Case: Commissioner of Income Tax Vs. Kamala Town Trust

The common respondent, Kamla Town Trust, was assessed to income tax for the relevant assessment years 1949-50 to 1965-66. These assessment orders gave rise to hierarchy of appeals under the Income Tax Act which ultimately culminated into 17 income tax Appeals by the assessee before the Income Tax Appellate Tribunal, Allahabad Bench, Allahabad. The common question in the appeals before the Tribunal was whether for the relevant assessment years the respondent-assessee was entitled to exemption from payment of income tax as per the provisions of Section 4(3)(i) of the Income-tax Act, 1922 (hereinafter referred to as the 1922 Act), and under Section 11 re ad with Section 2(15) ofthe Income-tax Act, 1961 (hereinafter referred to as the 1961 Act) in so far as they applied to the relevant assessment years. The Income Tax Appellate Tribunal dismissed respondent- assessees appeals for assessment years 1949-50 to 1955-56 but it allowed respondent-assessees appeals for assessment years 1956-57 to 1965-66 subject to the rider that the income derived from the trust property by the assessee will be exempt only within the limit permissible under Section 11(1)(a) of the 1961 Act to the extent to which the income so accumulated is not in excess of 25% of the income from trust property or Rs.10, 000/- whichever is higher, after the 1961 Act came into force. In other words the rider applied to the assessments for the years 1962-63 to 1965-66. As both the Revenue and the assessee were partly aggrieved by the aforesaid common order of the Tribunal, they sought reference of the questions, ventilating their grievances under Sect ion 256(1) of the 1961 Act. The Tribunal accordingly granted these reference applications under Section 256(1) and referred the following questions for opinion of the High Court. At the instance of the respondent-assessee two questions were referred for the opinion of the HighWhether on the facts and in the circumstances of the case the Tribunal was justified in holding that the assessee was not a public charitable trust and its income was not exempt under Section 4(3)(i) ofthe Income Tax Act, 1922, for the assessment years 1949-50 to 1955-56?(2) Whether on the facts and in the circumstances of the case the Tribunal was legally correct in holding that the second rectification decree dated 10th May 1955, in suit no.163 of 1954 operates prospectively from the assessment year 1956-57 and does not have the effect of rectifying the deed of trust dated 27th October, 1941, as from the date of its execution."at the instance of Revenue the Tribunal referred five questions asWhether on the facts and in the circumstances of the case the Tribunal was right in holding by following the decision of the Allahabad High Court in the case of M/s J.K. Hosiery Factory v. Commissioner of Income Tax, 1971 (81) ITR 557  that even the unamended clause 3(19) of the Memorandum of Association of the settlor company viz., M/s J.K. Cotton Spinning &Weaving Mills Co. Ltd., empowered the company to create a public charitable trust and the insertion of sub-section (22) in clause 3 of the Memorandum of Association by the company was a matter of abundant caution?(b) Whether on the facts and in the circumstances of the case, it is open to the Revenue to take the objection in these proceedings that the second rectification suit no.163 of 1954 was barred by section 11 and Order 2, rule 2 of theCode of Civil Procedure?(c) Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the objects and activities of the trust fell objects and activities of the trust fell within the first limb of the definition of charitable purpose in section 2(15) of the new Act and the residuary clause thereof is not attracted for the assessment years 1962-63 to 1965-66?(d) Whether on the interpretation of the various clauses of the trust deed even as amended by the second rectification decree dated 10.5.1955, the trust is void for uncertainty and was not a public charitable trust?(e) Whether on the facts and in the circumstances of the case the Income Tax Officer was entitled to go behind the civil court decree dated 10.5.1955 in suit No.163 of 1954 and adjudge the validity of theDivision Bench of the High Court after hearing the rival contentions canvassed by the parties answered all the referred questions in favour of the respondent-assessee and against the Revenue. It is under these circumstances that t he Revenue through Commissioner of Income Tax, Kanpur having obtained special leave to appeal has preferred these 17 appeals. It may be noted at the outset that though the Revenue lost on all the referred seven questions before the High Court, in the present proceedings at the stage of final hearing Dr. Gauri Shankar, learned senior counsel for the appellant-Commissioner of Income Tax highlighted the grievance of the Revenue centering round the answers of the High Court on some of the referred questions. The grievance highlighted on