Full Judgment Text
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PETITIONER:
THE TRUSTEES OF THE CHARITY FUND,ESPLANADE ROAD, FORT, BOMBA
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME-TAX,BOMBAY
DATE OF JUDGMENT:
05/05/1959
BENCH:
DAS, SUDHI RANJAN (CJ)
BENCH:
DAS, SUDHI RANJAN (CJ)
BHAGWATI, NATWARLAL H.
HIDAYATULLAH, M.
CITATION:
1959 AIR 1060 1959 SCR Supl. (2) 923
CITATOR INFO :
RF 1973 SC 623 (15)
ACT:
Income-tax-Public charitable trust-Excmption-Test-Indian
Income-tax Act, 1922 (XI of 1922), S. 4(3)(i).
HEADNOTE:
The appellants were the trustees of a charity fund known as
The Charity Fund founded by Sir Sassoon David, Baronet of
Bombay ". Clause 13 Of the deed of trust, after declaring
that the trustees should apply the net income for all or any
of the following purposes, namely, (a) the relief and
benefit of the poor and indigent members of Jewish or any
other community of Bombay or other parts of India or of the
world either by making payments to them in cash or providing
them with food and
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clothes and/or lodging or residential quarters or in giving
education including scholarships to or setting them up in
life or in such other manner as to the said Trustees may
seem proper or
(b) the institution maintenance and support of hospitals
and schools, colleges or other educational institutions or
(c) the relief of any distress caused by the elements of
nature such as famine, pestilence, fire, tempest, flood,
earthquake or any other such calamity or
(d) the care and protection of animals useful to mankind or
(e) the advancement of religion or
(f) other purposes beneficial to the community not falling
under any of the foregoing purposes I added by way of
provisos (i) that in applying the net income for the
purposes mentioned in sub-cl. (a) the trustees must give
preference to the poor and indigent relations or members of
the family of Sir Sassoon David, including distant and
collateral relatives, (2) that for the said purpose the
trustees must apply not less than half of the income for the
benefit of the members of the Jewish community of Bombay
only, including the said relatives of Sir Sassoon David and
Jewish objects. The question for determination was whether
the income from the trust fund was exempt from taxation
under s. 4(3)(i) Of the Indian Income-tax Act. The High
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Court came to the conclusion that the trust fund could nut
be said to be held, wholly or partly, for religious or
charitable purposes involving an element of public utility
and answered the question in the negative.
Held, that there could be no doubt that each one of the pri-
mary purposes mentioned in the deed of trust, including the
one mentioned in sub-cl. (a), properly construed, involved
an element of public utility and thus they constituted a
valid charitable trust.
Although it was open to the trustees to spend the entire
income for the purpose mentioned in sub-cl. (a), that could
not detract from the validity of the trust since the
relations or family members of the founder did not come in
directly under any of the other purposes and could do so
only under sub-cl. (a) as preferential beneficiaries to be
selected from out of the class of primary beneficiaries
prescribed by it, in terms of the provisos.
The test of the validity of such a public charitable deed of
trust should be whether or not at the primary stage of
eligibility it could be said to possess that character.
In re Koettgan’s Will Trusts, [1954] Ch. 252, applied.
Trustees of Gordhandas Govindram Family Charitable Trust v.
Commissioner of Income-tax (Central), Bombay, [1952]21
I.T.R.231, distinguished and held inapplicable.
The circumstance that in selecting the actual beneficiaries
925
from the primary class of beneficiaries under sub-cl. (a),
the trustees had to give preference under the provisos, to
the relations or members of the family of Sir Sassoon David,
could not therefore affect the public charitable trust
constituted under sub-cl. (a) and the income from the trust
properties was entitled to exemption under S. 4(3)(i) Of the
Indian Income-tax Act.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No.396 of 1957.
Appeal from the Judgment and Order dated the 21st February,
1956, of the Bombay High Court in Income-tax Reference No.
32 of 1954.,
R. J. Kolah, J. B. Dadachanji and S. N. Andley, for the
appellants.
K. N. Rajagopal Sastri and D. Gupta, for the respondent.
1959. May 5. The Judgment of the Court was delivered by
DAS, C. J.-This is an appeal brought on a certificate
granted on September 19, 1956, by the High Court of Bombay
under s. 66(A)(2) of the Indian Income Tax Act (hereinafter
referred to as " the said Act ") against its order dated
February 21, 1956, in Income-tax Reference No. 32 of 1954
answering in the negative two questions of law referred to
it under s. 66(1) of the said Act at the instance of the
appellants.
