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TMI Blog1989 (6) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... died on22-1-1973. But the Trust was to take effect from the date of his death. The Trust was for charitable purposes. There is no dispute that but for clause (d) in the will, the other provisions were considered by the ITO as charitable in character. However, with regard to clause (d) in the will which provided that 1/4th of the property shall be utilised for the help of the deserving members of the family and for their studies and shall also be utilized for the marriages of the girls of the family, was interpreted by the ITO as the powers reserved by the settlor for the trustees for application of the Trust money for non-charitable purposes. On8-9-1980, the beneficiaries of the Trust had executed a deed of renunciation whereby they relinquished all their beneficial rights, title and interest in the will and it was provided that such interest of the beneficiaries could also be utilized by the trustees for charitable purposes mentioned in the will. 3. The Income-tax Officer observed that the amendment in the deed was without any authority provided in the original will and as such, not applicable, in view of the judgments cited by him including that of Madras High Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C, he heard the parties, considered the order of the ITO and came to the conclusion with the detailed reasons given in his order that the Trust was entitled to exemption as a charitable institution and the other conditions regarding accumulation and application of income had also been fulfilled. The appeal of the assessee was, therefore, allowed by treating the entire income of the Trust as exempt. Hence, the grievance of the Revenue. 7. We find after careful consideration of the rival submissions and the orders of the authorities below along with the authorities cited that the Income-tax Officer did not appreciate the provisions of the will, the deed of renunciation and other relevant provisions of law in the proper perspective. In the case of S. Ramaswamy Iyer the Madras High Court was deciding a case where a Trust was created under a deed wholly for charitable purposes and., there was a supplemental deed providing for expenditure in favour of poor relations of the founder. There was no provision in the original deed providing for alteration of terms and the High Court held that supplemental deed was not valid. In the case before us It is clear that the deed of renunciation was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , dismissed. 10. For the reasons assigned supra, which we apply with necessary changes to the asst. years 1978-79 and 1980-81, the appeals of the revenue are dismissed. Per Shri M.C. Agarwal, JM - I have read, with advantage, the order proposed by my learned brother Shri S.K. Chander and since I have not been able to agree with the findings, I record my views as below : 2. This is a case of a trust that claims to be one for charitable purposes. The trust therefore claims that its income is exempt from tax. 3. The trust in question christened as 'Mrs. Dwarika Prasad Trust' was created under a will dated15-8-1972executed by late Shri Girish Prasad, who died on22-1-1973. By the will the testator Girish Prasad bequeathed all his property to the seven trustees to be utilised as under : (i) 1/4th of the income from the property to be utilised by giving financial aid to medical students. (ii) 1/4th of the income to be spent on providing medical aid to poor persons. (iii) 1/4th of the income to be used for helping deserving members of the family of the testator/settlor in their studies or for any other purpose and "shall be utilised for the marriages of the girls of my fami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party to the relinquishment deed. This relinquishment did not extinguish the private or non-charitable character of the trust. The learned AAC has not looked into this aspect of the matter and has wrongly accepted the argument that all the private beneficiaries have given up their interest. The perfunctory manner in which he has looked at the documents is also evident from the observation that "the seven trustees are non-relative". The fact is that out of the seven trustees five are close relatives of the settlor being his mother, brother and three nephews. The relinquishment deed have not been executed by the entire body of beneficiaries, I hold that the trust in question continues to be a trust partly for private purposes and partly for charitable purposes. I further hold that income of such a trust is not exempt u/s 11 of the Income-tax Act. 7. The learned AAC has observed that since the Commissioner of Income-tax has registered the trust in question u/s 12A of the Income-tax Act as a charitable institution it was not proper for the ITO to have different findings. The learned AAC does not appear to have read section 12A carefully. It merely provides that sections 11 and 12 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeals but have a difference of opinion on the following point : --- "Whether, on the facts and in the circumstances of the case, the assessee-trust is entitled to exemption under the Income-tax Act, 1961 or not ?" 2. Therefore, u/s 255(4), we refer the above point of difference to the President of the Income-tax Appellate Tribunal for action u/s 255(4) of the Act, as the Hon'ble President may deem fit. THIRD MEMBER ORDER Per Ch. G. Krishnamurthy, President --- In these appeals filed by the Revenue, the question for consideration before the Tribunal was whether the Appellate Asstt. Commissioner had erred in law and on facts in holding that the income of the trust was exempt from tax alleging at the same time that the Appellate Asstt. Commissioner was silent on numerous contentions, which he has not referred to in his appellate order. 2. The relevant facts are that the assessee was a charitable trust registered with the Commissioner of Income-tax vide certificate dated17-9-1983and as such its income should be exempt from tax under the provisions of sections 11 to 13 of the Income-tax Act, 1961. One late Shri Girish Prasad was the owner of properties at 56, Civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll. Placing reliance upon a judgment of the Madras High Court in the case of S. Ramaswawy Iyer the Income-tax Officer more or less ignored the effect of the renunciation deed. The Income-tax Officer was also of the opinion that even if the renunciation deed was held to be valid, still it could not have any retrospective operation because that was registered on 12-9-1980 and that could not have covered the period under assessment, namely, assessment year 1975-76, for which relevant previous year ended on 31-3-1975. For this proposition, he relied upon a decision of the Calcutta High Court in the case of Sm. Charusila Dassi, In re. [1946] 14 ITR 362. Along with the return of income, the assessee claimed that it proposes to accumulate certain income for the purpose of the trust. Under section 11(2) of the Income-tax Act, the assessee has to give a notice to the Income-tax Officer about the accumulation. That notice has to be given within the time prescribed for filing the return originally fixed or the extended period from time to time. While the return in this case was due to be filed on30-6-1975, it was filed on24-11-1979along with form No. 10 