Matching Fragments
The Deed of Trust of 1941 as rectified in 1945 became a
subject matter of interpretation by the Appellate Income Tax
Tribunal and High Court of Allahabad in the case of J.K.
Hosiery Factory v. Commissioner of Income Tax, U.P. (1971)
81 I.T.R. 557. In the said partnership the respondent-
assessee trust happened to be a partner. The High Court held
the rectification decree passed by Civil Court to be valid
and further held that it was not possible for the Income Tax
Officer to question the validity of the rectification on the
ground that conditions for grant of rectification did not in
fact exist. However, it was further held that the objects of
the Trust Deed as rectified in 1945 did not create a public
charitable trust and on an analysis of the object clause
2(b) (i) of the Trust Deed held that it being a mixture of
charitable and non-charitable objects, could not be treated
to be creating a public charitable trust.
(e) To use and spend the income of the Trust properties or
the corpus of any funds or donations given or endowed for
the benefit of these trusts for the objects herein
mentioned."
A mere look at the aforesaid objects of the trust which
remained operative and kicking after the second
rectification of 1955 shows that each of the objects
mentioned in clauses (b), (c), (d) and (e) of Object Clause
2 clearly partakes the character of a charitable disposition
meant for the benefit of a well demarcated mass of humanity.
There is not much dispute on this aspect, so far as paras
2(a) and (b)(ii) to (iv), (c), (d) and (e) are concerned.
However learned senior counsel for the Revenue vehemently
submitted that leaving aside the objects mentioned in para
2(b), sub-paras (ii), (iii) and (iv) so far as sub-para (i)
of clause (b) of para 2 is concerned, at least that object
does not create a public charitable trust as the object
mentioned therein namely constructing residential quarters,
chawls or buildings for the workmen in the town of Kanpur
and surrounding areas was a very vague object. It was next
contended that though the object is so widely worded, it in
substance is meant to benefit only the workmen of the
company if the entire history of the trust from 1941 onwards
is minutely scrutinised. It was submitted by Dr. Gauri
Shankar that initially when the two pieces of land were
obtained on concessional rates from the Improvement Trust,
Kanpur in 1941 by indentures of 19.10.1936 and 2.2.1938
respectively, they were meant to be utilised for the
construction of colonies of workmen of the Settlor Company
itself. That the original Trust Deed of 1941 without latter
rectifications of 1945 and 1955 clearly indicated that the
beneficiaries were only the employees of the Settlor Company
and there was no whisper about the benefit to humanity at
large or to members of the general public. Thus it was
clearly a private trust. That though by rectification of
1945 the term 'workmen in general' was introduced for
indicating the class of beneficiaries, in substance the
benefit was reserved to the workmen of the Settlor Company
itself, and that even after 1955 rectification, the words
'workmen in general' in Kanpur and surrounding areas and
extensions remained a mere camouflage. It is not possible to
agree with the aforesaid submissions of the learned senior
counsel Dr. Gauri Shankar, for the Revenue. The reasons are
obvious. It cannot be said that the indicated beneficiaries,
namely, the workmen in the town of Kanpur and surrounding
areas and extensions are so vague as to make the object of
the trust inoperative or options. Workmen in town of Kanpur
and the surrounding areas and extensions formed a clearly
earmarked class or category of members of general public and
they were certainly a part and parcel of the general public.
