Decided on April 02,1946


Referred Judgements :-



Kania, J. - (1.)THIS is a reference under Section 66 (1) of the Indian Income-tax Act made by the Income-tax Appellate Tribunal, Having regard to the way in which, the matter of the assessment of the assessee had progressed, considerable confusion had been created, but on the further statement of facts sent by the Tribunal the relevant and material facts are now fairly clear.
(2.)THE assessee is Rao Bahadur Hanmantram Ramnath of Poona. He is assessed with the status of a joint Hindu family. We are concerned in the present reference with the assessment for the accounting year Samvat 1995 (October 24, 1938, to November 11, 1939 ). THE assessment proceedings were taken in 3940-1941. THE assessee, the joint Hindu family, was assessed by the Income-tax Officer on an income of Rs. 86,256 on July 10, 1942. A perusal of the assessment order shows that the assessee claimed that he should be allowed to deduct a sum of Rs. 9,750, being interest which he was liable to pay to "the R. B. Hanmantram Tarachand Charitable Trust Account". In his assessment order the Income-tax Officer has considered the claim as put forth by the assessee. THE claim was that the amount being deposited with the joint family firm, interest had become payable on this charitable trust account and therefore the assessee firm should be allowed to deduct the amount as a permissible deduction under Section 10 of the Indian Income-tax Act. THE Income-tax Officer rejected this contention because in his opinion no valid trust was created. On appeal to the Appellate Assistant Commissioner, this view was upheld. THE. matter was then taken by the assessee to the Income-tax Appellate Tribunal. From the record now before this Court, it appears that on behalf of the assesasee four affidavits had been filed before the Income-tax Officer in the previous year. No copies of those affidavits were produced before the Income-tax Officer dealing with the assessment under review. THE books of account showing how the entries were made and dealt with were perhaps shown to the Income-tax Officer but no extracts were filed up to the time the matter was brought before the Tribunal. THE Tribunal therefore dealt with the matter on the meagre materials which were then before it. It decided the question against the assessee. THEy held that Rao Bahadur Hanmantram did make a declaration creating a trust on November 4, 1937, and on October 23, 1938, an entry crediting the sum of Its. 2,00,000 to the trust account was made in the assessee's books, but there was nothing to show that there was an actual transfer of assets, which was necessary under Section 6 of the Indian Trusts Act, to constitute a valid trust. THEy also found that the income as a fact was devoted to charitable and religious purposes. THEir conclusion was that the fund which produced the income was not held in trust, on the materials put before them. When the matter came before us, we found that several statements made in the course of that judgment were either not decisions of fact or did not indicate the con-elusions as findings of fact. We, therefore, referred back the matter to the Tribunal under ,s. 66 (4) of the Indian Income-tax Act. THEy have now submitted a full detailed statement containing all the facts and documents which, were averred and placed before them. THEy have submitted for the Court's opinion the question in the following terms: Whether, in the circumstances of the case the sum of Rs. 9,750 is income derived from property held under trust or other legal obligation wholly for religious or charitable purposes within the meaning of Section 4 (3) (i) of the Income-tax Act?
At the outset it must be pointed out that the question suggested is not the correct question, to be answered by the Court. The question submitted can arise, if the trustees who had received this income made a claim that the same was exempted tinder Section 4 (3) (i) of the Indian Income-tax Act. The facts disclose that the assessee is not a trustee. The assessee has not received this income from the trust funds and has not claimed an exemption under Section 4 (3) (i) of the Act. As shown by the assessment order passed by the Income-tax Officer, the assessee's claim was for an allowance under Section 10 of the Indian Income-tax Act. This defect, however, can be easily put right. The parties appearing before us have conceded that it would be proper for the Court to raise the following question on the facts put before us. The question to be answered will be as follows: Whether the assessee is entitled to claim a reduction of Rs. 9,750 from his income, under the circumstances of the case, under Section 10 of the Income-tax Act to decide this question the Court will have to decide whether this amount was payable by way of interest to a creditor of the assessee. That would give rise to the question, who was the creditor ? To answer that question the Court must determine whether there was a valid trust created by Rao Bahadur Han-mantram, because, unless such trust was created, the trustees could not be creditors of the assessee and unless they were creditors, the claim could not be allowed. The question, therefore, reverts back to the discussion contained in the statement of case, viz. whether a valid trust was created by Rao Bahadur Hanmantram ?

Although the Indian Trusts Act does not apply to charitable trusts, it is clear that the three certainties there described are required to create a charitable trust. They are: (1) a declaration of trust which is binding on the settlor; (2) setting apart definite property and the settlor depriving himself of the ownership thereof; and (3) a statement of the objects for which the property is thereafter to be held, i. e. the beneficiaries. In the present case there is no dispute about the third. As regards the first also there does not appear to be a serious dispute. The affidavits (copies) were filed in these proceedings an-5 in the course of its judgment the Tribunal has not stated that it disbelieves the evidence of the deponents. We must therefore proceed on the footing that on November 4, 1937, a declaration of trust as mentioned in the affidavit of Rao Bahadur Hanmantram was made. The following is a material extract from its translation:-. . . During my illness it was my desire that I should by my own hand give some permanent help to the cause of Religion and Education. Hence I resolved to set apart Rs. Two lakhs of my self-acquired estate for the aforesaid religious and charitable purposes and create a trust of it. In accordance therewith, I emphatically declared that Rs. Two lakhs out of my estate were in respect of charity, with the consent of the members of my family and in the presence of my circle of friends on the good and auspicious day of the 1st of Kartik Shuddha of Samvat 1994 (November 4, 1937) and I directed that the aforesaid sum should be kept credited to the Rao Bahadur Hanmantiam Ramnuth (account ). I definitely settled that the interest to be realised from the above amount in respect of the charity should be spent for the use of the Dharainshala, Hospital, Anna Chhatra, Education and Hindu orphan persons at Vrindavan and Balaji and for the purpose of carrying on the administration of the said trust accordingly I appointed myself, Hiralal Ramsukh and Shriniwas Hanmantram as Trustees for the time being. . .

(3.)IN addition to the affidavit of Rao Bahadur Hanmantram, affidavits of Shrinivas Hanmantram and Hiralal Ranmath confirming what was stated in the affidavit of Rao Bahadur Hanmantram were also filed. IN all these three affidavits it was further stated as follows : As it was unanimously agreed by us all trustees that the said Rs. 2,00,000 should for the present be deposited at interest at the Pedhi of Tarachand Ranmath, the said moneys have been kept at interest at the aforesaid Pedhi.
It is not necessary for us to decide whether the declaration as made was a sufficient and proper declaration, because the question to be considered can be disposed of on the determination of the second point, viz. whether the property is clearly specified and whether the settlor divested himself of beneficial interest in the same.


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