The Judgment of the Court was delivered by
Ramanujam, J.:— At the instance of the assessee, the following two questions have been referred by the Income-tax Appellate Tribunal to this court for its opinion:
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee-trust as originally constituted could not be regarded as a charitable trust entitled to exemption under section 11 of the Act?
(2) Whether, on the facts and in the circumstances of the case, the. Tribunal was right in law in holding that in the absence of any power of revocation or modification except to the limit provided in clause XXX of the concerned trust deed in this case, the trustees have no power to revoke or modify any of the objects of the trust as originally constituted and, therefore, the deed of rectification is not valid or effective?”
2. The assessee, Messrs. Sakthi Charities, was established under a trust deed dated June 25, 1968, declared by the founder and donor, Shri N. Mahalingam, by an initial donation of Rs. 5,000. According to the terms of the said trust deed, the trust fund and its properties are to consist of such initial donation and all funds and assets, movable and immovable, thereafter to be donated by the trustees, Messrs. Sakthi Sugars Limited and its directors and shareholders and others for the purpose of the trust. The following are the objects set out in the trust deed:
“(a) to promote, aid and advance art, architecture, literature and science, classical, ancient and modern;
(b) to establish centres of learning and research and construct, equip and maintain buildings, equipments, models and machineries for such promotion, advancement and research;
(c) to publish books and periodicals for the propagation of Indian art, architecture and literature, classical and modern;
(d) to translate and publish in English and/or other language books, classical and ancient works of Indian culture, art, architecture and literature and propagate the same in and outside India;
(e) to print and publish books, journals and periodicals for the propagation of Indian art, architecture and literature in and outside India;
(f) to establish and run schools and colleges for the study of Indian Art, architecture and literature and other languages and literature;
(g) to establish schools and colleges for the study of sciences and humanities;
(h) to publish books and journals on sciences and scientific researches;
(i) and (j)……
(k) to promote the welfare and well-being of the employees of M/s. Sakthi Sugars Ltd., their wives, husbands and children during the tenure of their employment;
(l) to help the destitute wives, husbands and children of the deceased employees of M/s. Sakthi Sugars Limited;
(m) and (n)……….
(o) to send and finance persons for advanced studies in sugar technology and allied subjects for the better and more efficient carrying on of the industries under the maintenance and management of M/s. Sakthi Sugars Limited.”
3. The assessee, on September 17, 1968, applied for the grant of a certificate of recognition under s. 80G of the I.T Act. However, the departmental authorities raised objections to the three clauses ‘k’, ‘1’, and ‘o’ mentioned above and also for clauses ‘d’ and ‘e’ providing for application of monies for any charitable purposes outside India. Taking note of these objections raised by the Department, the trustees executed a rectification deed dated January 31, 1969, removing the impugned clauses in the “objects”. Thereafter, the Department granted exemption under s. 11 read with s. 80G by an order dated March 4, 1969. However, for the assessment year 1976-77, which was after the deed of rectification, the ITO held that the assessee was not entitled to exemption as a public charitable trust because of clauses ‘k’, ‘1’ and ‘o’ in the original trust deed which are not public charitable purposes and that the subsequent rectification deed was not valid because only the authority conferred under the terms of the trust in clause XXX thereof was to modify the trust by making an addition and that provision will not enable the trustees to make a deletion of the objects. He, therefore, refused to grant the exemption and proceeded to assess the income. The assessee took the matter in appeal and the Commissioner (Appeals) held that the rectification was valid in law and the trust income was exempt by virtue of s. 11. Aggrieved by the said order, the Department appealed to the Tribunal. Pending the appeal before the Tribunal, the assessee filed a suit under s. 92 of the Code of Civil Procedure before the District Judge, Coimbatore, for rectification of the original trust deed dated June 25, 1968, and the District Judge decreed the said suit on April 15, 1981, declaring the offending clauses to be void with effect from June 25, 1968, the date of the original deed of trust.
4. The Tribunal held that the objects referred to in clauses ‘k’, ‘1’ and ‘o’, which are for the promotion of welfare and well-being of the employees of Messrs. Sakthi Sugars Limited and for helping the destitute wives, husbands and children of the deceased employees of the said company, financing persons for advanced studies in sugar technology and allied subjects, for better and more efficient carrying on of the industries under the management of the said company are clearly objects aimed at providing benefit to the company and its employees and cannot at all be regarded as objects of charitable nature. The Tribunal also held that the deed of rectification dated January 31, 1969, is not valid in view of the fact that the trustees have no power to revoke or modify any of the objects of the trust as originally constituted, and that, therefore, the ITO was justified in holding that the assessee is not entitled to exemption under s. 11. Aggrieved by the decision of the Tribunal, the assessee is before us by way of this reference.
