- Bookmark
- Share
- CaseIQ
Lokamanya Tilak Jubilee National Trust Fund, In Re
Judgment Summary
Factual and Procedural Background
This is a reference made by the Commissioner of Income-tax under Section 66(2) of the Income-tax Act, 1922. The reference raises two specific questions concerning the tax treatment of the Lokamanya Tilak Jubilee National Trust Fund (trust deed dated 31st December 1920). The two questions are: (1) whether the Income-tax Officer was correct in holding that the income of the trust does not fall within the purview of Section 4(3)(i) of the Income-tax Act, and (2) whether the Income-tax Officer was correct in levying income-tax at the maximum rate under the first proviso to Section 41(1) of the Act. Clause 11 of the trust deed sets out four objects (sub-clauses (a)–(d)) describing the purposes for which the fund may be applied; these include advancement of national purposes in the uncontrolled opinion of the managing committee, political advancement of India aiming at Swarajya, diffusion of political education and propagandist work, and a general subsidiary clause.
Legal Issues Presented
- Whether the Income-tax Officer was correct in holding that the income of the trust does not fall within the purview of Section 4(3)(i) of the Income-tax Act, 1922 (i.e., whether the trust's objects constitute "charitable purposes" as defined).
- Whether the Income-tax Officer was correct in levying income-tax at the maximum rate under the first proviso to Section 41(1) of the Income-tax Act, 1922.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| I.L.R. (1940) Bom. 254 (also reported as (1940) 27 A.I.R. 1940 Bom. 76) | Consideration of whether trusts for national or political purposes can be regarded as charitable; in that case a trust for political uplift of India was held not charitable. | The Court relied on the general principles expressed in that case and did not repeat them; it applied the same reasoning to conclude the present trust was not charitable under Section 4(3)(i). |
| (1917) A.C. 406 | Establishes that a gift for political purposes is not charitable; a gift for attaining an object by methods approved by trustees/committee which are political falls within this ruling. | The Court used this authority to support the conclusion that sub-clause (b), being a gift for political advancement (attainment of Swarajya by means approved by the managing committee), is not charitable. |
| Tribune Press Trustees, 66 I.A. 241 (’39) (reported 26 A.I.R. 1939 P.C. 208) | Holds that if the dominant purpose of a trust is political it is not a charitable object for the purposes of the Income-tax Act; also that propagandist work does not fall within educational work or the ambit of charity. | The Court applied this principle to sub-clauses (b) and (c), treating political advancement and propagandist work as non-charitable, and relied on it in construing the trust deed. |
| Smith, In re, (1932) 1 Ch. 153 | Illustrates "locality cases" where a gift for the benefit of inhabitants of a locality (e.g., "unto my country England") can be charitable because each area and purpose falling within that gift was charitable. | The Court acknowledged the locality principle (that trusts for the benefit of inhabitants of a given area may be charitable) but distinguished it from the present case because the trust's clause (a) left selection of the purpose to the uncontrolled opinion of the managing committee. |
Court's Reasoning and Analysis
The Court's analysis proceeds from statutory definition and established authorities to a construction of clause 11 of the trust deed:
- Statutory framework: The Court considered Section 4(3) of the Income-tax Act which defines "charitable purposes" to include relief of the poor, education, medical relief and the advancement of any other object of general public utility (an extension beyond the English common-law definition). It was the assessee's burden to show the trust fell within that definition.
- Nature of clause 11: Clause 11 contains four sub-clauses. The Court examined each sub-clause to determine whether the object as framed fits within "charitable purposes" or "object of general public utility."
- Sub-clause (a) — uncontrolled discretion: Sub-clause (a) advances "any purpose which might in the uncontrolled opinion of the managing committee be national or of national importance for the inhabitants of British India by any means which in the like opinion of the managing committee be constitutional." The Court held that because the selection of the purpose and the methods are left to the uncontrolled opinion of the managing committee, the committee might select objects or methods which the law would not regard as charitable or constitutional. A gift that vests an uncontrolled power to select what the donor or trustees consider charitable is not supported by authority; although a general charitable intention with trustee discretion is acceptable, discretionary selection by a trustee must be bounded by legal definitions of charity and subject to court control. Thus sub-clause (a) "goes too far" and cannot be confined within Section 4(3)(i).
