1964 PLP 645 (PTD)

Charitable trust‑Wakf‑Trust for benefit of the poor‑Prefer ence to be given to poor relations of settlor‑Whether trust exempt from tax‑Indian Income‑tax Act, 1922, S. 4 (3) (i). In deciding whether a trust is one wholly for religious or charitable purposes for the purposes of section 4 (3) (i) of the Income‑tax Act, it is the dominant intention of the settlor that has to be considered, and if the dominant intention of the settlor was to help the poor the mere fact that there was a direction to the trustee to give preference to the poor relations of the settlor would not render section 4 (3) (i) inapplicable to such trust. A Wakf deed provided that the surplus out of the income of the trust shall be utilised by the trustees for the following purposes and objects, viz., to help the poor, and that in doing so help must first be given to the relations of the settlor who were poor, and thereafter, preference should be given to members of the Memon Jamat community who were residing in the mohalla of the settlor who were poor. The trustees were also given an absolute discretion to apply the trust fund to any of the objects of the trust: Held, that on a true construction of the trust deed the trust property was held under a trust wholly for charitable purposes and the income of the trust was exempt from tax under section 4 (3) (i) of the Income‑tax Act. Commissioner of Income‑tax v. Trustees of Seth Meghji Mathuradas Charity Trust (1959) 37 I T R 419; Trustees of the Charity Fund v. Commissioner of Income‑tax (1959) 36 I T R 513 and Trustees of Gordhandas Govindram Family Charity Trust v. Commissioner of Income‑tax (1952) 21 I T R 231 ref. By these applications, which are consolidated for the sake of convenience, the Commissioner of Income‑tax, Gujarat, Ahmedabad, requires the Appellate Tribunal to refer to the High Court a question of law which is said to arise out of the Tribunal's consolidated order in I. T. As. Nos. 1059 to 1063 of 1960‑

61. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order of the Tribunal, we hereby draw up an agreed statement of the case and refer it to the High Court of Gujarat at Ahmedabad under section 66 (1) of the Indian Income‑tax Act, 1922.

2. The assessees are the trustees of Haji Ahmed Haji Abdul Kadar Moosa Wakf Fund. The assessment years are 1954‑55 to 1958‑59 and the relevant accounting periods are the years ending March 31, 1954 to March 31, 1958. One Moosa Haji Ahmed Haji Abdul Kadar made a Wakf on December 6,'1926. This Wakf was declared void by the Bombay High Court. Therefore, another wakf was created on or about July 6, 1953. The relevant portions of the deed are as follows: "The surplus out of the income of the Wakf shall be utilised on the following purposes and objects of the Wakf by the Trustees: (1) Out of the income of the Wakf to help the poor relatives of Haji Ahmedbhai Haji Kadar and in the absence of any such relatives to such poor from the Memon community residing in the same locality ; (2) Out of the income of the Wakf to help the persons of the Mohmedan Sayed community and specially to poor of them ; (3) Out of the income of the Wakf to help in the physical and intellectual education and to such schools giving such educa tion, to students studying Urdu, Gujarati, English and to students of Technology by way of scholarships, books and Kuran Sharif; (4) Out of the income of the Wakf to help orphans, widows and disabled persons from the Memon community in cash or by giving clothes, etc. ; (5) Out of the income of the Wakf to help and maintain mosques and schools ; (6) Out of the income of the Wakf to give financial help to poor persons and their children at the time of marriage ; (7) Out of the income of the Wakf to provide for coffin to poor Mohmedan and to help the needy Mohmedans. It will be at the discretion of the trustees mentioned in Wakf and the Trustees appointed thereafter to utilise the income of the Wakf on all or any of the objects and to what extent and in what way and what amount to be spent every year : Provided that . . . . . %of the income of the Wakf must be utilised by the Trustees on the objects of the Wakf ; provided further that more than . . . . . % of the income of the Wakf should be accumulated and it shall be utilised on the objects of the Wakf." (Incomplete). A copy of the Wakf deed dated July 6, 1953, is annexure "A" and forms part of the case. The assessee's applications for refund of income‑tax on the basis of the income of the trust being exempt under section 4 (3) (i) were dismissed by the Income‑tax Officer. He held that the income of the trust was not exempt under section 4 (3) (i). On a reading of the Wakf deed dated July 6, 1953, he came to the conclusion that the deed did not mention what amount was set apart for the help of such poor relations of the settlor but it was left to the discretion of the trustees to spend whatever amount they chose on such purpose or other purposes enumerated in the deed. He also took the view that since the income of the trust was not receivable on behalf of any one person nor the shares of the beneficiaries were defined, the provisions of the first proviso to section 41 (1) were attracted. A copy of the Income‑tax Officer's order for the assessment year 1954‑55 is annexure "B" and forms part of the case.

