B.V. Venkataramaiah, Accountant Member -
(1.) THESE appeals are disposed of by a common order as they involve common contentions about the charitable nature of the trust. One Madhavrao Gangadharrao Chitnavis created a trust by virtue of a deed dated 22-6-1967 constituting himself as the sole trustee. The trust property consisted of some houses, plots and lands in Nagpur valued at Rs. 1,04,460 and movable property such as cash and shares of the value of about Rs. 2,00,000. The object of the trust was to form a Medical Research Institute for conducting research in various branches of medical science which were specified in the deed. The beneficiaries were the granddaughters and grandson of the founder and such of nearest relatives and employees of the founder as the trustee may nominate.
(2.) The preamble started with the following expression :
Whereas the founder has always had a keen and an earnest desire to serve his family members and relatives by founding a Medical Research Institute.
Whereas the founder has considered that the above objects of conducting a research on the lines indicated by him could be better achieved by creating a private medical research trust for the benefit of the following members of his family and their issues :
(1) Smt. Ardhana R. Dhanwate (granddaughter of the founder), Ramdaspeth, Nagpur.
(2) Kumari Pratibha R. Deshmukh (granddaughter of the founder), C/o Shri R.P. Deshmukh, 18/2, Alipore, Calcutta-27.
(3) Kumari Sandhya H. Junnarkar (granddaughter of the founder), C/o Shri H.S. Junnarkar, Imperial Tobacco Co. Ltd., Tiruvattiyur Madras-19.
(4) Kumar Sandeep H. Junnarkar (grandson of the founder), C/o Shri H.S. Junnarkar, Imperial Tobacco Co., Tiruvattiyar, Madras-19.
and issues of all these beneficiaries 1 to 6 through a Medical Research Institute formed out of the funds and property that would be allotted or dedicated to such trust, and
The persons mentioned at item Nos. 1 to 6 were declared as beneficiaries vide Clause 4 of the deed. Clause 26 of the deed declared that the trust was irrevocable.
By an amendment deed dated 17-11-1969, relevant for the assessment year 1972-73 onwards, certain changes were brought about in the trust deed. It may be mentioned that there were further amendments on 5-4-1972 and finally on 28-4-1975. By the deed of 17-11-1969 the preamble was amended as follows :
Whereas, the founder has always had a keen and earnest desire to serve the public at large indisputably including his family members, other relatives and such others who rendered services to the founder by founding a Medical Research Institute, in which researches of internal functions of life relating to sex and other connected matters having a direct bearing upon the procreation of life, its progress, its well-being, its prolongation and wherein researches analogous to the main objects on the lines indicated directly or indirectly by the founder as per Schedule I appended to the said trust deed as well as appended hereto as mentioned in the operative part of the deed will be undertaken, and
Whereas the founder has considered that the above objects of conducting a research on the lines indicated by him could be better achieved by creating a medical research trust, for the benefit of such of the researchers and scholars including descendants in the line of the founder-male or female and other deserving employees or other relatives of the founder, the latter three categories of beneficiaries to be preferred...over others.
The beneficiaries were declared to be the following :
The sole managing trustee and those who shall come after him to manage and administer the trust, shall always give the benefit of any advanced or other researches, carried on by this trust or institute, here or elsewhere, preferably to the members of the founder's family and their issues if found on merits to be deserving from among several researchers and scholars to the members of the founder's family, their issues, nearest relatives and employees of the founder or their issues shall always be deemed to have been substituted, from the inception of the trust, to the entire exclusion of the founder.
In the original trust deed, Clause 25 stipulated that the sole trustee shall have the right to set right any technical error or omission in the body of aims and objects or in the body of the trust deed. This was substituted by the following clause :
The sole managing trustee shall have the right to set right any technical flaw or omission that may be detected any time in future in this trust deed which may be repugnant to any law of the land in force and further he shall also have power to add, alter or modify the terms and conditions of this trust deed for better and efficacious management of the trust and trust properties and for achieving maximum benefits for the beneficiaries.
Clause 26 of the original trust deed which declared the trust to be revocable was amended as follows :
The trust so created by the deed of trust dated 22-6-1967, shall be deemed to have always been intended to be irrevocable and shall for all times to come be an irrevocable creation of the founder.