5. Before us, Mr. Ramamani, the learned counsel for the petitioner, has put forward three submissions, (1) that even on the basis of the objects set out in the original deed of trust dated June 25, 1968, the assessee is entitled to exemption under s. 11 and the clauses ‘k’, ‘1’ and ‘o’ cannot be said to be of non-charitable character, as has been held by the Tribunal; (2) that even assuming that the clauses ‘k’, ‘1’ and ‘o’ cannot be considered to be charitable objects, the deed of rectification dated January 31, 1969, deleting the clauses ‘k’, ‘1’ and ‘o’ should be taken to be valid and sufficient to enable the petitioner to get exemption under s. 11; and (3) that, in any event, since a decree dated April 15, 1981, passed by the District Judge, rectifying the original trust deed with effect from June 25, 1968, is applicable to the assessment year 1976-77, the assessee should have been granted relief under s. 11.
6. So far as the first submission is concerned, we have already referred to clauses ‘k’, ‘1’ and ‘o’. Clause ‘k’ provides for promoting the welfare and well being of the employees of M/s. Sakthi Sugars Ltd., their wives, husbands and children during the tenure of their employment. Clause ‘1’ provides to help the destitute wives, husbands and children of the deceased employees of M/s. Sakthi Sugars Limited, and clause ‘o’ provides for sending and financing persons for advanced studies in sugar technology and allied subjects for the better and more efficient carrying on of the industries under the maintenance and management of M/s. Sakthi Sugars Ltd. All the above three clauses are for the promotion and welfare of the relations of the employees or the deceased employees of M/s. Sakthi Sugars Limited and for financing the studies in sugar technology for the efficient carrying on of the business of Messrs. Sakthi Sugars Limited; Clauses ‘k’ and ‘o’ do not refer to poverty. Though clause ‘1’ proceeds on the basis of poverty, still it is a clause conferring benefit only on the relations of the deceased employees of M/s. Sakthi Sugars Limited. Having regard to the fact that the benefits under these clauses are not available to the members of the public in general or even a section of the general public, but are available only to persons employed or connected with M/s. Sakthi Sugars Limited, the Tribunal appears to be right in holding that the objects set out in clauses ‘k’, ‘1’ and ‘o’ are not charitable in nature. The decision in J.K Hosiery Factory v. CIT, [1971] 81 ITR 557 (All), supports the said view of ours that where the benefit of a trust goes to a particular group of people connected with the founder of the trust or its trustee and not a definite class of public, then its objects cannot be taken to be charitable. In that case, a company executed a trust under which some directors of the company were appointed as trustees. The trust deed empowered the trustees to construct residential quarters for workmen in general and in particular for the workmen, of the company and its allied concerns. A question arose as to whether the objects of the trust were exclusively charitable for the purpose of s. 4(3)(i) of the Indian I.T Act, 1922. The Allahabad High Court held that the expression “workmen in general” did not fix a definite class of public which was intended to be benefited under the trust deed, that as the trust was expected to earn profit by providing quarters for the workmen, it cannot be taken to be a charitable object, that even if the provision for “workmen in general” were to be taken as a charitable object, as the trustees had complete discretion to spend the entire income from the trust for the benefit of the workmen belonging to the company and its allied concern as, the object of the trust cannot be taken to be charitable, and that, at any rate, it was a mixture of charitable and non-charitable objects, and as such the exemption under s. 4(3)(i) of the 1922 Act will not be available.
7. In one of the earliest cases, the Calcutta High Court in Mercantile Bank of India (Agency) Ltd., In re, [1942] 10 ITR 512, also dealt with a somewhat similar question. There, one of the clauses in the trust deed provided that the income of the fund should be applied for the benefit of any of the past, present and future officers, members of the staff and other employees of a company who in the uncontrolled discretion of the administrators should be deserving of consideration or help, more especially or account of indigence, ill-health or other necessitous circumstances on their retirement. The trustees contended before the tax authorities that the property held under the trust was wholly for charitable purposes and, therefore, the income of the fund was exempt under s. 4(3)(i) of the Indian I.T Act, 1922. The court held that in order to constitute a valid trust, it should be for the benefit of the public or a specified section of it, that a fluctuating body of private individuals such as the present and future officers and members of the staff and other employees of a company could not be a part of the general public or of any section of the public and that, therefore, the income of the trust fund was not exempt from the payment of income-tax under s. 4(3)(i).
