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PETITIONER: COMMISSIONER OF INCOME TAX, KANPUR

       Vs.

RESPONDENT: KAMLA TOWN TRUST

DATE OF JUDGMENT16/11/1995

BENCH: MAJMUDAR S.B. (J) BENCH: MAJMUDAR S.B. (J) JEEVAN REDDY, B.P. (J)

CITATION:  1996 AIR  620            1996 SCC  (7) 349  JT 1995 (8)   364        1995 SCALE  (6)517

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S.B. Majmudar, J.      In this  group of  17 appeals  by  special  leave,  the Commissioner of  Income Tax, Kanpur has brought in challenge the judgment  and order  dated 20th  February  1975  of  the Allahabad High  Court in  Income Tax  References Nos.  18 of 1973 and 715 of 1972. Respondent - Kamla Town Trust - is the common respondent  in all these appeals. As common questions of law  and fact  are involved between the very same parties in all  these appeals,  the appeals  were heard together and are being disposed of by this common judgment.      The common  respondent, Kamla  Town Trust, was assessed to income  tax for  the relevant assessment years 1949-50 to 1965-66. These  assessment orders  gave rise to hierarchy of appeals under the Income Tax Act which ultimately culminated into 17 income tax Appeals by the assessee before the Income Tax Appellate  Tribunal,  Allahabad  Bench,  Allahabad.  The common question  in the  appeals  before  the  Tribunal  was whether for  the relevant  assessment years  the respondent- assessee was  entitled to  exemption from  payment of income tax as  per the provisions of Section 4(3)(i) of the Income- tax Act,  1922 (hereinafter  referred to as the ’1922 Act’), and under  Section 11 read with Section 2(15) of the Income- tax Act, 1961 (hereinafter referred to as the ’1961 Act’) in so far as they applied to the relevant assessment years. The Income  Tax   Appellate   Tribunal   dismissed   respondent- assessee’s appeals  for assessment  years 1949-50 to 1955-56 but it  allowed respondent-assessee’s appeals for assessment years 1956-57  to 1965-66  subject to  the  rider  that  the income derived  from the trust property by the assessee will be exempt  only within  the limit  permissible under Section 11(1)(a) of  the 1961  Act to the extent to which the income so accumulated  is not  in excess  of 25% of the income from trust property or Rs.10,000/- whichever is higher, after the 1961 Act  came into  force. In other words the rider applied

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to the assessments for the years 1962-63 to 1965-66. As both the Revenue  and the  assessee were  partly aggrieved by the aforesaid  common   order  of   the  Tribunal,  they  sought reference of  the questions,  ventilating  their  grievances under  Section   256(1)  of   the  1961  Act.  The  Tribunal accordingly  granted   these  reference  applications  under Section 256(1)  and referred  the  following  questions  for opinion  of   the  High   Court.  At  the  instance  of  the respondent-assessee two  questions  were  referred  for  the opinion of the High Court: <SLS> "(1) Whether  on the  facts and  in the circumstances of the case the Tribunal was justified in holding that the assessee was not  a public  charitable trust  and its  income was not exempt under  Section 4(3)(i)  of the  Income Tax Act, 1922, for the assessment years 1949-50 to 1955-56? (2) Whether  on the  facts and  in the  circumstances of the case the  Tribunal was  legally correct  in holding that the second rectification  decree dated  10th May  1955, in  suit no.163 of  1954 operates  prospectively from  the assessment year 1956-57  and does not have the effect of rectifying the deed of  trust dated 27th October, 1941, as from the date of its execution." <SLE>      While at  the instance of Revenue the Tribunal referred five questions as under : <SLS> "(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 M/s J.K. Hosiery Factory v. Commissioner of Income Tax, 81 I.T.R. 557 that even  the unamended  clause 3(19)  of the Memorandum of Association of  the settlor  company viz.,  M/s J.K.  Cotton Spinning &  Weaving Mills Co. Ltd., empowered the company to create a  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 the objection in these proceedings  that the second rectification suit no.163 of 1954  was barred by section 11 and Order 2, rule 2 of the Code of Civil Procedure? (c) Whether  on the  facts and  in the  circumstances of the case, the  Tribunal was  legally correct in holding that the objects  and  activities  of  the  trust  fell  objects  and activities of  the trust  fell within  the first limb of the definition of charitable purpose in section 2(15) of the new Act and  the residuary  clause thereof  is not attracted for the assessment years 1962-63 to 1965-66? (d) Whether  on the interpretation of the various clauses of the trust  deed even  as amended by the second rectification decree dated  10.5.1955, the  trust is  void for uncertainty and was not a public charitable trust? (e) Whether  on the  facts and  in the  circumstances of the case the  Income Tax  Officer was  entitled to go behind the civil court  decree dated  10.5.1955 in  suit No.163 of 1954 and adjudge the validity of the rectification?" <SLE>      The Division  Bench of the High Court after hearing the rival contentions  canvassed by the parties answered all the referred questions  in favour of the respondent-assessee and against the  Revenue. It  is under  these circumstances that the Revenue  through  Commissioner  of  Income  Tax,  Kanpur having obtained  special leave to appeal has preferred these 17 appeals.  It may  be noted  at the outset that though the

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Revenue lost  on all the referred seven questions before the High Court, in the present proceedings at the stage of final hearing Dr.  Gauri Shankar,  learned senior  counsel for the appellant-Commissioner  of   Income  Tax   highlighted   the grievance of  the Revenue centering round the answers of the High Court  on some of the referred questions. The grievance highlighted on  behalf of  the Revenue  by Dr. Gauri Shankar centered round  the answers  of the  High Court to Questions Nos. 1  and 2  referred on behalf of the assessee-respondent as well  as answers  of the High Court on Questions Nos. (d) and (e) referred on behalf of the Revenue.      Before proceeding  to deal  with the  main  submissions canvassed  by   learned  senior   counsel  for  the  Revenue centering round  the  answers  of  the  High  Court  on  the aforesaid questions  and the  rival contentions canvassed by learned  senior  counsel  Shri  Verma  for  the  respondent- assessee in support of these answers, it will be apposite to have a  look at the relevant background facts leading to the present proceedings. Background facts ----------------      The assessee  is a  trust created by a trust deed dated 27.10.1941 executed  between M/s.  J.K. Spinning  &  Weaving Mills Co. Ltd., Kanpur (hereinafter called ’the company’) of the one  part and  Sir Padampat  Singhania, Lala  Kailashpat Singhania and  Lala Laxmipat  Singhania (hereinafter  called ’the  trustees’)   of  the   other  part.  The  company  was registered under  the provisions of the Indian Companies Act 7 of 1913 with its registered office at Cawnpore in U.P. The objects of  the trust deed in its original form show that it was created  with a view to construct a settlement or colony for their  workmen together  with amenities  in the shape of hospitals, schools,  temples, mosques, recreation places and for such  other works  directly concerning  the amenities of workmen. The  company made an application to the Improvement Trust, Kanpur  for demising  to it  two tracts  of  land  in Kanpur at  concessional rates. The Improvement Trust demised one plot  of land to the company for constructing the colony with an extra plot of land for the purpose of constructing a Water Pump  Station by  an indenture  dated 19.10.1936 for a consideration of  Rs. 43,700/-.  Another plot  of  land  was demised by  the Improvement  Trust  to  the  company  by  an indenture dated  2.2.1938 for a consideration of Rs.26,300/- for constructing  an office  for the  said settlement.  Both these plots  were demised  to the  company  at  concessional rates for  the welfare  of workmen.  The company transferred both the  plots by  the said trust deed of 27.10.1941 to the trustees for effectuating its object of settling these plots upon the  charitable trust  thereinafter  mentioned  in  the deed.      We will  deal with  the relevant  recitals in the Trust Deed, in  details, at an appropriate stage in latter part of this judgment. Suffice it to state at this juncture that one of the  objects of the trust, as mentioned in paragraph 2(b) of the Trust Deed of 1941 was as under : <SLS> "To erect,  establish, equip,  furnish,  fit,  maintain  and repair on  the said two plots of land, and any land that may hereafter be acquired by the Trust. (1)  residential  quarters,  chawls  or  buildings  for  the workmen and  staff and  other employees  of the  Company  or other allied  concerns under  the management or in which the Directors  of   the  Company  may  for  the  time  being  be interested and  for their respective families and dependents and for  such other  skilled and unskilled workmen craftsmen

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traders merchants  technical or  professional men  whom  the trustees may  permit to reside or work in the said two plots with a  view to  supply their  needs and  requirements or to render them  services or  to cater  to their  wants comforts conveniences and amenities." <SLE> Later on  the Settlor  Company filed a suit being suit No.40 of 1945  in the  Court of  Civil and  Sessions Judge, Kanpur under Section  31 of  the  Specific  Relief  Act,  1877  for rectification of  the Trust  Deed  so  as  to  bring  it  in conformity with  its  real  intention  to  create  a  public charitable trust.  It was  alleged in the plaint that having regard to its Memorandum of Association, the Settlor Company intended to  settle the  properties mentioned  in the  Trust Deed and  transfer them  to the trustees for the purposes of creating a public charitable trust including the benefits of its own  employees, but the operative part of the Trust Deed was found to be less comprehensive than what was intended by the parties thereto at the time when instructions were given for preparing a draft of the same and when they executed the Deed of  Trust. The  Settlor Company  further  alleged  that through a  misunderstanding on the part of the draftsman and through a  mutual mistake  the Deed  of Trust  did not truly express their  intention. It  was  asserted  that  the  real intention of  the parties  was to create a public charitable trust, but  the Company  was advised  that it  was  doubtful whether the  Trust Deed  on a  strict  construction  thereof might not  exclude from  its benefits the rest of the public apart from the employees of the company and residents of the said settlement.  In  order  to  give  effect  to  the  said intention the  company submitted  that certain amendments by way of  rectification of  the deed  should be  made  in  the Object Clause  2 of  the Trust Deed. The learned Civil Judge by his  judgment dated  18th August 1945 ordered the Deed of Trust to  be rectified  as prayed for in the Plaint. We will refer to the relevant rectified paragraphs of the Trust deed as per  the aforesaid  order of  the Civil  Court  a  little later.      The Deed of Trust of 1941 as rectified in 1945 became a subject matter of interpretation by the Appellate Income Tax Tribunal and  High Court  of Allahabad  in the  case of J.K. Hosiery Factory  v. Commissioner  of Income Tax, U.P. (1971) 81 I.T.R.  557. In  the  said  partnership  the  respondent- assessee trust happened to be a partner. The High Court held the rectification  decree passed  by Civil Court to be valid and further held that it was not possible for the Income Tax Officer to question the validity of the rectification on the ground that conditions for grant of rectification did not in fact exist. However, it was further held that the objects of the Trust  Deed as rectified in 1945 did not create a public charitable trust  and on  an analysis  of the  object clause 2(b) (i)  of the  Trust Deed held that it being a mixture of charitable and  non-charitable objects, could not be treated to be creating a public charitable trust.      In the  meanwhile the Settlor Company had filed another suit being  suit No.163  of 1954 in the Court of First Civil Judge, Kanpur  for further  rectification of the Trust Deed. It was  reiterated in  the plaint that the real intention of the Settlor  Company was to create a public charitable trust for the  benefit of the public in the city of Kanpur and the surrounding areas  particularly, the  members of the working class  including  the  workmen  employed  in  the  plaintiff company, but  in their  capacity as  members of  the working class. The  intention, it  was repeated,  was to  create the said trust wholly and exclusively for charitable objects and

