The Judgment of the Court was delivered by
Raghavan, J.:— Common questions arise in these references; and as many as eight questions have been referred to us. These questions are:
“(1) Whether clauses 9 and 13 of the trust deed can be interpreted to mean that poverty is the test in the matter of utilisation of half of the income from the properties in question on the descendants of the settlor or the payment is contingent upon the descendants being in financial distress?
(2) Whether utilisation of half of the income on the descendants is, in the circumstances of the case, a charitable purpose which enures for the benefit of the public?
(3) Whether a purpose of a charitable nature which does not enure for the benefit of the public can be a ‘charitable purpose’ for the purpose of section 4(b) of the Agricultural Income-tax Act?
(4) Whether the provision for charitable purposes in clause 8 of the trust deed makes the separate and independent provision in clause 9 of the deed for the utilisation of a specific part of the income on the descendants also a provision for charitable purposes or on the other hand the trust is a mixed trust?
(5) Whether augmentation of the properties of a mixed trust can be a ‘charitable purpose’ for the purpose of section 4(b) of the Agricultural Income-tax Act?
(6) Whether the dominant purpose of the trust deed is charitable?
(7) Whether the income for the augmentation of the trust properties in question is exempt from tax?
(8) Whether the properties in question are held under trust wholly for religious or charitable purposes?
2. The provision of the Agricultural Income-tax Act of 1950 with which we are concerned is section 4(b), which gives exemption from tax to:
“Any agricultural income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied thereto.”
3. There is an Explanation to this sub-section which is in these terms:
“In this section ‘charitable purposes’ includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.”
4. These references came up before this court on a previous occasion; and this court appears to have directed the Tribunal to furnish a correct copy of the trust deed, since it was felt that the English version of the trust deed submitted was not a correct translation of the document. Consequently, the Tribunal has now submitted fresh statements of the cases and also a copy of the document of trust in Malayalam. We shall now refer to the relevant provisions of this document bearing on the question to be decided by us. Paragraph 8 of the trust deed provides that, after meeting the expenses of upkeep, maintenance, etc., of the trust properties the remaining income should be divided into four equal parts at the end of every year and one such part should be utilised for providing food, clothing, etc., to indigent members of the founder's parents' families and to new converts to Islam; for teaching Islamic tenets; for popularising other languages among Muslims; for renovating damaged mosques; for giving aid for constructing new mosques; for constructing new mosques; for purchasing land for mosques and for burial grounds; for digging free wells; for burying unclaimed dead bodies of Muslims; for providing food, clothing, etc., to indigent Cutchi Memons and widows in Travancore and Cochin; and for giving alms to the poor during Ramzan. The trustees are given freedom to spend this quarter of the income on one or more heads—one head alone or more of them. It is also provided that the whole of this quarter should be spent every year.
5. Paragraph 9 deals with two quarters of the annual income of the remaining three; and the provision is that the said half has to be spent for providing food, clothing, etc., to Moosa, the founder's grandson by a predeceased son, to Moosa's sisters, to the founder's daughters, to the descendants of the above persons if any of them is indigent, and also to their dependants. This paragraph provides further that the aforesaid persons should be provided according to their status; and that the amounts should be spent for their educational expenses too, in keeping with their status. The further provision in this paragraph is that, if the trustees are of opinion that if a lump sum of Rs. 5,000 is paid to any one branch that branch will thereafter live without need, that can also be done, but such lump sum payment should be only one in a year.
6. The next paragraph to be noted is paragraph 12, which provides that, in the matter of paying maintenance as stated in paragraph 9, the trustees must evince special care on the founder's grandson (Moosa) and his male descendants, and the amounts given to them must bear proportion to their status. The food, clothing, etc., given to these persons must be such as they will not have to depend upon anybody else and must be such as to enable them to live without any difficulty. It is also provided that the amounts given must be sufficient to meet the educational expenses, marriage expenses, etc., and the amounts must be paid as and when such expenses arise. Lastly it is provided in this paragraph, that, in case the descendants mentioned above become extinct, the said two quarters—the half—should be added to the amount mentioned in paragraph 8 and should be spent as indicated in paragraph 32.
