Rajasthan High Court - Jaipur
Laxmi Narain Lath Trust vs Commissioner Of Income-Tax on 23 February, 1998
Equivalent citations: [2000]244ITR272(RAJ)
JUDGMENT
1. The relevant facts of the case as found by the Tribunal are as under ;
2. The assessee-trust, viz., "Laxminarain Lath Trust", was created by a deed of indenture by one Shri Laxmi Narain Lath on August 25, 1948. It was to be administered by four trustees, two of whom were the sons of the settlor. The property settled was an amount of Rs. 5,000. The same was transferred, assigned and assured unto the trustees for perpetuating the objects enumerated in Clause 92 therein. They were 15 in number and, inter alia, provided for advancement of education amongst the Hindus, puja of Shiva, looking after cattle, establishment of temples, dharamsalas, hospitals, orphanages for Hindus, maintenance of tubewells and paths, providing help to victims of natural calamities, etc., etc. Another of these objects was mentioned in Clause 2(vi) in the following terms ;
"To render aid to any persons belonging to the family of Laths and to grant monthly and other periodical aids to them."
3. The trustees were empowered by Clause (5) to decide the particular object or objects to which the income or corpus of the trust properties for the time being available were to be applied. Earlier Clause 93 entitled the trustees to carry on such business as they might think fit from time to time provided all such businesses were carried on to utilise all such profits for the objects of the trust.
4. When the matter relating to the assessment of the income of the trust came up for consideration before the Income-tax Officer for the assessment years 1954-55 to 1957-58, he did not treat its objects as being wholly for religious and charitable purposes. According to him, the income of the trust could also be utilised for any persons belonging to the Lath family. In his opinion, therefore, the trust did not qualify itself for exemption under the Act. This conclusion, was arrived at notwithstanding a finding that as a fact the income had not been utilised for any non-charitable purposes. This decision of the Income-tax Officer was. reversed by the Appellate Assistant Commissioner as he felt that the dominant intention of the trust was charitable. On Clause 2(vi), he observed that, it did not detract from the charitable nature of the dominant intention of the settlor.
5. In second appeals, the Tribunal restored the, decision of the Income-tax Officer and held that the. trust was not entitled to exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922. This decision of the Tribunal was upheld by the Rajasthan High Court when the assessee sought reference against the same. The decision is reported as Laxminarain Lath Trust v. CIT [1969] 75 ITR 402 (Raj). The assessee later moved the Supreme Court against that decision but without success.
6. Meanwhile by an indenture dated May 21, 1958, executed between Shri Laxmi Narain Lath, the settlor on the one hand, and the four trustees, on the other hand, it was stated that the settlor by the original deed of settlement had intended to create a public charitable trust for the benefit of any particular family or community. It was added that unfortunately though by inadvertence the words "Hindus" and "belonging to the family of Laths" had crept in Clause 2(1)(vii), (xv), (vi). It was further added that the trustees had all along treated the trust as a public trust and applied the income of the trust solely for the furtherance of the objects for the benefit of the public in general and had never applied any portion of the corpus or income of the trust for the benefit of a person belonging to the family of Laths or for the benefit of a particular Hindu community. These accidental slips in the objects clause having been brought to the notice of the settlor and the trustees, it was next stated that the factual mistakes appearing in the original deed were rectified so as to delete the word "Hindus" wherever it occurred and in its place substitute the words "in distress" were inserted. It was also clarified in this deed that these rectifications should be treated to have been originally incorporated in the first deed of settlement.
7. This deed was referred to during the course of assessments for the assessment years 1954-55 to 1957-58, about which reference has already been made above. The Income-tax Officer declined to lay any significance on this deed observing that it could not have retrospective operation. Similar was the view taken by the Tribunal and the Rajasthan High Court.
8. In the assessments, which followed for the assessment years 1959-60 to 1966-67, the income-tax authorities allowed exemption to the assessee treating it as trust wholly for charitable and religious purposes within the meaning of Section 4(3)(i) of the 1922 Act and Section 11 of the 1961 Act.
