Back
SUPREME COURT OF INDIA
AGASTHYAR TRUST, Madras
Vs.
Commissioner of Income Tax, madras
Decided on February 5, 1998
INCOME TAX - Charitable Trust - Validity of Trust Deed - Whether a trust deed executed by a trustee can alter or vary the objects of a trust created by a partnership deed - Whether a subsequent trust deed is valid if it changes the objects of the original trust - Interpretation of partnership deed and trust deed - Applicability of res judicata - Whether the decision of the court in a previous case relating to a different trust deed is binding on the assessee in the present case.
Fact of the Case:
The assessee, a trust, was created by a partnership deed in 1941. The deed provided that 80% of the profits of the business would be set apart for charitable and religious purposes. In 1944, the sole trustee executed a trust deed which specified different objects, some of which were non-charitable. The Income Tax Department held that the trust was not a public charitable trust and denied it exemption from income tax. The assessee appealed to the Income Tax Appellate Tribunal, which held that the trust was a public charitable trust and was entitled to exemption.
Finding of the Court:
The High Court held that the decision of the Supreme Court in a previous case relating to a different trust deed was binding on the assessee and that the assessee was not a public charitable trust. The Supreme Court held that the High Court erred in not addressing the main question of whether the trust deed executed in 1944 was valid. The Supreme Court held that the trust deed executed in 1944 was invalid and that the trust created by the partnership deed in 1941 was a public charitable trust.
Issues: 1. Whether the trust deed executed in 1944 was valid. 2. Whether the decision of the Supreme Court in a previous case relating to a different trust deed was binding on the assessee. 3. Whether the trust created by the partnership deed in 1941 was a public charitable trust.
Ratio Decidendi: 1. A trustee has no power to alter or vary the objects of a trust created by a partnership deed. 2. The decision of the Supreme Court in a previous case relating to a different trust deed is not binding on the assessee in the present case. 3. The trust created by the partnership deed in 1941 was a public charitable trust.
Final Decision: The appeals were allowed. The assessee was held to be a public charitable trust and was entitled to exemption from income tax.
( 1 ) IN these appeals relating to Assessment Years 1957-58 to 1974-75, the main question which is involved for consideration is whether the appellant- trust being a public charitable trust, is eligible for exemption from income tax.
( 2 ) ON 28/11/1941, a partnership deed was executed between K. Rajagopal and V. S. Nanjappa Chettiar. By this document, the said parties a agreed to carry on business in partnership but clauses (4 to (8 of the deed contained an agreement amongst the partners that out of the net profits of the business, after payment of all charges and expenses, 80 per cent shall be set apart and allotted to charitable and religious objects. The amounts which were to be credited to the Charity Account in the books of business were to be utilised by the trustee for carrying out the objects of the Trust. The partnership deed appointed one T. N. Venkatarama Chettiar, son of one of thepartners as the sole trustee. The power which was given to the said sole trustee was contained in para 8 of the deed which reads as follows:
"the said T. N. Venkatarama Chettiar shall from time to time after acceptance of the Trust, operate on the fund in execution of the Trust and spend out of the said fund in connection with temple festivals in Madras and other places like Conjeevaram, Tirupathi, Srirangam, Salem and other places, medical relief, the giving of alms including food to the poor on occasions of Hindu festivals as selected by him in his discretion of the gift of sums of money to poor deserving persons for celebration of marriage and generally on any object of choultries, workhouses, hospitals etc. "
( 3 ) THE aforesaid partnership deed whereby the appellant-Trust was created, contained a clause which gave the partners a right to revoke the trust which had been created by the partnership deed. By a subsequent document executed on 26/8/1943, this clause containing the power of revocation was deleted. On 1/7/1944, the sole trustee executed a document purporting to be a declaration of trust. It referred to the carrying on of the partnership business by the earlier founders of the Trust and for establishment of the Trust for charitable and religious objects and then proceeded to make a declaration of trust specifying a number of objects, most of which were different from the ones contained in the partnership deed of 28/11/1941. One of the clauses in this deed of 1/7/1944 was regarded by the Income Tax Department as not being charitable in nature. It appears that one M/s East India Industries Madras Pvt. Ltd. , a donor to the appellant- trust in respect of the donation given to the Trust claimed exemption from tax under Section 15-B of the Income Tax Act, 1922. While considering the case relating to this donation, the Income Tax Officer in East India industries case came to the conclusion that by virtue of this clause relating to non-charitable object, the Trust created by the deed dated 1/7/1944 could not be regarded as a Trust having charitable object and, therefore, not entitled to exemption under the Income Tax Act. This matter was carried to this court and in the judgment reported as East India Industries Madras (P) ltd. v. COMMISSIONER OF INCOME TAX the view of the Department was affirmed and it was held that the document dated 1/7/1944 did not establish a public charitable trust because one of the objects was not charitable in nature and there was nothing in the trust deed which prevented the trustees from applying the whole or any part of the trust property for that purpose. In the assessment for the years 1957- 58 to 1974-75 of the appellant, the question arose whether it could be regarded as a public charitable trust entitled to the benefits under the Income tax Act. The Income Tax Officer as well as the Appellate Assistant commissioner came to the conclusion that the appellant was not a public charitable trust. Before the Income Tax Appellate tribunal, it was contended on behalf of the appellant-Trust that the Trust had
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