7. In paragraph 13 the founder thanks Allah for providing Moosa and his sisters and also the founder's daughters sufficient means to enable them to be above want; and also prays to Allah that they be retained in affluence for all time. It is also stated that, if they continue to be affluent, they may not require any help as provided for in paragraph 9, and, in that event, the said half mentioned in paragraph 9 should also be utilised for augmenting the corpus of the trust. The further provision in this paragraph is that the fourth quarter of the annual income should also be utilised for augmenting the properties of the trust.
8. The only other provisions to be noted are paragraphs 18, 32 and 34. Paragraph 18 says that the trustees may make rules for augmenting the trust properties, for protecting them, for conducting the charities as provided in paragraph 8 and also for adding to the items of charities in the said paragraph. In any event, such rules for the discharge of charities should not be against the Sharan. Paragraph 32 provides that, in case the descendants of the founder mentioned in paragraph 9 become extinct, then all the income derived from the trust properties should be divided into four and three quarters out of the four should be spent as provided in paragraph 8 and the remaining fourth should be utilised for augmenting the trust. Under paragraph 34, substantial other properties are given to the grandson, Moosa.
9. The other provisions in the document are not relevant for deciding the questions referred to us.
10. Three decisions of the Supreme Court have been cited before us; and the first of them is Commissioner of Income-tax v. Andhra Chamber of Commerce [1965] 55 I.T.R 722. Shah J., speaking for the court, observed that the expression “object of general public utility” in relation to section 4(3)(i) of the Indian Income-tax Act of 1922 was not restricted to objects beneficial to the whole of mankind, and an object beneficial to a section of the public was also an object of general public utility. The learned judge observed that to serve as a charitable purpose it was not necessary that the object should be to benefit the whole of mankind or even all persons living in a particular country or province; it was sufficient if the intention was to benefit a section of the public as distinguished from specified individuals. The Supreme Court was considering whether a building purchased by the Andhra Chamber of Commerce was property held under trust or other legal obligation wholly or in part for religious or charitable purposes and the income therefrom was exempt from tax under section 4(3)(i) of the Indian Income-tax Act: and the court held that the advancement or promotion of trade, commerce and industry leading to economic prosperity enuring for the benefit of the entire community was an object of general public utility, and the fact that the prosperity would be shared by those who engaged themselves in trade, commerce and industry would not make the object any the less an object of general public utility.
11. The next decision of the Supreme Court is Trustees of the Charity Fund v. Commissioner of Income-tax. In this decision, the trust the Supreme Court was considering was one founded by Sir Sassoon David, Bart. There were five or six purposes mentioned in the relevant clause of the document with two provisos added thereto. All the purposes mentioned in the body of this clause were charitable purposes; but the first proviso said that, in applying the income as mentioned under the several heads, the trustees should give preference to the poor and indigent relations or members of the family of Sir Sassoon David, and the second proviso said that, in the application of the income of the trust, not less than half should at all times be applied for the benefit of the members of the Jewish community of Bombay including the relations of Sir Sassoon David and other Jewish objects, particularly for giving donations to members of the Jewish community of Bombay on the anniversary of the death of Sir Sassoon David. The argument before the Supreme Court was that these provisos made the trust a private trust. The Supreme Court rejected this contention and held that, since the main purposes, omitting the provisos, constituted a valid public charitable trust and since the relations or members of the family of Sir Sassoon David did not figure as direct recipients of any benefit under those provisions, the trust was a public charitable trust; and that the mere fact that 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 nature of the trust.
