Gujarat High Court
Commissioner Of Income Tax vs Shri Barkate Saifiyah Society on 3 November, 1993
Author: M.B. Shah
Bench: J.M. Panchal, M.B. Shah
JUDGMENT M.B. Shah, J.
1. For the asst. yrs. 1971-72 to 1974-75 the ITO arrived at the conclusion that the assessee Shri Barkate Saifiyah Society, Rajkot, was not entitled to get benefit under s. 11 of the Income-tax Act, 1961 (hereinafter referred to as the "Act") as it was hit by the provisions of s. 13(1)(b) of the Act. For this purpose, he has referred to the objects of the trust which are as under :
(i) To help the poor and the needy
(ii) Medical relief
(iii) Provision for education
(iv) To carry out the religious activities.
2. He observed that the provisions of s. 13(1)(b) of the Act are not applicable in the cases of charitable and religious trusts. However, he held that the trustees have not carried out any religious activities and it was not provided in the trust deed that a specified portion of the income or corpus would be spent on any of the objects. The trustees are carrying on activities of charitable nature only and that simply by labelling the Trust to be charitable and religious, it does not become so.
3. The AAC, Rajkot, by his order dt. 28th Nov., 1977 set aside the said part of the order. He arrived at the conclusion that the Trust was charitable and religious and if the objects of the Trust are independent and the trustees are given powers to spend the Trust funds towards any of the objects of the trust within the framework of the Trust deed, the nature of the Trust would be decided by taking into consideration the objects of the Trust. He further held that in the present case the trustees were empowered to spend the Trust funds on religious activities which were independent of other activities. Therefore, the provisions of s. 13(1)(b) were not applicable.
4. Against that order, the Revenue preferred appeal before the Tribunal. The Tribunal arrived at the conclusion that s. 11 exempts income from the property held by the charitable or religious trust while s. 13(1)(b) takes away such exemption in case of trust for charitable purpose only, in case it is for the benefit of any particular religious community or caste; the assessee is no doubt a trust created for a religious community or caste and if it was for charitable purpose only, it would come within the mischief of s. 13(1)(b); however if a trust is for charitable purposes and also for religious purposes and even if the element of religious purpose is comparatively smaller or even insignificant, it cannot be said that the trust is a trust for charitable purposes. The Tribunal, therefore, dismissed the appeal filed by the Revenue by its order dt. 4th Aug., 1979.
5. Feeling aggrieved by the said order, the Revenue riled reference application and the Tribunal referred the following questions for our opinion under s. 256(1) of the IT Act, 1961 :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the provisions of s. 13(1)(b) applied only to trusts which were purely for charitable purposes and since the assessee trust was found to be charitable as well as religious in nature the assessee was entitled to exemption under s. 11 of the IT Act, 1961 ?
2. Whether, the assessee-trust which was mainly for charitable purposes and as it was created for the benefit of a particular religious community, it was not entitled to exemption under s. 11 by virtue of s. 13(1)(b) of the IT Act, 1961 ?"
6. For determining the controversy, first we would refer to the relevant part of the provision of s. 11 of the Act which reads as under :
"Income from property held for charitable or religious purposes.
11.(1) Subject to the provisions of ss. 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-
(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five per cent of the income from such property;
(b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of twenty-five per cent of the income from such property;
(c) xxxx xxxx xxxx xxxx"
7. The phrase "religious purpose" is not defined under the Act. However, the phrase "charitable purpose" is defined under s. 2(15) of the Act which reads as under :
"Charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility (not involving the carrying on of any activity for profit)".
(Bracketed portion is added by Finance Act, 1983 w.e.f. 1st April, 1984.) It is to be noted that definition of the phrase "charitable purpose" is inclusive and it covers wider field than the field covered by the words "religious purpose". Further, in some cases, even a religious activity by a particular sect would be a charitable activity; for some, supply of fodder to animals and cattle is a religious object, while to others it may be a charitable purpose. According to Hindu religious system, donation on some occasions would be considered to be a religious activity. Similarly, Khairat under the Mohammedan Law would be considered to be a religious activity. The said activities may be for a charitable purpose to some. Hence in many cases, both the purposes may be overlapping. The purposes may have both the elements, charity as well as religious.
