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Commissioner Of Inco... v. Trustees Of Shri Cut...
Factual and Procedural Background
This reference was made under section 66(1) of the Indian Income-tax Act, 1922 at the instance of the revenue asking the court to determine: “Whether, on the facts and circumstances of this case, the income of the assessee-trust is exempt under section 4(3)(i) of the Act?” The assessees are the trustees of the Shri Cutchi Lohana Panchtade Mahajan Trust. The assessment concerns assessment years 1952–53 to 1959–60 (accounting periods ending Samvat years 2007 to 2014).
Relevant facts recited in the Tribunal’s order (which the parties do not dispute) are: in about 1837 members/managers of the Cutchi Lohana community of Bombay collected about Rs. 9,400 to acquire a building described as “a charitable place for the use of the said punchaat or caste.” The property was purchased by a conveyance dated 7 September 1837. The operative part of the conveyance states the purchasers (as managers) hold the property “in Trust … for the use and purpose of the sect or caste of the said Cutchi Lohana.” The conveyance includes covenants indicating the purchasers (and their successors in trust) are to receive rents and use them “to and for the use and benefit of the said sect, caste or punchaat.”
There is no separate formal trust deed; however, the trust is said to have arisen by long and immemorial user (over a century and a quarter). The trust property’s income has been applied for purposes described in the trustees’ registration application under the Bombay Public Trusts Act (around 1952): help to the poor and destitute, assistance to maintain the Daryalal temple, and expenditure for the welfare of caste people.
Legal Issues Presented
- “Whether, on the facts and circumstances of this case, the income of the assessee-trust is exempt under section 4(3)(i) of the Act?”
Arguments of the Parties
Revenue's Arguments
- In the absence of a formal deed of trust, the property cannot be held to be held in trust or under a legal obligation.
- Given the nature of the objects stated in the trustees' registration application under the Bombay Public Trusts Act (including “welfare of the caste people”), the property is not held wholly for religious or charitable purposes.
Assessee's / Trustees' Arguments (as represented in the opinion)
- Counsel (Mr. Joshi) relied on the objects set out in the registration application (help to poor and destitute; assistance to maintain Daryalal temple; welfare of caste people).
- While accepting that assistance to the poor and maintenance of a temple are necessarily religious or charitable purposes, he argued the word “welfare” is wide and could permit uses for the benefit of the community that are not strictly charitable or religious.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| All India Spinners Association v. Commissioner of Income-tax [1944] 12 ITR 482 PC | No formal deed or writing is necessary to constitute a charitable or religious trust; a charitable trust may be created by any words sufficient to show the intention; absence of a formal document does not preclude a legal obligation. | Applied to hold that lack of a separate trust deed does not negate the trust; the 1837 conveyance and its language suffice to show the property was purchased and held in trust. |
| Chaturbhuj Vallabhdas…Assessee; v. Commissioner Of Income-Tax | The word “charity” used generally has a recognised legal meaning: it denotes a general charitable intention for objects recognised in law and connotes use for the public (not merely private benefit). | Applied to interpret “charity” and to conclude that where the income historically was applied for the caste’s charitable uses, the trust falls within “charitable purpose” under section 4. |
| Commissioner of Income-tax v. Sardar Bahadur Sardar Indra Singh Trust [1956] 29 ITR 781 Cal. | Supportive authority for the view that the word “charity” denotes public charitable purposes (consistent with Chaturbhuj Vallabhdas). | Reinforced the court’s approach that “charity” denotes public charitable use and that the trust’s objects ought to be read as charitable/religious where appropriate words (help to poor, maintenance of temple) appear. |
Court's Reasoning and Analysis
The court proceeded in the following analytical steps, based on the facts and cited authorities in the opinion:
- Legal foundation: The court invoked All India Spinners Association to establish that a formal written trust deed is not a prerequisite to a charitable or religious trust; words or long user sufficient to show intention may create a trust or legal obligation.
- Conveyance analysis: The 1837 conveyance itself expressly states the purchasers (as managers) hold the property “in Trust … for the use and purpose of the sect or caste,” and contains covenants for the trustees to receive rents and apply them for the use and benefit of the caste—language the court treated as sufficient to show a trust or legal obligation.
- Historical user: There was a clear finding of immemorial user for over a century and a quarter, showing that the income was applied by trustees in the manner contemplated—namely for charitable purposes enjoyed by the caste people. This historical practice charged the property with an obligation in the nature of a trust.