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purposes. It  was alleged  that the  trustees had,  in fact, been giving  the benefit  of the trust to the members of the public and  no part  of the  trust moneys  had, at any time, been used  for a  non-charitable or  non-religious object or purpose. It  was contended  that the said Deed of Trust even as rectified  was less  comprehensive than what was intended by the  parties thereto  at the  time when instructions were given for  preparing a  draft of  the  same  and  when  they executed it  and the Settlor Company was advised that it did not truly  express the  intention of  the  parties.  It  was prayed that  the rectifications  sought for be allowed so as to bring  it in  conformity with  the real  intention of the parties. In  the said  suit besides the trustees two persons interested in  the trust  were impleaded  as  defendants  in their representative  capacity after the service of a public notice under  Order 1 Rule 8 of the Code of Civil Procedure. The  Civil  Judge,  Kanpur  by  judgment  and  decree  dated 10.5.1955 decreed  the suit.  By  the  second  rectification decree certain  rectifications were  made in the Preamble of the Trust  Deed and in paragraphs 1 and 2 of the Trust Deed. At an  appropriate stage  in latter part of this judgment we will deal with these rectified clauses inserted in the Trust Deed in 1955.      The jurisdictional  Income Tax  Officer issued  notices under Section 34 of 1922 Act and Section 148 of 1961 Act for the relevant assessment years to the assessee-trust alleging that the  income had  escaped assessment  for  the  relevant years. In  response to  the said  notices the assessee filed ’NIL’ returns  for all the assessment years under reference. The contention  of the  trust before  the Income Tax Officer was that  it was  a public  charitable trust and, therefore, its income  was exempt  from  income  tax.  The  Income  Tax Officer rejected this contention as discussed in his earlier assessment order  for the assessment year 1948-49. He stated that in the earlier assessment order, he had come to a clear conclusion that  the trust  was  a  private  trust  for  the benefit of the employees only and was not at all exempt from tax. With  regard to  the rectifications made by the decrees of the  Civil Court,  the Income  Tax Officer  held that the trust was  originally created for the benefit of the settlor company and  the objects  of the  trust could not be altered subsequently unless  the trust  was revoked  for which there was no  power under  the  Deed.  The  income  from  it  was, therefore, assessed to tax. He relied on the decision of the Calcutta High Court in re. Mercantile Bank of India (Agency) Ltd. (1942)  10 I.T.R.  512 and  held that  a trust  for the benefits of  its employees and members of the staff is not a charitable trust.      Respondent-assessee preferred  appeals to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner dismissed all  the appeals  of the  respondent. It  is under these circumstances  that the respondent-assessee approached the Income  Tax Appellate  Tribunal as  noted  earlier.  The assessee partly  succeeded while  the Revenue also succeeded in part before the Income Tax Tribunal and that is how seven questions came  to be  referred  to  the  High  Court  under Section 256(1)  by the  Tribunal, two at the instance of the assessee and  five at  the instance of the Revenue and which came to  be wholly  decided in  favour  of  the  respondent- assessee as already noted earlier. Rival Contentions -----------------      Learned senior  counsel Dr.  Gauri Shankar  raised  the following contentions in support of these appeals :      (1) The  second  rectification  in  the  year  1955  as

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decreed by  the Civil  Court was  without jurisdiction as in substance by  the so-called  rectification a  new Trust Deed was sought to be substituted, which was beyond the powers of the Civil Court.      (2)  The   condition   precedent   for   invoking   the jurisdiction of  the Civil  Court under  Section 26  of  the Specific Relief  Act of  1963 or  under Section  31  of  the earlier Act  that there should be mutual mistake on the part of parties  to the  document was  absent in the facts of the present  case  and  consequently  the  Civil  Court  had  no jurisdiction to grant such rectification.      (3) The rectification decree was in personam and not in rem to  which Revenue was not a party and, therefore, it was not binding on the Income Tax authorities.      (4) Even  assuming that Rectification Order of 1955 was validly made,  it would operate only prospectively and could not have  any retrospective effect. This submission was made for challenging  the answer  to Question  No.  2  posed  for consideration of  the High  Court at  the  instance  of  the respondent-assessee.      (5) Even after the rectification of 1955 the Trust Deed as rectified  did not  create any  public  charitable  trust entitling  the   respondent-assessee  to  claim  income  tax exemption under  the relevant provisions of 1922 Act as well as 1961 Act as applicable to the concerned assessment years.      (6) The entire Trust Deed as originally executed and as twice rectified  in 1945  and 1955  was merely  a colourable device on  the part  of the  three main  trustees  Singhania brothers who  held partnership  interest in the firm of J.K. Hosiery Factory  but  went  out  as  partners  of  the  said partnership and  entered by  the back door assuming the garb of the  trustees of  respondent-trust which became a partner in the  same partnership firm claiming income tax exemption. Consequently such  a colourable  device on  the part  of the respondent should not be countenanced.      Shri Verma,  learned senior counsel for the respondent- assessee  on   the  other   hand  combatted   the  aforesaid contentions of  learned senior  counsel for  the Revenue and submitted that  even for  the assessment  years  1949-50  to 1955-56 wherein  the rectified  Trust Deed  of 1945 prior to its further  rectification in 1955 was holding the field, it was a  trust for public charitable purposes and consequently even  apart   from   the   retrospective   effect   of   the rectification in  1955, the  respondent-asessee was entitled to claim  exemption from  payment of  income tax  for  these relevant years.  However, so  far as  the answer to Question No. 2  referred for  the opinion  of the  High Court  at the instance of  the  respondent-assessee  was  concerned,  Shri Verma fairly  stated that  he was  not supporting  the  said answer and  that he was conceding that 1955 rectification of the Trust Deed had only prospective effect.      Shri Gauri  Shankar, learned  senior  counsel  for  the Revenue in  Rejoinder submitted  that 1945 rectification did not create  a public  charitable trust.  He, however, fairly stated that  as there  was  no  clear  indication  from  the judgment of  the High  Court about  any colourable device on the part  of the  assessee or  its trustees  underlying  the creation of  trust  he  was  not  pressing  that  point  any further.      In the  light of  the aforesaid  rival contentions  the battle  lines  are  clearly  drawn  between  the  contesting parties wherein  the first  five  contentions  canvassed  on behalf of  the Revenue  by Dr. Gauri Shankar will have to be examined and  the sixth and the last contention which arises for consideration  in the light of the additional contention

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of learned  senior counsel  Shri Verma  for the  respondent, namely, whether  the rectification  of 1945 created a public charitable trust or not, will also fall for determination.      We shall  now deal  with the  aforesaid six contentions canvassed for our consideration seriatim: Contention No.1 ----------------      So far  as jurisdiction  of the  Civil Court  to  grant rectification of  the Trust  Deed is  concerned the relevant provision is found in Section 26 of the Specific Relief Act, 1963 which  had succeeded  the prior  Specific Relief Act of 1877. Under the earlier Act an analogous provision was found in Section  31 of  the Act.  As per  these provisions a suit could  be   filed   before   competent   Civil   Court   for rectification of  an instrument  when  through  fraud  or  a mutual mistake of the parties a contract or other instrument in writing  does not  express their  real intention.  It  is obvious that  a Trust  Deed is  not a contract in the strict sense of  the term  but it would certainly be covered by the expression  ’other   instrument  in   writing’.  It   could, therefore, not  be urged  with any  emphasis that  competent Civil Court  which was approached by the Settlor Company for rectification of  the instrument  of trust,  was not  having requisite  jurisdiction   to  entertain   such  proceedings. However, Dr.  Gauri Shankar,  learned senior counsel for the Revenue pitched  his faith  on  a  decision  of  the  Andhra Pradesh High  Court in  the case  of Trustees  of H.E.H. the Nizam’s Pilgrimage Money Trust v. Commissioner of Wealth-Tax (1988) 171  I.T.R. 323.  In that case the trustees of H.E.H. Nizam’s Pilgrimage  Money Trust  had applied  to  the  Chief Judge, City  Civil Court, Hyderabad, under Section 34 of the Indian Trusts  Act, 1882  seeking his  opinion,  advice  and directions with  respect to the utilisation of the income of the trust  fund in  terms of  the resolution.  By  the  said resolution the trustees contrary to the objects of the trust had resolved  to utilise  the income  of the  trust fund for charitable purposes  in India  when the  settlor had clearly laid down  in the Trust Deed that the trust fund and unspent accumulations, if  any, were to be utilised for religious or charitable objects at Hedjaz and/or Iraq. It was, therefore, held that the resolution of the trustees was invalid and the order of  the Chief  Judge permitting  the trustees to spend the trust  income  in  India  was  equally  inoperative  and without jurisdiction.  It was  also held  that the Trust Act applied only to private trusts and not to public trusts. And that after  the death of the settlor, the trust had become a public trust. Moreover, Section 34 of the Trust Act provided only for  a  summary  enquiry  and  order  with  respect  to management or  administration of  the trust  property  other than questions  of detail, difficulty or importance. We fail to appreciate  how the  aforesaid decision  can  be  of  any assistance to  the learned senior counsel for the Revenue in the present  case. On  the facts  of the  case before Andhra Pradesh High  Court the  City Civil Court, Hyderabad, had no jurisdiction under  Section 34  of the  Trust Act  to  bring about any changes in the objects of trust which had become a public trust. On the facts of the present case Section 31 of 1877  Act   (Specific  Relief   Act)  or  the  corresponding provisions of  Section 26  of 1963  Act could be effectively invoked for rectification of the instrument of trust. Such a court  does   not  suffer   from  any   inherent   lack   of jurisdiction, like  the  City  Civil  Court  in  the  Andhra Pradesh case which had no such jurisdiction under Section 34 of  the  Indian  Trusts  Act.  The  first  contention  must, therefore, be rejected.

