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PETITIONER: THE TRUSTEES OF THE CHARITY FUND,ESPLANADE ROAD, FORT, BOMBA

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX,BOMBAY

DATE OF JUDGMENT: 05/05/1959

BENCH: DAS, SUDHI RANJAN (CJ) BENCH: DAS, SUDHI RANJAN (CJ) BHAGWATI, NATWARLAL H. HIDAYATULLAH, M.

CITATION:  1959 AIR 1060            1959 SCR  Supl. (2) 923  CITATOR INFO :  RF         1973 SC 623  (15)

ACT: Income-tax-Public   charitable   trust-Excmption-Test-Indian Income-tax Act, 1922 (XI of 1922), S. 4(3)(i).

HEADNOTE: The appellants were the trustees of a charity fund known  as The  Charity Fund founded by Sir Sassoon David,  Baronet  of Bombay  ". Clause 13 Of the deed of trust,  after  declaring that the trustees should apply the net income for all or any of  the  following  purposes, namely,  (a)  the  relief  and benefit  of the poor and indigent members of Jewish  or  any other community of Bombay or other parts of India or of  the world either by making payments to them in cash or providing them with food and 924 clothes and/or lodging or residential quarters or in  giving education  including scholarships to or setting them  up  in life  or  in such other manner as to the said  Trustees  may seem proper or (b)  the  institution maintenance and support  of  hospitals and schools, colleges or other educational institutions or (c)  the  relief of any distress caused by the  elements  of nature  such  as famine, pestilence, fire,  tempest,  flood, earthquake or any other such calamity or (d)  the care and protection of animals useful to mankind or (e)  the advancement of religion or (f)  other purposes beneficial to the community not falling under  any  of  the foregoing purposes  I added  by  way  of provisos  (i)  that  in  applying the  net  income  for  the purposes  mentioned  in sub-cl. (a) the trustees  must  give preference to the poor and indigent relations or members  of the  family  of  Sir Sassoon David,  including  distant  and collateral  relatives,  (2) that for the  said  purpose  the trustees must apply not less than half of the income for the benefit  of  the members of the Jewish community  of  Bombay only, including the said relatives of Sir Sassoon David  and Jewish objects.  The question for determination was  whether the  income  from the trust fund was  exempt  from  taxation under  s.  4(3)(i) Of the Indian Income-tax Act.   The  High

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Court  came to the conclusion that the trust fund could  nut be  said  to  be held, wholly or partly,  for  religious  or charitable  purposes involving an element of public  utility and answered the question in the negative. Held, that there could be no doubt that each one of the pri- mary purposes mentioned in the deed of trust, including  the one  mentioned in sub-cl. (a), properly construed,  involved an  element  of public utility and thus they  constituted  a valid charitable trust. Although  it  was open to the trustees to spend  the  entire income for the purpose mentioned in sub-cl. (a), that  could not  detract  from  the  validity of  the  trust  since  the relations  or family members of the founder did not come  in directly  under  any of the other purposes and could  do  so only  under sub-cl. (a) as preferential beneficiaries to  be selected  from  out of the class  of  primary  beneficiaries prescribed by it, in terms of the provisos. The test of the validity of such a public charitable deed of trust  should  be  whether or not at the  primary  stage  of eligibility it could be said to possess that character. In re Koettgan’s Will Trusts, [1954] Ch. 252, applied. Trustees of Gordhandas Govindram Family Charitable Trust  v. Commissioner  of  Income-tax  (Central),  Bombay,   [1952]21 I.T.R.231, distinguished and held inapplicable. The circumstance that in selecting the actual beneficiaries 925 from  the primary class of beneficiaries under sub-cl.  (a), the  trustees had to give preference under the provisos,  to the relations or members of the family of Sir Sassoon David, could  not  therefore  affect the  public  charitable  trust constituted under sub-cl. (a) and the income from the  trust properties was entitled to exemption under S. 4(3)(i) Of the Indian Income-tax Act.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No.396 of 1957. Appeal from the Judgment and Order dated the 21st  February, 1956,  of the Bombay High Court in Income-tax Reference  No. 32 of 1954., R.   J.  Kolah, J. B. Dadachanji and S. N. Andley,  for  the appellants. K.   N. Rajagopal Sastri and D. Gupta, for the respondent. 1959.  May 5. The Judgment of the Court was delivered by DAS,  C.  J.-This  is an appeal  brought  on  a  certificate granted  on September 19, 1956, by the High Court of  Bombay under s. 66(A)(2) of the Indian Income Tax Act  (hereinafter referred  to  as " the said Act ") against its  order  dated February  21, 1956, in Income-tax Reference No. 32  of  1954 answering  in the negative two questions of law referred  to it  under  s. 66(1) of the said Act at the instance  of  the appellants. The appellants are the trustees of a charity fund known as " The  Charity Fund Founded by Sir Sassoon David,  Baronet  of Bombay  ". The said Sir Sassoon David, Bart. and four  other persons, who were holding certain securities of the value of Rs.  24,25,000  for  the purpose of  charity  and  had  been applying  the  same  for and  towards  charitable  purposes, executed,  on June 8, 1922, a Deed of Declaration  of  Trust declaring that the said trust fund would be held by them  on trusts  more specifically therein mentioned.  Clause  13  of the said deed, on the true construction of which depends the answer to the referred questions, runs as follows:- " 13.  The Trust Fund shall be held by the Trustees upon the

