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TMI Blog1946 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... be applied to the trust objects, and thus leaves a surplus. In the circumstances which will be set out presently, the assessee has become entitled to the surplus. He is annually assessed to income-tax in his capacity as the managing trustee in respect of the trust income. The net income is computed in his hands, and the surplus is thereafter carried to his personal assessment and included in his own total income. We are not concerned with the assessment of the trust in this reference which relates to his personal assessment alone. His total income assessable in the year 1941-42 includes an amount of ₹ 23,515 which is the surplus income of the trust estate of the account year. There is no dispute as to the quantum of this surplus. But the assessee's contention is that it is exempt from income-tax under Section 4(3)(i) of the Act. That, broadly stated, is the point involved in the question that we propose to submit for their Lordships' opinion. 3. The material facts have been stated in detail in paras. 3 to 8 of judgment. For the purpose of this reference, however, we shall state only those that are agreed to between the two sides and help to understand the question. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karsondas Natha as the chief executor executed a deed, with the previous approval of the High Court, appointing a body of trustees, including himself as the first managing trustee. A copy of the trust deed is Exhibit A in the annexure. Schedules I and II to the deed describe, respectively, the immovable properties and the securities held in the trust according to the High Court's direction. The deed declared that these properties shall be held by the trustees absolutely in trust and for ever. 5. Although these properties and securities were expected to fetch an annual income of ₹ 26,000 yet, as a matter of fact, they began to yield more, probably due to the steady rise of rents in Bombay. As a result, surplus again began to be left in the trustees' hands. In 1917, Karsondas Natha brought a third suit in the High Court and obtained a declaration that he was entitled to the accumulations and annual surplus. He died in 1927, and the assessee who was a co-trustee succeeded to the management of the trust. Here it may be mentioned that although Karsondas Natha had taken over the residue of the trust estate in virtue of the consent decree, he had left the surplus to accumul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, title and interest in the immovable properties described in the said Deed of Trust in the First Schedule thereto and in Schedule "A" hereunder written, as also my right, title and interest in the securities mentioned in Schedule "B" hereunder written and belonging to the Trust created under the said Deed of Trust and the income accruing to my said right, title and interest or the accumulations thereof, upon Trust for religious and charitable objects; Now know ye and these presents witness that I, the said Vallabhdas Karsondas Natha, do hereby declare that all my right, title and interest into or to the immovable properties and the securities described and mentioned respectively in Schedules "A" and "B" hereunder written, and the income of which being the surplus referred to above, is payable to me every year in accordance with the terms of the decree in Suit No. 1293 of 1934 (O.S.) is dedicated for ever by me for religious and charitable objects such as (1) Poor Relief, (2) Famine Relief, (3) Providing medical or surgical relief to the needy and poor, (4) Supply of fodder to animals and cattle, (5) Advancement of Education, (6) Advancement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two appeals to the Tribunal, one from his assessment as trustee and the other from his personal assessment. We heard and disposed of both of them in one judgment recorded in the assessee's personal assessment. We held that the surplus income in question was not income from property held under trust and sustained the order of the Appellate Assistant Commissioner. A copy of our judgment is Exhibit F. 9. We shall presently set out our findings. But before doing so, it is necessary to digress a little and make a brief reference to the earlier appeal of the assessee (R.A.A. No. 197-Bombay, 1941-42) in order to explain one of our findings. It was an appeal from the assessee's assessment for the year 1940-41. In that assessment the assessee for the first time claimed exemption for the surplus income that he had received from the Keshavji Jadhavji Trust estate in the material year of account, under Section 4(3)(i) of the Indian Income-tax Act. In this connection, he relied on paragraph 8 of his plaint in Suit No. 1293 of 1934 contending that the expression of his desire to devote the surplus income for charitable and religious purposes amounted to a valid declaration of trust; an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he thought that the income that accrued due during the last 24 days of the year of account would be governed by different considerations inasmuch as it was the subject matter of a deed of trust executed on October 7, 1940. We have referred to this aspect of the matter in paragraph 13 of our judgment. 