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Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • Kantawala, C.J
  • Tulzapurkar, J.
Acts
  • provisions of clause (c) of sub-section (1) of section 16,
  • section 4(3) of the Indian Income-tax Act, 1922,
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • Kantawala, C.J
  • Tulzapurkar, J.
Acts
  • provisions of clause (c) of sub-section (1) of section 16,
  • section 4(3) of the Indian Income-tax Act, 1922,
See more information ...
Smart Summary

Structured Summary of the Opinion — Kantawala, C.J.

Factual and Procedural Background

The opinion concerns a reference made by the revenue of the following question:

“Whether, on the facts and in the circumstances of the case, the income from properties held under trust created by the assessee by the deed dated December 24, 1947, was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922?”

The assessment year in question is 1960-61, corresponding to the previous year 1959-60. The assessee settled certain properties on trust by an indenture dated December 24, 1947. The supreme object of the trust was described as revival and propagation, at the holy place of Alandi, of the Karma Marg mingled with Bhakti as substantiated by Shri Dnyaneshwar Maharaj and of the Tatwadnyan as expounded in the Dnyaneshwari; the trust's objects included establishing Shri Dnyaneshwar Vidyapeeth and propaganda centres in Maharashtra, throughout India and, if necessary, abroad. Management provisions and rule-making authority for carrying out the objects were included in the deed; the settlor was to act as trustee for his lifetime.

A clause in the deed expressed the settlor's desire that his sons, daughters or their descendants, if in poverty, might be given financial aid from the Trust Fund or through the Vidyapeeth, industries or businesses connected with the Fund, in specified modes.

Procedurally, the Income-tax Officer included the income of the trust in the assessee's total income, treating the trust as a private trust. The Appellate Assistant Commissioner confirmed that order. On further appeal the Tribunal held the trust income exempt under section 4(3)(i), relying on the Supreme Court decision in Trustees of the Charity Fund v. Commissioner of Income-tax [1959] 36 ITR 513 (SC). The revenue sought the present reference challenging the Tribunal's decision.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, the income from the properties held under the trust created by the deed dated December 24, 1947, was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922.
  2. Whether the provision (or expressed desire) in the trust deed to give financial aid to poor members of the settlor's family and their descendants affects the character of the trust such that the income would not qualify for exemption under section 4(3)(i).

Arguments of the Parties

Revenue's Arguments (as presented by Mr. Joshi)

  • The revenue contended that because the trust deed made provision (or expressed a desire) for giving financial aid to poor members of the settlor's family and their descendants, the trust could, in practice, give help to those private family members. This, the revenue argued, indicates that the income of the trust is not exclusively for charitable or religious purposes and therefore cannot be regarded as exempt under section 4(3)(i).
  • Reliance was placed on the clause in the deed referring to financial aid to family members as undermining the public-charitable character of the trust.

Assessee / Tribunal's Position

  • The Tribunal held that the dominant intention and purpose of the trust were religious and charitable. It treated the income as derived from property held under trust wholly for religious or charitable purposes within the meaning of section 4(3)(i).
  • The Tribunal relied on the Supreme Court decision in Trustees of the Charity Fund v. Commissioner of Income-tax (1959) and took the view that a provision giving preference to family members in certain circumstances did not destroy the public-charitable character of the trust.
  • In the present case the clause concerning the settlor's family was characterized as a mere expression of desire and not a binding direction or fetter on the trustees; accordingly, it did not prevent the income being treated as exempt under section 4(3)(i).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Trustees of the Charity Fund v. Commissioner of Income-tax [1959] 36 ITR 513 (SC) That a trust deed which enumerates charitable objects (sub-clauses) and contains a proviso requiring preference to poor and indigent relations or members of the settlor's family does not, by that proviso alone, alter the character of the trust as a public charitable trust for the purposes of section 4(3)(i). The court treated that decision as directly analogous and concluded that, because in the present case the clause regarding the settlor's family expressed only a desire (not a mandatory preference) and placed no fetter on trustees, the present facts were even stronger in favour of exemption; accordingly, the income was held exempt under section 4(3)(i).

Court's Reasoning and Analysis

The court's analysis proceeded in the following steps, based solely on the material in the opinion:

  1. Identification of the governing statutory provision: the court considered clause (i) of section 4(3) of the Indian Income-tax Act, 1922, which excludes from total income any income derived from property held under trust wholly for religious or charitable purposes (subject to certain provisions).
  2. Determination of the dominant object: the court accepted that the dominant intention of the trust was religious and charitable, given the detailed objects set out in clause 6 of the indenture (revival and propagation of specified religious/philosophical teachings, establishment of an educational institution at Alandi, propaganda centres, etc.).
  3. Comparison with precedent: the court examined the Supreme Court decision in Trustees of the Charity Fund v. Commissioner of Income-tax where a trust containing sub-clauses listing public charitable objects and a proviso preferring poor relations of the settlor was held to be a valid public charitable trust and its income exempt under section 4(3)(i).
  4. Characterization of the family-related clause: the court analyzed the clause in the present deed concerning financial aid to the settlor's family and descendants. It concluded that the clause manifested only a "desire" and did not impose a binding preference or direction on the trustees; it therefore did not constitute a fetter on the trustees' power to utilize income for charitable objects.
  5. Application of principle to facts: because the family clause was non-mandatory and the overall trust objects remained religious and charitable, the court found the present facts to be at least as favourable to exemption as in the Trustees case — in fact, "even stronger" because the present deed expressed mere desire rather than a proviso creating preference.
  6. Conclusion: the income from the trust properties qualified for exemption under section 4(3)(i).

The court also ordered that the revenue pay the costs of the assessee.

Holding and Implications

Holding: The question is answered in the affirmative and in favour of the assessee: the income from the properties held under the trust is exempt under section 4(3)(i) of the Indian Income-tax Act, 1922.

Implications and direct effects:

  • The direct legal effect was that the income of the trust for the assessment year in question is to be treated as exempt from taxation under section 4(3)(i).
  • The court awarded costs against the revenue in favour of the assessee.
  • The opinion relied on existing Supreme Court authority (Trustees of the Charity Fund v. Commissioner of Income-tax) and applied that authority to the facts; the court did not purport to lay down a new or broader legal principle beyond the application of that precedent to the present factual matrix.
Show full summary ...

    Commissioner Of Income-Tax, Bombay City Iii v. D.D Deshpande.

    Kantawala, C.J:— At the instance of the revenue the following question has been referred for our determination:

    “Whether, on the facts and in the circumstances of the case, the income from properties held under trust created by the assessee by the deed dated December 24, 1947, was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922?”

    2. The question relates to the assessment year 1960-61 for which the corresponding previous year is the financial year 1959-60. The assessee settled on trust certain properties by an indenture of trust dated December 24, 1947. The supreme object of the trust was to effect revival by spreading and giving currency to the Karma Marg mingled with Bhakti as substantiated by Shri Dnyaneshwar Maharaj and to the Tatwadnyan as expounded in Dnyaneshwari with the intention of annihilating the decline that had set in religion. The trust was to establish at the holy place of Alandi the institution of Shri Dnyaneshwar Vidyapeeth and propaganda centres in Maharashtra, the whole of India and, if necessary, in foreign countries to accomplish its objects. The particulars of this charitable trust are specially to be found in clause 6 of the indenture of trust. With a view to carry out the objects of the trust, authority was given for framing necessary rules. The management of the trust is provided in a detailed manner and the settlor is to be a trustee for his lifetime. Reliance, however, is placed by Mr. Joshi upon a clause which appears a little later, where it is stated “……it is the desire of the original founder and trustee Ra. Ra. D.D Deshpande that his sons or daughters or the male or female descendants of those sons or those daughters, should they or their grandsons be in poverty may, for obtaining proper and necessary education or for their maintenance and protection being continued well and steadily through this Trust Fund, through Vidyapeeth (university) or through industries and business connected with the Trust Fund, be given financial aid” in any of the modes prescribed therein.

    3. The Income-tax Officer included the income of the trust in the total income of the assessee on the ground that the income from the properties was the income of a private trust. On appeal by the assessee the order passed by the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. In further appeal before the Tribunal the Tribunal held that the income of the properties held in trust was exempt under section 4(3)(i). It took the view that, if regard be had to the provisions of the trust deed, then the case was covered by the decision of the Supreme Court in Trustees of the Charity Fund v. Commissioner of Income-tax [1959] 36 ITR 513 SC.. It is against this order passed by the Tribunal that the revenue has asked for the present reference.

    4. Mr. Joshi, on behalf of the revenue, has contended that since it is possible for the trust fund to give help to poor members of the family of the settlor in the manner indicated, the income of the trust cannot be regarded as exempt under section 4(3)(i). He submitted that making of a provision for giving financial aid to the members of the family of the settlor will indicate that the income of the trust cannot be regarded as exempt under the said section.

    5. Under section 4(3) of the Indian Income-tax Act, 1922, any income, profits or gains falling within the various classes following shall not be included in the total income of the person receiving them. We are concerned with clause (i) thereof, which is as under:

    “(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:……”

    6. There are certain provisos to this clause with which we are not concerned. If regard be had to the dominant intention of the trust it cannot be disputed that the whole of the income derived from property is held under trust for the religious and charitable objects therein mentioned. It will be useful in this connection to refer to the decision of the Supreme Court in the case of Trustees of the Charity Fund v. Commissioner of Income-tax. In that case a trust for purposes of charity was executed by Sir Sassoon David, Bart., and four other persons under a deed of declaration of trust of that fund. Clause 13 of the deed of trust provided:

    “The trust fund shall be held by the trustees upon the trusts to apply the net income thereof 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.”

    7. The question that arose for consideration was whether the income from this trust fund was exempt from taxation as income from a charitable trust under section 4(3)(i) of the Act. The Supreme Court held that sub-clauses (a) to (f) of clause 13 of the deed of trust omitting the provisos constituted a valid public charitable trust and, as the relations or members of the family of Sir Sassoon David did not figure as direct recipients of any benefits under sub-clauses (b) to (f) and the circumstance that in selecting the beneficiaries under sub-clause (a) preference had to be given under the provisos to the relations or members of the family of Sir Sassoon David could not affect that public charitable trust, the income from the properties came within the scope of section 4(3)(i) and were exempt from taxation.

    8. It is not disputed in the present case that the dominant object of the present trust is that of a religious and charitable trust. The only thing on which reliance is placed by Mr. Joshi on behalf of the revenue is the provision in the trust deed where the settlor has expressed a desire to give financial aid to poor members of the family of the settlor and their descendants. Construing the trust properly this is only a desire and no fetter is placed upon the power of the trustees to utilise the income of the trust for charitable purposes. Even a direction is not given to give preference but simply a desire is expressed. When such is the case then the facts in the present case are even stronger than those in the Supreme Court case above referred to and, in our opinion, the Tribunal was right in taking the view that the income of the trust was exempt under section 4(3)(i) of the Act. Accordingly, the question referred to us is answered in the affirmative and in favour of the assessee. The revenue shall pay the costs of the assessee.

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    Comments

    Commissioner Of Income-Tax, Bombay City Iii v. D.D Deshpande.
    (Jun 26, 1975)