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PETITIONER: GENGABAI CHARITIES

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX AND ANR.

DATE OF JUDGMENT24/07/1992

BENCH: KULDIP SINGH (J) BENCH: KULDIP SINGH (J) YOGESHWAR DAYAL (J)

CITATION:  1992 AIR 1765            1992 SCR  (3) 626  1992 SCC  (3) 690        JT 1992 (4)   216  1992 SCALE  (2)79

ACT:      Income tax  Act, 1961-Section 11(1)(a)-Construction  of trust   deed-Kalyana  Mandapam  and  Printing   press-Income derived by trust-Whether exemption entitled.

HEADNOTE:      A  trust namely, "Ganga Bai Charities" was  created  on 13.9.1958,  to  construct  and provide a  building  for  the benefit  of the public to be used for religious,  charitable cultural and social purposes.      The founder of the trust contributed Rs. 34,000 to  the trust fund.  With that fund a plot of land was purchased and the  construction  of a building was begun.   The  fund  was augmented  by her son from his own contribution as  well  as from outside donations.      The building was completed at the cost of about Rs. six lakhs  and it was let out as a marriage mandapam to be  used by  the  members  of the public.  The  income  derived  from letting  out the Kalyana Mandapam came to Rs.1,06,392.00  in the  year ending March 31, 1963.  For the  subsequent  years also the income was substantial.  The trust was also running a  printing  press and seizable income was  being  from  the press.      Income-tax  proceedings  were  initiated  against   the trust.      The  appellant-trust contended that the income  derived from  the property was being held wholly for  religious  and charitable purposes and as such was exempt under Section  11 of the Income Tax Act.      The  Income-tax Officer holding that the income  earned by  the  trust was taxable, rejected the contention  of  the trust.      On appeal the Appellate Assistant Commissioner reversed the Income-tax Officer’s order, holding that the trust was a charitable  trust and its income was entitled  to  exemption under Section 11 of Act.                                                        627      On  further  appeal  by the  department,  the  Tribunal upheld  that decision of the Commissioner but  remitted  the assessment to the Income-tax Officer to find out as to  what extent  in each year the trust income or  accumulation  were

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expended for charitable purposes.      The   Income  Tax  Appellate  Tribunal   referred   the following question to the High Court under Section 256(1) of the Act:-      "Whether  it had been rightly held that the  income  of the trust would be entitled to exemption under Section 11 of the Income Tax Act, 1961?"      The  High Court answered the question in  the  negative and in favour of the department, against which these appeals were  filed  by the assessee-trust by special  leave  before this Court.      On  the  question, whether the  Gengabai  Charities,  a trust  was entitled to exemption under Section  11(1)(a)  of the Income Tax Act, 1961, this Court dismissing the  appeals of the assessee-trust,      HELD : 1.01. The crux of the statutory exemption  under Section  1(1)(a)  of  the Income Tax Act, 1961  is  not  the income  earned  from property held under the trust  but  the actual  application  of the said income  for  religious  and charitable   purposes.   It  is,  therefore,  necessary   to indicate  in the trust-deed the broad objectives  for  which the  income  derived from the property is  to  be  utilised. There  is no mention in the trust-deed as to how the  income derived from the trust property is to utilised.  The  public uses the building on payment of rent to the trustees.   What is  to  be  done with the money so collected  has  not  been provided  in  the trust deed.  There is no  mandate  in  the trust  deed that the income derived from the trust  property is to be spent on religious or charitable purposes. [632  C- D]      1.02. On a careful reading of the trust-deed it is  not possible   to   cull-out   in   clear   terms   a   specific charitable/religious  object to conclude that the trust  was set  up wholly for or religious purposes.   The  "religious, charitable, cultural and social" purposes referred to in the deed  are not avowed as the objectives of the trust  itself. What  the founder of the trust intended to convey  was  that the building to be constructed out of the funds provided  by her  and supplemented from other sources, must be  heed  for the  benefit  of  the  public for being  used  by  them  for religious, charitable, cultural or social purposes. [631  F- G]                                                        628      1.03.  The intention of the founders was to  provide  a building for the benefit for the benefit of the public to be used  by them for religious, charitable and/or cultural  and social  purposes.   It is nowhere stated in the  trust  deed that  the trust itself has been created for the  purpose  of carrying  out  any  of such  objectives.   The  holding  and conducting  of  religious  discourses  and  the  running  of schools  for  the  development of Sanskrit  have  also  been mentioned  from the point of view of the users of the  trust property.   These  are some of the purposes  for  which  the public can be permitted to use the property. [631H-632B]      1.04.  On  a proper construction of the trust  deed  it does  not meet the requirements of Section 11(1)(a)  of  the Act. [632E]

JUDGMENT:      CIVIL  APPELLATE JURISDICTION: Civil Appeal Nos.  10803 to 10805 of 1983.      From  the  Judgment and Order dated 17.12.1980  of  the Madras  High Court in Tax Cases Nos. 261 of 1974 and 9 &  10

