Delhi High Court
Income Tax Officer vs Mrs. Dwarika Prasad Trust. on 2 June, 1989
Equivalent citations: [1989]30ITD84(DELHI)
ORDER
Per Shri S. K. Chander, Accountant Member - These appeals by the Revenue are directed against the orders of the AAC for the asst. years 1975-76, 1978-79 and 1981-82. All these orders are made by the learned AAC on 5- 9-1984. However, the main speaking order is made the year 1975-76. From both the sides, the parties agreed that arguments for the asst. Year 1975-76 shall apply mutates mutants to other years and our decision, in this case, for this year, will cover the wealth-tax assessments for the asst. years 1974-75 and 1975-76. We have, therefore, heard the parties, in parties in this case and proceed to decide the issues brought in appeal before us. 2. The assessed before us is a trust known as Mrs. Dwarika Prasad Trust, 56 Civil Lines, Bareilly. This trust was created by late Shri Girish Prasad by will dated 15-8-1972, registered on 3-4-1973. After making the will, but before registration, the settlor died on 22-1-1973. But the Trust was to take effect from the date of his death. The Trust was for Charitable purposes. There is no dispute that but for clause (d) in the will, the other provisions were considered by the ITO as charitable in character. However, with regard to clause (d) in the will which provided that 1/4th of the property shall be utilised for the help of the deserving members of the family and for their studies and shall also be utilized for the marriages of the girls of the family, was interpreted by the ITO as the powers reserved by the settlor for the trustees for application of the Trust money for non-charitable purposes. On 8-9-1980, the beneficiaries of the Trust had executed a deed of renunciation whereby they relinquished all their beneficial rights, title and interest in the will and it was provided that such interest of the beneficiaries could also be utilized by the trustees for charitable purposes mentioned in the will.
3. The Income-tax officer observed that the amendment in the deed was without any authority provided in the original will and as such, not applicable, in view of the judgments cited by him including that of madras High Court in the case of CIT v. S. Ramaswamy Iyer [1977] 110 ITR 364. According to him, if any change was to be made in the original objects of the Trust, the provisions of Civil Procedure Code in this regard should have been availed of. His other objection was that the renunciation deed having been made on 8-9-1980 could not be made retrospective in operation and applied for the asst. year 1975-76 and according to him, the matter must be decided upon the deed and the position, which existed during the relevant year.
4. The Trust had applied for registration with the Commissioner on 12-9- 1980 and the Commissioner had registered the Trust as charitable, vide certificate dated 17-9-1983. The Income-tax Officer, however, noted that the application in the context as of no avail. According to him, if the position of the deed was, thus, taken, the trustees were entitled to certain benefits forbidden u/s. 13(1) (c) of the Act and hence, the exemption u/s. 11 cannot be granted.
5. The Income-tax Officer also took into consideration while examining the claim for exemption by the assessed certain other circumstances. According to him, form No. 10, which was in the form of a notice for accumulation of income to be applied should be filed with the ITO within the time prescribed for filing the return but it was inordinately delayed as it was filed on 24-11-1979. Similarly, on a Resolution by the Board of Trustees, which was to be attached with form No. 10 had not been attached and was field only on 24-11-1979. Thus, according to him, the mandatory conditions laid down in the Act and the rules regarding permissibility of accumulation of funds of the Trust had not strictly been followed. Since, the specified percentage of income, according to him, had not been applied for charitable purposes and the conditions for accumulation of funds, had not been fulfillled, the Trust was not entitled to exemption, he held so. Thereafter the Income-tax Officer took the status of the Trust as Association of Persons and computed the total income at Rs. 55,290. According to him, the shares of the beneficiaries were indeterminate and therefore the tax had to the charged on that income at the maximum marginal rate as per provisions of 164 f the Act. This assessment was made on Jan 31, 1984.
6. When the matter came up in appeal before the learned AAC, he heard the parties, considered the order of the ITO and came to the conclusion with the detailed reasons given in his order that the Trust was entitled to exemption as a charitable institution and the other conditions regarding accumulation and application of the other conditions regarding accumulation and application of income had also been fulfillled, The appeal of the assessed was, therefore, allowed by treating the entire income of the Trust as exempt. Hence, the grievance of the Revenue.