behalf of the Revenue by Dr. Gauri Shankar centered round the answers of the High Court to Questions Nos. 1 and 2 referred on behalf of the assessee-respondent as well as answers of the High Court on Questions Nos. (d) and (e) referred on behalf of theproceeding to deal with the main submissions canvassed by learned senior counsel for the Revenue centering round the answers of the High Court on the aforesaid questions and the rival contentions canvassed by learned senior counsel Shri Verma for the respondent- assessee in support of these answers, it will be apposite to have a look at the relevant background facts leading to the present proceeding s. Background facts---------------- The assessee is a trust created by a trust deed dated 27.10.1941 executed between M/s. J.K. Spinning &Weaving Mills Co. Ltd., Kanpur (hereinafter called the company) of the one part and Sir Padampat Sin ghania, Lala Kailashpat Singhania and Lala Laxmipat Singhania (hereinafter called the trustees) of the other part. The company was registered under the provisions of the Indian Companies Act 7 of 1913 with its registered office at Cawnpore in U.P. The objects of the trust deed in its original form show that it was created with a view to construct a settlement or colony for their workmen together with amenities in the shape of hospitals, schools, temples, mosques, recreation places and for such other works directly concerning the amenities of workmen. The company made an application to the Improvement Trust, Kanpur for demising to it two tracts of land in Kanpur at concessional rates. The Improvement Trust demised one plot o f land to the company for constructing the colony with an extra plot of land for the purpose of constructing a Water Pump Station by an indenture dated 19.10.1936 for a consideration of Rs. 43, 700/-. Another plot of land was demised by the Improvement Trust to the company by an indenture dated 2.2.1938 for a consideration of Rs.26, 300/- for constructing an office for the said settlement. Both these plots were demised to the company at concessional rates for the welfare of workmen. The company transferred both the plots by the said trust deed of 27.10.1941 to the trustees for effectuating its object of settling these plots upon the charitable trust thereinafter mentioned in thewill deal with the relevant re citals in the Trust Deed, in details, at an appropriate stage in latter part of this judgment. Suffice it to state at this juncture that one of the objects of the trust, as mentioned in paragraph 2(b) of the Trust Deed of 1941 was aserect, establish, equip, furnish, fit, maintain and repair on the said two plots of land, and any land that may hereafter be acquired by the Trust.(1) residential quarters, chawls or buildings for the workmen and staff and other employees of the Company or other allied concerns under the management or in which the Directors of the Company may for the time being be interested and for their respective families and dependents and for such other skilled and unskilled workmen craftsmen traders merchants technical or professional men whom the trustees may permit to reside or work in the said two plots with a view to supply their needs and requirements or to render them services or to cater to their wants comforts conveniences and amenities."on the Settlor Company filed a suit being suit No.40 of 1945 in the Court of Civil and Sessions Judge, Kanpur under Section 31 of the Specific Relief Act, 1877 for rectification of the Trust Deed so as t o bring it in conformity with its real intention to create a public charitable trust. It was alleged in the plaint that having regard to its Memorandum of Association, the Settlor Company intended to settle the properties mentioned in the T rust Deed and transfer them to the trustees for the purposes of creating a public charitable trust including the benefits of its own employees, but the operative part of the Trust Deed was found to be less comprehensive than what was intended by the par ties thereto at the time when instructions were given for preparing a draft of the same and when they executed the Deed of Trust. The Settlor Company further alleged that through a misunderstanding on the part of the draftsman and through a mutual mistake the Deed of Trust did not truly express their intention. It was asserted that the real intention of the parties was to create a public charitable trust, but the Company was advised that it was doubtful whether the Trust Deed on a strict construction thereof might not exclude from its benefits the rest of the public apart from the employees of the company and residents of the said settlement. In order to give effect to the said intention the company submitted that certain amendments by way of rectification of the deed should be made in the Object Clause 2 of the Trust Deed. The learned Civil Judge by his judgment dated 18th August 1945 ordered the Deed of Trust to be rectified as prayed for in the Plaint. We will refer to the relevant