It is also not possible to countenance the submission that
the words 'surrounding areas and extensions of Kanpur town'
introduced vagueness, in the identification of
beneficiaries. Surrounding areas and extensions would
naturally include those areas which are on the periphery of
Kanpur town, and which are adjacent to Kanpur town. They
would not obviously include any areas which are
geographically far removed from and situated at long
distance from Kanpur town and which could not be said to be
in the vicinity of the Kanpur town. The words 'surrounding
areas and extensions of Kanpur town' indicate proximity of
such areas with the Kanpur town and have a clear nexus with
the geographical boundary of Kanpur town. It is also easy to
visualise that the trustees will have to make available the
benefit of the clause only to those workmen in the town of
Kanpur and surrounding areas and extensions and to their
respective families and dependents who on account of poverty
are in need of help and really deserve help. Any provision
made for a poor class of public well earmarked as recipient
of such benefits would certainly make the object of such
bounty a charitable one. In fact Dr. Gauri Shankar fairly
stated that if one only goes by the verbiage of the clause
as found in 1955 rectified deed then it would appear to be a
public charitable trust. But he submitted that we have to X-
ray the clause and try to find out as to who are the real
beneficiaries of the said trust. It is difficult to
countenance even this submission. In order to find out
whether the relevant clauses of a trust deed create a public
charitable trust or not we have to go by the express words
employed by the Trust Deed. In our view for finding out the
real intention of the settlor, the words used in the Deed
would be the real vehicle of thought of the settlor
expressing his intention in cold print. This would be much
more so when such recitals in the Trust Deed are not
challenged on the ground that they are a camouflage or a
result of a colourable device. As we have noted earlier,
contention regarding colourable device was not pressed by
Dr. Gauri Shankar for the Revenue and rightly so as it did
not arise out of the judgment under appeal. On the other
hand, on the express language of clause 2(b)(i) of the 1955
rectified deed, it cannot be said that it does not create a
public charitable trust. On the contrary it becomes clear on
a close reading of relevant provisions of this clause that
the objects are specific and charitable in nature. The
beneficiaries are also clearly indicated. There is also no
ambiguity about the trustees or the trust properties. Thus
all the basic requirements for creation of a public
charitable trust do exist on the express language of the
relevant sub-clauses of clause (2) of 1955 rectified deed.
Dr. Gauri Shankar, learned senior counsel for the Revenue
then submitted in any case absolute discretion is vested in
the trustees under the Trust Deed to utilise the trust
income for the benefit of any of the sub-classes of workmen
in the town of Kanpur and they were likely to divert the
entire benefit to their own workmen. To say the least it is
merely a discretion left to the trustees and not an
obligation of the trustees that they must necessarily spend
the income of the trust for the workmen of the settlor
company itself and not for the benefit of any other outside
worker. We shall deal with this aspect in greater details
when we will refer to Contention No. 6 canvassed by learned
senior counsel for the assessee trust that even apart from
the rectification of 1955 the earlier rectification of 1945
did create a public charitable trust. However so far as the
second rectification of 1955 is concerned it has clearly
indicated that only a discretion is vested in the trustees
to utilise the trust income for benefit of poor workmen in
the town of Kanpur and in the surrounding areas and
extensions and that may include even poor and needy workmen
of the settlor company itself. In this connection Shri Verma
also rightly invited our attention to Section 92 of the Code
of Civil Procedure and clause (i), sub-clause (b)(iv)
whereby trustees in their discretion could provide for
advancement of other similar objects of general public
utility. Relying on a series of decisions of this Court in
Commissioner of Income-Tax, Madras v. Andhra Chamber of
Commerce (1965) 55 ITR 722; Ahmedabad Rana Caste Association
v. Commissioner of Income-Tax, Gujarat (1971) 82 ITR 704;
Abdul Sathar Haji Moosa Sait Dharmastapanam v. Commissioner
of Agricultural Income-Tax, Kerala (1973) 91 ITR 5; Sole
Trustee, Loka Sikshana Trust v. Commissioner of Income-Tax,
Mysore (1975) 101 ITR 234; Yogiraj Charity Trust v.
Commissioner of Income-Tax, New Delhi (1976) 103 ITR 777;
and Commissioner of Income-Tax, Madras etc.etc. v. Andhra
Chamber of Commerce etc.etc. (1981) 130 ITR 184 it was
submitted that objects of general public utility would
clearly indicate that they are meant for public benefit and
would create a public charitable trust. That in the light of
the objects of the trust as rectified in 1955 even a workmen
who is not an employee of the settlor company could in
appropriate case seek direction under Section 92, Code
of Civil Procedure, from competent civil court against the
trustees to act according to the object of the trust and
give benefit to such an applicant beneficiary if the
circumstances so permit and the income of the trust is
sufficient to cater to his needs.