12. And the last Supreme Court decision is East India Industries (Madras) (P.) Ltd. v. Commissioner of Income-tax [1967] 65 I.T.R 611. A trust was created for various objects, one of which was to manufacture, buy, sell and distribute pharmaceutical, medicinal, chemical and other preparations. The objects included several charitable and religious purposes. One of the paragraphs of the trust deed provided that the objects should be independent of each other and that the trustees had the discretion to apply the trust property in carrying out all or any of the objects as the trustees might deem fit. The Supreme Court held that the carrying on of a business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations was neither a charitable nor a religious purpose and since the trustees could, under the deed, validly divert the whole income of the trust to one of the heads, viz., the carrying on of a business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations, the said object being non-charitable, the trust property was not held wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Indian Income-tax Act.
13. In addition to these decisions, two decisions of the Madras High Court, three of the Bombay High Court, one of the Calcutta High Court and one of the Gujarat High Court have also been brought to our notice. The decisions of the Madras High Court are Commissioner of Income-tax v. M. Jamal Mohamad Sahib and Commissioner of Income-tax v. Aga Abbas Ali Shirazi. In the first of these cases, Leach C.J, who delivered the judgment of the Full Bench, held that the expression “charitable purposes” must be construed strictly and be applied only to a public charity. The learned Chief Justice observed that there was no such thing as a private charitable trust—there might be a private trust for religious purposes, but no private charitable trust. Leach C.J held further that, where a wakf deed directed that half of the annual net income of the trust should be utilised for the expenses of maintenance, education, marriage and funeral and other necessities of such members of the donor's family in the male line as in the opinion of the mutawalli were in poor and needy circumstances and the other half of the annual net income was to be utilised for charitable purposes, then that part of the trust which related to the setting apart of the income for the descendants of the donor did not constitute a trust for charitable purposes as the utility was not of a public nature; and that, since the mutawalli had in his hands income belonging to a private trust, he was assessable in respect of it.
14. In the second case (Aga Abbas Ali Shirazi's case) again, Leach C.J observed that, where a settlor by a wakf made a settlement of immovable property for the benefit of his poor relations, for celebrating Mohurram and other religious festivals of the Shiahs, for the conduct of marriages and burials of the dead bodies of poor Mussalmans, for the benefit of poor Syeds and for such other religious, pious or charitable purposes as were allowed by Mussalman law, the benefit of the poor relations of the settlor could not be deemed to be a charitable purpose; and that, since the trustees were given the power to apply the whole of the income for one of the objects, the deed did not fulfil the requirements of section 4(3)(i) of the Indian Income-tax Act.
15. The decisions of the Bombay High Court are Trustees of Gordhandas Govindram Family Charily Trust v. Commissioner of Income-tax, Commissioner of Wealth-tax v. Trustees of the J.P Pardiwala Charity Trust and. Trustees of Gordhandas Govindram Family Charity Trust v. Commissioner of Income-tax [1968] 70 I.T.R 600 Bom... In the first of these cases, Chagla C.J, who delivered the main judgment to which Tendolkar J. agreed, observed that in India relief of the poor by itself would not be a charitable object unless it involved an object of general public utility. As a consequence of this, the learned Chief Justice observed further, any charity which was intended for the relief of the poor relatives of the settlor or donor was not a charity falling within the definition of the Indian Income-tax Act. The learned Chief Justice again observed that, where the primary purpose of the settlor was to benefit the members of his family and only 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 Indian Income-tax Act. Chagla C.J also observed that, where under a trust deed the poor members of the family of the settlor were to be the first objects of the charity, both in respect of maintenance and also for marriage expenses, and it was only after all the members of the family were exhausted that a section of the public would come in for benefit, then the property under the trust was not held wholly for charitable purposes and the income was therefore not exempt from tax under section 4(3)(i) of the Indian Income-tax Act.
16. In the next decision the Bombay High Court was considering a pro vision of the Wealth-tax Act. The trust which the High Court had to consider in that case was Jehangir Pestonji Pardiwala Charity Trust; and though one of the clauses of the document of trust empowered the trustees to expend money on certain religious ceremonies for the repose of the soul of the members of the settlor's family, another clause of the document authorised the trustees to pay money towards the maintenance and support of the settlor's relatives and/or other indigent persons. It was argued that, for that reason, the trust was not a public trust. The High Court held that ceremonies performed for the repose of the soul of a deceased individual enured for the benefit of mankind at large, and as such, the purpose was a public purpose of a religious nature. The High Court also held that the word “other” in the other clause showed that the reference to the relatives of the settlor was a reference to indigent persons and not to all his relatives irrespective of their financial condition. In that view, the Bombay High Court held, the directions contained in the trust deed did not make the trust any the less a public charitable trust.
