Citation Codes

Equivalent Citations

citation codes

Case Number

Misc. Judicial Cases Nos. 41, 54, 55, 56, 57, 58 and 59 of 1944

Judges

Manohar Lall
A.C.J
Ray, J.

Acts

Section 41, sub-clause (1) of the Income-tax Act.
Section 4, sub-clause (3) of the Income-tax Act.
Section 4(3)(1) of the Income-tax Act
Section 41(1) of the Income-tax Act

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Smart Summary

Structured Summary of the Opinion (Manohar Lall, A.C.J.)

Factual and Procedural Background

The bench (Manohar Lall, A.C.J., with Ray, J. agreeing) heard several miscellaneous judicial cases together because they turned on construction of the same trust deeds under which properties were dedicated to certain family deities. The trusts were created by two deeds dated 11th September 1933. The deities were grouped into three sets: (a) Jyotishwari Baglamata, Jyotishwari Shiva, Lachminarain Jew; (b) Jyotishwari Kalimata, Jyotishwari Shiva, Lachminarain Jew; and (c) Rajrajeshwari Mata, Shyamchand Jew, Raghubar Jew, Lachminarain Jew.

The Income-tax Officer made assessments in the name of each group of deities through the trustee (the Maharajadhiraj Sri Jyoti Prosad Singh Deo Bahadur). Before the Appellate Assistant Commissioner, a contention was raised that the trustee held the property for the benefit of the several idols and that separate assessments should have been made on the income of each idol rather than a joint assessment. The Appellate Assistant Commissioner held the joint assessment valid, treating the deities as an "association of persons", and also held that tax should be levied at the maximum rate under the proviso to Section 41(1) of the Income-tax Act. The Assistant Commissioner (in agreement with the Income-tax Officer) refused certain charitable deductions claimed by the assessee.

The matters were thereafter brought to the Appellate Tribunal, which concluded (inter alia) that the idols are juristic persons, that law attributes equal shares making them tenants in common, and that each idol should be assessed separately; the Tribunal also held that certain expenditures for public charity made in prior years should be exempted and directed enquiry as to which parts of the trust enured to the public.

Legal Issues Presented

In the circumstances of the case, is the income of the trust properties in question in the hands of the trustee liable to be assessed at the maximum rate under the first proviso to Section 41(1) of the Income-tax Act?
Whether sums spent by trustees on charitable purposes, though the purposes are not specifically mentioned in the Trust Deed, are rightly excluded under Section 4(3)(1) of the Income-tax Act for the purposes of determining the income liable to be taxed?

Arguments of the Parties

Standing Counsel (on behalf of the Revenue)

Submitted that on a true interpretation of the deeds the idols in each group should be assessed as an "Association of Individuals".
Pointed to deed provisions that direct the trustee to first meet public charges, litigation costs, and preservation/improvement costs; then to pay himself commission; and thereafter apply the balance for daily worship and observances — arguing these terms give the trustee ownership/control of the entire income.
Emphasised clauses giving the trustee full discretion as to the manner and extent of spending the whole or part of a year's income, and suggested the properties scheduled in the deeds vested in the trustee rather than in the deities.

Counsel for the Assessee (Mr. S.N. Dutta)

Highlighted deed language (paragraph 7) describing accounting of income and expenditure and stating that any balance should be "held by him in trust for use and benefit of the deities" and that such balance shall form part of the corpus "respectively dedicated" to the deities — arguing this indicates vesting in the deities, not in the trustee.
Contended there was no finding that amounts sought to be exempted as charitable expenditure were derived from the "additional income" contemplated by the trust deeds; if the court had decided the ownership point differently, Mr. Dutta submitted he would have succeeded on this limb.

Appellate Assistant Commissioner (as expressed in his order)

Examined the contention that separate assessments should be made and concluded beneficiaries had nothing to do with income or properties and that the trustee was virtually owner, disponer and custodian; treated deities as an "association of persons" and upheld joint assessment.
Took the view that tax should be levied at the maximum rate by virtue of the proviso to Section 41(1).
Refused deduction claimed for certain expenses alleged to be for charitable purposes benefiting the public.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Case reported in 23 Cal. 670	Authority for the proposition that where named deities are beneficiaries but shares are not defined by the trust deed, the law attributes equal shares and makes them tenants in common (not joint tenants).	The court (through the Tribunal) cited this case to support the conclusion that each idol should be assessed on its individual income and that shares are defined by law.
33 All. 412	Followed the view in 23 Cal. 670 (Privy Council case) regarding equal shares and tenants in common treatment of idols.	The Tribunal relied on this case as supporting authority for separate assessment of each deity.
23 I.A. 37	Principle of law applied by the Tribunal in determining ownership/assessment treatment of trust income dedicated to deities.	The court held that the Tribunal correctly applied the principle in 23 I.A. 37 and, on that basis, concluded deities in each separate group should have been assessed separately.

