Commissioner Of Income-Tax, Central-I, Calcutta v. Upper Ganges Sugar Mills Ltd.

Suhas Chandra Sen, J.:— The Income-tax Appellate Tribunal has referred the following question of law for the opinion of this court:

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee was entitled to the relief under section 80G on the donations paid to Vishwa Mangal Trust?”

2. This reference raises a-question of construction of the third Explanation to s. 80G(5) of the I.T Act, 1961. Section 80G allows deduction in respect of donations made to a charitable trust. The third Explanation makes it clear that “charitable purpose” does not include any purpose the whole or substantially the whole of which is of a religious nature.

3. The present reference relates to the assessment year 1973-74. By an assessment order of December 27, 1976, the ITO had allowed deductions under s. 80G on a donation of Rs. 25,000 paid by the assessee company (M/s. Upper Ganges Sugar Mills Ltd., Calcutta) to the Vishwa Mangal Trust. Subsequently, the proceedings were reopened. The trust deed of Vishwa Mangal Trust was examined. The ITO found that clause 2(h) contained an object which was wholly of a religious nature and accordingly was not a charitable purpose. The deduction claimed under s. 80G was held not allowable. The assessment order was modified accordingly.

4. On appeal, the finding and conclusion of the ITO were affirmed by the A AC.

5. The assessee went up to the Tribunal. The Tribunal held that cl. 2(h) read in the light of the various other clauses of the trust deed shows that the underlying idea of cl. 2(h) was the welfare of human brotherhood and the propagation of the concept of universal brotherhood which was not wholly or substantially of a religious nature. On this view, the appeal was allowed and the assessee was held entitled to relief under s. 80G on the donations made to the Vishwa Mangal Trust.

6. In order to resolve the controversy raised in this reference, it is necessary to examine the trust deed. The second clause of the deed lays down the various objects of the trust. It reads:

“2. (a) To establish, support and maintain schools, colleges, libraries, reading rooms, lecture halls, public museums and to grant aid to, support and maintain persons and institutions for the promotion of science or literature or fine arts or diffusion of useful knowledge or galleries of paintings and other works of art or collection of natural history, economic and scientific inventions and designs.

(b) To establish and maintain or grant aid to hospitals, medical schools or colleges, nursing institutions and such other institutions.

(c) To grant relief on the occasion of earthquakes and floods and other occasions of calamities of similar nature or to give donations to other institutions or persons doing such relief works.

(d) To establish and maintain studentships, give prizes and to grant and to poor students.

(e) To establish boarding houses and hostels for students.

(f) To promote physical culture and education and to assist and promote sports and games and generally to do all acts for the improvement of general health and physical development.

(g) To establish and maintain and to grant aid to centres for diffusion of Indian art and culture.

(h) To establish, maintain and to grant and/or aid to public places of worship and prayer halls.

(i) To establish, support and maintain and/or to grant aid to almshouses and/or to give relief to the poor and needy persons.

(j) To establish, support and maintain and/or to grant aid to institutions for uplift of backward and depressed classes irrespective of caste, creed or nationality.”

7. The third clause reads:

“The trustees shall from time to time collect funds which and/or the income thereof will be utilised for the objects aforesaid. All investments and properties of the trust for the time being held by the trustees is hereinafter referred to as the trust fund.”

8. The other clauses of the deed relate to powers of the trustees and the method of management of the trust which are not material for our purpose.

9. For the Revenue, our attention was invited to cl. 2(h) which says:

“To establish, maintain and to grant and/or aid to public places of worship and prayer halls.”

10. In view of cl. 3, the trustees have discretion to use the funds of the trust for any one or more or all of the purposes mentioned in cl. (h), viz., in relation to public places of worship and prayer halls.

11. The question is whether the assessee was entitled to deduction of the amount of donations paid by it to the Vishwa Mangal Trust under s. 80G of the I.T Act. Under this section, the donations to a trust fund are admissible deductions if the trust is, inter alia, established for a charitable purposes. Section 80G provides that in computing the total income of an assessee, certain deductions will have to be allowed in respect of donations made by an assessee in accordance with and subject to the provisions of that section. Sub-s. (2) of s. 80(G) enumerates a number of institutions, donations to which will be eligible for deduction under s. 80G. Sub-ss. (3) and (4) deal with computation of the deductible amount. Sub-s. (5) provides that donations to an institution or fund established in India for a charitable purpose will also qualify for exemption if certain specified conditions are fulfilled.

