1. The assessee is a lady doctor in Kanpur. She was the owner of a property situated at 16/72 Civil Lines, Kanpur. She was running a nursing home and hospital in this building.
2. The assessee founded a public charitable trust in the name of 'Chandra-kanta Jawaharlal Public Charitable Trust'. As a settlor she settled a sum of Rs. 1,100 on the trust which amount was transferred to the trustees. The trust had eight trustees. A deed of declaration was also executed by her on 18-4-1976 by which the trust came into existence. The objects of the trust admittedly were charitable in nature. Although the ITO had disputed their nature but his objection was overruled by the Commissioner (Appeals). Thus, admittedly the objects are charitable in nature. Clause 6 of the above declaration also states that the trustees were to hold trust property wholly for the charitable objects mentioned in the declaration. The trust was also registered by the Commissioner under Section 1 2A of the Income-tax Act, 1961 ('the Act') on 28-9-1979. It was also granted a certificate on the same date, i.e., 28-9-1979 under Section 80G of the Act by the Commissioner. The trust also maintained regular books of account which were duly audited.
3. On 1-4-1977, the assessee set apart, endowed and dedicated the aforesaid property situated at 16/72 Civil Lines, Kanpur, together with the hospital and the nursing home run therein, including all the buildings and lands or rights therein or appurtenant thereto for the public charitable purposes of rendering medical services and relief to the poor and weaker sections of the society in particular and the public in general. The said dedication was made in favour of the aforesaid Chandrakanta Jawaharlal Public Charitable Trust. She gave a written shape to the above dedication through a declaration on 7-4-1977. We will quote this declaration in full in this order as under: This declaration is made on this 7th day of April in the year one thousand nine hundred seventy-seven by Dr. Chandra Kanta Rohatgi, adult daughter of late Dr. Jawahar Lal Rohatgi, resident of 16/78 Civil Lines, Kanpur; whereas I have been carrying on practice in medical profession for over 40 years; and whereas during my long career in medical profession under the inspiration given to me by my father, late Dr. Jawahar Lal Rohatgi, I have for long devoted myself to rendering free medical services to needy and poor persons and the public at large both within and outside the city of Kanpur ; and whereas I have long cherished desire to establish and dedicate a modern and well-equipped hospital and nursing home for the service of public and weaker sections of society within the industrial city of Kanpur ; and whereas for the purpose of effectuating the said desire, I have contributed during last several years substantial amounts for a modern hospital and nursing home which have been constructed at 16/72, Civil Lines, Kanpur; and whereas for the purposes of holding, running and managing the said hospital and nursing home and for other public charitable purposes, I have established an irrevocable public charitable trust, named, Chandra-kanta Jawaharlal Public Charitable Trust by a deed executed by me on 18th day of April, 1976 and duly registered with the Sub-Registrar, Kanpur in Book No. 4 Vol. 768 on pages 238 to 255 at No. 418 on 5-8-1976; and whereas for the purpose of fulfilling the wishes of my father, late Dr. Jawahar Lal Rohatgi and my own desire and my pious, religious, moral and other obligations as a Hindu, I have set apart, endowed and dedicated on 1st day of April, 1977 all the aforesaid hospital and nursing home, including all the buildings and lands or rights therein or appurtenant thereto, (as more clearly shown and described in the plan annexed hereto) for the public charitable purposes of rendering medical services and relief to poor and weaker sections of society in particular, and the public in general ; and whereas on and with effect from the date of the aforesaid dedication on 1st day of April, 1977, the said Chandrakanta Jawaharlal Public Charitable Trust is holding, managing and running the said hospital and nursing home for the benefit of the public and poor and weaker sections of the society ; and whereas in order to avoid any difficulty, disputes or misunderstanding in future, it is expedient to confirm the facts stated hereinbefore; now, therefore, it is hereby declared that the hospital and nursing home situated at 16/72, Civil Lines, Kanpur, including all other buildings, lands and rights therein or appurtenant thereto (as described in the plan annexed hereto) have been irrevocably, set apart, endowed and dedicated by me on 1st day of April, 1977 for the public charitable purposes or providing medical services and relief to the poor and weaker sections of the society in particular, and the public in general, and I have no right, title or interest therein except as trustee of the aforesaid trust ; and for all intents and purposes, the said Trust has all the rights, title and interest to hold, run and manage the said hospital and nursing home for the purposes aforesaid as part of the corpus of the Trust for the aforesaid public charitable purposes.