- Sub-clause (b) — political advancement: The clause explicitly contemplates "the political advancement of India" aiming at Swarajya by constitutional agitation and means. The Court held that this is "pre-eminently a political purpose" and accordingly not charitable under the authorities (including (1917) A.C. 406 and Tribune Press Trustees). The Court emphasized divergence of opinion as to methods of attaining national autonomy, which reinforces the political character.
- Sub-clause (c) — political education and propagandist work: While it mentions "diffusion of political education and knowledge," it couples that with "propagandist work" in India and abroad aiming at national autonomy. The Court relied on Tribune Press Trustees to hold that propagandist work is not part of charitable education and therefore this sub-clause falls outside charitable purposes.
- Sub-clause (d) — ancillary clause: This clause is general and subsidiary to the three preceding objects. The Court observed that because the trust as drafted permits application of the whole fund to any one or more of the listed objects, if any of those objects is non-charitable then the trustees could properly apply the entire fund to a non-charitable purpose without committing a breach of trust. The law does not permit a trust that can be wholly administered for a non-charitable object to be treated as charitable by construction.
- Conclusion on first question: Given that one or more sub-clauses permit non-charitable application (notably (a), (b), (c)), clause 11 does not confine the fund to uses within Section 4(3)(i); therefore the Income-tax Officer was correct in holding the trust income did not fall within that provision.
- Second question — taxation under Section 41(1) proviso: The Court construed the first proviso to Section 41(1) as plain: when income is not specifically receivable on behalf of any one person, or individual shares are indeterminate or unknown, tax shall be levied at the maximum rate. The Court held the present trust falls within that proviso. Although it noted this might be harsh on the trust, the Court stated that it must apply the statute as written and could not change the law.
Holding and Implications
Holding: Both questions in the reference are answered in the affirmative against the assessee. The Court held that (1) the income of the Lokamanya Tilak Jubilee National Trust Fund does not fall within Section 4(3)(i) of the Income-tax Act, 1922 (i.e., the trust is not charitable for the purposes of that provision), and (2) the Income-tax Officer was correct in levying income-tax at the maximum rate under the first proviso to Section 41(1) of the Act. The assessee was ordered to pay costs.
Implications: The direct effect is that the trust is not entitled to the charitable-income treatment under Section 4(3)(i) and must bear tax at the maximum rate prescribed by the first proviso to Section 41(1). The opinion applies existing statutory wording and precedents to the facts of this trust; the judgment does not purport to create a new broad principle beyond the application of those authorities to these clauses of the deed.
End of summary — based exclusively on the content of the provided opinion.
Beaumont, C.J:— This is a reference made by the Commissioner of Income-tax under Section 66(2) of the Income-tax Act, 1922, and it raises two questions:
(1) Whether the Income-tax Officer was correct in holding that the income of the trust does not fall within the purview of S. 4(3)(i) of the Act?
(2) Whether the Income-tax Officer was correct in levying income-tax at the maximum rate under the first proviso to Section 41(1) of the Act?
2. The trust, with which we have to deal, is a trust known as the “Lokamanya Tilak Jubilee National Trust Fund,” and the principal question which arises is, whether the funds of the trust are held for charitable purposes within S. 4(3)(i). Its objects are set out in the trust deed dated 31st December 1920, cl. 11 of which is in these terms:
The objects of the said Trust Fund shall be—
(a) The advancement of any purpose which might in the uncontrolled opinion of the managing committee be national or of national importance for the inhabitants of British India by any means which in the like opinion of the managing committee be constitutional.
(b) The political advancement of India having for its goal the acquisition of complete national autonomy or ‘Swarajya’ to be attained by all constitutional agitation and means.
(c) The diffusion of political education and knowledge as to the political affairs of India and propagandist work both in India as well as in any part of the world outside India having for its aim the acquisition of complete national autonomy or ‘Swarajya’ as aforesaid.
(d) Any object which may conduce to any of the aforesaid objects.
