Dwarka Prasad, J. -
(1.)THIS reference has been made under Section 27(1) of the Wealth-tax Act, 1957, by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, by its order dated August 22, 1972, referring the following question of law arising out of its order dated January 29, 1972, to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the net wealth of M/s. Adarsh Gram Trust is exempt under Section 5(1)(i) of the Wealth-tax Act in view of the objects mentioned in the Notification No. 11, dated January 4, 1949 ?"
(2.)THE facts which have given rise to the aforesaid reference, are as under :
Before the merger of Sirohi State with other States to form the bigger State of Rajasthan, Sirohi, was an Indian State and the then Ruler of Sirohi issued the following Notification No. 11, on January 4, 1949, which was published in the Sirohi State Gazette :
"No. 11, Ord. : With a view to promote manufacture of khadi, removal of untouchability, uplift of women and other constructive activities on the whole lines of Mahatma Gandhi's doctrines in the whole of the State and in order to found a self-sufficient "ADARSH GRAM" (Model village) a sum of Rs. 6,00,000 (Rupees six lakhs) is hereby granted for the purpose and ordered to be deposited in a bank as fund of the "ADARSH GRAM" and constructive activities in the name of Her Highness Pujya Shree Rajmata Sahiba Shree Krishna Kanverbha Sahiba, Maharaj Shri Abhey Singhji Sahib and Shriman Gokulbhai Daulatram Bhatt of Sirohi State, This money will be utilised by grants to the committee formed to carry out the objectives under their directions.
THE land of grass Jod of Kiaria, near Abu Road, is hereby granted forthwith for the site and erection of the model village and the activities connected therewith and other lands lying near about the Jod would be granted thereafter in due course of time as the village and activities grow.
It is further ordered that pucca patta of the Kiaria Jod land be issued in the name of Adarsh Gram (Model village). THE head office of the "ADARSH GRAM " (Model village) will be housed in Mill Kothi, Abu road, and the whole building with its land will be used for this purpose."
A sum of Rs. 6,00,000 was deposited by the Government of Sirohi State with the Punjab National Bank at Sirohi in accordance with the aforesaid notification. The Ruler of Sirohi also transferred the lands mentioned in the aforesaid notification to the trust by registered deeds Nos. 26 and 27 dated January 4, 1949.
As proposals were made that some portions of the then State of Sirohi should be merged with the State of Bombay, while the remaining portions thereof should be merged with the State of Rajasthan, the Ruler of Sirohi State was divested of his powers on January 5, 1949, and an administrator was appointed by the Government of India to administer the areas comprised in the State of Sirohi, pending a decision regarding the State or States in which those areas would eventually be merged. The Government of Bombay issued orders freezing the account of the assessed with the Punjab National Bank. The transfer of lands made by the then Ruler of Sirohi was also frozen by the Government.
Subsequently, the then State of Sirohi was merged in the State of Rajasthan in the year 1956, on the basis of the recommendation of the States Reorganisation Commission. The Government of Rajasthan thereafter constituted an Advisory Committee for the Adarsh Gram Trust with the Collector of Sirohi as its Member Secretary.
The Adarsh Gram Trust (hereinafter called "the assessee") did not file any returns of wealth. The Wealth-tax Officer initiated proceedings under Section 17 of the Wealth-tax Act, as in his view the net wealth of the assessee had escaped assessment and he called upon the assessee-trust to file its returns of net wealth. The assessee filed a nil return and contended that the net wealth of the assessee-trust was not liable to tax under the Wealth-tax Act because the same was entitled to exemption under Section 5(1)(i) as a public charitable trust. The assessee took the stand that the land of the grass Jod of Kiaria, near Abu road, was agricultural land and a pucca patta had not been issued in respect thereof in favour of the assessee-trust. The possession of the land has also not been given to the assessee-trust. The Wealth-tax Officer was of the view that the objects of the assessee-trust, as specified in the Gazette notification, were too vague and wide and it is not possible to deduce therefrom any precise or specific public charitable purpose which could be enforced. He, therefore, held that the objects of the trust were neither charitable nor religious in character, as the trustees could under the trust deed validly spend the entire income of the trust on a non-charitable object. He accordingly held that the trust property was not held wholly for religious or charitable purposes and, as such, the assessee-trust was not entitled to exemption under Section 5(1)(i) of the Wealth-tax Act. Therefore, wealth-tax assessment orders were passed by the Wealth-tax Officer, Sirohi, on October 15, 1971, in respect of the assessment years 1962-63, 1963-64, 1964-65, 1965-66, 1966-67, 1967-68, 1968-69 and 1969-70.