7. We find after careful consideration of the rival submissions and that orders of the authorities below along with the authorities cited that the Income-tax Officer did not appreciate the provisions the will, the deed of renunciation and other relevant provision of law in the proper perspective. In the case of s. Ramaswamy Iyar (supra), the Madras High Court was deciding a case where a Trust was created under a deed wholly for charitable purposes and, there was a supplemental deed providing for expenditure in favor of poor relations of the founder. There was no provision in the original deed providing for alteration of terms and the High Court held that supplemental deed was not valid. In the case before us it is clear that the deed of reunification was by the beneficiaries giving up their rights endowed upon them by the original deed and thus, something more was being added to the corpus or income of the Trust for charitable purposes rather than being taken away. This was, therefore, not to be viewed with the type of suspicion that the Income- tax Officer entertained for the purposed of the book containing income and expenditure accounts and balance factually no application of income or usages of assets in any manner contravening the provisions of section 13(1) (c) of the Income-tax Act, Act, 1961. Thus, even if in the original will that formed the document creating the Trust there was reservation for family members in clause (d) that never became operative, in fact, and in view of the judgment of the Supreme court in the case of CIT kv. Dharmodayam co. [1977] 109 ITR 527, it will not be fatal to the claim of exemption by the assessed.
8. We also find that the incordinate delay in filing form No. 10 which is a notice of accumulation to be filed with the ITO cannot rob the assessed form claim of exemption because of the judgments mentioned in the impugned order of the AAC, such as the case of CIT v. Shree Padmanbhaswami Temple Trust [1979] 120 ITR 138 (Mad.), etc. Since the section does not lay down any time limit for application of income, the delay in filing form No. 10 prescribed in the rules cannot override the main provisions in the section. This was, therefore, inconsequential in determining the claim of exemption. The AAC, therefore, rightly allowed the exemption despite the delay.
9. Since the assessed is a charitable trust or charitable institution, as its objects are of charitable purposes as defined in sec. 2(15) of th Act, it would be covered by the provisions of section 1, ibid. In the case of the charitable institution even the capital expenditure can be allowed as a deduction in view of the ratio of the Gujarat High Court judgment in the case of Satya Vijay Patel HIndu Dharmshala Trust v. CIT [1972] 86 ITR 683. Hence computation of the income in the impugned order of the learned AAC also does not call for an interference by which he determined total income as nil. The appeal for the asst. year 1975-76 is, therefore, dismissed.
10. For the reasons assigned supra, which we apply with necessary changes to the asst. years 1978-79 and 1980-81, the appeals of the revenue are dismissed Per Shri M. C. Agarwal, JM - I have read, with advantage, the order proposed by my learned brother Shri S. K. Chander and since I have not been able to agree with the findings, I record my views as below : 2. This is a case of a trust that claims to be one for charitable purposes. The trust therefore claims that its income ia exempt from tax. 3. The trust in question christened as Mrs. Dwarika Prasad Trust was created under a will dated 15-8-1972 executed by late Shri Girish Prasad, who died on 22-1-1973. By the will the testator Girish Prasad bequeathed all his property to the seven trustees to be utilised as under : (i) 1/4th of the income from the property to be utilised byu giving financial aid to medical students. (ii) 1/4th of the income to be spent on providing medical aid to poor persons. (iii) 1/4th of the income to be used for helping deserving members o f the family of the testator/settler in their studies or for any oth er purpose and "shall be utilised for the marriages of girls of my family members". (iv) 1/4th of the income to be utilised for the maintenace and further development of settlers property. (v) A sum of Rs. 1,000 p.m. has to be paid to one Tapan Chakravorty. This has been made an overriding charge as the settlor provided that only the remaining income shall be trust property. 4. The other important provisions in the will/trust deed are (i) the trustee shall have no right to transfer, sell or mortgage to the property in any circumstance; and (ii) a Kothis at Nainital and a residential flat at Bereilly "shall only be used by the trustees and their families for thier use and they will not be let out to any third person. 5. A copy of the aforesaid will forms part of the paper book. The provisions in the will clearly indicate that it is a trust partly for charitable purposes and partly for private purposes i.e. for the benefit of family members and friends of the testator/settler. This is a trust created after the commencement of Income-tax Act, 1961 and u/s 11(1) (a) of the Act, only income from property "held under trust wholly for charitable or religious purposes", can be exempt. The terms of the trust as cited above indicate that it is not a trust "wholly for charitable or religious purposes" and therefore the income of this trust could not be exempt.
