1982 (8) TMI 138 - AT - Income Tax

Issues Involved:
1. Charitable nature of the trust.
2. Applicability of section 11 of the Income-tax Act, 1961.
3. Application of section 164(2) of the Income-tax Act, 1961.
4. Eligibility for relief under section 80L of the Income-tax Act, 1961.
5. Exemption under section 5(1)(i) of the Wealth-tax Act, 1957.

Issue-wise Detailed Analysis:

1. Charitable Nature of the Trust:
The primary issue was whether the trust, created by Madhavrao Gangadharrao Chitnavis, was a public charitable trust. The trust deed dated 22-6-1967, and subsequent amendments, indicated that the trust aimed to form a Medical Research Institute. The preamble of the deed stated the founder's desire to serve his family and relatives through this institute. The ITO held that the trust was private, as the benefits of research were to go preferably to the founder's family. However, the AAC accepted the claim that the dominant purpose was educational and charitable, and the preference given to deserving family members did not affect the charitable nature of the trust.

2. Applicability of Section 11 of the Income-tax Act, 1961:
The ITO rejected the exemption under section 11, arguing that the trust was private and the income could benefit the founder's family. The AAC, however, held that the trust's object was charitable, as it aimed to establish a Medical Research Institute. The Tribunal agreed with the AAC, stating that the trust's objects were charitable, but emphasized that if the income was applied for non-charitable purposes, exemption under section 11 could be denied.

3. Application of Section 164(2) of the Income-tax Act, 1961:
The ITO applied section 164(1), taxing the trust at the maximum rate, as the beneficiaries were not known or their shares were indeterminate. The AAC directed the ITO to tax the trust at the rate applicable to an AOP, under section 164(2), as the trust was charitable. The Tribunal upheld this direction, confirming that section 164(2) applied since the trust was charitable.

4. Eligibility for Relief under Section 80L of the Income-tax Act, 1961:
The revenue contended that section 80L was not applicable to an AOP. However, since the Tribunal held that section 11 applied to the trust, making the entire income exempt except the portion not applied for charities, the ground was considered academic and rejected.

5. Exemption under Section 5(1)(i) of the Wealth-tax Act, 1957:
The Tribunal held that since the trust was charitable, its wealth was exempt under section 5(1)(i) of the Wealth-tax Act, 1957. This exemption applied to the assessment year 1971-72 as well, given that the valuation date was subsequent to the amendment deed dated 17-11-1969.

Conclusion:
The Tribunal dismissed the revenue's appeals, confirming that the trust's objects were charitable and that it was entitled to exemptions under the relevant sections of the Income-tax and Wealth-tax Acts. The trust's wealth was also exempt for the specified assessment years.

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