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1. The assessee are the trustees of a trust called Shri Satya Vijay Patel Hindu Dharamshala Trust. The trust was created by a declaration of trust, dated 27th April, 1952, executed by one Mavji Jairam Patel and his wife. Bai Santokbai (hereinafter referred to as "the settlors"). By the declaration of trust the settlors settled on trust a certain immovable property known as Shri Satya Vijay Patel Hindu Dharamshala and the objects for which the trust property was to be held were set out as follows in clauses 2, 6, 7 and 8 of the declaration of trust :

Question No. (1) :

It is evident on a plain reading of the various clauses of the declaration of trust and particularly clauses 2 and 8, that the dominant object of the settlors in creating the trust was to establish dharamshala for the benefit of Hindus. The dharamshala property was, therefore, settled on trust with a direction that Hindus shall be entitled to use it as dharamshala on such terms and conditions as may be decided upon from time to time by the trustees. It was anticipated that there would be income from "the subject-matter of the trust" and the settlors, therefore, made provision in clauses 6, 7 and 8 for application of such income. The net income of the trust, after defraying necessary expenses, is to be applied as to 75 per cent. in the purposes set out in clause 6 and as to 25 per cent. in the purposes set out in clauses 7 and 8. Clause 6 consists of two sub-clauses (a) and (b). Sub-clause (a) of clause 6 provides that the trustees shall use one and a quarter maunds of juwar daily in feeding pigeons but at the same time carries an injunction that on no account more than a maund and a quarter shall be used on a single day. It would, therefore, be apparent that if the net income arising from "the subject-matter of the trust" is fairly large, 75 per cent. of the net income would not be exhausted in carrying out the charitable purpose set out in sub-clause (a) of clauses 6 and a large part of it would remain for being utilised for carrying out the charitable purpose set out in sub-clause (b) of clause 6. Now the charitable purpose specified in sub-clause (b) of clause 6 is distributing sweets to the children and feeding cows and dogs on three festival days, namely, Akhatrij, Ganesh Chauth and Ashadi Bij. This charitable purpose also may not, having regard to its limited scope, be sufficient to exhaust the balance of 75 per cent. of the net income and some part of it may still remain unutilised. This situation is in fact so cited in the last sub-clause of clause 6. That sub-clause contemplates that the trustees may not spend the entire balance of 75 per cent. of the net income in carrying out the charitable purposes mentioned in sub-clause (b) of clause 6. It merely fixes an upper limit and says that the expenditure to be incurred on the charitable purpose set out in sub-clause (b) of clause 6 shall not exceed the balance of 75 per cent. of the net income. It is, therefore, clear that under the terms of the declaration of trust, the whole of the 75 per cent. of the net income of the "subject-matter of the trust" need not be utilised in carrying out the charitable purpose specified in sub-clauses (a) and (b) of clause 6; some part of it may remain unutilised and may be accumulated. In fact, we find from the record that every year the trustees wisely and prudently did not utilise the whole of the 75 per cent. of the net income of the trust in carrying out the charitable purposes specified in sub-clauses (a) and (b) of clause 6 but saved considerable part of such income and accumulated it. This accumulation of income having grown out of the corpus would become part of "the subject matter of the trust" particularly having regard to the general overriding charitable intention manifest in the declaration of trust. Vide Halsbury's Laws of England, third edition, volume 38, page 857, article 1443 : Hunter v. Attorney-General. The trustees may invest it in any manner authorized by law. Here the trustees invested it in purchase of immovable properties during the relevant years of account. These immovable properties when purchased became as much "the subject-matter of the trust" as the dharamshala property originally settled on trust and the trustees were clearly under a legal obligation to apply the net income of those immovable properties in the manner set out in clause 6, 7 and 8 as in the case of income from the dharamshala property. It must, therefore, follow as necessary corollary that if the dharamshala property was held on trust wholly for charitable purposes, these immovable properties must also likewise be regarded as held on trust wholly for charitable purposes and the income arising from them must be held to be exempt from tax under section 4(3)(i) of the Old Act.