rectified paragraphs of the Trust deed as per the aforesaid order of the Civil Court a little later.The Deed of Trust of 1941 as rectified in 1945 became a subject matter of interpretation by the Appellate Income Tax Tribunal and High Court of Allahabad in the case of J.K. Hosiery Factory v. Commissioner of Income Tax, U.P. 1971 (81) ITR 557. In the said partnership the respondent-assessee trust happened to be a partner. The High Court held the rectification decree passed by Civil Court to be valid and further held that it was not possible for the Income Tax Officer to question the validity of the rectification on the ground that conditions for grant of rectification did not in fact exist. However, it was further held that the objects of the Trust Deed as rectified in 1945 did not create a public charitable trust and on an analysis of the object clause 2(b) (i) of the Trust Deed held that it being a mixture of charitable and non-charitable objects, could not be treated to be creating a public charitablethe meanwhile the Settlor Company had filed another suit being suit No.163 of 1954 in the Court of First Civil Judge, Kanpur for further rectification of the Trust Deed. It was reiterated in the plaint that the real intention of the Settlor Company was to create a public charitable trust for the benefit of the public in the city of Kanpur and the surrounding areas particularly, the members of the working class including the workmen employed in the plaintiff company, but in their capacity as members of the working class. The intention, it was repeated, was to create the said trust wholly and exclusively for charitable objects and purposes. It was alleged that the trustees had, in fact, been giving the benefit of the trust to the members of the public and no part of the trust moneys had, at any time, been used for a non-charitable or non-religious object or purpose. It was contended that the said Deed of Trust even as rectified was less comprehensive than what was intended by the parties thereto at the time when instructions were given for preparing a draft of the same and when they executed it and the Settlor Company was advised that it did not truly express the intention of the parties. It was prayed that the rectifications sought for be allowed so as to bring it in conformity with the real intention of the parties. In the said suit besides the trustees two persons interested in the trust were impleaded as defendants in their representative capacity after the service of a public notice under Order 1 Rule 8 of theCode of Civil Procedure. The Civil Judge, Kanpur by judgment and decree dated 10.5.1955 decreed the suit. By the second rectification decree certain rectifications were made in the Preamble of the Trust Deed and in paragraphs 1 and 2 of the Trust Deed. At an appropriate stage in latter part of this judgment we will deal with these rectified clauses inserted in the Trust Deed in 1955.The jurisdictional Income Tax Officer issued notices under Section 34 of 1922 Act and Section 148 of 1961 Act for the relevant assessment years to the assessee-trust alleging that the income had escaped assessment for the relevant years. In response to the said notices the assessee filed NIL returns for all the assessment years under reference. The contention of the trust before the Income Tax Officer was that it was a public charitable trust and, therefore, its income was exempt from income tax. The Income Tax Officer rejected this contention as discussed in his earlier assessment order for the assessment year 1948-49. He stated that in the earlier assessment order, he had come to a clear conclusion that the trust was a private trust for the benefit of the employees only and was not at all exempt from tax. With regard to the rectifications made by the decrees of the Civil Court, the Income Tax Officer held that the trust was originally created for the benefit of the settlor company and the objects of the trust could not be altered subsequently unless the trust was revoked for which there was no power under the Deed. The income from it was, therefore, assessed to tax. He relied on the decision of the Calcutta High Court in re. Mercantile Bank of India (Agency) Ltd. 1942 (10) ITR 512  and held that a trust for the benefits of its employees and members of the staff is not a charitablespondent-assessee preferred appeals to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner dismissed all the appeals of the respondent. It is under these circumstances that the respondent-assessee approached the Income Tax Appellate Tribunal as noted earlier. The assessee partly succeeded while the Revenue also succeeded in part before the Income Tax Tribunal and that is how seven questions came to be referred to the High Court under Section 256(1) by the Tribuna l, two at the instance of the assessee and five at the instance of the Revenue and which came to be wholly decided in favour of the respondent- assessee as already noted earlier.

Reasoning:
