Appeal No396 of 1957
Appeal from the Judgment and Order dated the 21st February 1956 of the Bombay High Court in Income tax Reference No 32 of 1954
 R J Kolah J B Dadachanji and section N Andley for the appellants
K N Rajagopal Sastri and D Gupta for the respondent
May 5
The Judgment of the Court was delivered by DAS C J
This is an appeal brought on a certificate granted on September 19 1956 by the High Court of Bombay under section 66A2 of the Indian Income Tax Act hereinafter referred to as  the said Act  against its order dated February 21 1956 in Income tax Reference No 32 of 1954 answering in the negative two questions of law referred to it under section 661 of the said Act at the instance of the appellants
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 2425000 for the purpose of charity and had been applying the same for and towards charitable purposes executed on June 8 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 926 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 andor lodging or residential quarters or in giving education including scholarships to or setting them up in life or in such 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 and objects including Jewish persons and objects and in 927 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 in such case the Trustees shall so apply the income 
This Deed of Declaration of Trust was on June 4 1953 registered under the Bombay Public Trusts Act 1950
The Trust fund had been invested by the trustees in inter alia 3 12 Government Securities
In the year 1930 a certificate was issued by the Income tax Officer A Ward Bombay whereby the Reserve Bank of India was authorised not to deduct at source the tax on the interest on the said securities so held by the trustees
It was mentioned in the said certificate that it was to enure till its cancellation
In 1946 the 3 12 Government Securities were redeemed by the Government of India and were converted into 3 Con version Loan 1946
Accordingly in February 1948 the said certificate of exemption was cancelled as the securities covered thereby had been redeemed by the Government
The trustees thereupon asked for a fresh certificate of exemption from the Income tax Officer Bombay Refund Circle in respect of the 3 Conversion Loan 1946
But the said Income tax Officer refused to issue such certificate on the ground that the income from the trust fund in question was not exempt from taxation under section 43i of the said Act which at the material time was as follows 41          928 2       3 Any income profits or gains falling with in the following classes shall not be included in total income of the person receiving them i Any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes and in the case of property so held in part only for such purposes the income applied or finally set apart for application thereto Upon the fact of the withholding of the certificate by the Income tax Officer Refund Circle being intimated to the Income tax Officer A V Ward Bombay the latter Officer started proceedings against the appellants under section 34 of the said Act in respect of the assessment years 1944 45 to 1947 48
He also started regular proceedings for the assessment year 1948 49 and the succeeding years up to 1952 53
In the assessment proceedings for those nine years the Income tax Officer took the view that the income from the trust fund was not exempt from taxation under section 43i and accordingly he assessed the appellants for the first four assessment years 1944 45 to 1947 48 on the ground that the income for those years had escaped assessment
He also assessed the appellants to tax for the subsequent five years 194849 to 1952 53
On appeal the Appellate Assistant Commissioner confirmed the said assessments
On further appeal by the appellants the Income tax Appellate Tribunal set aside the assessments for the first four years 1944 45 to 1947 48 holding that section 34 had been wrongly invoked for it was only a case of difference of opinion of one Income tax Officer from his predecessor on the same set of facts
The department did not take any further steps in the matter and accepted that view of the Tribunal as regards the assessments of those years and we are not in this appeal concerned with them
As regards the assessments for the five years 1948 49 to 1952 53 the Tribunal upheld the decision of the Appellate Assistant 929 Commissioner who had confirmed the assessments made by the Income tax Officer
On application being made by the appellants under section 661 of the said Act the Tribunal drew up a statement of case and referred two questions of law arising out of its order to the High Court for its opinion
The said questions are as follows  1 Whether the Trust property is held wholly for religious or charitable purposes within the meaning of section 43i of the Indian Income tax Act  2 If the answer to question 1 is in the negative whether the trust property is held in part only for religious or charitable purposes  The said reference came up for hearing before the said High Court and both the referred questions were answered in the negative
The High Court however gave the appellants a certificate of fitness for appeal to this Court and the present appeal has been filed on the strength of such certificate
A perusal of cl 13 of the deed shows that the trust fund is declared to be held by the trustees upon trusts to apply the net income thereof for all or any of the six purposes enumerated therein
It was conceded before the High Court and it has not been disputed before us that if there was nothing else in this clause then each of these six purposes would have to be upheld as a charitable purpose involving an element of public utility and consequently within the protection of section 43i