While dealing with what is 'religious' or 'charitable purpose' it is observed by the Supreme Court in the case of Ramchandra vs. Mahadeoji AIR 1970 SC 458, that there is no line of demarcation in the Hindu system between religion and charity. Indeed, charity is regarded as part of religion. While discussing this aspect, the Supreme Court has further observed as under :
"Hindu piety found expression in gifts to idols, to religious institutions and for all purposes considered meritorious in the Hindu social and religious system. Therefore, although Courts in India have for a long time adopted the technical meaning of charitable trusts and charitable purposes which the Courts in England have placed upon the term 'charity' in the Statute of Elizabeth, and therefore, all purposes which according to English law are charitable will be charitable under Hindu law, the Hindu concept of charity is so comprehensive that there are other purposes in addition which are recognised as charitable purposes. Hence, what are purely religious purposes and what religious purposes will be charitable purposes must be decided according to Hindu notions and Hindu law.
As observed by Mukherjee in Hindu Law and Religious and Charitable Trust (2nd Edn.), p. 11, there is no line of demarcation in the Hindu system between religion and charity. Indeed, charity is regarded as part of religion, for, gifts both for religious and charitable purposes are impelled by the desire to acquire religious merit. According to pandit Prannath Saraswati these fell under two heads, Istha and Purta. The former meant sacrifices and sacrificial gifts and the latter meant charities. Among the Istha acts are Vedic sacrifices, gifts to the priests at the time of such sacrifices, preservations of Vedas, religious austerity, rectitude, Vaisvadev sacrifices and hospitality. Among the Purta acts are construction and maintenance of temples, tanks, wells, planting of groves, gifts of food, dharamshalas, places for drinking water, relief of the sick, and promotion of education and learning. (Cf. Pandit Prannath Saraswati's Hindu Law of Endowments, 1897, pp. 26- 27). Istha and Purta are in fact regarded as the common duties of the twice born class. (Cf Pandit Saraswati, p. 27).
In view of the aforesaid discussion, it can be said that a trust can be either for religious purposes or for charitable purposes or it can be for both, charitable and religious purposes.
Identical definition of phrase "charitable purpose" was considered by the Supreme Court in the case of Fazlul Rabbi vs. State of West Bengal, AIR 1965 SC 1722, in the context of West Bengal Estates Acquisition Act, 1953 (West Bengal Act No. 1 of 1954). Under s. 2(c) of the Act, "Charitable purpose" was defined to mean as including the relief of poor, medical relief or the advancement of education or of any other object of general public utility. The definition of "religious purpose" under s. 2(n) is as under :
"2(n) "religious purpose" means a purpose connected with religious worship, teaching or service or any performance of religious rites;" Under s. 6 of the said Act the exemption is given to Corporations and institutions established exclusively for a religious or a charitable purpose or both. The Court observed that the word "exclusively" limits the exemption to trusts, endowments or other legal obligations which come solely within charitable or religious purposes. With regard to definition of "charitable purposes" the Court observed that it follows, though not quite, the well-known definition of charity given by Lord McNaughten in Commissioners for Special Purposes of Income Tax vs. Pemsel 1891 AC 531 at p. 583 and held as under :
"No doubt the popular meaning of the words "charity" and "charitable" does not coincide with their legal meaning; and no doubt it is easy enough to collect from the books a few decisions which seem to push the doctrine of the Court to the extreme and to present a contract between the two meanings in an aspect almost ludicrous. But still it is difficult to fix the point of divergence, and no one as yet has succeeded in defining the popular meaning of the word "charity". The learned counsel for the Crown did not attempt the task. Even the paraphrase of the Master of the Rolls is not quite satisfactory."
It is further held as under :
"I think they would be surprised to learn that the substantial cause of their missionary zeal was an intention to assist the poverty of heathen tribes. How far then, it may be asked, does the popular meaning of the word "charity" correspond with its legal meaning ? "Charity" in its legal sense comprises four principal divisions; trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community not falling under any of the preceding heads".
Thereafter the Court held that for satisfying the test for charitable purpose, there must always be some element of public benefit.
