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Issues Involved
1. Whether the amended deed dated May 21, 1958, rendered the assessee-trust wholly for charitable or religious purposes under section 11 of the Income-tax Act, 1961. 2. Whether the income of the assessee-trust was exempt under section 11 of the Income-tax Act, 1961. Detailed Analysis Issue 1: Amended Deed and Charitable Status Facts and Tribunal Findings: - The original trust deed of 1948 included clause 2(vi), which allowed aid to persons belonging to the Lath family. - The Rajasthan High Court and Supreme Court previously held that this clause disqualified the trust from being considered wholly charitable. - A supplementary deed in 1958 aimed to rectify this by deleting "belonging to the family of Laths" and substituting "in distress." - The Tribunal concluded that the amendment did not change the trust's status as it was perceived as an attempt to avoid tax implications. Court's Analysis: - The court examined its previous rulings, including the 1972-73 assessment year decision, which favored the assessee. - It was noted that the supplementary deed had not been legally challenged and was binding on the trustees. - The court emphasized that the trust's discretionary power to aid Lath family members did not create enforceable rights, thus not necessitating beneficiary consent for amendments. - The court concluded that the supplementary deed effectively removed the flaw identified in the original deed, making the trust wholly charitable. Judgment: - The Tribunal was not justified in holding that the amended deed of 1958 did not render the trust wholly for charitable and religious purposes. Issue 2: Income Exemption under Section 11 Facts and Tribunal Findings: - The Income-tax Officer initially denied exemption, citing the potential use of income for non-charitable purposes. - The Appellate Assistant Commissioner reversed this decision, referencing various legal precedents and the rectification deed of 1958. - The Tribunal reinstated the Income-tax Officer's decision, arguing that the trust's amendments were attempts to avoid tax and that the original deed's provisions still applied. Court's Analysis: - The court reiterated its stance from the 1972-73 assessment year decision, confirming the supplementary deed's legitimacy and binding nature. - It was highlighted that the trust had not used its funds for non-charitable purposes since the amendment. - The court found no new distinguishing features in the current case that would warrant a different conclusion from the 1972-73 decision. Judgment: - The Tribunal was not justified in holding that the assessee-trust was not entitled to exemption under section 11 of the Income-tax Act, 1961. Conclusion The court answered both referred questions in favor of the assessee and against the Revenue, confirming that the amended deed of 1958 rendered the trust wholly for charitable and religious purposes and that the trust's income was exempt under section 11 of the Income-tax Act, 1961. No costs were awarded.
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