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Commissioner Of Income-Tax v. Moosa Haji Ahmed And Others.
Factual and Procedural Background
This opinion arises from a reference under section 66(1) of the Indian Income-tax Act, 1922, initiated by the Commissioner of Income-tax, Gujarat. The assessees are the trustees of the Haji Ahmed Haji Abdul Kadar Moosa Wakf Fund, concerning the assessment years 1954-55 to 1958-59. The central document is the deed of wakf dated 6th July 1953, originally in Gujarati, which was translated into English inaccurately in material respects. The deed authorizes the trustees to apply the income of the wakf fund for charitable purposes, primarily to assist the poor, with priority given first to poor relations of the settlor and then to poor members of the Memon Jamat in the relevant mohalla. The legal question is whether the income of this trust is exempt from taxation under section 4(3)(i) of the Income-tax Act, 1922.
Legal Issues Presented
- Whether the properties held by the trustees are held wholly for charitable purposes within the meaning of section 4(3)(i) of the Indian Income-tax Act, 1922.
- Whether the preferential treatment of poor relations of the settlor and members of the Memon Jamat affects the charitable nature of the trust and thus its income tax exemption.
- Whether the income of the wakf fund is exempt from taxation under section 4(3)(i) of the Act based on the true construction of the trust deed.
Arguments of the Parties
Advocate-General's Arguments
- Relied on the Bombay High Court decision in Trustees of Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax, which held that relief of the poor alone is not a charitable object unless it benefits the general public.
- Submitted that a charity intended primarily for the settlor’s poor relatives does not qualify as charitable under the Income-tax Act.
- Highlighted the importance of the dominant purpose test and argued that preference to relations or community members may negate the charitable character.
- Noted that the department had relied on an incorrect translation of the deed of wakf.
Trustees' Position (Implied from Court's Analysis)
- Contended that the dominant intention of the trust was charitable, aimed at benefiting the poor generally.
- Argued that the preference to poor relations and members of Memon Jamat does not diminish the trust’s charitable character.
- Relied on precedent from the Supreme Court in Trustees of the Charity Fund v. Commissioner of Income-tax supporting exemption despite preferential clauses.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Trustees of Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax (Bombay High Court) | Relief of the poor alone is not charitable unless it benefits the general public; preference to settlor’s relatives negates charitable status. | Used to frame the issue of whether preference to relations affects charitable character; court distinguished facts on dominant intention. |
| Trustees of the Charity Fund v. Commissioner of Income-tax (Supreme Court) | Preference to settlor’s relatives does not negate charitable status if dominant purpose is charitable; income may be exempt under section 4(3)(i). | Applied to conclude that preferential clauses do not affect the charitable nature if dominant intention is public benefit. |
| Commissioner of Income-tax v. Trustees of Seth Meghji Mathuradas Charity Trust (Bombay High Court) | Dominant charitable intention prevails despite preference to caste, family, or relatives; trustees’ discretion preserves charitable character. | Supported the principle that preference clauses do not override the dominant charitable intention of the trust. |
Court's Reasoning and Analysis
The court began by examining the deed of wakf and noted that the English translation provided was materially inaccurate, affecting the understanding of the trust’s provisions. It analyzed the relevant clauses, particularly clause 7, which directs the income surplus to be used for charitable purposes, primarily to help the poor with a preference for poor relations and members of the Memon Jamat.
Relying on the principle established by the Supreme Court in Trustees of the Charity Fund, the court emphasized that the presence of a preference for relations or community members does not negate the charitable nature of the trust if the dominant intention is charitable. The court distinguished the precedent from the Bombay High Court in Gordhandas Govindram by highlighting that the dominant intention in the present case was to benefit the poor generally, not exclusively the settlor’s family or a narrow group.
The court found that the trust deed, read as a whole, demonstrated a clear dominant charitable intention. The preference clauses were secondary and did not affect the overall charitable character. The court also noted that the trust would continue to operate even if the preferred beneficiaries ceased to exist, indicating a broader charitable purpose.
In conclusion, the court answered affirmatively the question whether the income of the trust is exempt under section 4(3)(i) of the Income-tax Act, based on the true construction of the deed and the dominant intention of the settlor.
Regarding costs, the court observed that the department had relied on an incorrect translation of the deed and therefore ordered that each party bear its own costs.
Holding and Implications
The court's final decision was to answer the reference question in the affirmative, holding that the income of the Haji Ahmed Haji Abdul Kadar Moosa Wakf Fund is exempt from taxation under section 4(3)(i) of the Indian Income-tax Act, 1922.
The direct effect of this decision is that the income derived from the trust property during the specified assessment years is not taxable. The ruling clarifies that preferential treatment to poor relatives or community members does not negate the charitable nature of a trust if the dominant intention is to benefit the poor generally. No new precedent was established beyond applying existing principles to the facts of this case.
