1980 (4) TMI 66 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement of Jaipur Charitable Trust to exemption from income tax for the assessment years 1961-62, 1962-63, and 1963-64.
2. Eligibility for exemption of Dalmia Jain (Jind State) Charity Trust (renamed as M/s. Jagdamba Charity Trust) for the assessment years 1959-60 to 1966-67.
3. Eligibility for exemption of Dalmia Jain Charity Trust (renamed as Durga Trust) for the assessment years 1965-66 and 1966-67.

Detailed Analysis:

1. Entitlement of Jaipur Charitable Trust to Exemption from Income Tax:
The court examined the entitlement of the Jaipur Charitable Trust to tax exemption for the assessment years 1961-62, 1962-63, and 1963-64. For the year 1961-62, the claim was based on the Indian I.T. Act, 1922, and for the subsequent years, on the Income-tax Act, 1961. The trust's claim for exemption under the 1922 Act was previously denied by the Supreme Court in Yogiraj Charity Trust v. CIT [1976] 103 ITR 777, due to clause 5(a)(v) of the trust deed which allowed the establishment of commercial or industrial concerns. The court held that the trust's income was not exempt from tax under s. 4(3)(i) as the trust deed allowed for non-charitable purposes.

For the assessment years 1962-63 and 1963-64, the court referred to the definition of "charitable purpose" under the 1961 Act, which included the phrase "not involving the carrying on of any activity for profit." The Supreme Court's decision in Surat Art Silk Cloth Mills Manufacturers Association [1980] 121 ITR 1 (SC) clarified that if a trust has both charitable and non-charitable objects, and the trustees can apply the income to any of those objects, the trust would not be considered charitable. The court found that the Jaipur Charitable Trust's deed contained independent objects, including commercial activities, which disqualified it from being considered wholly charitable. Consequently, the trust's claims for exemption for the years 1962-63 and 1963-64 were also denied.

2. Eligibility for Exemption of Dalmia Jain (Jind State) Charity Trust:
The references for the Dalmia Jain (Jind State) Charity Trust, renamed as M/s. Jagdamba Charity Trust, related to the assessment years 1959-60 to 1966-67. The trust deed, dated June 14, 1948, contained similar provisions to those of the Jaipur Charitable Trust, including clauses that allowed for commercial activities. Following the same reasoning as in the Jaipur Charitable Trust case, the court held that this trust was also not entitled to any exemption under s. 4(3)(i) of the 1922 Act or s. 11 of the 1961 Act. The question was answered in the negative and against the assessee.

3. Eligibility for Exemption of Dalmia Jain Charity Trust (Durga Trust):
The references for the Dalmia Jain Charity Trust, renamed as Durga Trust, related to the assessment years 1965-66 and 1966-67. The trust deed, executed on June 1, 1946, contained 18 objects, most of which were charitable. Clauses (x) and (xi) were the only ones that could be construed as similar to those in the Jaipur Charitable Trust but were fundamentally different. These clauses did not envisage the carrying on of any business concern by the trustees. The court found that the dominant purpose of the trust deed was clearly charitable and that any profit-making activities were incidental to the charitable purposes. Therefore, the Durga Trust was held to be eligible for the exemption under s. 11 of the 1961 Act. The question was answered in the affirmative and in favor of the assessee.

In conclusion, the Jaipur Charitable Trust and the Dalmia Jain (Jind State) Charity Trust were denied tax exemptions due to the inclusion of non-charitable objects in their trust deeds. However, the Durga Trust was granted exemption as its trust deed was found to be dominantly charitable.