COMMISSIONER OF INCOME TAX Vs. DIVEKAR CHARITY TRUST TRUSTEES OF DR

JUDGEMENT

(1.) BY this reference under S. 66(1) of the Indian IT Act, 1922, the following three questions are referred for our determination:

(2.) THESE questions in this reference relate to the asst. year 1956 57 and they arise out of an indenture of trust created by Dr. Divekar and his wife, Dr. Mrs. Divekar. By an indenture of trust dt. 23rd Aug., 1954, Dr. Divekar and his wife settled upon trust two maternity hospitals, one at Shivaji Park, Dadar, and the other at King's Circle, Matunga, which were run by them and an immovable property known as "Abhay" situate at Versova Road for the purposes and objects which are contained in the said indenture of trust. The assessees are the trustees under the said trust which is known as Dr. Divekar Charity Trust. The primary object of the trust was to carry on and promote the educational, health, cultural, literary, social and economic interests of the people, particularly of the backward and poorer classes, within the areas of Greater Bombay, Poona City and Kanara District in Bombay State.

(3.) AGGRIEVED by the order of the ITO, the assessees preferred an appeal before the AAC. It was contended on behalf of the assessees before the AAC that the business of running the maternity homes itself was transferred to the trust, the income whereof was to be utilised for charitable purposes. Accordingly, the income itself was exempt from payment of tax under S. 4(3)(i) of the Act. The AAC took the view that the immovable property, maternity homes, etc., transferred to the trustees were like transfer of business stocks to a trust and the transfer in the assessees' case was transfer of a business but not that of an institution and that the business could be transferred to a trust in accordance with the decision of the High Court in the case of Dharma Vijay Agency vs. CIT (1960) 38 ITR 392 (Bom) : TC23R.1014. The AAC accepted the contention on behalf of the assessees and held that the income from the trust was exempt under S. 4(3)(i) of the Act. He also pointed out that the mere fact that the income was not actually spent but was carried forward did not affect the assessees' claim for exemption. As regards the salary of Rs. 7,500 paid to Dr. Mrs. Divekar, according to him it was an allowable deduction in computation of the assessees' income and accordingly he directed exclusion of the said amount from the total income computed.