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of 1977.      K.   Parasaran,   G.   Umapathy,   Mrs.   Indu   Malini Ananthachari for C.S. Vaidyanathan for the Appellant.      Ranbir Chandra for Ms. A Subhashini for the Respondent.      The Judgment of the Court was delivered by      KULDIP SINGH, J. The question for our consideration  in these  appeals  is  whether  Gangabai  Charities,  a   trust operating  in the city of Madras, is entitled  to  exemption under  Section  11(1)(a) of the Income Tax  Act,  1961  (the Act).      Gangabai  executed a document dated September 13,  1958 which was described as a deed of trust.  The trust was named as "Ganga Bai Charities".  In the trust-deed Ganga Bai  gave effect to her desire to construct and provide a building for the  benefit  of  the  public  to  be  used  for  religious, charitable,  cultural and social purposes.  She  contributed Rs.34,000 to the trust fund.  With that fund a plot of  land was  purchased  and the construction begun.   The  fund  was augmented   by  her  son  Seetha  Rama  Rao  from  his   own contributions  as  well  as  from  outside  donations.   The building  was completed at the cost of about Rs. six  lakhs. Ever since the construction of the building it is being  let out as a marriage mandapam to be used by                                                        629 the members of the public as such.  the income derived  from letting  out the Kalyana Mandapam came to Rs.1.06,392.00  in the  year ending March 31, 1963.  For the  subsequent  years also the income was substantial.  The trust was also running a  printing press and sizable income was being  earned  from the press.      The  Income-tax Officer took the view that  the  income earned  by  the trust was taxable.  The  contention  of  the trust  that the income derived from the property  was  being held  wholly  for religious and charitable purposes  and  as such  was exempt under Section 11 of the Act, was  rejected. On appeal the Appellate Assistant Commissioner reversed  the Income-tax Officer and held that the Ganga Bai Charities was a charitable trust and its income was entitled to  exemption under  Section  11  of the Act.  On further  appeal  by  the department,   the  tribunal  upheld  the  decision  of   the Commissioner  but remitted the assessment to the  Income-tax Officer to find out as to what extent in each year the trust income   or  accumulations  were  expended  for   charitable purposes.   The Income Tax Appellate Tribunal  referred  the following question to the High Court under Section 256(1) of the Act:-           "Whether is has been rightly held that the  income           of the trust would be entitled to exemption  under           Section 11 of the Income Tax Act, 1961?"      The High Court by its judgment dated December 17,  1980 answered  the  question  in the  negative  and  against  the assessee.  These appeals by way of special leave for against the judgment of the High Court.      Section 11(i)(a) of the Act, to the relevant extent, is reproduced hereunder:-           11.  Income from property held for  charitable  or          religious purposes-(I) Subject to the provisions of          sections  60 to 63, the following income shall  not          be  included  in the total income of  the  previous          year of the person in receipt of the income-           (a) income derived from property held under  trust          wholly for charitable or religious purposes, to the          extent  to  which such income is  applied  to  such          purposes in India.........      The above quoted provisions make it clear that a  trust

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has to satisfy                                                        630 the  following  conditions  in order  to  claim  benefit  of Section 11(1)(a) of the Act:-          (1) The income is derived from property held  under          the trust.           (2)   The  trust  is  wholly  for  charitable   or          religious purposes.          (3)  The exemption is permissible to the extent  to          which  such income is applied to such  purposes  in          India.      The  appellant-trust has been created under a  deed  of trust  dated May 30, 1978 and as such we have to  look  into the contents of the trust deed of find out as to whether the conditions  precedent for claiming exemption  under  section 11(1)(a)  of  the Act are satisfied.  The tribunal  and  the High  Court  have  also  based  their  conclusions  on   the interpretation of the trust deed.      It is not disputed that the appellant-trust derived the income from the property held under it but the existence  of other conditions necessary to claim exemption under  Section 11(1)(a)  of  the Act have been seriously  disputed  by  the Revenue before us.  We have minutely examined the trust deed and have given our thoughtful consideration to its contents. The  relevant  paragraphs of the trust deed from  where  the purposes  of  the trust can be spelled  out  are  reproduced hereunder:-          "WHEREAS  the Settler, has long cherished a  desire          to   construct   and   provide   a   building    in          Purasawalkam, Madras for the benefit of the  Public          to be used by them for religious, charitable and/or          cultural  and social purposes, to secure  religious          benefit for herself and satisfy a long felt need of          the Public in this part of this city."          "NOW THIS INDENTURE WITHNESSTH that in pursuance of          the  premises the settlor above named  doth  hereby          declare  that the plot of land above mentioned  and          more  particularly described in the schedule  below          was purchased by her for Rs.24,000 on 9.9.1957  for          the  express  purpose of  constructing  a  building          thereon  and  dedicating the same for  use  by  the          public  inter  alia for Religious,  Charitable  and          Cultural   purposes  and  doth  hereby  create   an          irrevocable  Trust  of the said  property  for  the          purposes aforesaid."                                                        631          "The  settlor  further  declares  that  immediately          after  such purchase she, the settlor  relinquished          all her rights thereto and dedicated the said  plot          of land for the use of the public for the  purposes          above-mentioned  and put the said plot of  land  in          the  possession of her son Shri K.  Seetharam  Rao,          with  a direction to construct a  building  thereon          for   the   use  of  the  public   for   religious,          charitable,  social,  cultural  and  other   allied          purposes."          "That  the  Trust  property  ,  more   particularly          described  in the schedule below shall be used  for          religious,  charitable, social, cultural and  other          allied purposes".          "That  the Trustee shall have, as the  construction          proceeds, power to make any suitable alterations in          the  plan already submitted by him  and  sanctioned          the Corporation of Madras, in such manner as to him          may  seem necessary and that the Trustee may  after

