Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1965 Supreme(SC) 269

SUPREME COURT OF INDIA
K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.
H. E. H. Nizam s Religious Endowment Trust, Hyderabad, Appellant
Versus
Commissioner of Income-tax, Andhra Pradesh, Hyderabad, Respondent.
Civil Appeals Nos. 491 and 492 of 1964.
Advocates appeared
Mr. D. Narasaraju, Senior Advocate, (Mr. Anwarullah Pasha, Advocate and M/s. J. B. Dadachanji, O. C. Mathur and Ravinder narain, Advocates of M/s. J. B. Dadachanji and Co. with him), for Appellant; Mr. A. V. Viswanatha Sastri, Senior Advocate, (M/s. N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, Advocates, with him), for Respondent.

Advocates:
A.V.VISHWANATHA SASTRI, ANVARLALLA PASHA, D.NARASARAJU, J.B.DADACHAN, N.D.Karkhanis, O.C.MATHUR, R.H.Dhebar, R.N.SACH, Ravindra Narayan

Income from a trust is exempt from income tax under S. 4(3)(i) of the Indian Income-tax Act, 1922, only if the income is specifically accumulated for religious and charitable purposes within the taxable territories.

Headnote:
INCOME TAX - S. 4(3)(i) - TRUST - EXEMPTION - INCOME ACCUMULATED FOR RELIGIOUS OR CHARITABLE PURPOSES WITHIN TAXABLE TERRITORIES - TRUSTEES HAVING OPTION TO APPLY INCOME FOR PURPOSES WITHIN OR WITHOUT TAXABLE TERRITORIES - INCOME NOT EXEMPT.
Fact of the Case:

The assessee, a trust created by the Nizam of Hyderabad, claimed exemption from income tax under S. 4(3)(i) of the Indian Income-tax Act, 1922, on the income arising from the trust property. The trust deed provided that the income was to be accumulated during the life-time of the settlor and, after his death, the Trustees should hold the said fund upon trust to spend the income therefrom for one or more of the four religious and charitable objects mentioned therein. Two of the said objects were for religious and charitable purposes within the taxable territories and the other two for purposes outside the taxable territories.
Finding of the Court:

The Court held that the assessee was not entitled to the exemption under S. 4(3)(i) of the Act as the income was not specifically accumulated for religious and charitable purposes within the taxable territories. The Court held that the expression "accumulated" means that the income is set apart during the year for future spending on the said purposes. The Court further held that the proviso to Cl. (i) excepts the two classes of income subject to the condition mentioned therein from the operation of the substantive clause. It comes into operation only when the said income is applied to religious or charitable purposes without the taxable territories.
Issues: Whether the income arising from property settled upon trust under the deed of settlement, dated 14-9-1950, or any part thereof is exempt from tax under S. 4(3)(i) of the Indian Income-tax Act. 1922
Ratio Decidendi: The Court held that the assessee was not entitled to the exemption under S. 4(3)(i) of the Act as the income was not specifically accumulated for religious and charitable purposes within the taxable territories. The Court held that the expression "accumulated" means that the income is set apart during the year for future spending on the said purposes. The Court further held that the proviso to Cl. (i) excepts the two classes of income subject to the condition mentioned therein from the operation of the substantive clause. It comes into operation only when the said income is applied to religious or charitable purposes without the taxable territories.
Final Decision: The appeals were dismissed with costs.

Judgement

SUBBA RAO, J. : This appeal by special leave raises the question of the true construction of the provisions of S. 4(3)(i) of the Indian Income-tax Act, 1922, hereinafter called the Act.

2. The relevant facts may be briefly stated. By an indenture dated September 14, 1950, H. E. H. the Nizam of Hyderabad created a trust known as "H. E. H. the Nizam s Religious Endowment Trust", hereinafter referred to as the Trust, under which he settled certain securities of the face value of Rs. 40 lakhs for implementing the objects described in the Trust deed Under the Trust deed three trustees were appointed, including the settlor. It will be convenient at this stage to read the relevant provisions of the trust deed.

Clause 3. The Trustees shall hold and stand possessed of the Trust Fund upon Trust.

(a) To manage the Trust Fund and to recover the interest and other income thereof.

(b) * * * *

(c) During the lifetime of the Settlor the balance of the income shall be accumulated and shall be added to the corpus of the Trust Fund.

(d) On and after the death of the Settlor the Trustees shall hold the accumulated corpus of the Trust Fund upon trust to spend the income thereof for any one or more of the following religious or charitable objects in such shares and proportions and in such manner as the Trustees shall in their absolute discretion deem proper.

(i) For annual religious offerings to the sacred places of the Muslims outside India, in Hedjaz and Iraq, viz., Macca Madina, Najaf Karbala, Kazamain, Sirraman Raa and Mashad (in Iran) and Baghdad and Basra.

(ii) For help either in lump sum or by way of monthly allowances, to the Khuddam or the servants who are looking after the sacred Shrines, and also by way of charity to pious people residing at these holy places.

(iii) For the up-keep of the sacred buildings constructed in the lifetime of the Settlor such as, masjids (mosques), Azakhana (mourning house, built to commemorate the name of His Exalted Highness s late mother), two Askurkhanas (where the Alam sits inside the City palace during Moharram and Ramzan), and the Maqbaras (Tombs) and particularly mentioned in the Second Schedule hereunder written.

(iv) For the annual expenditure during the mourning period of Moharram and Safarand also during other religious months, when different kinds of ceremonies, religious discourses (Taqreers), Jd. Tagreebs, etc., are performed, including the religious offerings to the sacred Shrines at Ajmer and Gulbarga.

v) It is the desire of the Settlor that the income of the Trust shall, as far as possible, be spent equally for the above-mentioned four religious and charitable objects and purposes and in the event of there being any surplus then the same may be spent by the Trustees for any other religious and charitable objects for the benefit of Sunni Mahomedans with liberty to the Trustees in their absolute discretion to accumulate the surplus, if any, for any year or years and utilize the same for the purposes in this clause provided for any subsequent year or years.

Clause 4. It is hereby further agreed and declared that in all matters wherein the Trustees have a discretionary power the votes of the majority of the Trustees for the time being voting in the matter shall prevail and be binding on the minority as well as on those Trustees who may not have voted and if the Trustees shall be equally divided in opinion the matter shall during the lifetime of the Settlor be decided according to the opinion of the Settlor and after his death according to the opinion of the Trustee most senior in age for the time being.

Briefly stated, under the deed the Trust fund was to be accumulated during the life-time of the settlor and, after his death, the Trustees should hold the said fund upon trust to spend the income therefrom for one or more of the four religious and charitable objects mentioned therein. Two of the said objects were for religious and charitable purposes within the taxable territories and the other

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