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Trusts to apply the net income thereof 926 after  providing for all necessary expenses in  relation  to the  management  of the Trust Funds for all or  any  of  the following purposes, that is to say, (a)  the relief and benefit of the poor and indigent members of Jewish or any other community of Bombay or other parts of India  or of the world either by making payments to them  in cash or providing them with food and clothes and/or  lodging or  residential  quarters or in giving  education  including scholarships to or setting them up in life or in such  other manner as to the said Trustees may seem proper or......... (b)  the  institution maintenance and support  of  hospitals and  schools,  colleges or  other  educational  institutions or............... (c)  the  relief of any distress caused by the  elements  of nature  such  as famine, pestilence, fire,  tempest,  flood, earthquake      or     any     other      such      calamity or....................... (d)  the  care and protection of animals useful  to  mankind or........... (e)  the advancement of religion or................... (f)  other purposes beneficial to the community not  falling under any of the foregoing purposes................... Provided always that in applying the income as aforesaid the Trustees  shall  give preference to the  poor  and  indigent relations  or members of the family of the said Sir  Sassoon David,  Bart.,  including  therein  distant  and  collateral relations;  provided further that in the application of  the income  of the said Charitable Trust Fund the said  Trustees for the time being shall observe the following  proportions, viz.:  that not less than half the income of the said  funds shall at all times be applied for the benefit of the members of  the  Jewish  Community of  Bombay  only  (including  the relations  of  Sir Sassoon David, Bart.  as  aforesaid)  and Jewish  objects and particularly in giving donations to  the members of the Jewish Community of Bombay on the anniversary of  the death of the said Sir Sassoon David, Bart.  and  his wife Lady Hannah David which falls on the Twenty-second  day of  June  and the remaining income for the  benefit  of  all persons and objects including Jewish persons and objects and in 927 such  proportions  as the said Trustees  may  think  proper. Provided  further that if the income of the Trust Funds  for any year shall not be wholly applied during that year on the Trusts aforesaid such surplus income may be carried  forward to the subsequent year or years and be applied as the income arising  during  that  year or years.   Provided  also  that during  the  life-time of Sir Sassoon David, Bart.,  in  the application  of  the  said income the  Trustees  shall  have regard  to the wishes of the said Sir Sassoon David,  Bart., who  shall also be entitled to direct if he so desires  that the income of the time being of the Trust-Funds or any  part thereof may be applied to such charitable object or  objects as  the said Sir Sassoon David, Bart., shall direct  and  in such case the Trustees shall so apply the income ". This  Deed  of Declaration of Trust was, on  June  4,  1953, registered under the Bombay Public Trusts Act, 1950. The  Trust fund had been invested by the trustees  in  inter alia  3  1/2%  Government Securities.  In the  year  1930  a certificate  was issued by the Income-tax Officer,  A  Ward, Bombay, whereby the Reserve Bank of India was authorised not to  deduct  at source the tax on the interest  on  the  said securities so held by the trustees.  It was mentioned in the

