Patna High Court
Commissioner Of Income-Tax vs Tata Steel Charitable Trust on 7 January, 1993
Equivalent citations: [1993]203ITR764(PATNA)
JUDGMENT G.C. Bharuka, J.
1. These references relating to the assessment years 1972-73, 1973-74, 1974-75 and 1975-76 involve a common question of law based on identical facts and, as such, are being disposed of by a common judgment.
2. The question of law falling for consideration is as follows :
"Whether, on the facts and in the circumstances of the case, the provisions of Section 13(1)(c) of the Income-tax Act, 1961, are applicable and, therefore, the trust income or any part thereof is not exempted under Section 11(1) of the said Act ?"
3. The assessee-trust was created by Messrs. Tata Iron and Steel Company Limited by executing a deed dated March 30, 1966. One of the objects for which the trust was created was to utilise the income earned by it for charitable purposes in India only by giving relief to the poor, education, medical relief and advancement of any other object of general public utility not involving the carrying on of any activity for profit. The assessee claimed exemption in respect of the income on the ground that the same has been applied exclusively for charitable purposes enumerated in the deed. The Income-tax Officer rejected the plea on the ground that part of the income of the trust has been spent on giving relief to such persons or their relatives who are in the employment of the author of the trust. According to him, since the income of the trust was applied partly for charitable purposes and partly for non-charitable purposes, the assessee is disqualified from seeking exemption under Section 11(1)(b) of the Act. On appeal, the Appellate Assistant Commissioner, on appraisal of the evidence on record, came to the conclusion that the trust was a charitable trust and its income was exempt from tax under the Act keeping in view the provisions of Section 11(1)(a) thereof. The said orders have been affirmed by the Tribunal.
4. It is not in dispute that the trust deed nowhere casts an obligation on the trustee to apply the income of the trust either ordinarily or preferably for the benefit of the TISCO employees. It is also a matter of record that about 50 per cent. of the trust income has been spent on the employees of the TISCO or their relations for charitable purposes as contemplated under the trust deed. It has been found by the income-tax authorities as well as the Tribunal that the employees of TISCO and their relations had availed of the said relief by making applications to the trustee as ordinary members of the public and not in the capacity of the employees of TISCO. The applications so filed by them were processed and examined in the ordinary course as in the case of a needy non-employee and when found fit and in consonance with the object of the trust, the desired relief was granted. While granting such relief it was wholly immaterial for the trustee as to whether the awardee was an employee or non-employee of the TISCO. There is nothing on the record to show that in any given case, the fact of employment in TISCO of the applicants has, in any way, influenced the trustee in selecting the beneficiaries.
5. On consideration of these primary facts, the Tribunal has come to a factual conclusion that it was wrong to say that the trust was created for the purpose of granting any relief to the employees of TISCO. The Tribunal has also recorded a finding of fact that persons, who were the employees of TISCO, have been given relief out of the trust income only because they fulfilled the relevant conditions for the same, keeping in view the objects of the trust.
6. I may now proceed to deal with the relevant provisions, which are as under :
"2. (15) '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 ;
Section 11. Income from property held for charitable or religious purposes.--(1) Subject to the provisions of Sections 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 ;
Section 13. Section 11 not to apply in certain cases.--(1) Nothing contained in Section 11 or Section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof--....
(c) in the case of a 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-section (3) : ....
(3) The persons referred to in Clause (c) of Sub-section (1) and Sub-section (2) are the following :--
(a) the author of the trust or the founder of the institution ;
(b) any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds five thousand rupees ;
(c) where such author, founder or person is a Hindu undivided family, a member of the family ;
(cc) any trustee of the trust or manager (by whatever name called) of the institution ;
(d) any relative of any such author, founder person, member (trustee or manager) as aforesaid ;
(e) any concern in which any of the persons referred to in Clauses (a), (b), (c), (cc) and (d) has a substantial interest."