4. The question of assessing the income of the above property, situated at 16/72 Civil Lines, Kanpur, as also the income of the nursing home and hospital engaged the attention of the ITO. In this appeal, we are concerned only with the former, viz., the income of the property only, as the other matters have been settled at the level of the Commissioner (Appeals). It was contended before the ITO that since the aforesaid property, together with the hospital building thereon and all the land appurtenant thereto had irrevocably been set apart and dedicated for public charitable purpose in favour of Chandrakanta Jawaharlal Public Charitable Trust on 1-4-1977, no income in respect thereto arose to the assessee during the assessment year under appeal. It was submitted before him that no legal formalities under the Transfer of Property Act, 1882 and Indian Registration Act, 1908, needed to be complied with in the present case. The ITO observed that under the general principles of law of transfer of property, a transfer of immovable property was complete only when it was registered under Section 17 of the Indian Registration Act. He further observed that under Section 49 of the Indian Registration Act, the transferee did not get any power over the property, if there was no registration. In this connection, the ITO referred to the definition of the word 'transfer' as appearing in Section 63(b) of the Act. This section lays down that 'transfer' includes any settlement, trust, covenant, agreement or arrangement. He was of the view that since there was no transfer of the property and there was only transfer of the income thereof in favour of the trust, the provisions of Section 60 of the Act were attracted to the case and the income of the property was liable to be assessed in the hands of the assessee who was the transferor.
5. The ITO then referred to the principles of the Hindu law as were con-vassed before him and stated that they had lost their importance after the codified laws like the Indian Registration Act and the Transfer of Property Act. Here he referred to Section 123 of the Transfer of Property Act. His view was that since the transfer was in the nature of a gift in favour of the trust, it must be effected by a registered instrument under this section. He further observed that the dedicated property must not only be registered under the Indian Registration Act, but there should be further proof that the owner had really divested himself of the ownership. He finally held that the assessee continued to remain the owner of the property situated at 16/72 Civil Lines, Kanpur, and was, therefore, liable to be taxed on its income. He computed such income at Rs. 51,812 and included it in the assessment.
6. The assessee appealed to the Commissioner (Appeals). It was argued before him that the endowment of the property in favour of the charity was permissible under the Hindu law and it was not required to be effected by a regular instrument of transfer and registered with the Registrar. The Commissioner (Appeals) observed that the reference to endowment under the Hindu law meant renunciation of all interest in the property but that was not the case here. He held that the legal ownership over the property continued to vest in the assessee and, therefore, its income was also to be assessed in her hands nder Section 22 of the Act. He, however, directed the ITO to recompute the income of the property by adopting the municipal value as the gross annual letting value.
7. The assessee is now in appeal before us. The learned counsel for the assessee Dr. R.C. Vaish narrated the history of the trust and the endowment made by the assessee in respect of the aforesaid property. He pointed out that while the trust was created on 18-4-1976 with a corpus of Rs. 1,100 only, the dedication or endowment of the property itself was made on 1-4-1977 and that the dedication was reduced to writing through a declaration dated 7-4-1977. He submitted that there was no dispute that the objects of the trust were charitable or that it had been genuinely constituted and was also registered with the Sub-Registrar, Kanpur, on 5-8-1976. He also emphasised the fact that it had been registered by the Commissioner under Section 12A and had also been granted a certificate under Section 80G on 28-9-1979. The certificate under Section 80G was, of course, for the period 15-9-1977 to 31-3-1980 which partly covers the period Under consideration. He also pointed out that the mutation of the property in question had been carried out in the name of the trust on 5-10-1983 as was evidenced by the Kanpur City Corporation letter dated 10-11-1983 appearing at page 13 of the paper book submitted by the assessee. He further pointed out that a decree had also been passed on 10-9-1985 by the Kanpur Civil Judge in a declaratory suit in Manzoor Alam versus the assessee by which it was declared that the aforesaid property was in the ownership of the said trust. This decree was, of course, not available at the time the proceedings were going on before the lower authorities.
