1968 (10) TMI 16 - HC - Income Tax

Exemption under section 4(3)(i) - charitable object - income set apart for purchasing properties for the trust would fall within the exemption - there can also be no doubt that giving food clothing education marriage and funeral expenses of members of the executor s family who are poor and suffering on account of financial distress would also be a charitable object

Summary

Issues:
1. Interpretation of section 4(3)(i) of the Indian Income-tax Act, 1922 regarding exemption of income from specific properties of a charitable trust.
2. Determination of whether one-eighth of the income from properties described in schedules B and C of a charitable trust is exempt from income tax liability.

Detailed Analysis:
The judgment delivered by the High Court of Kerala pertains to a reference under section 66(2) of the Indian Income-tax Act, 1922, initiated by the Commissioner of Income-tax, Kerala. The primary issue at hand was the interpretation of whether one-eighth of the income derived from properties listed in schedules B and C of a charitable trust is exempt from income tax liability under section 4(3)(i) of the Act. The assessee in this case is the managing trustee of the charitable trust, and the deed of trust outlines specific provisions regarding the allocation and utilization of income from the trust properties.

The deed of trust specifies that a portion of the income from properties in schedules B and C is to be utilized for various purposes such as maintenance, improvements, land revenue, and other expenses. Furthermore, it delineates that one share of the income should be allocated for improvements to buildings and for renting purposes, while the remaining shares are designated for charitable activities benefiting the community and descendants of the executor facing financial distress. The court noted that the income set aside for purchasing properties for the trust and for providing for the poor members of the executor's family in need would fall within the ambit of charitable objectives.

The court referred to a previous case where it was established that income earmarked for purchasing trust properties would be exempt from income tax. Similarly, providing for the basic needs and expenses of poor family members aligns with charitable purposes. Consequently, the court concluded that the entire one-eighth share of income from properties in schedules B and C is entitled to exemption under section 4(3)(i) of the Act. Therefore, the Income-tax Appellate Tribunal erred in holding that only a portion of the income was exempt from tax liability.

In conclusion, the court ruled in favor of the assessee, against the Commissioner of Income-tax, and directed that each party bear their own costs. Additionally, a copy of the judgment would be forwarded to the Income-tax Appellate Tribunal as mandated by section 66(5) of the Act.