1980 (12) TMI 3 - HC - Income Tax

Summary

Issues Involved:

1. Whether the income of the trust is exempt from tax under Section 11 of the Income-tax Act, 1961.
2. Interpretation of the trust deed executed by Ganga Bai.
3. Application of the statutory definition of "charitable purposes" under the Income-tax Act.
4. Validity of the objects of the trust as defined in the trust deed.
5. The impact of subsequent deeds and the actual application of trust income on the exemption.

Issue-wise Detailed Analysis:

1. Whether the income of the trust is exempt from tax under Section 11 of the Income-tax Act, 1961:

The core issue is whether the income derived from the property held under the trust is exempt from tax under Section 11 of the Income-tax Act, 1961. The court examined the trust deed executed by Ganga Bai to determine if the income was derived from property held wholly for public, religious, and charitable purposes. The Income Tax Officer (ITO) assessed the income, but the Appellate Assistant Commissioner (AAC) and the Tribunal held that the trust was charitable and entitled to exemption. The court's task was to interpret the trust deed and apply the relevant statutory provisions to decide on the exemption.

2. Interpretation of the trust deed executed by Ganga Bai:

The trust deed, dated September 13, 1958, was scrutinized to understand the objects and functions of the trust. The deed stated that Ganga Bai had a long-cherished desire to construct a building for the benefit of the public to be used for religious, charitable, cultural, and social purposes. The deed named the trust "Ganga Bai Charities" and reiterated the use of the property for these purposes. The court noted that the deed was not perfectly drafted but emphasized the need to construe the deed to ascertain the founder's intent.

3. Application of the statutory definition of "charitable purposes" under the Income-tax Act:

The court referred to Section 2(15) of the Act, which defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. The court noted that the definition under the 1961 Act added the rider that the object should not involve any activity for profit. The court emphasized that the definition must be applied to determine if the trust's objects fall within the exempted category.

4. Validity of the objects of the trust as defined in the trust deed:

The court analyzed the objects stated in the trust deed and found that the phrases "religious, charitable, cultural, and social purposes" were too broad and lacked specificity. The court held that merely repeating statutory words does not meet the requirements for exemption. The court also noted that the trust deed did not clearly define the application of income, leaving it to the trustee's discretion. This lack of specificity and the inclusion of vague terms such as "cultural" and "social" purposes undermined the trust's claim for exemption.

5. The impact of subsequent deeds and the actual application of trust income on the exemption:

The court considered a subsequent deed executed by Ganga Bai, which restricted the use of trust properties to non-Hindus and Harijans. However, the court held that once the trust objects were defined and the property dedicated, the founder could not alter the trust objects. The court also noted that the actual application of income, such as letting out the property as a marriage mandapam or running a printing press, did not align with the avowed charitable objects. The court emphasized that the statutory exemption depends on the trust's objects, not the actual application of income.

Conclusion:

The court held that the objects of the trust, as stated in the deed, did not meet the requirements of the statutory definition of "charitable purposes" under Section 11 of the Income-tax Act, 1961. The inclusion of vague terms and the lack of specificity in the trust objects led the court to conclude that the trust was not entitled to tax exemption. The reference was answered in the negative and against the assessee, with the Department entitled to its costs.