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        the  completion  of the building let or  allow  the          said  building or such portion of portions  of  the          said building for the use of the public for  social          cultural,  religious  educational  etc.,  purposes,          free or at such rents and such terms and conditions          as he thinks proper in the interests of the  Trust;          for  holding and conducting  religious  discourses,          for running schools for the development of Sanskrit          learning  free or at such rents and on  such  terms          and conditions as the Trustee things reasonable and          proper in the interests of the Trust".      On a careful reading of the above quoted paragraphs  of the trustdeed it is not possible to cull-out in clear  terms a specific charitable/religious object to conclude that  the trust  was  set  up  wholly  for  charitable  or   religious purposes.  The "religious, charitable, cultural and  social" purposes  referred  to  in the deed are not  avowed  as  the objectives  of  the trust itself.  What the founder  of  the trust  intended  to  convey  was that  the  building  to  be constructed   out   of  the  funds  provided  by   her   and supplemented  from  other  sources, must  be  held  for  the benefit of the public for being used by them for  religious, charitable, cultural or social purposes.  We cannot read the contents  of above quoted paragraphs as the objects  of  the trust,  these are only the objects of those who wish to  put the  trust property to use.  On a careful  consideration  of the language of the trust deed, we are of the view that  the intention  of the founder was to provide a building for  the benefit                                                        632 of  the public to be used by them for religious,  charitable and/or cultural and social purposes.  It is no where  stated in the trust deed that the trust itself has been created for the  purpose  of carrying out any of such  objectives.   The holding  and  conducting  of religious  discourses  and  the running of schools for the development of Sanskrit have also been  mentioned from the point of view of the users  of  the trust  property.  These are some of the purposes  for  which the public can be permitted to use the property.      The  crux  of  the statutory  exemption  under  Section 11(1)(a)  of the Act is not the income earned from  property held under the trust but the actual application of the  said income  for  religious  and  charitable  purposes.   It  is, therefore, necessary to indicate in the trust-deed the broad objectives for which the income derived from the property is to be utilised.  There is no mention in the trust-deed as to how  the  income derived from the trust property  is  to  be utilised.   The public uses the building on payment of  rent to  the  trustees.   What is to be done with  the  money  so collected has not been provided in the trust deed.  There is no  mandate in the trust deed that  the income derived  from the trust property is to be spent on religious or charitable purposes.      We  are satisfied that on a proper construction of  the trust  deed  it does not meet the  requirements  of  Section 11(1)(a)  of the Act.  We find no infirmity in the  judgment of the High Court.  We entirely agree with the reasoning and the conclusions reached therein.      Mr. Prasaran invited our attention to paragraphs 5  and 6  of the special leave petition wherein it is  stated  that Mr.  Justice V. Balasubrahmanyan who delivered the  judgment in  this case on behalf of the two-Judge Bench of  the  High Court had given opinion in this case as special counsel  for the  Income-tax  Department  and in  the  said  opinion  the Department was advised to go to the High Court by seeking  a

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reference.  It was also opined that the trust was ineligible for the exempltion for the reasons which were given therein. It  is further mentioned inthe special leave  petition  that the petitioner came to know about this aspect only after the judgment  was pronounced on December 17, 1980.  None of  the parties  brought  this aspect to the notice of  the  learned Judge  at  the hearing or at any time before  or  after  the conclusion  of the hearing.  Mr. Prasaran contends  that  it would  be  in  the interests of justice  if  the  matter  be remanded  back  to  High Court for rehearing.   We  are  not inclined to agree with the learned counsel.  The                                                        633 tribunal  pronounced its order on February 28, 1974 and  the High  Court  decided the reference seven  years  thereafter. The  opinion  must  have been given  immediately  after  the tribunal’s  order  and  as such due to  lapse  of  time  the learned  Judge  could  not  have  remembered  the   ‘routine opinion’  he gave as a busy lawyer several years  ago.   The judgment  was  delivered  by the High  Court  after  hearing detailed  arguments from both sides.  All the points  raised by  the  assessee have been dealt with and  decided  on  the basis of judicious reasoning.  In any case we have heard mr. K.  Prasaran, learned Senior Advocate for the appellant  and have  examined the trust deed minutely and  carefully.   The view  taken by the High Court is the only view which can  be taken in this case and we affirm the same.      The  appeal is,  therefore, dismissed with  costs.   We quantify the costs as Rs. 10,000. V.P.R.                                    Appeals dismissed.                                                        634