- (1.) This is an appeal brought on a certificate granted on 19-9-1956, by the High Court of Bombay under S. 66A (2) of the Indian Income Tax Act (hereinafter referred to as "the said Act') against its order dated 21-2-1956, in Income Tax Reference No. 32 of 1954 answering in the negative two questions of law refered to it under S. 66(1) of the said Act at the instance of the appellants.
(2.) The appellants are the trustees of a charity fund known as "The Charity Fund founded by Sir Sassoon David, Baronet of Bombay". The said Sir Sassoon David, Bart. and four other persons, who were holding certain securities of the value of Rs. 24,25,000 for the purpose of charity and had been applying the same for and towards charitable purposes, executed, on 8-6-1922, a Deed of Declaration of Trust declaring that the said trust fund would be held by them on trusts more specifically therein mentioned, Clause 13 of the said deed, on the true construction of which depends the answer to the referred questions, runs as follows: "13. The Trust Fund shall be held by the Trustees upon the Trusts to apply the net income thereof after providing for all necessary expenses in relation to the management of the Trust Funds for all or any of the following purposes that is to say, (a) the relief and benefit of the poor and indigent members of Jewish or any other community of Bombay or other parts of India or of the world either by making payments to them in cash or providing them with food and clothes and/or lodging or residential quarters or in giving education including scholarships to or setting them up in life or in such of other manner as to the said Trustees may seem proper or . . . . . ... .. (b) the institution maintenance and support of hospitals and schools, colleges or other educational institutions or . . . ... . . .. (c) the relief of any, distress caused by the elements of nature such as famine, pestilence, fire, tempest, flood, earthquake or any other such calamity or................ (d) the care and protection of animals useful to mankind or. . . .. . ... . (e) the advancement of religion or. . . . . . (f) other purposes beneficial to the community not falling under any of the foregoing purposes..................... Provided always that in applying the income as aforesaid the Trustees shall give preference to the poor and indigent relations or members of the family of the said Sir Sassoon David, Bart., including therein distant and collateral relations; provided further that in the application of the income of the said Charitable Trust Fund the said Trustees for the time being shall observe the following proportions viz : that not less than half the income of the said funds shall at all times be applied for the benefit of the members of the Jewish Community of Bombay only (including the relations of Sir Sassoon David, Bart, as aforesaid) and Jewish objects and particularly in giving donations to the members of the Jewish Community of Bombay on the anniversary of the death of the said Sir Sassoon David, Bart, and his wife Lady Hannah David which falls on the Twenty-second day of June and the remaining income for the benefit of all persons an objects including Jewish persons and objects and in such proportions as the said Trustees may think proper. Provided further that if the income of the Trust Funds for any year shall not be wholly applied during that year on the Trusts aforesaid such surplus income may be carried forward to the subsequent year or years and be applied as the income arising during that year or years. Provided also that during the life-time of Sir sassoon David, Bart., in the application of the said income the Trustees shall have regard to the wishes of the said Sir Sassoon David, Bart., who shall also be entitled to direct if he so desires that the income of the time being of the Trust-Funds or any part thereof may be applied to such charitable object or objects as the said Sir Sassoon David., Bart. shall direct and in such case the Trustees shall so apply the income".This Deed of Declaration of Trust was, on 4-6-1953, registered under the Bombay Public Trusts Art, 1950.
(3.) The Trust fund had been invested by the, trustees in inter alia 3 1/2 per cent Government Securities. In the year 1930 a certificate was issued by the Income Tax Officer, A Ward, Bombay, whereby the Reserve Bank of India was authorised not to deduct at source the tax on the interest on the said securities so held by the trustees. It was mentioned in the said certificate that it was to enure till its, cancellation. In 1946 the 3 1/2 per cent Government Securities were redeemed by the Government of India and were converted into 3 per cent Conversion Loan, 1946. Accordingly in February 1948 the said Certificate of exemption was cancelled, as the securities covered thereby had been redeemed by the Government. The trustees thereupon asked for a fresh certificate of exemption from the Income Tax Officer, Bombay Refund Circle in respect of the 3 per cent Conversion Loan, 1946. But the said Income Tax officer refused to issue such certificate on the ground that the income from the trust fund in question was not exempt from taxation under S. 4. (3) (i) of the said Act which, at the material time, was as follows ; "4 (1).... ....... .......... ........... ........ ........ .......... ....... (2)........ ........... ................ ........ ........ .......... ....... 3. Any income, profits or gains falling within the following classes shall not be included in total income of the person receiving them : (i) Any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied, or finally set apart for application, thereto : ........ ........ .......... ....... ........ ........ .......... ....... Upon the fact of the withholding of the certificate by the Income Tax Officer, Refund Circle being intimated to the Income Tax Officer, A-V Ward, Bombay, the latter Officer started proceedings against the appellants under S. 34 of the said Act in respect of the assessment years 1944-45 to 1947-48.He also started regular proceedings for the assessment year 1948-49 and the succeeding years up to 1952-53.;