6. Probably to overcome the above difficulty, the trustees executed a document called "Relinquishment Deed" on the 8th of September, 1980. On the basis of this document it was argued on behalf of the assessed that now it is a trust wholly for charitable purposes as the beneficiaries have given up and and relinquished their beneficial interest in favor of chairty. The relinquishment is only by a few persons out of the entire body of beneficiaries. The document is executed only by the beneficiaries who are the trustees as well. The remaining beneficiaries who are members of the family of the testator/settler have not relinquished their beneficial interest. A list of such existing beneficiaries is given at pages 14 and 15 of the paper book. Tapan Chakravorty was a special beneficiary under the trust and the settlor had created an overriding title in him over the income of the trust by providing that a sum of Rs. 1,000 per month shall be paid to him and the income remaining after the payment shall be applied to the other purposes specified in the trust. This beneficiary is not at all a party to the relinquishment deed. This relinquishment did not extinguish the private or non-charitable character of the trust. The learned AAC has not looked into this aspect of the matter and has wrongly accepted the argument that all the private beneficiaries have given up their interest. The perfunctory manner in which he has looked at the documents is also evident from the observation that "the seven trustees are non-relative." The fact is that out of the seven trustees five are close relatives of the settlor being his mother, brother and three nephews. The relinquishment deed have not been executed by the entire body of beneficiaries, I hold that the trust in question continues to be a trust partly for private purposes and partly for charitable purposes. I further hold that income of such a trust is not exempt u/s 11 of the Income-tax Act.
7. The learned AAC has observed that since the Commissioner of Income-tax has registered the trust in question u/s 12A of the Income-tax Act as a charitable institution it was not proper for the ITO to have different findings. The learned AAC does not appear to have read section 12A carefully. It merely provides that sections 11 and 12 will not apply to a trust unless the trustees have made an application for registration of the trust within a certain time. There are no provision specifying how the Commissioner shall deal with the application. Therefore, section 12A merely prescribes one of the various other formalities which a trust has to fulfill before being entitled to claim exemption. There is no warrant for the view that if a trust is registered by the Commissioner u/s 12A as a charitable institution, the Income-tax Officer is debarred from enquiring into the nature of the institution and its eligibility for exemption. The learned AAC has also laid stress on the fact that no money has been spent on non-charitable purposes. This is only one view of the matter and is my veer not a very proper one. What is important is that not a single shell has been spent for carrying out the purposes specified in the will-cum-trust deed. All the money is being accumulated. Even Tapan Chakravorty, for whom the settler had special concern, has not been paid anything. The fact, therefore, that no money has been spent on non-charitable purposes does not do any favor to the assessed in the circumstances of the case.
8. For the above reasons, I hold that the trust in question is not one "wholly for charitable or religious purposes" and was therefore not entitled to exemption u/s 11 of the Income-tax Act.
9. However, I find that so far as Tapan Chakravorty is concerned, there is a specific trust in his favor and therefore with regard to Rs. 12,000 per annum payable to him, the assessment could be u/s 161 of the Act and not u/s 164. Therefore from the income assessed by the ITO in each of the three years in question, a sum of Rs. 12,000 shall be excluded. The Income-tax Officer may take steps permissible under the law for assessment of the income.
10. In the result, I would allow the revenues appeal, set aside the orders passed by the AAC and confirm the orders passed by the ITO with the modification that a sum of Rs. 12,000 shall be excluded from the assessed income of each of the years under consideration.
ORDER UNDER SECTION 225(4) OF THE INCOME-TAX ACT, 1961 In the abovementioned appeals filed by the revenue against the order of the AAC dated 5-9-1984, the grievance projected by the revenue is that the erred in law and on face in holding that the income of the trust is exempt. We have heard the appeals but have a difference of opinion on the following point :-
"Whether, on the facts and in the circumstances of the case, the assessed-trust is entitled to exemption under the Income-tax Act, 1961 or not ?"
2. Therefore, u/s 255(4), we refer the above point of difference to the President of the Income-tax Appellate Tribunal for action u/s 255(4) of the Act, as the Honorable president may deem fit.
