- Bookmark
- Share
- CaseIQ
Trustees Of Gordhandas Govindram Family Trust, Bombay v. Cit, Bombay .
Factual and Procedural Background
The appeals arose from a reference under Section 27(1) of the Wealth-tax Act, 1957 concerning the wealth-tax assessments of the Gordhandas Govindram Family Trust for Assessment Years 1957-58 and 1958-59 (valuation dates: 31 December 1956 and 31 December 1957). The Trust had been created on 11 June 1941 by four members of the Seksaria family with a corpus of Rs 11 lakhs. Its deed allocated substantial sums for maintenance and marriage expenses of poor members of the Seksaria family, giving only marginal benefits to non-family Vaishya Hindus.
The Wealth-tax Officer assessed the trustees; the High Court answered two referred questions against the assessee and in favour of the Department. Certificates of fitness were granted, leading to the present Supreme Court appeals.
Legal Issues Presented
- Whether, on a true construction of the trust deed dated 11 June 1941, the trustees constitute an assessable unit under the Wealth-tax Act, 1957.
- Whether the property held by the trustees is held for any public purpose of a charitable or religious nature in India within the meaning of Section 5(1)(i) of the Wealth-tax Act.
Arguments of the Parties
Appellant-Trustees
- Section 3, the charging provision, taxes only “every individual, Hindu undivided family and company”; it omits “association of persons”, hence trustees fall outside its ambit.
- Although Sections 5(1)(i) and 21 contemplate trust property, the alleged lacuna in Section 3 prevents any charge being fastened on trustees.
- The trust should be regarded as charitable because it provides relief to poor Vaishya Hindus.
Respondent-Department
- Sections 5(1)(i) and 21 would be meaningless unless trustees were chargeable; therefore Section 3 must be read as wide enough to include them.
- The deed shows the trust is primarily for private family benefit and hence not a public charitable trust.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner of Wealth-tax v. Kripashankar Dayashankar Worah (1971) 2 SCC 570 | Trustees can be assessed under the Wealth-tax Act despite holding property “for” and not strictly “on behalf of” beneficiaries. | Relied upon to reject the argument that trustees are outside the charging section. |
| CIT v. Sodra Devi, AIR 1957 SC 832 | The term “assessee” is wide enough to include various legal entities. | Cited to support a liberal construction of “individual” in Section 3 so as to include a plurality of trustees. |
| V. Venugopala Ravi Varma Rajah v. Union of India (1969) 1 SCC 681 | Entities not expressly named in a charging section may still fall within “individual”. | Analogised to show that a Marumakkattayam family was held assessable as an “individual”; likewise trustees here. |
| Suhashini Karuri v. WTO (Calcutta HC) | Joint trustees may be assessed as “individuals” for wealth-tax. | Approved and followed. |
| Abhay L. Khatau v. CWT (Bombay HC) | Similar view that trustees form an assessable unit. | Approved and followed. |
| Trustees of Gordhandas Govindram Family Charity Trust v. CIT (Bombay HC) | Trust primarily benefiting family members is not a public charitable trust under the Income-tax Act. | Relied upon to characterise the present trust as private. |
| Trustees of the Charity Fund v. CIT, AIR 1959 SC 1060 | Distinguished but did not disapprove the Bombay decision on private trusts. | Referenced to reinforce the conclusion that present trust lacks public charitable character. |
Court's Reasoning and Analysis
First Issue – Assessability of Trustees: The Court noted that Sections 5(1)(i) and 21 implicitly assume that trust property is subject to wealth-tax; those provisions would be otiose if Section 3 excluded trustees. Relying on statutory definitions (General Clauses Act) and precedent, it held that “individual” in Section 3 is wide enough to cover a body of trustees. Case law under the Expenditure-tax Act and Income-tax Act was invoked to justify a liberal interpretation. Consequently, the trustees constitute an assessable unit.
Second Issue – Charitable Character of the Trust: Examining the deed, the Court found that the bulk of the income was earmarked for poor members of the Seksaria family, with only “marginal” and “tenuous” benefits to outsiders. The very name “Gordhandas Govindram Family Trust” and the priority clauses confirmed a predominantly private purpose. Consistent with earlier Bombay High Court authority, the Court held the trust was private and therefore not entitled to exemption under Section 5(1)(i).
Holding and Implications
DISMISSED. The Supreme Court affirmed the High Court’s answers: (1) the trustees are assessable under the Wealth-tax Act; (2) the trust is not for a public charitable or religious purpose and thus enjoys no exemption.
Implications: The decision confirms that trustees can be taxed as “individuals” under Section 3 and that family-centred trusts do not qualify for the charitable exemption under Section 5(1)(i). No new legal doctrine was announced, but existing principles on the taxability of private trusts were reinforced.
