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8. The trustees shall not be entitled to sell or mortgage the trust property but shall be entitled to let out the portion of the trust property as may be decided from time to time by the trustees in a joint meeting or by a circular resolution on such terms and conditions as may be agreed by the trustees, but in such a way as not to frustrate the object of the trust. The trustees may enlarge the property by additional construction out of the reserve fund."

2. It is surprising that in the year 1952 when social values had considerably changed and traditional beliefs had given way to rational and scientific approach based on social awareness and responsibility, the settlors should have provided that 75 per cent. of the net income of the trust should be mainly applied in feeding pigeons, cows and dogs. The settlors very probably did not anticipate that there would be any large income from the trust property, 75 per cent. of which might be diverted for feeding pigeons, cows and dogs. The dominant object of the settlors in making the declaration of trust obviously was to establish a dharamshala for Hindus but since there might be surplus income from the trust property, subsidiary or ancillary provisions were made in clauses 6, 7 and 8 for application of such income. Now it appears that, by reason of proper management, the trust property yielded a fairly large amount of surplus income far exceeding what was perhaps anticipated by the settlors. The trustees were fortunately enlightened persons, conscious of their social responsibility and, therefore, instead of spending the entire 75 per cent. of the net income of the trust in such socially and economically futile activities as feeding pigeons, cows and dogs, they wisely and prudently expended only a part of the net income exceeding 25 per cent., and out of it, purchased certain immovable properties by way of investment. The trustees took the view that all these immovable properties including the dharamshala property originally settled upon trust were held under trust wholly for charitable purposes and the entire income of the trust was, therefore, exempt from tax under section 4(3) (i) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the old Act"), and they accordingly did not file any return of income for the assessment years 1955-56 to 1961-62. The Income-tax Officer while assessing the trustees for the assessment years 1962-63 and 1963-64 was, prima facie, of the view that the income from the immovable properties purchased by the trustees was not exempt from tax since "that income is not from the use of the trust property for carrying out the object of the trust" and, in any event, 25 per cent. of the income of the trust which was to be accumulated as forming part of reserve fund under clause 7, was not eligible for exemption since there was no legal obligation on the trustees to utilise it for charitable purposes. The Income-tax Officer, on this view, entertained the belief that the income of the trust had escaped assessment by reason of failure on the part of the trustees to file a return of income for the assessment years 1955-56 to 1961-62 and he accordingly initiated proceedings for assessment of the trustees under section 147, clauses (a), of the Income-tax Act, 1961 (hereinafter referred to as "the new Act"), for the assessment years 1955-56 to 1961-62. The trustees contested the proceedings and contended that the immovable properties purchased by the trustees formed as much the subject-matter of the trust as the dharamshala property originally settled by the settlors and the trustees were under a legal obligation to apply the whole of the income of these immovable properties for charitable purposes in the same manner as the income from the dharamshala property. The trustees also urged that the purposes set out in clause 7 for application of the reserve fund consisting of accumulation of 25 per cent. of the net income of the trust were charitable purposes and there was clearly legal obligation on the trustees to apply 25 per cent. of the net income of the trust for charitable purposes. These contentions of the trustees did not find favour with the Income-tax Officer who took the view that the income from the immovable properties purchased by the trustees was not exempt from tax tax 25 per cent. of the income from the dharamshala property was also not eligible to exemption from tax. The trustees appealed against this decision on the Income-tax Officer ton the Appellate Assistant Commissioner, there being a separate appeal in respect of each assessment year, but the appeals were unsuccessful. The trustees thereupon carried the matter in further appeal to the Tribunal. The same two contentions were urged on behalf of the trustees before the Tribunal. The Tribunal was impressed by these contentions and held that the income from the immovable properties purchased by the trustees was as much income from "property held under trust" as the income from the dharamshala property which was originally settled on trust and it was, therefore, entitled to exemption under section 4(3)(i) and so far as 25 per cent. of the income from the dharamshala property was concerned, it was also exempt from tax under the same provision, since, under clause 7, it could be spent only for a purpose consistent with the object of the trust and such purpose would be clearly a charitable purpose. The Tribunal accordingly upheld the claim for exemption made by the trustees in respect of both categories of income for the assessment years 1955-56 to 1961-62. The Commissioner was obviously dissatisfied with this decision of the Tribunal and he accordingly applied for a reference and on his application, the Tribunal referred the following question of law for the opinion of this court :

Question No. (2) :

7. This question becomes relevant because under section 11, sub-section (1), clause (a), of the new Act, exemption can be claimed in respect oa income of the trust utilised in constructing the new dharamshala and, for the purpose of this question, we will assume that the new dharamshala was constructed out of income of the trust for Samvat Years 2017 and 2018 being the relevant previous years for the assessment years 1962-63 and 1963-64, though there is a contrary finding by the Tribunal only if it can be shown that the utilisation of such income was not by way of investment of surplus trust funds but it represented application of income to the charitable purposes for which the trust properties were held by the trustees. The contention of the revenue was, and this contention appears to have found favour with the Tribunal, that the construction of the new dharamshala represented investment of surplus trust funds because the new dharamshala was a capital asset and expenditure incurred by the trustees in acquiring a capital asset could not be regarded as expenditure for carrying out the charitable objects of the trust. But this contention is wholly unsustainable and must be rejected. It seeks to limit the scope and ambit of the exempting provision contained in section 11, sub-section (1), clause (a), by reading words which are not there. The only requirement of section 11, sub-section (1), clause (a), is that the income of the trust must be applied to the charitable purposes for which the properties are held on trust by the trustees. It does not say that the application of the income should be such that it necessarily results in revenue expenditure. The charitable purpose may, in a given case, require for its fulfilment, purchase of a capital asset and where income is applied for purchase of such a capital, asset, it would still be application of income to the charitable purpose. Take, for example, a case where there is a trust for maintenance of a hospital and the trustees are bound to apply the net income of the trust properties for maintaining the hospital. The trustees of such a trust may, for the purpose of making the hospital a well-equipped medical unit and improving the efficiency of medical service at the hospital, purchase costly X-ray equipment or order medical or surgical appliances out of the income of the trust properties. Can it be suggested for a moment, in such a case, that merely because income of the trust properties is applied for purchasing a capital asset, it represents investment of the income of the trust properties and not application of such income for carrying out the objects of the trust ? The answer is obviously "No". The same reasoning must apply in the present case. Here, as is evident from clause (2), the dominant object of the settlors was to establish dharamshala for the use of the Hindu public and clause 8 contemplated that the trustees may enlarge the dharamshala by additional construction. The establishment of additional dharamshala was, therefore, clearly a charitable purpose which fell within the objects of the trust. It was in order to carry out this charitable object that the trustees utilised the construction of the new dharamshala were, therefore, clearly by way of application of income of the trust properties for carrying out a charitable purpose of the trust. The Tribunal was, in our view, wrong in holding that the use of moneys in the construction of the new dharamshala was an investment of the trust funds and not its expenditure.