17. The last case of the Bombay High Court was again under the Wealth-tax Act. It was held therein, that, if the purpose of a trust was of a public nature, the further direction regarding the selection of beneficiaries giving preference to the descendants of the settlor would not invalidate the primary object of the trust; and that in spite of such directions, the trust would still remain a public charitable trust. In this case, the Bombay High Court followed the decision of the Supreme Court in Sir Sassoon David's case.
18. The decision of the Calcutta High Court is Commissioner of Income-tax v. Keshari Singh Nahar. In the trust before the Calcutta High Court provisions were made for public charitable objects. But, a further provision was made that a building in the property should be given to the descendants of the settlor's family if they required it for any purpose like marriage, public meeting, etc. It was argued that this provision made the trust a private trust; but this contention was overruled by the Calcutta High Court. The High Court pointed out that the primary object of the trust was public charity, and merely because some reservations of a private nature were also contained in the document, the trust would not become any the less a public charitable trust.
19. The last case cited before us is the decision of the Gujarat High Court in Commissioner of Income-tax v. Moosa Haji Ahmed. In this case the Gujarat High Court held that, in deciding whether a trust was one wholly for religious or charitable purposes, it was the dominant intention of the settlor that had to be considered, and if the dominant intention was to help the poor, the mere fact that there was a direction to the trustee to give preference to the poor relations of the settlor would not render section 4(3)(i) of the Income-tax Act inapplicable.
20. The principles that may be collected from the several decisions noted above, in so far as they are relevant for the purpose of the cases before us, may now be summarised. A section of the public, as distinct from specified individuals, is also “the public”; and an “object of public utility” need not be one benefiting the whole mankind or even all persons living in a particular country or province. If the direct beneficiaries under a trust are “the public”, the trust does not lose its public character merely for the reason that reservations or preferences are made in favour of the founder's poor relations or the poor members of his family. The question whether a trust is one wholly for religious or charitable purposes has to be decided on the dominant intention of the settlor or founder; and unless the charitable object involved is an object of general public utility, the trust will not be a public charitable trust, so that a trust where the dominant intention of the founder is to provide for his poor relations will not be a public charitable trust. Similarly, a trust providing for the poor relations of the founder, and when they are all exhausted or when they become extinct, providing for public charities, will not be a public charitable trust. Again, if there are public charitable purposes and also provisions for the benefit of the relations of the founder and the trustees are given the discretion to spend the entire income on one or more of the heads with the possibility of the entire income being spent on the relations then also the trust will not be one wholly for charitable purposes. Lastly, as Leach C.J and Chagla C.J have pointed out, to provide for the poor descendants or relations of the founder is not a charitable purpose unless the object involves public utility.
21. The income-tax department and the Tribunal have both exempted from tax the first quarter of the income dealt with in paragraph 8 of the document. Strictly speaking, that quarter is not a subject-matter of the dispute before us. However, since the Government pleader has raised a contention, relying on some of the decisions discussed by us hereinbefore, that since the trustees have the discretion to divert the entire quarter of the income for expenditure on one head alone, which might be for providing food, clothing, etc., to indigent members of the founder's parents' families, even this quarter of the income would not have the character of a public charitable trust. This contention of the Government pleader is based on a wrong understanding, or a wrong appreciation of paragraph 8 of the document. Paragraph 8, as we have already indicated, contains as many as eleven heads; and the trustees' discretion is only to spend the entire quarter of the income on one of the heads, for instance, the first head. The first head is not for providing food, clothing, etc., to indigent members of the founder's parents' families alone as contended by the Government Pleader; it is for providing food, clothing, etc., to indigent members of the founder's parents' families and to new converts to Islam. In other words, even on the first head the trustees are bound to spend for providing food, clothing, etc., to indigent members of the founder's parents' families and also to new converts to Islam. Therefore, there is no possibility of the trustees spending the entire income on the descendants of the founder's parents' families alone. Thus, regarding the first quarter of the income covered by paragraph 8, there is no doubt that it is a public charitable trust. The dominant intention of the founder is to benefit the public.