7. From a reading of Clause (c) of Sub-section (1) of Section 13 and Sub-section(3) thereof, it is quite clear that neither under the terms of the trust nor under the relevant rules governing the same does any part of the income enure nor was any part of such income used or applied directly or indirectly for the benefit of any of the specified persons referred to in Sub-section (3) of Section 13 of the Act. From a reading of the said sub-section it appears that the employees of the author of the trust have not, as such, been placed under the specified classes enumerated therein. Therefore, the provisions of Section 13 cannot per se disentitle the assessee-trust from claiming exemption as provided under Section 11(1)(a) of the Act.
8. Now, the next aspect to be considered is as to whether one of the essential ingredients for claiming exemption under Section 11(1)(a) of the Act, namely, whether the property held under trust is wholly for charitable or religious purposes or not. The expression "charitable purpose" has been defined under Section 2(15) of the Act. The object and purpose of the trust as has been culled out from the trust deed itself fully satisfies the statutory requirement. Again the Tribunal, as the final fact-finding authority, has found that the income derived from the properties held under trust has been exclusively applied for achieving the charitable purposes for which the trust has been created. Therefore, it is apparent that the properties as held by the trust are meant wholly for charitable purposes. As such, the assessee satisfies this statutory requirement as well.
9. From a reading of the aforesaid provisions, it clearly emerges that a person can seek exemption under Section 11(1)(a) of the Act only if he can at least satisfy that : (1) the purpose for which the trust has been created is a charitable purpose, and (2) no part of the income of such trust enures or has been used or applied directly or indirectly for the benefit of any person referred to in Sub-section (3) of Section 13 of the Act.
10. So far as the first condition is concerned, the expression "charitable purpose" necessarily carries with it a sense of public value, which means that for being a trust created for a charitable purpose, it should necessarily be for extending relief and benefits to the general public in contradistinction to any particular group or class of persons. It has consistently been held by courts that a purpose must, in order to be charitable, be directed to the benefit of the community or a section of the community and not to the benefit of particular private individuals (refer to Williams' Trustees v. IRC [1948] 16 ITR (Suppl) 41 (HL) 50). In the present case, as noticed above, the object set out in the trust deed clearly lays down that the income of the trust has to be spent for the relief of the poor, education, medical relief and the advancement of any other object of general public utility. The author of the trust has nowhere authorised the trustee to spend the income derived from the trust properties except for the said purposes. It is not even the case of the Department that the author of the trust had at all even intended that the income of the trust even partly should enure to, or be spent on, the employees of the TISCO or their relatives either directly or indirectly. Therefore, the trust was clearly established wholly and exclusively for charitable purposes. As noticed above, it is wholly immaterial if any employee of the TISCO or their relatives had acquired any benefit out of the income of the trust as an ordinary member of the community. It cannot be denied that even the employees of TISCO and their relatives are members of the community and form part of the general public and merely because they have some contractual relationship with the author of the trust, they do not lose their primary identity as general members of the society. In that capacity they are entitled to enjoy all the benefits to which the persons falling in their category are entitled. Therefore, in my view, the trust in question has been established wholly for charitable purposes.
11. Now, coming to the second condition, as said above, it seems that even if a trust has been created wholly for charitable purposes, when subsequently it is found that its income either enures or is used or applied directly or indirectly for the benefit of any person specified under Sub-section(3) of Section 13 of the Act then such trust becomes disentitled to claim any exemption under Section 11 of the Act. But the list of such persons as contained under Section 13(3) does not include the employees of the author of the trust. The employees of the author of the trust do not fall within the specified categories of persons referred to in Section 13(3). Even Section 13(3)(d), which includes any relative of the author, can have no application in the case of the employees of the author because "relative" means a person connected by birth or marriage with another person. (See New Lexicon Webster's Dictionary). The person having any other relationship pursuant to a contract like that of employer and employee cannot be said to be a relative. Therefore, the application of part of the income of the trust for the benefit of the employees of TISCO and their relatives cannot disentitle the trust from claiming exemption under Section 11(1)(a) of the Act.
12. In the aforesaid facts and circumstances, the question is answered in the negative and in favour of the assessee. I also assess costs of Rs, 1,100 (rupees one thousand and one hundred only) payable by the Department to the assessee.
13. Let a copy of the judgment be sent to the Income-tax Appellate Tribunal, Patna Bench, Patna, in terms of Section 260 of the Act.
S.K. Chattopadhyaya, J.
14. I agree.