The appellants are the trustees of a charity fund known as "
The Charity Fund Founded by Sir Sassoon David, Baronet of
Bombay ". The said Sir Sassoon David, Bart. and four other
persons, who were holding certain securities of the value of
Rs. 24,25,000 for the purpose of charity and had been
applying the same for and towards charitable purposes,
executed, on June 8, 1922, a Deed of Declaration of Trust
declaring that the said trust fund would be held by them on
trusts more specifically therein mentioned. Clause 13 of
the said deed, on the true construction of which depends the
answer to the referred questions, runs as follows:-
" 13. The Trust Fund shall be held by the Trustees upon the
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Trusts to apply the net income thereof
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after providing for all necessary expenses in relation to
the management of the Trust Funds for all or any of the
following purposes, that is to say,
(a) the relief and benefit of the poor and indigent members
of Jewish or any other community of Bombay or other parts of
India or of the world either by making payments to them in
cash or providing them with food and clothes and/or lodging
or residential quarters or in giving education including
scholarships to or setting them up in life or in such other
manner as to the said Trustees may seem proper or.........
(b) the institution maintenance and support of hospitals
and schools, colleges or other educational institutions
or...............
(c) the relief of any distress caused by the elements of
nature such as famine, pestilence, fire, tempest, flood,
earthquake or any other such calamity
or.......................
(d) the care and protection of animals useful to mankind
or...........
(e) the advancement of religion or...................
(f) other purposes beneficial to the community not falling
under any of the foregoing purposes...................
Provided always that in applying the income as aforesaid the
Trustees shall give preference to the poor and indigent
relations or members of the family of the said Sir Sassoon
David, Bart., including therein distant and collateral
relations; provided further that in the application of the
income of the said Charitable Trust Fund the said Trustees
for the time being shall observe the following proportions,
viz.: that not less than half the income of the said funds
shall at all times be applied for the benefit of the members
of the Jewish Community of Bombay only (including the
relations of Sir Sassoon David, Bart. as aforesaid) and
Jewish objects and particularly in giving donations to the
members of the Jewish Community of Bombay on the anniversary
of the death of the said Sir Sassoon David, Bart. and his
wife Lady Hannah David which falls on the Twenty-second day
of June and the remaining income for the benefit of all
persons and objects including Jewish persons and objects and
in
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such proportions as the said Trustees may think proper.
Provided further that if the income of the Trust Funds for
any year shall not be wholly applied during that year on the
Trusts aforesaid such surplus income may be carried forward
to the subsequent year or years and be applied as the income
arising during that year or years. Provided also that
during the life-time of Sir Sassoon David, Bart., in the
application of the said income the Trustees shall have
regard to the wishes of the said Sir Sassoon David, Bart.,
who shall also be entitled to direct if he so desires that
the income of the time being of the Trust-Funds or any part
thereof may be applied to such charitable object or objects
as the said Sir Sassoon David, Bart., shall direct and in
such case the Trustees shall so apply the income ".
This Deed of Declaration of Trust was, on June 4, 1953,
registered under the Bombay Public Trusts Act, 1950.
The Trust fund had been invested by the trustees in inter
alia 3 1/2% Government Securities. In the year 1930 a
certificate was issued by the Income-tax Officer, A Ward,
Bombay, whereby the Reserve Bank of India was authorised not
to deduct at source the tax on the interest on the said
securities so held by the trustees. It was mentioned in the
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said certificate that it was to enure till its cancellation.
In 1946 the 3 1/2% Government Securities were redeemed by
the Government of India and were converted into 3% Con-
version Loan, 1946. Accordingly in February, 1948, the said
certificate of exemption was cancelled, as the securities
covered thereby had been redeemed by the Government. The
trustees thereupon asked for a fresh certificate of
exemption from the Income-tax Officer, Bombay Refund Circle
in respect of the 3% Conversion Loan, 1946. But the said
Income-tax Officer refused to issue such certificate on the
ground that the income from the trust fund in question was
not exempt from taxation under s. 4(3)(i) of the said Act
which, at the material time, was as follows:-
"4(1).........................................................
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(2) .................................
(3) Any income, profits or gains falling with-in the
following classes shall not be included in total income of
the person receiving them:-
(i) Any income, derived from property held under trust or
other legal obligation wholly for religious or charitable
purposes, and in the case of property so held in part only
for such purposes, the income applied, or finally set apart
for application, thereto:
Upon the fact of the withholding of the certificate by the
Income-tax Officer, Refund Circle, being intimated to the
Income-tax Officer, A-V Ward, Bombay, the latter Officer
started proceedings against the appellants under s. 34 of
the said Act in respect of the assessment years 1944-45 to
1947-48. He also started regular proceedings for the
assessment year 1948-49 and the succeeding years up to 1952-
53.