22. The more important question relates to the half of the income mentioned in paragraph 9 of the document. Mr. C.K Viswanatha Iyer, the counsel for the assessee, draws our attention to paragraph 13 of the trust deed, and contends that there was no possibility of the descendants of the founder—Moosa, his sister, the founder's daughters and other descendants— claiming any help from the trust funds, because they were all well provided, at the time of the settlement. The counsel also points out that under paragraph 34 substantial properties were given to Moosa, so that there was no possibility of his or his descendants being indigent either. The counsel proceeds to contend that the dominant intention of the founder was only to provide for public charities and not for providing food, clothing, etc., for his own descendants. In other words, the argument of the counsel is that the ultimate purpose of the settlement was to provide for public charities. (This is how the Tribunal has understood the provision: the Tribunal has held that this half is also a public trust, since the ultimate purpose was public charity).
23. We find it difficult to agree with this contention of Mr. Viswanatha Iyer. From paragraphs 9 and 12 it is quite clear that the intention of the founder was to provide for his descendants both in the male line and in the female line. The several provisions in these two paragraphs indicate that the trustees must pay special attention and special care in providing funds for his descendants. It is further provided under these paragraphs that what is paid to these individuals should be in consonance with their status. The provision in paragraph 13 is only a hope that his descendants would never become indigent; and that has no force to minimise the effect of the provisions contained in paragraphs 9 and 12. Mr. Viswanatha Iyer also lays some stress on paragraph 18 of the document, where the trustees are given power to frame rules for conducting the charities and also for increasing the number of items of charities under paragraph 8. This also, in our opinion, does not make the dominant intention of the founder any the less a private purpose of providing for his own descendants. Another paragraph relied upon by Mr. Viswanatha Iyer is paragraph 32, which can come into operation only when the descendants get extinct. To say that when all the lineal descendants of the founder get extinct the trust properties should be utilised for public charities, will not make the dominant intention of the founder an intention to provide for public charitable purposes. Again, if the direct beneficiaries are the public and if the indigent descendants of the founder also come in that group as part of the public, the trust may still be public; even if preference is to be given to the indigent descendants of the founder in such a case, still the trust will not lose its public character. But a trust created to benefit the poor descendants of the founder is not a public charitable trust; and even if only the poor descendants (and not all the descendants) of the founder are to be benefited, still the trust will not be a public charitable trust unless the public are the direct beneficiaries and the poor descendants of the founder come in only as members of the public. Therefore, regarding the two quarters of the income mentioned in paragraph 9 of the document, there is no doubt that that was intended only to create a private trust.
24. The last quarter is intended for augmenting the corpus of the trust. Evidently, that can come only indirectly into the provisions contained in paragraph 8; a quarter of the income of the augmented portion will also be utilised for purposes mentioned in paragraph 8. Thus, the last quarter does not also constitute a public charitable trust. Our answers to questions Nos. 2 and 3 are in the negative, against the assessee; our answer to question No. 6 is also in the negative, namely, that the dominant purpose of the trust deed is not charitable; our answer to question No. 7 is again in the negative, namely, that the income for the augmentation of the trust properties is not exempt from tax; and our answer to question No. 8 is once again in the negative, against the assessee— that the properties held under trust are not wholly for religious or charitable purposes. In view of these answers to the 5 questions, we do not think that the other questions need be answered. The answers to the five questions given above, in our opinion, will cover the other questions as well.
25. In the circumstances, we do not pass any order regarding costs. We direct the Registrar to send a copy of this judgment to the Tribunal as required by law.
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