Court's Reasoning and Analysis

The court examined the precise terms of the trust deeds, with particular focus on paragraph 7. The analysis proceeded along these lines:

The deeds contain express language that the trustee shall account annually and that any balance "shall be held by him in trust for use and benefit of the deities" and "shall form a part of the corpus of the trust properties respectively dedicated to the deities". The words "respectively dedicated" were held to be significant and to indicate that the excess income belongs to the particular deity from whose income the balance is derived.
The trustee's practical control over income and expenditure (including power to improve trust properties and to apply balances to purchase further immovable property that will become part of the corpus "respectively dedicated") does not convert legal ownership: these express words support the view that the deities, not the trustee, are the owners of the properties.
On the ownership question, the Tribunal correctly applied established authority (including 23 I.A. 37 and the cases cited in 23 Cal. 670 and 33 All. 412) holding that when a trust names deities as beneficiaries and does not define shares, the law attributes equal shares and treats them as tenants in common. Therefore, each deity's income should be separately assessed and the trustee's liability is measured by the liability of each beneficiary under Section 41.
Regarding the charitable expenditure question, the court scrutinised the deeds and found no specific provision obliging the trustee to spend any part of income on public charitable purposes. The provisions in paragraph 7 that give power to the trustee to apply "additional income" to increase items of expenditure are vague and do not direct spending on public charity. Thus, even if in some years the trustee spent part of the income on public charitable objects, that would be an application of income and would not legally entitle the assessee to claim exemption under Section 4(3)(1) unless the deed itself showed that part of the income enured to the public.
The court further noted there was no finding that the expenditures sought to be exempted actually came out of "additional income" in the sense contemplated by the trust deeds; had the court taken a different view on the ownership point, that factual finding might have been decisive for the assessee.

Holding and Implications

Holding:

The income of the trust property in question in the hands of the trustee is not liable to be assessed at the maximum rate under the first proviso to Section 41(1) of the Income‑tax Act. Instead, the income should have been assessed at the rate applicable to the individual income of each of the deities in each group (i.e., separate assessments for each deity).
Sums spent by the trustees on charitable purposes, though the purposes are not specifically mentioned in the trust deed, were wrongly excluded under Section 4(3)(1) of the Income‑tax Act for the purposes of determining the income liable to be taxed.

Implications / Consequences:

Direct effect: The assessments should be conducted as separate assessments for each deity (share defined by law), not treated as a joint assessment subject to the maximum rate under the proviso to Section 41(1).
Direct effect: Amounts excluded from income on the ground that they were charitable expenditures under Section 4(3)(1) were improperly excluded where the trust deed did not specifically provide that any part of the income enured for public charitable purposes; therefore those exclusions were disallowed.
Costs: The Commissioner of Income‑tax having failed substantially in the references was ordered to pay the costs of the assessees; a hearing fee in six cases was fixed at Rs. 100 (for references 54–59 of 1944).
On precedent: The court applied and relied on existing authorities (as cited) rather than laying down a novel legal principle; the decision resolves the questions on the particular deeds and facts presented.

Final notation in the opinion: "References answered." Ray, J. agreed with the judgment.

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Sri Sri Jyotishwari Kalimata And Others v. Commr. Of Income-Tax, Bihar And Orissa, Patna Opposite Party.

Manohar Lall, A.C.J:— All these miscellaneous judicial cases were heard together as they involve the construction of the same documents by which certain properties have been dedicated to certain deities. The common question of law which arises in all these cases has been formulated by the Appellate Tribunal as follows:

“In the circumstances of the case is the income of the trust properties in question in the hands of the trustee liable to be assessed at the maximum rate under the first proviso to Section 41(1) of the Income-tax Act?”

