1975 (2) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Kamla Town Trust was a public charitable trust.
2. Whether the rectification made in its indenture by an order of the court in 1955 was retrospective in effect.
3. Whether the unamended clause 3(19) of the memorandum of association empowered the company to create a public charitable trust.
4. Applicability of section 11 and Order 2, Rule 2 of the CPC to the second rectification.
5. Whether the objects and activities of the trust fall within the definition of charitable purpose under section 2(15) of the Income Tax Act.
6. Whether the trust was void for uncertainty.
7. Whether the Income Tax Officer was entitled to question the validity of the rectification decree.

Issue-wise Detailed Analysis:

1. Whether the Kamla Town Trust was a public charitable trust:
The Tribunal initially held that the trust was not a public charitable trust because its objects were mixed, i.e., partly charitable and partly non-charitable. However, after the second rectification in 1955, the Tribunal concluded that the trust became a public charitable trust. The High Court agreed with this conclusion, stating that the objects of the trust, as rectified, were covered by the definition of "charitable purpose" under the Income Tax Acts.

2. Whether the rectification made in its indenture by an order of the court in 1955 was retrospective in effect:
The Tribunal observed that rectification in law relates back to the date of execution of the instrument. However, it held that it could not override the High Court's earlier finding that the trust was not purely charitable before the second rectification. The High Court disagreed with the Tribunal's conclusion, stating that after the deed is rectified by a decree of the court, it should be read as if it had been originally drawn in its rectified form. Therefore, the second rectification should be considered retrospective.

3. Whether the unamended clause 3(19) of the memorandum of association empowered the company to create a public charitable trust:
The Tribunal followed the decision of the High Court in J. K. Hosiery Factory v. CIT, which held that the unamended memorandum of association empowered the company to create a public charitable trust. The High Court affirmed this view, stating that the Tribunal was correct in following the binding precedent.

4. Applicability of section 11 and Order 2, Rule 2 of the CPC to the second rectification:
The Tribunal held that the revenue could not object to the second rectification on the grounds of section 11 (res judicata) and Order 2, Rule 2 of the CPC. The High Court agreed, stating that these pleas are open to the parties in the second suit, but if not raised, they cannot be taken by a person who was not a party to either suit.

5. Whether the objects and activities of the trust fall within the definition of charitable purpose under section 2(15) of the Income Tax Act:
The High Court examined the objects of the trust as rectified in 1955 and concluded that they were covered by the definition of "charitable purpose" under the Income Tax Acts. The principal object was the relief of the poor, and other objects included education, medical relief, and general public utility, all of which qualify as charitable purposes.

6. Whether the trust was void for uncertainty:
The High Court held that the beneficiaries of the trust were sufficiently identifiable and formed a class. The trust deed provided for the benefit of workmen, craftsmen, traders, etc., who were in need of help due to poverty. Therefore, the trust was not void for uncertainty.

7. Whether the Income Tax Officer was entitled to question the validity of the rectification decree:
The High Court referred to its earlier decision in J. K. Hosiery Factory v. CIT, which held that the validity of the rectification decree could not be adjudged in assessment proceedings. The Tribunal found no evidence of fraud or collusion in obtaining the rectification decree, and the High Court agreed, stating that the decree was not obtained collusively or by fraud.

Conclusion:
- Assessee's Reference: I.T.R. No. 18 of 1973:
- Question No. 1: No, in favor of the assessee and against the department.
- Question No. 2: No, in favor of the assessee and against the department.

- Revenue's Reference: I.T.R. No. 715 of 1972:
- Question No. 1: Yes, in favor of the assessee and against the department.
- Question No. 2: No, in favor of the assessee and against the revenue.
- Question No. 3: Yes, in favor of the assessee and against the department.
- Question No. 4: No, in favor of the assessee and against the department.
- Question No. 5: No, in favor of the assessee and against the department.

The assessee is entitled to costs, assessed at Rs. 200.