THIRD MEMBER ORDER Per Ch. G. Krishnamurthy, President - In these appeals filed by the Revenue, the question for consideration before the Tribunal was whether the Appellate Asstt. Commissioner had erred in law and on facts in holding that the income of the trust was exempt from tax alleging at the same time that the Appellate Asstt. Commissioner was silent on numerous contentions, which he has not referred to in his appellate order.
2. The relevant facts are that the assessed was a charitable trust registered with the Commissioner of Income-tax vide certificate date 17-9-1983 and as such its income should be exempt from tax under the provisions of sections 11 to 13 of the Income-tax Act, 1961. One late Shri Girish Prasad was the owner of propertied at 56, Civil Lines, Bareilly and a kothi at Nainital. He executed a will, under which he bequeathed certain propertied to the trustees named in the will, the income of which was to be spent in the manner provided in the will. He executed the will on 15-8-1972 but before the will could be registered, he died on 22-1-1973. After his death the will was submitted for registration before the District Judge and it was duly registered on 3-4-1973, after giving the necessary particulars required by the District Judge particularly on properties he settled on trust. The will provided among others that 1/4th of the income of the trust property shall be utilised for the help of the deserving members of the family of the trustees either for their studies or for any other purposes and shall be utilised for the marriages of the girls of the testators family members excluding certain members of his brothers family, who predeceased the testator. When the Income-tax Officer examined this question of exemption, he found that in addition to this clause providing for the utilisation of 1/4th of the income of the trust property for the help of the desiring members of the family of the 1,000 was to be paid to one Shri Tapan Chakravorty, a close friend of the settlor, for whom the settlor had expressed so much of concern in the will. Subsequently on 8-9-1980 the beneficiaries of the trust, who happened to be the trustees in this case executed a relinquishment deed relinquishing their beneficial rights, title and interest, that accrued to them under the will making a specific provision in the renunciation deed that the beneficial interest of the beneficiaries could be utilised by the trustees for charitable purposes mentioned in the will. Thus the beneficiaries surrendered their beneficial interest in the corpus as will as in the income under the renunciation deed. The Income-tax Officer observed that since the trust provided for the benefit of the settlors family and his friedn, the trust was not wholly and exclusively for charitable purposes and even though a deed of renunciation was executed by the trustee, i.e., the beneficiaries renouncing their beneficial interest in the trust, it could not have any effect because under the provisions of the will, there was no authority given to the trustees to amend the original instrument of will. Placing reliance upon a judgment of the Madras High Court in the case of S. Ramaswamy Iyer (supra) the Income-tax Officer more or less ignored the effect of the renunciation deed. The Income-tax Officer was also of the opinion that even if the renunciation deed was held to be valid, still it could not have any retrospective operation because that was registered on 12-9-1980 and that could not have covered the period under assessment, namely, assessment year 1975-76, for which relevant previous year ended on 31-3-1975. For this proposition, he relied upon a decision of the Calcutta High Court in the case of Sm. Charusila Dassi, In re. [1946] 14 ITR 362. Along with the return of income, the assessed claimed that it proposes to accumulate certain income for the purpose of the trust. Under section 11(2) of the Income-tax Act, the assessed has to give a notice to the Income-tax Officer about the accumulation. That notice has to be given within the time prescribed for filing the return originally fixed or the extended period from time to time. While the return in this case was due to be filed on 30-6-1975, it was filed on 24-11-1979 along with form No. 10 but the Income-tax Officer held that the form No. 10 filed on 24-11-1979 was unduly belated. As a consequence, the mandatory provisions laid down in the Act regarding conditions for accumulation of funds were not satisfied. For these reasons and for the additional reason that the income and expenditure account filed along with the return of income showed that there was no income, which could be held to have been applied for charitable purposes because the expenditure incurred was on various items of establishment such as traveling, postage, telephones etc. The claim for exemption was rejected and the income was computed at Rs. 55,290 and treating the status of the assessed as Association of Persons, tax was levied at the maximum marginal rate as per the provisions of section 164 of the Income-tax Act. This section was invoked on the ground that the shares of the beneficiaries were indeterminate. This is how the Income-tax Officer completed the assessment for the assessment year 1975-76.
