9911796707
TMI Blog1975 (2) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... rimarily for the residence of workmen employed by the company and its allied concerns. In Re Mercantile Bank of India Agency Ltd. [1942] 10 ITR 512, the Calcutta High Court held that a trust created for the benefit of one's employees was not a charitable trust within the meaning of s. 4(3)(i) of the Indian I.T. Act, 1922. The company filed Suit No. 40 of 1945 in the Civil Courts at Kanpur for a rectification of the trust deed so as to bring it in conformity with its real intention to create a public charitable trust. The trustees were, inter alia, the defendants to the suit. The Civil Judge, Kanpur, by a decree dated 18th August, 1945, ordered the rectification of the deed of trust in terms prayed for. After rectification the objects of the trust was to establish residential quarters for the workmen, staff and other employees of the company and its allied concerns. On 15th January, 1946, the three Singhania brothers retired from partnership firm called J. K. Hosiery Factory. On 5th February, 1946, the firm, J. K. Hosiery Factory, was reconstituted. In the reconstituted firm the Kamla Town Trust became a partner. In the assessment proceedings for the year 1948-49 relating to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. The High Court had also held that the original cl. 3(19) of the memorandum of association of the settlor-company empowered the company to establish a public charitable trust. The deed of trust was hence within the scope of the powers possessed by the company even prior to the amendment of its memorandum of association. The High Court further held that, after the first rectification of 1945, the objects of the trust were partly charitable but partly non-charitable. The objects being mixed, the trust was not purely charitable, so as to be exempt from tax. The Tribunal held that these findings of the High Court were binding on it. It followed them. The Tribunal then considered the effect of the second rectification made by the decree dated 18th August, 1955, and held that after this rectification the trust became a public charitable trust, so as to be exempt from tax. The Tribunal reached this conclusion by consideration of the objects clause of the trust as verified by the circumstance that in fact no distinction was made between the tenants, who belonged to the J. K. group, and those who came from other vocations of life in deciding upon the prospective tenants of the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect of rectifying the deed of trust dated 27th October, 1941 as from the date of its execution ? In substance, both these questions raise the problem whether the second rectification operated retrospectively with effect from 27th October, 1941, or only prospectively with effect from the date of the rectification decree. At the instance of the revenue, the Tribunal has referred to us the following five questions of law (a) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding by following the decision of the Allahabad High Court in the case of J. K. Hosiery Factory v. Commissioner of Income-tax [1971] 81 ITR 557 that even the unamended clause 3(19) of the memorandum of association of the settlor-company, viz., M/s. J. K. Cotton Spinning and Weaving Mills Co. Ltd., empowered the company to create public charitable trust and the insertion of sub-section (22) in clause 3 of the memorandum of association by the company was a matter of abundant caution ? (b) Whether, on the facts and in the circumstances of the case, it is open to the revenue to take objection in these proceedings that the second rectification, Suit No. 163 of 1954, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not operative or binding because the subject-matter of the second suit would have been barred by s. 11, CPC, or 0. 2, r. 2, CPC. The Tribunal was, in our opinion, plainly right in holding that the revenue was not entitled to take such objections. The second question is answered against the revenue. The fifth question referred at the instance of the revenue raises the problem whether the ITO was entitled to go behind the rectification decree and adjudge the validity of the rectification. A Division Bench of this court had in J. K. Hosiery Factory v. CIT [1971] 81 ITR 551, clearly held that in law the validity of the decree could not be adjudged in the assessment proceedings. The Tribunal held that a decree for rectification may be questioned on the ground that it was obtained by fraud or collusion. The Tribunal, however, found that the department has not brought any material on the record to show that the rectification was obtained by the settlor-company either by fraud or collusively. It held : " ........ it is clear to us that the decree was not obtained collusively or by fraud." Under the circumstances, the fifth question is answered against the revenue. We next take up t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Section 31 provides for rectification of an instrument on grounds of fraud or mutual mistake. An indenture which creates a public trust is unilateral transaction of the settlor ; there not being two parties to such transaction, any mistake in it could not be held to be a mutual mistake within the meaning of s. 31. Section 31 of the Specific Relief Act was hence inapplicable and so the decree dated 10th May, 1955, rectifying the trust deed was without jurisdiction and could be ignored by the revenue. In Snell's Principles of Equity, 26th Edn. at p. 683 it has been said that the general rule is that there can be no rectification where the mistake is merely unilateral. But there are four cases where a unilateral mistake may be rectified. They are fraud, estoppel, equitable election and unilateral transactions. In regard to unilateral transactions it has been stated that, where a transaction is unilateral, a unilateral mistake suffices. Thus, deed poll may be rectified on sufficient proof of a mistake in carrying out the intention of the grantor and so (also) many provisions in favour of volunteers in an ante-nuptial or post-nuptial settlement. It is thus not quite accurate to sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee. If there is any mistake in the expression of their intentions in creating the trust, the mistake will be mutual within the meaning of s. 31 of the Specific Relief Act. The trust deed in question purports to be an indenture made between J. K. Cotton Spinning and Weaving Mills Co. Ltd. of the one part, and Lala Padampat Singhania, Kailashpat Singhania and Lakshmipat Singhania called trustees of the other part. The indenture goes on to state that the company was desirous of transferring the plots of land mentioned in it to the trustees aforesaid. It also states that the trustees had agreed to become and act as the first trustees, as was testified by their being parties to and executing " these presents ". Paragraph I of the deed states : " the company doth hereby grant, convey and assure unto the trustees the said plots of land situate at Cawnpore ...... to have and to hold the said two plots of land hereby conveyed, granted or assured or expressed so to be and every part thereof unto and to the use of the trustees for every to be by them held upon the trusts hereinafter appearing ". There can be no doubt that the deed of indenture by which the trust was created was a bilater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature where there is no common quality uniting the potential beneficiaries into a class it may not be regarded as valid. Keeping these principles in view, we may turn to the trust deed. The preamble of the trust deed states that the company wants to create public charitable trust for the benefit of the public in the city of Kanpur and surrounding areas including members of the working class. Paragraph 2(b) of the trust deed provides the objects of the trust as follows: "(b) To erect, establish, equip, furnish, fit, maintain and repair on the said two plots of land and any other land that may hereafter be acquired by the trustees on behalf of the trust. (i) residential quarters, chawls or buildings for the workmen in the town of Kanpur and the surrounding areas and extensions and for their respective families and dependents and for such other skilled and unskilled workmen, craftsmen, traders, merchants, technical or professional men whom the trustees may permit to reside or work in the said two plots provided that the b ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
