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P.C Lall Chaudhary v. Commissioner Of Income-Tax, Bihar And Orissa, Patna Opposite Party.
Factual and Procedural Background
The reference arises under Section 66(1) of the Income-tax Act by the Income-tax Appellate Tribunal, Patna. The Tribunal referred the following question to the Court:
“Whether on a true construction of the document, it can be held that a private trust was created and the income in the sum of Rs. 2,051/- alleged to have been received under the said deed by the Deity, Sree Bala Tripura Sundari, was not assessable in the hands of the assessee?”
The material facts are: the assessee installed the deity Sree Bala Tripura Sundari in a temple in Purnea City and allotted specified sums from the income of a fair called Gulabbagh Hat for the deity’s worship and for repairs. By a deed of dedication dated 23-5-1947 the assessee purported to make the following annual/periodic charges on the income of Gulabbagh Hat: Rs. 200 per month (Rs. 2,400 per year) for puja, bhog, etc., and Rs. 1,000 per year for repairs — a total stated as Rs. 3,400 per year as the "first charge" on Gulabbagh Hat.
In the assessee’s return a deduction of Rs. 2,051 was claimed as expenses for maintenance of the temple. That deduction was disallowed by the assessing authorities. Appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, Patna, were unsuccessful. On the assessee’s prayer the Tribunal submitted a statement of the case and referred the above question to this Court.
Legal Issues Presented
- Whether, on construction of the deed, a private religious trust in favour of the deity was created so that the sum of Rs. 2,051 alleged to have been received under the deed by the deity would not be assessable in the hands of the assessee.
- Whether the facts attract the exemption contained in Section 4(3)(i) of the Income-tax Act (i.e., whether the income was "derived from property held under trust or other legal obligation wholly for religious or charitable purposes").
- Whether the provisos to Section 16(1)(c) of the Income-tax Act apply to the present facts (as argued by the parties).
Arguments of the Parties
Appellant's Arguments (as presented)
- Mr. S.K. Mazumdar, for the assessee, argued that a legal obligation had been created by the deed of dedication and that the income from Gulabbagh Hat was settled on trust in favour of the deity.
- On that basis, the expenses/income applied to the maintenance of the temple (including the Rs. 2,051 deducted) ought to be exempt from taxation under Section 4(3)(i) of the Income-tax Act.
The opinion does not contain a comparable, detailed statement of the arguments advanced expressly on behalf of the Revenue in the body of the text.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bijoy Singh Dudhuria v. Commr. of Income-tax, Calcutta, 1933 PC 145 (AIR V 20) (A) | Allocation of a sum out of revenue before it became the personal income of the recipient — the allocated portion was never the recipient's income because it was allocated prior to becoming income. | The Court observed that this decision "can hardly be of any assistance to the assessee" in the present facts, distinguishing that case’s facts from the present case where income first accrues to the assessee and is thereafter diverted. |
| Commr. of Income-tax v. Thakur Das, 1954 Punj 17 (AIR V 41) (B) | Where a trust for a sum was already created by agreement and payments were received on behalf of the trust, such payments were held to be trust receipts and not the individual’s income. | The Court cited this case as an example where the money received by the assessee was "on behalf of and therefore clothed with a trust" — a principle not applicable to the present facts where the income first accrues to the assessee. |
| J.K. Trust, Bombay v. Commr. of Income-tax and E.P. Tax, Bombay, 1953 Bom 232 (AIR V 40) (C) | Section 4(3)(i) exempts income derived from property held under trust; it does not exempt income merely settled upon a charitable trust if that income is not itself derived from property held under the trust (i.e., mere making of a trust of future income is insufficient). | The Court treated this authority as directly against the assessee’s contention: income that comes to the assessee first and is not derived from property held under the trust is taxable despite being applied for trust purposes. |
| Commr. of Income-tax v. Eggar, 1927 Rang 95 (AIR V 14) (FB) (D) | An assessee’s assignment of salary to be held in trust did not make that salary "income from property so held" for the purpose of Section 4(3)(i); hence the exemption under that provision did not apply. | The Court relied on this authority to support the conclusion that sums which are the assessee’s income initially (even if later assigned) are not exempt under Section 4(3)(i). |
Court's Reasoning and Analysis
The Court proceeded by first accepting, for present purposes, that the deed of dedication created a private religious trust or legal obligation in favour of the deity. However, the Court emphasized the specific requirements of Section 4(3)(i) of the Income-tax Act: the exemption applies to "income derived from property held under trust or other legal obligation wholly for religious or charitable purposes."