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Contention No. 2 ----------------      So  far   as  this   contention  is  concerned  it  was vehemently contended  by  learned  senior  counsel  for  the Revenue that  Civil Court will get jurisdiction to entertain rectification proceedings provided any of the two conditions precedent are  satisfied, namely, (i) through fraud; or (ii) by mutual  mistake of parties the instrument in writing does not express  real intention  of parties.  So far as fraud is concerned it  is not the case of anyone that either party to the instrument  had committed any fraud. In fact the learned senior counsel  went to  the extent of submitting that there are not  two parties  in  an  instrument  of  trust.  It  is difficult to  agree. Settlor  is one  party to the trust who settles his  property in trust for the benefit of others who become beneficiaries and the legal ownership of the property is transferred to the trustees. Thus not only there are more than one  party to the instrument of trust but in fact there would at  least be  two main parties, namely, the settlor on the one  hand and  the trustees  on the other and also there will be  the beneficiaries  who would  be  indirectly  third parties to  the instrument  though not  being direct parties thereto. Thus  it would  be almost a tripartite transaction. Dr. Gauri  Shankar then  submitted that even if it is so, no mutual mistake was alleged in the rectification proceedings. Even this contention cannot be accepted. The Settlor Company had clearly  indicated in the rectification proceedings that the real  intention  of  the  settlor  to  create  a  public charitable trust was not clearly brought out on the wordings of the  original Trust  Deed and,  therefore,  the  need  to rectify the  instrument, as  neither the Settlor Company nor the trustees who assumed the legal ownership of the property settled in  trust would  have agreed  to the  transaction in question  if  it  had  purported  not  to  create  a  public charitable trust.  It was this mutual mistake on the part of both  the   parties  that   required  rectification  of  the instrument to  make, what was latent intention a patent one. Even that apart it is strictly not open to the Revenue which is not  a  party  to  the  instrument  to  take  up  such  a contention about non-fulfilment of condition precedent as it would be  a fact  in issue  before the competent court which was called  upon to  rectify the instrument by either of the parties to the instrument. Absence of such a condition would at the  most make  the order  erroneous  and  which  can  be challenged by  either of  the parties to the proceedings but it will  have no  impact on  the jurisdiction  of the  Civil Court to  pass such an order however erroneous it may appear to be  to the  Revenue. At  the highest  such an error would remain in the realm of error in the exercise of jurisdiction and not  an error  depriving jurisdiction  to the  competent court to  entertain such  rectification proceedings. In this connection it  is profitable  to have a look at the decision of Delhi High Court in the case of Jagdamba Charity Trust v. Commissioner  of  Income-Tax,  Delhi  (Central)  (1981)  128 I.T.R. 377.  In that case Deed of Trust was got rectified by the parties  from the  Civil Court. These proceedings had to be initiated  in the  light of  judgment of  the High  Court which had  held that due to provisions in certain clauses of the Trust  Deed the  trust was  non-charitable and the trust was not  entitled to exemption under Income-tax Act and that since the  decision had  created some  doubts regarding  the validity of  some clauses  of the deed it was necessary that the deed  should be  rectified. The  Civil Court  granted  a decree and  directed that  the Trust  Deed be rectified. The question was  whether such  rectification order of the Civil

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Court was  binding on  the Income  Tax Department  when  the assessee-trust armed  with such  rectification order claimed exemption from  income tax under Section 11 of the 1961 Act. S. Ranganathan,  J., as  he then was, speaking for the Delhi High Court  took the view that the word ’instrument’ used in Section 26  of the  Specific Relief  Act  has  a  very  wide meaning and  includes every  document by  which any right or liability is,  or is  purported to  be created, transferred, limited, extended,  extinguished or  recorded. There  is  no reason to  exclude a  Trust Deed  from its  purview. A Trust Deed  is   a  document  which  sets  out  the  terms  of  an understanding between  the  author  of  the  trust  and  the trustees. Though  in form,  the trustees are not signatories to the  instrument as  drawn up,  they are  parties  to  the instrument in  a real  sense for  it is  on the terms of the instrument that they accept office and proceed to administer the trust. The law obliges them to act upon the terms of the Trust Deed  and they  cannot commit  a breach  thereof. If a gift deed,  sale deed or promissory note could be within the terms of  the section,  there is  no reason why a Trust Deed cannot be  rectified under  Section 26.  It was further held that since  there was an order of Civil Court binding on the author and  the trustees,  they could  administer the  trust only in  terms of  the amendment  directed by the Court. The trustees were  and must  be deemed,  from the  beginning, to have been  under a  legal obligation  to hold the properties only for the object and with the powers set out in the Trust Deed  as   amended.  Therefore,   whatever  might   be   the correctness or  otherwise of  the order  passed by the Civil Court under  Section 26 of the Specific Relief Act, 1963, it was not  open to  the Income-tax  Officer to  say  that  the trustees could  administer the  trust in accordance with the original deed  and that  the claim  for exemption  had to be dealt with  on the  basis of  the original  deed. Nor was it open to  the Income-tax  Officer to say that in the relevant accounting year,  the trustees  held the property subject to the terms  of the  original and not the amended deed. In our view the  aforesaid decision  of the  Delhi High  Court lays down  the   correct  legal   position  in   connection  with proceedings for  rectification  of  instruments  like  trust deeds, initiated  before competent  civil courts  under  the relevant provisions of the Specific Relief Act.      In the  case of  Laxminarain Lath Trust v. Commissioner of Income-tax  (1988) 170  I.T.R. 375  a Division  Bench  of Rajasthan High  Court speaking  through S.C. Agrawal, J., as he then  was, had  to  consider  the  question  whether  any rectification of  the Trust  Deed which changed character of the private  trust into  public charitable  trust  could  be relied upon  before the  Income Tax authorities for claiming exemption under  Section 11  of the  Income-tax Act, 1961 by the assessee-trust.  In that  case the  original Trust  Deed executed in August 1948 did not bring out the real intention of the  settlor to  create  a  public  charitable  trust  on account of  certain sub-clauses  of Object  Clause No. 2. It was, therefore, felt necessary to rectify the mistake in the original settlement  deed so  as to  put on  record the true intention of the settlor and of the trust created by him. It was held by the Rajasthan High Court that it was permissible for the  settlor to  clarify his  intention  increating  the trust under  the original  settlement deed  by executing the supplementary deed.  Even in the original deed, a discretion had been  conferred on  the trustees  to apply the income of the trust  in rendering  aid to  persons belonging  to the L family and  it was permissible for the trustees not to apply the income  of the trust for the said object and in fact the

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income of  the trust had never been applied for that object. It could  not be  said that  the beneficiaries  under clause 2(vi), namely,  persons belonging to the family of L, had an enforceable right  to the  application of  the income of the assessee for  the object  mentioned in  clause 2(vi), and in these circumstances  their consent  was not necessary before altering the  terms of  the Trust Deed. In any case although the supplementary deed was executed in May 1958, none of the persons belonging  to the  family of  L had  challenged  the validity of  the same in a court of law. After the execution of the  supplementary deed,  it was not open to the trustees to apply  the  funds  of  the  assessee  for  non-charitable purposes. The  assessee-trust had  acquired the  status of a trust wholly for charitable and religious purposes after the amendment of  the Trust Deed in May 1958. It was entitled to exemption under  Section 11 of the Income-tax Act, 1961. The doctrine of  cy pres  was also  invoked in  the said case by observing that  in respect  of christie the courts apply the doctrine  of   cy  pres  which  envisaes  that  if  a  clear charitable intention  is expressed, it will not be permitted to fail  because the  mode, if specified, cannot be executed and the  law will  substitute another mode cy pres, i.e., as nearly as  possible to  the mode specified by the donor. The said doctrine  is applied  on the  principle that  the court would  lean  in  favour  of  charity  and  where  a  general charitable goal  is projected  and  particular  objects  and modes are indicated, the court, acting to fulfil the broader benevolence of the donor and to avert the frustration of the good to  the community,  reconstructs, as  nearly as may be, the charitable  intent and  makes viable  what otherwise may die. The aforesaid decision of the Rajasthan High Court also takes a  view which  is almost parallel to the view taken by the Delhi  High Court  though  the  binding  nature  of  the rectification order  of the  civil court  on the  Income Tax Officer is  not highlighted  as no  such occasion  arose for Rajasthan High  Court to  pronounce on the same on the facts of that  case. However,  the fact  remains  that  after  due rectification of  the original  Trust  Deed  either  by  the settlor himself  by executing  a supplementary  deed  or  by getting it rectified through competent civil court under the relevant provisions of the Specific Relief Act, the trustees would be  bound to  carry  out  the  amended  and  rectified objects of the trust and if they fail to do so they would be guilty of  breach of trust for which even proper proceedings can be  initiated against  them under Section 92 of the Code of Civil  Procedure. For  all these  reasons, therefore,  it must be  held that when such rectified Trust Deed is pressed in service  before the  Income-tax authorities in assessment proceedings concerning  the relevant  assessment  years  the Income-tax Officer  will have  to interpret  such  rectified instrument for  finding out its correct legal effect. But it will not be open to the Income-tax Officer to refuse to look at such rectified instrument of trust and to insist that the trustees of  the trust  should  ignore  the  said  rectified objects and  should stick  to the  instrument as  it existed prior to its rectification. The Income-tax officer will have to take  the instrument  as it  exists in its actual amended form  when   it  is  pressed  in  service  for  framing  the assessment concerning  the relevant assessment year in which such  rectified  instrument  holds  the  field.  The  second contention, therefore, fails and is rejected. Contention No. 3 ----------------      So far  as  this  contention  is  concerned  Dr.  Gauri Shankar, learned  senior counsel  for the  Revenue was right

