1976 (9) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the supplemental trust deed dated 29th March, 1961.
2. Application of income from the trust property for charitable purposes u/s 11 of the Income-tax Act, 1961.
3. Determination of the income exempt from tax for the assessment years 1962-63 and 1963-64.

Summary:

1. Validity of the Supplemental Trust Deed:
The court examined whether the supplemental deed dated 29th March, 1961, which allowed 30% of the income to be spent on poor relations of the founder, was valid. The court held that the founder did not reserve the power to alter the charitable character and object of the trust in the original deed. Therefore, the supplemental deed was invalid, and the original trust deed of 1947 stood unaffected.

2. Application of Income from the Trust Property for Charitable Purposes u/s 11:
The original trust deed specified four charitable objects, which were undisputedly charitable. Since the supplemental deed was invalid, the property was held under trust wholly for charitable purposes. According to section 11(1)(a) of the Act, income applied to charitable purposes or accumulated within specified limits is exempt from tax. The court emphasized that any part of the income spent on non-charitable purposes (e.g., poor relations) would not qualify for exemption.

3. Determination of Income Exempt from Tax:
The court directed the Tribunal to reassess the appeals for the years 1962-63 and 1963-64 based on the original trust deed of 1947. The Tribunal must determine whether the income was applied to or accumulated for the charitable purposes mentioned in the original deed, as per section 11(1)(a) of the Act. Any income spent on non-charitable purposes would be taxable.

Conclusion:
The court answered the question in the negative and in favor of the department, directing the Tribunal to reassess the appeals considering the invalidity of the supplemental deed and the provisions of section 11(1)(a) of the Act. There was no order as to costs.