In the Supreme Court of India B.N.Kirpal & S.P. Kuridukar, JJ.
Income Tax Act, 1961, Sections 2(15) and 11
0RDER
B.N. Kripal & S.O. Kurdukkar, JJ.
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 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 the partners 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 thepartnership 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. CIT, 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 appellantTrust that the Trust had come into existence by virtue of the deed dated 28-11-1941 and the declaration of trust under a deed dated 1-7-1944 was invalid. On behalf of the revenue, however, reliance was placed upon the aforesaid decision of this court in East India Industries case and it was submitted that this court having come to the conclusion that since the appellant was not a charitable public trust, the appeal of the appellant should be dismissed.
4. By a detailed order, the Income Tax Tribunal came to the conclusion that the question as to whether the deed dated 1-7-1944 was validly executed was not in issue in East India Industries case. It further held that since an irrevocable trust had been created by virtue of partnership deed dated 28-11-1941 neither the founders nor the trustees had any right, in law, to vary the objects of that Trust by executing another document dated 1-7-1944. The Tribunal, therefore, concluded that the decision of this court in East India Industries case could not prevent it from examining the terms of the objects of the Trust contained in partnership deed dated 28-11-1941 in as much as that a deed dated 1-7-1944 being regarded as void, continued to exist. After examining the objects of the Trust as contained in the deed dated 28-11-1941, the Tribunal came to the conclusion that the objects of the Trust were charitable in nature and, therefore, the appellant was entitled to be regarded as a public charitable trust which would enable it to get the benefits under the Act.
5. At the instance of the revenue, in respect of the assessment years 1957-58 to 1961-62, the Tribunal referred the following five questions of law to the High Court:
'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding. that the assessee was a Trust constituted by the deed dated 28-11-1941, and not by the deed dated 1.7.1944?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the question whether the assessee was a trust, whose objects are wholly charitable and religious has to be determined solely with reference to the trust deed dated 28-11-1941, and not with reference to the trust deed dated 1-7-1944?
(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Trust created by the partnership deed dated 28-11-1941, continued even after the dissolution of the partnership and the assessee-Trust was the Trust constituted by the deed dated 28-11-1941 ?
(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that giving cash grants for the needy and deserving persons to meet marriage expenses is a charitable object and the assessee was entitled to exemption under section 4(3)(i) of the Indian Income Tax Act, 1922?
(5) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee-Trust was entitled to the exemption under section 4(3)(i) of the Indian Income Tax Act, 1922 in respect of the income attributable to the Trust created under the deed dated 28-11-1941'
6. In respect of the assessment for subsequent years, viz., 1962-63 to 1973-74, the Tribunal referred only one question which was as follows:
'Whether, on the facts and in the circumstances of the case, the income of the assessee was entitled to exemption under section 11 of the Income Tax Act, 1961 read with section 13 and was not, therefore, assessable to tax for the assessment years 1962-63 to 1973 -74
7. The High Court in the judgment which is reported as CIT v. Shri Agastyar Trust and which is under appeal in this case, came to the conclusion that this court having held in East India Industries case that the appellant was not a public charitable trust, that question was final and binding and, therefore, the appellant could not contend that the court should examine the deed of 28-11-1941 in order to ascertain whether the appellant was a public charitable trust or not. Applying the principle of res judicata the High Court answered the questions referred for the years 1962-63 to 1973-74 in the negative and in favour of the revenue and then observed that in view of this, it was not necessary to go into the other five questions which had been referred to it for the years 1957-58 to 1961-62. These five questions were accordingly returned unanswered in view of the answer which had been given by it in respect of the question relating to the latter years.
8. It has been contended by Shri Harish N. Salve, learned Senior Counsel for the appellant, that the High Court fell in error in not addressing itself to the main question which really arose for consideration in this case. According to the learned counsel, in East India Industries case this court was not called upon to consider the validity of the trust deed dated 1-7-1944. It was merely called upon to consider whether by that document a public charitable trust had come into existence or not. It is submitted that the Tribunal had rightly observed that when an irrevocable Trust had been created by the document of 28-11-1941 thereafter the objects of the said Trust, could not be altered and the founders and the trustees had no jurisdiction or right to execute afresh deed dated 1-7-1944 which had the effect of altering the objects of the original Trust. The learned counsel submitted that the decision of this court did not relate to the validity of the document dated 1-7-1944 and therefore, it was open to the assessee to raise this contention.