9. The settlor died in the year 1960,
10. For the present assessment years 1967-68 to 1970-71, the Income-tax Officer took a different stand. According to the Income-tax Officer, the settlor having once decided the purpose and objects of the trust in the deed of settlement of the year 1948, he was precluded from making any additions or deletions in the same. The trust being irrevocable, he concluded that the deed of 1948 continued to operate. What appeared to have prompted him to adopt this new approach was a deed of declaration executed by the trustees on July 15, 1966. Thereby they had attempted to, inter alia, modify Clause 2(iii) of the principal deed of settlement by the following substitution :
"To promote, establish and run agricultural farms and agricultural research centres, seeds and grafts centres, nurseries, orchards, gardens and/or other plantations, to provide know-how, means and materials for advanced farming" by improved and scientific methods and equipment, to develop, improve and cultivate directly or indirectly, lands of the trust at Mandrella or elsewhere for agricultural purposes ; and to take all necessary steps for growing food and foodgrains."
11. According to the Income-tax Officer, the agricultural farm envisaged by this amended clause had the effect of permitting them to carry on the activity for profit. In this view there was a distinction between the "purpose of the trust" and the powers conferred upon the trustees as incidental to the "carrying out of the purpose". Observing next that the trustees were trying to make additions or deletions from time to time in order to avoid incidence of tax, he held that the trust was not entitled to exemption.
12. In appeals, the Appellate Assistant Commissioner by a consolidated order dated September 26, 1973, reversed that decision. The assessee had then brought to his notice that since the deed dated July 15, 1966, modifying the principal deed of settlement was executed after the death of the settlor, the trustees had by a resolution dated November 17, 1968, rescinded and deleted with retrospective effect that deed of July 15, 1966. This the Income-tax Officer, it was pointed out, had not taken into consideration. Reliance was next placed on the decision of the Calcutta High Court in the case of Dalim Kumar Sain v. Nandarni Dassi, AIR 1970 Cal 292 ; 73 CWN 877, to the effect that a clear mistake in an irrevocable trust deed could be rectified by the settlor. Reliance was further placed upon two other decisions in CITv. Smt Kasturbai Walchand Trust [1967] 63 ITR 656 (SC) and CIT v. Trustees of Sir Kihabhai Premchand Trust [1967] 65 ITR 213 (Bom). The Appellate Assistant Commissioner after going through them, held that the validity of the trust was not affected by amendment made in the trust deed. The amended deed, he observed, did not contain any objectionable clause on the basis of which the income of the trust could not be treated as exempt under Section 11(1) of the Income-tax Act, 1961. As regards the deed dated July 15, 1966, he held that the same being unregistered could not amend the registered deed of settlement of the year 1948. Reference was also made to the Mysore High Court decision in Coffee Board v. Deputy CAIT [1964] 52 ITR 126, where the maintenance of a research station for the Coffee Board was held exempt from liability of agricultural income-tax under the Mysore Agricultural Income-tax Act, 1957. He, as such, finally allowed the exemption to the trust under Section 11 of the Income-tax Act, 1961.
13. The Tribunal found as follows :
(1) That Clause 2(vi) of the principal deed of settlement plainly and unequivocally permitted the trustees to utilise the income of the trust to render aid to any person belonging to the family of the Laths ;
(2) that the aforesaid clause had been treated by the Rajasthan High Court, so as to refer to the family of the settlor ;
(3) that it was not considered an insignificant or superfluous clause which had no bearing on the object of the trust ;
(4) that its pervading" effect was considered by the Rajasthan High Court to carry away the prospects of providing full discretion in the trustees to spend the entire trust funds for the aid of the settlor's family members ;
(5) that this was not an innocent clause which had just crept in by inadvertence and without any intention or motive.
14. The Tribunal held accordingly that the amending deed of 1958 was the result of second thoughts by the settlor when he was confronted with the income of the trust escaping the exemption of Section 4(3)(i) of the Indian Income-tax Act, 1922. The Tribunal observed in this regard in terms as under :
"17. When a person creates a trust and dedicates the corpus and income thereof to certain beneficiaries and does not reserve to himself any right to revoke or modify the objects of the trust, he renders himself into a position as to be bereft of the domain thereof. The management and administration of the trust thereafter vests in the trustees, and so far as they act within the powers available under the trust, they cannot be interfered with. The rights of the beneficiaries under the trust are all the more on solid footing. They can seek enforcement of the objectives of the trust, and unless they specifically give their consent, their interest as beneficiaries cannot be curtailed or nullified. See in this respect sections 9, 11, 58, 61 and 78 of the Indian Trusts Act. Where the beneficiary is found incompetent to contract, no modification of the purpose of the trust is permissible without the approval of the principal civil court of original jurisdiction. In the present case, apart from the fact that there is no document or evidence to show that the beneficiaries have relinquished their rights under Clause 2(vi) of the original deed of settlement, there is nothing" to show that there are no minors in the family of Laths in whose cases approval of the court is required. The mere fact that the beneficiaries have not so far objected to the amended deed of 1958 is no guarantee that they would not do so in future or that they have altogether relinquished their beneficial interest."
