Seshachelapati, J - (1.) This is a case referred to the High Court under section 66 (1) of the Indian Income-tax Act (XI of 1922) The question formulated for decision is, " Whether the income arising from property settled upon trust under the deed of settlement, dated 14th September, 1950 or any part thereof is exempt from tax under section 4 (3) (/) of the Indian Income-tax Act, 1922?"
(2.) By an indenture made at Hyderabad on 14th September, 1950, HEH the Nizam of Hyderabad settled upon two trustees, Nawab Zain Yar Jung and Shavax Ardeshir Lal, certain securities of the value of Rs 40,00,000, more particularly described in the first schedule annexed thereto upon trust for applying the income thereof for religious purposes and objects, in the manner appearing in the instrument of trust and settlement In schedule 2 annexed to the indenture, the particulars of the sacred buildings which are directed to be maintained are set out The provisions of the indenture relevant for the present case are as follows :- "(2) This trust shall be called " H E H the Nizam's Religious Endowment Trust" (3) The trustees shall hold and stand possessed of the trust fund upon trust- (a) to manage the trust fund and to recover the interest and other income thereof (b) To pay and discharge out of the income of the trust fund all expenses and charges for collecting and recovering the income of the trust fund and all other costs, charges, expenses and outgoings of and incidental to the administration thereof (c) During the lifetime of the settlor the balance of the income shall be accumulated and shall be added to the corpus of the trust fund (d) On and after the death of the settlor the trustees shall hold the accumulated corpus of the trust fund upon trust to spend the income thereof for any one or more of the following religious or charitable objects in such shares and proportions and in such manner as the trustees shall in their absolute discretion deem proper (1) For annual religious offerings to the sacred places of the Muslims outside India, in Hedjaz and Iraq, viz, Macca, Madina, Najaf, Karbala, Kazamain, Sirraman Raa and Mashad (in Iran) and Baghdad, and Basra (ii) For help, either in lump sum or by way of monthly allowances, to the ' Khuddam' or the servants who are looking after the sacred shrines, and also by way of charity to pious people residing at these holy places (iii) For the upkeep of the sacred buildings constructed in the lifetime of the settlor, such as, Masjids (mosques), Azakhana (mourning house built to commemorate the name of His Exalted Highness's late mother), two Ashurkhanas (where the Alam sits inside the City Palace during Moharram and Ramzan), and the Maqbaras (tombs) and particularly mentioned in the Second Schedule hereunder written (iv) For the annual expenditure during the mourning period of Moharram and Safar and also during other religious months, when different kinds of ceremonies, religious discourses (tazreers) Id Taqreebs, etc, are performed, including the annual religious offerings, to the sacred shrines at Ajmer and Gulbarga (v) It is the desire of the settlor that the income of the trust shall, as far as possible, be spent equally for the abovementioned four religious and charitable objects and purposes and in the event of there being any surplus then the same may be spent by the trustees for any other religious and charitable objects for the benefit of Sunni Mahomedans with liberty to the trustees in their absolute discretion to accumulate the surplus, if any, for any year or years and utilise the same for the purposes in this clause provided for any subsequent year or years"
(3.) For the assessment years 1952-53 and 1953-54, the "H E H Nizam's Religious Trust Fund " claimed that the income arising from the properties settled upon trust in and by the indenture dated 14th September, 1950, was exempt from tax under section 4 (3) (1) of the Indian Income-tax Act That claim was rejected by the Assessing Officer, Appellate Assistant Commissioner and, eventually, by the Income- tax Appellate Tribunal (Hyderabad Bench) The question we have to decide in this reference is whether the income from the trust fund is entitled to exemption under section 4 (3) (1) of the Act The relevant portion of the section 4 (3) (1) of the Act reads as follows :- "(3) Any income, profits or gains falling within the following clauses shall not be included in total income of the person receiving them : (1) Subject to the provisions of clause (c) of sub-section (1) of section 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 : Provided that such income shall be included in the total income- (a) if it is applied to religious or charitable purposes without the taxable territories, but in the following cases, namely :- (1) where the property is held under trust or other legal obligation created before the commencement of the Indian Income-tax (Amendment) Act, 1953 (XXV of 1953) and the income therefrom is applied to such purposes without the taxable territories ; and (ii) where the property is held under trust or other legal obligation created after such commencement, and the income therefrom is applied without the taxable territories to charitable purposes which tend to promote international welfare in which India is interested, the Central Board of Revenue may, by general or special order, direct that it shalll not be included in the total income";