11. Thus, the three main points that arose before us in the appeal in connection with the present assessment were:― (1) Whether the income of 11 months and 6 days prior to the date of the deed of trust was income from property held under trust so as to be exempt from taxation under Section 4(3)(i); (2) Whether the assessee owned any undivided share in the corpus of the Keshavji Jadhavji Trust so that he could settle his right, title and interest in such share upon trusts of his own by means of the deed of October 7, 1940; and (3) Whether the income of the last 24 days of the account year, which according to the assessee was attributable to such right, title and interest, was income from property held in trust or other legal obligation for charitable and religious purposes so as to be exempt from taxation under Section 4(3)(i) of the Act. On the first point we did not see an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 23,515 received by the assessee as surplus income of the trust property of the Keshavji Jadhavji Trust, or any part of that sum, is exempt from taxation under Section 4(3)(i) of the Indian Income-tax Act?' " Sir Jamshedji Kanga, K. M. Munshi and Goregaoker, for the assessee M. C. Setalvad and Joshi, for the Commissioner JUDGMENT STONE, C.J.―This reference under Section 66(1) of the Indian Income- tax Act raises a short point, though one which has shown a tendency to become obscured by the historical background and by the more prominent features concerning questions of fact, of recent times. The question which has been referred to us is in these terms:- Whether in the circumstances of the case the sum of ₹ 23,515 received by the assessee as surplus income of the trust property of Keshavji Jadhavji Trust, or any part of that sum, is exempt from taxation under Section 4(3)(i) of the Indian Income-tax Act? Before turning to the somewhat involved circumstances of the case, it is essential to consider and bear in mind the terms of sub-section 4(3)(i) of the Act. It is that sub-section which exempts from the incidents of taxation certain types of income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement dated the 1st of April 1908, which was sanctioned by the Court, there was a settlement of parts of the testator's estate and of part of the accumulated surplus which was calculated to be sufficient to produce the annual sum of ₹ 26,050 and it is that trust fund, which is the "property" within the meaning of Section 4(3)(i) of the Act and which has produced the ₹ 23,515 mentioned in the question referred to us. Under the settlement of 1908, surplus income again began to accumulate, and the assessee's father brought a third suit in this Court to have the destination of that surplus determined. Again it was declared that the surplus belonged to the assessee's father and again in view of declarations of this Court, challenge to the trusts of the 1908 settlement as not being religious or charitable, does not lie. The assessee's father died in 1927 and the assessee as his heir brought in 1934 a fourth suit in this Court to have the destination of the then existing accumulations and surplus determined. On the 12th of October 1934, Mr. Justice Tyabji declared that on the construction of the decree in Suit No. 785 of 1903 and Suit No. 989 of 191 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om I may appoint along with me, with and subject to the powers and provisions hereinafter declared." And later on in the deed, it is provided, that:- "During my lifetime and while I continue to be a Trustee either alone or with others along with me, the entire management of the Trust properties and the Trust Funds shall remain with me and be conducted by me and according to my desire; and all the powers hereinbefore mentioned shall be vested in me and be exercised by me alone. and provided further that I do hereby reserve to myself the liberty and power to revoke this Trust at any time after six years from the date hereof." The assessee is still the sole trustee of this deed, and there is nothing on the record to show that express notice of the 1940 deed was given to the trustees of the 1908 settlement, though Sir Jamshedji Kanga, on behalf of the assessee, states that notice was in fact given. However, the assessee is one of the three trustees of the 1908 settlement, and he is also the sole trustee of the 1940 deed, and in my opinion from the circumstances constructive notice must be assumed, in the absence of proof of express notice having been given. Mr. Seta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the feeding of animals which are obnoxious to mankind cannot, in my view, be said to be beneficial to the public. However, we are considering, the will of a Hindu, and apart from the charitable aspect of the matter, the feeding of dumb creatures is in Hindu religion regarded as religious. Further, as has been pointed out in All India Spinners' Association v. Commissioner of Income- tax. Bombay [1944] 12 I.T.R. 482, by Lord Wright in delivering the judgment of the Board at page 486:- "The Indian Act gives a clear and succinct definition which must be construed according to its actual language and meaning. English decisions have no binding authority on its construction and though they may sometimes afford help or guidance, cannot relieve the Indian Courts from their responsibility of applying the language of the Act to the particular circumstances that emerge under conditions of Indian life." The definition to which Lord Wright there refers is to be found at the end of Section 4(3) of the Act, and it is in these terms:- "In this sub-section 'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 4(3)(i). In my opinion the words "or other legal obligation" in that sub-section cover such a case as this, in which the trustees of the original settlement are bound to pay income to other trustees who in their turn are bound to apply it for purposes which are religious or charitable. If that be so the capital fund from which the whole income springs is held by the 1908 trustees since the 7th October, 1940. for religious or charitable purposes since the whole of the income is by the conjoint effect of the 1908 settlement and the 1940 deed to be applied for religious or charitable purposes. Accordingly in my opinion the question should be answered by saying that the ₹ 23,515 must be apportioned and that that part of it which is attributable to the period 1st November, 1939, to the 7th October, 1940, does not escape taxation but that the portion attributable to the period 7th October to the 31st October, 1940, is exempted from taxation under Section 4(3)(i) of the Act. Commissioner must pay the costs. CHAGLA, J.