- (1.) This reference under Section 66(1) of the Income-tax Act, 1922, involves construction of a deed of trust and determination of tax in respect of the portions of the income from trust properties which are not applied for religious or charitable purposes. The facts underlying this reference are briefly stated as follows:
(2.) The relevant assessment years are 1953-54 and 1954-55, the corresponding accounting periods being the financial years 1952-53 and 1953-54. One Bholanath Dash, since deceased, executed a deed of trust dated December 1, 1934 with the object of making provision for the members of his family dependant on him and for certain religious and charitable purposes. The trust estate consists of very valuable movable and immovable properties which are set out in the Schedule to the trust deed. The important provisions of the trust deed as set out in the statement of case are stated as follows: CI. (1) 3 1/2% Government Promissory Notes of the face value of Rs. 45,000: the income from these G.P. Notes is directed to be spent for charitable purposes. CI. (2) Rs. 1,00,000 deposited with the Bengal Provincial Co-operative Bank Ltd. Out of this Rs. 10,000 is directed to be utilised for re-building premises No. 13, Radhabazar Lane and Rs. 90,000 for re-building premises Nos. 81 to 90, Radhabazar Street. In the meantime, income from this deposit is to be spent for purposes mentioned in Clause (5) below. CI. (3) Rs. 50,000 in short-term deposit with the Central Bank of India Ltd. This amount is intended for sradh expenses of the settlor and his wife and marriage expenses of certain grandsons and grand-daughters as specified in the deed. The income from the said fund or of the residue, after meeting the intended expenses, is directed to be utilised for the purpose mentioned in Clause (5) below and the residue of the fund is directed to be added to the G.P. Notes mentioned in Clause (1) CI. (4) The house property at Serampore is to be held in trust for the settlor's daughter, Sm. Sushilabala Dassi, for her life and on her death to make over the same to such of her sons or sons' sons as shall be living at her death in such shares as she may choose to appoint. CI. (5) House properties described in part v. and shares of the face value of Rs. 30,000 in Busserya Coal Co. Ltd. The income from these properties is directed to be utilised in the following manner: 15% of the gross income from these properties is directed to be set apart for repairs and the balance is to be carried forward from year to year till the completion of the fifth annual repair. After paying all rates and taxes including income-tax, establishment charges, law charges, and office charges, the balance is directed to be utilised for the following purposes: (a) Not exceeding Rs. 1,000 annually for the annual sradh ceremonies of the settlor or the ancestors of the settlor's sons. (b) Not exceeding Rs. 2,000 per annum for the performance of the sheva of the deities in the family dwelling house of the settlor. (c) To the extent of Rs. 3,000 in the course of every three years for repairs of the dwelling house and other properties of the settlor. (d) To pay to the following persons from the First of April, one thousand nine hundred and thirty-five for their maintenance per month during their respective lives: (1) To the said Sreemati Mrinalini Dassee, wife of the settlor Rupees fifty. (2) To Debendra Nath Dash, first son of the settlor Rupees one hundred and fifty. (3) To Monindra Nath Dash, second son of the settlor Rupees one hundred and fifty. (4) To Srimati Sushilabala Dassee, the first daughter of the settlor Rupees fifty. (5) To the second daughter of the settlor Srimati Sudhirabala Dassee Rupees fifty. (6) To Srimati Renukabala Dassee and Srimati Tarulata Dash, daughter-in-law of the settlor each Rupees Fifty so long either of them shall live at the dwelling house of the settlor at Chandernagore but should either of them shall dwell elsewhere she shall be entitled to Rupees Twenty-five per mensem. (7) To Srimati Kironsoshi Dassee, widow of Kristo Dutt deceased, of Chandernagore, the sum of Rupees twenty-five. (8) To Srimati Jotirmoyee Dassi, wife of Probodh Chandra Bhor, Srimati Indubala Dassee, wife of Sarat Chandra Bhor, Srimati Fulkumari Dassi, wife of Prionath Dutt, Sreemati Sarajubala Dassee, wife of Jugal Kishore Dutt, Srimati Binapani Dassi, wife of Brojo Kishore Dutt all of Chandernagore aforesaid each and every one Rupees fifteen. (9) To pay for the mess expenses of such of the settlor's sons and sons' sons now living and those who shall be born within eighteen years from the date of these presents and their family members who shall live in joint mess at the dwelling house of the settlor at Chandernagore the monthly sum of Rupees two hundred. (10) To pay the monthly sum of Rupees fifteen for the maintenance during the minority of each and every one of such sons and daughters of the sons and daughters of the settlor as shall survive his sons and daughters and shall be in needy circumstances. CI. (6) To spend the surplus income of properties described in parts v. and VI of the Schedule hereunder each year and the residue of the said funds ultimately for the purposes mentioned in the foregoing Clause (1).
