1984 (12) TMI 18 - HC - Wealth-tax

Summary

Issues Involved:
1. Whether the net wealth of M/s. Adarsh Gram Trust is exempt under section 5(1)(i) of the Wealth-tax Act, 1957.
2. Whether the objects of the trust are charitable or non-charitable.
3. The treatment of income derived from property held under trust for charitable purposes.
4. The applicability of the doctrine of Mahatma Gandhi's constructive activities as charitable purposes.
5. The interpretation of the term "other constructive activities" in the trust deed.

Detailed Analysis:

1. Exemption Under Section 5(1)(i) of the Wealth-tax Act:
The Tribunal held that the net wealth of M/s. Adarsh Gram Trust is exempt under section 5(1)(i) of the Wealth-tax Act, 1957. The Tribunal observed that the dominant object of the trust was to undertake constructive activities in accordance with Mahatma Gandhi's doctrines for the upliftment of the poor and backward village people. The Tribunal concluded that the trust was charitable and entitled to exemption.

2. Charitable or Non-Charitable Objects:
The Wealth-tax Officer and the Appellate Assistant Commissioner initially held that the objects of the trust were too vague and wide to be considered charitable. However, the Tribunal and the High Court disagreed, emphasizing that the dominant object of the trust was charitable. The High Court noted that the promotion of khadi, removal of untouchability, upliftment of women, and formation of an "Adarsh Gram" are essentially charitable objects.

3. Income Derived from Property Held Under Trust:
The High Court discussed the legal provisions under the Indian Income-tax Act, 1922, and the Income-tax Act, 1961, which exempt income derived from property held under trust for charitable purposes. The Court highlighted that under section 4(3)(i) of the Act of 1922 and section 11(1)(a) of the Act of 1961, income applied for charitable purposes is exempt from taxation. The Court also referred to section 2(15) of the 1961 Act, which defines "charitable purpose" to include relief of the poor, education, medical relief, and advancement of any other object of general public utility not involving profit.

4. Doctrine of Mahatma Gandhi's Constructive Activities:
The High Court rejected the argument that constructive activities on the lines of Mahatma Gandhi's doctrines were vague or political. The Court held that Mahatma Gandhi's constructive programme for the upliftment of the poor and down-trodden masses is undoubtedly a charitable purpose. The Court emphasized that the upliftment of the poor is a charitable purpose and that constructive activities in accordance with Mahatma Gandhi's doctrine must be held to be activities of general public utility.

5. Interpretation of "Other Constructive Activities":
The High Court held that the term "other constructive activities" in the trust deed must be read in conjunction with the other specified charitable objects. The Court applied the principle of ejusdem generis, stating that the residuary provision must take its color from the preceding charitable objects. The Court concluded that "other constructive activities" are ancillary or incidental to the primary charitable purposes and must be construed as charitable.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the trust was eligible for exemption under section 5(1)(i) of the Wealth-tax Act. The Court found that the objects of the trust, including the promotion of khadi, removal of untouchability, upliftment of women, and formation of an "Adarsh Gram," were charitable. The Court also held that constructive activities in accordance with Mahatma Gandhi's doctrines are charitable purposes. The reference was answered in the affirmative, in favor of the assessee and against the Revenue.