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when he  contended that  order of  rectification by  a civil court is  not a  judgment in  rem. It would be a judgment in personam binding on the parties to the rectified instrument, namely, the  settlor on the one hand and the trustees on the other as  well as  on the ultimate beneficiaries. It is also true that Section 41 of the Indian Evidence Act cannot apply to such rectification order as under the said provision only judgments  and   orders  passed   in  exercise  of  probate, matrimonial admirality or insolvency jurisdiction would have the character  of judgments  in rem. Similarly Section 42 of the Indian Evidence Act also could not make them relevant in any enquiry  or proceedings unless they relate to matters of a public  nature relevant  to the  enquiry.  However  it  is Section 43  of the  Evidence Act  which would  squarely  get attracted  in  such  cases.  Said  section  lays  down  that judgments, orders  or decrees  other than those mentioned in sections 40, 41 and 42, are irrelevant, unless the existence of such  judgment, order or decree is a fact in issue, or is relevant under  some other provision of this Act. Section 40 deals with ’previous judgments relevant to bar a second suit or trial’. That obviously cannot have any application. But a rectified Trust  Deed pursuant  to the  order of  the  court would certainly  make the rectification order relevant under the provisions  of Section 11 of the Indian Evidence Act, as the fact  in issue  in  an  enquiry  before  the  Income-tax Officer would be whether on the basis of the rectified trust instrument the  assessee-trust is entitled to get its income exempted from  tax under  the  relevant  provisions  of  the Income-tax Act.  In such  proceedings, therefore,  the order granting rectification  of such  instrument of  trust  would certainly remain  relevant. Consequently  it cannot  be said that  such  rectification  orders  passed  by  civil  courts permitting rectifications  of trust deeds under the relevant provisions of  the Specific  Relief Act  could not be relied upon by  the assessee-trust in assessment proceedings before the Income-tax Officer was not a party to such rectification proceedings. It  will  be  for  the  Income-tax  Officer  to consider the  real scope  and ambit  of the  Trust  Deed  as presented to  him in  rectified form  with a view to finding out whether  on the basis of such a rectified instrument the assessee trust  had earned  exemption from payment of income tax under  the relevant  provisions holding the field in the concerned  assessment   years.  The   third  contention  is, therefore,   decided    by   answering   that   though   the rectification orders of the civil court are not judgments in rem they  are relevant  in assessment proceedings before the Income-tax Officer  and will  have to be given effect to for whatever they are worth. Contention No. 4 ----------------      So far  as this  contention is concerned learned senior counsel for  the Revenue  is spared  his  pains  as  learned senior counsel  for respondent-assessee fairly stated in the light of the debate that took place in the Court that he was not supporting  the answer given by the High Court in favour of assessee  on Question  No. 2  referred for the opinion of the High  Court at  the instance  of the  assessee-trust. In short he submitted that he would treat 1955 rectification of the instrument  of trust  as creating  almost a new trust or substituting the  new for  the old  and, therefore, he would not press  that such  rectification of  1955 would  have any retrospective effect. In view of the fair stand taken by the learned senior  counsel for  the  respondent-assessee,  this contention will  have to be decided in favour of the Revenue and against  the  assessee  by  holding  that  rectification

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brought about  by the  order of  the civil  court  in  1955, namely, the second rectification had no retrospective effect and would  operate prospectively from the date on which such rectification saw  the light  of the  day  and  would  cover assessment years 1956-57 onwards upto assessment years 1965- 66 and  would not look back on the previous assessment years from 1949-50  to 1955-56. In other words the decision of the Tribunal on  referred Question  No. 2  will remain operative and that  contrary answer of the High Court on this question would stand rejected. Contention No. 5 ----------------      Having cleared  the Revenue’s  stand in connection with the Trust  Deed in question for the assessment years 1949-50 to 1955-56  as aforesaid,  Dr. Gauri Shankar, learned senior counsel for  the Revenue  set his  sails on  the  subsequent assessment years  1956-57 onwards  wherein the Trust Deed as rectified in  1955 held  the field.  He submitted  that even after the rectification of 1955 the situation had not at all improved for  the respondent-trust and it remained a private trust and  not a  public charitable  trust. So  far as  this contention is concerned it was vehemently opposed by learned senior counsel  for respondent-assessee, Shri Verma. In fact this has  remained now  the real  bone of contention between the warring parties.      In  order  to  resolve  this  controversy  it  will  be profitable to  have a  close look at the relevant provisions of the Trust Deed of 1941 as amended in 1955 pursuant to the second rectification  order of  the civil  court.  The  said Trust Deed  as amended  in 1955  is found at Annexure ’J’ to the Paper  Book Volume  II. Leaving  aside the  introductory recitals, the  relevant operative recitals in the Trust Deed read as under : <SLS> "1. That  in exercise  of the power reserved to it under the Memorandum of Association and for effectuating its object of establishing a  trust or  settlement for public religious or charitable  purposes  including  trust  or  settlements  for relief of property, education medical relief and advancement of any  other object  of general public utility of religious or charitable  nature, the  Company both hereby grant convey and assure  upto the  Trustees the said plot of land situate at Cawnpore  and numbered  as 1  in Block  H Factory Workmen Area containing  by admeasurement 43.70 (forty three decimal point  seventy)   acres  more   or  less  and  more  clearly delineated and  shown  on  the  plan  annexed  to  the  said Indenture bearing  date the  19th day  of October  1936  and thereon marked  red as also the said plot of land situate at Cawnpore and  numbered as  2 in Block H Factory Workmen Area containing by  admeasurement 26.30 (twenty six decimal point thirty) acres  more or  less and more clearly delineated and shown on  the plan  annexed to  the said Indenture dated the 2nd day  of February  1938 and  thereon marked  red TOGETHER WITH   all way  wells waters  water  courses  swers  ditches drains trees  shrubs liberties  easements profits privileges and appurtenances  whatsoever to  the  said  plots  of  land respectively belonging  or in any wise appertaining with the same or  any part  thereof now  or at  any  time  heretofore usually held occupied or enjoyed therewith and all the state right title  interest claim  and demand whatsoever at law or in equity  of it  was the  company into or upon the said two plots of land and every part thereof 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 ever  to be  by them held upon the

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trusts  and  with  the  subject  to  the  powers  provisions agreements and  declarations in  respect thereof hereinafter appearing and contained. 2. The  Trustees do  hereby declare that they shall hold and stand possessed  of the  said two  plots of  land  upon  the trusts following namely : (a) To manage the said two plots of land (hereinafter called "the Trust Properties" which term shall include any security or securities  or investments  of any  kind whatsoever  into which the  same or  any part  thereof may  be converted  and varied from  time to time and such as may be acquired by the Trustees or  come to their hands by virtue of these presents or by  operation of  law or otherwise however in relation to these trusts  as also  all  donations  funds  or  endowments either in  the shape  of cash  shares  securities  or  other movable or  immovable properties  which may  be given to the Trustees by  any person  whosoever for  the benefit  of  the Trusts hereby  created) and to collect and recover the rents profits and  other income  thereof and  to pay  thereout the expenses of  collection of  such income  and the rates taxes assessments and other outgoings in respect of any properties that may  at any  time be  comprised in the Trust properties including the  premia for  insurance of  any  such  property against loss  or  damage  by  fire  or  lightning  or  civil commotion air-raids  and other risks or losses or damages as the Trustees  may in  their absolute discretion think proper (but so  that nothing  herein  contained  shall  impose  any obligation on  the Trustees  to insure  any of  the premises comprised in  the Trust Properties which they do not wish to do  so)   as  also  to  pay  the  expenses  of  painting  or whitewashing  the  buildings  and  structures  that  may  be created on  the said  Trust Properties  and of effecting all repairs additions  and alterations thereto as well as to all plant and  machinery which  may be  lying thereon or affixed thereto. (b) To  erect, establish,  equip, furnish,  fit maintain and repair on the said two plots of land 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 proved that the benefit in this clause shall be granted only to those  persons who  on account  of poverty are in need of help and really deserve help. (ii) Public  schools, pathshalas, colleges, libraries public halls, hostels or boarding houses. (iii) Hospitals,  dispensaries, museum places or recreation, instruction, swimming  baths,  lakes,  parks,  play-grounds, temples, mosques,  churches, a  market or  markets and  such other works and institutions of general public utility. (iv) such  other works,  building and  installations as  the Trustees may  in their  discretion think  fit to provide for the advancement  of any  other  similar  object  of  general public utility. (c) To  erect, establish,  equip, furnish  fit maintain  and repair on  the second of the aforesaid two plots a temple, a hospital with  all necessary quarters for housing its staff, an office  or offices  for the management and administration of the  Colony or  Settlement to  be established on the said two plots  and quarters  for the  office staff  and a  water pumping station and similar other works.