3. In appeals the Appellate Assistant Commissioner con firmed the Income‑tax Officer's orders. The Appellate Assistant Commissioner distinguished the case cited, i.e., the case of Trustees of the Charity Fund v. Commissioner of Income‑tax ((1959) 36 I T R 513). He also took the view that in the instant case the poor relations of the settlor were mentioned as a separate and independent category of persons and appeared as direct beneficiaries of the trust income. He also held that the trust income should be assessed under the first proviso to section 41 (1). A copy of the consolidated order of the Appellate Assistant Commissioner for the assessment year 1954‑55 is annexure "C" and forms part of the case.

4. In appeals before the Tribunal it was contended that all the objects were purely of a charitable nature and the object of giving help to the poor, though they might be relations, being also an object of a charitable nature, it could not be said that, section 4 (3) (i) was not applicable. It was further contended that where there were several objects of a trust some of which were charitable and some non‑charitable, and where the trustees had discretion to apply the income to any of the objects, it was not correct to say that the entire trust would fall and no part of the income would be exempt from tax. It was also stated that in fact there were no relations who were in need of any help and no help was actually given to any relations and therefore the trustees had not applied any portion of the moneys for helping the poor relations of Haji Ahmed Haji Kadar. It was also contended that under section 3 of the Mussalman Wakf Validating Act VI of 1930), the provisions of this Wakf deed were valid. The Tribunal held that the Wakf itself might be valid and the Department also did not dispute that position, but the real question was whether the income from the properties were exempt under the provisions of section 4 (3) (i). The Tribunal held that the trustees could utilise the income of the Wakf on all or any of the seven purposes and objects mentioned in the deed. The poor relations of Haji Ahmed Haji Kadar did not figure as recipients of any benefit under clauses 2 to 7 and, therefore, in so far as those purposes were concerned, the Wakf certainly involved an element of public utility. The Tribunal, though it noticed that it was open to the trustees to spend the net income entirely for the purpose mentioned in clause 1 to the exclusion of the other clauses, but still the Tribunal considered that the emphasis appeared to be more on the poverty aspect than the relationship. The Tribunal con siderered that it was not possible to ignore this aspect of the matter in considering the question as to who or what were the primary objects of the Wakf as a whole. The poor relations of Haji Ahmed Haji Kadar no doubt were part of the larger Memon community which would be entitled to receive the help and that community was the primary class of, beneficiaries. On a consideration of the several clauses as a whole the Tribunal help that the primary and predominant object appeared to be the relief of poverty and maintenance of institutions like mosques, schools etc., though no doubt in the grant of such relief or help the poor rela tions could also participate. In this view of the matter the Tribunal held that the income of the trust was exempt from taxation under section 4 (3) (i) of the Act. A copy of the Tribunal's consolidated order dated 30th March 1961, is annexure "D" and forms part of the case.

