-Tax, U.P v. Chhadami Lal Jain Trust.

Structured Summary of the Provided Opinion (C.S.P. Singh, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Revenue's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax, U.P v. Chhadami Lal Jain Trust.

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