1965 (11) TMI 16 - HC - Income Tax

Income from the trust - exemption from income-tax under section 4(3)(i) of the Indian Income-tax Act

Summary

Issues Involved:
1. Whether the income from the trust was exempt from income tax under section 4(3)(i) of the Indian Income-tax Act.
2. Interpretation of the trust deed and its objects.
3. Applicability of the supplementary trust deed.
4. Dominant intention of the trust.
5. Public vs. private character of the trust's purposes.
6. Precedents and case law interpretation.

Detailed Analysis:

1. Whether the income from the trust was exempt from income tax under section 4(3)(i) of the Indian Income-tax Act:
The primary issue was whether the income from the trust was exempt under section 4(3)(i) of the Act. The relevant portion of the section states that any income derived from property held under trust wholly for religious or charitable purposes is exempt from tax, provided the income is applied or accumulated for such purposes. The essential conditions for exemption include the property being held under trust for religious or charitable purposes and the income being applied or accumulated for such purposes.

2. Interpretation of the trust deed and its objects:
The trust deed outlined several objects, including promoting education, maintaining temples, providing medical aid, and aiding family members. The Income-tax Officer denied the exemption because the trust deed allowed aid to persons belonging to the Lath family, which was not exclusively charitable. Despite the fact that the income had been used for charitable purposes, the presence of sub-clause (vi) allowing aid to family members was a significant factor against the exemption.

3. Applicability of the supplementary trust deed:
The supplementary trust deed introduced new clauses but was not considered retrospective by the Income-tax Officer. This meant that the changes could not affect the assessment years in question. The Tribunal upheld this view, stating that the supplementary deed could not retrospectively alter the original trust deed for the relevant assessment years.

4. Dominant intention of the trust:
The Appellate Assistant Commissioner had initially concluded that the dominant intention of the trust was charitable, despite the presence of sub-clause (vi). However, the Tribunal disagreed, emphasizing that the trust deed allowed aid to family members without specifying that it should be for charitable purposes. The Tribunal's interpretation was that the trust did not qualify for exemption because the trustees had the discretion to use the income for non-charitable purposes.

5. Public vs. private character of the trust's purposes:
For a purpose to be considered charitable, it must benefit the community or a section of the community, not private individuals. The Tribunal noted that the trust could aid any member of the Lath family, regardless of their financial status, which did not meet the public character requirement. The court emphasized that aid could mean various forms of support, not necessarily charitable, such as interest-free loans for business or studies.

6. Precedents and case law interpretation:
Both parties cited various cases to support their arguments. The court discussed several precedents, including:
- Commissioner of Income-tax v. Walchand, Diamond Jubilee Trust: The court noted that the trust's purpose was charitable despite the accumulation of income for 18 years.
- Trustees of the Charity Fund v. Commissioner of Income-tax: The court distinguished this case, noting that the trust was primarily for the Jewish community's benefit, with preference given to the settlor's family only if they were poor or indigent.
- Commissioner of Income-tax v. East India Industries (Private) Ltd.: The court agreed with the view that a trust with mixed charitable and non-charitable objects and unfettered trustee discretion does not qualify for exemption under section 4(3)(i).

Conclusion:
The court concluded that the trust did not qualify for exemption under section 4(3)(i) because the trust deed allowed aid to family members without specifying that it should be for charitable purposes. The amendments to the trust deed were not retrospective, and the trust's dominant intention was not exclusively charitable. The question referred to the court was answered in the negative, and each party was ordered to bear its own costs.