- Meaning of “charity”: The court relied on Chaturbhuj Vallabhdas and the Calcutta High Court decision to explain that “charity” used generally denotes a public charitable intention; it excludes objects of purely private benefit.
- Interpretation of the registration objects: The court examined the application for registration under the Bombay Public Trusts Act (which listed help to the poor and destitute, assistance to maintain the Daryalal temple, and expenditure for the welfare of caste people). Reading “welfare” in the context of the preceding charitable and religious objects, the court held that “welfare” must be read as referring to welfare of the poor, needy or destitute members of the community—not as authorising non-charitable private benefits.
- Conclusion from application of law to facts: Given the conveyance language, immemorial user, and the contextual interpretation of the objects clause, the court concluded the property was held in trust or under legal obligation wholly for religious or charitable purposes; thus the income fell within the exemption in section 4(3)(i).
- Disposition on revenue’s contentions: Both of the revenue’s contentions (necessity of a formal deed; and that “welfare” permitted non-charitable uses) were rejected on the foregoing bases.
Holding and Implications
Holding: The court answered the referred question in the affirmative: the income of the assessee-trust is exempt under section 4(3)(i) of the Act.
Direct consequences: The court rejected the revenue’s two contentions, held the property to be held in trust or under legal obligation for religious or charitable purposes, and ordered that the revenue shall pay the costs of the assessee.
The opinion does not discuss any broader new legal precedent beyond applying existing authorities; its effect is to resolve the exemption question in favour of the assessee on the facts and authorities considered.
Kantawala, C.J:— This reference is made under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as “the Act”), at the instance of the revenue for determination of the following question of law:
“Whether, on the facts and circumstances of this case, the income of the assessee-trust is exempt under section 4(3)(i) of the Act?”
2. As the contentions raised in this reference lie in a very narrow compass it is unnecessary to state in greater detail the facts. The assessees in this case are the trustees of Shri Cutchi Lohana Panchtade Mahajan Trust and the assessment is concerned for the assessment years 1952-53 to 1959-60 relating to the accounting periods ending Samvat years 2007 to 2014. There is no controversy between the parties on the fact that in the order of the Tribunal all facts are correctly and properly stated. Some time in the year 1837 certain members of Cutchi Lohana community of Bombay as representatives and managers of the community collected a sum of about Rs. 9,400 from the members of the community for the purpose of acquiring a building “a charitable place for the use of the said punchaat or caste”. Actually the property was purchased under a deed of conveyance dated September 7, 1837. Both the operative part of the deed as well as the covenants therein contained leave no scope for argument that in fact the property is purchased by the purchasers under this conveyance in trust. In the operative part of the deed it is stated that the consideration amount has been paid by the purchasers as such managers and the purchasers are “To Have and To Hold the said piece or parcel of land… in Trust nevertheless for the use and purpose of the sect or caste of the said Cutchi Lohana as aforesaid……” Even the covenant for quiet enjoyment makes it clear that “It shall and may be lawful to and for the purchasers, their successors and assigns in trust as aforesaid… to receive and take the rents, etc., or to use in manner as may be expedient… to and for the use and benefit of the said sect, caste or punchaat without any lawful obstruction”. However, there is no document of trust as such, but the trust is in fact created by long and immemorial user for a period extending over a century and a quarter. It is also not disputed that the property of the trust is charged with an obligation in the nature of a trust in that the income has to be utilised by the trustees in the manner that was contemplated and enjoyed by the caste people merely for charity. When the Bombay Public Trusts Act came into force the trust was registered as a public trust in or about the year 1952. In the application for grant of registration under the said Act the trustees stated that the income of the trust was being used for the benefit of the members of the Cutchi community by rendering help to the poor and destitutes, rendering assistance to maintain the Daryalal temple and incurring expenditure for the welfare of the caste people.
3. It is on these facts that the question arises whether the income of the trust is exempt from liability to pay tax in view of the provisions of section 4(3)(i) of the Act. Under sub-section (1) of section 4 all income, profits and gains of the nature therein specified are to be included in the total income of any previous year of any assessee. sub-section (3) of this section specifies items of income, profits and gains which are not to be included in the total income of the assessee. Clause (i) of this sub-section, inter alia, provides that any income derived from property held in trust or under 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 in relation to taxable territories is exempt from taxation. On behalf of the revenue two contentions are urged before us, that in the absence of a deed of trust it cannot be held that the property is held in trust or under legal obligation. Secondly, it is said that having regard to the nature of the trust referred to in the application for registration of the trust under the Bombay Public Trusts Act, it cannot be said that the property is held in trust or under legal obligation only for religious or charitable purposes.
