1976 (12) TMI 4 - SC - Income Tax

Whether assessment can be made on the deity - deity was the legal owner of the entire estate. Therefore, the deity was liable to be assessed - surplus income after meeting the expenses were not held in trust for charitable purposes. Therefore, they were not exempt from tax under s. 4(3)(i) - court directed that the amounts spent for religious and charitable activities like poor feeding which were in accordance with s. 4(3)(i) should be excluded from the total income

Issues Involved:
1. Taxability of the deity under the Indian Income-tax Act, 1922.
2. Interpretation of Raja Rajendra Mullick's will regarding the nature of the debutter.
3. Determination of whether the income was diverted at the source or applied after reaching the deity.
4. Exemption of certain expenditures under section 4(3)(i) of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Taxability of the Deity under the Indian Income-tax Act, 1922:
The primary issue was whether the deity, Sree Jagannathji, represented by the shebaits and trustees, was taxable under the Indian Income-tax Act, 1922. The court had to determine if the properties and income dedicated to the deity were subject to tax.

2. Interpretation of Raja Rajendra Mullick's Will:
The court examined the will of Raja Rajendra Mullick to ascertain whether he created an absolute debutter or a partial debutter. The will contained numerous clauses that directed the application of income for religious, charitable, and familial purposes. The court noted that the will declared: "I hereby dedicate and make debutter my Thakoorbaree" and "I do hereby give, dedicate and make debutter in the name and for the worship of my Thakoor Sree Sree Jagannath Jee the following properties." These declarations indicated a full dedication to the deity.

However, the will also mentioned "shebaits and trustees" and "trusts," leading to ambiguity about whether the properties were fully dedicated to the deity or held in trust with obligations to expend the income for specific purposes. The court concluded that the testator intended to create an absolute debutter, as the primary intention was to dedicate the properties to Sree Jagannathji, with the shebaits managing the properties and fulfilling the testator's religious and charitable wishes.

3. Determination of Whether the Income was Diverted at the Source or Applied After Reaching the Deity:
The court considered whether the income was diverted at the source for specific purposes or applied after reaching the deity. The principle established in Raja Bejoy Singh Dudhuria v. Commissioner of Income-tax [1933] 1 ITR 135 (PC) was that income diverted at the source by an overriding charge is not taxable in the hands of the recipient. The court found that the will directed the shebaits to apply the income received from the debutter properties for specified purposes, indicating that the income was not diverted at the source but applied after reaching the deity.

4. Exemption of Certain Expenditures under Section 4(3)(i) of the Indian Income-tax Act, 1922:
The court agreed with the revenue's concession that amounts spent on feeding the poor and other public charitable purposes were exempt under section 4(3)(i) of the Indian Income-tax Act, 1922. The court held that expenditures on charitable purposes conforming to section 4(3)(i) and the Explanation to section 4(3) were not to be included in the total income. Additionally, the court affirmed that the income agreed to be excluded by the revenue in the High Court would remain excluded.

Conclusion:
The Supreme Court concluded that the properties were absolutely dedicated to the deity, Sree Jagannathji, creating an absolute debutter. The income was not diverted at the source but applied after reaching the deity. Expenditures on charitable purposes were exempt under section 4(3)(i) of the Indian Income-tax Act, 1922. The court answered the questions in favor of the revenue and against the assessee, directing the parties to bear their own costs throughout.

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