STONE, C.J. -
(1.)THIS reference under Section 66 (1) of the Indian Income-tax Act raises a short point, though one which has shown a tendency to become obscured by the historical background and by the more prominent features concerning questions of fact, of recent times. The question which has been referred to us is in these terms :-
Whether in the circumstances of the case the of Rs. 23,515 received by the assessee as surplus income of the trust property of Keshavji Jadhavji Trust, or any part of that sum, is exempt from taxation under Section 4 (3) (i) of the Indian Income-tax Act ?
(2.)BEFORE turning to the somewhat involved circumstances of the case, it is essential to consider and bear in mind the terms of sub-section 4 (3) (i) of the Act. It is that sub-section which exempts from the incidents of taxation certain types of income, described under 12 heads. The opening words are : any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them, and it is with the first head or class with which we are concerned in this case. It is (i) any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and then the sub-section continues to make provision for apportionment, in the case in which property is partly so held.
The sum of Rs. 23,515, mentioned in the question referred to us, is undoubtedly income, and the question is whether the property, that is to say, the capital of the trust funds from which it springs is held in trust or other legal obligation which are wholly for religious or charitable purposes.
The involved nature of the facts of the case renders these preliminary observations necessary, unless what is fundamental is to become clouded by considerations of the ultimate destination the income. The facts are these. By his will, dated the 8th February 1886, Keshavji Jadhavji, who died the day following, made provision for a number of capital funds and annual sums to be applied for purposes which cannot under the will, in view of various decisions of this High Court, with regard to the testators dispositions, be challenged as being anything but religious or charitable in character. In each case where payments have to be made the total amount which can be expended annually is fixed by the will, was the assessees father and he was also the heir if the testator. Owing to the rise in land values in Bombay and the consequential increase in rents, the testators estate began to produce a substantial surplus income and in 1900 and 1903 the assessees father commenced proceedings in this Court to have destination of this surplus income and past accumulations of it determined. In the result it was decided that the assessees father was beneficially entitled to the surplus, but he, being of a charitable disposition, desired that the surplus should go to similar objects to those, which benefit by the testators bounty. Accordingly by a deed of settlement dated the 1st of April 1908, which was sanctioned by the Court, there was a settlement of parts of the testators estate and of part of the accumulated surplus which was calculated to be sufficient to produce the annual sum of Rs. 26,050 and it is that trust fund, which is the property within the meaning of Section 4 (3) (i) of the Act and which has produced the Rs. 23,515 mentioned in the question referred to us.
(3.)UNDER the settlement of 1908, surplus income again began to accumulate, and the assessees father brought a third suit in this Court to have the destination of that surplus determined. Again it was declared that the surplus belonged to the assessees father and again in view of declarations of this Court, challenge to the trust of the 1908 settlement as not being religious or charitable, does not lie. The assessees father died in 1927 and the assessee as his heir brought in 1934 a fourth suit in this Court to have the destination of the then existing accumulations and surplus determined. On the 12th of October 1934, Mr. Justice Tyabji declared that on the construction of the decree in Suit No. 785 of 1903 and Suit No. 989 of 1917 on the file of this Honourable Court, Karsondas Natha, the deceased, mentioned in the plaint, was absolutely entitled to the surplus income remaining under the deed of trust dated 1st April 1908; and this Court does further declare that the deceased Karsondas Natha being entitled to the said income and accumulations thereof as aforesaid the plaintiff as his sole heir is entitled to the same and to execute a trust deed in respect of the accumulations and surplus of income to arise in future for the religious and charitable objects mentioned in the plaint.
It is to be observed that in those proceedings the assessee was plaintiff and the Advocate-General and the two other trustees of the 1908 settlement, viz., Kanji Mulji and Mowji Mulji, were defendants.