K.S Hegde, J.— These are appeals by certificate. They arise from a reference under Section 27(1) of the Wealth Tax Act, 1957 (to be hereinafter referred to as “the Act”). These appeals relate to the Wealth Tax assessment of the appellant/assessee for Assessment Years 1957-58 and 1958-59, the relevant valuation dates being December 31, 1956 and December 31, 1957.
The two questions of law referred to the High Court are:
“(1) Whether on a true construction of the indenture of trust, dated June 11, 1941, the trustees of the Trust constitute an assessable unit under the provisions of the Wealth Tax Act?
(2) Whether the property held by the trustees under the indenture of trust, dated June 11, 1941, is held for any public purpose of a charitable or religious nature in India within the meaning of Section 5(1)(i) of the Wealth Tax Act?”
The High Court has answered both these questions in favour of the Department and against the assessees. Hence these appeals.
2. The facts of this case lie within a narrow compass. Govindram Gordhandas Seksaria, Ramnath Gordhandas Seksaria, Makhanlal Gordhandas Seksaria and Bholaram Gordhandas Seksaria constituted a Trust on June 11, 1941, in respect of a sum of Rs 11 lakhs (Rupees eleven lakhs). That Trust was known as ‘Gordhandas Govindram Family Trust’. Clause (2) of the Trust deed says that it was created “for giving help or relief to such poor Vaishaya Hindoos or other Hindoos as the trustees may consider deserving of help in the manner and to the extent hereinafter specified and subject to the conditions and directions stated in the next following clauses and/or for the charitable object or objects hereinafter mentioned”. Clause (3) (a) of the Trust deed provides that “the conditions and directions to be observed and followed by the Trustees in the execution of the Trusts herein declared as follows:
“Poor Vaishaya Hindoos who are members of Seksaria families shall be preferred to poor Vaishaya Hindoos of Navalgadh not belonging to that family.”
Sub-clauses (b) to (q) provide for the payment of maintenance and marriage expenses of the poor male or female descendants of Seksaria family.
We shall now set out sub-clauses (r) to (v) of clause (3). They read:
“(r) Rs 5 (Rupees five) per month may be paid as and by way of maintenance of any poor male Vaishaya Hindoo who may be deserving of help.
(s) Rs 5 (Rupees five) per month may be paid as and by way of maintenance to any poor unmarried female Vaishaya Hindoo or a poor Vaishaya Hindoo or a poor Vaishaya Hindoo widow who may be deserving of help.
(t) Rs 500 (Rupees five hundred) may be expended or given for the purpose of meeting the expenses of marriage of any poor male Vaishaya Hindoo who may be deserving of help.
(u) Rs 500 (Rupees five hundred) may be expended or given for the purpose of meeting the expenses of marriage of any poor female Vaishaya Hindoo who may be deserving of help.”
The deed further provides:
“If the income of the Trust Estate is not sufficient to carry out the charities specified in sub-clauses (a) to (u) above the charity specified in an earlier sub-clause shall be given priority over a charity specified in a later sub-clause.”
3. From the above, it is clear that charity provided was primarily for the benefit of the members of the family of Seksaria, no doubt including both male and female descendants. It is also clear from the deed that the amounts provided for the payment of maintenance and marriage expenses for the poor members of the Seksaria family is bound to take away a substantial part of the income of the trust, if not the whole of it.
4. As mentioned earlier, the Trust is known as “Gordhandas Govindram Family Trust”. That is a clear pointer. That shows that the Trust was primarily intended for the benefit of the family of Gordhandas Govindram. This is made further clear from the various provisions in the Trust deed. A reading of the Trust deed as a whole clearly goes to prove that the charity under that deed begins with the family of Gordhandas Govindram and possibly ends with it. Charity in favour of the Vaishaya Hindoos other than the members of the family of Gordhandas Govindram is not only marginal, but also quite tenuous.
5. We shall now take up the two questions of law referred to the High Court to ascertain its opinion. It was contended before the High Court that the Wealth Tax Act does not provide for levy of any tax on Trusts. As seen earlier, this contention did not find favour with the High Court. But that contention was repeated before this Court. In order to decide that contention, it is necessary to refer to three provisions in the Act viz. Sections 3, 5(1)(i) and 21 Section 3 is the charging section. It says:
“Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule.”
6. Section 5 provides for exemption in respect of certain assets. One of the exemptions provided is in respect of any property held by an assessee under Trust or other legal obligation for any public purpose of a charitable or religious nature in India. Section 21 to the extent material for our present purpose may be recast thus:
“In the case of assets chargeable to tax under this Act which are held by a Trustee appointed under a Trust deed by a duly executed instrument in writing, whether testamentary or otherwise, the wealth tax shall be levied upon and recoverable from the trustee in the like manner and to the same extent as it would be leviable upon and recoverable from the persons on whose behalf the assets are held, and the provisions of this Act shall apply accordingly.”