Hence, words "trust for charitable purpose" would include even trust for advancement of religion. At this stage we would note that the definition of "charitable purpose" under the IT Act goes much farther than the definition of "charity" to be derived from the English cases because it specifically includes medical relief and embraces all objects of general public utility subject only to the condition imposed by the restrictive words "not involving carrying on of any activity for profit".
8. While dealing with s. 11 of the Act, a Division Bench of this Court in the case of Addl. CIT vs. A.A. Bibijiwala (1975) 100 ITR 516 (Guj), has observed as under :
"Similarly, in the case before us also, the property is settled upon wakf, that is, for purposes which are considered to be religious, pious or charitable according to the notions of members of the Dawoodi Bohra Community and further the income in the corpus of these properties upon trust must be used for Dawat purposes, that is, for the benefit of the Dawoodi Bohra community. Though the words of cls. 6, 7 and 8 are very wide in terms, in fact that apparently wide discretion of the Mullaji Saheb is bound down by the two factors, namely, that this is a wakf, a dedication by a Mussalman of property for purposes which, according to the notion of Mussalmans, are pious, religious or charitable, and, secondly, it must be used for Dawat purposes, that is, for purposes which go to benefit the Dawoodi Bohra community. With these two limitations operating on him, even the apparently wide discretion conferred upon the Mullaji Saheb as Dai-ul- Mutlak for the time being is confined within the four corners of these two overriding factors and in view of these two overriding factors it must be held that the properties in question settled by the two deeds of 12th Jan., 1937, were settled upon trust for charitable or religious objects and were, therefore, entitled to exemption under s. 11(1)(a) of the Act of 1961. We must make it clear that the real controversy between the parties is regarding exemption under s. 11(1)(a) and not whether the trusts are wholly religious or wholly charitable. Even if the trusts are partly religious and partly charitable, so long as no part of the income or corpus can be utilised for a purpose which is not either charitable or religious, there is no doubt that the exemption under s. 11(1)(a) will be available to the assessee. In the instant case we find that, in spite of the apparently wide language of the clauses of the deed of trust, in fact reading the trust deed as a whole, it transpires, particularly in the light of the decision of the Bombay High Court in Advocate-General of Bombay vs. Yusufalli, (1922) 24 Bom. LR 1060 that the apparently wide discretion has to be exercised within the four corners of the wakf and for Dawat purposes. What are Dawat purposes, have been described by Martan J., at page 1102, in Advocate-General of Bombay vs. Yusufalli (supra) and, in our opinion, it is only within the four corners of Dawat purposes as recognised by the Dawoodi Bohra community that the Mullaji Saheb can use the corpus or the income of this fund."
From the aforesaid decision it can be held that if the trusts are partly religious and partly charitable, so long as no part of the income or corpus can be utilised for a purpose which is not either charitable or religious, exemption under s. 11(1)(a) will be applicable to the assessee.
9. Keeping in mind the aforesaid discussion, now we will refer to relevant portion of s. 13 of the Act which carves out an exception to the aforesaid provisions. It reads as under :
"13(1). Nothing contained in s. 11 or s. 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof-
(a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public;
(b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste;
(c) in the case of trust for charitable or religious purposes or a charitable or religious institution, any income thereof-
(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or
(ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-s. (3) :
Provided xxxx xxxx xxxx xxxx Provided further xxxx xxxx xxxx xxxx
(d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year-
(i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-s. (5) of s. 11; or
(ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-s. (5) of s. 11 continue to retain so invested or deposited after the 30th day of November, 1993; or
(iii) any share in a company (not being a Government company as defined in s. 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act) are held by the trust or institution after the 30th day of November, 1993.