On this premises it was submitted that even the 1945
deed did create a public charitable trust. It was also
contended that the Tribunal and the High Court had wrongly
taken the view that because of the earlier judgment of the
Allahabad High Court in J.K. Hosiery Factory (supra), the
Trust Deed as rectified in 1945 could not be said to have
created a valid public charitable trust. That in the
proceedings before the Allahabad High Court in the said case
respondent-trust was not a party. The assessment was of the
partnership. Even otherwise the said decision could not be
binding on parties in the present assessment proceedings
pertaining to entirely different years and for entirely
different assessee. Shri Verma relying on a series of
decisions of different courts including this Court submitted
that if the Trust Deed provides a charitable object for the
benefit of a class of public and also gives preference to a
smaller class of public which may consist of even the
workmen of the settlor company or even the poor and needy
relatives of the settlor himself the public charitable
nature of the trust does not get whittled down or effaced.
On the other hand Dr. Gauri Shankar for the Revenue relying
upon number of other judgments including the judgments of
Chancery Division of English Court submitted that workmen by
themselves cannot be treated to be a poor class of citizens
for whom any benefit given under the Trust Deed would
necessarily make it a public charitable object and if the
trustees under the deed are under an obligation to provide
the benefit of the trust properties to the employees of the
settlor company itself the company by giving such benefit
would in turn be exonerating itself from its otherwise
contractual obligation or even statutory obligation of
providing welfare facilities and residential facilities to
its own workmen who because of these facilities would work
more efficiently for the company. Thus there would be quid
pro quo between the settlor on the one hand and the
beneficiaries, namely, the workmen and employees of the
company on the other. That such a provision would detract
from real public charitable nature of the endowment. In the
light of the aforesaid rival contentions on this issue we
shall now proceed to examine this moot question.
However, this conclusion of ours does not end the
controversy centering round the aforesaid clause. There are
two clear hurdles in the way of Shri Verma for the
respondent which militate against his submission that the
said clause when read as a whole does create a public
charitable trust in favour of workmen in general. The first
hurdle is that the term 'workmen in general' as employed in
the clause is too general and vague but even assuming that
in the context of the residential quarters, chawls or
buildings to be constructed for them on the lands situated
at Kanpur which are settled in trust by the Settlor Company,
it would refer to workmen in Kanpur town, even then the more
substantial hurdle in the way of the respondent is projected
by the fact that there is an obligation cast on the trustees
to construct these residential quarters, chawls or buildings
in particular for the workmen, staff and other employees of
the company or other allied concerns under the management of
and in which the directors of the company may for the time
being be interested and for their respective families and
dependents. In the light of the words 'in particular' as
found in this clause, Dr. Gauri Shankar, learned senior
counsel for Revenue rightly submitted, that they represent a
scheme of priority for workmen of the Settlor Company and
not a scheme of preference. In other words the trustees are
bound under an obligation to construct residential quarters
etc. first for the workmen or employees of the Settlor
Company or its allied concerns. They have no choice in the
matter. They cannot in their discretion select an outside
workman as recipient of the benefit under the scheme of the
Trust Deed. In effect the general class of beneficiaries
constituted by the words 'workmen in general' gets whittled
down and circumscribed by the words 'in particular for
workmen of the company etc.'. Thus in substance it becomes a
trust for the benefit of a well defined smaller class of
beneficiaries, namely, employees or workmen of the company
and its allied concerns and it fails to meet the requirement
of a genuine or public or charitable trust. We are in
agreement with this submission of Dr. Gauri Shankar. Once
such an obligation is cast on the trustees the public
character of the endowment gets whittled down and in
substance becomes the settlement for an identified group of
persons. In this connection we may profitably refer to a
Division Bench judgment of the Bombay High Court in the case
of Commissioner of Income-Tax, Bombay City II v. Walchand
Diamond Jubilee Trust (1958) 34 ITR 228 wherein Chagla,
C.J., spoke for the Bench. In that case the question was
whether the provision made in Trust Deed to utilise the
accumulated income of the property of the trust on
charitable objects like giving scholarships to deserving
students or giving medical reliefs of the nature and kind
such as starting maternity homes etc., or giving monetary
help to the poor and needy persons and for providing relief
to the poor and distressed in time of famine would get
adversely affected and would cease to be a charitable object
if preference was to be given to such persons as are
eligible under the aforesaid provisions who are at the time
or have in the past been employees of Premier Construction
Co. Ltd. and of the associated companies and their relatives
and dependents as the trustees may in their discretion think
expedient and proper. In this connection the following
pertinent observations were made by Chief Justice Chagla at
page 236 of the Report :