In the assessment proceedings for those nine years the
Income-tax Officer took the view that the income from the
trust fund was not exempt from taxation under s. 4(3)(i) and
accordingly he assessed the appellants for the first four
assessment years (1944-45 to 1947-48) on the ground that the
income for those years had escaped assessment. He also
assessed the appellants to tax for the subsequent five years
(194849 to 1952-53). On appeal the Appellate Assistant
Commissioner confirmed the said assessments. On further
appeal by the appellants, the Income-tax Appellate Tribunal
set aside the assessments for the first four years (1944-45
to 1947-48) holding that s. 34 had been wrongly invoked, for
it was only a case of difference of opinion of one Income-
tax Officer from his predecessor on the same set of facts.
The department did not take any further steps in the matter
and accepted that view of the Tribunal as regards the
assessments of those years and we are not in this appeal
concerned with them. As regards the assessments for the
five years (1948-49 to 1952-53) the Tribunal upheld the
decision of the Appellate Assistant
929
Commissioner who had confirmed the assessments made by the
Income-tax Officer.
On application being made by the appellants, under s. 66(1)
of the said Act, the Tribunal drew up a statement of case
and referred two questions of law arising out of its order
to the High Court for its opinion. The said questions are
as follows :-
(1) Whether the Trust property is held wholly for religious
or charitable purposes within the meaning of section 4(3)(i)
of the Indian Income-tax Act ?
(2) If the answer to question (1) is in the negative,
whether the trust property is held in part only for
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religious or charitable purposes ?
The said reference came up for hearing before the said High
Court and both the referred questions were answered in the
negative. The High Court, however, gave the appellants a
certificate of fitness for appeal to this Court and the
present appeal has been filed on the strength of such
certificate.
A perusal of cl. 13 of the deed shows that the trust fund is
declared to be held by the trustees upon trusts to apply the
net income thereof for all or any of the six purposes
enumerated therein. It was conceded before the High Court-
and it has not been disputed before us-that if there was
nothing else in this clause, then each of these six purposes
would have to be upheld as a charitable purpose involving an
element of public utility and consequently within the
protection of s. 4(3)(i). The fact that the trustees could
expend the net income on any of the six purposes to the
exclusion of the other five purposes would not, it is also
conceded, have made the slightest difference in the matter
of such exemption from income-tax. For instance, if the
trustees spent the net income solely and wholly for the
purposes- mentioned under sub-cl. (a) to the exclusion of
those mentioned in sub-cls. (b) to (f)such income would
still be exempt from taxation under s. 4(3)(i). The High
Court, however, took the view that cl. 13 should be read as
a whole along with the provisos -and that so read the trust
is primarily for the benefit of the relations or members of
the family 117
930
of Sir Sassoon David, Bart. It is pointed out that in
applying the net income for the purposes mentioned in sub-
cl. (a), the trustees are bound, under the first proviso, to
give preference to the poor and indigent relations or
members of the family of the said Sir Sassoon David, Bart.
including therein distant and collateral relations. The
second proviso, it is urged, makes it further clear that in
the application of the income for the said purpose, the
trustees are enjoined to apply not less than half the income
for the benefit of the members of the Jewish community of
Bombay only " including the relations of Sir Sassoon David,
Bart., as aforesaid " and the Jewish objects. Emphasis is
laid on the words not less than half " as indicating that it
is permissible for the trustees to spend more than half and
indeed the whole of the net income for the benefit of the
said relations or members of the family of the said Sassoon
David, Bart. It is also pointed out that, although the
remaining income, if any, has to be spent for the benefit of
all persons and objects including Jewish persons and
objects, the trustees could, if they so wished, spend the
same also for the relations or members of the family of Sir
Sassoon David, Bart. as Jewish persons. The argument, which
found favour with the High Court, is that the provisos
impose a mandatory obligation on the trustees (i) to give
preference to the poor and indigent relations or members of
the family of Sir Sassoon David, Bart. and (ii) to spend not
less than half the income, which may extend to the entire
income, for the benefit of the relations or members of the
family of Sir Sassoon David, Bart. The High Court points
out that in view of the language of el. 13 of the deed read
as a whole, it is open to the trustees, without being guilty
of any breach of trust, to spend the entire net income of
the trust fund for the purpose of giving relief to the poor
and indigent relations or members of the family of the said
Sir Sassoon David, Bart., including therein the distant and
collateral relations and such being the position, the High
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Court came to the conclusion that it could not be said that
the property was held wholly or partly for religious or
931
charitable purposes involving an element of public utility.
