1987 (3) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Exemption under section 5(1)(i) of the Wealth-tax Act, 1957.
2. Exemption under section 11 of the Income-tax Act, 1961.

Summary:

Issue 1: Exemption under section 5(1)(i) of the Wealth-tax Act, 1957
The court examined whether the corpus of the trust fund was held for charitable or religious purposes in India, thereby qualifying for exemption u/s 5(1)(i) of the Wealth-tax Act. The trust deed indicated that the trust's purposes were to be performed outside India, specifically in Hedjaz and Iraq. The court held that the exemption is not available if the property is held for purposes outside India, even if they are charitable or religious. The court also found that the resolution by the trustees to spend the income within India and the subsequent order by the Chief Judge under section 34 of the Indian Trusts Act were invalid and without jurisdiction. Consequently, the trust property did not qualify for exemption under section 5(1)(i) of the Wealth-tax Act.

Issue 2: Exemption under section 11 of the Income-tax Act, 1961
The court considered whether the income of the trust for the assessment year 1974-75 was exempt from taxation u/s 11 of the Income-tax Act. Section 11(1)(a) requires that the income be applied for charitable or religious purposes in India, irrespective of whether the trust's objects are confined to India. The court held that if any part of the income is applied or set apart for charitable or religious purposes in India, it would be entitled to exemption under section 11(1)(a). The Tribunal was directed to verify the facts and grant exemption accordingly.

Conclusion:
- For the Wealth-tax Act, the court ruled in favor of the Revenue, denying the exemption u/s 5(1)(i) as the trust's purposes were outside India.
- For the Income-tax Act, the court ruled that income applied for charitable or religious purposes in India is exempt u/s 11(1)(a), directing the Tribunal to verify and grant exemption accordingly.