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We shall now deal with the aforesaid six contentions canvassed for our consideration seriatim:

Contention No.1

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So far as jurisdiction of the Civil Court to grant rectification of the Trust Deed is concerned the relevant provision is found in Section 26 of the Specific Relief Act, 1963 which had succeeded the prior Specific Relief Act of 1877. Under the earlier Act an analogous provision was found in Section 31 of the Act. As per these provisions a suit could be filed before competent Civil Court for rectification of an instrument when through fraud or a mutual mistake of the parties a contract or other instrument in writing does not express their real intention. It is obvious that a Trust Deed is not a contract in the strict sense of the term but it would certainly be covered by the expression 'other instrument in writing'. It could, therefore, not be urged with any emphasis that competent Civil Court which was approached by the Settlor Company for rectification of the instrument of trust, was not having requisite jurisdiction to entertain such proceedings. However, Dr. Gauri Shankar, learned senior counsel for the Revenue pitched his faith on a decision of the Andhra Pradesh High Court in the case of Trustees of H.E.H. the Nizam's Pilgrimage Money Trust v. Commissioner of Wealth-Tax (1988) 171 I.T.R. 323. In that case the trustees of H.E.H. Nizam's Pilgrimage Money Trust had applied to the Chief Judge, City Civil Court, Hyderabad, under Section 34 of the Indian Trusts Act, 1882 seeking his opinion, advice and directions with respect to the utilisation of the income of the trust fund in terms of the resolution. By the said resolution the trustees contrary to the objects of the trust had resolved to utilise the income of the trust fund for charitable purposes in India when the settlor had clearly laid down in the Trust Deed that the trust fund and unspent accumulations, if any, were to be utilised for religious or charitable objects at Hedjaz and/or Iraq. It was, therefore, held that the resolution of the trustees was invalid and the order of the Chief Judge permitting the trustees to spend the trust income in India was equally inoperative and without jurisdiction. It was also held that the Trust Act applied only to private trusts and not to public trusts. And that after the death of the settlor, the trust had become a public trust. Moreover, Section 34 of the Trust Act provided only for a summary enquiry and order with respect to management or administration of the trust property other than questions of detail, difficulty or importance. We fail to appreciate how the aforesaid decision can be of any assistance to the learned senior counsel for the Revenue in the present case. On the facts of the case before Andhra Pradesh High Court the City Civil Court, Hyderabad, had no jurisdiction under Section 34 of the Trust Act to bring about any changes in the objects of trust which had become a public trust. On the facts of the present case Section 31 of 1877 Act (Specific Relief Act) or the corresponding provisions of Section 26 of 1963 Act could be effectively invoked for rectification of the instrument of trust. Such a court does not suffer from any inherent lack of jurisdiction, like the City Civil Court in the Andhra Pradesh case which had no such jurisdiction under Section 34 of the Indian Trusts Act. The first contention must, therefore, be rejected.

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So far as this contention is concerned it was vehemently contended by learned senior counsel for the Revenue that Civil Court will get jurisdiction to entertain rectification proceedings provided any of the two conditions precedent are satisfied, namely, (i) through fraud; or (ii) by mutual mistake of parties the instrument in writing does not express real intention of parties. So far as fraud is concerned it is not the case of anyone that either party to the instrument had committed any fraud. In fact the learned senior counsel went to the extent of submitting that there are not two parties in an instrument of trust. It is difficult to agree. Settlor is one party to the trust who settles his property in trust for the benefit of others who become beneficiaries and the legal ownership of the property is transferred to the trustees. Thus not only there are more than one party to the instrument of trust but in fact there would at least be two main parties, namely, the settlor on the one hand and the trustees on the other and also there will be the beneficiaries who would be indirectly third parties to the instrument though not being direct parties thereto. Thus it would be almost a tripartite transaction. Dr. Gauri Shankar then submitted that even if it is so, no mutual mistake was alleged in the rectification proceedings. Even this contention cannot be accepted. The Settlor Company had clearly indicated in the rectification proceedings that the real intention of the settlor to create a public charitable trust was not clearly brought out on the wordings of the original Trust Deed and, therefore, the need to rectify the instrument, as neither the Settlor Company nor the trustees who assumed the legal ownership of the property settled in trust would have agreed to the transaction in question if it had purported not to create a public charitable trust. It was this mutual mistake on the part of both the parties that required rectification of the instrument to make, what was latent intention a patent one. Even that apart it is strictly not open to the Revenue which is not a party to the instrument to take up such a contention about non-fulfilment of condition precedent as it would be a fact in issue before the competent court which was called upon to rectify the instrument by either of the parties to the instrument. Absence of such a condition would at the most make the order erroneous and which can be challenged by either of the parties to the proceedings but it will have no impact on the jurisdiction of the Civil Court to pass such an order however erroneous it may appear to be to the Revenue. At the highest such an error would remain in the realm of error in the exercise of jurisdiction and not an error depriving jurisdiction to the competent court to entertain such rectification proceedings. In this connection it is profitable to have a look at the decision of Delhi High Court in the case of Jagdamba Charity Trust v. Commissioner of Income-Tax, Delhi (Central) (1981) 128 I.T.R. 377. In that case Deed of Trust was got rectified by the parties from the Civil Court. These proceedings had to be initiated in the light of judgment of the High Court which had held that due to provisions in certain clauses of the Trust Deed the trust was non-charitable and the trust was not entitled to exemption under Income-tax Act and that since the decision had created some doubts regarding the validity of some clauses of the deed it was necessary that the deed should be rectified. The Civil Court granted a decree and directed that the Trust Deed be rectified. The question was whether such rectification order of the Civil Court was binding on the Income Tax Department when the assessee-trust armed with such rectification order claimed exemption from income tax under Section 11 of the 1961 Act. S. Ranganathan, J., as he then was, speaking for the Delhi High Court took the view that the word 'instrument' used in Section 26 of the Specific Relief Act has a very wide meaning and includes every document by which any right or liability is, or is purported to be created, transferred, limited, extended, extinguished or recorded. There is no reason to exclude a Trust Deed from its purview. A Trust Deed is a document which sets out the terms of an understanding between the author of the trust and the trustees. Though in form, the trustees are not signatories to the instrument as drawn up, they are parties to the instrument in a real sense for it is on the terms of the instrument that they accept office and proceed to administer the trust. The law obliges them to act upon the terms of the Trust Deed and they cannot commit a breach thereof. If a gift deed, sale deed or promissory note could be within the terms of the section, there is no reason why a Trust Deed cannot be rectified under Section 26. It was further held that since there was an order of Civil Court binding on the author and the trustees, they could administer the trust only in terms of the amendment directed by the Court. The trustees were and must be deemed, from the beginning, to have been under a legal obligation to hold the properties only for the object and with the powers set out in the Trust Deed as amended. Therefore, whatever might be the correctness or otherwise of the order passed by the Civil Court under Section 26 of the Specific Relief Act, 1963, it was not open to the Income-tax Officer to say that the trustees could administer the trust in accordance with the original deed and that the claim for exemption had to be dealt with on the basis of the original deed. Nor was it open to the Income-tax Officer to say that in the relevant accounting year, the trustees held the property subject to the terms of the original and not the amended deed. In our view the aforesaid decision of the Delhi High Court lays down the correct legal position in connection with proceedings for rectification of instruments like trust deeds, initiated before competent civil courts under the relevant provisions of the Specific Relief Act.