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said certificate that it was to enure till its cancellation. In  1946 the 3 1/2% Government Securities were  redeemed  by the  Government  of India and were converted  into  3%  Con- version Loan, 1946.  Accordingly in February, 1948, the said certificate  of exemption was cancelled, as  the  securities covered  thereby had been redeemed by the  Government.   The trustees   thereupon  asked  for  a  fresh  certificate   of exemption from the Income-tax Officer, Bombay Refund  Circle in  respect of the 3% Conversion Loan, 1946.  But  the  said Income-tax Officer refused to issue such certificate on  the ground  that the income from the trust fund in question  was not  exempt from taxation under s. 4(3)(i) of the  said  Act which, at the material time, was as follows:- "4(1)......................................................... 928 (2)  ................................. (3)  Any  income,  profits  or  gains  falling  with-in  the following  classes shall not be included in total income  of the person receiving them:- (i)  Any  income, derived from property held under trust  or other  legal obligation wholly for religious  or  charitable purposes,  and in the case of property so held in part  only for such purposes, the income applied, or finally set  apart for application, thereto: Upon  the fact of the withholding of the certificate by  the Income-tax  Officer, Refund Circle, being intimated  to  the Income-tax  Officer,  A-V Ward, Bombay, the  latter  Officer started  proceedings against the appellants under s.  34  of the  said Act in respect of the assessment years 1944-45  to 1947-48.   He  also  started  regular  proceedings  for  the assessment year 1948-49 and the succeeding years up to 1952- 53. In  the  assessment  proceedings for those  nine  years  the Income-tax  Officer took the view that the income  from  the trust fund was not exempt from taxation under s. 4(3)(i) and accordingly  he assessed the appellants for the  first  four assessment years (1944-45 to 1947-48) on the ground that the income  for  those years had escaped  assessment.   He  also assessed the appellants to tax for the subsequent five years (194849  to  1952-53).  On appeal  the  Appellate  Assistant Commissioner  confirmed  the said assessments.   On  further appeal by the appellants, the Income-tax Appellate  Tribunal set aside the assessments for the first four years  (1944-45 to 1947-48) holding that s. 34 had been wrongly invoked, for it  was only a case of difference of opinion of one  Income- tax  Officer from his predecessor on the same set of  facts. The department did not take any further steps in the  matter and  accepted  that  view of the  Tribunal  as  regards  the assessments  of  those years and we are not in  this  appeal concerned  with  them.  As regards the assessments  for  the five  years  (1948-49 to 1952-53) the  Tribunal  upheld  the decision of the Appellate Assistant 929 Commissioner  who had confirmed the assessments made by  the Income-tax Officer. On application being made by the appellants, under s.  66(1) of  the said Act, the Tribunal drew up a statement  of  case and  referred two questions of law arising out of its  order to  the High Court for its opinion.  The said questions  are as follows :- (1)  Whether the Trust property is held wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Indian Income-tax Act ? (2)  If  the  answer  to question (1) is  in  the  negative, whether  the  trust  property  is  held  in  part  only  for