The Court found the crucial factual and legal distinction to be that no property had been set apart exclusively to the temple; rather, the income arising from the Gulabbagh Hat accrued to the assessee first and only part of that income was subsequently applied or diverted for maintenance of the deity. In other words, the assets (and the income-generating source) remained the property of the assessee and were not held "under trust" as contemplated by Section 4(3)(i).
The Court examined the precedents:
- It observed that Bijoy Singh Dudhuria is based on an allocation of revenue before it became the recipient’s income and was therefore of limited assistance to the assessee.
- Decisions such as Commr. v. Thakur Das and Bijoy Singh illustrate circumstances where sums were either received on behalf of a trust or were never the individual’s income; those are distinguishable facts but establish the principle that where money is received on behalf of a trust it is not the recipient’s income.
- J.K. Trust, Bombay and Commr. v. Eggar, however, were held to be directly adverse: they established that Section 4(3)(i) exempts income derived from property held under a trust, and not every instance where an individual makes a trust in respect of future income. The mere settlement of part of a person’s future income upon a trust does not convert the source property into property held under trust for the purpose of the exemption.
The Court also considered whether the provisos to Section 16(1)(c) applied and concluded they did not, because the assets from which the temple was to be maintained remained the property of the assessee and the obligation to allocate funds arose only after the income had come into the assessee's hands.
The Court additionally held that the dedication was of a private religious trust and that the exemption under the clause at issue is confined to public religious trusts enuring for public benefit; the deed’s recital that "strangers and guests" would be attended to was held insufficient to impart the character of a public trust.
Holding and Implications
HOLDING: The Court answered the referred question against the assessee and held that the income in the sum of Rs. 2,051/- was not received under the deed of dedication so as to be exempt; it is assessable in the hands of the assessee.
Direct Consequences for the Parties:
- The sum of Rs. 2,051/- is taxable in the hands of the assessee.
- The assessee was ordered to pay costs of Rs. 32/- to the Income-tax Department.
Broader Implications: The Court reiterated the principle (consistent with cited authorities) that the exemption in Section 4(3)(i) applies to income "derived from property held under trust" and does not extend to cases where the income is first received by an individual and only thereafter applied for trust or religious purposes. The opinion confines the exemption to cases where the relevant property itself is held under trust (and indicates the exemption is reserved for public religious trusts as contrasted with private religious trusts not enuring for public benefit). The opinion does not purport to announce a new legal doctrine beyond applying existing authorities to the facts.
Disposition: Answer accordingly. (Choudhary, J. agreed.)
Banerji, J.:— This is a reference under Section 66(1) of the Income-tax Act by the Income-tax Appellate Tribunal, Patna. The question referred for our decision is as under:
“Whether on a true construction of the document, it can be held that a private trust was; created and the income in the sum of Rs. 2,051/- alleged to have been received under the said deed by the Deity, Sree Bala Tripura Sundari, was not assessable in the hands of the assessee?”
