COMMISSIONER OF INCOME TAX Vs. RAJMITRA BHAILAL AMIN CHARITABLE TRUST
LAWS(GJH)-1963-9-7
HIGH COURT OF GUJARAT
Decided on September 03,1963

COMMISSIONER OF INCOME TAX Appellant
VERSUS
RAJMITRA BHAILAL AMIN CHARITABLE TRUST Respondents

JUDGEMENT

J.M.SHELAT, J. - (1.) THIS is a reference under S. 66(1) at the instance of the CIT, Gujarat.
(2.) BY an indenture of trust dt. 28th July, 1945, one Bhailal Dhjibhai Amin settled certain shares of the then market value of Rs. 2,50,000 and certain immovable properties situate at Virsad in District Karia upon certain trust therein more particularly set out. By another indenture of trust dt. 2nd Aug., 1945, he conveyed, transferred and assigned unto the trustees certain immovable properties belonging to him and situate at Baroda and certain shares and securities standing in his name of the then market value of Rs. 4,50,000 upon the same trust set out therein. Since both the trust deeds contain identical terms, it would be sufficient if the relevant terms of one of them were to be set out for the purpose of indicating the objects of the two trusts. Clause 5 of the trust deed relating to the Kaira properties provides that the trustees shall spend and apply the net balance of the income of the said trust fund and trust property for the benefit of the public in general of the Baroda State and of Kaira District of Bombay Presidency including Cambay State within its geographical limits in Gujarat without distinction of caste, creed or colour in the advancement of education, commerce, industry, public health and medical relief and particularly : (A) by establishing and maintaining a good and well equipped hospital at Baroda or nearby; (B) by establishing and maintaining either an industrial home or industrial classes or maternity home for women at village Virsad in Borsad Taluka in Kaira District; (C) by awarding prizes and scholarships to deserving students; (D) by granting scholarships, travelling fellowships or loans with or without interest to qualified persons for higher education and training in various branches of technology, applied sciences and agricultural subjects and more particularly medicines, chemical and pharmaceutical, engineering and other allied subjects; (E) by giving grants to schools, colleges and technical institutions; (F) by giving aid to institutions for carrying on scientific and other industrial researches and also by giving donations to establish similar institutions in Baroda City; (G) by grants for public health and medical relief in villages. The clause gave power to the trustees to apply the corpus of the said trust fund or any portion thereof as they may from time to time think fit for any one or more of the above objects. Clause 12 empowered the trustees to take over the superintendence, management and administration of any trust or institution "having allied objects whether endowed or not by the settlor such terms and conditions as the trustees may in their absolute discretion think fit" and may thereafter superintend, manage and administer the same and may apply such portion of the income of the trust fund as they may in their absolute discretion think fit for the support and conduct of such trust or institution. Clause 13 runs as follows: "13. The trustees may accept donations and/or contributions either in cash or in kind from any person, company, firm or institution upon such terms and conditions as they may deem proper and may carry out such terms and conditions and may apply any portion of the income of the trust fund for the purpose thereof." The two trusts are referred to for the sake of convenience as Rajmitra Bhailal Amin Charitable Trust (Kaira Property) and Rajmitra Bhailal Amin Charitable Trust (Baroda Property), the two trusts being the assessees herein. The years of assessment in respect of the trust of Kaira properties are 1949 50 to 1958 59, the corresponding accounting periods being the years ending 31st Dec., 1948, to 31st Dec., 1950, and the years ending 31st March, 1952, to 31st March, 1958. The assessment years in the case of the trust for the Baroda properties are 1947 48 and 1956 57 relating to the accounting years ending 31st Dec., 1946 to 31st Dec., 1950, and the years ending 31st March, 1952 to 31st March, 1956. The two trusts made applications for refund on the ground that they were entitled to exemption in respect of their incomes under S. 4(3)(i) of the Act. The ITO held that the assessee trusts were neither religious nor charitable trusts, and relying upon that finding, as also upon the provisions of cl. 13 of the trust deeds, declined to grant the exemption. The AAC set aside the order of the ITO and held that the trusts were entitled to exemption under S. 4(3)(i) and granted exemption in conformity with the restrictions imposed by the amendment to the Act by the IT (Amendment) Act, 1953, which was brought into effect from the 1st of April, 1952, and also by the Finance Act of 1955, which came into force as from the 1st of April, 1955. The CIT thereafter filed appeals before the Tribunal, raising therein two contentions : (1) that one of the objects set out in cl. 5 of the trust deed, namely, advancement of commerce and industry, was not a charitable object and since the trustees had discretion under that clause to utilise the corpus as also the income of the trust properties for any of the objects including the aforesaid object the trust was not a charitable trust, and (2) that cls. 12 and 13 of the trust deeds gave power to the trustees to take over other institutions and to accept donations and/or contributions, that such donations might carry with them terms and conditions inconsistent with the objects of the trust and if the trustees were under these powers to accept such donations and/or contributions, they would have to carry