3. But on appeal the assessment made by the Income-tax Officer was not approved of by the Appellate Asstt. Commissioner. He held that even though there was some benefit originally conferred upon the trustees, i.e., the beneficiaries having given up their beneficial interest in the trust and permitted that to be accumulated along with other income of the trust, it could not any more be said that the trust was ensuring for the benefit of the family members of the settlor. Though he did not discuss about the payment of Rs. 1,000 to Shri Tapan Chakravorty, he held that as per the income and expenditure account filed on record, no amount was paid to Shri Tapan Chakravorty at any time nor was any amount spent for the benefit of the trustees. Therefore this provision could not have the effect of rendering the trust as one made for the benefit of the family members of the settlor. For this purpose reliance was placed on a decision of the Supreme Court in the case of Dharmodayam Co. (supra) whereunder the Supreme Court pointed out that if there is a provision for the application of the money for non-charitable purpose and if in fact no amount was spent for non-charitable purpose, the trust should not fall and the mere provision of that nature would not vitiate the charitable character of the trust. As regards the filing of form No. 10 belatedly, the Appellate Asstt. Commissioner found that rule 17 was amended with effect from 1-4-1971 providing for time limits for the filing of the said form and according to that rule, form No. 10 has to be filed before the return was due originally or before the extended time and since the return in this case was filed on 24-11-1979 and was accepted by the Income-tax Officer as valid and processed for assessment, it must be held that the time for the filing of the return was extended and therefore there was no delay in the filing of the form No. 10. Therefore the accumulation was proper and legal. An argument was taken up before him that the income of the trust was not spent for charitable purposes as the expenditure included amounts spent on capital expenditure. Placing reliance upon two judgments of the High Courts, one in the case of Satya Vijay Patel Hindu Dharamshala Trust (supra) and Dayal Bagh Medical Relief Society v. ITO 1973 Tax LR 1082 (All.), he held that amounts spent on capital expenditure could be regarded as an expenditure and the application of the income for the purpose of the trust. Thus he revised the computation of income and found that the expenditure incurred was more than the income and therefore the question of levying tax on the income of the trust did not arise. He also placed strong reliance upon the fact that when the trust was registered by the Commissioner of Income-tax under section 12A of the Income-tax Act, the trust must be deemed to have compiled with all the formalities and the requirements of section 11 and no further investigation was permissible by the Income-tax Officer and therefore the income of the trust was exempt from tax even otherwise.
4. Against this order of the Appellate Asstt. Commissioner, the department filed a further appeal before the Tribunal raising the questions noted above.
5. The learned Accountant Member agreed with the view expressed by the Appellate Asstt. Commissioner. He held that the Income-tax Officer did not appreciate the provisions of the will the deed, of renunciation and other relevant provisions of the law in the proper perspective. He distinguished the decision of the Madras High Court in the case of S. Ramaswamy Iyer (supra) by pointing out that where a trust was created under a deed only for charitable purposes and if a supplemental deed was executed providing for expenditure in favor of poor relations of the settlor and if there was no provision in the original deed providing for the alteration of the terms, the supplemental deed could not be said to be valid unlike in a case where by a deed of renunciation executed by the beneficiaries under the trust, the beneficiaries give up their rights endowed upon them irrespective of the fact whether there was a provision in the original deed for making alterations or not the renunciation deed executed by the trustees would be valid and binding and that would not take away the character of the charitable nature of the trust. He also agreed that when the accounts showed no payments either to the beneficiaries or to Shri Tapan Chakravorty in any manner, the mere provision for payment to them in the trust deed did not rob the trust of its character of charitable nature as held by the judgment of the Supreme Court in the case of Dharmodayam Co. (supra). Since all the objects were admittedly found to be charitable, the assesseds case was covered by the provisions of section 11 of the Income-tax Act.