15. The Tribunal accordingly concluded that it could not be held that by the amended deed of 1958, the assessee- trust had acquired the status of a trust wholly for charitable and religious purposes in order to be entitled to exemption under Section 11 of the Income-tax Act, 1961. The Tribunal thereupon allowed the appeals of the Revenue and held that the assessee-trust was not entitled to exemption under Section 11 of the Income-tax Act, 1961.
16. On the basis of the above facts, the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (the Appellate Tribunal) raised and referred to us under Section 256(1) of the Income-tax Act, 1961 (the Act), at the instance of the assessee-trust, the following questions :
"(1) Whether, on the facts and in the circumstances of the case, by the amended deed dated May 21, 1958, the assessee-trust became a trust wholly for charitable or religious purposes as contemplated under Section 11 of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the income of the assessee-trust was exempt in terms of Section 11 of the Income-tax Act, 1961 ?"
17. We heard Mr. N. M. Ranka, the learned senior advocate, for the assessee-trust, and Mr. Anant Kasliwal, the learned standing counsel for the Income-tax Department.
18. Mr. Ranka urged, and Mr. Kasliwal could not oppose his submission, that both the questions, as reproduced above, had directly and substantially arisen for the consideration of this court in the assessee's own case for the assessment year 1972-73 and this court, after a thorough study of the original deed dated August 25, 1948, and the effect of the subsequent supplementary deed dated May 21, 1958, whereby the words "belonging to the family of Laths", occurring in Clause 2(vi) of the original deed were deleted and in their place the words "in distress" was inserted and the original Clause 2(vi) came to be read as "to render aid to any person in distress and to grant monthly and other periodical aid to them", answered both the questions in favour of the assessee-trust and against the Revenue. Mr. Ranka thus submitted that both the referred questions were squarely covered by the decision of this court in the assessee's own case for the assessment year 1972-73 reported in Laxminarain Lath Trust v. CIT[1988] 170 ITR 375 (Raj).
19. We have closely studied both the decisions of this court in the assessee's own case, the one for the assessment years 1954-55 to 1957-58 reported in Lakshmi Narain Lath Trust v. CIT [1969] 73 ITR 402 (Raj), as approved by the Supreme Court in the case of Yogiraj Chanty Trust v, CIT [1976] 103 ITR 777 and the other for the assessment year 1972-73 reported in Laxmi-narain Lath Trust v. CIT [1988] 170 ITR 375 (Raj). We find that the questions as have been raised for the assessment year under consideration were directly and substantially in issue before this court in the assessee's own case for the assessment year 1972-73 and were answered for the assessee and against the Revenue.
20. No doubt this court had not accepted Mr. Ranka's first contention that the decision of this court in Lakshmi Narain Lath Trust v. CIT [1969] 73 ITR 402, was no longer a good law in view of the subsequent decision of the Supreme Court and even if the subsequent supplementary deed dated May 21, 1958, be excluded from consideration the income of the assessee-trust was entitled to exemption under Section 11 of the Act and relying on the observations of the apex court in Yogiraj's case [1976] 103 ITR 777 that (page 784) "the test is that if one of the objects of the trust deed is not of a religious or charitable nature and the trust deed confers full discretion on the trustees to spend the trust funds for an object other than of a religious or charitable nature, the exemption under Section 4(3)(i) of the Act of 1922, is not available to the assessee", held that in view of the law laid down by the apex court it was not possible to hold that the view taken by this court in Lakshmi Narain Lath Trust v. CIT [1969] 73 ITR 402, was not correct and even under the settlement deed dated August 25, 1948, the assessee-trust may be held to be a trust wholly for charitable purposes and its income was exempt under Section 11 of the Act. But the court had then proceeded to examine the effect of the supplementary deed dated May 21, 1958, whereby Clause (2)(vi) of the original deed had been amended, with reference to the provisions of the Indian Trusts Act, 1882. It was held that although the provisions of the Indian Trusts Act as such are not applicable to public trusts in view of Section 1 of the said Act, the principles underlying them, being based on general principles or rules of English law are applied by the courts to public trusts also. The court further observed that in a private trust the beneficiaries are a determinate body and, therefore, any modification in the matter of terms of the author of the trust is required to be made with the consent of all the beneficiaries who are competent to contract and in cases where the beneficiary is incompetent to contract, his consent may be given by the civil court. The situation in the case of a public trust is, however, different because in a public trust, the beneficiaries are generally indeterminate and the provisions of Section 11 requiring the consent of the beneficiaries cannot, therefore, be applied to a public trust.
