SHERVANI CHARITABLE TRUST Vs. COMMISSIONER OF INCOME TAX U P

JUDGEMENT

(1.) THIS reference under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) has been made by the Income-tax Appellate Tribunal, Bombay Bench (hereinafter referred to as the Tribunal), and the following question of law has been referred to this court for its opinion:

(2.) THE reference has been made in respect of the assessment years 1957-58, 1958-59 and 1959-60. The corresponding previous years are the financial years ending in 31st March, 1957, 31st March, 1958, and 31st March, 1959. From the statement of the case it is clear that on 13th April, 1956, Shri M.R. Shervani and Shri N.A. Shervani jointly made a declaration of the trust which was registered on the following day. A copy of that trust deed has been annexed to the statement of the case and had been marked as annexure "A". The third paragraph of the trust deed reads: "And Whereas the aforesaid donors are desirous of settling a Trust to be named Shervani Charitable Trust the several properties and assets mentioned in schedules A and B for the purposes of providing a trust to devote the income of the property partly on charitable objects and partly towards the maintenance of the members of the donor's family." In the objects of the trust it is stated as follows in clause B: "B. To devote one-third of the net income on the maintenance and support of the members of Shervani family and relatives and those who in the discretion of the trustees deserve such support." On the 17th of May, 1956, the board of trustees passed the following resolutions: "Clause 2(B) of the trust deed was considered. It was noted that the intention of the donors was never to strictly limit the benefit of expenditure under this head for the members of the family and relatives only, but that there should be no bar against the relatives and family members to apply for maintenance and that any one without restriction of caste, creed or religion if he was considered to deserve support can be paid out of proportion of this income set aside for maintenance of the families."

(3.) IT was contended on behalf of the trustees before the Income-tax Officer that not only one-third income of the trust covered by clause 2(A) was exempt from taxation but also the one-third referred to under clauses 2(B) and 2(C). The Appellate Assistant Commissioner accepted the contention of the assessee that it was entitled to exemption of the income applied under clause 2(C) but rejected the claim in respect of the income applied under clause 2(B). They then filed an appeal before the Tribunal who allowed the appeal in part and remanded the case. The Judicial Member of the Tribunal in his judgement observed: