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PETITIONER: YOGIRAJ CHARITY TRUST

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, NEW DELHI

DATE OF JUDGMENT30/03/1976

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) BEG, M. HAMEEDULLAH SINGH, JASWANT

CITATION:  1976 AIR 1836            1976 SCR  (3) 947  1976 SCC  (3) 378

ACT:      Exemption  from   Income-tax-Religious  and  charitable purposes-Indian Income-tax Act, 1922-Section 4(3)(i)-Intent- Test for  treating a  Trust income as of a charitable nature and for entitlement to exemption under s. 4(3) (i) ibid.

HEADNOTE:      Charitable purposes  under s.  4(3) of  the Income  Act includes relief  of the  poor, education, medical relief and the advancement  of  any  other  object  of  general  public utility, but  nothing contained in clause (i) and (ii) of s. 4(3) applies and shall operate to exempt from the provisions of the  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.      All the  six income-tax  references made by the Income- tax Appellate  Tribunal, Delhi  Bench under s. 66 (1) of the Indian Income-tax  Act, 1922 as to "whether on the facts and in the  circumstances of  the case  the income  of the trust which was  spent on  the religious  and charitable  purposes within the  taxable territories was exempt under s. 4(3) (i) of the  Indian Income  Tax Act,  1922" were  answered in the negative and  in favour of Revenue, by the Division Bench of the Delhi High Court holding "that the property of the trust cannot be  held to  be wholly  for religious  or  charitable purposes". The terms of the trust deeds in all the cases are similar and  the pattern of financial dealing of the various trusts is also the same as could be seen from the objects of the trusts  particularly clauses  (5)(a), which  are,  inter alia, as follows :-           (i)  To open,  found, construct,  establish  takes                over,  equip,   promote,  conduct,  maintain,                support,  subsidise,   grant  aids  and  make                donations to  schools, colleges,  Pathshalas,                boarding houses,  reading  clubs,  libraries,                art, music  or literary  societies and  other                institutions   educational    or   otherwise,                associations,  printing   presses,  journals,                newspapers, periodicals, and other religious,                commercial,   industrial,   legal,   medical,

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              engineering scientific  or other knowledge or                training.           (ii) To give  stipends,  scholarships,  travelling                expenses  allowances  and  monetary  aids  to                students and  scholars in  India  and  abroad                engaged in any of the pursuits referred to in                sub-clause (i).           (iii)To  found,   construct,  maintain,   support,                assist or  grant  aids  or  subscriptions  to                temples, prayer  or congregational  halls  or                other  buildings   for  cultural,  social  or                religious discourses.           (iv) To  open,   found   conduct,   maintain,   or                contribute to  the opening and maintaining of                such institutions  where work at living wages                can be  provided to poor and deserving people                and also  be conducive  to the development of                industries and benefit of the poor.           (v)  To open,  found,  establish,  equip,  finance                assist, maintain  or contribute  to religious                commercial technical industrial or commercial                concerns,   institutions,   associations   or                bodies imparting  any  type  of  training  or                providing employment to persons.           (vi) To   give    donations,   subscriptions    or                contributions to  any other  Charitable Trust                in Jaipur State or outside.      Clauses 11  and 16  of the  deed give  an  uncontrolled discretion to  the trustees  to spend the whole of the trust fund on  any of the non-charitable objects of the trust. The non-charitable objects authorise the opening and maintaining of commercial institutions where work at living wages can be provided to the 948 poor  and  also  to  contribute  to  commercial,  technical, industrial or commercial concerns, institutions associations or bodies  imparting  any  type  of  training  or  providing employment to persons.      Dismissing the appeals by Special Leave, the Court ^      HELD :      (1) In order to claim the benefit of exemption under s. 4(3)(i) of  the Act the property must be held under trust or other legal  obligation wholly  for religious  or charitable purposes. The  only  relaxation  is  that  all  the  primary objects of  the trust  must be  of religious  and charitable nature and  the existence  of  any  ancillary  or  secondary object which  is not of a religious or charitable nature but which is  intended to  subserve the religious and charitable objects may  not prevent  the grant of an exemption. This is because such  an ancillary  or secondary  object even though not of  a religious  or charitable  nature  is  intended  to effectuate the  main and  primary objects  of the  trust.  A clear distinction  must be  drawn between  the object  of  a trust  and   the  powers  conferred  upon  the  trustees  as incidental  to   the  carrying   out  of  the  object.  Mere application of  income to charity on the other hand will not avail to  secure exemption if under the terms of the will or deed the  income is applicable in the first instance to non- charitable objects  and only the residue will go to charity. [953-A-B, C, D]      Commissioner  of   Income  Tax  v.  Andhra  Chamber  of Commerce (1965) 55 I.T.R. 722 applied.      Sole Trustee  Loka Shikshana  Trust v.  Commissioner of Income-tax, Mysore  [1976] 1  SCR 461;  All India  Spinner’s

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Association v.  Commissioner of  Income-tax (1944) 12 I.T.R. 482; C.I.T. v. Krishna Warriar [1964] 8 SCR 36; Commissioner of Income  Tax v.  Bengal  Home  Industries  Association  48 I.T.R. 181;  Hyderabad Stock  Exchange  Ltd.  v.  C.I.T.  66 I.T.R. 195;  and Commissioner  of Income  Tax v.  Radhaswami Satsang Sabha 25 I.T.R. 472, discussed and distinguished.      (ii) The  test is  that if  one of  the objects  of the trust deed  is not  of a  religious or charitable nature and the trust  deed confers  full discretion  on the trustees to spend the  trust  funds  for  an  object  other  than  of  a religious or  charitable nature, the exemption under s. 4(3) (i) of the Act is not available to the assessee. [955D]      Lakshmi Narain Nath Trust v. Commissioner of Income Tax (1969) 73 I.T.R. 402, followed.      (iii) Where there are several objects of trusts some of which  are   charitable  and  some  non-charitable  and  the trustees in  their discretion are to apply the income to any of the  objects, the  whole trust  fails and  no part of the income is  exempt  from  the  tax.  Where  the  objects  are distributive, each  and every  one of  the objects  must  be charitable in  order that  the trust  might be  upheld as  a valid charity.  If no  definite part  of the property or its income is  allocated to  charitable purposes and it would be open to the trustees to apply the whole income to any of the non-charitable objects no exemption can be claimed [952F-G]      East   India   Industries   (Madras)   Pvt.   Ltd.   v. Commissioner of Income Tax (1967) 65 I.T.R. 611 and Mohammed Ibrahim Riza v. C.I.T. 57 I.A., 260 applied.      (iv) In  the instant  case the  various industrial  and commercial concerns  were not  started by Ram Krishna Dalmia in furtherance  of the  objects of trusts. The concerns were started for  the purpose of earning profits which were to be distributed to  the share  holders who  had  invested  share money in  those concerns.  The trust  property could  not be said to  be wholly  for  religious  or  charitable  purposes within the meaning of s. 4(3)(i) of the Act. [954G-H, 955-C] Arguments for the appellant.      (1) The  Trust is  entitled to claim exemption under s. 4(3) (i)  of the  Act because the trust is for religious and charitable purposes only. 949      (2) As to clauses which confer power on the trustees to establish any  business, undertaking  or industry the income derived from  such commercial  concern is to be spent wholly for the  religious and  charitable  purposes  and  therefore exemption is permissible under s. 4(3)(i) of the Act.      (3) The dominant purpose of the founder of the trust as expressed in  the forefront  of the  Deed  is  religious  or charitable and  even if  money be  spent  on  non-charitable purposes it  should not  be held that the trust is meant for non-charitable  purposes   and  the  founder  has  expressly provided in Clause 30 of the Trust deed that the deed should not become  invalid for the reason that some object might be considered unlawful.      (4) If  any income  from  the  trust  is  utilised  and applied wholly  in carrying  out the primary purposes of the trust, the  Trust  is  entitled  to  claim  exemption  under proviso (b)  to section  4(3)(i) of the Act and there was no bar on the trust to carry on business under the Act provided the profits  of business  were utilised  only for charitable purposes. Arguments for the respondents :      (1) The Trust was not entitled to claim exemption under s. 4(3)  (i) of  the Indian  Income-tax Act,  1922  for  the simple reason  that some  of the  object of the Trust gave a

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discretion to  the Trustees  to apply the funds of the Trust to purporses  which could  not be regarded charitable in the eye of law.      (2) If out of several objects of the Trust some of them were found  to be non-charitable, the whole trust would fail and no part of its income would be exempt from tax.      (3) It was not a genuine charitable trust as claimed by the  assessee   but  its   creation  and  existence  were  a camouflage and  were meant  only as a device for the benefit of the  settlor Shri  Ram Krishna  Dalmia and the industrial and commercial concerns controlled by him.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION :  Civil Appeals Nos. 937 to 966 of 1971      Bishamber Lal,  D. N.  Banerjee, Pramod  Dayal  and  M. Iyengar, for the appellant.      Hardyal Hardy (In CA 937/71), S. P. Nayar (In CAs. 938- 966) for the respondent.      The Judgment of the Court was delivered by      RAY, C.J.  These appeals  by special leave are from the judgment dated 26 May, 1970 of the High Court of Delhi.      The question  referred to  the High Court under section 66(1) of the Income Tax Act, 1922 referred to as the Act was as follows :           "Whether on  the facts and in the circumstances of      the case the income of the trust which was spent on the      religious and  charitable purposes  within the  taxable      territories was  exempt under  section 4 (3) (i) of the      Indian Income Tax Act, 1922".      The main judgment was delivered in Income Tax Reference No. 40 of 1965.      The High Court answered the question in the negative.      The trust  in Income  Tax Reference  No. 40 of 1965 was taken as  typical of  all the cases. The deed of trust dated 12 April, 1948 950 was made  by Ramkrishna Dalmia. The trust was called "Jaipur Charitable Trust". In Jaipur Charitable Trust Rs. 10,000 was given on  trust on  the terms  and conditions set out in the deed.      The objects  of the  trust in  clause 5(a)  are,  inter alia, as follows :           (i)  To open,  found, construct,  establish,  take                over,  equip,   promote,  conduct,  maintain,                support,  subsidise,   grant  aids  and  make                donations to  schools, colleges,  Pathshalas,                boarding houses,  reading  clubs,  libraries,                art, music  or literary  societies and  other                institutions,   educational   or   otherwise,                associations,  printing   presses,  journals,                newspapers,    periodicals,     and     other                publications  for   imparting  or  developing                religious,  commercial,   industrial,   legal                medical,  engineering   scientific  or  other                knowledge or training.           (ii) To give  stipends,  scholarships,  travelling                expenses  allowances  and  monetary  aids  to                students and  scholars in  India and  abroad,                engaged in any of the pursuits referred to in                sub-clause (i).           (iii)To  found,   construct,  maintain,   support,                assist or  grant  aids  or  subscriptions  to

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              temples, prayer  or congregational  halls  or                other  buildings   for  cultural,  social  or                religious discourses.           (iv) To  open,   found   conduct,   maintain,   or                contribute to  the opening and maintaining of                such institutions  where work at living wages                can be  provided to poor and deserving people                and also  be conducive  to the development of                industries and benefit of the poor.           (v)  To open,  found, establish,  equip,  finance,                assist, maintain  or contribute to religious,                commercial    technical,    industrial,    or                commercial      concerns,       institutions,                associations or  bodies imparting any type of                training or providing employment to persons.           (vi) To   give    donations,   subscriptions    or                contributions to  any other  Charitable Trust                in Jaipur State or outside.      There  are  other  objects  to  help  widows,  orphans, lunatics, indigent  persons and  to give  relier to the poor and  distressed,   to  build,  equip,  take  over,  conduct, maintain and  grant aids  to dispensaries,  maternity homes, hospitals, lunatic asylums, to construct, erect and maintain bridges, ghats,  to give relief by subscription or otherwise during famines,  flood, earthquake,  pestilence, to  help or maintain institutions  for the  cultural, social or economic advancement of any country or countries.      For the  purpose of carrying out the trust the trustees are empowered in clause 5(b), inter alia, (a) to purchase or otherwise acquire  any property,  rights leases, concession; (b) to  purchase or acquire, start establish, equip or close any business  undertaking or industry; (c) purchase, acquire or  undertake   the  whole  or  any  part  of  property  and liabilities on any person, firm or company. 951      The property  of the  Trust is  vested in the trustees. Clause (9)  of the  Trust Deed  provides that  the  Trustees shall carry  out the  aforesaid objects  from out of the net income of  the Trust  left after  meeting  the  expenses  of management and  all charges  and outgoings  so far  as  such income shall permit, and shall not utilize the income or any portion thereof for any other objects or purpose.           Section 4(3) (i) of the Act is as follows:-           "Any income,  profits or  gains falling within the      following classes  shall not  be included  in the total      income of the person receiving them;           (i) Subject  to the  provisions of  clause (c)  of      sub-section      (1) of  section 16,  any income  derived from  property      held under  trust or  other legal obligation wholly for      religious or  charitable purposes,  in so  far as  such      income is  applied or  accumulated for  application  to      such religious  or charitable  purposes  as  relate  to      anything done  within the  taxable territories,  and in      the case  of property  so held  in part  only for  such      purposes, the  income applied  or finally set apart for      application thereto:           Provided that such income shall be included in the      total income.      (a) xx   xx    xx      (b)  in the  case  of  income  derived  from  business,           carried on  behalf of  a religious  or  charitable           institution, unless  the income  is applied wholly           for the purpose of the institutions and either-           (i)  the business  is carried  on in the course of

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              the actual  carrying out of a primary purpose                of the institution, or           (ii) the work  in connection  with the business is                mainly carried  on by  beneficiaries  of  the                institution.           (iii)any  income  of  a  religious  or  charitable                institution    derived     from     voluntary                contributions  and   applicable   solely   to                religious or charitable purposes."      Charitable  purpose  under  section  4(3)  of  the  Act includes relief  of the  poor, education, medical relief and the advancement  of  any  other  object  of  general  public utility, but  nothing contained in clause (i) or clause (ii) of section 4(3) applies and shall operate to exempt from the provisions of  the Act that part of the income from property held under  trust or  other  legal  obligation  for  private religious purposes  which does not ensure for the benefit of the public.      The terms  of the  Trust Deeds  in all  the  cases  are similar. The  pattern of  financial dealings  of the various Trusts is also the same.      The appellant  contends that Trust is entitled to claim exemption under  section 4(3)  (i) of  the Act  because  the trust is  for religious  and charitable purposes only. As to clauses which  confer power  on trustees  to  establish  any business, undertaking or industry it is said by 952 the appellant  that the  income derived from such commercial concern  is  to  be  spent  wholly  for  the  religious  and charitable purposes  and therefore exemption is permissible. The appellant  contends that  the dominant  purpose  of  the founder of  the trust  as expressed  in the forefront of the Deed is  religious or  charitable and even if money be spent on non-charitable  purposes it  should not  be held that the trust is  meant for  non-charitable purpose.  The  appellant also relies  on clause 30 of the trust deed where it is said that the  deed should not become invalid for the reason that some object might be considered unlawful.      The Revenue  denies the  claim  for  exemption  on  the ground that some objects are non-charitable and the trustees are given  an  unfettered  discretion  with  regard  to  the utilisation of  the income. Some of the objects of the Trust according to  the Revenue  give absolute  discretion to  the Trustees to  apply the funds of the Trust for purposes which cannot be regarded charitable in the eye of law. The Revenue contends that  if out  of several  objects of the Trust some are found  to be  non-charitable, the whole trust will fail. The  Revenue   also  contends  that  it  is  not  a  genuine charitable trust  but  its  creation  and  existence  are  a camouflage and are meant only as a device for the benefit of the settlor  and  the  industrial  and  commercial  concerns controlled by him.      Clauses 11  and 16  of the  deed give  an  uncontrolled discretion to  the trustees  to spend the whole of the trust fund on  any of the non-charitable objects of the trust. The non-charitable objects authorise the opening and maintaining of commercial institutions where work at living wages can be provided to  the poor  and also to contribute to commercial, technical, industrial  or commercial concerns, institutions, associations or  bodies imparting  any type  of training  or providing employment  to persons.  The Revenue contends that these clauses  are clearly  non-charitable. Each  clause  is independent and  distinct, According  to the  Revenue it  is neither ancillary  nor secondary  to  the  primary  dominant purpose of  the trust  nor can it be said that these clauses

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subserve  the  main  object  of  the  trust.  Engagement  in commercial institutions giving employment on wages cannot be said to  be charitable  object. Some  of the  objects of the trust are  non-charitable. The trustees have been authorised to utilize the income of the trust for any purpose mentioned in the Trust Deed.      The question  is whether exemption can be granted where some objects  are charitable  and some non-charitable. Where there are  several objects  of a  trust, some  of which  are charitable and  some non-charitable,  and  the  trustees  in their discretion  are to  apply the  income to  any  of  the objects, the  whole trust fails and no part of the income is exempt from  tax. Where  the objects  are distributive, each and every  one of  the objects  must be  charitable in order that the  trust might  be upheld  as a  valid charity. If no definite part  of the property or of its income is allocated to charitable  purposes and it would be open to the trustees to apply  the whole  income to  any  of  the  non-charitable objects  no  exemption  can  be  claimed.  (See  East  India Industries (Madras)  Pvt  Ltd.  v.  Commissioner  of  Income Tax(1)and Mohammad Ibrahim Riza v. C.I.T.(2) 953      In order  to claim  the benefit  of the exemption under section 4(3)  (i) of the Act the property must be held under trust or  other legal  obligation wholly  for  religious  or charitable purposes.  The only relaxation which may arise in some cases is that all the primary objects of the trust must be of a religious and charitable nature and the existence of any  ancillary  or  secondary  object  which  is  not  of  a religious or  charitable nature  but which  is  intended  to subserve  the  religious  and  charitable  objects  may  not prevent the  grant of  an exemption. This is because such an ancillary or secondary object even though not of a religious or charitable  nature is intended to effectuate the main and primary objects of the trust.      If the  primary or  dominant  purpose  of  a  trust  is charitable, another  object  which  by  itself  may  not  be charitable but  which is  merely ancillary  or incidental to the primary  or dominant purpose would not prevent the trust from being  a valid  charity. A  clear distinction  must  be drawn between the object of a trust and the powers conferred upon the  trustees as  incidental to the carrying out of the object. If  the only  object of  a turst is the construction and maintenance  of a  swimming bath  which is  a purpose of general public utility, the fact that the trustees are given the power  to supply  or sell  refreshments to  persons  who resort to  the bath would not make the trust any of the less charitable. Mere  application of  income to  charity on  the other hand  will not  avail to secure exemption if under the terms of  the will  or deed  the income is applicable in the first  instance  to  non-charitable  objects  and  only  the residue will  go to charity. (See Commissioner of Income Tax v. Andhra Chamber of Commerce (1).      The appellant  contended that  if any  income from  the Trust is  utilised and  applied wholly  in carrying  out the primary purposes  of the  Trust, the  Trust is  entitled  to claim exemption under proviso (b) to section 4(3) (i) of the Act. The  appellant relied  on the  recent decision  of this Court in  Sole Trustee  Loka Shikshana Trust v. Commissioner of Income  Tax, Mysore(2).  The  Loka  Shikshana  Trust  was engaged in  the business  of  printing  and  publication  of newspaper  and  journals  and  the  further  fact  that  the activity yielded  profit and  there were  no restrictions on the trust earning profits in the course of its business went to show  that the  purpose of  the trust did not satisfy the

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requirement that it was one not involving the carrying on of any activity  for profit.  This Court relied on the decision in All India Spinners’ Association v. Commissioner of Income Tax(3) namely,  that the charitable purposes exclude objects of private gain.      The appellant  contended that  there was  no bar on the trust to  carry on  business  under  the  Act  provided  the profits  of  business  were  utilized  only  for  charitable purpose. The  appellant relied on the decision of this Court in C.I.T.  v. Krishna  Warriar(4) In  Krishna Warriar’s case the trustees  were directed  to apply  60 per  cent  of  the income of  the business vested in the trustees to charitable purposes and  40 per cent for the benefit of the family. The question was whether 60 per cent of the 954 income was  liable to  tax under proviso (b) to section 4(3) (i) of  the Act on the ground that the entire income was not applied for  charitable purposes. The question that arose in that case dealt with the meaning of the expression "part" as used in  section 4(3)  (i) of  the Act  that "in the case of profit so  held in  part only  for such  purposes the income applied or  finally set  apart for application thereto shall not  be   included  in   the  total  income  of  the  person receiving’. Krishna  Warriar’s (supra)  case does  not  deal with the  effect of  a deed  which has charitable as well as non-charitable objects  and the trustees have been given the power to  apply  the  whole  of  the  trust  fund  for  non- charitable objects excluding charitable objects.      The  decision  in  C.I.T.  v.  Bengal  Home  Industries Association (1)  Hyderabad Stock  Exchange Ltd. v. C.I.T.(2) C.I.T. v. Radhaswami Satsang Sabha(3) on which the appellant relied are  all applications  of the  ruling  in  All  India Spinners’ Association (supra) case that what has to be found out is  whether the  object clause  has  any  non-charitable object. In  the Bengal  Home Industries  (supra)  case,  the object was  to promote and develop home industries, arts and crafts. The  income of  the Association  was to  be  applied solely towards  the promotion  of and  carrying out  of  its objects.  No   portion  of  the  income  could  be  paid  or transferred directly  or indirectly  by way  of dividends to the members. In the case of winding up the surplus could not be distributed  to the members but were to be transferred to the institution.      In the  Hyderabad Stock Exchange (supra) case, the aims and objects  were not  only  to  further  the  interests  of brokars and dealers but also to assist, regulate and control the trade  in securities,  to  maintain  high  standards  of commercial honour  and integrity,  to discharge and suppress mal-practices to  settle disputes and decide all question of usage, custom  or  courtesy  in  the  conduct  of  trade  or business. The  objects were found beneficial to a section of the public  and of  general public  utility. The profit were not to be distributed to the members but were to be utilized for the promotion of the objects of the Exchange. Therefore, the object  was charitable and the income was applied wholly for charitable purposes.      In  Radhaswami  Satsang  Sabha  (supra),  case  several industrial and  commercial concerns  were  started  for  the benefit of the Satsanghis. Those were not run for individual profits nor  were the profits distributed among the members. The concerns  were started  in furtherance of its objects of religious and charitable nature.      In the  present case,  the Income Tax Authorities found that the various industrial and commercial concerns were not started by  Ram Krishna Dalmia in furtherance of the objects

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of the  trusts. The concerns were started for the purpose of earning profits  which were  to be distributed to the share- holders who had invested share money in those concerns 955      This Court  in East  India Industries  (Madras) Private Limited v.  C.I.T.(1) found  that one  of the objects of the trust was  not for  charitable or  religious  purposes.  The object was  to  manufacture,  buy,  sell  and  distribute  a pharmaceutical medicinal,  chemical and  other preparations. The other  objects were charitable in nature. The Trust Deed in East  India Industries (Madras) Pvt. Limited (supra) case conferred power  on the  trustees to  apply the whole or any part of  the trust  property or  fund for  all or  any other purposes of  the trust.  This Court  found that there was no special trust  and no  particular item  of property had been burndened with the performance of any specific object of the trust. It was open to the trustees to utilize the income for any one  of the objects of the trust to the exclusion of all other objects.  It would  not be a violation of the trust if the trustees devoted the entire income to the carrying on of a  business   of  manufacture,   sale  and  distribution  of pharmaceutical, medicinal and other preparations. This Court held that  the trust property could not be said to be wholly for religious  or charitable  purposes within the meaning of section 4(3)  (i) of the Act. The present appeals are all of the type  of East  India Industries (Madras) Private Limited (supra) case and fall within the ruling in that case.      The test  is that  if one  of the  objects of the trust deed is  not of  a religious  or charitable  nature and  the trust deed  confers full discretion on the trustees to spend the trust  funds for  an object other than of a religious or charitable nature,  the exemption  under section 4(3) (i) of the Act  is not  available to  the  assessee.  (See  Lakshmi Narain Nath Trust v. Commissioner of Income Tax(2).      For these reasons the appeals are dismissed. In view of the fact  that the High Court directed that the parties will bear their own costs, the same order is made as to costs. S.R.                                      Appeals dismissed. 956