12. The conditions important for our purpose are as under:

“80G. (5) This section applies to donations to any institution or fund referred to in sub-clause (iv) of clause (a) of sub-section (2), only if it is established in India for a charitable purpose and if it fulfils the following conditions, namely:—…

(ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable-purpose;

(iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;…

Explanation 3.—In this section, ‘charitable purpose’ does not include an purpose the whole or substantially the whole of which is of a religious nature.”

13. Section 80G was inserted in the I.T Act in place of s. 88 with effect from April 1, 1968. Section 88 specifically laid down that an assessee would be entitled to deduction in respect of donations to charitable institutions in accordance with and subject to the provisions of that section. The deduction from the total income that was allowable under s. 88 was only in respect of donations to certain specified institutions or to any institution or fund established in India for a charitable purpose. The language was significantly different from the language of s. 11 which exempted “income derived from property held under trust wholly for charitable or religious purposes” from inclusion in the total income of a person. Section 88 was amended by Finance (No. 2) Act of 1965. By s. 9 of the amending Act, an Explanation was provided to the following effect (see [1965] 58 ITR (St) 3):

“In this section, ‘charitable purpose’ does not include any purpose the whole or substantially the whole of which is of a religious nature.”

14. In the Memorandum explaining the provisions of the Finance (No. 2) Bill, 1965, the reasons for providing the Explanation was stated as under (see [1965] 57 ITR (St) 68):

“Donations made by an assessee to an institution or fund established in India for a charitable purpose qualify for a rebate of income-tax, subject to certain monetary limits, under section 88 of the Income-tax Act. One of the conditions for the grant of the rebate is that the instrument under which the institution or fund is constituted or its rules should not permit the utilisation of any part of its income or assets for any purpose other than a charitable purpose. In other words, each one of the objects of the institution or fund must be charitable in nature.

Recently, a High Court has held in a case decided under the Gift-tax Act, 1958, that the scope of the expression ‘charitable purpose’ is wide enough to cover a religious purpose also. This interpretation will have the effect of widening the scope of the above-mentioned provision in the Income-tax Act by way of enabling assessees to claim a rebate of income-tax in respect of donations made to institutions or funds established for a religious purpose also. This is, however, not in accordance with the intention underlying the provision and the interpretation which has so far been given to it in practice. The Income-tax Act makes a distinction between a charitable purpose and a religious purpose. For instance, section 11 of the Income-tax Act which exempts from tax the income derived from property held on trust for charitable or religious purposes, specifically mentions “religious purposes” besides charitable purposes. The distinction between a charitable purpose and a religious purpose is implicit in section 88 of the Act also because that section contains a separate provision for a rebate of income-tax in respect of donations made for the purpose of renovation or repair of a temple, mosque, gurdwara, church or any other place notified by the Government to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States.

It is, therefore, proposed to make a provision in the Income-tax Act, clarifying that “charitable purpose” shall not include a purpose the whole or substantially the whole of which is religious in nature. This provision will have effect in relation to donations made on or after April 1, 1964, for a charitable purpose or to an institution or fund established for a charitable purpose, and not such donations made before the said date.”

15. Section 80G was inserted in place of s. 88 and Explanation 5A to s. 88 has become Explanation 3 to s. 80G.

16. The short point in this case is whether the purposes of the trust called Vishwa Mangal Trust include a purpose the whole or substantially the whole of which is of a religious nature. The purposes of the trust which are set out in the object clause of the trust deed are mostly charitable. The purposes include establishment and maintenance of schools, colleges, libraries, reading rooms, lecture halls, establishment, maintenance or granting of aid to medical schools, colleges or nursing institutions, etc. But clause (h) of the object clause is (to establish, maintain and to grant aid to public places of worship and prayer halls).

17. One of the purposes of the trust is to establish, maintain and/or to grant aid to public places of worship. This clearly is a religious purpose. It will be open to the trustees to spend the entire income or the funds belonging to the trust for this purpose alone. This purpose squarely comes within the mischief of Explanation 3 to s. 80G.

