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Showing contexts for: charitable trust objects in Nizams Religious Endowment Trust vs Commissioner Of Income-Tax, Andhra ... on 14 September, 1962Matching Fragments
SESHACHELAPATHI J. - This is a case referred to the High Court under section 66(1) of the Indian Income-tax Act (Xl of 1922). The question formulated for decision is :
"Whether the income arising from property settled upon trust under the deed of settlement, dated September 14, 1950, or any part thereof is exempt from tax under section 4(3)(i) of the Indian Income-tax Act, 1922 ?"
By an indenture made at Hyderabad on September 14, 1950, H. E. H. the Nizam of Hyderabad settled upon two trustees, Nawab Zain Yar Jung and Shavax Ardshir Lal, certain securities of the value of Rs. 40,00,000, more particularly described in the first schedule annexed thereto upon trust for applying the income thereof for religious and charitable purposes and objects, in the manner appearing in the instrument of trust and settlement. In schedule 2 annexed to the indenture, the particulars of the sacred buildings which are directed to be maintained, are set out. The provisions of the indenture relevant for the present case are as follows :
In support of the contention, the learned counsel placed strong reliance upon the decision of the Bombay High Court in Commissioner of Income-tax v. Walchand Diamond Jubilee Trust. The facts of that case are briefly these : An industrialist of Bombay created a trust in a sum of over Rs. 4,11,111 for certain charitable objects, and providing, inter alia, that the trust fund should be invested in the Premier Construction Company Ltd., and that on the expiry of a period of eighteen years from the date of the indenture, the income should be applied for giving scholarships, medical relief, monetary help to the poor and the needy and relief of the poor and distressed in times of famines, cyclones, floods, earthquakes, etc. There was a direction in the deed of trust that, in giving the bounty, the trustees may give preference to the employees of the Premier Construction Company Ltd., past and present. The question for decision was whether the income for the assessment year 1949-50, which fell within the period of accumulation as directed by the maker of the trust, was entitled to exemption from tax under section 4(3)(i) of the Indian Income-tax Act. Chagla C.J. who spoke for the Division Bench, held, firstly, that during the period of accumulation, the fund continues to be charitable in character and, therefore, exempt from tax; and, secondly, that, even though there was a direction to prefer the employees of the Premier Construction Company Ltd., inasmuch as the trustees were not bound to do so in the exercise of their discretion, the trust fell within the ambit of section 4(3)(i) of the Act.
In support of his contention that, during the period of accumulation, the income of the trust fund is entitled to exemption from income-tax, Mr. Anwarulla Pasha, the learned counsel, placed particular reliance on a passage in the judgment of Chagla C.J., which is as follows :
"So long as the income from the trust property is not spent on any non-charitable object and it is saved, as it were, or set apart or accumulated for the ultimate object of carrying out the charitable purpose, then even in the intervening period the trust continues to be a charitable trust, the property is held on a charitable trust and the income from the trust is exempt from tax."
"That the objects specified in the sub-clauses (of the trust deed) being distributive (in their character). the whole of the trust fund could be applied for any one or more of the objects specified, and if any of those objects did not fall within the definition of charity, the trust could not be regarded as a good charitable trust."
In Mercantile Bank of India (Agency) Ltd., In re it was held that where one of the objects was not clearly a charitable purpose, the trust cannot be said to be wholly a charitable trust. These two cases establish the principle that if there is plurality of objects, and the trustees are given the unfettered discretion to apply fund for an object which is not a charitable purpose, then the entire fund is outside the scope of section 4(3)(i) of the Act. Applying that principle to the present case, it must be held that so long as there is a possibility of the trustees, in their discretion, applying the fund for purposes outside the taxable territories, the income does not fall clearly within the scope of section 4(3)(i) of the Act.