6. But the learned Judicial Member held differently. He held that the trust was partly for charitable purpose and partly for private purpose, i.e., for the benefit of the family members and friends of the settlor. According to him the renunciation deed executed by the beneficiaries on 8-9-1980 did not provide for the renunciation of the benefit under the will by all the beneficiaries. According to him only the trustees were parties to the renunciation deed and not the members of the family of the trustees and since the member of family of the parties to the renunciation deed, they could not be held to have renounced their interest in the trust and in the absence of a renounced their interest in the trust and in the absence of a special mention regarding Shri Tapan Chakravorty, it must be held that he continued to have interest in the trust. Thus a relinquishment of beneficial interest only by a few of the beneficiaries did not extinguish the private or non-charitable character of the trust and this aspect of the matter was not looked into by the Appellate Asstt. Commissioner. This is the main reason advanced by the learned Judicial Member for his view that the trust in question continued to be a trust partly for private purposes and partly for charitable purposes. Regarding the registration granted by the Commissioner of Income-tax to the trust under section 12A, the learned Judicial Member held that the registration of the trust with the Commissioner of Income-tax was only a procedural formality and the completion of those formalities namely grant of certificate did not mean that either an examination namely grant of certificate did not mean the Commissioner of Income-tax under section 11 and the certificate given in those circumstances could not mean that it was recognised under the Act that the trust was a charitable institution and in any case the Income-tax Officer was not debarred from enquiring into the nature of the institution and its eligibility for exemption. He did not agree with the view that the fact that no money was spent on non-charitable purpose, did not vitiate the charitable character of the trust. For these reasons, he came to the conclusion that the trust was liable to income-tax but in regard to the income that has to be spent on Shri Tapan Chakravorty, the assessment should be made not under section 164 but under section 161 and therefore that amount must be excluded from the total income computed by the Income-tax Officer.
7. On account of these different opinions, the matter was referred to a Their Member by the learned Members formulating their difference of opinion in the following words;-
"Whether, on the facts and in the circumstances of the case, the assessed-trust is entitled to exemption under the Income-tax Act, 1961 or not ?"
As the matter was of considerable importance, the President has constituted a Three-Member Bench to hear this difference of opinion. That was how the matter came before us.
8. After carefully considering the arguments advanced by both the sides and the relevant documents and the law bearing on the subject, we are of the view that the trust is entitled to exemption and therefore we are in agreement with the view expressed by the learned Accountant Member. We shall first take up the effect of grant of certificate under section 12A of the Income-tax Act.
9. Section 12A of the Income-tax Act, 1961 provides :
"12A. The provisions of sections 11 and 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfillled, namely :-
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution whichever is later :
Provided that the Commissioner may, in his discretion admit an application for the registration of any trust or institution after the expiry of the period aforesaid.
(Sub-clause (b) is not quoted here as it is not relevant for our present purpose.) Rule 17A prescribes the procedure for making an application. It provides :
"17A. An application under clause (a) of section 12A for registration of a charitable or religions trust or institution shall be made in duplicate in Form No. 10A and shall be accompanied by the following documents, namely :-
(a) where the trust is created, or the institution is established, under an instrument, the instrument, in original, together with one copy thereof;
and where the trust is created, or the institution is established, otherwise than under an instrument, the document evidencing the creation of the trust or the establishment of the institution, together with one copy thereof :
Provided that if the instrument or document in original cannot conveniently be produced, it shall be open to the Commissioner to accept a certified copy in lieu of the original :
(b) where the trust or institution has been in existence during any year or years, prior to the financial year in which the application for registration is made, two copies of the account of the trust or institution relating to such prior year or years (not being more than three years immediately preceding the year in which the said application is made) for which such accounts have been made up."
It is under this Rule that from No 10A was prescribed, which provides for furnishing such information, namely, the name of the trust, the address, date of creation of the trust of establishment of the institution and names and address of the trustees and the documents to be enclosed along with it are two copies of the trust accounts for the last one, two or three years. The prescription by Rule 17A to furnish the deed of trust and the copies of the accounts and prescribing the time limits for furnishing of this information and a provision made empowering the Commissioner to accept certified copies in lieu of the originals, does not convey that the intention of the Legislature is that this procedure was prescribed not to mechanically grant the registration but to grant registration only after making an enquiry into the charitable or religious nature of the trust or the institution. Had it not been the purpose of the Rule, to confer a duty upon the Commissioner of Income-tax to grant a certificate of registration of the trust only after the enquiry, we do not think that the Rule had provided for such elaborate procedure and time limits just as idle formality. It is not as if every trust, whether charitable or not, that applies to the Commissioner of Income-tax will be granted a certificate of registration. When the grant of exemption was made dependent upon the fulfilllment the grant of exemption was made depend upon the fulfilllment of the conditions provided in section 12A, namely, the registration, that condition could not be said to be an idle formality without investing the Commissioner with a duty to enquire into the genuineness of the trust and the applicability of the provisions of section 11. The grant of a certificate under section 12A is a power conferred upon the Commissioner and it is implied that every power granted under a statute carries a duty to do all such things, which would effectuate that power. It is, therefore, in our opinion, wrong to think that section 12A merely prescribed a mere formality to be complied with in a routine way without investigation and that grant of certificate did not mean that the trust was not otherwise entitled to exemption under section 11 and that it would still confer upon the Income-tax Office a power to enquire into the character of the institution and deny exemption under section 11. We find ourselves unable to agree with this broad proposition. We are therefore of the opinion that the grant of certificate of registration by the Commissioner under section 12A has some pertinent significance and legal sanction behind it for the purposes of grant of exemption under section 11 and it could not be by-passed as mere idle formality. We cannot attribute idleness to the provisions made by the Legislature. This also a fundamental rule of interpretation. The grant of certificate by the Commissioner of Income-tax under section 12A has therefore the significance of conferring upon the trust the right to claim that its income was entitled to exemption. In this aspect of the matter, the learned Accountant Member and the Appellate Asstt. Commissioner seem to us to be right in attaching importance to the grant of the certificate.