18. It was argued by Mr. Bajoria that the purpose was not only to establish, maintain or grant aid to public places of worship but also for establishment, maintenance and granting of aid to prayer halls. It was contended that “establishment or maintenance of prayer halls” is not a religious object. This argument cannot be accepted for two reasons. Clause (h) contains two purposes, each independent of the other. In order to succeed, the assessee must establish that each of the two purpose? is a non-religious purpose. Merely because a number of purposes have been set out in one clause, the purposes do not become one composite purpose. It will be open to the trustees under the deed of trust to legitimately spend the entire funds of the trust for setting up temples. In my judgment, establishment or maintenance or grant of aid to public places of worship is wholly a religious purpose.

19. Moreover, I fail to see how setting up of prayer halls can be a nonreligious purpose. Prayer is a matter of faith. It was observed by Byles J. in the case of Baxter v. Langley, 38 LJMC 1. “What is prayer ?” Barrow says “It is not only supplication, but adoration.”

20. The dictionary meaning of “prayer” according to. Webster's New International Dictionary, second edition, is:

“1. (a) Act or practice or an instance of praying; beseeching; petition; supplication.

(b) An earnest request to someone (for something); an entreaty.

2. Act of addressing supplication to a divinity or object of worship, the offering of adoration, confession, supplication, thanks-giving, etc., to a God; as, public prayer; secret prayer.

3. The form of words used in praying; a formula of supplication; an expressed petition; esp., a supplication addressed to God; as, the Lord's prayer a written prayer.

4. Often in pi. A form of religious service or worship for public or common use, consisting largely of prayers; as, morning or evening prayer; family prayers.”

21. To an ordinary Indian, prayer is a religious practice. It is used in the sense of supplication and entreaty addressed to God. Christians, Muslims, Hindus, Sikhs, Parsees and Jews offer prayer every day all over India in their homes, in temples, in prayer halls, even in the fields and in forests. The author of the trust has mentioned maintenance and establishment of prayer hall as one of the purposes of the trust. A prayer hall is a place where people assemble to pray. “Prayer Meeting” according to Webster's Dictionary (supra) is “a meeting or gathering for praying to God, esp. in which several or all offer prayer”.

22. Can there conceivably be a prayer hall for offering non-religious prayers? In the course, of the argument, an illustration was given that prayers are made to Mahatma Gandhi. We have no evidence that this is factually correct. Homage is paid to the memory of Mahatma Gandhi as homage is paid to the memories of many other illustrious persons. But that is not the same thing as praying to Mahatma Gandhi. When a Buddhist prays to Buddha or a Christian prays to Jesus Christ or a Muslim prays to Mohammad or a follower of Sri Aurobindo prays to Sri Aurobindo, it is nothing but practice of religion. If a man offers prayers to Mahatma Gandhi, assuming that such prayers are offered, it is equally a religious exercise. To such a devotee, Mahatma Gandhi has all the attributes that Buddha has for the Buddhist, or Jesus Christ for the Christian.

23. The author of the trust is an Indian. The words used in the trust deed must be construed bearing in mind the way of life and thinking of ordinary Indians. “Prayer” is a word of every day use and is a very common thing with the Indians and must be understood in the vernacular of the common people and in the way an average Indian understands it. I fail to see how a prayer hall can be a place for worldby or temporal activity as opposed to religious activity. A non-religious prayer hall is a contradiction in terms. In any event, the language of the deed does not suggest either in clear words or by implication that the intention of the author of the trust was to set up non-religious prayer halls in India. In my judgment, establishment of public places of worship and prayer halls can only be for a religious purpose.

24. It was argued on behalf of the assessee that by the trust deed, the trustees were empowered to set up places of worship and prayer halls not for any particular community or religion. Therefore, this object should not be regarded as a religious object. But that, in my opinion, is quite an irrelevant consideration. Section 80G(5)(iii) disqualifies an institution or fund from the exemption if “the institution or fund is not expressed to be for the benefit of any particular community or caste Section 80G(5)(iii) ensures that even a charitable trust will not qualify for the benefit of s. 80G if it is expressed for the benefit of any particular religious community. It does not deal with the contingency of an otherwise charitable trust having a religious purpose. We are in this case concerned with Explanation 3 which categorically excludes from “charitable purpose” any purpose “the whole or substantially the whole of which is of a religious nature If a trust is set up for advancement of all the religions in the world, there can be little doubt that the purpose of the trust will be of a religious nature, even though it is not expressed to be for the benefit of any particular religious community or caste.

