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TMI Blog1987 (5) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... i Laxniinarain Lath by a settlement deed (annexure D) dated August 25, 1948. By the said settlement deed, the settlor, Shri Laxmi Narain Lath, transferred to the trustees a sum of Rs. 5,000 and the investment for the time being representing the same and all other sums of property for the time being forming part of the trust estate to have and to hold the same unto the trustees for the objects mentioned in clause 2 of the said settlement deed. In sub-clauses (i) to (xv) of clause 2 of the settlement deed, the objects of the trust were set out. The said objects were, inter alia, advancement of education amongst Hindus at Mandrella in the former Jaipur State or any other place in India, puja to Shiva, establishment of temples, dharamshalas, hospitals, orphanage homes, provision of medical aid and relief to suffering people by aiding, establishing and maintaining hospitals, dispensaries and nursing homes and providing help for victims of natural calamities, etc. One of the objects as mentioned in sub-clause (vi) of clause 2 was " to render aid to any persons belonging to the family of Laths and to grant monthly and other periodical aids to them ". Under the said settlement deed, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said amendments could not be held to be retrospective in operation. It appears that subsequently' in respect of the assessment years 1959-60 to 1966-67, the income-tax authorities allowed exemption to the assessee treating it as a trust wholly for charitable and religious purposes within the meaning of section 4(3)(i) of the 1922 Act and section 11 of the Income-tax Act, 1961 (hereinafter referred to as " the 1961 Act "). In relation to the assessment years 1967-68, 1968-69, 1969-70 and 1970-71, the Bombay Bench of the Tribunal, by its order dated September 30, 1975 (annexure H), after considering the amendments made in the settlement deed by the supplementary deed, has held that the amendments made in the settlement deed by the supplementary deed are not valid in law and that in spite of the supplementary deed, it could not be said that the assessee has acquired the status of a trust wholly for charitable and religious purposes so as to entitle it to exemption under section 11 of the 1961 Act and the Tribunal, therefore, held that the assessee was not entitled to exemption under section 11 of the 1961 Act. In relation to the assessment year 1972-73, the Income-tax Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration to the aforesaid submission of Shri Ranka, but we are unable to accept the same. In Lakshmi Narain Lath Trust v. CIT [1969] 73 ITR 402, this court has taken note of the principle, on which reliance has been placed by Shri Ranka, that the dominant intention of the settlor must be found out and where the dominant intention is one of charity, in general, the trust will still be held to be wholly charitable in character and would qualify for exemption. This court has, however, held that the said principle could not be applied in the case of the assessee, because, under clause 2(vi) of the settlement deed, the trustees were given full discretion to spend the trust fund and in doing so they could spend the entire fund on one of the objects to the exclusion of the others and it is permissible for the trustees to spend the entire fund for the object set out in clause 2(vi), namely, for the aid of the members of the settlor's family and the said object could not be held to be a charitable purpose. The said view of this court has been approved by the Supreme Court in Yogiraj Charity Trust v. CIT [1976] 103 ITR 777, wherein the Supreme Court has observed as under (p. 784): " Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed could be modified only with the consent of the beneficiaries and in a case where the beneficiaries are found to be incompetent to contract, approval of the court was necessary which had not been obtained in this case. The Bombay Bench of the Tribunal has, in this connection, referred to sections 11, 58, 61 and 78 of the Indian Trusts Act, 1882. We have looked into the said provisions of the Indian Trusts Act, 1882. Section 9 makes provision with regard to persons who may be beneficiaries. Section 11 relates to the duties of the trustees to execute the trust. Section 58 relates to the right of the beneficiary to transfer his beneficial interest. Section 61 provides for the right of the beneficiary to compel the trustee to perform any particular act or his duty. Section 78 provides for revocation of the trust. On a closer reading of the order of the Bombay Bench of the Tribunal, we find that the Tribunal has relied upon section 11 of the Indian Trusts Act. Shri Surolia, learned counsel for the Revenue, has also laid stress on the provisions of the said section which provide as under : " Section 11 : Trustee to execute trust.-The trustee is bound to fulfil the purpose of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not germane to the general law of trusts, but we need have no inhibitions in administering the law by invoking the universal rules of equity and good conscience upheld by the English judges, though also sanctified by the statute relating to private trusts. The courts below have drawn inspiration from section 83 of the Trusts Act and we are not inclined to find fault with them on that score because the provision merely reflects a rule of good conscience and of general application." The question which needs to be considered is whether the rule incorporated in section 11 of the Indian Trusts Act can be regarded as a rule which is germane to the general law of trusts to be applied as part of the rules of equity and good conscience to public trusts. In this context, it may be stated that in a private trust the beneficiaries are a determinate body and, therefore, any modification in the matter of terms of the author of the trust is required to be made with the consent of all the beneficiaries who are competent to contract and in cases where the beneficiary is incompetent to contract, his consent may be given by the civil court. The situation in the case of a public trust is, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments introduced in clause 2(vi) of the settlement deed by the supplementary deed was causing prejudice to any of the beneficiaries, viz., the members of the family of Laths, they could challenge the validity of the supplementary deed in an appropriate proceeding in a competent court and till the supplementary deed is held to be invalid by a competent court, the supplementary deed must be held to be valid and it is not open to the income-tax authorities to treat it as invalid and to refuse to recognise the same. The income-tax authorities could ignore the supplementary deed if it was not found to be genuine and was found to be fictitious or sham. There is no such finding by the income-tax authorities in the present case. On the other hand, we find that the supplementary deed has been acted upon by the trustees and, therefore it, cannot be said that the amendments introduced by the supplementary deed are fictitious or sham. It would also be relevant to mention that in the present case, there was no binding obligation on the trustees to use the income of the assessee for the object mentioned in clause 2(vi), namely, " to render aid to any persons belonging to the family of Laths an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the supplementary deed dated May 21, 1958, is examined, it will be noticed that in the said deed, the settlor and the trustees have stated that by the settlement deed dated August 25, 1948, the settlor intended to create a public charitable trust for the benefit of the public in general and not for the benefit of any particular family or community and that unfortunately through inadvertence certain words had crept in some of the sub-clauses of the object clause (2) of the settlement deed and that tile said accidental slip in the object clause had lately been brought to the notice of the settlor and the trustees and the settlor and the trustees were desirous of putting on record the true intention of the settlor and of the trusts created by him under the said deed of settlement and rectifying the mutual mistakes appearing therein in the manner expressed in the said supplementary deed. This would show that the settlor felt that on account of the words used in certain sub-clauses of object clause (2), the true intention of the settlor was not being reflected and, therefore, it was necessary to rectify the said mistakes in the original settlement deed so as to put on record the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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