8. The learned counsel for the assessee then dealt with the legal issue relating to the transfer of ownership in the property from the assessee to the trust. He submitted that this was the case of dedication or renunciation of the interest in the property by the assessee in favour of the trust which did not require any writing or registration inasmuch as it was not either in the nature of a gift or transfer in favour of the trustees or the trust. To support his submissions, he relied on the following authorities: Deokinandan Khetan v. CED [1968] 69 1TR 801 (All.). It was held in this case that no writing is necessary to create an endowment (see Principles of Hindu Law by Mulla, Thirteenth edn., Section 407 at p.
438).
CIT v. Sant Baba Mohan Singh [1979] 118 ITR 1015 (All.). It was held in this case that a charitable trust may be created by words sufficient to show the intention. So long as there is a clear manifestation of intention to create a charitable or religious trust and there is a formal vesting of the ownership of the property, the dedication is complete. The Court observed that in All India Spinners' Association v.CIT [1944] 12 ITR 482, the Privy Council held that no formal deed or any other writing is necessary to constitute a religious and charitable trust, still less to constitute a 'legal obligation', which would suffice for the purpose of the Act.
Menakuru Dasaratharami Reddi v. Duddukuru Subba Rao AIR 1957 SC 797. It was held in this case that the principles of Hindu law applicable to the consideration of the questions of dedication of property to charity are well settled. Dedication to charity need not necessarily be by instrument or grant. It was also observed that from the standpoint of the Hindu law, it is not essential to a valid dedication that the legal title should pass from the owner.Tadi Bulli Gangi Reddi v. Tadi Bulli Tammi Reddi AIR 1927 PC 80. In this case also, it was held that the dedication of a portion of a family property for the purpose of a religious charity may, according to Hindu law, be validly made without any instrument in writing, even if it be an appropriation of landed property.
9. The learned counsel for the assessee as an alternate contention submitted that for assessing the income under Section 22 mere legal ownership was not necessary. For this proposition, he referred to the decision of the Madras High Court in P. Joseph Swaminathan v. CIT [1984] 145 ITR 198. It was held in this case that where a house property stood in the name of the assessee's son but on investigation it was proved that the real owner of the property was the asses-see, the assessment of the income from the property in the asses-see's hands was valid.
10. The learned departmental representative, on the other hand, submitted that for a valid transfer of a property it was essential that it should be effected through a document in writing which should be duly registered. In any case, he argued, if there was a document in writing for such a transfer, it had to be registered under Section 17.
He argued that in the present case, the property in question had been transferred to the trustees and since this was not the case of a sole trustee, the document conveying the property required registration. To support his submissions, he relied on the following authorities: Ganpatrai Sagarmal (Trustees) for Charily Fund v. CIT[963] 47 ITR 625 (Cal.). It was held in this case that in order to constitute a gift to charity, the ownership of the property must be transferred to the trustee unless the settlor alone was the trustee.
Smt. Pankumari Kochar v. CED [1969] 73 ITR 373 (AP). It was held here that there was no valid trust inasmuch as the conveyance of the property to the trustees envisaged in the trust deed was not executed by the deceased.
Gostha Behari Chose v. University of Calcutta AIR 1972 Cal. 61.
Reliance was-placed on the following observations as appearing in the judgment : Incidentally, Mr. Saktinath Mukherjee who followed Mr. Chakraborty to give replies contended with reference to the provisions of the sections 1 and 5 of the Indian Trusts Act that the endowment being a charitable one no registration whatsoever is at all necessary in the present case. But in my view, this contention is not well founded.
It is quite clear on the settlement itself that the settlors transferred immovable properties of the value of more than hundred rupees in favour of named trustees who are to hold it for a specific purpose of chanty. An endowment so created attracts Section 17 of the Registration Act and the deed does not become operative unless it is registered. This view appears to follow by implication from the decision of this Court in the case of Bhupati Nath v. Basanta 40 Cal. WN 1320-(AIR 1936 CaL 556). (p.65) The learned departmental representative also referred to Treatise on Taxation of Charity by M.P. Agrawal. On page 275 of the book it is stated that Section 17 would operate when the dedication is by deed, and make it wholly inoperative unless it is registered. "An 'Arpanama', by which immovable property is given to certain specified deities must rank as a deed of gift which is compulsorily registrable under Section 17(a) of the Indian Registration Act, and it would also have to be stamped as such - Bhoopati Nath v. Basanta [1936] ILR 63 Cal. 1098.