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religious or charitable purposes ? The said reference came up for hearing before the said  High Court  and both the referred questions were answered in  the negative.   The High Court, however, gave the  appellants  a certificate  of  fitness for appeal to this  Court  and  the present  appeal  has  been filed on  the  strength  of  such certificate. A perusal of cl. 13 of the deed shows that the trust fund is declared to be held by the trustees upon trusts to apply the net  income  thereof  for all or any  of  the  six  purposes enumerated therein.  It was conceded before the High  Court- and  it  has not been disputed before us-that if  there  was nothing else in this clause, then each of these six purposes would have to be upheld as a charitable purpose involving an element  of  public  utility  and  consequently  within  the protection of s. 4(3)(i).  The fact that the trustees  could expend  the  net income on any of the six  purposes  to  the exclusion  of the other five purposes would not, it is  also conceded,  have made the slightest difference in the  matter of  such  exemption from income-tax.  For instance,  if  the trustees  spent  the net income solely and  wholly  for  the purposes-  mentioned under sub-cl. (a) to the  exclusion  of those  mentioned  in sub-cls. (b) to  (f)such  income  would still  be exempt from taxation under s. 4(3)(i).   The  High Court, however, took the view that cl. 13 should be read  as a whole along with the provisos -and that so read the  trust is primarily for the benefit of the relations or members  of the family 117 930 of  Sir  Sassoon  David, Bart.  It is pointed  out  that  in applying  the net income for the purposes mentioned in  sub- cl. (a), the trustees are bound, under the first proviso, to give  preference  to  the poor  and  indigent  relations  or members  of the family of the said Sir Sassoon David,  Bart. including  therein  distant and collateral  relations.   The second proviso, it is urged, makes it further clear that  in the  application  of the income for the  said  purpose,  the trustees are enjoined to apply not less than half the income for  the benefit of the members of the Jewish  community  of Bombay only " including the relations of Sir Sassoon  David, Bart.,  as aforesaid " and the Jewish objects.  Emphasis  is laid on the words not less than half " as indicating that it is permissible for the trustees to spend more than half  and indeed  the whole of the net income for the benefit  of  the said relations or members of the family of the said  Sassoon David,  Bart.   It is also pointed out  that,  although  the remaining income, if any, has to be spent for the benefit of all  persons  and  objects  including  Jewish  persons   and objects,  the trustees could, if they so wished,  spend  the same also for the relations or members of the family of  Sir Sassoon David, Bart. as Jewish persons.  The argument, which found  favour  with  the High Court, is  that  the  provisos impose  a mandatory obligation on the trustees (i)  to  give preference to the poor and indigent relations or members  of the family of Sir Sassoon David, Bart. and (ii) to spend not less  than half the income, which may extend to  the  entire income,  for the benefit of the relations or members of  the family  of Sir Sassoon David, Bart.  The High  Court  points out that in view of the language of el. 13 of the deed  read as a whole, it is open to the trustees, without being guilty of  any breach of trust, to spend the entire net  income  of the trust fund for the purpose of giving relief to the  poor and indigent relations or members of the family of the  said Sir Sassoon David, Bart., including therein the distant  and collateral  relations and such being the position, the  High