out such terms and conditions which might not be charitable in nature. The Tribunal rejected both these contentions and confirmed the orders passed by the CIT(A). Thereupon, the CIT applied to refer the question of law arising under S. 4(3)(i) of the Act and the Tribunal in consequence has referred to us the following question, namely: "Whether, on the facts and in the circumstances of the case, the assessee trust is entitled to exemption under S. 4(3)(i) of the Indian IT Act, 1922 ?" The definition of what is a charity is one which is not a definition that it would receive in ordinary parlance. As has often been pointed out by Courts, the expression charitable purpose as used in the enactment is a term of art and for the purposes of income tax it has to be given the meaning the Act affords to it in the Explanation to S. 4(3) which Explanation is an inclusive and not an exhaustive definition. Sec. 4(3)(i) provides that: "4. (3) Any income, profits or gains falling within the following clauses shall not be included in the total income of the person receiving them: (i) Subject to the provisions of cl. (c) of Sub S. (1) of S. 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto...." The last part of Sub S. (3) of S. 4 furnishes an explanation to the expression "charitable purpose" and it runs as follows: "In this sub section 'charitable purpose' includes relief of the poor, education, medical relief, and advancement of any other object of general public utility, but nothing contained in cl. (i) or cl. (ii) shall operate to exempt from the provisions of this Act that part of the income from property held under a trust or other legal obligation for private religious purposes which does not enure for the benefit of the public." Sec. 4(3) (i), as it stood prior to the enactment of the IT (Amendment) Act, 1953, and the Finance Act of 1955 was in some respects different from what it is now. But it is conceded that so far as the present reference is concerned, these changes do not make any material difference; for the entire reference really turns: (1) upon the question whether advancement of commerce and industry is a charitable purpose within the meaning of Sub S. (3)(i) of S. 4, and (2) the interpretation of cl. 12 in the two trust deeds. So far as the question as to whether the expression "advancement of commerce and industry" contained in cl. 5 of the trust deeds is concerned, no difficulty arises because of the concession made by the learned Advocate General, in view of the decisions such as All India Spinners' Association vs. CIT (1944) 12 ITR 482 (PC) : TC23R.179; CIT vs. Radhaswami Satsang Sabha (1954) 25 ITR 472 (All) : TC23R.412, IRC vs. Yorkshire Agricultural Society (1927) 13 Tax Cases 58, In re Town and Country Planning Act, 1947 : Crystal Palace Trustees vs. Minister of Town and Country Planning (1951) Ch. 132 and Andhra Chamber of Commerce vs. CIT (1961) 42 ITR 503 (Mad) : TC23R.311 that such a clause cannot be held to be objectionable and a trust for the advancement of commerce and industry would be a trust for a charitable purpose within the meaning of S. 4(3)(i) and the Explanation attached thereto and that such an object satisfies the statutory test, namely, advancement of any other object of general utility as contemplated by the Explanation of Sub S. (3) of S. 4 of the Act.
(3.) The main grievance of the learned Advocate General appearing for the Commissioner, however, was with regard to cls. 12 and 13. His contention first was as regards the power of the trustees to take over the superintendence, management and administration of any trust or institution having allied objects, whether endowed or not by the settlor, on such terms and conditions as the trustees may, in their absolute discretion, think fit, as also the power of the trustees thereunder to apply such portion of the income of the trust fund as they may, in their absolute discretion, think fit, for the support of such trust or institution, etc., etc. The learned Advocate General contended that the trustees, under the powers reserved to them under this clause, may take over the management or administration of any trust or institution having objects which may be allied to the objects of the present trust deeds, but though the objects may be allied, they may not necessarily be for charitable purposes, and in that event the power given to the trustees to expend such portion of the income of the trust fund as may, in their absolute discretion, think fit, for the support and conduct of such trust or institution, would be objectionable and therefore would preclude the trust from claiming the benefit of S. 4(3)(i) as such a trust in that event cannot be said to be one wholly for religious or charitable purposes. The learned Advocate General, however, was fair enough to concede that the expression "allied objects" used in cl. 12 would mean objects which are similar in nature or akin to the objects of the present trusts and such objects then would go hand in hand with the objects of the present trust. In other words, cl. 12 on such a construction merely empowers the trustees to take over the superintendence, management and administration of such trust or institution whose objects are similar to, or consistent with, the objects of the assessee trusts. The trustees would not, therefore, by reason of the power reserved to them under cl. 12, be entitled to take over any trust or institution whose objects are not for charitable purposes. No objection therefore can be taken to such a clause if the power of the trustees, by the use of the expression "allied objects", is clearly circumscribed to accepting administration and management of such trusts or institutions which have objects similar to those of the present trusts.;


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