1. Trust for charitable purposes with preference for settlor's relations — Dispute over tax exemption under Section 4(3)(i), Income Tax Act. (Para 2 , 3 )
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1959 Supreme(SC) 95
SUPREME COURT OF INDIA
5th May, 1959
S.R. DAS, C.J.I., N.H. BHAGWATI AND M. HIDAYATULLAH, JJ.
The Trustees of the Charity Fund, Esplanade Road, Fort, Bombay, Appellants
Versus
Commissioner of Income-tax, Bombay, Respondent.
Civil Appeal No. 396 of 1957.
Advocates appeared
Mr. R. J. Kolah, Advocate, (M/s. J. B. Dadachanji and S. N. Andley, Advocates of M/s. Rajinder Narain and Co-), for Appellants; M/s. K. N. Rajagopal Sastri and D. Gupta, Advocates, for Respondent.
Advocates:
D.GUTPA, J.B.DADACHAN, K.N.RAJAGOPAL SASTRI, R.J.KOLAG, RAJINDAR NARAIN, S.N.ANDLEY
D.GUTPA, J.B.DADACHAN, K.N.RAJAGOPAL SASTRI, R.J.KOLAG, RAJINDAR NARAIN, S.N.ANDLEY
A trust remains a valid public charitable trust if the primary class of beneficiaries is public, even if the trustees are directed to give preference to a limited group (such as family members) within that primary class.
Headnote:(A) Indian Income Tax Act - Section 4(3)(i) - Income derived from property held under trust for charitable purposes - Exemption from total income - Validity of public charitable trust. (Paras 3, 6)
(B) Construction of Trust Deed - Primary class of beneficiaries - Direction to give preference to a limited class within the primary class - Does not invalidate the public nature of the trust - Trust remains a valid public charitable trust if the primary class of eligible persons is sufficiently public. (Paras 8, 9)
Facts of the case:
A trust was created for various charitable purposes, including the relief of poor and indigent members of a specific community and others, the maintenance of hospitals and schools, and the advancement of religion. The trust deed provided that preference should be given to the poor and indigent relations of the settlor and that a minimum proportion of the income be applied to a specific community. The tax authorities denied exemption under the law, contending that the trust was primarily for the benefit of the settlor's family and lacked public utility.
Findings of Court:
The court held that the primary objects of the trust involved an element of public utility. The provisos requiring preference for certain relations did not operate independently but only when applying income to the primary class of beneficiaries. Since the primary class was public, the preference clause did not strip the trust of its charitable character.
Issues: 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, or if it is held only in part for such purposes.
Ratio Decidendi: The public nature of a trust is determined at the stage when the primary class of eligible beneficiaries is ascertained. If the primary class is public, a direction to prefer a limited group (such as family members) from within that class does not invalidate the trust's public character, provided the beneficiaries must still meet the primary eligibility criteria. (Paras 8, 9)
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether a trust providing preference to the settlor's relations is primarily for private benefit or constitutes a public charitable trust eligible for tax exemption. (Para 6 )
3. Primary class of beneficiaries is public; preference for a limited group within that class does not destroy the trust's public utility or charitable nature. (Para 7 )
4. When does a preference for family members make a trust private rather than public?
A trust is private if the benefit to the public is too remote or illusory, or if it is explicitly designed as a family trust where the primary object is the benefit of relations. (Para 7 )
Judgment
S. R. DAS CJI. : This is an appeal brought on a certificate granted on 19-9-1956, by the High Court of Bombay under S. 66A (2) of the Indian Income Tax Act (hereinafter referred to as "the said Act ) against its order dated 21-2-1956, in Income Tax Reference No. 32 of 1954 answering in the negative two questions of law refered to it under S. 66(1) of the said Act at the instance of the appellants.
2. 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 8-6-1922, 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 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 of 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 an objects including Jewish persons and objects and in 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