10. We have not extracted in our order the full copy of the will and we have extracted above only the relevant portion, which had become controversial. When though on 8-9-1980 the beneficiaries entitled to the benefits under the trust gave up their beneficial interest by executing a valid document, it could not any more be said that the beneficiaries were still entitled to the benefits under the trust created by the will. For the beneficiaries to give up his or her or their interest in the corpus or income of the trust, there need not be a provision in the will authorising the beneficiaries to give up their beneficial interest. The power to renounce the interest under the trust is available to the beneficiaries under the general law and under he Indian Trusts Act and it was recognised under the Indian Trust Act by section 58 and the only condition imposed is that the beneficiaries must be competent to contract. It is an inherent right of a beneficiary under the trust to accept or not to accept the beneficial interest. In case he accepts, the trustees have to act according to the provisions in the trust deed. In case the interest is renounced and the renunciation is valid according to law, then no trustee can enforce the beneficial interest and the interest thus released would ensure to the benefit of the trust. A beneficiary under the trust possesses the same power of alienation or disposition with respect to estate or interest there under as a legal owner has over his legal estate or interest in property and he can exercise it by similar instruments and similar formalities. It is therefore incorrect to state that the renunciation was not valid, and their reference to the Madras High Court decision in S. Ramaswamy Iyers case (supra) in ill founded. The learned Accountant Member is therefore right is distinguishing that case as inapplicable to the facts of this case. It is also very relevant at this point to note that in the relinquishment deed executed on 8-9-1980, which was a duly registered document on a properly stamped paper, that the trustees had confirmed that they had irrevocably surrendered, released, quit and assigned unto the Trustees all their rights, title and interest as from the date of the will from the trust funds or investments for the time being representing the same including their liberty to occupy and representing the same including their liberty to occupy and enjoy the rent-free quarters at Nainital and residential flat at Bareilly as described in the will and that the beneficial interest would thereafter vest in the trust trustees and that the trustees should utilise the same for charitable purposes mentioned in the said will. This shows that the relinquishment took effect right from the date the will was executed, namely, 15-8-1972. In view of this unequivocal surrender of their right and interest under the will, it cannot any more be said, in our opinion, that the relinquishment deed had no retrospective effect. As a consequence of the execution of the relinquishment deed, we think it is even open to the trustees to demand from the beneficiaries restitution of the benefits they derived under the trust right from the time the trust was executed even by instituting a suit for its recovery. Such being the position, it is in our opinion idle to say that the relinquishment had no retrospective operation.
11. The trust deep provided in clause (d), which is the controversial clause, as under :
"That 1/4th income of my property shall be utilised for the help of the deserving members of the family of the above Trustees either for their studies or for any other purpose and shall be utilised for the marriage of the girls of my family members excluding that of Shri Vishnu Prasad and his family."