9. Learned counsel for the respondent, however, submitted that the judgment in East India Industries case does indicate that this court was conscious of the fact that the Trust had been created in 1941 and then having come to the conclusion that the appellant was not a charitable public trust, the said finding was binding on all concerned.
10. In East India Industries case at p.613, while setting out the facts, this court observed as follows:
'The assessee, the East India Industries Limited, paid a donation of Rs 7500 to a trust called'the Agastyar Trust'and claimed exemption from tax under section 15-B of the Income Tax Act, 1922, (hereinafter referred to as 'the Act'.) The Trust had been created by the partners of business firm, K. Rajagopal and company. This firm had been carrying on business in wastepaper. Under the terms of the partnership it was setting apart 80 per cent of the profits for charitable and religious purposes. On 1-7-1944, a trust deed was executed byVenkatarama Chetty. The claim of the assessee to exemption from tax was rejected by the Income Tax Officer on the ground that the trust did not fulfil the conditions laid down undersection 15-B of the Act. The Appellate Assistant Commissioner to whom an appeal was preferred took the same view. The matter was taken up in further appeal to the Income Tax Appellate Tribunal which observed that in relation to the previous assessment year, it had held that the Agastyar Trust was a public trust and that any donation made to that Trust was an allowable deduction under Section 15-B'
11. This court then referred to the various clauses of the deed dated 1-7-1944 and' came to the conclusion that the Trust could not be regarded as a public charitable trust.
12. In the passage from the judgment quoted above, there is nothing to indicate that it was brought to the notice of this court in East India Industries case that the Trust had been created by virtue of document dated 28.11.1941. In the judgment of the court, there is no specific reference to this document. It is no doubt true that it is mentioned that the Trust was created by the partners of the firm, K. Rajagopal and Company and that under the terms of the partnership deed, it was setting apart 80 per cent of the profits for charitable and religious purpose but the only trust deed which is referred to is the one dated 1-7-1944 which was executed. by Venkatarama Chettiar. It this deed which was analysed and construed and not the deed which was executed by the two founders of the Trust, viz., K.Rajagopal and Venkatarama Chettiar. The judgment also does not indicate that the question relating to the validity of the deed dated 1.7.1944 was ever in issue before this court. It is to be borne in mind that the appellant in that case was the donor to the Trust and not the Trust itself. Had the Trust been a party to that decision, it possibly may have brought to the notice of this court the fact that it had been constituted in 1941 and the amendments which were sought to be made by the deed dated 1.7.1944 were invalid in law. In our opinion, the decision, of this court in East India Industries case did not and could not preclude the appellant here in from contending that the deed dated 1-7-1944 was illegal and of no consequence and what` had to be seen was whether the assessee was a public charitable trust on the basis of the partnership deed dated 28-11-1941., '
13 The High Court, therefore, should have first considered Questions 1 to 3 which had been referred for assessment.years 1957 - 58 to 1961-62 but it chose not to do so. As questions involved are pure questions of law, we are not inclined to remand the case,to the High Court for it to give a decision with regard to the first set of questions which it had declined to consider. We now, therefore, proceed to deal with the said questions.
14. As we have already observed, the deed of 1941 originally gave the power to the founders to revoke the Trust but this power was taken away by a subsequent document which was executed on 26-8-1943. It is thereafter that the,Trust became an irrevocable trust. The powers of the trustee in respect of the said Trust continued to remain the same as set out in clause (8) of the partnership deed which has been extracted hereinabove. The said trustee was only required to carry out the objects of the Trust and spend the trust funds for charitable purposes in the manner indicated therein. No power was given to the trustee to amend, alter, vary or change in any manner the objects of the Trust as created in 1941. The result of this is that neither the trustee nor the founders could bring about any change in the objects of the Trust as set out in their partnership deed dated 28-11-1941. This being so, the document dated 1-7-1944 executed by the trustee was clearly without any authority and was non est. He had no right or jurisdiction to execute the document of 1-7-1944 which in effect changed the objects of the Trust radically and in fact converted what was meant to be a public charitable trust to a non charitable trust as held by this court in East India Industries case when the deed. dated 1-7-1944 was construed by it. It will be useful at this juncture to refer to the following passage from Tudoron Charities (6th Edn.) At p.131, it is stated as follows:
'When a charity has been founded and trusts have been declared, the founder has no power to revoke, vary or add to the trusts. This is so irrespective of whether the trusts have been declared by an individual, .or by a body of subscribers, or by the trustees.'