4. In view of the decision of the Privy Council in All India Spinners Association v. Commissioner of Income-tax [1944] 12 ITR 482 PC., it is well-settled that no formal deed nor any other writing is necessary to constitute a charitable or religious trust, still less to constitute a legal obligation. A charitable trust may be created by any words sufficient to show the intention. It is undoubtedly true that there is no formal document or deed of trust, but absence of such a document does not lead to the conclusion that the property is not or cannot be held under trust or legal obligation. Even if regard be had to the relevant provisions of the deed of conveyance executed as early as in the year 1837, it is quite clear that the property is conveyed to the purchasers as the managers of the community. The matter, however, does not rest there. The indenture further provides that the purchasers are to have and to hold the property in trust for the use and purpose of the sect or caste of the said Kutehee Lohana. Even these statements in the conveyance itself are by themselves sufficient to indicate that the property which was purchased in the year 1837 was held in trust or under a legal obligation. Ever since its purchase it was not even the case of the revenue that it was being used for the personal benefit of any member of the community. In that view of the matter, there can be no hesitation in taking the view that the property is held in trust or under other legal obligation.
5. The question then arises, is the property held in trust or under legal obligation wholly or partially for religious or charitable purposes? There is a clear finding based upon immemorial user of the income for a period extending over a century and a quarter that the properties of the trust are charged with an obligation in the nature of a trust inasmuch as the income had to be utilised by the trustees in the manner that was contemplated and enjoyed by the caste people, namely, for charity. This court in the case of Chaturbhuj Vallabhdas…Assessee; v. Commissioner Of Income-Tax has taken the view that the word “charity” without any further qualifications has a recognised meaning in law. It amounts to a general charitable intention for objects well-recognised as charitable in law. It is further pointed out in that case that the word “charity”, if used generally, necessarily connotes the use for the public. Therefore, when the word “charity” is used, there is nothing to include in it objects of private benefit only. The word “charity”, if used generally or without qualifications or limitations, falls within the definition of “charitable purpose” found in section 4 of the Act. To the same effect is the view taken by the Calcutta High Court in Commissioner of Income-tax v. Sardar Bahadur Sardar Indra Singh Trust [1956] 29 ITR 781 Cal..
6. Reliance was, however, placed by Mr. Joshi upon the objects that were mentioned in the application for registration of the trust under the provisions of the Bombay Public Trusts Act. In the application it is stated that the income of the trust was being used for the benefit of the members of the Cutchi community by rendering help to the poor and destitute, rendering assistance to maintain Daryalal temple and incurring expenditure for the welfare of the caste people. It is not disputed by Mr. Joshi that any charitable or public trust which has as its object rendering help to the poor and destitute or which is for the benefit of maintenance of a temple will necessarily be for either religious or charitable purpose. His contention, however, is that it is also open to the trustees to utilise the income of the property for the welfare of the caste people. The argument was that the word “welfare” is of a very wide connotation and it cannot be said that even if the trustees use the property for purposes other than a charitable or religious purpose but for the benefit of the community, it would be included within the word “welfare” and that when such is the case it cannot be said that the trust is for a charitable or religious purpose. While considering this contention it is quite proper to look to the entire objects clause as mentioned in the application as a whole and not to interpret the word “welfare.” in an isolated manner. Here, the word “welfare” has to be read in conjunction with the other words specified in the application, namely, rendering help to the poor and destitute and rendering assistance to maintain Daryalal temple. It has not been contended that any of these words does not indicate the purpose as religious or charitable purpose. The word “welfare” in this clause takes its colour from the earlier objects which preceded it and is really used in the sense of welfare of the poor, needy or destitute. Nobody expects a trust to be created for the welfare of the well-to-do or the rich. Having regard to the context in which the word “welfare” is used in the objects clause when the application for registration was made, there can be no doubt that it is used as welfare of the needy, poor and destitute members of the community and in that view it is not even conceivable that the object cannot be regarded as either religious or charitable. Thus, both the contentions urged on behalf of the revenue cannot be accepted and the question referred to us is answered in the affirmative. The revenue shall pay the costs of the assessee.
7. Question answered in the affirmative.
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