2. And in Miscellaneous Judicial Case no. 41 of 1944 which relates to three applications by the Commissioner and numbered 66 R.A Nos. 18, 19 and 20 of 1943–1944 the additional question which has been referred to us is:

“Whether the sums spent by trustees on charitable purposes though the purposes are not specifically mentioned in the Trust Deed, are rightly excluded under Section 4(3)(1) of the Income-tax Act for the purposes of determining the income liable to be taxed”.

3. It is convenient to state the admitted facts.

4. The Maharajadhiraj Sri Jyoti Prosad Singh Deo Bahadur of Panchkote—hereinafter to be called the trustee—created a trust by two deeds bearing the same date 11-9-1983, in favour of certain family deities which are shown in three groups:

(a) Jyotishwari Baglamata, Jyotishwari Shiva, Lachminarain Jew.

(b) Jyotishwari Kalimata, Jyotishwari Shiva, Lachminarain Jew (c) Rajrajeshwari Mata, Shyamchand Jew, Raghubar Jew, Lachminarain Jew.

5. By one of these deeds dated 11th September 1933 one set of properties was dedicated in favour of group (a) as described in sch. A of the deed and another set of properties in favour of group (b) as described in Sch. B of the same deed. By another deed of the same date another set of properties was dedicated in favour of the deities of group (c). The assessment was made by the Income-tax Officer in the name of each group of deities through the trustee. Before the Appellate Assistant Commissioner one of the contentions raised was that the trustee holds the property for the benefit of the several idols in each group and since the benefit goes to each of them, separate assessments should have been made by the Income-tax Officer on the income of each of these Thakurs and the joint assessment was illegal. The Appellate Assistant Commissioner, Mr. Misra examined the contention at great length in an able and careful order and came to the conclusion that as the beneficiaries had nothing to do with the income or the properties, and the trustee virtually was made the owner, disponer and custodian of the properties and their income, the joint assessment was valid by treating the deities as an “association of persons.” He further took the view that the Income-tax Officer should have levied the tax at the maximum rate by virtue of the proviso to Section 41, sub-clause (1) of the Income-tax Act. The Assistant Commissioner in agreement with the Income-tax Officer refused to give a deduction with regard to certain expenses which were claimed as being spent for charitable purposes for the benefit of the public.

6. The assessee then moved the Appellate Tribunal who came to this conclusion:

“The idols are in law juristic persons and the income therefore received by the trustee is received on behalf of such juristic persons…..We have pointed out above that the trust is in favour of named deities and though their shares are not defined by the trust deed the law attributes to them equal shares and make them tenants in common and not joint tenants. The case reported in 23 Cal. 6701 is a clear authority for this proposition and in 33 All. 412 the same view was taken following the Privy Council case reported in 23 Cal. 670. We therefore hold that each idol should be assessed on that deity's income and the tax should be based upon and recovered from the Trustee. The measure of the Trustee's liability is the liability of the beneficiary (S. 41) as discussed above. There is no uncertainty as to the shares of the idols. We therefore consider that there should be a separate assessment of the Trustee as regards the income of each of the deities of which he is the Trustee.”

7. It is argued by the learned standing counsel that upon a true interpretation of the deeds of trust the idols in each group should have been assessed as an “Association of Individuals.” He draws attention to the term in the deeds which directs that the trustee shall in the first place out of the income received by him meet the public charges, cost of litigation and for the preservation and improvement of the trust properties and in the next place pay to the she bait or trustee for the time being as his commission or remuneration and then he is directed to apply and expend the balance of the rents issues and profits towards the performance of the daily worship of the idol and other usual observances. He also draws attention to the other terms in these deeds which give full discretion to the trustee as to the manner and extent in which he will spend the whole or part of the income of a particular year. He, therefore, submitted that the trustee was the owner of the income as a whole of the properties in each group. The learned standing counsel also suggested in the bourse of his argument that the property described. In the various schedules of the deeds did not vest in the deities but in the trustee.

8. In our opinion, the terms of the deeds are clear and it must be held that the property is vested in the various deities and not in the trustee even though in the very nature of things the shebait or the trustee must have full control over the income and expenditure—always subject to the directions in the deeds of trust.

