Indian Kanoon - Search engine for Indian Law

7. So for as the first submission is concerned, we have already referred to clause 'k', 'l', and 'o'. Clause 'k'provides for promoting the welfare and well being of the employees of M/s. Sakthi Sugars Ltd., their wives, husbands and children during the tenure of their employment. Clause 'l' provides to help the destitute wives, husbands and children of the deceased employees of M/s. Sakthi Sugars Limited, and clause 'o' provides for sending and financing persons for advanced studies in sugar technology and allied subjects for the better and more efficient carrying on of the industries under the maintenance and management of M/s. Sakthi Sugars Ltd. All the above three clauses are for the promotion and welfare of the relations of the employees or the deceased employees of M/s. Sakthi Sugars Limited and for financing the studies in sugar technology for the efficient carrying on of the business of Messrs. Sakthi Sugars Limited. Clauses 'k' and 'o' do not refers to poverty. Though clause 'l' proceeds on the basis of proceed on the basis of poverty, still it is a clause conferring benefit only on the relations of the deceased employees of M/s. Sakthi Sugars Limited. Having regard to the fact that the benefits under these clauses are not available to the members of the public in general or even a section of the general public, but are available only to persons employed or connected with M/s. Sakthi Sugars Limited, the Tribunal appears to be right in holding that the objects set out in clauses 'k', 'l' and 'o' are not charitable in nature. The decision in J. K. Hosiery Factory v. CIT , supports the said view of ours that where the benefit of a trust goes to a particular group of people connected with the founder of the trust or its trustee and not a definite class of public, then its objects cannot to be taken to be charitable. In that case a company executed a trust under which some directors of the company were appointed as trustees. The trust deed empowered the trustees to construct residential quarters for workmen in general and in particular for the workmen of the company and its allied concerns. A question arose as to whether the objects of the trust were exclusively charitable for the purpose of s. 4(3)(i) of the Indian I.T. Act, 1922. The Allahabad High Court held that the expression "workmen in general" did not fix a definite class of public which was intended to be benefited under the trust deed, that as the trust was expected to earn profit by providing quarters for the workmen, it cannot be taken to be a charitable object, that even if the provision for "workmen in general" were to be taken as a charitable object, as the trustees had complete discretion to spend the entire income from the trust for the benefit of the workmen belonging to the company and its allied concerns, the object of the trust cannot be taken to be charitable, and that, at any rate, it was a mixture of charitable and non-charitable, and that, at any rate, it was a mixture of charitable non-charitable objects, and as such exemption under s. 4(3)(i) of the 1922 Act will not be available.

"The phrase a 'section of the public' is in truth a vague phrase which may mean different things to different people. In the view of charity Judges have sought to elucidate its meaning by contrasting it with another phrase; 'a fluctuating body of private individuals'. But I get little help from the supposed contrast for as I see it one and the same aggregate of person may well be descriable both as a section of the public and as a fluctuating body of private individuals."

10. Thus, the court, with a view to introduce a "harmony into the law" of charity, made no distinction between "poor relations" trusts and "poor employees" trusts, and held that "poor relations" and "poor employees" also should be taken as sections of the public. But that decision is not with reference to any statutory provision dealing with exemption from tax. In this case, the assessee claims exemption under s. 11, and, therefore, unless the assessee comes within the four corners of the provision under s. 11, the exemption cannot be claimed. Section 11 applies only when the properties are held under the trust wholly for charitable or religious purposes. Therefore, for invoking s. 11, the property, the income of which is sought to be exempted, should be held under trust wholly for charitable purposes. The section contemplates that the objects should be wholly charitable or religious. It some of the object are not exclusively charitable but intended to benefit the employees of the trust, then it cannot be said to be exclusively charitable. Dealing with the anomalous line of cases in England, where trusts for the "poor relations" and "poor employees" of the author of the trust have been held to be valid trusts, Kanga and Palkhivala in their treatise on "The Law and Practice of Income-tax", VII edition, points out to page 272, that those cases are not followed in India. As a matter of fact, a Full Bench of the Madras High Court has held in CIT v. M. Jamal Mohamad Sahib [1941] 9 ITR 375, that a trust for poor relations of the settler is not for a charitable purpose even if created by a wakf. Similarly, in Gordhandas Govindram Family Charity Trust (Trustees of) v. CIT [1952] 21 ITR 231, the Bombay High Court held that a trust of which the paramount and dominant object was relief of the settlor's poor relatives (including provision for their marriage expenses) was not charitable even though the trust provided for a remote benefit to the community, and this view has now been accepted by the Supreme Court in Gordhandas Govindram Family Charity Trust (Trustees of) v. CIT [1973] 88 ITR 47.

11. It is well-established that where a trust deed provides both for charitable objects as well as non-charitable objects, such a trust is not entitled to the benefits of s. 11 In East India Industries (Madras) Private Limited v. CIT [1967] 65 ITR 611, the Supreme Court held that where a trust was established for various objects most of which are charitable but some of which are charitable but some of which are non-charitable, then such a trust cannot be taken to be held wholly for charitable purpose within the meaning of s. 4(3)(i) of the Indian I.T. Act, 1922. In that case, the objects of a trust know as "The Agastyar Trust" included both charitable and non-charitable objects, and discretion had been given to the trustees to spend the income to all or any of the objects. Taking note of the discretion given to the trustees, the court held that the trust cannot be said to have been established wholly for charitable purposes within the meaning of s. 4(3)(i). The following is the relevant observation of the Supreme Court (p. 615) :

"In our opinion, this particular object of the trust is neither charitable nor religious in character. If the trustees can, under a trust held validly, spend the entire income of the trust on this non-charitable object, it is difficult to hold that the trust property is held under a trust or other legal obligation wholly for religious or charitable purpose within the meaning of section 4(3)(i) of the Act."

12. This court, in a recent judgment, in CIT v. Sri Agastyar Trust (T.C. Nos. 1610 to 1613 of 1977) etc., since reported in [1984] 149 ITR 609, following the said decision of the Supreme Court in East India Industries (Madras) Private Ltd. v. CIT [1967] 65 ITR 611 (supra), held that so long as there is no compelling obligation on the trustees to devote any portion of the income of the trust for religious or charitable purposes and the trustees have got a discretion to spend the entire income for non-charitable purposes, then s. 4(3)(i) of the Indian I.T. Act, 1922, or s. 11 of the I.T. Act, 1961, cannot apply. Thus, the original trust deed as drafted, cannot come within the scope of s. 11. Therefore, the first contention of the learned counsel for the assessee has to fail.