Contention No.1---------------- So far as jurisdiction of the Civil Court to grant rectification of the Trust Deed is concerned the relevant provision is found in Section 26 ofthe Specific Relief Act, 1963 which had succeeded the prior Specific Relief Act of 1877. Under the earlier Act an analogous provision was found in Section 31 of the Act. As per these provisions a suit could be filed before competent Civil Court for rectification of an instrument when through fraud or a mutual mistake of the parties a contract or other instrument in writing does not express their real intention. It is obvious that a Trust Deed is not a contract in the strict sense of the term but it would certainly be covered by the expression other instrument in writing. It could, therefore, not be urged with any emphasis that competent Civil Court which was approached by the Settlor Company for rectification of the instrument of trust, was not having requisite jurisdiction to entertain suchfail to appreciate how the aforesaid decision can be of any assistance to the learned senior counsel for the Revenue in the present case. On the facts of the case before Andhra Pradesh High Court the City Civil Court, Hyderabad, had no jurisdiction under Section 34 of the Trust Act to bring about any changes in the objects of trust which had become a public trust. On the facts of the present case Section 31 of 1877 Act (Specific Relief Act) or the corresponding provisions of Section 26 of 1963 Act could be effectively invoked for rectification of the instrument of trust. Such a court does not suffer from any inherent lack of jurisdiction, like the City Civil Court in the Andhra Pradesh case which had no such jurisdiction under Section 34 of the Indian Trusts Act. The first contention must, therefore, beor is one party to the trust who settles his property in trust for the benefit of others who become beneficiaries and the legal ownership of the property is transferred to the trustees. Thus not only there are more than one party to the instrument of trust but in fact there would at least be two main parties, namely, the settlor on the one hand and the trustees on the other and also there will be the beneficiaries who would be indirectly third parties to the instrument though not being direct parties thereto. Thus it would be almost a tripartiteSettlor Company had clearly indicated in the rectification proceedings that the real intention of the settlor to create a public charitable trust was not clearly brought out on the wordings of the original Trust Deed and, therefore, the need to rectify the instrument, as neither the Settlor Company nor the trustees who assumed the legal ownership of the property settled in trust would have agreed to the transaction in question if it had purported not to create a public charitable trust. It was this mutual mistake on the part of both the parties that required rectification of the instrument to make, what was latent intention a patent one. Even that apart it is strictly not open to the Revenue which is not a party to the instrument to take up such a contention about non-fulfilment of condition precedent as it would be a fact in issue before the competent court which was called upon to rectify the instrument by either of the parties to the instrument. Absence of such a condition would at the most make the order erroneous and which can be challenged by either of the parties to the proceedings but it will have no impact on the jurisdiction of the Civil Court to pass such an order however erroneous it may appear to be to the Revenue. At the highest such an error would remain in the realm of error in the exercise of jurisdiction and not an error depriving jurisdiction to the competent court to entertain such rectification proceedings. In this connection it is profitable to have a look at the decision of Delhi High Court in the case of Jagdamba Charity Trust v. Commissioner of Income-Tax, Delhi (Central) 1981 (128) ITR 377. In that case Deed of Trust was got rectified by the parties from the Civil Court. These proceedings had to be initiated in the light of judgment of the High Court which had held that due to provisions in certain clauses of the Trust Deed the trust was non-charitable and the trust was not entitled to exemption under Income-tax Act and that since the decision had created some doubts regarding the validity of some clauses of the deed it was necessary that the deed should be rectified. The Civil Court granted a decree and directed that the Trust Deed be rectified. The question was whether such rectification order of the Civil Court was binding on the Income Tax Department when the assessee-trust armed with such rectification order claimed exemption from income tax under Section 11 of the 1961 Act.S. R anganathan, J., as he then was, speaking for the Delhi High Court took the view that the word instrument used in Section 26 of the Specific Relief Act has a very wide meaning and includes every document by which any right or liability is, o