(3.) The Assessee, being the trustees representing the trust estate of Bholanath Dash, made various claims, exemption or reduction of income-tax in respect of the income from some of the trust properties. The Income-tax Officer, inter alia, came to the following conclusions: (a) The amounts reserved or spent out of the income of the properties for the purpose of re-building the dilapidated properties of the trust are not for charitable purposes and hence not exempt from income-tax. (b) The income spent for annual sradh ceremonies, sheva of the family deities and repairs of the dwelling house and maintenance allowances to various parties and messing expenses of the settlor's sons etc. are all of non-charitable nature and not receivable on behalf of any one person and that shares not being specified and determinate are to be brought to tax at the maximum rate in the hands of the trustee. Thereafter, the Appellate Assistant Commissioner, on appeal, confirmed the assessment of the Income-tax Officer. The Assessee, aggrieved by the said order, appealed to the Appellate Tribunal without any success. The Tribunal, on construction of the trust deed, held that the trust was a mixed one for secular and religious and charitable purposes. The Tribunal was of opinion that the Income-tax Officer was perfectly justified in subjecting to tax the income which was not utilised for religious and charitable purposes. The Tribunal also rejected the Assessee's contention that the shares of the various beneficiaries were determinate. On these facts the following question of law has been referred to us for our opinion: Whether on the facts and in the circumstances of the case, and on a proper construction of the trust deed dated December 1, 1934, the income from the trust properties which was not applied for religious and charitable purposes was rightly assessed in the hands of the trustees at the maximum rate ? Mr. Sukumar Mitra, learned Counsel for the Assessee has drawn our attention to the Assessee's application for reference before the Tribunal at p. 53 of the paper-book and has submitted that it will be convenient if the question referred to us is answered in the context of the payments provided under Clause (5) of the trust deed and set out in the said application. Mr. Sabyasachi Mukherjee, learned Counsel for the department, has not objected to such procedure and has, in fact, made his submission on those items in the order Mr. Mitra has dealt with them. Thus, it will be an effective guidance if we discuss the taxability of the amounts payable under Clauses 5(a)(b)(c) and (d) in the deed of trust. 5. Clauses 5(a) and (b). Mr. Mitra has conceded that the words, "to spend not exceeding the sum of Rs. 1,000 annually" in Clause 5(a) and "to spend not exceeding the sum of Rs. 2,000 a year" show that the money payable to the respective beneficiaries cannot be called determinate and, as such, they might be taxed and may come under the mischief of proviso to Section 41. 6. Clause 5(c). Mr. Mitra has submitted that the words, "to the extent of Rs. 3,000 in the course of every 3 years" indicate that a fixed sum of Rs. 3,000 has got to be spent by the trustees for the repair of dwelling house and, as such, this income is determinate and not taxable at the maximum rate. Mr. Mukherjee, on the contrary, has con. tended that the trustees may spend an amount less than Rs. 3,000 and, as such, the expenditures on these account cannot be called determinate. In our opinion, it is true that the trustees have no discretion to spend more than Rs. 3,000 for repairs in course of every 3 years but at the same time it is open to him whether in a particular accounting year he would spend Rs. 3,000 or less than that sum for such repair. Accordingly, it cannot be said that the money to be spent is determinate. In our opinion, the sum is taxable at the maximum rate unless, of course, the amount falls below the taxable limit in a particular accounting year. 7. Clause 5(d). With respect to payments under the provisions of Clauses 5(d)(1) to 5(d)(10), Mr. Mitra has submitted that the amounts payable under these provisions are fixed and known and, as such, the income-tax should not be charged at the maximum rate. But Mr. Mukherjee, on behalf of the department, contends that inasmuch as these fixed sums may cease to be fixed or proportionate, abatement may take place in case the balance income after payment of municipal taxes and other statutory liabilities may fall short of the normal income for some reason or other the fixed sums payable to the beneficiaries under the said provisions may not remain the same. He, accordingly, relying on the decision of this Court, Bankim Chandra Dutt v. Commissioner of Income-tax I.T. Ref. No. 140 of 1961, has argued that the amounts payable under the said provisions are indeterminate and, as such, taxable at the maximum rate. In our opinion the facts of that decision are distinguishable from the facts of the instant