8. The House of Lords in Dingle v. Turner, [1972] 2 WLR 523 had to deal with a similar question and that decision is strongly relied on by the assessee. In that case, a testator had directed the trustees of his will to pay the income of his residual estate to his wife for her life and thereafter to invest the same in the names of trustees on trust “to apply the income thereof in paying pensions to poor employees of a company owned by the testator along with others”. The court expressed the view that the status of some of the “poor relations” trusts as valid charitable trusts was recognised more than two hundred years ago and a few of those trusts then recognised are still being administered as charitable today and it is “quite impossible” for the Court of Appeal to overrule such old decisions, that it is unwise to cast doubts on “decisions of respectable antiquity in order to introduce a greater harmony into the law of charity as a whole”; that the “poor relations” and the “poor employess” decision were to be treated on the same footing and to draw a distinction between different sorts of “poverty” trusts would be quite illogical and could certainly not be said to be introducing “greater harmony” into the law of charity. The court also observed as follows (p. 534):
“The phrase a ‘section of the public is in truth a vague phrase which may mean different things to different people. In the law of charity, Judges have sought to elucidate its meaning by contrasting it with another phrase; a fluctuating body of private individuals’. But I get little help from the supposed contrast for as I see it one and the same aggregate of persons may well be describable both as a section of the public and as a fluctuating body of private individuals.”
9. Thus, the court, with a view to introduce a “harmony into the law” of charity, made no distinction between “poor relations” trusts and “poor employees” trusts, and held that “poor relations” and “poor employees” also should be taken as sections of the public. But that decision is not with reference to any statutory provision dealing with exemption from tax. In this case, the assessee claims exemption under s. 11, and, therefore, unless the assessee comes within the four corners of the provision under s. 11, the exemption cannot be claimed. Section 11 applies only when the properties are held under the trust wholly for charitable or religious purposes. Therefore, for invoking s. 11, the property, the income of which is sought to be exempted, should be held under trust wholly for charitable purposes. The section contemplates that the objects should be wholly charitable or religious. If some of the objects are not exclusively charitable but intended to benefit the employees, of the trust, then it cannot be said to be exclusively charitable. Dealing with the anomalous line of cases in England, where trusts for the “poor relations” and “poor employees” of the author of the trust have been held to be valid trusts, Kanga and Palkhivala in their treatise on “The Law and Practice of Income-tax”, VII edition, points out at page 272, that those cases must be considered to be wrongly decided, and those anomalous cases are not followed in India. As a matter of fact, a Full Bench of the Madras High Court has held in CIT v. M. Jamal Mohamad Sahib, [1941] 9 ITR 375, that a trust for poor relations of the settlor is not for a charitable purpose, even if created by a wakf. Similarly, in Gordhandas Govindram Family Charity Trust (Trustees of) v. CIT, [1952] 21 ITR 231, the Bombay High Court held that a trust of which the paramount and dominant object was relief of the settlor's poor relatives (including provision for their marriage expenses) was not charitable even though the trust provided for a remote benefit to the community, and this view has now been accepted by the Supreme Court in Gordhandas Govindram Family Charity Trust (Trustees of) v. CIT, [1973] 88 ITR 47.
10. It is well-established that where a trust deed provides both for charitable objects as well as non-charitable objects, such a trust is not entitled to the benefits of s. 11. In East India Industries (Madras) Private Limited v. CIT, [1967] 65 ITR 611, the Supreme Court held that where a trust was established for various objects most of which are charitable but some of which are non-charitable, then such a trust cannot be taken to be held wholly for charitable purposes within the meaning of s. 4(3)(i) of the Indian I.T Act, 1922. In that case, the objects of a trust known as “The Agastyar Trust” included both charitable and non-charitable objects, and discretion had been given to the trustees to spend the income to all or any of the objects. Taking note of the discretion given to the trustees, the court held that the trust cannot be said to have been established wholly for charitable purposes within the meaning of s. 4(3)(i). The following is the relevant observation of the Supreme Court (p. 615):
“In our opinion, this particular object of the trust is neither charitable nor religious in character. If the trustees can, under a trust held validly, spend the entire income of the trust on this non-charitable object, it is difficult to hold that the trust property is held under a trust or other legal obligation wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Act.”
11. This court, in a recent judgment, in Commissioner Of Income-Tax, (Central), Madras v. Shri Agastyar Trust.. 1610 to 1613 of 1977) etc., since reported in [1984] 149 ITR 609, following the said decision of the Supreme Court in East India Industries (Madras) Private Ltd. v. CIT, [1967] 65 ITR 611 (supra), held that so long as there is no compelling obligation on the trustees to devote any portion of the income of the trust for religious or charitable purposes and the trustees have got a discretion to spend the entire income for non-charitable purposes, then, s. 4(3)(i) of the Indian I.T Act, 1922, or s. 11 of the I.T Act, 1961, cannot apply. Thus, the original trust deed as drafted, cannot come within the scope of s. 11. Therefore, the first contention of the learned counsel for the assessee has to fail.
