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TMI Blog1982 (8) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... arnest desire to serve his family members and relatives by founding a Medical Research institute. Whereas the founder has considered that the above objects of conducting a research on the lines indicated by him could be better achieved by creating a private medical research trust for the benefit of the following members of his family and their issues : (1) Smt. Ardhana R. Dhanwate (granddaughter of the founder), Ramdaspeth, Nagpur. (2) Kumari Pratibha R. Deshmukh (granddaughter of the founder), C/o Shri R.P. Deshmukh, 18/2, Alipore, Calcutta-27. (3) Kumari Sandhya H. Junnarkar (granddaughter of the founder), C/o Shri H.S. Junnarkar, Imperial Tobacco Co. Ltd., Tiruvattiyur Madras-19. (4) Kumar Sandeep H. Junnarkar (grandson of the founder), C/o Shri H.S. Junnarkar, Imperial Tobacco Co., Tiruvattiyar, Madras-19. (5) Nearest relatives of the founder who will be nominated by the (6) Employees of the founder sole trustee and issues of all these beneficiaries 1 to 6 through a Medical Research Institute formed out of the funds and property that would be allotted or dedicated to such trust, and" The persons mentioned at item Nos. 1 to 6 were declared as beneficiaries vide cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust deed. This was substituted by the following clause : " The sole managing trustee shall have the right to set right any technical flaw or omission that may be detected any time in future in this trust deed which may be repugnant to any law of the land in force and further he shall also have power to add, alter or modify the terms and conditions of this trust deed for better and efficacious management of the trust and trust properties and for achieving maximum benefits for the beneficiaries." Clause 26 of the original trust deed which declared the trust to be revocable was amended as follows : " The trust so created by the deed of trust dated 22-6-1967, shall be deemed to have always been intended to be irrevocable and shall for all times to come be an irrevocable creation of the founder." Clause 27 of the original deed stipulated that in case there are difficulties in carrying out the objects of the trust, the governing body and the advisory board shall find out proper ways and means to maintain and carry out the objects of the trust but should see that the trust never failed. This was substituted by a new clause as follows : " In case the Sole managing trustee and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was to be given to the founder's family members who on merit were found to be deserving from amongst several researchers and scholars, the ITO held that this, in effect, reduced the effect of clause 4 of the deed to give preference to the members of the settlor's family in respect of employment benefits generated by the trust. The clause determines the destination of the benefit of research carried on in the institute and does not refer to who could or not be employed by the institute for conducting the institute. He further observed that clause 25 of the deed dated 17-11-1969 gave wider discretionary powers to the sole managing trustee to modify the terms of the deed to achieve maximum benefit to the beneficiaries. This clause, according to the ITO, further made it clear that the trust was a private trust. He also distinguished the decision of the Supreme Court in Trustees of the Charity Fund v. CIT [1959] 36 ITR 513 and other cases cited by the counsel for the assessee. The ITO then referred to the provisions of clause 27 of the amended deed. In the ITO's analysis the trust could be wound up whenever in the opinion of the managing trustee, it was disadvantageous to work, the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he further held that the dominant purpose was to establish a Medical Research Institute and a library for the purpose. Thus, the object was educational or a charitable purpose. Clause 25, as amended on 17-11-1969, did not empower the founder or trustees to alter the objects. Clause 27 also did not empower the founder to revoke the trust at his sweet will. The condition that 50 per cent corpus would go to the family members at the time of dissolution has no bearing on the claim for exemption as long as the trust existed which was for a charitable purpose. The power given to the trustees to carry on business was not an object of the trust but was only ancillary for the main purpose of the trust. He also held that the object of the trust was education and so the last limb of section 2(15) was not attracted. On these grounds he held that the assessee was a Public Charitable Trust. As the assessee had not applied any part of income for establishing research institute, he held that no portion of the income for his year was entitled for exemption under the said section. He, however, directed that tax should be levied at the rate appropriate to an AOP and not at the maximum rate. The reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative was that the very fact that the last deed dated 28-4-1975 removed all the offending clauses was a pointer to the fact that the founder himself recognised that the earlier deeds did not remove the defects disentitling the trust for exemption. 8. The learned counsel for the assessee, Shri M.M. Jain, argued that the objects of the trust should not, in the first instance, be confused with the beneficiaries of the trust. Once the objects are found to be charitable, exemption would be available to the trust under section 11. If the income of the trust is not applied for charitable purposes, to that extent exemption would be denied. It may be taken that the income is not applied for charitable purposes if the benefit is passed on to private individuals and not to the members of the public. But that is not to say that the objects of the trust themselves are not charitable. He pleaded that the case has to be considered on the above lines. The aims and objects of the trust are : " To prosecute studies, carry out researches, submit thesis or publish literature conducive to the general well being of the humanity at large, particularly in the subjects and topics mentioned her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust was not charitable, the registration before the Charity Commissioner should have been challenged by the revenue. Lastly, it was submitted that the power to carry on business to augment the funds of the trust did not, in any way, affect the exemption of its income by virtue of the Supreme Court's decision---Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1. 11. We first dispose of the contention that the revenue has to accept the trust as a Public Charitable Trust when it is registered under the Bombay Public Trusts Act. It is well settled that the revenue matters are to be determined independently by the concerned authorities irrespective of the decision taken in such matters by the civil courts and the other authorities. The leading case in this connection is Vandervell Trustees Ltd. v. White 46 TC 341. In a dispute between the executors of an estate and a company which had been given an option to purchase certain shares settled in trust, the company being the trustee, the question came up whether the Commissioners of Inland Revenue could be impleaded as respondents. The Court of Appeal had held that where the Commissioners of Inland Revenue consented t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exploitation to the members of the founder's family, the ITO can hold that the application clause in section 11 has not been satisfied and bring the income of the trust to tax. Although the trust deed has been very clumsily drafted, it does appear that the main purpose of establishing the research institute is to carry on research in various subjects related to medicine and given an opportunity to deserving relatives, etc., to work in the institute. The preference being given to qualified members of the founder's family for carrying on research would not disentitle the trust to exemption in the light of the Supreme Court's decision in Trustees of the Charity Fund's case. We have also made it clear that if the result of any research is handed over for commercial exploitation by the members of the founder's family, etc., it would amount to non-application of the income for charitable purposes. As it is, even if that be the founder's intention, that appears to be a remote possibility. The funds placed by the founder at the disposal of the institute could hardly expect it to carry the research to a stage comparable to that achieved in advanced countries. As a matter of fact, the instit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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