case. The relevant provision of the deed of endowment in the said case are stated as follows: I hereby direct my trustees to provide for and defray out of the said rents and profits the performance of the following services, poojahs, festivals and other religious ceremonies, that is to say, for the services of the family idols, the said Shri Madhusudan Jiu (monthly Rs. 6), for the services of the said Banalinga Mahadeva (monthly Rs. 4) ; for performance of Durga Poojah (annually Rs. 600) ; for Jagadhatri Poojah (Rs. 200) ; for Akoidist sradh of my parents (annually Rs. 50). And I hereby also direct my trustees to set apart surplus (if any) of the rents and profits of the aforesaid houses, godowns and lands as a reserve fund to provide against any deficiency in the said rents and profits for the purpose aforesaid owing to any of the houses and premises remaining unlet or unproductive for any time and to apply the said reserve fund or so much as might be required for any of the purposes aforesaid provided always that when from time to time the said reserve fund shall be in the opinion of the trustees in excess of the amount required as such reserve fund the trustees shall spend the excess surplus of the said fund for the performance of the worship of the Shiva on the night called Shivaratri and feed the Brahmins in the next day following and pay them in cash as much as the said surplus will suffice to pay. 8. It is clear that, under the said deed of endowment, the trustees have been given absolute discretion to spend the surplus of the reserve fund for the performance of the worship of the Shiva and for feeding the Brahmins. There, the money to be spent for the worship of the Shiva and for feeding the Brahmins is indeterminate and unknown and the trustees might exhaust the reserve fund by making payment of the fixed amounts to the beneficiaries and also for worship of Shiva and for feeding the Brahmins in such a way that nothing might be left for payment of those fixed amounts in subsequent years if the trust properties continue to remain unlet or unproductive for any length of time. Further, the amount to be kept in the reserve fund there was variable and the amount to be spent for the worship of Shiva and for feeding the Brahmins was not known. In the instant case, there is no specific provision for any contingency when the income of the house properties might remain unlet or unproductive. On the contrary, Mr. Mitra has submitted that the income of the house properties has increased to an enormous extent and Mr. Mukherjee does not dispute such contention. In Clause 5 of the trust deed the question of the costs of repair has been fixed; specific items of expenditure have been mentioned; the amounts payable to the beneficiaries are also fixed sums ; there is no question of any arbitrary abatement in case the balance of the income from the house properties falls short to meet all the provisions in Clauses 5(a) to 5(d). No discretion has been given to the trustees to reduce the amount payable to the beneficiaries in a disproportionate manner. In the premises, we are of opinion, that the payments under Clauses 5(d)(1) to (d)(10) cannot be taxed at the maximum rate. With respect to payments under Clause 5(d)(9) of the trust deed, Mr. Mitra has also argued that the monthly sum of Rs. 200 being payable for the messing expenses of the family members and the family dwelling house of the settlor, the tax should have been charged in the hands of Hindu undivided family. This contention of Mr. Mitra cannot be accepted in view of the clear finding and Tribunal to the effect that the various persons to whom the settlor directed payment to be made do not constitute a Hindu undivided family for the purpose of being treated as an entity. 9. Lastly, Mr. Mitra has argued that the residue balance income of the trust properties after payments for religious and charitable purposes should not have been lumped together and taxed in a consolidated way. But in view of the limited scope of the question referred to us it is not necessary to deal with that point. We are concerned here to find out how far the income from the trust properties not applied for religious or charitable purposes is assessable at the maximum rate. In dealing with that aspect of the question, taxability of the fixed amounts payable to specific beneficiaries under the deed for the purpose other than the religious or charitable was raised and argued by the learned Counsel for the Assessee and the department and we have dealt with them accordingly. 10. For the reasons stated above, the answer to the question referred to us is in the negative and the income from the trust properties which was not applied for religious or charitable purposes in some cases was rightly assessed in the hands of the trustees at the maximum rate and in other cases was not rightly done as set out above. Each party to bear and pay its own costs of this reference. Mitter, J. I agree.;