6. It suffers from two major defects. In the first place, it seeks to read clause 7 in isolation as if it were the only clause in the declaration of trust. This is a wholly erroneous approach in construing a clause of a settlement. It is now a well-settled rule of interpretation of a settlement that the intention of the settlor must be collected from the settlement as a whole and no one clause should be construed in isolation, for the intention of the author of the settlement is to be found not in one part of the settlement or in the other but in the entire settlement and that intention can best be gathered by viewing a particular part of the settlement and that intention can best be gathered by viewing a particular part of the settlement, not detached from its context in the settlement, but in connection with its whole context. We must, therefore, look at the declaration of trust as a whole in order to see what is the true meaning and import of the word "emergency" as used in clause 7. Now, viewing the declaration of trust as a whole, it is clear that the main object of the trust is to establish dharamshala for the use of Hindu public and it is in the context of this main object of the trust that we have to determine what is the true meaning and connotation of the word "emergency" as used in clause 7. Does it mean any kind of emergency which would also include a non-charitable purpose or is it confined only to emergency vis-a-vis carrying out the main purpose of the trust which is admittedly charitable ? It is true that clause 7 does specify in so many terms what is the emergency for which 25 per cent. of the net income may be spent by the trustees but it is clear on reading the declaration of trust as a whole that the emergency that is contemplated in this clause is emergency in relation to carrying out the main object of the trust. If an emergent situation arises which would impede or frustrate the carrying out of the main object of the trust, it would be an emergency within the meaning of clause 7. Take, for example, a case where the dharamshala collapses and it is not possible to use it as a dharamshala without carrying out extensive repairs to it. The trustees may, in such a case, utilise 25 per cent. of the net income to meet the situation arising out of this emergency, in order to enable the trustees to properly and effectually carry out the main object of the trust. Clause 7 contains an ancillary or subsidiary provision intended to be utilised in furtherance of the main object of the trust and it does not, therefore, contemplate any and every kind of emergency but merely emergency which has some connection or relation to the carrying out of the main object of the trust. The words "as may be directed by the court" are also very significant. These words indicate that the emergency contemplated in clause 7 is not something shadowy or indefinite, but it is a concept recognizable and identifiable by the court as emergency and in the context this can mean only emergency having connection or relation to the carrying out of the main object of the trust. Moreover, even if the words "emergency" were vague or indefinite, the court must construe it in a sense which would include only charitable purpose and exclude what is non-charitable. It is a well-settled principle of law that where there is general overriding trust for charitable purposes but some of the particular purposes to which the trust fund may be applied are not strictly charitable or one of two alternative modes of application is invalid in law, the trust would be held to be good, but the trustees would be restricted from applying the trust fund to the purpose or in the manner which is objectionable. Vide the third class of cases set out by Lord Davey, at page 324, in Hunter v. Attorney-General. Here there is clearly a general overriding charitable intention manifest in the declaration of trust and, therefore, on an application of this principle, it must be held that even if the word "emergency" were vague and indefinite, the trustees would be bound to apply 25 per cent. of the net income only where the emergency relates to fulfillment of a charitable purpose and not where the purpose is an objectionable purpose. The Tribunal was, therefore, clearly right in taking the view that, even under clause 7, the trustees were under a legal obligation to apply 25 per cent. of the net income of the trust properties to charitable purposes and this income was exempted from tax under section 4(3)(i) of the old Act.

11. That takes us top the second contention whether the whole of the net surplus income of the trust properties applied in constructing the new dharamshala would be exempt from tax or only such part of it as was equivalent to twenty-five per cent. of the net income of the trust properties would be exempt and the balance would be liable to suffer tax. The argument of the revenue was that under clauses 7 and 8 of the declaration of trust only twenty-five per cent. of the net income of the trust properties could be spent for construction of the new dharamshala and, therefore, the net surplus income of the trust properties utilised in constructing the new dharamshala, to the extent to which it exceeded twenty-five per cent. of the net income of the trust properties, could not be said to be applied to the charitable purposes for which the trust properties were held by the trustees and was accordingly not exempt from tax under section 11, sub-section (1), clause (a). We do not think this argument is well founded. It is no doubt true that clauses 7 and 8 of the declaration of trust contemplate application of only twenty-five per cent. of the net income of the trust properties in the construction of a new dharamshala but it must be remembered, and we have already adverted to this fact earlier, that the dominant object of the settlors in creating the trust was to establish dharamshala for the benefit of Hindus and that being the overriding charitable intention manifest in the declaration of trust, the utilisation of net surplus income of the trust properties in the construction of the new dharamshala, even if it exceeded twenty-five per cent. of the net income of the trust properties, could not be said to be application to purposes other than the charitable purposes of the trust. Even apart from clauses 7 and 8 of the declaration of trust, the trustees were entitled to spend the net surplus income of the trust properties for constructing the new dharamshala. So long as the application of the net surplus income of the trust properties to the construction of the new dharamshala could not be said to be outside the purposes of the trust, and indeed it could not be, for, otherwise, it would amount to breach of trust which it was clearly not, and which even the revenue did not allege, it must be held that the application was to the charitable purposes of the trust. The whole of the net surplus income of the trust properties was, therefore, clearly applied to the charitable purposes for which the trust properties were held by the trustees and was accordingly exempt from tax under section 11, sub-section (1), clause (a)