1973 (11) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Whether the trusts are wholly religious and entitled to exemption under section 11(1)(a) of the Income-tax Act, 1961.
2. Interpretation of the trust deed clauses and their implications on the exemption eligibility.
3. The nature of the discretion granted to the Dai-ul-Mutlak regarding the utilization of the trust income and corpus.

Issue-wise Detailed Analysis:

1. Whether the trusts are wholly religious and entitled to exemption under section 11(1)(a) of the Income-tax Act, 1961:
The main controversy is whether the trusts are entitled to exemption under section 11(1)(a). The Tribunal observed that the trusts were wholly religious, noting that the properties vested in the Mullaji Saheb for the benefit of the Dawoodi Bohra community. The Tribunal concluded that the trust was wholly religious, thus entitled to exemption under section 11(1)(a).

2. Interpretation of the trust deed clauses and their implications on the exemption eligibility:
The trust deeds, executed on January 12, 1937, by two sisters, vested properties for the benefit of the Dawoodi Bohra community, managed by the Mullaji Saheb. The preamble of the trust deed emphasized the religious belief that the Mullaji Saheb is the vicegerent of the Imam in seclusion. The key clauses analyzed include:

- Clause 1: Grants absolute power to the Mullaji Saheb to manage and utilize the properties.
- Clause 4: Allows the sale or mortgage of properties if deemed necessary by the Dai-ul-Mutlak, even if the purpose is not strictly religious or charitable.
- Clause 6: Requests the net income to be used for specific religious purposes, like Faize-Hashami, or as deemed fit by the Mullaji Saheb.
- Clause 7: Similar to Clause 6, with specific purposes like Saifi-Daras and Madresah Tyebiyah, but allows the Mullaji Saheb to use the income for other purposes at his discretion.
- Clause 8: Confers absolute discretion on the Dai-ul-Mutlak to use the rents and income for any Dawat purpose, whether charitable or non-charitable.

Despite the wide discretion given to the Mullaji Saheb, the court emphasized that the main intent was to create a wakf for Dawat purposes, benefiting the Dawoodi Bohra community.

3. The nature of the discretion granted to the Dai-ul-Mutlak regarding the utilization of the trust income and corpus:
The court noted that the discretion granted to the Mullaji Saheb must be exercised within the confines of Dawat purposes, which are inherently for the benefit of the Dawoodi Bohra community. The court referred to the decision in Advocate-General of Bombay v. Yasufalli, where it was held that Dawat purposes are charitable. The court concluded that the properties were settled upon trust for charitable or religious objects, thus entitled to exemption under section 11(1)(a).

Conclusion:
The court concluded that the trusts are entitled to exemption under section 11(1)(a) of the Income-tax Act, 1961. The Tribunal's decision was upheld, and the question was answered in favor of the assessee. The Commissioner was directed to pay the costs of the reference to the assessee.