2. The facts giving rise to the reference are as follows: The assessee installed a deity, Sree Bala Tripura Sundari, in a temple in Purnea City, and for the performance of the worship of the deity he allotted a sum of Rs. 200/- per month out of his income from a fair known as Gulabbagh Hat. He also allotted a sum of Rs. 1,000/- per year for the repair and maintenance of the temple, which sum, too, was payable from the income of that fair. The assessee created a legal obligation on himself by executing a deed of dedication in favour of the deity on 23-5-1947, in which the details of the amounts dedicated were given, and it was stipulated as follows:
“I, the executant, have installed an idol of Sree Bala Tripura Sundari. …… according to Vedic rites and have appointed Kumar Bhuneshwari Chand Lal Choudhary and Manager of Raj Nazarganj as her Shebait and Managers. Now it is necessary to make arrangement of money for performance of her puja, arena, bhog, rag and other daily expenses.
3. Therefore, I, the executant of my own accord and free will thought it desirable to allot Rs. 200/- per month and Rs. 2400/- per year for puja, arena, bhog, rag etc., per day and Rs. 1000 every year in the month of September-October for the repairs and other works of the said Mandir, in all Rs. 3400/- out of the income of Gulabbagh Hat and it will be the first charge on the income of Gulabbagh Hat.” It was further mentioned in the deed that the bhograg of Deviji would be performed daily out of this income of Rs. 200/- per month; that, if any stranger and guest came to the Mandir, he would be duly attended to; and that the salary of the servants would be paid every month. In terms of the deed, the assessee had deducted a sum of Rs. 2,051/- showing the same as expenses towards the maintenance of the temple of the deity. This was disallowed, and an appeal before the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, Patna Branch, failed. Thereafter, on a prayer made by the assessee, the Appellate Tribunal has submitted the statement of the case and referred the question mentioned above for answer of this Court.
4. The main argument of Mr. S.K Mazumdar, appearing on behalf of the assessee, is that, as a legal obligation had been created and the income from the Gulabbag Hat settled on trust in favour of the deity, the expense incurred for maintenance of the temple was exempt from taxation. The argument so advanced has to be judged in the light of the provisions of Section 4(3)(i) of the Income-tax Act. This clause as it stood before, runs as follows:
“Any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes and in the case of a property so held in part only for such purposes, the income applied or Anally set apart for application thereto.”
5. If the provision of this clause is attracted by the facts of this case, there can hardly be any doubt that the income shall not be included in the total income of the person receiving the same. For the purposes of this case it may be assumed that the assessee has created a legal obligation for religious purposes and that a sum of Rs. 3,400/- out of the income of Gulabbag Hat has been made the first charge for the maintenance of the deity and for repairs of the temple.
6. As it is accepted in the circumstances of the case that a private religious trust has been created by the assessee, it is no longer necessary to refer to the cases cited by Mr. Mazumdar in order to ascertain the creation of a valid trust. The question is, however, whether this income from Gulabbag Hat can be exempted from taxation under Section 4(3)(i) of the Income-tax Act. It is true that the assessee has made a part of his income a charge to meet the obligation created by the deed of dedication, but no property has been set apart exclusively for the maintenance of the temple. The income arising out of the profits of the Hat is accruing to the assessee first and part of it is then used or diverted for the maintenance of the deity.
7. It is hardly possible, therefore, to hold, in the circumstances of this case, that the income that the assessee is deriving from the Hat is from property held under trust or other legal obligation. The decision in — ‘Bijoy Singh Dudhuria v. Commr. of Income-tax, Calcutta’, 1933 PC 145 (AIR V 20) (A), can hardly be of any assistance to the assessee. In that case, the step-mother of the assessee had obtained a decree for maintenance and by virtue of that right she claimed a share in the income, being member of a Hindu undivided family.
8. It was held by their Lordships of the Judicial Committee that the income which was given to the lady was never the income of the assessee. It was the allocation of a sum out of revenue before it became income in his hands. In the case of — ‘Commr. of Income-tax v. Thakur Das’, 1954 Punj 17 (AIR V 41) (B), a trust for the sum of Rs. 32,500/- was already created by an agreement between the assessee and the other party, who happened to be an accused and their relatives in a case in which the assessee agreed to act as a lawyer and it was not disputed that the payments received were on behalf of the trust and not by the assessee in his capacity as an individual.