r is purported to be created, transferred, limited, extended, extinguished or recorded. There is no reason to exclude a Trust Deed from its purview. A Trust Deed is a document which sets out the terms of an understanding between the author of the trust and the trustees. Though in form, the trustees are not signatories to the instrument as drawn up, they are parties to the instrument in a real sense for it is on the terms of the instrument that they accept office and proceed to administer the trust. The law obliges them to act upon the terms of the Trust Deed and they cannot commit a breach thereof. If a gift deed, sale deed or promissory note could be within the terms of the section, there is no reason why a Trust Deed cannot be rectified under Section 26. It was further held that since there was an order of Civil Court binding on the author and the trustees, they could administer the trust only in terms of the amendment directed by the Court. The trustees were and must be deemed, from the beginning, to have been under a legal obligation to hold the properties only for the object and with the powers set out in the Trust Deed as amended. Therefore, whatever might be the correctness or otherwise of the order passed by the Civil Court under Section 26 ofthe Specific Relief Act, 1963, it was not open to the Income-tax Officer to say that the trustees could administer the trust in accordance with the original deed and that the claim for exemption had to be dealt with on the basis of the original deed. Nor was it open to the Income-tax Officer to say that in the relevant accounting year, the trustees held the property subject to the terms of the original and not the amended deed. In our view the aforesaid decision of the Delhi High Court lays down the correct legal position in connection with proceedings for rectification of instruments like trust deeds, initiated before competent civil courts under the relevant provisions of the Specific Relief Act.In the case of Laxminarain Lath Trust v. Commissioner of Income-tax 1988 (170) ITR 375 a Division Bench of Rajasthan High Court speaking through S.C. Agrawal, J., as he then was, h ad to consider the question whether any rectification of the Trust Deed which changed character of the private trust into public charitable trust could be relied upon before the Income Tax authorities for claiming exemption under Section 11 ofthe Income-tax Act, 1961 by the assessee-trust. In that case the original Trust Deed executed in August 1948 did not bring out the real intention of the settlor to create a public charitable trust on account of certain sub-clauses of Object Clause No. 2. It was, therefore, felt necessary to rectify the mistake in the original settlement deed so as to put on record the true intention of the settlor and of the trust created by him. It was held by the Rajasthan High Court that it was pe rmissible for the settlor to clarify his intention increating the trust under the original settlement deed by executing the supplementary deed. Even in the original deed, a discretion had been conferred on the trustees to apply the income of the trust in rendering aid to persons belonging to the L family and it was permissible for the trustees not to apply the income of the trust for the said object and in fact the income of the trust had never been applied for thatcould not be said that the beneficiaries under clause 2(vi), namely, persons belonging to the family of L, had an enforceable right to the application of the income of the assessee for the object mentioned in clause 2(vi), and in these circumstances their consent was not necessary before altering the terms of the Trust Deed. In any case although the supplementary deed was executed in May 1958, none of the persons belonging to the family of L had challenged the validity of the same in a court of la w. After the execution of the supplementary deed, it was not open to the trustees to apply the funds of the assessee for non-charitable purposes. The assessee-trust had acquired the status of a trust wholly for charitable and religious purposes after the amendment of the Trust Deed in May 1958. It was entitled to exemption under Section 11 ofthe Income-tax Act, 1961. The doctrine of cy pres was also invoked in the said case by observing that in respect of christie the courts apply the doctrine of cy pres which envisaes that if a clear charitable intention is expressed, it will not be permitted to fail because the mode, if specified, cannot be executed and the law will substitute another mode cy pres, i.e., as nearly as po ssible to the mode specified by the donor. The said doctrine is applied on the principle that the court would lean in favour of charity and where a general charitable goal is projected and particular objects and modes are indicated, the court, acting to fulfil the broader benevolence of the donor and to avert the frustration of the good to the community, reconstructs, as nearly as may be, the charitable intent and makes