The fact that the trustees could expend the net income on any of the six purposes to the exclusion of the other five purposes would not it is also conceded have made the slightest difference in the matter of such exemption from income tax
For instance if the trustees spent the net income solely and wholly for the purposes mentioned under sub cl
a to the exclusion of those mentioned in sub cls
b to fsuch income would still be exempt from taxation under section 43i
The High Court however took the view that cl 13 should be read as a whole along with the provisos and that so read the trust is primarily for the benefit of the relations or members of the family 117 930 of Sir Sassoon David Bart
It is pointed out that in applying the net income for the purposes mentioned in sub cl
a the trustees are bound under the first proviso to 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
The second proviso it is urged makes it further clear that in the application of the income for the said purpose the trustees are enjoined to apply not less than half the income for the benefit of the members of the Jewish community of Bombay only  including the relations of Sir Sassoon David Bart
 as aforesaid  and the Jewish objects
Emphasis is laid on the words not less than half  as indicating that it is permissible for the trustees to spend more than half and indeed the whole of the net income for the benefit of the said relations or members of the family of the said Sassoon David Bart
It is also pointed out that although the remaining income if any has to be spent for the benefit of all persons and objects including Jewish persons and objects the trustees could if they so wished spend the same also for the relations or members of the family of Sir Sassoon David Bart
as Jewish persons
The argument which found favour with the High Court is that the provisos impose a mandatory obligation on the trustees i to give preference to the poor and indigent relations or members of the family of Sir Sassoon David Bart
and ii to spend not less than half the income which may extend to the entire income for the benefit of the relations or members of the family of Sir Sassoon David Bart
The High Court points out that in view of the language of el 13 of the deed read as a whole it is open to the trustees without being guilty of any breach of trust to spend the entire net income of the trust fund for the purpose of giving relief to the poor and indigent relations or members of the family of the said Sir Sassoon David Bart including therein the distant and collateral relations and such being the position the High Court came to the conclusion that it could not be said that the property was held wholly or partly for religious or 931 charitable purposes involving an element of public utility
The High Court accordingly held that the income from the trust fund was not exempt from taxation under section 43i and answered both the questions in the negative
The problem before us is whether the High Court was right in so answering the questions
In coming to the decision that it did the High Court relied on its own earlier decision in the case of Trustees of Gordhandas Govindram Family Charitable Trust vs Commissioner of Income tax Central Bombay 1
The facts in that case however were somewhat different from the facts now before us
In that case the trust was significantly enough described as  Gordhandas Govindram Family Charitable Trust 
Clause 2 of that trust deed provided for the application of tile net income in giving help or relief to such poor Vaishyas and other Hindoos as the trustees might consider deserving of help in the manner and to the extent specified in the said trust deed and subject to the conditions and directions stated in the next following clauses
Sub clause a of cl 3 provided that Vaishya Hindoos who were members of Seksaria family should be preferred to poor Vaishyas not belonging to the said family
Maintenance had to be provided under sub cl
b for the poor male descendants of the settlor and under sub cl
c for the poor female descendants of the settlor
Marriage expenses were provided under sub el
d for the poor male descendants and under sub cl
e for the poor female descendants of the settlers There were other subclauses providing for payment of money to the poor male or female descendants of the other members of the Seksaria family
In the present judgment now under appeal the High Court recognises that the particular trust they were dealing with in the earlier case  was a fairly blatant illustration of a settlor trying to benefit his own family and his own relations  and states that in the earlier case it had pointed out  that the benefit to the public was too remote and too illusory and accordingly held that was 1 932 not a trust which had for its object a general public utility 
Such however cannot be said of the provisions of the present Deed of Declaration of Trust
Under el 13 the trustees are at liberty to hold the trust fund and to apply the net income thereof for all or any of the six purposes mentioned therein
The relations or members of the family of the said Sir Sassoon David Bart including therein distant and collateral relations do not figure as direct recipients of any benefit under sub cls
b to f and therefore in so far as those purposes are concerned the trust certainly involves an element of public utility
We are not unminaful of the fact that it is open to the trustees to spend the net income entirely for the purpose referred to in sub cl