1. This is a reference under section 66(1) of the Indian Income-tax Act, 1922, at the instance of the Commissioner of Income-tax, Gujarat. The assessees in this case are the trustees of Haji Ahmed Haji Abdul Kadar Moosa Wakf Fund. The assessment years with which we are concerned are the years 1954-55 to 1958-59, the relevant accounting periods being the years ending 31st March, 1954, to 31st March, 1958. The deed of wakf, which is required to be considered in this case, is dated 6th July, 1953. The deed is in Gujarati language. The English translation of that deed, which is annexed as annexure "A" to the reference paper-book, does not correctly translate the relevant provisions contained in the deed of wakf. The relevant portion of the translation set out in the statement of the case does not bring out the true effect of the original clause in Gujarati. Clause 7 of that deed of wakf provides that the surplus out of the income of the wakf shall be utilised by the trustees for the following purposes and objects of the wak : (1) to help the poor. In doing so, help must first be given out of the income of the wakf to the relations of Haji Ahmed Haji Abdul Kadar Moosa who are poor. Thereafter, preference should be given to the members of the Memon Jamat residing in the mohalla of Haji Ahmed Haji Abdul Kadar who are poor. There are other provisions subsequently set out. The trustees are authorised to apply the income of the trust fund to any of the objects of the trust in such manner and to such extent as the trustees may, in their absolute discretion, deem fit. The question that has arisen for consideration is whether the income of this trust is exempt from taxation under the provisions of section 4(3)(i) of the Act. section 4(3)(i) of the Indian Income-tax Act, 1922, provides as unde :
"4. (3) Any income, profits or gains falling within the following clauses shall not be included in the total income of the person receiving the :
(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."
2. The question that arises for consideration is whether the properties in question are held in trust or other legal obligation wholly for charitable purposes. The learned Advocate-General placed reliance upon a decision of the Bombay High Court in the case of Trustees of Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax. In that case, a Division Bench of the Bombay High Court consisting of Chief Justice Chagla and Justice Tendolkar held that in India, relief of the poor by itself would not be a charitable object unless it involved as object of general public utility and, consequently, any charity which was intended for the relief of the poor relatives of the settlor or donor was not a charity that fell within he definition of the Indian Income-tax Act. They further held that where the primary purpose of the settlor was to benefit the members of his family and remotely and indirectly to benefit the general public then it could not be stated that the settlement was for a charitable purpose within the meaning of the Income-tax Act. He very fairly invited our attention also to a decision of the Supreme Court on the subject in the case of Trustees of the Charity Fund v. Commissioner of Income-tax. In that case, a deed of trust executed by Sir Sassoon David, Bart., provided, inter alia as follow :
"13. 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 sa :
(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 seen proper.....
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; provided further that in the application of the income of the said charitable trust fund the said trustees for the time being shall observe the following proportions, viz., that not less than half the income of the said funds shall at all times be applied for the benefits of the members of the Jewish community of Bombay only (including the relations of Sir Sassoon David, Bart., as aforesaid) and Jewish objects and particularly in giving donations to the members of the Jewish community of Bombay on the anniversary of the death of the said Sir Sassoon David, Bart., and his wife Lady Hannah David which falls on the twenty-second day of June and the remaining income for the benefit of all persons and objects including Jewish persons and objects and in such proportions as the said trustees may think proper.....".
3. The Supreme Court in that case held that the circumstances 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 the public charitable trust and the income from the properties came within the scope of section 4(3)(i) and was exempt from taxation. In that case the relations or the members of the family of the settlor did not come directly under any of the other clauses of the deed of trust. The Supreme Court observed that the very fact that the relations or members of the family did not come directly under any of those later sub-clauses, could not be ignored for the certainly had some bearing on the question as to who or what were the primary objects of the trust as a whole.
4. A reference was also made to a decision of the Bombay High Court in the case of Commissioner of Income-tax v. Trustees of Seth Meghji Mathuradas Charity Trust. In that case, the settlor had directed that the balance of the income of the trust property was to be utilised for certain specified charitable purposes, the benefits of which were to enure only to persons belonging to the three upper or twice-born classes of the Hindu community. It further directed
"that in carrying out one of the above charitable intentions, the trustees shall always prefer the members of (the settlor's) caste to the members of any other caste in the Hindu community, and shall further prefer members of (the settlor's) family and (the settlor's) relatives, to those who were not such members and relatives."Following the decision of the Supreme Court in the case of Trustees of the Charity Fund v. Commissioner of Income-tax, the court held that there was a dominant charitable intention expressed by the settlor and that it could not be said that by reason of the proviso, the dominant charitable intention expressed by the settlor, which authorised the trustees to select the parties in their absolute discretion for application of the income of the trust properties, was effected. It was only after the purpose or object was selected that the question of preference arose.
5. Applying the test laid down by the Supreme Court to the facts of the present case, we have no doubt in our minds that the dominant object of the settlor in providing sub-clause (1) of clause 7 was to benefit the poor. The fact that a provision has been made that the relations of Haji Ahmed Haji Abdul Kadar Moosa out of the poor were to be helped first could not make any difference. The fact that it has been provided that the members of the Memon Jamat of the mohalla of Haji Ahmed Haji Abdul Kadar Moosa who were poor were to have preference, after the poor relations had been exhausted, would not equally matter. It may be that the relations of the settlors may not be poor. It may be that, in course of time, they may become extinct. But the trust would remain and would have to be carried out. What we have to consider is, what was the dominant intention. The trust was to be in operation so long as there were properties to which the trust could attach. In the course of the arguments reference has not been made to any other provision. Reading the deed of wakf as a whole, the dominant intention appears to be charitable.
6. The question which we are asked to answer is the followin :
"Whether, on the facts and circumstances of this case, on a true construction of the several clauses of the trust deed dated July 6, 1953, as a whole the income of the assessee is exempt from taxation under section 4(3) of the Indian Income-tax Act?"
7. In view of what we have stated above, our answer to the question is in the affirmative.
8. The learned Advocate-General, who appears for the Commissioner of Income-tax, intimated to us that the correct copy of the deed of wakf was never supplied to the department and that reliance was only placed on the translation which, in our view, is incorrect in material particulars. In this view of the matter, we consider that the fair order to make as regards costs would be that each party should bear its own costs and we order accordingly.
9. Question answered in the affirmative.
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