9. Paragraph 7 of the deeds clearly states that the trustee or shebait will make an account of the income and expenditure of the trust properties at the end of the Bengalee month of Chaitra, and if there is balance out of the in come after meeting the expenses described then this balance shall be held by him in trust for use and benefit of the deities or thakurs and shall form a part of the corpus of the trust properties respectively dedicated to the deities or thakurs as aforesaid. It will be observed that lithe words are “respectively dedicated” and these make it clear that the excess of the income over the expenditure belongs to that deity from whose income the balance is derived and is in the hands of the trustee. Again, the trustee also is empowered to utilise the balance in improving or increasing such trust properties by purchase of other immovable properties, and that the property that is thus acquired shall be deemed to form a part of the corpus of the trust property respectively dedicated to the deities or thakurs as aforesaid. These express words support the view taken by the tribunal that the deities are the owners of the properties.

10. The tribunal have also correctly applied the principle of law laid down in 23 I.A 37. It must, therefore, be held that the deities in teach separate group should have been assessed separately as their shares are well defined in law.

11. The facts as regards the second question must now be stated. It is provided in first part of para. 7 of the deeds that

“the trustee or shebait shall have full power and authority to apply the additional income derived therefrom to increase the scale of the expenditure or of any one or more of the item of expenditure for such Thakurs or Deities respectively or by making one or more additional items in such manner as he may think proper.”

12. It was contended by the assessee before the Income-tax Authorities that deduction should be made out of the assessable income of that amount which was spent in the previous year for some items of public charity. The appellate Assistant Commissioner came to the conclusion that the trust created by the two deeds was a private religious trust and did got enure for the benefit of the public. The Appellate Tribunal, however, took the view that part of a private religious trust which enures for the benefit of the public should be exempted and an enquiry should, therefore, be directed to find out whether any part of these religious private trusts enures for the benefit of the public. On considering the admitted facts and circumstances they came to the conclusion that those expenses which had been made in the previous years for the benefit of the public such as High School at Kasipur, M.E Girls School, stipend to poor students, charitable dispensary, Sanskrit College etc., should be exempted from taxation. The learned standing counsel contends that this view of the Tribunal is wrong. He points out that it is nowhere provided in the trust deeds that the trustee must spend part of the income on objects of or for public charity so that it cannot be held in law that this part of the income enures for the benefit of the public. This argument is correct and must be accepted. The terms of the deeds themselves should indicate whether any portion of the trust income enures for the benefit of the public within the meaning of Section 4, sub-clause (3) of the Income-tax Act. The only provision in the deeds to which our attention is drawn on behalf of the assessee is to be found in paragraph 7 which I have quoted above. These provisions are not only vague and indefinite but do not contain any direction that any part of the income should or may be spent on specific public charitable purposes. Even though the trustee in a particular year may rightly spend part of the income on public charitable objects, that would amount merely to an application of a part of the income but would not entitle the assessee to claim that part of the income should be exempt from taxation. Mr. S.N Dutta further draws attention to these words in the trust deeds:

“Any property if thus acquired shall be deemed to form a part of the corpus of the trust property respectively dedicated to the Deities or Thakurs as aforesaid and the Trustee or Shebait shall have full power and authority to apply the additional income derived therefrom to increase the scale of the expenditure or of any one or more of the item of expenditure for such Thakurs or Deities respectively or by making one or more additional items in such manner as he may think proper.”

13. And submits that in this case there is no finding that the amount of expenditure which is sought to be exempted came out of the additional income within the meaning of these terms of the trust deeds. If we had taken a different view as to the first part of the question raised, Mr. Dutta would certainly have been entitled to succeed on this part of the argument.

14. For these reasons the answers to the two questions are as follows:

(1) In the circumstances of the case, the income of the trust property in question in the bands of the trustee is not liable to be assessed at the maximum rate under the first proviso to Section 41(1) of the Income-tax Act but should have been assessed at the rate applicable for the individual income of each of the deities in each group.

(2) Sums spent by the trustees on charitable purposes, though the purposes are not specifically mentioned in the trust deed, were wrongly excluded under Section 4(3)(1) of the Income-tax Act for the purposes of determining the income liable to be taxed.

15. As the Commissioner of the Income-tax has failed substantially in all these references, he must pay cost of the assessees. But as these references were heard together we fix the hearing fee in six cases at Rs. 100 i.e, 54-59 of 1944.

Ray, J.:— I agree and have nothing to add.

W.N.G

16. References answered.

Sri Sri Jyotishwari ... v. Commr. Of Income-Tax...