a to the exclusion of the other clauses
But the very fact that the relations or members of the family do not come in directly under any of those latter sub clauses cannot be ignored for they certainly have some bearing on the question as to who or what were the primary objects of the trust as a whole
In the next place the purpose of sub cl
a is 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 
It is conceded by learned counsel that this sub clause clearly expresses a general charitable intention involving an element of public utility
It follows therefore that sub cla constitutes a valid public charitable trust having as its beneficiaries the several classes of persons referred to therein
This is the first position
We then pass on to the provisos
The first proviso opens with the words  in applying the income as aforesaid 
This takes us back to sub cl
The meaning of the proviso obviously is that in applying the income for the purpose of sub el
a the trustees shall give preference to the poor and indigent relations or members of the family of Sir Sassoon David Bart
The proviso does not operate independently but comes into play only  in applying the income as aforesaid
The provision for giving preference involves the idea of selection of some persons out of a bigger class envisaged in subel
The poor and indigent relations or members of 933 the family can claim to participate in the benefits under the trust only if they come within one of the several classes enumerated in sub el
To take an extreme example If a poor and indigent relation of Sir Sassoon David Bart
abjures the faith held by the Jewish community and does not adopt any other faith and thus ceases to be a member of the Jewish community but does not become a member of any other community he will certainly not be entitled to the benefits of sub el
a although he is a poor and indigent relation or member of the family of Sir Sassoon David Bart
within the meaning of the first proviso
In other words sub cl
a prescribes the primary class of beneficiaries out of which the actual beneficiaries are to be selected by the application of the provisions of the provisos that is to say by giving preference to the relations or members of the family of the said Sir Sassoon David Bart
The case of In re Koettgan s Will Trusts 1 appears to us on the facts to be more in point than the case of Gordhandas Govindram Family Charity Trust case 2 relied on by the High Court
In the last mentioned English case the testatrix bequeathed her residuary estate upon trust for the promotion and furtherance of commercial educa tion
The persons eligible as beneficiaries under the fund were stated to be persons of either sex who are British born subjects and who are desirous of educating themselves or obtaining tuition for a higher commercial career but whose means are insufficient or will not allow of their obtaining such education or tuition at their own expense  The testatrix further directed that in selecting the beneficiaries  it is my wish that the  trustees shall give preference to any employees of John Batt  Co London Ltd or any members of the families of such employees failing a sufficient number of beneficiaries under such description then the persons eligible shall be any persons of British birth as the trustees may select provided that the total income to be available for benefiting the pre ferred beneficiaries shall not in anyone year be more than 75 of the total available income for that 1  257
2 934 year
It was held on a construction of the will that the gift to the primary class from which the trustees could select the beneficiaries contained the necessary element of benefit to the public and that it was when that class was ascertained that the validity of the trust had to be determined so that the subsequent direction to prefer as to the 75 of the income a limited class did not affect the validity of the trust which was accordingly a valid and effective charitable trust
Referring to the first part of the will Upjohn J at p 257 said  If the will concluded there the trust would clearly be a valid charitable trust having regard to the admission that a gift for commercial education is for the advancement of education
 Then after stating that the next task was to make a selection from that primary class of eligible persons the learned Judge continued  It is only when one comes to make a selection from that primary class that the employees of John Batt  Co and the members of their families come into consideration and the question is does that direction as to selection invalidate the primary trust  In my judgment it does not do so
 Further down he said In my judgment it is at the stage when the primary class of eligible persons is ascertained that the question of the public nature of the trust arises and falls to be decided and it seems to me that the will satisfies that requirement and that the trust is of a sufficiently public nature
 The learned Judge then concluded  If when selecting from that primary class the trustees are directed to give a preference to the employees of the company and members of their families that cannot affect the validity of the primary trust it being quite uncertain whether such persons will exhaust in any year 75
On the true construction of this will that is not as to 75 primarily a trust for persons connected with John Batt  Co and the class of persons to benefit is not  confined  to them and in my judgment the trust contained in clauses 7 935 and 8 of the will of the testatrix is a valid charitable trust
 It is true that this is a judgment of a Single Judge but it does not appear to have been departed from or over ruled in any subsequent case and appears to us to be based on sound principle