Similarly, if a settlor wants to transfer property to trustees, the deed of settlement or trust, if it relates to immovable property of the value of one hundred rupees or upwards, would require registration." The learned departmental representative also submitted before us that there was no evidence that the deed of dedication was performed on 1-4-1977 in respect of the aforesaid property and, therefore, the presumption was that it was intended to be transferred only on 7-4-1977 when the declaration was made by the assessee. He contended that since this declaration was in writing, it also required registration. Here he referred to the decision of the Allahabad High Court in CGT v. Maharaja Pateshwari Prasad Singh [1971] 82 ITR 654. It was held in this case that no transfer of property inter vivos can take place unilaterally at the instance of the transferor alone without there being acceptance by, or agreement with, the transferee. He pointed out that the present was also the case of a unilateral transfer of the property without any acceptance on behalf of the trust.
11. In reply, the learned counsel Dr. R.C. Vaish submitted that this was not the case of a unilateral transfer of property but the case of a dedication or endowment under a Hindu law as the assessee was a Hindu.
It was his next contention that it was not necessary that all the trustees should hold the property. He also pointed out that the trustees had also indicated their acceptance of the property as was clear from the minutes of the meeting of the trust held on 7-4-1977.
The trustees, after going through the document dated 7-4-1977, had thanked the assessee for her dedication. He next submitted that the acceptance of the property on behalf of the trust was indicated through its inclusion in the balance sheet of the trust as on 31-3-1978 which was signed by all the trustees. Its mutation in the name of the trust was also done through an application submitted by the trustees. The ownership of the trust over the property was subsequently established through a decree of the Court in the declaratory suit referred to above.
12. We have carefully considered the submissions placed before us. We are of the opinion that the various principles relating to the dedication of properties by a Hindu have been completely misunderstood by both the lower authorities. We will first observe that there is no dispute before us that Chandrakanta Jawaharlal Public Charitable Trust had been created on 18-4-1976 through the settlement of a sum of Rs. 1,100 by the assessee, that it was genuinely constituted and its objects were wholly of charitable nature. This is proved from the certificates issued by the Commissioner under Sections 12A and 80G.There also cannot be any dispute that the property ultimately has vested in the trust. This is evidenced from the fact that the name of the trust was mutated in the records of the Municipal Corporation, Kanpur, and that subsequently it was also proved from the decree of the Court in the declaratory suit. The value of the property was also included in the balance sheet of the trust as on 31-3-1978 which was duly signed by the trustees and was also audited. It also could not be denied that the assessee had made a dedication or renunciation or endowment of the property in question on 1-4-1977 in favour of the above trust. She did not transfer the property through any deed in writing either in favour of the trust or in favour of its trustees.
She, of course, subsequently confirmed the above dedication through a declaration made on 7-4-1977 which was in writing. We have already quoted the declaration in full in our order above.
13. The question for consideration arises whether on the above facts it can be said that there was transfer of the property from the assessee to the trust on 1-4-1977. To come to our conclusion, we have also relied on Tagore Law Lectures on the Hindu Law of Religious and Charitable Trust by B.K. Mukherjea 1983, Fifth edn. In paragraph 3.3 of Chapter III of these lectures, it is stated that no trust in relation to immovable property is valid unless it is declared in the prescribed manner specified in the Indian Trusts Act, 1882, or unless ownership of the property is transferred to the trustee. The said Act is applicable to Hindus, but Section 1 of the Act expressly saves from its operation ail religious and charitable endowments, either public or private.