12. The second contention is that the deed of rectification dated January 31, 1969, should be taken to be valid and that the original deed as rectified by the deed of rectification dated January 31, 1969, will come within the purview of s. 11. However, here again, the assessee cannot succeed. The trust deed contains a clause, viz., cl. XXX, which enables the trustee to modify by addition, deletion or alteration the provisions contained in paragraphs IV to XXIX. Clause III has not been included in clause XXX. It is in clause III that the objects of the trust have been set out. This clearly shows that the amending power contained in clause XXX cannot apply to clause III dealing with the objects. If the founder of the trust contemplated the modification or revision of the objects of the trust, then he would have conferred such a power under clause XXX by including clause III therein. The fact that clauses IV to XXIX are included in clause XXX and not clause III shows that the founder of the trust did not provide for the alteration of the objects of the trust at any future time. In addition to this, it is well-established that once a trust has been founded with certain objects, those original objects cannot be deleted even by the founder of the trust though it is possible to add some other charitable objects without detriment to the original objects. Therefore, the deed of rectification dated January 31, 1969, deleting the objects set out in ‘k’, ‘1’ and ‘o’ cannot be said to be valid.
13. This leads us to the third contention which is based on the rectification ordered by a decree of the District Court, Coimbatore, on April 15, 1981, with effect from June 25, 1968. This question appears to be outside the scope of this reference. However, having regard to the submission made on that question by both sides, we proceed to express our prima facie opinion. Subsequent to the Revenue filing an appeal before the Tribunal, O.S No. 18 of 1981, on the file of the District Court, Coimbatore, was filed under s. 92 of the Civil Procedure Code, seeking a declaration that the inclusion of the words “and outside” in clauses ‘d’ and ‘e’, and the continuance of clauses ‘k’, ‘1’ and ‘o’ in paragraph III of the trust deed dated June 25, 1968, are void ab initio and non est and, consequently, directing the deletion of the words “and outside” in clauses ‘d’ and ‘e’ and the deletion of the clauses ‘k’, ‘1’ and ‘o’ in paragraph III of the trust deed. In the said suit, one S. Venugopalan for himself and as representative of the general body of employees of M/s. Sakthi Sugars Ltd., Coimbatore, was shown as the defendant. The suit was not resisted. On the other hand, the defendant had no objection for the suit being decreed as prayed for. In the plaint, the reason for seeking deletion of the words “and outside” in cls. ‘d’ and ‘e’ and clauses ‘k’, ‘1’ and ‘o’ is that they are not in conformity with the I.T Act to merit exemption, and therefore, they have to be deleted. It has also been pointed out in the plaint that though a rectification deed was made by the trustees under the impression that they had the right to do so, the trustees had no power to rectify and, therefore, they have no other alternative except to come before the court. The court, after referring to the fact of the relevant clauses being inconsistent with the I.T Act to merit exemption and the trustees having no power to deal with the same, proceeded to delete the clauses on the ground that no prejudice would be caused to any section of the public and no individual or body of individuals is affected by such deletion. This decision in the suit was rendered on April 29, 1981, before the Tribunal rendered the decision on October 16, 1981. According to the learned counsel for the assessee, the Tribunal, before whom the judgment of the District Court was placed, had not considered the relevancy of the same. But, however it is seen that the Tribunal has referred to the judgment of the District Court, Coimbatore, in O.S No. 18 of 1981. But it says that the order is dated April 29, 1981, and, therefore, it is a subsequent event which has taken place after the original assessment, and that this new piece of evidence was not considered by the departmental authorities, nor will the said decision support the assessee's contention that though the judgment of the District Court has deleted the offending clauses in the trust deed, it cannot be done with retrospective effect and that no authority has been cited for the proposition that the judgment of the court can be given retrospective effect. On a due consideration of the matter, we are inclined to agree with the Tribunal that even assuming that the District Court is empowered to delete the offending clauses from the deed of trust under s. 92 of the CPC, it cannot do so with retrospective effect from June 25, 1968, the date when the original trust deed came into force. The deleting of the offending clauses can take effect only from the date of the decree and not before.