25. It was next argued that the trust was not set up wholly or substantially for religious purpose. Reliance was placed in the case of Walls v. Peak [1960] 2 All ER 81 for this proposition. In that case, the Court of Appeal was construing the meaning of “Dwelling house” which was defined to mean “A hereditament used wholly for the purpose of private dwelling or private dwellings There it was held by the Court of Appeal that to come within the mischief of the expression “wholly for the purpose of”, it must be established that a dwelling house was used either wholly for the purpose of or at least; substantially wholly for such purpose.

26. But the problem in this case is quite different. The assessee, in order to succeed, has to establish that the trust deed does not contain “any purpose the whole or substantially the whole of which is of a religious nature In the instant case, in the object clause of the trust deed, a number of charitable purposes have been set out; but one of the purposes is “to establish, maintain and to grant and/or aid to public places of worship and prayer hall”. This, in my view, is an entirely religious purpose.

27. Next it was argued that a public place of worship or a prayer hall need not necessarily be put to religious use. It may have other uses and this has been recognised by the Supreme Court in the case of Hiralal Mallick v. State Of Bihar, (1977) 4 SCC 44 : AIR 1977 SC 2236. In that case, a boy of 12 preferred an appeal against his conviction under s. 302 read with s. 34 of the Indian Penal Code. The Supreme Court sustained the conviction. Krishna Iyer J. made some observations about how the prisoners should be treated in prison. In that connection, reference was made to an experiment conducted on the effects of transcendental meditation. Krishna Iyer J. emphasised that transcendental meditation was just not religion. The Supreme Court quoted with approval the observation that “its tranquillizing effect on body and mind ultimately leading to the greater goal of cosmic consciousness or universal awareness has been studied by using over a hundred parameters…………The self of every man has been found to be his consciousness and its full potential is found in the state of a least excitation of consciousness, which is the most simple of awareness

28. This case really has no relevance to the controversy raised before us. Worship and prayer may bring a man mental peace and poise. But that will not make either worship or prayer a non-religious activity. A man of religion may have greater mental poise than a non-religious person. But the fact that a religious man has mental peace and some people practise religion for acquisition of mental peace will not make religious practices like worship and prayer non-religious activities.

29. In the case of S.P Mittal v. Union of India, (1983) 1 SCC 51 : AIR 1983 SC 1, the Supreme Court held that the Auroville (Emergency Provisions) Act (59 of 1980), did not stand in the way of the society establishing and maintaining institutions for religious and charitabe purposes. It also did not stand in the way of the society to manage its affairs in matters of religion. It had only taken over the management of the Auroville in respect of secular matters. The Act neither violated art. 25 or art. 26 of the Constitution. It was emphasised by Misra J. at p. 30:

“The impugned enactment does not stand in the way of the society establishing and maintaining institutions for religious and charitable purposes. It also does not stand in the way of the Society to manage its affairs in matters of religion. It has only taken over the management of the Auroville by the Society in respect of the secular matters.”

30. This case merely recognises the distinction between religious and charitable purposes of the society and the other purposes. The Supreme Court has pointed out that the Act does not stand in the way of the society managing its affairs in matters of religion.

31. It is well settled that the language used in a trust deed should be interpreted in accordance with reason and common sense. It must receive a construction according to the plain meaning of the words and sentences therein contained. (Per Lord Halsbury L.C in Leader v. Duffey [1888] 13 AC 294, 301).

32. Prayer and worship in common parlance denote religious activities. Every day thousands of people of every religious community all over India engage themselves in prayer and worship either in their home or in public places of worship and prayer. Clause 2(h) of the trust deed sets out two purposes: one relates to places of worship, the other relates to prayer halls. Prayer halls and places of worship are places where people congregate to worship and pray. I fail to see how cl. 2(h) can be construed to be a non-religious purpose.

33. The question of law referred by the Tribunal, therefore, is answered in the negative and in favour of the Revenue.

34. There will be no order as to costs.

Satish Chandra, C.J:— I agree.