1959 (5) TMI 17 - SC - Income Tax

Whether the trust property is held wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Indian Income-tax Act ? Whether the trust property is held in part only for religious or charitable purposes ? Held that - In our opinion the income from the trust properties comes within the scope of section 4(3)(i) and is therefore entitled to exemption. Therefore the negative answer given by the High Court to question No. 1 cannot be supported and that question should be answered in the affirmative. In this view of the matter question No. 2 does not arise and needs no answer. The result is that this appeal must be allowed and the question No. 1 must be answered in the affirmative

Summary

Issues Involved:
1. Whether the trust property is held wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Indian Income-tax Act.
2. If the trust property is not held wholly for religious or charitable purposes, whether it is held in part only for such purposes.

Detailed Analysis:

Issue 1: Whether the trust property is held wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Indian Income-tax Act.

The appellants, trustees of "The Charity Fund Founded by Sir Sassoon David, Baronet of Bombay," sought exemption from income tax under section 4(3)(i) of the Indian Income-tax Act. The trust deed, executed on June 8, 1922, specified various charitable purposes under clause 13. The High Court had previously ruled that the trust was primarily for the benefit of Sir Sassoon David's family, thus not qualifying for the exemption. However, the Supreme Court examined clause 13 and its provisos to determine the primary objects of the trust.

The Supreme Court noted that the trust fund was to be applied for six enumerated purposes, all of which were conceded to be charitable if considered independently. The High Court's view was that the provisos mandated a preference for Sir Sassoon David's family members, allowing the trustees to potentially allocate all income to them, thus disqualifying it from being a public charitable trust.

The Supreme Court, however, distinguished this case from the earlier decision in Trustees of Gordhandas Govindram Family Charitable Trust v. Commissioner of Income-tax, where the trust explicitly favored the settlor's family. Instead, the Court found the present case more aligned with In re Koettgen's Will Trusts, where a preference clause did not invalidate the primary charitable trust.

The Court held that the primary class of beneficiaries under sub-clause (a) was the poor and indigent members of the Jewish or any other community, which constituted a valid public charitable trust. The provisos, which directed giving preference to Sir Sassoon David's family, did not negate the public charitable nature of the trust. The trustees were to select beneficiaries from a broader class, ensuring the trust's public utility.

Thus, the Supreme Court concluded that the income from the trust properties fell within the scope of section 4(3)(i) and was entitled to exemption. Consequently, the negative answer given by the High Court to question No. 1 was overturned, and the question was answered in the affirmative.

Issue 2: If the trust property is not held wholly for religious or charitable purposes, whether it is held in part only for such purposes.

Given the affirmative answer to the first question, the second issue did not arise and required no answer.

Conclusion:

The Supreme Court allowed the appeal, holding that the trust property was held wholly for charitable purposes within the meaning of section 4(3)(i) of the Indian Income-tax Act. The appellants were entitled to exemption from income tax, and the costs of the reference in the High Court and the appeal in the Supreme Court were awarded to the appellants. The appeal was thus allowed.