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4. The assessee-trust made a claim under s. 237 of the I. T. Act, 1961 (hereinafter referred to as "the Act"), for the two assessment years in question for a refund of the tax paid at source in regard to the dividends on the ground that the income of the trust was exempt under s. 11 of the I. T. Act, being income derived from the property held under trust wholly for charitable purposes. This claim was, however, rejected by the ITO holding that the income of the trust was not exempt under s. 11 of the Act on the ground that, (1) the settlor had not settled upon trust the corpus of the trust but had settled upon trust only the income arising from that trust fund so that the trust fund was not held on trust for charitable purposes, and (2) that the object of the trust should itself be charitable an the trust fund should be self-operative whereas the object of the assessee-trust was only to give a donation to another trust. In appeal by the assessee-trust, the finding of the ITO on the first ground was set aside and the AAC held that the corpus of the trust consisting of the shares of certain companies were settled upon the trust.

7. We are not in this reference concerned with the part of the deed of trust which creates from February 1, 1983 of the trust of which the beneficiaries would be the settlor's grandsons. Having found that in view of the directions contained in the trust deed dated 5th March, 1968, requiring the assessee-trust to make over the income of the trust fund to the HCJ Trust for spending on charity and to the latter trust to utilise such income for all or any one or more of the charitable purposes, the Tribunal found that the property of the assessee-trust could be said to be held wholly for charitable purposes and the exemption under s. 11 of the Act would be applicable to the assessee-trust. The Tribunal, therefore, directed the ITO to apply his mind to the problem for working out the extent of the exemption under s. 11 which would depend upon how much of such amount was actually applied to charitable purposes through the medium of the HCJ Trust or accumulated for an application to such purpose. In so far as the nature of assessment was concerned, the Tribunal took the view that the trustees of the assessee-trust were representatives assesses in terms of s. 160(1)(iv) of the Act, as the income was received by the trustees on behalf of or for the benefit of the HCJ Trust had the provisions of s. 161(1) would come into play. The Tribunal, therefore, held that the tax, if any, would be leviable upon the assessee in the like manner and to the same extent as it would be leviable upon the HCJ Trust, the income of which would be exempt from tax under s. 11 to the extent contemplated in s. 11 of the Act.

Now, as already pointed out, it has not been disputed throughout the proceedings that the HCJ Trust is a trust for charitable purposes. By cl. 4 of the trust deed dated 5th March, 1968, it was provided that "the trustees shall ..... for the period ending on 31st January, 1983, pay, transfer and hand over as and by way of gift or donation the balance of such interest dividends and income of the trust fund (hereinafter called the net income of the trust fund') to the trustees of the said deed of trust created by the settlor bearing date the 29th day of March, 1963 and known by the name of HCJ Charitable Trust to the intent that the trustees of the said HCJ Charitable Trust shall pay or utilise the net income of the trust fund hereby settled and so gifted or donated to them as aforesaid for all or any one or more of the charitable purposes mentioned in the said deed of trust known by the name of the HCJ Charitable Trust...... and to the further intent that such net income of the trust fund so gifted or donated as aforesaid shall be applied or accumulated for application to such charitable purposes as relate to anything done or to be done within India without reference to caste or creed in the manner mentioned in the said deed of trust known by the name of HCJ Charitable Trust....."

13. The real question which requires to be decided is whether it is possible to read the provisions of the first part of cl. (a) of s. 11(1) as requiring that, in order to avail of the benefit of s. 11(1)(a) the trustees who hold a property under trust wholly for charitable or religious purposes, must themselves conduct directly a charitable or religious activity or whether it is permissible for the trustees to donate that income to another trust which is established for a charitable or religious purpose and which applies its income from whatever sources received, for charitable or religious purposes. There is nothing in law to prevent a settlor from creating a trust wholly for charitable or religious purposes and directing that the income of the property settled upon the trust should be handed over to another institution whose income is utilised wholly for charitable or religious purposes. It is no doubt true that, in a given case, the trustees may themselves carry out a charitable or religious activity, but it may not be possible in a given case for the trustees for various reasons to themselves carry out the charitable or religious activities. One of the reasons may be that the property settled upon trust may not be so extensive as to yield income, which would be sufficient to undertake a charitable activity. That will not, however, frustrate the intention of the settlor and if the intention of the settlor is that the property must be held in trust only for charitable or religious purposes for passing on the income of the property held under the trust to another trust, which carries on a charitable or religious activity, the income could not cease to be applied to the charitable or religious purposes under s. 11(1)(a). It appears to us that there is intrinsic evidence in the Act itself which indicates the permissibility of the trustees of the trust for a charitable or religious purpose passing on the income of the trust to another trust which is conducting a charitable or religious activity. It is instructive to refer to the provisions of s. 12 of the Act as it stood prior to April 1, 1973. Section 12 runs as follows :