1946 (1) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Nature of the trust (public or private).
2. Tax exemption eligibility under Section 4(3) of the Indian Income-tax Act.

Issue-wise Detailed Analysis:

1. Nature of the Trust (Public or Private):

The primary issue revolves around whether the trust created by the settlor is of a public or private nature. The trust deed executed by the settlor on 11th March 1938, outlines various trusts, including the construction of a temple, installation of a deity and an image, and the establishment of a hospital and dispensary. The trustees argue that the entire trust is for public religious and charitable purposes, while the Commissioner contends that it is a private religious trust, except for the hospital and dispensary.

Analysis:

- Dedication to a Family Deity: The settlor's own deity and the image of her religious preceptor are to be installed in the temple. The Nat Mandir is in memory of her deceased son. There is no provision for public worship in the temple, indicating a private nature.

- Usufruct Reservation: The settlor reserved the right of residence in Charunibas during her lifetime. The complete divestment of any interest by the author does not make the trust public.

- Shebaitship: The settlor reserved the shebaitship during her lifetime, with future trustees being strangers in blood. The trust aims to preserve the worship of the settlor's deity and preceptor's image, indicating a private nature.

- Trustees and Management: The initial trustees include the settlor, her adopted son, and three strangers. The settlor reserved the power to remove and appoint trustees during her lifetime. The temple committee, controlled by the trustees, manages the temple's daily worship and festivals. The settlor's decision prevails during her lifetime, indicating her control over the trust, making it private.

- Pronamis: The deed stipulates that pronamis and perquisites offered to the deities form part of the trust estate, denying any public claim, indicating a private trust.

- Public Information: The deed does not require informing the public about the trust property, countering the argument for a public trust.

- Consecration and Public Beneficiaries: The deed requires the consecration of the temple, not the land. The prosad utsarga ceremony dedicates the temple to a deity but does not make it public. The deed does not grant public worship rights or access to the temple, indicating a private nature.

Conclusion: The trust deed reflects the settlor's intention to provide for the worship of her private deity and preceptor's image, with no public interest or rights to worship in the temple. The trust is private, not for public charitable purposes.

2. Tax Exemption Eligibility under Section 4(3) of the Indian Income-tax Act:

The second issue concerns whether the income from the trust, except for the hospital and dispensary, is exempt from tax under Section 4(3) of the Indian Income-tax Act.

Analysis:

- Section 4(3) Provisions: The relevant provision states that income derived from property held under trust wholly for religious or charitable purposes is exempt from tax. The term "charitable purpose" includes relief of the poor and advancement of any other object of general public utility, excluding private religious trusts not benefiting the public.

- Trust Deed Provisions: The hospital and dispensary, when operational, are conceded by the Commissioner to be public charitable trusts, exempt from tax. However, during the accounting year 1938-39, no part of the income was devoted to these institutions. The trust deed's other provisions do not indicate a public charitable purpose.

- Trustees' Burden: The burden is on the assessees to prove that the income is exempt from taxation. They failed to establish that the income from the trust, other than the hospital and dispensary, is for public charitable purposes.

Conclusion: The income from the trust, except for the hospital and dispensary, does not qualify for tax exemption under Section 4(3) of the Indian Income-tax Act. The question in the reference is answered in the negative.

Final Judgment:

The trust created by the settlor is a private trust, not for public charitable purposes. The income from the trust, except for the hospital and dispensary, is not exempt from tax under Section 4(3) of the Indian Income-tax Act. The trustees failed to discharge their burden to prove the tax exemption eligibility. The judgment is delivered in agreement by both judges, with Ormond, J. concurring with Gentle, J.