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Court came to the conclusion that it could not be said  that the property was held wholly or partly for religious or 931 charitable purposes involving an element of public  utility. The  High  Court accordingly held that the income  from  the trust fund was not exempt from taxation under s. 4(3)(i) and answered  both the questions in the negative.   The  problem before  us  is  whether  the High  Court  was  right  in  so answering the questions. In coming to the decision that it did, the High Court relied on  its  own  earlier decision in the case  of  Trustees  of Gordhandas Govindram Family Charitable Trust v. Commissioner of  Income-tax  (Central), Bombay (1).  The  facts  in  that case,  however, were somewhat different from the  facts  now before us.  In that case the trust was significantly  enough described as " Gordhandas Govindram Family Charitable  Trust ". Clause 2 of that trust deed provided for the  application of  tile  net income in giving help or relief to  such  poor Vaishyas  and other Hindoos as the trustees  might  consider deserving of help in the manner and to the extent  specified in  the  said trust deed and subject to the  conditions  and directions stated in the next following clauses.  Sub-clause (a) of cl. 3 provided that Vaishya Hindoos who were  members of Seksaria family should be preferred to poor Vaishyas  not belonging  to  the  said  family.   Maintenance  had  to  be provided under sub-cl. (b) for the poor male descendants  of the  settlor  and  under sub-cl. (c)  for  the  poor  female descendants of the settlor.  Marriage expenses were provided under  sub-el. (d) for the poor male descendants  and  under sub-cl. (e) for the poor female descendants of the  settlers There  were other subclauses providing for payment of  money to the poor male or female descendants of the other  members of  the Seksaria family.  In the present judgment now  under appeal, the High Court recognises that the particular  trust they  were dealing with in the earlier case " was  a  fairly blatant illustration of a settlor trying to benefit his  own family  and  his  own relations " and  states  that  in  the earlier  case it had pointed out " that the benefit  to  the public was too remote and too illusory and accordingly  held that was (1)  [1952] 21 I.T.R. 231. 932 not  a  trust  which had for its  object  a  general  public utility  ". Such, however, cannot be said of the  provisions of  the present Deed of Declaration of Trust.  Under el.  13 the  trustees are at liberty to hold the trust fund  and  to apply  the  net  income thereof for all or any  of  the  six purposes mentioned therein.  The relations or members of the family  of  the  said Sir Sassoon  David,  Bart.,  including therein  distant and collateral relations do not  figure  as direct  recipients of any benefit under sub-cls. (b) to  (f) and,  therefore, in so far as those purposes  are  concerned the  trust certainly involves an element of public  utility. We  are  not unminaful of the fact that it is  open  to  the trustees  to spend the net income entirely for  the  purpose referred  to  in sub-cl. (a) to the exclusion of  the  other clauses.  But the very fact that the relations or members of the family do not come in directly under any of those latter sub-clauses cannot be ignored, for they certainly have  some bearing  on the question as to who or what were the  primary objects  of  the trust as a whole.  In the next  place,  the purpose  of  sub-cl. (a) is the "relief and benefit  of  the poor  and indigent members of Jewish or any other  community of  Bombay or other parts of India or of the world ". It  is conceded  by  learned counsel that this  sub-clause  clearly

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expresses  a  general  charitable  intention  involving   an element of public utility.  It follows, therefore, that sub- cl.(a) constitutes a valid public charitable trust having as its beneficiaries the several classes of persons referred to therein.   This is the first position.  We then pass  on  to the  provisos.  The first proviso opens with the words "  in applying  the income as aforesaid ". This takes us  back  to sub-cl.  (a).  The meaning of the proviso obviously is  that in  applying the income for the purpose of sub-el. (a),  the trustees  shall  give preference to the  poor  and  indigent relations  or  members of the family of Sir  Sassoon  David, Bart.  The proviso does not operate independently but  comes into play only " in applying the income as aforesaid"..  The provision  for  giving  preference  involves  the  idea   of selection of some persons out of a bigger class envisaged in subel. (a).  The poor and indigent relations or members of 933 the  family can claim to participate in the  benefits  under the  trust  only  if they come within  one  of  the  several classes  enumerated  in  sub-el. (a).  To  take  an  extreme example:  If  a poor and indigent relation  of  Sir  Sassoon David, Bart. abjures the faith held by the Jewish  community and  does not adopt any other faith and thus ceases to be  a member of the Jewish community but does not become a  member of any other community, he will certainly not be entitled to the  benefits  of  sub-el. (a) although he  is  a  poor  and indigent  relation  or member of the family of  Sir  Sassoon David,  Bart. within the meaning of the first  proviso.   In other  words,  sub-cl. (a) prescribes the primary  class  of beneficiaries  out of which the actual beneficiaries are  to be  selected  by the application of the  provisions  of  the provisos,  that  is  to say, by  giving  preference  to  the relations  or members of the family of the said Sir  Sassoon David,  Bart.  The case of In re Koettgan’s Will Trusts  (1) appears  to us, on the facts, to be more in point  than  the case  of Gordhandas Govindram Family Charity Trust case  (2) relied on by the High Court.  In the last mentioned  English case  the  testatrix bequeathed her  residuary  estate  upon trust for the promotion and furtherance of commercial educa- tion.  The persons eligible as beneficiaries under the  fund were  stated  to be ,persons of either sex who  are  British born  subjects and who are desirous of educating  themselves or  obtaining  tuition for a higher  commercial  career  but whose  means  are insufficient or will not  allow  of  their obtaining such education or tuition at their own expense..." The  testatrix  further  directed  that  in  selecting   the beneficiaries  " it is my wish that the ...  trustees  shall give preference to any employees of John Batt & Co. (London) Ltd.  or  any  members of the families  of  such  employees; failing  a  sufficient number of  beneficiaries  under  such description  then the persons eligible shall be any  persons of  British birth as the trustees may select  provided  that the  total  income to be available for benefiting  the  pre- ferred  beneficiaries shall not in anyone year be more  than 75% of the total available income for that (1) [1954] Ch. 252, 257. (2) [1952] 21 I.T.R. 231. 934 year".  It was held, on a construction of the will, that the gift  to  the primary class from which  the  trustees  could select the beneficiaries contained the necessary element  of benefit  to the public and that it was when that  class  was ascertained  that  the  validity  of the  trust  had  to  be determined,  so that the subsequent direction to prefer,  as to the 75% of the income, a limited class did not affect the