viable what otherwise may die. The aforesaid decision of the Rajasthan High Court also takes a view which is almost parallel to the view taken by the Delhi High Court though the binding nature of the rectification order of the civil court on the Income Tax Officer is not highlighted as no such occasion arose for Rajasthan High Court to pronounce on the same on the facts of that case. However, the fact remains that after due rectification of the original Trust Deed either by the settlor himself by executing a supplementary deed or by getting it rectified through competent civil court under the relevant provisions of the Specific Relief Act, the trustees would be bound to carry out the amended and rectified objects of the trust and if they fail to do so they would be guilty of b reach of trust for which even proper proceedings can be initiated against them under Section 92 of theCode of Civil Procedure. For all these reasons, therefore, it must be held that when such rectified Trust Deed is pressed in service before the Income-tax authorities in assessment proceedings concerning the relevant assessment years the Income-tax Officer will have to interpret such rectified instrument for finding out its correct legal effect. But it will not be open to the Income-tax Officer to refuse to look at such rectified instrument of trust and to insist that the trustees of the trust should ignore the said rectified objects and should stick to the instrument as it existed prior to its rectification. The Income-tax officer will have to take the instrument as it exists in its actual amended form when it is pressed in service for framing the assessment concerning the relevant assessment year in which such rectified instrument holds the field. The second contention, therefore, fails and isNo. 3---------------- So far as this contention is concerned Dr. Gauri Shankar, learned senior counsel for the Revenue was right when he contended that order of rectification by a civil court is not a judgment in rem. It would be a judgment in personam binding on the parties to the rectified instrument, namely, the settlor on the one hand and the trustees on the other as well as on the ultimate beneficiaries. It is also true that Section 41 of the Indian Evidence Act cannot apply to such rectification order as under the said provision only judgments and orders passed in exercise of probate, matrimonial admirality or insolvency jurisdiction would have the character o f judgments in rem. Similarly Section 42 of the Indian Evidence Act also could not make them relevant in any enquiry or proceedings unless they relate to matters of a public nature relevant to the enquiry. However it is Section 43 of the Evidence Act which would squarely get attracted in such cases. Said section lays down that judgments, orders or decrees other than those mentioned in sections 40, 41 and 42, are irrelevant, unless the existence of such judgment, order or decree is a fact in issue, or is relevant under some other provision of this Act. Section 40 deals with previous judgments relevant to bar a second suit or trial. That obviously cannot have any application. But a rectified Trust Deed pursuant to the order of the court would certainly make the rectification order relevant under the provisions of Section 11 of the Indian Evidence Act, as the fact in issue in an enquiry before the Income-tax Officer would be whether on the basis of the rectified trust instrument the assessee-trust is entitled to get its income exempted from tax under the relevant provisions of the Income-tax Act. In such proceedings, therefore, the order granting rectification of such instrument of trust would certainly remain relevant. Consequently it cannot be said that such rectification orders passed by civil courts permitting rectifications of trust deeds under the relevant provisions of the Specific Relief Act could not be relied upon by the assessee-trust in assessment proceedings before the Income-tax Officer was not a party to such rectification proceedings. It will be for the Income-tax Officer to consider the real scope and ambit of the Trust Deed as presented to him in rectified form with a view to finding out whether on the basis of such a rectified instrument the assessee trust had earned exemption from payment of income tax under the relevant provisions holding the field in the concerned assessment years. The third contention is, therefore, decided by answering that though the rectification orders of the civil court are not judgments in rem they are relevant in assessment proceedings before the Income-tax Officer and will have to be given effect to for whatever they areNo. 