3. This Court in I.L.R (1940) Bom. 254 (’40) 27 A.I.R 1940 Bom. 76 , 187 I.C 471 , I.L.R (1940) Bom. 254 , 42 Bom. L.R 89 had occasion to consider the general questions which arise in cases of this kind as to whether trusts for a national or political purpose can be regarded as charitable. The actual case, with which we had to deal there, was a trust for the political-uplift of India, and we held that the trust was not charitable. As I expressed my opinion in that case on the general principles which apply to cases of this character, it is not necessary that I should repeat them.
4. There is, I think, no doubt on the authorities that trusts for the benefit of the inhabitants of a particular locality are regarded as charitable, and I will assume that principle would apply to the inhabitants of British India. On the other hand, it is clear that trusts for the benefit of a particular political party, or for the advancement of particular political opinions, are not regarded as charitable. The objects specified in the four paragraphs of cl. 11 of the trust deed, with which we have to deal, are, in my opinion, clearly distributive. The whole of the trust fund can be applied for any one or more of the objects specified, and if any of those objects do not fall within the purview of the legal definition of “charity” the trust cannot be regarded as a good charitable trust. One has, of course, to bear in mind the definition of “charitable purposes” in Section 4(3) of the Income-tax Act, which provides that “charitable purposes” include relief of the poor, education, medical relief and the advancement of any other object of general public utility. That goes further than the definition of charity to be derived from the English cases, because it embraces purposes of general public utility; and if all the purposes in cl. 11 could be regarded as of general public utility for the benefit of the inhabitants of British India, then the trust would be, in my opinion a good charitable trust. But, to my mind, sub-cls. (a) and (b), at any rate, cannot be brought within those limits. Sub-clause (a) includes the advancement of any purpose which may in the uncontrolled opinion of the managing committee be national or of national importance for the inhabitants of British India by any means which in the like opinion of the managing committee be constitutional.
5. It is impossible to say that the managing committee may not regard purposes, which are not according to law charitable, as being nevertheless of national importance for the inhabitants of British India, and the committee may regard methods as constitutional which the law would not regard as constitutional. Assuming the objects specified in, sub-cl. (a) to be charitable, this is not the 11 case of a gift for such charitable purposes as the managing committee may think fit. A gift of that sort would, no doubt, be good, because the managing committee would be bound to keep within the ambit of charity, and if they go beyond the legal boundary, they can be controlled by the Court. But I know of no authority for the proposition that a gift for such purposes as a particular individual or individuals may consider to be charitable is good. There are many purposes-which an individual, acting quite bona fide, may regard as charitable, but which the law does not so regard. Therefore, I think Page: 63a sub-cl. (a) goes too far; and I think, sub-cl. (b) goes too far also, because it is really a gift for political purposes. Assuming that the attainment of national autonomy may be regarded as a national purpose accepted generally by, and for the good of, the inhabitants of British India, there is a very keen divergence of opinion as to the methods by which that national autonomy should be attained; and it is impossible, I think, to avoid the conclusion that a gift for the attainment of that object by such methods as the managing committee may approve is really a gift for political purposes, and as such falling within the ruling in (1917) A.C 406 (1917) 1917 A.C 406 , 86 L.J.Ch 568 , 117 L.T 161 , 61 S.J 478 , 33 T.L.R 376, Limited. In my opinion therefore it is impossible to say that the Income-tax Officer was wrong in holding that the income of the trust does not fall within the purview of S. 4(3)(i), and we must answer the first question in the affirmative.
6. With regard to the second question, it seems to me that the first proviso to Section 41(1) of the Income-tax Act, is perfectly plain. It provides in connexion with funds held by a trust that where income, profits or gains or any part thereof are not specifically receivable on behalf of any one person, or where the individual shares of the persons on whose behalf they are receivable are indeterminate or unknown, the tax shall be levied and recoverable at the maximum rate. It may be rather hard on this trust fund that it should be charged at a higher rate than the amount of its income would attract if it belonged to an individual. But that is not a matter with which the Court can deal. In my opinion, it is perfectly plain that the case falls within the first proviso to S. 41(1), and therefore we must also answer the second question in the affirmative. The assessee to pay costs.