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(d) To  charge such  rent or fees for the use and occupation of any  of the  said premises  as the  Trustees may in their discretion from time to time think fit. (e) To  use and  spend the income of the Trust properties or the corpus  of any  funds or  donations given or endowed for the  benefit   of  these   trusts  for  the  objects  herein mentioned." <SLE> A mere  look at  the aforesaid  objects of  the trust  which remained   operative    and   kicking   after   the   second rectification  of  1955  shows  that  each  of  the  objects mentioned in  clauses (b), (c), (d) and (e) of Object Clause 2 clearly partakes the character of a charitable disposition meant for the benefit of a well demarcated mass of humanity. There is  not much  dispute on  this aspect, so far as paras 2(a) and  (b)(ii) to  (iv), (c),  (d) and (e) are concerned. However learned  senior counsel  for the  Revenue vehemently submitted that  leaving aside  the objects mentioned in para 2(b), sub-paras  (ii), (iii) and (iv) so far as sub-para (i) of clause  (b) of  para 2 is concerned, at least that object does not  create a  public charitable  trust as  the  object mentioned therein  namely constructing residential quarters, chawls or  buildings for  the workmen  in the town of Kanpur and surrounding  areas was  a very vague object. It was next contended that  though the object is so widely worded, it in substance is  meant to  benefit  only  the  workmen  of  the company if the entire history of the trust from 1941 onwards is minutely  scrutinised. It  was  submitted  by  Dr.  Gauri Shankar that  initially when  the two  pieces of  land  were obtained on  concessional rates  from the Improvement Trust, Kanpur in  1941 by  indentures of  19.10.1936  and  2.2.1938 respectively,  they  were  meant  to  be  utilised  for  the construction of  colonies of  workmen of the Settlor Company itself. That  the original Trust Deed of 1941 without latter rectifications of  1945 and  1955 clearly indicated that the beneficiaries were only the employees of the Settlor Company and there  was no  whisper about  the benefit to humanity at large or  to members  of the  general public.  Thus  it  was clearly a  private trust.  That though  by rectification  of 1945 the  term  ’workmen  in  general’  was  introduced  for indicating the  class of  beneficiaries,  in  substance  the benefit was  reserved to  the workmen of the Settlor Company itself, and  that even  after 1955  rectification, the words ’workmen in  general’ in  Kanpur and  surrounding areas  and extensions remained a mere camouflage. It is not possible to agree with  the aforesaid  submissions of the learned senior counsel Dr.  Gauri Shankar, for the Revenue. The reasons are obvious. It cannot be said that the indicated beneficiaries, namely, the  workmen in  the town  of Kanpur and surrounding areas and  extensions are  so vague as to make the object of the trust  inoperative or options. Workmen in town of Kanpur and the  surrounding areas  and extensions  formed a clearly earmarked class or category of members of general public and they were certainly a part and parcel of the general public. It is  also not  possible to countenance the submission that the words  ’surrounding areas and extensions of Kanpur town’ introduced   vagueness,    in    the    identification    of beneficiaries.  Surrounding   areas  and   extensions  would naturally include  those areas which are on the periphery of Kanpur town,  and which  are adjacent  to Kanpur  town. They would  not   obviously   include   any   areas   which   are geographically  far   removed  from  and  situated  at  long distance from  Kanpur town and which could not be said to be in the  vicinity of  the Kanpur town. The words ’surrounding areas and  extensions of  Kanpur town’ indicate proximity of

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such areas  with the Kanpur town and have a clear nexus with the geographical boundary of Kanpur town. It is also easy to visualise that  the trustees will have to make available the benefit of  the clause  only to those workmen in the town of Kanpur and  surrounding areas  and extensions  and to  their respective families and dependents who on account of poverty are in  need of  help and really deserve help. Any provision made for  a poor class of public well earmarked as recipient of such  benefits would  certainly make  the object  of such bounty a  charitable one.  In fact  Dr. Gauri Shankar fairly stated that  if one  only goes by the verbiage of the clause as found in 1955 rectified deed then it would appear to be a public charitable trust. But he submitted that we have to X- ray the  clause and  try to  find out as to who are the real beneficiaries  of   the  said  trust.  It  is  difficult  to countenance even  this submission.  In  order  to  find  out whether the relevant clauses of a trust deed create a public charitable trust  or not  we have to go by the express words employed by  the Trust Deed. In our view for finding out the real intention  of the  settlor, the  words used in the Deed would  be  the  real  vehicle  of  thought  of  the  settlor expressing his  intention in  cold print. This would be much more so  when such  recitals  in  the  Trust  Deed  are  not challenged on  the ground  that they  are a  camouflage or a result of  a colourable  device. As  we have  noted earlier, contention regarding  colourable device  was not  pressed by Dr. Gauri  Shankar for  the Revenue and rightly so as it did not arise  out of  the judgment  under appeal.  On the other hand, on  the express language of clause 2(b)(i) of the 1955 rectified deed,  it cannot be said that it does not create a public charitable trust. On the contrary it becomes clear on a close  reading of  relevant provisions of this clause that the objects  are specific  and  charitable  in  nature.  The beneficiaries are  also clearly  indicated. There is also no ambiguity about  the trustees  or the trust properties. Thus all  the   basic  requirements  for  creation  of  a  public charitable trust  do exist  on the  express language  of the relevant sub-clauses  of clause  (2) of 1955 rectified deed. Dr. Gauri  Shankar, learned  senior counsel  for the Revenue then submitted  in any case absolute discretion is vested in the trustees  under the  Trust Deed  to  utilise  the  trust income for  the benefit of any of the sub-classes of workmen in the  town of  Kanpur and  they were  likely to divert the entire benefit  to their own workmen. To say the least it is merely  a  discretion  left  to  the  trustees  and  not  an obligation of  the trustees that they must necessarily spend the income  of the  trust for  the workmen  of  the  settlor company itself  and not for the benefit of any other outside worker. We  shall deal  with this  aspect in greater details when we  will refer to Contention No. 6 canvassed by learned senior counsel  for the  assessee trust that even apart from the rectification  of 1955 the earlier rectification of 1945 did create  a public charitable trust. However so far as the second rectification  of 1955  is concerned  it has  clearly indicated that  only a  discretion is vested in the trustees to utilise  the trust  income for benefit of poor workmen in the  town  of  Kanpur  and  in  the  surrounding  areas  and extensions and  that may include even poor and needy workmen of the settlor company itself. In this connection Shri Verma also rightly invited our attention to Section 92 of the Code of  Civil  Procedure  and  clause  (i),  sub-clause  (b)(iv) whereby trustees  in  their  discretion  could  provide  for advancement of  other  similar  objects  of  general  public utility. Relying  on a  series of decisions of this Court in Commissioner of  Income-Tax, Madras  v.  Andhra  Chamber  of

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Commerce (1965) 55 ITR 722; Ahmedabad Rana Caste Association v. Commissioner  of Income-Tax,  Gujarat (1971)  82 ITR 704; Abdul Sathar  Haji Moosa Sait Dharmastapanam v. Commissioner of Agricultural  Income-Tax, Kerala  (1973) 91  ITR 5;  Sole Trustee, Loka  Sikshana Trust v. Commissioner of Income-Tax, Mysore  (1975)   101  ITR  234;  Yogiraj  Charity  Trust  v. Commissioner of  Income-Tax, New  Delhi (1976)  103 ITR 777; and Commissioner  of Income-Tax,  Madras etc.etc.  v. Andhra Chamber of  Commerce etc.etc.  (1981) 130  ITR  184  it  was submitted that  objects  of  general  public  utility  would clearly indicate  that they are meant for public benefit and would create a public charitable trust. That in the light of the objects of the trust as rectified in 1955 even a workmen who is  not an  employee of  the settlor  company  could  in appropriate case seek direction under Section 92, Code of Civil  Procedure, from  competent civil court against the trustees to  act according  to the  object of  the trust and give  benefit  to  such  an  applicant  beneficiary  if  the circumstances so  permit and  the income  of  the  trust  is sufficient to cater to his needs.      When confronted  with these  very widely worded objects of the  trust, Dr. Gauri Shankar, learned senior counsel for the Revenue  mounted his attack in the light of clause 30 of the Trust Deed as rectified in 1955 which reads as under : <SLS> "30. The Trust premises shall be held by the Trustees hereof subject  to  the  terms  and  provisions  of  the  said  two indentures bearing date the 19th day of October 1936 and 2nd February 1938  and the  Trustees shall  accordingly duly and faithfully observe perform and comply with all the terms and provisions thereof and all such other terms provisions rules and regulations  which the  said Cawnpore  Improvement Trust may from  time to  time impose  upon them or require them to observe perform  and comply with or such as may from time to time  be   mutually  agreed   upon  between   the   Cawnpore Improvement Trust  and the  Trustees consistently  with  the powers reserved  by the  said Cawnpore  Improvement Trust in that behalf under the said two Indentures." <SLE> It is  no doubt  true that  the  trustees  are  enjoined  to utilise the  trust  properties  subject  to  the  terms  and provisions of the indentures dated 19th October 1936 and 2nd February 1938  which require  the trustees  to  utilise  the trust property  for the  benefit of  settlor  company’s  own workmen. But  as rightly  submitted by  Shri Verma,  learned senior counsel for the assessee-trust, the said clause would not detract  from the  public charitable nature of the trust as projected  by the  relevant operative parts of the object clause to  which we  have made  detailed reference  earlier. Shri Verma  was also  right when he contended that if at all the trustees diverted the benefit to the beneficiaries other than the workmen of the company itself it would give a cause of  action   to  the   original  vendor,  namely,  the  Town Improvement Trust,  which had  taken no  steps in  all these years or  made any  grievance about the same and secondly as provided by  the indentures themselves all that would result on account  of any  alleged breach  of the conditions of the indentures on  the part of trustees would be that they would be  liable  to  pay  additional  quantified  amount  to  the original vendor  and the  concessional rate of consideration for the  grant in that eventuality, may stand withdrawn. But it would  not amount  to any  breach of trust on the part of the trustees if such benefit is conferred on outside workmen who fell within the clearly earmarked class of beneficiaries as per  object clause 2(b)(i). On the contrary, the trustees