It will be seen from the above that 1/4th of the income of the property has to be utilised (before relinquishment) for the help of the deserving members of the family of the above trustees either for their studies or for any other purpose and therefore the members of the family derived their right to get the benefit under the trust only through the trustees. When the right of the members of the family of the trustees is referable and traceable to the trustees and not de hors them, we do not think it is proper to say that all the members of the family of the trustees should also join together as a body relinquishing their rights, which may be contingent right or which may be right in expectation. When the trustees through whom the rights have to be passed on to the members of their family had relinquished their right, we think it would put a stop on the flow of the right to the members of the family of the trustees to claim any benefit under clause (d). Their rights to claim any benefit under clause (d) came to a close with the execution of the renunciation deed. The effect of executing the renunciation deed is therefore that the entire interest goes to the trustees for being utilised for other charitable purposes, which are enumerated in clauses (a), (b) and (c), which were undisputedly for charitable purpose. The further effect of the renunciation deed is to effect the effect of clause (d) permanently from the will as if it never existed. It cannot therefore be said, in our opinion, that the trust still enures for the benefit of the family members of the trustees and therefore the trust is partly for private purposes.
12. As regards the amount payable to Shri Tapan Chakravorty, the fact that nothing was paid to him is a relevant factor to consider whether by such a provision the trust could be said to be a trust executed for a private purpose. If Shri Tapan Chakravorty is considered as an employee or a friend, the benefit given to him cannot be said to be a personal benefit to the settlor. Even otherwise as laid down by the Supreme Court in Dharmodayam Co. (supra), if no money was spent for that purpose, even if it is considered to be non-charitable, that does not vitiate the character of the charitable nature of the trust. The trust does not therefore fail to seek exemption. In that case one of the objects of the company which claimed exemption u/s 11 of the Income-tax Act, 1961 read with section 2(15) of the Income-tax Act provided that the company could do the needful for the promotion of industries. The argument was that since the objects provided for the promotion of industries, the trust cannot be said to be wholly for charitable purpose and therefore was not entitled to exemption under section 11 of the Income-tax Act. The Supreme Court found that although the objects clause provided for doing the needful for the promotion of industries, nothing was spent on industry or the company never engaged itself in any industry or in any other activity and therefore no importance could be attached to its objects relating to this particular object. Dealing with the effect of the presence of this object in the Memorandum of Association on the charitable nature, the Supreme Court pointed out at page 537 :
"The second question presents no difficulty. The apprehension that in exercise of the power conferred by article 39 of the articles of association, the general meeting may set apart the entire profit or a substantive part of it for reserves is unfounded. If and when the affairs of the respondent take that shape, the department will have ample powers and opportunity to deny the exemption to the respondent. For the time being it is enough to state that the High Court has found that the respondent has spent the income for charitable purposes. The answer to the second question must, therefore, be that the power to set apart reserves under article 39 will not without more, vitiate the charitable nature of the institution."
The second question posed for consideration before the Supreme Court was :
"2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that setting apart reserves under article 39 of the assesseds memorandum did not vitiate the charitable purpose of the institution ?"
Thus to a direct question posed for decision before the Supreme Court, as to whether the presence of an object of a non-charitable nature would vitiate the charitable purpose of the institution, the ruling of the Supreme Court was that it would not vitiate the charitable nature of the institution if no funds were spent for that purpose. It therefore means that even in this case also one must see as to whether any amount was spent in payment of any sum to Shri Tapan Chakravorty. The finding of fact recorded by both the Members as well as by the Appellate Asstt. Commissioner, perhaps even by the Income-tax Officer, was that no money was spent on payment to Shri Tapan Chakravorty. Therefore the presence of this provision will not vitiate the charitable nature of the trust. As has been rightly held by the learned Accountant Member that the application in form No. 10A was filed within time i.e. along with the return of income and it could not be said that there was any delay in filing From No. 10A before the Income-tax Officer giving notice of accumulation. The learned Judicial Member did not express any view on this aspect. We therefore take it that he agreed with the view expressed by the learned Accountant Member or for that matter the view expressed by the Appellate Asstt. Commissioner.
13. Thus on all the points raised by the Revenue to deny exemption to the assessed, we find that their understanding of the law and the provisions of the will, according to us, was not in a proper perspective. The learned Judicial Member, in our opinion, is not right in taking the view that the trust still enures partly for personal purposes and not existing wholly for charitable or religious purposes. We do not wish to express any opinion of the question of treating the sum paid to Shri Tapan Chakravorty as falling for assessment under section 161 of the Income-tax Act, 1961 because that was not a point of difference of opinion referred to us, in any case not covered by the reference made to us.
14. For the above reasons, we are of the view that the assessed trust is entitled to exemption under the Income-tax Act, 1961 and denial of exemption is not proper.
15. The matter will now go before the regular Bench for deciding the appeals according to the opinion of the majority.