4---------------- So far as this contention is concerned learned senior counsel for the Revenue is spared his pains as learned senior counsel for respondent-assessee fairly stated in the light of the debate that took place in the Court that he was not supporting the answer given by the High Court in favour of assessee on Question No. 2 referred for the opinion of the High Court at the instance of the assessee-trust. In short he submitted that he would treat 1955 rectification of the instrument of trust as creating almost a new trust or substituting the new for the old and, therefore, he would not press that such rectification of 1955 would have any retrospective effect. In view of the fair stand taken by the learned senior counsel for the respondent-assessee, this contention will have to be decided in favour of the Revenue and against the assessee by holding that rectification brought about by the order of the civil court in 1955, namely, the second rectification had no retrospective effect and would operate prospectively from the date on which such rectification saw the light of the day and would cover assessment years 1956-57 onwards upto assessment years 1965-66 and would not look back on the previous assessment years from 1949-50 to 1955-56. In other words the decision of the Tribunal on referred Question No. 2 will remain operative and that contrary answer of the High Court on this question would stand rejected.Contention No.mere lo ok at the aforesaid objects of the trust which remained operative and kicking after the second rectification of 1955 shows that each of the objects mentioned in clauses (b), (c), (d) and (e) of Object Clause 2 clearly partakes the character of a charitable disposition meant for the benefit of a well demarcated mass of humanity. There is not much dispute on this aspect, so far as paras 2(a) and (b)(ii) to (iv), (c), (d) and (e) arecannot be said that the indicated beneficiaries, namely, the workmen in the town of Kanpur and surrounding areas and extensions are so vague as to make the object of the trus t inoperative or options. Workmen in town of Kanpur and the surrounding areas and extensions formed a clearly earmarked class or category of members of general public and they were certainly a part and parcel of the general public.It is also not pos sible to countenance the submission that the words surrounding areas and extensions of Kanpur town introduced vagueness, in the identification of beneficiaries. Surrounding areas and extensions would naturally include those areas which are on the periphery of Kanpur town, and which are adjacent to Kanpur town. They would not obviously include any areas which are geographically far removed from and situated at long distance from Kanpur town and which could not be said to be in the vicinity of the Kanpur town. The words surrounding areas and extensions of Kanpur town indicate proximity of such areas with the Kanpur town and have a clear nexus with the geographical boundary of Kanpur town. It is also easy to visualise that the trustees will have to make available the benefit of the clause only to those workmen in the town of Kanpur and surrounding areas and extensions and to their respective families and dependents who on account of poverty are in need of help and really deserve help. Any provision made for a poor class of public well earmarked as recipient of such benefits would certainly make the object of such bounty a charitableorder to find out whether the relevant clauses of a trust deed create a public charitable trust or not we have to go by the express words employed by the Trust Deed. In our view for finding out the real intention of the settlor, the words used in the Deed would be the real vehicle of thought of the settlor expressing his intention in cold print. This would be much more so when such recitals in the Trust Deed are not challenged on the ground that they are a camouflage or a result of a colourable device. As we have noted earlier, contention regarding colourable device was not pressed by Dr. Gauri Shankar for the Revenue and rightly so as it did not arise out of the judgment under appeal. On the other hand, on the express language of clause 2(b)(i) of the 1955 rectified deed, it cannot be said that it does not create a public charitable trust. On the contrary it becomes clear on a close reading of relevant provisions of this clause that the objects are specific and charitable in nature. The beneficiaries are also clearly indicated. There is also no ambiguity about the trustees or the trust properties. Thus all the basic requirements for creation of a public charitable trust do exist on the express language of the relevant sub-clauses of clause (2) of 1955 rectifiedsay the least it is merely a discretion left to the trustees and not an obligation of the trustees that they must necessarily spend the income of the trust for the workmen of the settlor company itself and not for the benefit of any other outside worker. We shall deal with this aspect in greater details when we will refer to Contention No. 6 canvassed by learned senior counsel for the assessee trust that even apart from the rectification of 1955 the earlier rectification of 1945 did create a public charitable trust. However so far as the second rectification of 1955 is concerned it has clearly indicated that