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not only  would not be alleged to be guilty of any breach of trust but can be said to have acted according to the objects of the trust.      Dr. Gauri  Shankar,  learned  senior  counsel  for  the Revenue next  contended that  as observed  by the  Appellate Assistant Commissioner  in connection  with assessment  year 1948-49 not  a pie  of the  income of the trust was utilised during the  relevant years  by the  trust for the benefit of outside workmen  and almost nothing was spent on charity. He particularly  invited   our  attention   to  the   following observations as  found in  Annexure F-2  in Volume II of the Paper  Book  which  contains  the  order  of  the  Appellate Assistant Commissioner  of Income Tax, Range II, Kanpur, for assessment year 1948-49. In paragraph 13 of the judgment the learned Appellate  Assistant Commissioner  has  observed  as under : <SLS> "13. The  appreciation of the real nature of the trust would not be  complete without referring to its balance sheets and the income  and expenditure  accounts right from the year of inception of  the trust  upto the  date. I have gone through the income and expenditure accounts of the various years and I find  that not  a single paisa was ever spent by the trust for charity.  The balance  sheet of the trust shows that all its funds  were mostly employed by the various companies and firms of  J.K. Group  to whom  huge advances  were made from time to  time. A  certain portion  of the trust funds was no doubt employed  in the construction, maintenance and repairs of quarters  which were  let out  to the  employees of  J.K. Cotton Spg.  & Wvg.  Mills Co.  Ltd.  and  to  other  allied concerns like J.K. Jute Mills Company, J.K. Hosiery Factory, J.K. Iron  & Steel  Co. Ltd.  and J.K.  Cotton Manufacturers Ltd. but  all the  surplus funds available to the trust were either given  over to the various concerns of J.K. Group for the advancement  of  their  business  or  advanced  to  J.K. Charitable Trust.  From the  day to day working of the trust also  it  is  thus  quite  clear  that  it  ensured  for  no charitable purposes." <SLE> Now it  must be at once noted that the said observations are made in connection with the assessment proceedings for 1948- 49. They would be governed by the Trust Deed as rectified by the  first   rectification  in   1945.  Consequently   these observations  cannot  apply  to  the  interpretation  of  an entirely different  set of  recitals found  in the rectified deed of  1955. Even  that apart  Shri Verma,  learned senior counsel for  the  assessee  has  invited  our  attention  to various documents  which are  on record  in Volume  I of the Paper Book  at pages  21, 28,  176,  179,  183  and  184  to indicate that  in fact  benefit of the income from the trust was made available not only to workmen of the company but to outside workmen  also who resided within Kanpur town. It was also submitted  that the  aforesaid documents clearly showed that the  rent recovered from the workmen who occupied these 160 cottages put up by the settlor company on the trust land was minimal  and was  highly subsidised  as compared  to the market rent.  That water  and electricity were given free to the beneficiaries  and a  part of  the land  was  also  made available to the Municipality to establish a primary school. It was also contended that the income tax appellate tribunal itself had  noted in  the common  judgment  from  which  the references arose,  that Appellate Assistant Commissioner had himself conceded  that no exorbitant rents were charged from the  tenants   who  occupied  the  residential  quarters  in question and  in fact the average rent recovered showed that

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the rents  were only nominal. Shri Verma also submitted that the Income  Tax Tribunal  had noted the contention on behalf of the  assessee that as regards rent charged it was pointed out that the average rent realised from 160 cottages was Rs. 7660/- per  annum from 1947-48 to 1964-65. That amenities of water and  electricity  were  provided  free  and  even  the schools were free. In other words rent including service and electricity charges  work out  to less  than  Rs.  16/-  per mensem for  the accommodation  whose fair  market rate in an industrial city  like Kanpur  would be  over Rs.  150/-  per mensem. This  according to  assessee’s  counsel  shows  that cottages were  given to poor employees at concessional rent. In our  view these contentions on behalf of the assessee are well  supported  on  the  evidence  on  record.  It  cannot, therefore, be  urged that  the trustees  had indulged in any profit making while employing the income of the trust on the beneficial objects  of the Trust Deed and in discharging the obligations with  which they  were charged  under  the  said Trust Deed.  In fact  in fairness  it must be stated that Dr Gauri Shankar  did not  also pursue this aspect any further. Before parting  with the  discussion on  this aspect  we may also mention  that at  page 410  of the Paper Book Vol. II a list of  tenants not  working in J.K. Group of Mills but who are living  in Kamla  Town Trust  quarters, was furnished by the respondent-assessee before the Income Tax Tribunal along with the affidavit of one Shri R.B. Somnath, Engineer of the respondent-trust. This also showed that the beneficiaries of the trust  income and properties are not only the workmen of the  settlor  company  but  also  outside  workmen  who  are residing in  Kanpur town  being a  part and  parcel  of  the general  public.  It  must,  therefore,  be  held  that  the rectified Trust  Deed of 1955 did create a public charitable trust as  rightly held  by the High Court. Contention No. 5, therefore, stands rejected. Contention No. 6 ----------------      So far  as this contention is concerned it is canvassed for the  first time  before us by Shri Verma, learned senior counsel for  the assessee  trust for supporting the ultimate answer given  by the  High Court  on Question No. 1 referred for the  opinion of  the High  Court at  the instance of the assessee. Shri  Verma  submitted  that  leaving  aside  1955 second rectification even the original Trust Deed of 1941 as rectified in  1945 did create a public charitable trust. The main plank  of his  argument  was  based  on  the  following premises : 1. Workmen  in general  and in particular of the company are also a  part and parcel of public and it cannot be said that they are  not members  of the  general  public  residing  in Kanpur. 2. We  have to  judge the  correct connotation  of the  term ’workmen in  general’ in  the light  of economic  and social conditions  that   prevailed  in  1945  when  the  deed  was rectified. According  to   Shri  Verma,   construction  of  residential quarters, chawls or buildings for the workmen in general and in particular  for the workmen, staff and other employees of the company or other allied concerns under the management of or in  which the  Directors of  the company may for the time being be  interested 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 with a view to supply their needs and requirements or to  render them  services or  to cater  to  their  wants,

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comforts, conveniences  and amenities, as enjoined by clause 2(b)(i) of  the  Trust  Deed  as  rectified  in  1945  would indicate a  well defined class out of general members of the public in Kanpur city. It is trite to note that workmen as a class would  consist of poor and needy persons and it cannot be said that they would be representing an affluent class of society or  public who  would not  be in need of a roof over their head  for themselves  as well as for their dependents. Consequently, implicit  in the  said provision is the object of charity  for these  poor and  well defined class of needy persons constituting a part and parcel of the general public residing in Kanpur.      On this  premises it  was submitted  that even the 1945 deed did  create a  public charitable  trust.  It  was  also contended that  the Tribunal  and the High Court had wrongly taken the  view that  because of the earlier judgment of the Allahabad High  Court in  J.K. Hosiery  Factory (supra), the Trust Deed  as rectified  in 1945  could not be said to have created  a  valid  public  charitable  trust.  That  in  the proceedings before the Allahabad High Court in the said case respondent-trust was  not a party. The assessment was of the partnership. Even  otherwise the  said decision could not be binding on  parties in  the present  assessment  proceedings pertaining to  entirely different  years  and  for  entirely different assessee.  Shri  Verma  relying  on  a  series  of decisions of different courts including this Court submitted that if  the Trust Deed provides a charitable object for the benefit of  a class of public and also gives preference to a smaller class  of public  which  may  consist  of  even  the workmen of  the settlor  company or  even the poor and needy relatives of  the  settlor  himself  the  public  charitable nature of  the trust  does not get whittled down or effaced. On the  other hand Dr. Gauri Shankar for the Revenue relying upon number  of other  judgments including  the judgments of Chancery Division of English Court submitted that workmen by themselves cannot  be treated to be a poor class of citizens for whom  any benefit  given  under  the  Trust  Deed  would necessarily make  it a  public charitable  object and if the trustees under  the deed  are under an obligation to provide the benefit  of the trust properties to the employees of the settlor company  itself the  company by  giving such benefit would in  turn be  exonerating  itself  from  its  otherwise contractual  obligation  or  even  statutory  obligation  of providing welfare  facilities and  residential facilities to its own  workmen who  because of these facilities would work more efficiently  for the  company. Thus there would be quid pro quo  between  the  settlor  on  the  one  hand  and  the beneficiaries, namely,  the workmen  and  employees  of  the company on  the other.  That such  a provision would detract from real  public charitable nature of the endowment. In the light of  the aforesaid  rival contentions  on this issue we shall now proceed to examine this moot question.      Before we deal with these rival submissions, it will be profitable to  have a  look at  the relevant recitals in the rectified Trust  Deed of 1945. Clause 2(b)(i) of the Deed of Trust after the said rectification dated 18.8.1945 laid down amongst others, the following object : <SLS> "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  general and  in particular for the workmen staff and other  employees of the company or other allied concerns

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under the  management of  or in  which the  Directors of the company may  for the  time being be interested 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 with  a view  to supply their  needs  and  requirements  or  to  render  them services or  to cater  to their  wants comforts conveniences and amenities." <SLE> Shri Verma  submitted that if workmen in general represent a poor and needy class of persons who are a part and parcel of the  general  public  residing  in  Kanpur,  as  residential quarters, chawls  or buildings  had  to  be  constructed  in Kanpur, then  even if  a preference  is given  to  similarly needy and  poor workmen staff members or the other employees of the  company it  could not  be said  that only because of such preference the charitable aspect of the endowment would get frustrated  or would become a private trust. In order to support his contention Shri Verma invited our attention to a decision of  this Court  in the  case  of  Trustees  of  the Charity Fund v. Commissioner of Income-Tax, Bombay (1959) 36 I.T.R. 513.  In that  case, the  clause in the Deed of Trust provided for  grant of  relief and  benefit to  the poor and indigent members  of Jewish community or any other community of Bombay  or other  parts of  Idea  or  of  the  world  and preference  was  to  be  given  to  the  poor  and  indigent relations or  members of  the  family  of  the  settlor  Sir Sassoon David.  It was held that despite such preference the trust would  remain a  public charitable  trust. Relying  on sub-clause (a)  to (f)  of clause 13 of the Deed of Trust it was held that the deed constituted a valid public charitable trust and  as the  relations or members of Sir Sassoon David did not  figure as  direct recipients  of any benefits under sub-clauses  (b)   to  (f)  and  the  circumstance  that  in selecting the  beneficiaries under sub-clause (a) preference had to  be given  under the  provisos to  the  relations  or members of  the family of Sir Sassoon David could not affect that public charitable trust, the income from the properties came within  the scope of Section 4(3) (i) of the Income Tax Act and  were exempt.  Reliance was also placed on number of other decisions  of various High Courts which obviously fell in line  with the aforesaid decision of this Court and which had taken  the view  that if the main benefit of the settled property in trust had to go to charity, if the trustees were permitted to  give  preference  to  poor  relations  of  the settlors the  trust would  remain a public charitable trust. In  this   connection  our  attention  was  invited  to  the decisions of  Gujarat High  Court in Commissioner of Income- Tax v.  Moosa Haji  Ahmed and  others  (1964)  52  ITR  147. Calcutta High  Court in Commissioner of Income-Tax, Calcutta v. Board  of Mutwallis  to the Wakf Estate, Ebrahim Solaiman Saleji (1968)  69 ITR 758 and three decisions of Bombay High Court in  Commissioner of  Income-Tax.  Bombay  City  II  v. Trustees of  Seth Meghji  Mathuradas Charity Trsut (1959) 37 ITR 419:  Commissioner of  Wealth-Tax,  Bombay  City  II  v. Trustees of  the J.P.  Pardiwala Charity Trust (1965) 58 ITR 46: and  Commissioner of Income-Tax, Bombay city III v. D.D. Deshpande (1976) 102 ITR 390.      On the  other hand  Dr. Gauri  Shankar, learned  senior counsel for  the Revenue  submitted that  as the  benefit is made available  under the  Trust Deed  to workmen in general and in  particular to  the workmen staff and other employees of the  company it  cannot necessarily  be held  that  these workmen must be poor and needy as no such words are found in