5. The only question of law that arises is: "Whether, in the facts and circumstances of this case, on a true construction of the sever clauses of the trust deed dated July 6, 1953, as a whole the income of the assessee is exempt from taxation under section 4 (3) (i) of the Indian Income‑tax Act ?" J. M. Thakore, Advocate‑General for the Commissioner. K. H. Kaji for the Assessee. DESAI, C. J.‑This is a reference under section 66 (1) of the Indian Income‑tax Act, 1922, at the instance of the Commissioner of Income‑tax, Gujarat. The assessees in this case are the trustees of Haji Ahmed Haji Abdul Kadar Moosa Wakf Fund. The assessment years with which we are concerned are the years 1954‑55 to 1958‑59, the relevant accounting periods being the years ending 31st March 1954 to 31st March 1958. The deed of Wakf, which is required to be considered in this case, is dated 6th July 1953. The deed is in Gujarati language. The English translation of that deed, which is annexed as annexure "A", to the reference paper‑book, does not correctly translate the relevant provisions contained in the deed of Wakf. The relevant portion of the translation set out in the statement of the case does not bring out the true effect of the original clause in Gujarati. Clause 7 of that deed of Wakf provides that the surplus out of the income of the Wakf shall be utilised by the trustees for the following purposes and objects of the Wakf : (1) to help the poor. In doing so, help must first be given out of the income of the Wakf to the relations of Haji Ahmed Haji Abdul Kadar Moosa who are poor. Thereafter, pref erence should be given to the members of the Memon Jamat residing in the mohalla of Haji Ahmed Haji Abdul Kadar who are poor. There are other provisions subsequently set out. The trustees are authorised to apply the income of the trust fund to any of the objects of the trust in such manner and to such extent as the trustees may, in their absolute discretion, deem fit. The question that has arisen for consideration is whether the income of this trust is exempt from taxation under the provi sions of section 4 (3) (i) of the Act. Section 4 (3) (i) of the Indian Income‑tax Act, 1922, provides as under: " (4) (3) Any income, profits or gains falling within the following clauses shall not be included in the total income of the person receiving them: (i) Subject to the provisions of clause (c) of subsection (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." The question that arises for consideration is whether the properties in question are held in trust or other legal obligation wholly for charitable purposes. The learned Advocate‑General placed reliance upon a decision of the Bombay High Court in the case of Trustees of Gordhandas Govindram Family Charity Trust v. Commissioner of Income‑tax ((1952) 21 I T R 231). In that case, a Division Bench of the Bombay High Court consisting of Chief Justice Chagla and Justice Tendolkar held that in India, relief of the poor by itself would not be a charitable object unless it involved an object of general public utility and, consequently, any charity which was intended for the relief of the poor relatives of the settlor or donor was not a charity that fell within the definition of the Indian Income‑tax Act. They further held that where the primary purpose of the settlor was to benefit the members of his family and remotely and indirectly to benefit the general public then it could not be stated that the settlement was for a charitable purpose within the meaning of the Income‑tax Act. He very fairly invited our attention also to a decision of the Supreme Court on the subject in the case of Trustees of the Charity Fund. v. Commissioner of Income‑tax ((1959) 36 I T R 513, 514). In that case, a deed of trust executed by Sir Sassoon David, Bart., provided, inter alia, as follows: "(13) The trust fund shall be held by the trustees upon the trusts to apply the net income thereof 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 seen proper . . . . . . 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 dona tions 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 such proportions as the said trustees may think proper . . . . . ". The Supreme Court in that case held that 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 the public charitable trust and the income from the properties came within the scope of section 4 (3) (i) and was exempt from taxa tion. In that case the relations or the members of the family of the settlor did not come directly under any of the other clauses of the deed of trust. The Supreme Court observed that the very fact that the relations or members of the family did not come directly under any of those later sub clauses, could not be ignored for they certainly had some bearing on the question as to who or what were the primary objects of the trust as a whole. A reference was also made to a decision of the Bombay High Court in the case of Commissioner of Income‑tax v. Trustees of Seth Meghji Mathuradas Charity Trust ((1959) 37 I T K 419). In that case, the settlor had directed that the balance of the income of the trust property was to be utilised for certain specified charitable purposes, the benefits of which were to enure only to persons be longing to the three upper or twice‑born classes of the Hindu community. It further directed "that in carrying out one of the above charitable intentions, the trustees shall always prefer the members of (the settlor's) caste to the members of any other caste in the Hindu community, and shall further prefer members of (the settlor's) family and (the settlor's) relatives, to those who were not such members and relatives." Following the decision of the Supreme Court in the case of Trustees of the Charity Fund v. Commissioner of Income‑tax ((1959) 36 I T R 513), the Court held that there was a dominant charitable intention expressed by the settlor and that it could not be said that by reason of the proviso, the dominant charitable intention expressed by the settlor, which authorised the trustees to select the parties in their absolute discretion for application of the income of the trust properties, was effected. It was only after the purpose or object was selected that the question of preference arose. Applying the test laid down by the Supreme Court to the facts of the present case, we have no doubt in our minds that the dominant object of the settlor in providing sub‑clause (1) of clause 7 was to benefit the poor. The fact that a provision has been made that the relations of Haji Ahmed Haji Abdul Kadar Moosa out of the poor were to be helped first could not make any difference. The fact that it has been provided that the members of the Memon Jamat of the mohalla of Haji Ahmed Haji Abdul Kadar Moosa who were poor were to have preference, after the poor relations had been exhausted, would not equally matter. It may be that the relations of the settlors may not be poor. It may be that, in course of time, they may become extinct. But the trust would remain and would have to be carried out. What we have to consider is, what was the dominant intention. The trust was to be in operation so long as there were properties to which the trust could attach. In the course of the arguments reference has not been made to any other provision. Reading the deed of Wakf as a whole, the dominant intention appears to be charitable. The question which we are asked to answer is the following: "Whether on the facts and circumstances of this case, on a true construction of the several clauses of the trust deed dated July 6, 1953, as a whole the income of the assessee is exempt from taxation under section 4 (3) of the Indian Income‑tax Act?" In view of what we have stated above, our answer to the question is in the affirmative. The learned Advocate‑General, who appears for the Com missioner of Income‑tax, intimated to us that the correct copy of the deed of Wakf was never supplied to the Department and that reliance was only placed on the translation which, in our ,view, is incorrect in material particulars. In this view of the matter, we consider that the fair order to make as regards costs would be that each party should bear its own costs and we order accordingly. Question answered in the affirmative.