(3.)THE assessee-trust filed an appeal before the Appellate Assistant Commissioner and raised two contentions. In the first place, it was submitted on behalf of the assessee that the trust was entitled to exemption under Section 5(1)(i) of the Wealth-tax Act. In the second place, it was contended on behalf of the assessee that if exemption was not granted, then the income-tax and wealth-tax dues of the assessee should be deducted in arriving at its net wealth.
The Appellate Assistant Commissioner agreed with the Wealth-tax Officer that some of the objects for which the Trust was created were not charitable in character, such as manufacture of khadi and setting up of a Adarsh Gram (model village). It was also held that constructive activities on the lines of Mahatma Gandhi's doctrine is too vague an object to be construed as a charitable purpose/object. According to the Appellate Assistant Commissioner, the advancement of constructive activities on the lines of Mahatma Gandhi's doctrines were based on political considerations and could not constitute a charitable purpose. He also held that the objects of the trust were too vague and the trust must fail for uncertainty, both as regards its objects and with regard to its beneficiaries. Thus, the first contention advanced on behalf of the assessee was rejected by the Appellate Assistant Commissioner. The second contention was also rejected on the ground that the assessee had disputed its liability in the appeals filed by it against the income-tax and the wealth-tax assessments. The Appellate Assistant Commissioner passed a consolidated order on November 23, 1971, dismissing the appeals in respect of all the aforesaid assessment years.
Thereafter, the assessee-trust filed further appeals before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur. The Tribunal observed that after the merger of the former Indian State of Sirohi with the State of Rajasthan, the Government of Rajasthan constituted on March 5, 1959, an Advisory Committee for the assessee-trust of which the Collector, Sirohi, was made the member-secretary and it was only thereafter that the State Government directed the release of the frozen bank accounts of the assessee-trust to the trustees thereof. It was held by the Tribunal that the assessee-trust was bound to chalk out its activities and execute its programme according to the decisions of the Advisory Committee. The Tribunal, in this context, relied upon a letter dated December 1, 1966, written to the Collector, Sirohi, by the Deputy Secretary, General Administration Department, Government of Rajasthan, Jaipur, in which the State Government advised the Collector that the Advisory Committee should adopt a resolution investing the funds of the assessee-trust in National Savings Certificates to the extent of Rs. 1,00,000 and the remaining amount which may not be required for immediate utilisation as per the schemes approved by the State Government may be invested in any of the Rajasthan State Development Loans under an intimation to the General Administration Department and Finance Department. Thus, the Tribunal came to the conclusion that the investment of the funds of the assessee-trust or their utilisation for the purposes of the trust was to be made in accordance with the approval of the Government of Rajasthan and the funds could be utilised only for the schemes approved by the Government. The Tribunal set aside the order passed by the Appellate Assistant Commissioner dated November 23, 1971, and held that the dominant object of the trust was to undertake constructive activities in accordance with the doctrines put forward by Mahatma Gandhi for the uplift of the poor and backward village people and as such exploitation of the villagers to earn an income for the trust could not be thought of as one of the objects of the trust. The Tribunal accordingly held by its consolidated order dated January 29, 1972, that the assessee was a charitable trust entitled to exemption under Section 5(1)(i) of the Wealth-tax Act.