1995 (11) TMI 1 - SC - Income Tax

Assessee is entitled benefit of section 4(3)(i) - income derived by assessee from the trust properties will get exempted u/s 4(3)(i) as the deed of 1955 is held to be having objects of wholly charitable nature - Once it is held that clause 2(b)(i) of the 1945 rectification deed imposed an obligation on the trustees to utilise the trust property for the benefit of the settlor-company s own workmen and employees, it would cease to be projecting an object of providing relief to poor workmen only

Issues Involved:
1. Jurisdiction of the civil court to grant rectification of the trust deed.
2. Conditions precedent for invoking jurisdiction for rectification.
3. Binding nature of rectification decree on income-tax authorities.
4. Retrospective effect of the second rectification decree.
5. Public charitable nature of the trust after rectification.
6. Colourable device and genuine charitable intention.

Detailed Analysis:

Contention No. 1: Jurisdiction of the Civil Court to Grant Rectification
The court examined whether the civil court had the jurisdiction to rectify the trust deed under Section 26 of the Specific Relief Act, 1963, and Section 31 of the earlier Act. It was determined that a trust deed qualifies as an "instrument in writing" and thus can be rectified by the civil court. The court rejected the Revenue's reliance on the Andhra Pradesh High Court decision in Trustees of H. E. H. the Nizam's Pilgrimage Money Trust v. CWT, noting that the facts of that case were different and did not apply here. The court concluded that the civil court had the requisite jurisdiction to entertain rectification proceedings.

Contention No. 2: Conditions Precedent for Invoking Jurisdiction for Rectification
The court considered whether the conditions precedent for rectification-fraud or mutual mistake-were satisfied. It was found that the settlor-company had clearly indicated a mutual mistake in the rectification proceedings, as the original intention to create a public charitable trust was not clearly expressed in the original deed. The court held that the Revenue, not being a party to the instrument, could not challenge the existence of mutual mistake. The court cited the Delhi High Court's decision in Jagdamba Charity Trust v. CIT, which supported the binding nature of civil court rectification orders on income-tax authorities.

Contention No. 3: Binding Nature of Rectification Decree on Income-Tax Authorities
The court addressed whether the rectification decree was binding on income-tax authorities. It was concluded that although the rectification order is a judgment in personam and not in rem, it remains relevant under Section 43 of the Indian Evidence Act. The court held that the Income-tax Officer must consider the rectified instrument for assessment purposes, even if the Revenue was not a party to the rectification proceedings.

Contention No. 4: Retrospective Effect of the Second Rectification Decree
The respondent-assessee conceded that the second rectification decree of 1955 had no retrospective effect and would operate prospectively from the date of rectification, covering assessment years 1956-57 onwards. The court agreed, holding that the rectification had no retrospective effect on assessment years 1949-50 to 1955-56.

Contention No. 5: Public Charitable Nature of the Trust After Rectification
The court examined whether the trust deed, as rectified in 1955, created a public charitable trust. It was determined that the objects of the trust, as amended, were charitable and meant for the benefit of a well-demarcated mass of humanity. The court rejected the Revenue's argument that the trust was a private trust benefiting only the workmen of the settlor-company. The court found that the trust deed's objects were specific and charitable, benefiting the general public, including poor workmen in Kanpur and surrounding areas.

Contention No. 6: Colourable Device and Genuine Charitable Intention
The court considered whether the 1945 rectification created a public charitable trust. It was argued that the term "workmen in general" referred to a well-defined class of poor and needy persons, forming part of the general public. However, the court found that the trust deed imposed an obligation on the trustees to benefit the workmen and employees of the settlor-company, making it a private trust. The court concluded that the 1945 rectified deed did not create a public charitable trust.

Conclusions:
1. The respondent-assessee is not entitled to income-tax exemption for assessment years 1949-50 to 1955-56 under Section 4(3)(i) of the 1922 Act.
2. The respondent-assessee is entitled to income-tax exemption for assessment years 1956-57 to 1961-62 under Section 4(3)(i) of the 1922 Act, as the 1955 rectified trust deed is considered to have charitable objects.
3. For assessment years 1962-63 to 1965-66, the respondent-assessee is entitled to exemption under Section 11 of the 1961 Act, subject to compliance with conditions.

Final Order:
1. Question No. 1 (assessee): Affirmative in favor of Revenue.
2. Question No. 2 (assessee): Affirmative in favor of Revenue.
3. Question No. (a) (Revenue): Affirmative in favor of assessee.
4. Question No. (b) (Revenue): Negative in favor of assessee.
5. Question No. (c) (Revenue): Affirmative in favor of assessee.
6. Question No. (d) (Revenue): Negative in favor of assessee.
7. Question No. (e) (Revenue): Negative in favor of assessee.

Seven appeals for assessment years 1949-50 to 1955-56 allowed in favor of Revenue. Ten appeals for assessment years 1956-57 to 1965-66 dismissed. No order as to costs.

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