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validity  of  the trust which was accordingly  a  valid  and effective charitable trust.  Referring to the first part  of the will Upjohn, J., at p. 257 said:- " If the will concluded there, the trust would clearly be  a valid charitable trust, having regard to the admission  that a  gift for commercial education is for the  advancement  of education." Then  after  stating  that  the next  task  was  to  make  a selection  from that primary class of eligible persons,  the learned Judge continued:- "  It is only when one comes to make a selection  from  that primary class that the employees of John Batt & Co. and  the members  of their families come into consideration, and  the question is, does that direction as to selection  invalidate the primary trust ? In my judgment it does not do so." Further down he said:- "In my judgment it is at the stage when the primary class of eligible  persons  is ascertained that the question  of  the public  nature of the trust arises and falls to be  decided, and it seems to me that the will satisfies that  requirement and that the trust is of a sufficiently public nature." The learned Judge then concluded:- "  If, when selecting from that primary class  the  trustees are  directed to give a preference to the employees  of  the company  and members of their families, that  cannot  affect the validity of the primary trust, it being quite  uncertain whether  such persons will exhaust in any year 75%.  On  the true  construction  of this will, that is not  (as  to  75%) primarily  a  trust for persons connected with John  Batt  & Co., and the class of persons to benefit is not " confined " to them, and in my judgment the trust contained in clauses 7 935 and  8  of the will of the testatrix is a  valid  charitable trust." It is true that this is a judgment of a Single Judge but  it does not appear to have been departed from or over ruled  in any  subsequent case and appears to us to be based on  sound principle.   Applying this test, there can be  no  question- indeed it has been conceded that the earlier part of el. 13, omitting the provisos, constitutes a valid public charitable trust.  The circumstance that in selecting the beneficiaries under  subel.  (a)  preference has to be  given,  under  the provisos,  to the relations or members of the family of  Sir Sasoon  David, Bart., cannot affect that  public  charitable trust.  In our judgment, the facts of this case come  nearer to  the facts of the English case referred to above than  to the  facts of the earlier decision of the Bombay High  Court in  Gordhandas Govindram Family Charity Trust case (1).   As we  have  already  stated the relations of  members  of  the family  are clearly not the primary object  contemplated  by sub-cls.  (b)  to  (f).   The first  part  of  sub-cl.  (a), omitting  the provisos, is not said to be too wide or  vague and  unenforceable.  The provision for giving preference  to the poor and indigent relations or the members of the family of  Sir  Sassoon  David, Bart.,  cannot  affect  the  public charitable  trust  constituted under sub-cl.  (a).   In  our opinion  the income from the trust properties  comes  within the  scope  of  s. 4(3)(i) and is,  therefore,  entitled  to exemption.  Therefore the negative answer given by the  High Court  to  question  No.  I cannot  be  supported  and  that question  should  be answered in the affirmative.   In  this view of the matter, question No. 2 does not arise and  needs no  answer.  The result is that this appeal must be  allowed and the question No. I must be answered in the  affirmative. The  appellants will have the costs of the reference in  the

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High Court and of this appeal in this Court. Appeal allowed. (1) [1952] 21 I.T.R. 231. 936