7. It was urged that unlike the charging section in the Income Tax Act, the charging section in the Act does not provide for the levy of tax on association of persons. It merely provides for assessing an individual or Hindu undivided family or company. Trustees cannot be considered either individual or as Hindu Undivided Families or Companies. They could have been charged as an association of persons. But that body is not assessable under the Act. Hence, the trustees are not chargeable under the Act. It was conceded at the hearing that Section 5(1)(i) as well as Section 21 proceed on the basis that a Trust property is also liable to be taxed under the Act. But what was urged before us was that there is a lacuna in the charging section and, therefore, the trustees of a Trust cannot be taxed under the Act. We see no merit in this contention.
8. In Commissioner of Wealth tax, Bihar and Orissa v. Kripashankar Dayashankar Worah (1971) 2 SCC 570 the contention raised was that trustees could not be assessed under the Act as Section 21(1) of the Act provides for assessing the trustees who held the Trust property “on behalf of” others. In law, a trustee does not hold the trust property “on behalf of” others. Hence, trustees cannot be assessed to tax under the Act. That contention was rejected by this Court. No contention was raised in that case that trustees did not come within the scope of Section 3 of the Act. The judgment in that case proceeded on the basis that trustees can be assessed to wealth-tax in respect of the trust property of which they are trustees.
9. There is also no dispute that Section 5(1)(i) of the Act proceeds on the basis that a trust property comes within the scope of the Act. Section 3 of the Act does bring within its scope an individual which expression in view of the Central General Clauses Act includes individuals as well, unless the context otherwise indicates. In this case, the context, far from not indicating that the individual does not include individuals, clearly shows at any rate so far as the trustees are concerned that it includes individuals. As the Indian Income Tax Act provides for the assessment of “an association of persons”, the context therein may indicate that individual does not include individuals. But such an interpretation is not permissible when we deal with Section 3 of the Act.
10. In CIT v. Sodra Devi, AIR 1957 SC 832, 1958 SCR 1 this Court observed:
“The word ‘assessee’ is wide enough to cover not only an ‘individual’ but also a Hindu undivided family, company and local authority and every firm and other association of persons or the partners or the firm or the members of the association individually.”
11. In V. Venugopala Ravi Varma Rajah v. Unions of India (1969) 1 SCC 681 a question arose whether Section 3 of the Expenditure Tax Act, 1957, which reads:
“(1) Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from April 1, 1958, a tax (hereinafter referred to as expenditure tax) at the rate or rates specified in the Schedule in respect of the expenditure incurred by any individual or Hindu undivided family in the previous year....”
brought within the net of taxation a Mappilla Marumakkattayam family. As seen earlier, under Section 3 of the Expenditure Tax Act, the only entities which are mentioned, are individuals of Hindu undivided family. This Court came to the conclusion that Mappilla Marumakkattayam family could also be assessed as an individual.
12. In Suhashini Karuri v. Wealth tax Officer, Calcutta, the Calcutta High Court opined that the joint trustees could be assessed as individuals under the Act. A similar view was taken by the Bombay High Court in Abhay L. Khatau v. Commissioner of Wealth Tax, Bombay City II. We are in agreement with that view. We, accordingly, agree with the High Court and hold that the trustees of the trust, with which we are concerned in these appeals, constitute an assessable unit under the provisions of the Act.
13. Now, let us turn to the other question viz. whether the trust in question can be considered as a trust created for public purposes of a charitable or religious nature. As seen earlier, the trust in question was created primarily for the benefit of members of the family of Gordhandas Govind-ram Seksaria. That is clear from the title given to the Trust as well as from the various provisions to which we have made reference earlier. Therefore, it is not possible to hold that the Trust in question is a Trust for any public purpose. It is clearly a private Trust. The character of the Trust in question came to be considered by the Bombay High Court in Trustees of Gordhandas Govindram Family Charity Trust v. CIT under Section 4(3)(i) of the Indian Income Tax Act. After examining the various provisions, the High Court opined that it was not a trust for charitable purpose within the meaning of Indian Income Tax Act, 1922. It was held that the primary purpose of the settlor was to benefit the members of the family and remotely and indirectly to benefit the general public. We agree with that conclusion. The decision in the above case came up for consideration by this Court in Trustees of the Charity Fund v. CIT AIR 1959 SC 1060, 1959 Supp 2 SCR 923. This Court did not differ from the view taken by the High Court but distinguished the same.
14. In the result, these appeals fail and they are dismissed with costs— one hearing fee.
Alert