The High Court accordingly held that the income from the
trust fund was not exempt from taxation under s. 4(3)(i) and
answered both the questions in the negative. The problem
before us is whether the High Court was right in so
answering the questions.
In coming to the decision that it did, the High Court relied
on its own earlier decision in the case of Trustees of
Gordhandas Govindram Family Charitable Trust v. Commissioner
of Income-tax (Central), Bombay (1). The facts in that
case, however, were somewhat different from the facts now
before us. In that case the trust was significantly enough
described as " Gordhandas Govindram Family Charitable Trust
". Clause 2 of that trust deed provided for the application
of tile net income in giving help or relief to such poor
Vaishyas and other Hindoos as the trustees might consider
deserving of help in the manner and to the extent specified
in the said trust deed and subject to the conditions and
directions stated in the next following clauses. Sub-clause
(a) of cl. 3 provided that Vaishya Hindoos who were members
of Seksaria family should be preferred to poor Vaishyas not
belonging to the said family. Maintenance had to be
provided under sub-cl. (b) for the poor male descendants of
the settlor and under sub-cl. (c) for the poor female
descendants of the settlor. Marriage expenses were provided
under sub-el. (d) for the poor male descendants and under
sub-cl. (e) for the poor female descendants of the settlers
There were other subclauses providing for payment of money
to the poor male or female descendants of the other members
of the Seksaria family. In the present judgment now under
appeal, the High Court recognises that the particular trust
they were dealing with in the earlier case " was a fairly
blatant illustration of a settlor trying to benefit his own
family and his own relations " and states that in the
earlier case it had pointed out " that the benefit to the
public was too remote and too illusory and accordingly held
that was
(1) [1952] 21 I.T.R. 231.
932
not a trust which had for its object a general public
utility ". Such, however, cannot be said of the provisions
of the present Deed of Declaration of Trust. Under el. 13
the trustees are at liberty to hold the trust fund and to
apply the net income thereof for all or any of the six
purposes mentioned therein. The relations or members of the
family of the said Sir Sassoon David, Bart., including
therein distant and collateral relations do not figure as
direct recipients of any benefit under sub-cls. (b) to (f)
and, therefore, in so far as those purposes are concerned
the trust certainly involves an element of public utility.
We are not unminaful of the fact that it is open to the
trustees to spend the net income entirely for the purpose
referred to in sub-cl. (a) to the exclusion of the other
clauses. But the very fact that the relations or members of
the family do not come in directly under any of those latter
sub-clauses cannot be ignored, for they certainly have some
bearing on the question as to who or what were the primary
objects of the trust as a whole. In the next place, the
purpose of sub-cl. (a) is the "relief and benefit of the
poor and indigent members of Jewish or any other community
of Bombay or other parts of India or of the world ". It is
conceded by learned counsel that this sub-clause clearly
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expresses a general charitable intention involving an
element of public utility. It follows, therefore, that sub-
cl.(a) constitutes a valid public charitable trust having as
its beneficiaries the several classes of persons referred to
therein. This is the first position. We then pass on to
the provisos. The first proviso opens with the words " in
applying the income as aforesaid ". This takes us back to
sub-cl. (a). The meaning of the proviso obviously is that
in applying the income for the purpose of sub-el. (a), the
trustees shall give preference to the poor and indigent
relations or members of the family of Sir Sassoon David,
Bart. The proviso does not operate independently but comes
into play only " in applying the income as aforesaid".. The
provision for giving preference involves the idea of
selection of some persons out of a bigger class envisaged in
subel. (a). The poor and indigent relations or members of
933
the family can claim to participate in the benefits under
the trust only if they come within one of the several
classes enumerated in sub-el. (a). To take an extreme
example: If a poor and indigent relation of Sir Sassoon
David, Bart. abjures the faith held by the Jewish community
and does not adopt any other faith and thus ceases to be a
member of the Jewish community but does not become a member
of any other community, he will certainly not be entitled to
the benefits of sub-el. (a) although he is a poor and
indigent relation or member of the family of Sir Sassoon
David, Bart. within the meaning of the first proviso. In
other words, sub-cl. (a) prescribes the primary class of
beneficiaries out of which the actual beneficiaries are to
be selected by the application of the provisions of the
provisos, that is to say, by giving preference to the
relations or members of the family of the said Sir Sassoon
David, Bart. The case of In re Koettgan’s Will Trusts (1)
appears to us, on the facts, to be more in point than the
case of Gordhandas Govindram Family Charity Trust case (2)
relied on by the High Court. In the last mentioned English
case the testatrix bequeathed her residuary estate upon
trust for the promotion and furtherance of commercial educa-
tion. The persons eligible as beneficiaries under the fund
were stated to be ,persons of either sex who are British
born subjects and who are desirous of educating themselves
or obtaining tuition for a higher commercial career but
whose means are insufficient or will not allow of their
obtaining such education or tuition at their own expense..."
