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Issues:
1. Whether the income of the properties held under an endowment is exempt from assessment to income tax under Section 4(3)(i) of the Indian Income-tax Act. Analysis: The case involved a reference under Section 66(1) of the Indian Income-tax Act regarding the exemption of income derived from properties held under an endowment. The deed of dedication dated 7th September, 1861, dedicated certain properties to a deity for religious purposes. The key issue was whether the income from these properties was exempt from taxation. The Income-tax Officer initially held that the deity, as the owner of the income, was assessable to tax. However, on appeal, the Appellate Tribunal concluded that the income was not exempt as it did not benefit the public. The main question referred was whether the income of the endowed property was exempt under Section 4(3)(i) of the Act. The judgment delved into the distinction between a trust and a Hindu endowment. It highlighted that a trust requires three parties - settlor, trustee, and beneficiary, whereas a Hindu endowment can be established without a trust by specifying religious or charitable purposes clearly. In this case, the deed of dedication made an absolute grant to the deity, divesting the owner of property rights. The judgment emphasized that the endowment was created through dedication, not a trust. The judgment analyzed the legal obligation created by the dedication, emphasizing that the income was held wholly for religious purposes under a legal obligation. It clarified that the endowment did not meet the criteria of a private religious trust as no part of the income benefited the public. The judgment also discussed the applicability of the explanation in Section 4, concluding that the deity qualified for exemption under Section 4(3)(i) as it was not a private religious trust. Furthermore, a reference to the Tribune Trustees case highlighted that Hindu endowments not created through a trust fall under "other legal obligation" in Section 4(3)(i). The judgment rejected the argument that the shebait was assessable as a guardian of the deity, emphasizing the shebait's role as a manager, not a guardian. Ultimately, the court answered the referred question affirmatively, granting the assessee costs of the reference. In conclusion, the judgment clarified the distinction between trusts and Hindu endowments, analyzed the legal obligations arising from the dedication, and determined the exemption eligibility under Section 4(3)(i) for income derived from the endowed properties held for religious purposes.
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