Clause 27 of the original deed stipulated that in case there are difficulties in carrying out the objects of the trust, the governing body and the advisory board shall find out proper ways and means to maintain and carry out the objects of the trust but should see that the trust never failed, This was substituted by a new clause as follows:
In case the sole managing trustee and the governing body at any time find it impossible or impracticable or disadvantageous to continue to work the trust, or it is not possible to carry out and achieve the aims and objects of the trust, hereinabove mentioned, the trust shall be dissolved and in that case, the governing body of trustees shall by a majority of at least two-thirds shall divide and distribute the trust property and its funds then available in the following manner, viz. :
(i) 50 per cent of the value of the aggregate trust property shall be formed into a FUND and invested in some sound Government security allowed by law, or considered absolutely safe and interest thereon shall be utilised for rendering help or assistance to the direct descendants, other relatives and those who served the founder, in the matter of rendering medical relief, education facilities, or such other matter requiring heavy costs.
(ii) The other half of the trust property of the value of 50 per cent shall be utilised for educational, charitable and such other public and religious purposes by creating a public trust by the then governing body of the trustees, with power to spend on other properties which this founder has already settled upon trust or may so settle upon trust.
(iii) That trust shall be named in memory of the founder trustee as 'Shri Madhav Gangadhar Chitnavis, Public and Charitable Trust'. The decision of two-thirds majority for both the clauses above-mentioned shall be final.
(3.) ON the basis of these amendments, the assessee claimed before the ITO that the trust was a public charitable trust and its income was, therefore, entitled to exemption from income-tax and wealth-tax. The ITO observed :
As per the wording employed, the benefit of advance research has to go preferably to the members of the founder's family. The benefit of an advanced research can possibly be patent drugs and other inventions. Research is after all a long drawn out process and it results in a few, not many tangible benefits. If the fruits of such long drawn out research are to go preferably to the members of the settlor's family, it can only be a private trust. As I see it, the deed dated 17-11-1969 does not convert the original private trust into a public trust.
Regarding the assessee's contention that the intention of the settlor was to give an opportunity of carrying out research work and the preference was to be given to the founder's family members who on merit were found to be deserving from amongst several researchers and scholars, the ITO held that this, in effect, reduced the effect of Clause 4 of the deed to give preference to the members of the settlor's family in respect of employment benefits generated by the trust. The clause determines the destination of the benefit of research carried on in the institute and does not refer to who could or not be employed by the institute for conducting the institute. He further observed that Clause 25 of the deed dated 17-11-1969 gave wider discretionary powers to the sole managing trustee to modify the terms of the deed to achieve maximum benefit to the beneficiaries. This clause, according to the ITO, further made it clear that the trust was a private trust. He also distinguished the decision of the Supreme Court in Trustees of the Chanty Fund v. CIT  36 ITR 513 and other cases cited by the counsel for the assessee. The ITO then referred to the provisions of Clause 27 of the amended deed. In the ITO's analysis the trust could be wound up whenever in the opinion of the managing trustee, it was disadvantageous to work, the trust. The word 'disadvantageous' covered all contingencies and vested unhampered discretionary powers in the trustees in choosing the time and occasion for winding up the trust. 50 per cent of the trust property was to be used for helping the direct descendants of the founder, etc. and the other 50 per cent could also be added to the other properties which the founder had already settled. He, accordingly, concluded that the trustees could utilise the entire corpus for the benefit of the members of the settlor's family either directly or indirectly. The argument on behalf of the assessee that the dissolution of the trust could be done only in accordance with the provisions of the Indian Trust, Act, 1882 and the Bombay Public Trusts Act was rejected. He held that although the ultimate destination of the corpus could be known only after the directions of the Court, the specific directions contained in the trust deed made it clear that the properties were held in trust for the benefit of the family members of the founder. The argument that registration under the Bombay Public Trusts Act made the trust a public trust was also rejected by the ITO. He similarly held that the registration of the trust under Section 12A of the Income-tax Act, 1961 ('the Act') did not automatically grant exemption under Section 11 of the Act.;