7. Kania, J.:— I agree. In order to get an exemption the assessee must bring his case within S. 4(3)(i). The words there used are that the income should be derived from property held under trust wholly for religious or charitable purposes. By the explanation added at the end, the term “charitable purposes” is stated to include an object of general public utility. Even so, it is for the assessee to show that his case falls within that extended meaning. Certain propositions of law now appear to be well settled as a result of authorities. First, that when there is a general charitable intention, the Court will uphold it, and if within that limit discretion is given to the trustees to select an object, the trust will not fail because of the discretion so given. If a trustee selects an object which is not charitable according to law, the Court can intervene and rectify the error. Secondly, there are cases, which are compendiously described as “locality cases,” of which (1932) 1 Ch. 153 (1932) 1 Ch. 153 , 100 L.J.Ch 409 , 75 S.J 780 , 48 T.L.R 44 , 146 L.T 145, Smith, In re is a good illustration. In that case the gift was “unto my country England.” It was held that every area and purpose which would fall within that gift was charitable, and the gift was upheld. Thirdly, it is held that if the dominant purpose of the trust is political, it is not a charitable object within the meaning of the Income-tax Act. That was held in 66 I.A 241 (’39) 26 A.I.R 1939 P.C 208 , 182 I.C 882 , I.L.R (1939) Lah. 475 , I.L.R (1939) Kar. P.C 337 , 66 I.A 241 (P.C), Tribune Press Trustees. It was laid down in the same case that propagandist work does not form part of educational work and is not within the ambit of charity.
8. Having regard to these principles, the four sub-clauses in the trust deed in question have to be considered. It may be noticed that under cls. 14 and 19 of the trust deed the Managing Committee is made the sole Judge as to whether any particular object falls within the category of any of the objects and purposes of the trust fund. Bearing that in mind, when cl. 11, sub-cl. (a), is looked at, it is clear that the words “national or of national importance for the inhabitants of … India” are controlled by the preceding words which state the object of the trust. They are “the advancement of any purpose which might in the uncontrolled opinion of the managing committee be.” The object of the trust therefore is the advancement of at purpose, the selection of which is left to the uncontrolled opinion of the managing committee, and the purpose according to that uncontrolled opinion has to be national or of national importance for the inhabitants of British India. It is not possible to hold that the words as used in sub-cl. (a) amount to a gift for an object national or of national importance for the inhabitants of British India simpliciter. It is a gift for the advancement of any purpose, and the selection thereof is left to the uncontrolled opinion of the managing committee.
9. I do not think under the circumstances it can be properly argued that clause amounts to a general charitable bequest, and only the manner of application has to be Page: 64selected by the trustees. Sub-clause (b) clearly a is for the political advancement of India, and the goal thereof is only defined. But the object is clearly the political advancement of India. That is pre-eminently a political purpose and falls within the rule stated in 66 IA 241 (’39) 26 A.I.R 1939 P.C 208 , 182 I.C 882 , I.L.R (1939) Lah. 475 , I.L.R (1939) Kar. P.C 337 , 66 I.A 241 (P.C), Tribune Press Trustees. Sub-clause (c) whilst containing the words “political education and knowledge” couples the same with “propagandist work both in India as well as in any part of the world outside India” and also falls within the rule stated in 66 IA 241 (’39) 26 A.I.R 1939 P.C 208 , 182 I.C 882 , I.L.R (1939) Lah. 475 , I.L.R (1939) Kar. P.C 337 , 66 I.A 241 (P.C), Tribune Press Trustees.. The fourth sub-clause, cl. (d), is the general clause dealing with objects subsidiary to the three objects mentioned in the preceding sub-clauses. The construction of the clause shows that the three objects in sub-cls. (a), (b) and (c) have to be separately read, and if any of those objects is not charity, the whole gift must fail, because if the trustees choose to apply the whole of the fund to the particular object, which according to the law of the land is not charitable, then they will not be committing a breach of trust, and the trust could be said to be properly administered.
10. The law does not permit the administration of a trust which can be so used entirely for a non-charitable object and hold it as charitable on construction. Therefore, cl. 11 of this trust deed, which defines the objects of the trust, is not within Section 4(3)(i) of the Income-tax Act, charitable, and the answer to the first question must be against the assessee. As regards the second question, the Court has to administer the law as found in the Act of the Legislature, and hard cases cannot make a different law. The answer to that question must also go against the assessee.
K.S/R.K
11. Questions answered.
Alert