Thus, except where a religious or charitable trust is created by a will, it is quite competent to a Hindu to dedicate, for religious or charitable purpose, any immovable property without any document in writing. It is further stated that it cannot be said that an endowment of property for religious or charitable purpose is a gift within the meaning of the Transfer of Property Act. Paragraph 3.3A of the above Chapter further states that for a valid dedication, under Hindu law, neither the form of gift nor the form of trust is necessary. It is undoubtedly possible for a founder to dedicate property in the form of a gift; he can also, if he likes, create a trust through the medium of trustees ; but neither of them is necessary. No express words of gift, either directly or indirectly, in the shape of a trust are required to create a valid dedication; all that is necessary is that the religious purpose or object of the donor shall be clearly specified and that the property intended for the endowment should be set apart and dedicated for these purposes. According to Hindu ideas, dedication is something different from secular gift, which presupposes acceptance by a sentient being. That paragraph 3.4 of the Chapter further states that it is not necessary that any particular person should accept the property dedicated, as is required in a secular gift.
14. In subsequent paragraphs of the above Chapter, the author has made it clear that if the dedication is by deed, it will become wholly inoperative unless it is registered. Similarly, if a settlor wants to transfer property to trustees who are to hold it for a specific purpose of religion or charity, the deed of settlement of trust, if it relates to immovable property of the value of Rs. 100 or upwards, would require registration. The whole position, therefore, depends upon the way in which the endowment is created. If the endower employs the form of gift and purports to execute a deed of gift of certain property in favour of an idol or any religious or charitable institution, or if he attempts to transfer immovable property to trustees in whom it is vested for the object of the trust, he cannot, by any means, avoid the law of registration. On the other hand, it is quite open to him to create an endowment merely by renouncing his rights in specific property and indicating the particular religious or charitable purpose for which the property is to be used. No deed is necessary and no trustee need be appointed, for the law will impose the duties of trustee upon the founder or his heir, or such other persons, as might have control over or possession of the endowed property. Of course, the property in respect of which the endowment is made must be designated with precision, the object or purpose of dedication should be clearly indicated and the founder must effectively divest himself of all beneficiary's interests in the endowed property.
15. The basic concept of a religious endowment under the Hindu law differs in its essential particulars from the concept of 'trust' known to the English law. As a dedication of land for public temple is not a gift within the meaning of Section 122 of the Transfer of Property Act, the provisions, therefore, of Section 123, which require a gift of land to be effected by a registered document, do not apply to such a dedication. In this connection, we will also like to refer to a decision of the Madras High Court in the case of S. Devaraj v. CWT [1973] 90 ITR 400. It was held in this case that to constitute a valid dedication of property by a Hindu for religious and charitable purpose, no document in writing or registration is necessary.
16. We have stated above the facts of the case as also the principles of law on the transfer of immovable property by a Hindu for religious and charitable purpose. The cases cited at the Bar deal with these principles and their different aspects. In our opinion, the cases cited on behalf of the assessee support her case while the cases cited on behalf of the department either do not deal with the issue directly and are, therefore, distinguishable or deal with the case where the property is transferred either as a gift or by a deed to the trustees which require compulsory registration. Our analysis of the facts goes to show that the principles of Hindu law, as described above, apply to the present case. It was not necessary for the assessee to make dedication of her property in favour of the trust to execute any deed or to subject it to registration. This is exactly what she has done.
She dedicated the property by renouncing her rights therein in favour of the trust for public charitable purpose on 1-4-1977. The trust became its owner from this date. She only subsequently confirmed that dedication through her declaration in writing dated 7-4-1977. The divesting of the property did not take place on 7-4-1977 but it took place earlier on 1-4-1977. In other words, the divesting itself was not through any writing. The provisions of the Transfer of Property Act and the Indian Registration Act, therefore, do not apply to such a dedication. There was no transfer either by deed as such in writing or in favour of the trustees requiring registration. The various facts, which ultimately prove the ownership of the trust over the property, have already been described by us above, including the mutation in the records of Municipal Corporation, the decree in the declaratory suit, the inclusion of the property in the balance sheet of the trust, etc.
Our finding, therefore, is that the assessee was not the owner of the property in question as on 31-3-1978, being the last date of the accounting year for the assessment year 1978-79 now under appeal before us. She cannot, therefore, be taxed on its income in the year under appeal. We, therefore, direct the exclusion of the income from the aforesaid property from her assessment.