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the clause.  He submitted  that any  Trust  Deed  conferring benefit on  an identified  group of  persons like workmen or employees of  the company  would make  the trust  a  private trust and  not a public charitable trust. In support of this contention he  heavily relied  upon decision  of the  Madras High Court  in Sakthi  Charities v.  Commissioner of Income- Tax, Madras  (1984) 149  ITR 624.  In that  case it was held agreeing with  the view  of the  Tribunal that  as the Trust Deed provided  for conferring  benefit only on the employees of M/s  Sakthi Sugar  Ltd. and the relatives of the deceased employees, the  said benefits  could not be available to the members of  the general public not connected with M/s Sakthi Sugar  Ltd.   Consequently  all   these  clauses   were  not charitable in  nature. Our attention was also invited by Dr. Gauri Shankar  to two  decisions of the Chancery Division of the High  Court of  Justice in  England in  Trustees of  the William Vernon  & Sons, Ltd. Employees Fund v. Commissioners of Inland  Revenue 36  Tax Cases (Chancery Division) 484 and in Ashworth  v. Drummond  1914 (2)  Chancery Division 90. In Trustees of  the William  Vernon (supra)  the  question  was whether a  bequest under  the  will  directing  20%  of  the received moneys  to be  paid to some organisation or charity at the  discretion of  the  executors  for  the  benefit  of employees of  the firm  would constitute a public charitable endowment. It  was held  that the objects of the scheme were not charitable  only. Justice  Upjohn at  page  495  of  the Report observed as under : <SLS> "Thirty years  ago it  was not  always appreciated  that  in order to  constitute a  valid charitable  trust it must be a public trust,  and  that  if  a  trust  is  limited  to  the employees of  a company  the personal  nexus constituted  by that common  employment does  not satisfy the necessary test of the character of publicity. That is now well established, and it  was established  in a  line of authorities after the last war culminating in Oppenheim v. Tobacco Securities Co., Ltd. in  the House of Lords in 1951. Therefore, it is common ground that  the scheme does not constitute valid charitable trusts..." <SLE> In Re  Drummond (supra)  it was  held that  work  people  in question could  not be  regarded as  poor people  within the statute of Elizabeth. In our view the aforesaid decisions of English Chancery Courts cannot ipso facto be made applicable to workmen  residing in  this country  and who  had to  face entirely different  socio-economic conditions, especially in 1945, when  the rectified  object of  the Trust Deed saw the light of  the day.  While interpreting  the word ’workmen in general’ as  employed in  1945 rectified Trust Deed, we have to sit  in settlor’s  arm chair  with a  view to visualizing what was  meant by  the Settlor  Company when  it used these terms in  1945, keeping  in view  the then  prevalent socio- economic conditions in this country. It is easy to visualise that workmen  who were  to toil  for their  existence  would necessarily represent  a class  of needy persons requiring a shelter over  their head,  when the  settlor company in 1945 contemplated to  construct residential  quarters, chawls  or buildings for  workmen it necessarily meant to provide these facilities  for   a  needy   class  of   persons  who  could legitimately be  presumed to  be  a  class  of  down-trodden persons suffering  from penury  and want. The socio-economic situation prevailing  in England  treating  workmen  as  not necessarily poor,  cannot almost  automatically be  imported and applied for judging the economic status of working class in India  especially in  1945 when  even the  definition  of

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’workmen’ under  the Industrial  Disputes Act, 1947 had also still to  see the  light of  the day.  We, therefore, cannot agree with  the general  proposition canvassed  by Dr. Gauri Shankar for  the Revenue  that any  provision made  for  the benefit of  workmen in  general would  not necessarily  be a provision for  needy or  poor class  of citizens  who may be forming part of the general public.      Shri Verma,  learned  senior  counsel  for  respondent- assessee was  also right  when he  submitted,  relying  upon decision of  this Court  in Trustees  of  the  Charity  Fund (supra) and  other decisions  of the High Courts to which we have made  a reference  earlier, that  when any  property is settled for charitable purposes for catering to the needs of a class  of public  which is  poor and needy, any preference given to poor and needy workmen of the settlor company would not  necessarily   detract  from   the   charitable   object underlying such  bequest  or  settlement.  It  is  trite  to observe that if settlor’s poor relatives can legitimately be the  recipients   of  charitable  benefits  under  a  public charitable trust,  then if  such preference is given to poor workmen of  the settlor  company who are not even related to the settlor,  they would stand at least on an equal if not a better footing  and in no eventuality on a worse footing, in judging the  public charitable  nature of  the settlement in their favour.  However, the  basic fact must remain that the settlement is  made in  favour of  a well earmarked class of needy and  poor persons  who may  form a part of the general public and  for whom such charitable bequest or endowment is made, and  the preferred  class of beneficiaries must form a part and  parcel of  that very  general earmarked  class. It must, therefore, be held that the provision for construction of houses  for ’workmen  in  general’  as  found  in  clause 2(b)(i) of  1945 rectified  Deed, so  far as  it  went,  did constitute a charitable object.      However, this  conclusion of  ours  does  not  end  the controversy centering  round the aforesaid clause. There are two  clear  hurdles  in  the  way  of  Shri  Verma  for  the respondent which  militate against  his submission  that the said clause  when read  as a  whole  does  create  a  public charitable trust  in favour of workmen in general. The first hurdle is  that the term ’workmen in general’ as employed in the clause  is too  general and vague but even assuming that in the  context  of  the  residential  quarters,  chawls  or buildings to  be constructed  for them on the lands situated at Kanpur which are settled in trust by the Settlor Company, it would refer to workmen in Kanpur town, even then the more substantial hurdle in the way of the respondent is projected by the fact that there is an obligation cast on the trustees to construct these residential quarters, chawls or buildings in particular  for the workmen, staff and other employees of the company or other allied concerns under the management of and in  which the  directors of the company may for the time being be  interested and  for their  respective families and dependents. In  the light  of the  words ’in  particular’ as found in  this clause,  Dr. Gauri  Shankar,  learned  senior counsel for Revenue rightly submitted, that they represent a scheme of  priority for  workmen of  the Settlor Company and not a  scheme of preference. In other words the trustees are bound under  an obligation to construct residential quarters etc. first  for the  workmen or  employees  of  the  Settlor Company or  its allied  concerns. They have no choice in the matter. They  cannot in  their discretion  select an outside workman as  recipient of the benefit under the scheme of the Trust Deed.  In effect  the general  class of  beneficiaries constituted by  the words ’workmen in general’ gets whittled

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down and  circumscribed by  the  words  ’in  particular  for workmen of the company etc.’. Thus in substance it becomes a trust for  the benefit  of a  well defined  smaller class of beneficiaries, namely,  employees or  workmen of the company and its allied concerns and it fails to meet the requirement of a  genuine or  public or  charitable  trust.  We  are  in agreement with  this submission  of Dr.  Gauri Shankar. Once such an  obligation is  cast  on  the  trustees  the  public character  of  the  endowment  gets  whittled  down  and  in substance becomes  the settlement for an identified group of persons. In  this connection  we may  profitably refer  to a Division Bench judgment of the Bombay High Court in the case of Commissioner  of Income-Tax,  Bombay City  II v. Walchand Diamond Jubilee  Trust (1958)  34 ITR  228  wherein  Chagla, C.J., spoke  for the  Bench. In  that case  the question was whether the  provision made  in Trust  Deed to  utilise  the accumulated  income   of  the   property  of  the  trust  on charitable objects  like giving  scholarships  to  deserving students or  giving medical  reliefs of  the nature and kind such as  starting maternity  homes etc.,  or giving monetary help to  the poor and needy persons and for providing relief to the  poor and  distressed in  time of  famine  would  get adversely affected and would cease to be a charitable object if preference  was to  be  given  to  such  persons  as  are eligible under  the aforesaid provisions who are at the time or have  in the  past been employees of Premier Construction Co. Ltd. and of the associated companies and their relatives and dependents as the trustees may in their discretion think expedient and  proper.  In  this  connection  the  following pertinent observations  were made by Chief Justice Chagla at page 236 of the Report : <SLS> "... Now,  undoubtedly, we would have taken a different view of this  trust if  there was an obligation upon the trustees to prefer  the employees.  In  other  words,  if  the  other members of the public were postponed to the employees of the Premier Construction  Co. Ltd.,  then, looking  to the other provisions of  the deed, we might easily have taken the view that the  main purpose  of the  trust  was  to  benefit  the employees and the charity to the public was merely illusory. But there  is no  obligation cast  upon the trustees by this proviso to  prefer the employees of the Premier Construction Co.  Ltd.   It  is   for  the  trustees  to  exercise  their discretion. In  the first  place, they  have to  utilise the income for  carrying out the four objects, and any member of the public  who comes  within these  four objects  would  be qualified to  receive the bounty of the settlor. If a member of the  public also happens to be an employee of the Premier Construction Co.  Ltd., it  is open  to the trustees to give him preference.  Therefore, the trustees would not be guilty of committing  any breach  of trust if they selected for the bounty of  the settlor such members of the public as did not fall  in   the  category   of  employees   of  the   Premier Construction Co.  Ltd. That  is the  real test which we have got to  apply. We  must not  assume that  the trustees  will exercise their  discretion dishonestly  or  improperly.  The test is  whether the  exercise  of  the  discretion  of  the trustees is  so fettered  that  they  are  bound  to  select particular persons  in preference to others. That is clearly not the case here......." <SLE> In our  view aforesaid  is the  correct test  evolved by the High Court. Applying the said test to the clause in question we  find   that  though   residential  quarters,  chawls  or buildings are  to be  constructed for the workmen in general