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So far as this contention is concerned Dr. Gauri Shankar, learned senior counsel for the Revenue was right when he contended that order of rectification by a civil court is not a judgment in rem. It would be a judgment in personam binding on the parties to the rectified instrument, namely, the settlor on the one hand and the trustees on the other as well as on the ultimate beneficiaries. It is also true that Section 41 of the Indian Evidence Act cannot apply to such rectification order as under the said provision only judgments and orders passed in exercise of probate, matrimonial admirality or insolvency jurisdiction would have the character of judgments in rem. Similarly Section 42 of the Indian Evidence Act also could not make them relevant in any enquiry or proceedings unless they relate to matters of a public nature relevant to the enquiry. However it is Section 43 of the Evidence Act which would squarely get attracted in such cases. Said section lays down that judgments, orders or decrees other than those mentioned in sections 40, 41 and 42, are irrelevant, unless the existence of such judgment, order or decree is a fact in issue, or is relevant under some other provision of this Act. Section 40 deals with 'previous judgments relevant to bar a second suit or trial'. That obviously cannot have any application. But a rectified Trust Deed pursuant to the order of the court would certainly make the rectification order relevant under the provisions of Section 11 of the Indian Evidence Act, as the fact in issue in an enquiry before the Income-tax Officer would be whether on the basis of the rectified trust instrument the assessee-trust is entitled to get its income exempted from tax under the relevant provisions of the Income-tax Act. In such proceedings, therefore, the order granting rectification of such instrument of trust would certainly remain relevant. Consequently it cannot be said that such rectification orders passed by civil courts permitting rectifications of trust deeds under the relevant provisions of the Specific Relief Act could not be relied upon by the assessee-trust in assessment proceedings before the Income-tax Officer was not a party to such rectification proceedings. It will be for the Income-tax Officer to consider the real scope and ambit of the Trust Deed as presented to him in rectified form with a view to finding out whether on the basis of such a rectified instrument the assessee trust had earned exemption from payment of income tax under the relevant provisions holding the field in the concerned assessment years. The third contention is, therefore, decided by answering that though the rectification orders of the civil court are not judgments in rem they are relevant in assessment proceedings before the Income-tax Officer and will have to be given effect to for whatever they are worth.

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So far as this contention is concerned learned senior counsel for the Revenue is spared his pains as learned senior counsel for respondent-assessee fairly stated in the light of the debate that took place in the Court that he was not supporting the answer given by the High Court in favour of assessee on Question No. 2 referred for the opinion of the High Court at the instance of the assessee-trust. In short he submitted that he would treat 1955 rectification of the instrument of trust as creating almost a new trust or substituting the new for the old and, therefore, he would not press that such rectification of 1955 would have any retrospective effect. In view of the fair stand taken by the learned senior counsel for the respondent-assessee, this contention will have to be decided in favour of the Revenue and against the assessee by holding that rectification brought about by the order of the civil court in 1955, namely, the second rectification had no retrospective effect and would operate prospectively from the date on which such rectification saw the light of the day and would cover assessment years 1956-57 onwards upto assessment years 1965- 66 and would not look back on the previous assessment years from 1949-50 to 1955-56. In other words the decision of the Tribunal on referred Question No. 2 will remain operative and that contrary answer of the High Court on this question would stand rejected.