2000 (4) TMI 3 - SC - Wealth-tax

On a proper construction of the scope & effect of the judgment of the Chief Judge of the Civil Court, Hyderabad, in the proceedings u/s 34 of the Indian Trusts Act, the Tribunal is correct in holding that as on the relevant valuation dates corresponding to the A.Y. 1974-75 & 1975-76 the corpus of the trust fund cannot be said to have been held in trust for charitable/religious purposes in India - assessee-trust is not entitled to exemption u/s 5(1)(i), in respect of the corpus of the trust fund

Summary

Issues:
- Interpretation of section 5(1)(i) of the Wealth-tax Act, 1957 regarding exemption for trust property held for charitable or religious purposes in India.
- Validity of the resolution passed by the trustees and the order of the Chief Judge, City Civil Court, Hyderabad in altering the purpose of the trust.
- Applicability of the doctrine of cy pres in the context of public charitable and religious trusts.

Interpretation of section 5(1)(i) of the Wealth-tax Act:
The case involves appeals arising from reference cases under section 27(1) of the Wealth-tax Act, 1957, decided by the High Court of Andhra Pradesh. The core issue revolves around the interpretation of section 5(1)(i) of the Act, which provides for exemption from wealth tax for property held under trust for public charitable or religious purposes in India. The High Court held that all the trust's objects were intended to be performed outside India, and thus, the property did not qualify for exemption under the Act. The situs of the trust property was deemed irrelevant, with the crucial factor being that the charitable or religious purpose should be within India.

Validity of Resolution and Court Order:
The trustees sought relief under section 34 of the Indian Trusts Act to utilize the trust income for specified charitable and religious purposes within India. However, the Wealth-tax Officer rejected their claim for exemption under section 5(1)(i) of the Act. The Appellate Assistant Commissioner initially allowed the exemption, but the Income-tax Appellate Tribunal overturned this decision. The Tribunal's ruling was based on the belief that the trust property was not held for charitable or religious purposes in India. The High Court concurred with this view, emphasizing that the resolution and court order did not alter the trust's original purpose, which was intended to be carried out outside India.

Applicability of Cy Pres Doctrine:
The appellant's counsel argued for the application of the cy pres doctrine to save the trust from failing by changing its objects to align with charitable or religious purposes in India. However, the court rejected this argument, stating that the Trusts Act's section 34 did not apply to public charitable trusts post the settlor's demise. The court also dismissed the notion of treating the application as a suit under section 92 of the Code of Civil Procedure. The judgment emphasized that the doctrine of cy pres did not apply in this case, as the trust's nature did not warrant such intervention.

In conclusion, the Supreme Court upheld the High Court's decision, ruling in favor of the Revenue and denying the appellant's claim for exemption under section 5(1)(i) of the Wealth-tax Act, 1957. The judgment emphasized that the trust's objects were intended for activities outside India, and the resolution and court order did not change this fundamental aspect. The court also clarified the inapplicability of the cy pres doctrine in the context of the trust in question.