9. In these circumstances it was held that the sum of money received by the assessee was on behalf of and therefore clothed with a trust and, accordingly, could not be held to be his income. It is clear from the facts of this case that the sum of money received by the assessee was for the specific purpose of creating a trust and, therefore, attracted the principles laid down in the case of ‘Bijoy Singh Dudhuria v. Commr. of Income-tax, Calcutta, (A)’.
10. There are two cases which go directly against the argument advanced by Mr. Mazumdar. The first one is — ‘J.K Trust, Bombay v. Commr. of Income-tax and E.P Tax, Bombay’, 1953 Bom 232 (AIR V 40) (C). In this case the assessee were trustees of a trust known as J.K Trust for a sum of rupees one lac and it was not disputed that the trust was for charitable purposes. It was also not disputed that, as far as the sum of rupees one lac was concerned, it was property which was held for charitable purposes within the meaning of S. 4(3)(i) of the Act.
11. The trustees were appointed managing agents and in such a capacity they earned commission, and the question before their Lordships was whether this commission, which was utilised for the purpose of the trust, was exempt from taxation. Their Lordships held that S. 4(3)(i) did not confer any exemption upon income which is settled upon a charitable trust and that the exemption is only conferred upon income which is derived from property which is settled upon the charitable trust.
12. It was also held that it was not sufficient for a person to make a trust of his future income to claim exemption under S. 4(3)(i) and unless the property from which that income was derived was also made the subject of a trust, the mere making of a trust with regard to the income would not be sufficient to claim exemption under S. 4(3)(i). Therefore, as the commission derived by the managing agents was not from the trust fund, the income that came to their hands by utilising rupees one lac kept as security for their agency was not free from taxation.
13. In the case of — ‘Commr. of Income-tax v. Eggar’, 1927 Rang 95 (AIR V 14) (FB) (D), the assessee was permitted to accept an appointment on condition that he assigned the whole of his salary he received therefrom to be held in trust for the benefit of the University and its students. It was held that, although the salary in question might be treated as trust money, the assessee could not derive any benefit out of Section 4(3)(i) of the Income-tax Act as the income in question could not be considered as income from property so held. It is clear, that therefore, that in the case before us the assessee is not entitled to claim exemption under Section 4(3)(i) of the Income-tax Act.
14. It seems from the statement of the case by the Income-tax Tribunal that the argument placed before it was on the assumption of the dedication being in the nature of a private trust. If that be so, the assessee is not entitled to any relief. The exemption granted by the clause is confined to public religious trusts and does not extend to private religious trusts not enuring for the public benefit. The recitals in the deed are not very helpful, and mere attendance to strangers and guests happening to come to the temple cannot clothe the dedication with the character of a public religious trust.
15. Moreover, the alleged legal obligation to allocate the sum does not accrue until the income from the fair is in the hands of the assessee. The tolls collected from the fair represent the income of the assessee, and not until the whole or part of such income is in his hands he is in a position to discharge that obligation. It follows, accordingly, that the sum so collected is income of the assessee in the first instance and is, therefore, attracted to tax.
16. It has then to be examined if the provisos to Section 16(1)(c) of the Income-tax Act are attracted to the facts of this case. In my view, they do not for the simple reason that the assets from which the temple is to be maintained remain the property of the assessee and a part of the income from these assets is applied for an obligation created by the assessee himself. I find, therefore, that the income in the sum of Rs. 2,051/- was not received under the deed of dedication to the deity and, therefore, it is assessable in the hands of the assessee. The question is, accordingly, answered against the assessee who will pay Rs. 32/- as costs to the Income-tax Department.
Choudhary, J.:— I agree.
K.S.B
17. Answer accordingly.
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