Provided xxxx xxxx xxxx xxxx (2) xxxx xxxx xxxx xxxx (3) xxxx xxxx xxxx xxxx (4) xxxx xxxx xxxx xxxx"
10. By reading the aforesaid section, it is clear that it carves out an exception to s. 11 or 12 by providing that in those cases which are covered by cls. (a), (b), (c) and (d), provisions of s. 11 or 12 shall not operate. Broadly speaking it is divided into three categories and exception is carved out in case of private religious trust, charitable trust and charitable or religious trust if the conditions mentioned in cls. (a), (b), (c) & (d) are satisfied. Firstly, any part of the income from the property held under a trust for 'private religious purposes' which does not enure for the benefit of the public is not to be excluded as provided under s. 11. That means, benefit of s. 11 would not be given to a trust which is a private religious trust which does not enure for the benefit of the public [as per clause (a)]. Secondly, any income of a trust for charitable purposes or a charitable institution if the trust or institution is created or established for the benefit of any particular religious community or caste is not to be excluded [as per clause (b)]. This sub-clause is applicable only in those cases where the trust for charitable purposes or charitable institution is created or established after the commencement of IT Act, 1961. In each case the authority is required to find out whether the trust for charitable purposes is established for the benefit of a particular religious community or caste. If it is so established, then the provisions of s. 11 would not be applicable. Thirdly, cls. (c) & (d) carve out an exception in case of a trust for 'charitable or religious purposes' or a charitable or religious institution. It provides certain cases in which any income thereof enures, used or applied, directly or indirectly for the benefit of any person referred to in sub-s. (3). Clauses (c) & (d) clearly indicate that wherever legislature wanted to include a trust for charitable and religious purposes, it is specifically provided by using the phrase "trust for charitable or religious purposes." In cls. (c) and (d) the legislature has used the phrase "trust for charitable purposes or charitable institution" while in clause (b) the phrase used is "charitable purposes". Hence it can be held that clause (b) is only applicable to a trust which is for charitable purposes or charitable institution. It does not deal with a trust for religious purposes. It only deals with a trust for charitable purposes or charitable institution which are established for giving relief to the poor or medical relief or for education of any particular religious community or caste. Clauses (c) & (d) would be applicable to a trust which is either for charitable purposes or religious purposes or partly charitable and partly religious. Hence it can be stated that if a charitable trust is established only for the benefit of any particular religious community or caste, then provisions of s. 11 would not be applicable. But in the case of a trust or an institution for religious purposes wherein certain activities can be termed as charitable activities for the benefit of any particular religious community or caste, clause (b) would not be applicable.
11. Mr. Shelat, the learned counsel for the Revenue, vehemently submitted that by giving this interpretation to clause (b) of s. 13(1), the said clause (b) can be made nugatory by only using the words in trust-deeds that "the trust was established for religious and charitable purpose". He, therefore, submitted that the authority is required to determine the predominant purpose of the trust and if predominant purpose is charitable purpose and it is meant for giving benefit to religious community or caste, then benefit which is conferred by s. 11 stands withdrawn. In our view, it is difficult to accept the said contention mainly because it is nowhere provided in the section that in each case the authority shall find out predominant purpose of the trust. Further, as stated earlier, in three different clauses, namely, (a), (b) and (c) of sub-s. (1) of s. 13, the legislature has used different phrases. Clause (a) as stated earlier, deals with "a trust for private religious purposes". Clause (b) deals with a trust for charitable purposes or charitable institution. Clauses (c) & (d) deal with a trust for charitable or religious purposes or a charitable or religious institution. From this different phraseology used by the legislature in cls. (a), (b) and (c), it can be inferred that the legislature intended to cover only trust for charitable purposes under clause (b). That means, if a trust is composite, that is, for religious and charitable purposes, then it would not be covered. It is also apparent that if the trust is only for religious purposes, clause (b) would not be applicable.
12. In view of the aforesaid discussion, in our view, the Tribunal has rightly held that s. 13(1)(b) applies only to trusts which were purely for charitable purposes and the assessee trust was charitable as well as religious in nature and the assessee was entitled to exemption under s. 11 of the Act. Hence, question No. 1 is answered in the affirmative in favour of the assessee and against the Revenue.
13. With regard to question No. 2, once it is held that s. 13(1)(b) would be applicable in a case where the trust is exclusively for charitable purposes, then the main purposes and subsidiary purposes of the trust or institution are not required to be decided for arriving at a conclusion whether s. 13(1)(b) is applicable or not. Hence, question No. 2 is answered in favour of the assessee and against the Revenue.
14. In the result, the Reference stands disposed of accordingly with no order as to costs.