The testatrix further directed that in selecting the
beneficiaries " it is my wish that the ... trustees shall
give preference to any employees of John Batt & Co. (London)
Ltd. or any members of the families of such employees;
failing a sufficient number of beneficiaries under such
description then the persons eligible shall be any persons
of British birth as the trustees may select provided that
the total income to be available for benefiting the pre-
ferred beneficiaries shall not in anyone year be more than
75% of the total available income for that
(1) [1954] Ch. 252, 257.
(2) [1952] 21 I.T.R. 231.
934
year". It was held, on a construction of the will, that the
gift to the primary class from which the trustees could
select the beneficiaries contained the necessary element of
benefit to the public and that it was when that class was
ascertained that the validity of the trust had to be
determined, so that the subsequent direction to prefer, as
to the 75% of the income, a limited class did not affect the
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validity of the trust which was accordingly a valid and
effective charitable trust. Referring to the first part of
the will Upjohn, J., at p. 257 said:-
" If the will concluded there, the trust would clearly be a
valid charitable trust, having regard to the admission that
a gift for commercial education is for the advancement of
education."
Then after stating that the next task was to make a
selection from that primary class of eligible persons, the
learned Judge continued:-
" It is only when one comes to make a selection from that
primary class that the employees of John Batt & Co. and the
members of their families come into consideration, and the
question is, does that direction as to selection invalidate
the primary trust ? In my judgment it does not do so."
Further down he said:-
"In my judgment it is at the stage when the primary class of
eligible persons is ascertained that the question of the
public nature of the trust arises and falls to be decided,
and it seems to me that the will satisfies that requirement
and that the trust is of a sufficiently public nature."
The learned Judge then concluded:-
" If, when selecting from that primary class the trustees
are directed to give a preference to the employees of the
company and members of their families, that cannot affect
the validity of the primary trust, it being quite uncertain
whether such persons will exhaust in any year 75%. On the
true construction of this will, that is not (as to 75%)
primarily a trust for persons connected with John Batt &
Co., and the class of persons to benefit is not " confined "
to them, and in my judgment the trust contained in clauses 7
935
and 8 of the will of the testatrix is a valid charitable
trust."
It is true that this is a judgment of a Single Judge but it
does not appear to have been departed from or over ruled in
any subsequent case and appears to us to be based on sound
principle. Applying this test, there can be no question-
indeed it has been conceded that the earlier part of el. 13,
omitting the provisos, constitutes a valid public charitable
trust. The circumstance that in selecting the beneficiaries
under subel. (a) preference has to be given, under the
provisos, to the relations or members of the family of Sir
Sasoon David, Bart., cannot affect that public charitable
trust. In our judgment, the facts of this case come nearer
to the facts of the English case referred to above than to
the facts of the earlier decision of the Bombay High Court
in Gordhandas Govindram Family Charity Trust case (1). As
we have already stated the relations of members of the
family are clearly not the primary object contemplated by
sub-cls. (b) to (f). The first part of sub-cl. (a),
omitting the provisos, is not said to be too wide or vague
and unenforceable. The provision for giving preference to
the poor and indigent relations or the members of the family
of Sir Sassoon David, Bart., cannot affect the public
charitable trust constituted under sub-cl. (a). In our
opinion the income from the trust properties comes within
the scope of s. 4(3)(i) and is, therefore, entitled to
exemption. Therefore the negative answer given by the High
Court to question No. I cannot be supported and that
question should be answered in the affirmative. In this
view of the matter, question No. 2 does not arise and needs
no answer. The result is that this appeal must be allowed
and the question No. I must be answered in the affirmative.
The appellants will have the costs of the reference in the
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High Court and of this appeal in this Court.
Appeal allowed.
(1) [1952] 21 I.T.R. 231.
936