1945 (9) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income from the residuary estate is held in trust wholly for religious or charitable purposes under Section 4(3)(i) of the Indian Income-tax Act.
2. Interpretation of the term "charity" in clause 15 of the will.
3. Applicability of the first and second parts of Section 4(3)(i) concerning the income from the residuary estate.

Detailed Analysis:

1. Whether the income from the residuary estate is held in trust wholly for religious or charitable purposes under Section 4(3)(i) of the Indian Income-tax Act:
The primary question referred to the court was whether the income from the deceased's residuary estate is income from property held in trust or other legal obligation wholly for religious or charitable purposes, thereby exempting it from assessment under Section 4(3)(i) of the Act. The court examined clause 15 of the will, which directed the trustee to utilize the residuary property for "such acts of charity as he deems proper," with an option to give a one-fourth part to the daughters or their sons. The court concluded that the term "charity" used in clause 15 should be interpreted to mean charitable purposes as defined in the Income-tax Act, which includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility.

2. Interpretation of the term "charity" in clause 15 of the will:
The court noted that the term "charity" without qualifications has a recognized legal meaning, implying a general charitable intention for objects well recognized as charitable in law. It was emphasized that the testator used the English word "charity" deliberately, possibly to avoid the uncertainty associated with the Gujarati equivalent "Dharam." The court rejected the Tribunal's interpretation that "charity" could include private or non-charitable purposes. The court held that "charity" used generally and without limitations falls within the definition of "charitable purpose" in Section 4 of the Act.

3. Applicability of the first and second parts of Section 4(3)(i) concerning the income from the residuary estate:
The court addressed the argument that no specific property was set apart for charity, thus invoking the second part of Section 4(3)(i), which exempts only the income applied or set apart for charitable purposes. The court distinguished this case from the Privy Council's decision in Maulana Mohammed Ibrahim Riza Malak v. Commissioner of Income-tax, where the income was applicable to both charitable and non-charitable purposes. The court held that the residuary estate, as directed by clause 15, was to be utilized three-fourths for charity, which falls under the first part of Section 4(3)(i), making it wholly for charitable purposes and exempt from tax.

Judgment:
The court answered the question in the affirmative, stating that three-fourths of the income from the residuary estate is held wholly for charitable purposes and is exempt from tax under Section 4(3)(i) of the Act. The Commissioner was ordered to pay the costs of the reference.