but the Income-tax Officer held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that rule 17 was amended with effect from 1-4-1971 providing for time limits for the filing of the said form and according to that rule, form No. 10 has to be filed before the return was due originally or before the extended time and since the return in this case was filed on 24-11-1979 and was accepted by the Income-tax Officer as valid and processed for assessment, it must be held that the time for the filing of the return was extended and therefore there was no delay in the filing of the form No. 10. Therefore the accumulation was proper and legal. An argument was taken up before him that the income of the trust was not spent for charitable purposes as the expenditure included amounts spent on capital expenditure. Placing reliance upon two judgments of the High Courts, one in the case of Satya Vijay Patel Hindu Dharamshala Trust and Dayal Bagh Medical Relief Society v. ITO 1973 Tax LR 1082 (All.), he held that amounts spent on capital expenditure could be regarded as an expenditure and the application of the income for the purpose of the trust. Thus he revised the computation of income and found that the expenditure incurred was more than the income and therefore the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and friends of the settlor. According to him the renunciation deed executed by the beneficiaries on8-9-1980did not provide for the renunciation of the benefit under the will by all the beneficiaries. According to him only the trustees were parties to the renunciation deed and not the members of the family of the trustees and since the members of the family of the trustees did not join as parties to the renunciation deed, they could not be held to have renounced their interest in the trust and in the absence of a special mention regarding Shri Tapan Chakravorty, it must be held that he continued to have interest in the trust. Thus a relinquishment of beneficial interest only by a few of the beneficiaries did not extinguish the private or non-charitable character of the trust and this aspect of the matter was not looked into by the Appellate Asstt. Commissioner. This is the main reason advanced by the learned Judicial Member for his view that the trust in question continued to be a trust partly for private purposes and partly for charitable purposes. Regarding the registration granted by the Commissioner of Income-tax to the trust under section 12A, the learned Judicial Member held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution whichever is later : Provided that the Commissioner may, in his discretion admit an application for the registration of any trust or institution after the, expiry of the period aforesaid. (Sub-clause (b) is not quoted here as it is not relevant for our present purpose.) Rule 17A prescribes the procedures for making an application. It provides : "17A. An application under clause (a) of section 12A for registration of a charitable or religious trust or institution shall be made in duplicate in Form No. 10A and shall be accompanied by the following documents, namely :--- (a) where the trust is created, or the institution is established, under an instrument, the instrument, in original, together with one copy thereof ; and where the trust is created, or the institution is established, otherwise than under an instrument, the document evidencing the creation of the trust or the establishment of the institution, together with one copy thereof : Provided that if the instrument or document in original cannot conveniently be produced, it shall be open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrong to think that section 12A merely prescribed a mere formality to be complied with in a routine way without investigation and the grant of certificate did not mean that the trust was not otherwise entitled to exemption under section 11 and that it would still confer upon the Income-tax Officer a power to enquire into the character of the institution and deny exemption under section 11. We find ourselves unable to agree with this broad proposition. We are therefore of the opinion that the grant of certificate of registration by the Commissioner under section 12A has some pertinent significance and legal sanction behind it for the purposes of grant of exemption under section 11 and it could not be by-passed as mere idle formality. We cannot attribute idleness to the provisions made by the Legislature. This is also a fundamental rule of interpretation. The grant of certificate by the Commissioner of Income-tax under section 12A has therefore the significance of conferring upon the trust the right to claim that its income was entitled to exemption. In this aspect of the matter, the learned Accountant Member and the Appellate Asstt. Commissioner seem to us to be right in attaching i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joy the rent-free quarters at Nainital and residential flat at Bareilly as described in the will and that the beneficial interest would thereafter vest in the trustees and that the trustees should utilise the same for charitable purposes mentioned in the said will. This shows that the relinquishment took effect right from the date the will was executed, namely,15-8-1972. In view of this unequivocal surrender of their right and interest under the will, it cannot any more be said, in our opinion, that this relinquishment deed had no retrospective effect. As a consequence of the execution of the relinquishment deed, we think it is even open to the trustees to demand from the beneficiaries restitution of the benefits they derived under the trust right from the time the trust was executed even by instituting a suit for its recovery. Such being the position, it is in, our opinion idle to say that the relinquishment had no retrospective operation. 11. The trust deed provided in clause (d), which is the controversial clause, as under : "That 1/4th income of my property shall be utilised for the help of the deserving members of the family of the above Trustees either for their studies o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust. The trust does not therefore fail to seek exemption. In that case one of the objects of the company, which claimed exemption u/s 11 of the Income-tax Act, 1961 read with section 2(15) of the Income-tax Act provided that the company could do the needful for the promotion of industries. The argument was that since the objects provided for the promotion of industries, the trust cannot be said to be wholly for charitable purpose and therefore was not entitled to exemption under section 11 of the Income-tax Act. The Supreme Court found that although the objects clause provided for doing the needful for the promotion of industries, nothing was spent on industry or the company never engaged itself in any industry or in any other activity and therefore no importance could be attached to its objects relating to this particular object. Dealing with the effect of the presence of this object in the Memorandum of Association on the charitable nature, the Supreme Court pointed out at page 537 : "The second question presents no difficulty. The apprehension that in exercise of the power conferred by article 39 of the articles of association, the general meeting may set apart the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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