21. With reference to Clause 2(vi) of the original trust deed, which made provision for giving aid to persons belonging to the family of Laths this court, on the basis of its earlier decision in Lakshmi Narain Lath Trust v. CIT [1969] 73 ITR 402 (Raj), observed that the same was never implemented and acted upon though the assessment years involved therein were 1954-55 to 1957-58 and the supplementary deed had been executed in the year 1958. The court further pointed out that although the supplementary deed was executed on May 21, 1958, none of the persons belonging to the Lath family had challenged the validity of the same in a court of law, and until the supplementary deed is held invalid by a competent court it is not open to the income-tax authorities to treat the same as invalid and to refuse to recognise the same unless it finds the same non-genuine, fictitious or sham which was not the case of the Revenue.
22. Their Lordships further observed that in Clause 2(vi) of the original deed of trust only a discretionary power had been conferred on the trustees whether to apply or not to apply the income of the trust for the various objects included in Clause (2) including that for the benefit of the members of the Lath family but such discretion with the trustees regarding the application of the income of the trust for the benefit of the Lath family did not create any enforceable right to the application of the income of the assessee for the objects mentioned in Clause 2(vi), i.e., for their benefit and, therefore, it can also not be said that the consent of the beneficiary was necessary before any alteration was made in the said clause. Their Lordships pointed out that at the time of carrying out the alteration or amendment of Clause 2(vi) the settlor was alive and he had indicated what his intention was in creating" the trust and he could have clarified his such intention by executing" the supplementary deed on May 21, 1958, with a view to rectifying the mutual mistake appearing in the original trust-deed.
23. After having thoroughly examined the facts and circumstances of the case with reference to the earlier decision in the assessee's case for the assessment years 1954-55 to 1957-58 as reported in Lakshmi Narain Lath Trust v. CIT [1969] 73 ITR 402 (Raj), Agrawal J. (as his Lordship then was) finally held that (page 386 of 170 ITR) :
"We are also of the view that the supplementary deed binds the trustees who were parties to the said deed as well as future trustees of the assessee and in view of the supplementary deed, it is no longer permissible for the trustees of the assessee to use the trust funds for giving aid to persons belonging to the family of Laths. As a result, the flaw which was found by this court in its judgment in Lakshmi Narain Lath Trust v. CIT [1969] 73 ITR 402, that a discretion was vested in the trustees to apply the funds of the trust towards the object contained in Clause 2(vi) of the object clause, i.e., to give aid to the persons belonging to the family of Laths and that, therefore, it was not a trust for charitable purposes, no longer exists. After the execution of the supplementary deed dated May 21, 1958, which is binding on the trustees, it is not open to the trustees to give aid only to persons belonging" to the family of Laths, and, therefore, it is not permissible for the trustees to apply the funds of the assessee for non-charitable purposes. In these circumstances, we are of the opinion that after execution of the supplementary deed dated May 21, 1958, it cannot he said that the income of the assessee could be used for non-charitable purposes and that the income of the trust was not used wholly for charitable purposes. We are, therefore, unable to agree with the Tribunal that the income of the trust is not entitled to exemption under Section 11 of the Act of 1961."
24. The reference is, therefore, answered in favour of the assessee and the questions referred are answered as under (page 387) :
"1. On the facts and in the circumstances of the case, the Tribunal who not justified in holding that by the amended trust deed of 1958, the lessee has not acquired the status of a trust wholly for charitable and religious purposes in order to be entitled to exemption under Section 11 of the Income-tax Act, 1961.
2. On the facts and in the circumstances of the case, the Tribunal was not justified in holding that the assessee-trust is not entitled to exemption under Section 11 of the Income-tax Act, 1961."
25. We are satisfied that there are undisputedly no distinguishing features or change in the facts and circumstances of the assessee's case for the years under consideration so as to warrant and justify to record a departure from the view of this court expressed in the assessee's own case for the assessment year 1972-73 (Laxminarain Lath Trust v. CIT [1988] 170 ITR 375) wherein both the questions referred to this court were directly and substantially the same as are presently before us in this reference application. Therefore, agreeing with the reasoning and following our own views in Lakshmi Narain Lath Trust v. CIT [1969] 73 ITR 402 (Raj), we answer both the referred questions in favour of the assessee and against the Revenue.
25. No costs.