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and who,  as we  have already  shown earlier,  may be a well defined class  of workmen  residing in Kanpur and who may be poor  and   needy  in  the  light  of  their  socio-economic conditions as prevailed in 1945 when the clause was drafted, once we  turn to  the second  part of this clause which lays down in  clearest terms  that in particular the quarters are to be  constructed for the workmen staff and other employees of the  company and of its allied concerns, it becomes clear that no  discretion is  left with  the trustees  and on  the contrary   they are  enjoined,  called  upon  and  under  an obligation to construct these quarters, chawls and buildings necessarily for  the workmen,  staff and  other employees of the company  and its  allies. It  is also  easy to visualise that  other  employees  of  the  company  may  include  even affluent employees  who may  not necessarily  constitute  an object of  charity. Once  this  conclusion  flows  from  the wording of  the clause,  it becomes  clear that reference to workmen in  general becomes  illusory and the settlement can be said  to be  in substance  meant only for catering to the needs of  a well  defined group of persons, namely, workmen, staff and  other employees  of the  company and  its  allied concerns and  in that  case on  the aforesaid  ratio of  the decision of  the Bombay  High Court,  which we  approve, the object clause  in question  would fall short of creating any public charitable  trust. In  this connection  we  may  also refer to  two decisions,  one of  Calcutta  High  Court  and another of  Allahabad High Court, to which our attention was drawn by  Dr. Gauri  Shankar for the Revenue. In the case of Mercantile Bank  of India (Agency), Ltd., (supra) a Division Bench  of   the  Calcutta   High  Court   speaking   through Derbyshire, C.J.,  held that  in order to constitute a valid charitable trust  it should be for the benefit of the public or the  specified section  of  it.  A  fluctuating  body  of private individuals  such as the present and future officers and members  of the  staff and  other employees of a company could not  be a part of the general public or of any section of the public and therefore the income of the trust fund was not exempt  from the  payment of  income-tax  under  Section 4(3)(i). It  was further  observed that  Andrew Yule  &  Co. Ltd., and  their subsidiary  concerns  for  whose  employees benefit was conferred under the deed employed a large number of persons.  The trust  was for  the benefit  of  the  past, present and  future officers, members of the staff and other employees of  those concerns.  Anyone from  the Secretary or some other  highly paid  member of  the staff  down  to  the lowest menial  may be  included within  the benefit  of this fund. Necessitous  circumstances might include the case of a superior employee  earning  some  thousands  of  rupees  per month, who  owing to  some misfortune - say the burning down of his  house, or  the loss  of his  property -  might  find himself suddenly  in Necessitous  circumstances, and in need of money  to replace  his lost  property. The  learned Judge could see  no reason  why the  administrators  of  the  fund should not be in a position to make a grant to such a person to make  up his  loss. It might be a most desirable thing to do and  the administrators  might justly think that they had used some  of the  funds to the best advantage. But such use cannot be  said to be for the relief of poverty. Even if (as had been  argued) the  administrators are  bound to use this fund solely  "to relieve  persons suffering  from indigence, ill-health  or  other  Necessitous  circumstances,"  it  was impossible to say that the fund is - to use the words of the section -  "property held  in trust  wholly  for  charitable purposes." A  Division Bench  of the Allahabad High Court in the case  of J.K. Hosiery Factory (supra) had an occasion to

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consider the very same clause of the rectified deed of 1945. It is  of course true that the said decision was rendered in assessment  proceedings  of  the  firm  wherein  respondent- assessee was a partner and not in the assessment proceedings of the  respondent firm  itself.  Still  the  interpretation placed on  the very  same Trust Deed as rectified in 1945 in proceedings to  which respondent-assessee  was  a  party  in another capacity  cannot be  said to  be totally irrelevant. H.N. Seth,  J., speaking  for the  Division Bench  made  the following observations in this connection : <SLS> "We are  doubtful whether  the construction  of  residential colony for  workmen in  general can be regarded as an object of public  charity. While enabling the trustees to construct residential quarters,  etc., for  the benefit of the workmen in general,  the settlor  made it  clear that such buildings were not  to be constructed for the benefit of the public in general. The  expression "workmen in general" does not fix a definite class  of public  which is intended to be benefited under the  deed. What  types of  employees or workers can be said to  be covered  by this expression is not at all clear. Moreover, the  precise language  used by  the settlor is "to erect ...  residential quarters,  etc., for  the workmen  in general and  in particular  for the workmen, staff and other employees of  the company or other allied concerns under the management of  ...". This shows that the expression "workmen in general"  was not intended to mean merely poor labourers. The expression  was intended  to cover  even such classes of persons who might be employed in any concern in any capacity whatsoever and  who may  be drawing  high salaries. Making a provision for  constructing residential  quarters, etc., for the benefit  of the  employees irrespective  of whether they are poor  or not,  can hardly  be said  to be  a  charitable object or a work of general public utility." <SLE> As we  have discussed  earlier the term ’workmen in general’ when read in the context socio-economic situation prevailing in 1945  in this  country and  when also  considered in  the context of  construction of  residential quarters, chawls or buildings in  Kanpur may  partake the  character of  a  well defined class  of workmen in Kanpur city who may be poor and needy, still  as the  trustees  are  enjoined  to  construct residential quarters,  Chawls or buildings in particular for the workmen,  staff and  other employees  of the  company it follows that  other employees  of the  company who  are  the beneficiaries may  not  necessarily  be  poor  or  needy  or affluent. We,  therefore, concur with the second part of the reasoning of  Allahabad High Court in the aforesaid judgment though we  are not in a position to subscribe to the general proposition that  construction of  residential colonies  for workmen in general cannot by itself be regarded as an object of public  charity. As a result of the aforesaid discussion, therefore, it  must be held that rectified clause 2(b)(i) of 1945 deed  fell short  of projecting  an object  of a public charitable nature  and it  could not  be said that under the rectified deed  of 1945  the trust  properties were  held by respondent-trust  wholly   for   religious   or   charitable purposes. It  is of course true that rest of the sub-clauses of clause 2(b) did refer to charitable objects but as one of the objects  was not  of a public charitable nature it could not be  held that  the entire trust was wholly for religious or charitable purposes.      Now is left the consideration of one submission of Shri Verma, learned  senior counsel for the Respondent who relied upon Explanation to sub-section (3) of Section 4 of 1922 Act

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which read as under : <SLS> "In this sub-section ’charitable purpose’ includes relief of the poor,  education, medical  relief and advancement of any other  object   of  general   public  utility,  but  nothing contained in  clause (i)  or clause  (ii) shall  operate  to exempt from  the provisions  of this  Act that  part of  the income from  property held  under a  trust  or  other  legal obligation for  private religious  purposes which  does  not ensure for the benefit of the public." <SLE> In our  view the  said Explanation  cannot be of any avil to the respondent-assessee so far as the rectified deed of 1945 is  concerned.   The  emphasis  in  the  Explanation  is  on charitable objects  of general public utility like relief of poor, education, medical relief and advancement of any other object of  general public  utility. Once  it  is  held  that clause  2(b)(i)   of  1945  rectification  deed  imposed  an obligation on the trustees to utilise the trust property for the  benefit  of  the  settlor  company’s  own  workmen  and employees, it  would cease  to be  projecting an  object  of providing relief  to poor workmen only. Nor would it advance any other  object of  general public  utility but  would  be confined to the utility of a well defined class of employees and workmen  of the  settlor company and its allied concerns only. For  all these  reasons, therefore, it is not possible to accept  the submission  of  Shri  Verma,  learned  senior counsel for  respondent-assessee based  on this Explanation. This contention, therefore, stands rejected. Conclusions -----------      The aforesaid decisions on the contentions canvassed on behalf of  the rival  contesting parties  by  their  learned senior advocates, yield the following result : (i) For  assessment years 1949-50 to 1955-56 the respondent- assessee would not be entitled to get the benefit of Section 4(3)(i) of  the 1922  Act and  income derived by it from its properties would not get exemption from income tax under the said provision. (ii) For  the assessment years 1956-57 to 1961-62 the income derived by  the respondent-assessee  from  trust  properties during these  years will  get exempted under Section 4(3)(i) of 1922  Act as  the 1955 rectified Trust Deed is held by us to be having objects of wholly charitable nature. (iii) For the assessment years 1962-63 to 1965-66 the income derived from  trust properties  by the respondent-trust will be entitled to exemption from income tax under Section 11 of the 1961  Act subject  to the compliance with the conditions laid down  therein as  even during this period the rectified Trust Deed  of 1955  as interpreted by us will be treated to have held the field. Final Order -----------      In the  light  of  the  aforesaid  discussion  and  the conclusions to  which we have reached the questions referred for opinion of the High Court will stand answered as under : Questions referred at the instance ---------------------------------- of the assessee in ITR No. 18/73 -------------------------------- Question No. 1 --------------      Answered in  the affirmative  in favour  of the Revenue and against the assessee. Question No. 2

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--------------      Answered in  the affirmative  in favour  of the Revenue and against  the assessee as the answer of the High Court on this question  was not  supported by the learned counsel for the respondent. Question referred at the instance --------------------------------- of Revenue in ITR No. 715/72 ---------------------------- Question No. (a) ----------------      Answered in  the affirmative  in favour of the assessee and against  the Revenue as answer of the High Court was not challenged before us by learned counsel for the Revenue. Question No. (b) ----------------      Answered in  the negative in favour of the assessee and against the  Revenue as the answer of the High Court was not challenged by learned counsel for the appellant-revenue. Question No. (c) ----------------      Answered in  the affirmative  in favour of the assessee and against  the Revenue as the answer of the High Court was not challenged by learned counsel for the Revenue. Question No. (d) ----------------      Answered in  the negative in favour of the assessee and against the Revenue. Question No. (e) ----------------      Answered in  the negative in favour of the assessee and against the Revenue.      In the  result, out  of these  17 appeals  filed by the Revenue seven appeals pertaining to assessment years 1949-50 to 1955-56  will stand allowed while Revenue’s remaining ten appeals pertaining  to assessment  years 1956-57  to 1965-66 will stand  dismissed. In the facts and circumstances of the case there will be no order as to costs in these appeals.