14. A somewhat similar case was considered by the Delhi High Court, in Jagdamba Charity Trust v. Commissioner Of Income-Tax, Delhi (Central), [1981] 128 ITR 377. In that case also, a trust deed contained certain non-charitable objects along with other objects which were substantially charitable. Having regard to the existence of the non-charitable purposes, the High Court originally and later the Supreme Court negatived the claim for exemption from income-tax on the ground that they were not trusts exclusively for charitable purposes. Thereafter, the founder of the trust filed a suit under s. 26 of the Specific Relief Act, 1963, for rectification of the trust deed by deleting the offending clauses. The civil court granted a decree and directed that the trust deed will stand rectified with effect from its very inception. The question was, whether the trust was exempted under s. 11 in view of the retrospective rectification of the trust deed. The court held that since there was an order of the civil court binding on the author and the trustees, they could administer the I trust only in terms of the amendment directed by the court, that the trustees were and must be deemed, from the beginning, to have been under a legal obligation to hold the properties only for the objects and with the powers set out in the trust deed as amended, and, therefore, whatever might be the correctness or otherwise of the order passed by the civil court under s. 26 of the Specific Relief Act, 1963, it was not open to the ITO to say that the trustees could administer the trust in accordance with the original deed and that the claim for exemption had to be dealt with on the basis of the original deed, and nor was it open to the ITO to say that, in the relevant accounting year, the trustees held the property subject to the terms of the original and not the amended deed. The court, however, pointed out that as the exemption under the 1961 Act depends not merely on the objects of the trust but also on the actual application of its income to religious and charitable purposes, and if the trustees have acted in accordance with the objects of the original deed and had embarked on non-charitable activities, it cannot be said as to what extent the trust was entitled to exemption, and it was for the Tribunal to determine the same. In Kamla Town Trust v. Commissioner Of Income-Tax., [1982] 133 ITR 632 (All) also, a similar question arose. In that case also, while the matter was pending in appeal before the Tribunal, the founder of the trust filed a suit in the civil court for rectification of the trust deed and obtained a decree. The question arose as to what is the effect of the amendment made by the civil court and whether it would operate retrospectively or only propectively. The Tribunal held that as there was an earlier rectification of the same trust deed and that rectification was also the subject-matter of a decision by the High Court, the second rectification cannot operate with retrospective effect, and, therefore, the rectification would operate, only prospectively and not retrospectively. On whether the ITO could go behind the rectification decree and adjudge the validity of the rectification ordered by the civil court, the court held that in law the validity of a decree of a civil court cannot be adjudged in assessment proceedings, that it is not open to the ITO to say that the decree is not operative or binding for any reason, and that under the general law, once a document is rectified, it relates back to the time when the document was executed, that after rectification, the document has to be read as if it has been originally drawn in its rectified form, and that it is, therefore, settled Jaw that after the deed is rectified by a decree of the court, the deed as rectified will be deemed to be operative ever since its original execution. In that case, however, the court proceeded on the basis that the court had the requisite power to rectify the trust deed on the ground of mutual mistake under the provisions of the Specific Relief Act. But here, the suit has been filed under s. 92 of the Code of Civil Procedure. Therefore, the question is, whether the civil court had the power to rectify the trust deed under s. 92. Section 92, C.P.C, nowhere enables the civil court to alter or rectify the terms of a trust. It only enables the civil court in suitable cases to remove any trustee, appoint a new trustee, vesting any property in a trustee, directing any ex-trustee to deliver possession of the trust, property to the person entitled to the possession of such property, directing accounts and enquiries, declaring that portion of the trust property or interest therein shall be allotted to any particular objects of the trust or to settle a scheme. Thus, the court has got power to allocate the trust properties to any particular field of the trust. In this case, the court has deleted from the trust deed certain objects so as to enable the trustees to claim the benefit of exemption under the I.T Act. No doubt, the court, under s. 92, C.P.C, can give a direction which is necessary for the administration of any trust. But it can only exercise the powers expressly set out thereunder and by exercising the power under s. 92, C.P.C, it cannot alter the objects of the trust deed. In this view, it appears that the decision in Jagdamba Charity Trust v. Commissioner Of Income-Tax, Delhi (Central), [1981] 128 ITR 377 (Delhi) and Kamla Town Trust v. Commissioner Of Income-Tax., [1982] 133 ITR 632 (All), will not be applicable to the facts of this case. However, we are not expressing any final opinion in this case as to whether the civil court's judgment rectifying the trust deed is without jurisdiction, and as such the ITO is not bound to give effect to the same, as that aspect of the case has not been referred to us.
15. Questions Nos. 1 and 2 are answered in the negative and against the assessee. The assessee will pay the costs of the Revenue. Counsel's fees Rs. 500.
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