15. When the founders of the Trust have no power to alter or vary the terms of the Trust, a trustee appointed to manage the properties of the Trust for securing its object can under no circumstances be regarded as having such a power specially when the original deed dated 28-11-1941 does not bestow such power on him.. Such a question also came up for consideration before the Madras High Court in Thanthi Trust v. 1TO . Dealing with the question whether the founder of a trust had power to revoke the same, at pp.284-85, this court observed as follows:
It is well established that the subsequent acts and conduct of the founder of the trust .cannot affect the trust if there has been already a complete dedication. (Vide Krishnaswamy Pillai v. Kothandarama Naicken 25 IC 428 (Mad), Sunder Singh Mallah Singh Sanatan Dharam High School Trust v. Managing Committee and Gokuldass Jamnadoss and Co. v, Lakshminarasimhalu Chetti AIR 1940 Mad920. If a valid and complete dedication had taken place, there would be no power left in the founder to revoke and no assertion on his part or the subsequent conduct of himself or his descendants contrary to such dedication would have the effect of nullifying it. If the trust had been really and validly created, any deviation by the founder of the trust or the trustees from the declared purposes would amount only to a breach of trust and would not detract from the declaration of trust. Therefore, the subsequent conduct of the founder in dealing with the funds of the trust long after the creation of the trust may not put an end to the trust itself.'
16. We are in full agreement with the principle stated in the aforesaid passage and we hold that the trustee had no authority or jurisdiction to execute a fresh trust deed and the document dated 1-7-1944 is of no consequence and is no more than a scrap of paper. The Trust as originally established by the deed dated 28.11.1941 remained unchanged or unaffected by the latter document dated 1-7-1944.
17. As the trust deed dated 1-7-1944 is of no consequence, now what has to be seen is whether, by reason of the partnership deed dated 28-11-1941, the Trust which has been constituted is a public charitable trust or not. This question was gone into by the Madras High Court when it had to decide an appeal arising out of the judgment in a suit instituted by Nanjappa Chettiar, one of the partners of the firm which had established the Trust. In this suit for accounts which was filed by Nanjappa Chettiar, one of the pleas which was taken related to the genuineness of the Trust. The contention of the plaintiff was that no valid or genuine trust was created or established by the deed dated 28-11-1941 and on the dissolution of partnership, the assets of the Trust were also liable to be distributed amongst the partners. This contention not having been accepted by the trial court, the same was reagitated in appeal before the Madras High Court. A Division Bench of that court by its judgment dated 26-10-1951 in V.S.Nanjappa Chettiar v. K. Rajgopal Chetty OS (Appeal) No 69 of 1949 held. that the dedication for religious and charitable object by the deed dated 28-11-1941, after the powerto revoke had been withdrawn, was absolute and irrevocable. It concluded that there was a real dedication to charity and the plaintiff therein was not entitled to a share in the funds set apart for charity or in the properties purchased therefrom.
18. In view of the aforesaid decision, it can be safely concluded that an irrevocable trust had been established by the partnership deed dated 28-11-1941. The objects of the Trust are contained in clause (8) of the deed and, in our opinion, none of the objects contained therein can be regarded as non-charitable. The Tribunal, therefore, was right in considering the said objects and in coming to the conclusion that the appellant was a public charitable trust. In view of the aforesaid discussion, we would answer all the six questions of law referred by the Tribunal in the affirmative and in favour of the assessee.
19. The appeals are accordingly allowed. The appellant would be entitled to costs throughout in one set.