―The assesses before us claims exemption in respect of the sum of ₹ 23,515 as falling under Section 4, sub-section (3), sub-clause (i), o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , became trustees as a consequence of the resulting trust for the assessee in respect' of the surplus income. To my mind, reading the judgment and the decree, it is clear that a right was conferred upon the assessee of payment of the surplus income out of a specific property and that specific property was the trust properties held in trust under the deed of trust of the 1st of April, 1908. If that be so, I fail to understand how it can be argued that the assessee had no right, title or interest in the trust properties held under the deed of trust of the 1st of April, 1908. The right, title and interest of the assessee was the right to receive the surplus income out of the trust properties and it is this right, title and interest that is settled upon trust by the deed of trust of the 7th of October, 1940, and it is not disputed that the surplus income of ₹ 23,515 or a portion of it is the income derived from this property. Even assuming I am wrong, the fact still remains that by the decree of the 13th of October, 1934, the right to receive the surplus income was conferred upon the assessee. Now a right to receive income from a property even though through the intervention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out, all that the section requires is a nexus between the property and the income or a sum of money which should represent property held in trust. Undoubtedly the amount derived by the assesses and for which he claims an exemption is represented by his right to receive the surplus income from the trustees of the 1908 trust out of the income of the trust properties. With respect to the Tribunal, they seemed to have taken a view which is entirely unwarranted by the true position in law. They seemed to take the view that as this income was contingent upon there being any surplus at all, therefore it was not property. Now it is almost an elementary proposition that even a contingent interest is transferable and attachable and is as much property as a vested interest. The next question is whether the property is settled upon religious and charitable trusts. Now the settlor in the 1940 trust dedicates the property for ever for religious and charitable objects; and then he goes on, as and by way of illustration, what, according to him, those objects are. Now, in my opinion, the trust deed discloses a dominant and overriding charitable intention. The dedication is to religious and char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy said this at page 122:― "A gift for the benefit and protection of animals tends to promote and encourage kindness towards them, to discourage cruelty, and to ameliorate the condition of the brute creation, and thus to stimulate humane and generous sentiments in man towards the lower animals, and by these means promote feelings of humanity and morality generally, repress brutality, and thus elevate the human race." Mr. Setalvad has relied on a later decision of the Court of Appeal and has suggested that the authority of this decision has been considerably impaired. That is a decision reported in In re Grove-Grady: Plowden v. Lawrence**. The bequest of a testatrix who gave her residuary estate to her trustees to form a trust for the founding, establishing and maintaining of a charitable institution to be called "The Beaumont Animals Benevolent Society" came up for consideration in that case. Mr. Justice Romer held that the bequest was a good charitable bequest. The Court of Appeal, Lord Hanworth, Master of the Rolls, and Lord Justice Russell held to the contrary; Lord Justice Lawrence dissenting. So it will be noticed that out of the four learned Judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in Sections 14, 16 and 17 of that Act refers to transfer in perpetuity for the benefit of the public in the advancement of religion, knowledge, commerce, health, safety, or any other object beneficial to mankind. Mr. Setalvad has relied on a decision of a Divisional Bench of this Court reported in [1942] 10 Income Tax Reports, page 26. That was the case of Lokamanya Tilak Jubilee National Trust Fund, and it was decided by Sir John Beaumont, Chief Justice, and Mr. Justice Kania; and what is relied on is the observation of the learned Chief Justice at page 32:― "But I know of no authority for the proposition that a gift for such purposes as a particular individual or individuals may consider to be charitable is good." Now in that case it was left solely to the discretion of the managing committee to decide on what objects the income should be spent. If in this case it was left to the discretion of the trustees to determine what objects are beneficial to the Hindu community and Indians in general and what are not, I entirely agree that it would not be a good charitable gift; but it is not left to the- discretion of the trustees. They have to spend money on obj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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