Applying this test there can be no question indeed it has been conceded that the earlier part of el 13 omitting the provisos constitutes a valid public charitable trust
The circumstance that in selecting the beneficiaries under subel
a preference has to be given under the provisos to the relations or members of the family of Sir Sasoon David Bart cannot affect that public charitable trust
In our judgment the facts of this case come nearer to the facts of the English case referred to above than to the facts of the earlier decision of the Bombay High Court in Gordhandas Govindram Family Charity Trust case 1
As we have already stated the relations of members of the family are clearly not the primary object contemplated by sub cls
b to f
The first part of sub cl
a omitting the provisos is not said to be too wide or vague and unenforceable
The provision for giving preference to the poor and indigent relations or the members of the family of Sir Sassoon David Bart cannot affect the public charitable trust constituted under sub cl
In our opinion the income from the trust properties comes within the scope of section 43i and is therefore entitled to exemption
Therefore the negative answer given by the High Court to question No I cannot be supported and that question should be answered in the affirmative
In this view of the matter question No 2 does not arise and needs no answer
The result is that this appeal must be allowed and the question No I must be answered in the affirmative
The appellants will have the costs of the reference in the High Court and of this appeal in this Court
Appeal allowed


Summary:
One of the items in dispute referred to the Industrial Tribunal for adjudication which was the subject matter of this appeal related to the demand of the Workers  Union that the appellant company must provide quarters to its employees in terms of the Bihar Government Scheme and undertake immediate construction for that purpose
The case of the Company was that the State and not the employer was primarily responsible for providing quarters to the employees and in any event it was not financially possible for the appellant to undertake the task
The Tribunal upheld the Union s claim and directed the company to start construction of at least 15 quarters as specified by the Government scheme within a year
The Labour Appellate Tri bunal on appeal held that the Government scheme was binding on the company and upheld the award
The scheme on which the award was based was one prepared by the Industrial Housing sub Committee appointed by the Government of Bihar and sanctioned by the Government as recommended by the Bihar Central Standing Labour Advisory Board
It imposed on the employers the responsibility for housing industrial labour and provided for financial assistance to the employers by the State Government to the extent Of 50 of the capital required by way of loan repayable in 25 annual instalments recoverable on default from the properties mortgaged for the loan or the assets of the debtor
The scheme prescribed the terms on which the quarters were to be let out to the employees and specified their size
It was contended on behalf of the appellant that the scheme was not obligatory and could not impose a term of employment for the workmen
For the Union it was argued that the scheme had materially altered the rule followed by indus trial adjudication in such cases so far as the State of Bihar was concerned and had imposed a moral obligation on the appellant
Neither the Industrial Tribunal nor the Labour Appellate Tribunal in appeal took the financial position of the company into consideration where they held that the Scheme did impose a 96 762 moral obligation on the appellant to provide quarters for its employees which was enforceable in industrial adjudication
Held that the scheme sanctioned by the Bihar Government was merely of a recommendatory nature and since it had no statutory force it could not provide a basis for the direction made by the award
Its language showed that it was vague and not intended to be acted upon and so it could not have the effect of introducing a term of employment as between the employer and the workmen
Although there could be no doubt that Industrial Tribunals had generally the power and jurisdiction apart from any scheme or agreement between the parties in appropriate cases to impose new obligations on the employers in the interest of social justice and for securing peace and co operation between the employer and the workmen the award in appeal could not be justified on the merits under the prevailing condition of the industrial evolution in the country
Western India Automobile Association vs The Industrial Tribunal Bombay AIR 1949 FC III The Bharat Bank Ltd Delhi vs The Employees of the Bharat Bank Ltd Delhi  and Rohtas Industries Ltd vs Brijnandan Pandey   referred to
It was the duty of Industrial Tribunals to take into consi deration the interests of national economy and progress and they were entirely right in taking the view which they had consistently done that it would be inexpedient in the present financial condition of the industries in the country to impose the additional burden of providing housing facilities on them which should be the primary responsibility of the State
Eastern Plywood Manufacturing Co Ltd vs Their Workers  Mohomad Rai Akbarali Khan vs The Associated Cement Companies Ltd  SamastipuR Central Sugar Co Ltd vs Their Workmen and Ms National Carbon Co India Ltd vs National Carbon Co Mazdoor Union Calcutta 1956 LAC 660 approved