only a discretion is vested in the trustees to utilise the trust income for benefit of poor workmen in the town of Kanpur and in the surrounding areas and extensions and that may include even poor and needy workmen of the settlor company itself. In this connection Shri Verma also rightly invited our attention to Section 92 of theCode of Civil Procedure and clause (i), sub-clause (b)(iv) whereby trustees in their discretion could provide for advancement of other similar objects of general publicis no doubt true that the trustees are enjoined to utilise the trust properties subject to the terms and provisions of the indentures dated 19th October 1936 and 2nd February 1938 which require the trustees to utilise the trust property for the benefit of settlor companys ownn our view these contentions on behalf of the assessee are well supported on the evidence on record. It cannot, therefore, be urged that the trustees had indulged in any profit making while employing the income of the trust on the beneficial objects of the Trust Deed and in discharging the obligations with which they were charged under the said Trust Deed. In fact in fairness it must be stated that Dr Gauri Shankar did not also pursue this aspect any further. Before parting with the discussion on this aspect we may also mention that at page 410 of the Paper Book Vol. II a list of tenants not working in J.K. Group of Mills but who are living inKamla Town Trustquarters, was furnished by the respondent-assessee before the Income Tax Tribunal along with the affidavit of one Shri R.B. Somnath, Engineer of the respondent-trust. This also showed that the beneficiaries of the trust income and properties are not only the workmen of the settlor company but also outside workmen who are residing in Kanpur town being a part and parcel of the general public. It must, therefore, be held that the rectified Trust Deed of 1955 did create a public charitable trust as rightly held by the High Court. Contention No. 5, therefore, standsinterpreting the word workmen in general as employed in 1945 rectified Trust Deed, we have to sit in settlors arm chair with a view to visualizing what was meant by the Settlor Company when it used these terms in 1945, keeping in view the then prevalent socio-economic conditions in this country. It is easy to visualise that workmen who were to toil for their existence would necessarily represent a class of needy persons requiring a shelter over their he ad, when the settlor company in 1945 contemplated to construct residential quarters, chawls or buildings for workmen it necessarily meant to provide these facilities for a needy class of persons who could legitimately be presumed to be a class of down-trodden persons suffering from penury and want. The socio-economic situation prevailing in England treating workmen as not necessarily poor, cannot almost automatically be imported and applied for judging the economic status of working class in India especially in 1945 when even the definition of workmen underthe Industrial Disputes Act, 1947 had also still to see the light of the day. We, therefore, cannot agree with the general proposition canvassed by Dr. Gauri Shankar for the Revenue that any provision made for the benefit of workmen in general would not necessarily be a provision for needy or poor class of citizens who may be forming part of the general public.Shri Verma, learned senior counsel for respondent- assessee was also right when he submitted, relying upon decision of this Court in Trustees of the Charity Fund (supra) and other decisions of the High Courts to which we have made a reference earlier, that when an y property is settled for charitable purposes for catering to the needs of a class of public which is poor and needy, any preference given to poor and needy workmen of the settlor company would not necessarily detract from the charitable object underlying such bequest or settlement. It is trite to observe that if settlors poor relatives can legitimately be the recipients of charitable benefits under a public charitable trust, then if such preference is given to poor workmen of the settlor company who are not even related to the settlor, they would stand at least on an equal if not a better footing and in no eventuality on a worse footing, in judging the public charitable nature of the settlement in their favour. However, the basic fact must remain that the settlement is made in favour of a well earmarked class of needy and poor persons who may form a part of the general public and for whom such charitable bequest or endowment is made, and the preferred class of beneficiaries must form a part and parcel of that very general earmarked class. It must, therefore, be held that the provision for construction of houses for workmen in general as found in clause 2(b)(i) of 1945 rectified Deed, so far as it went, did constitute a charitablethis conclusion of ours does not end the controversy centering round the aforesaid clause. There are two clear hurdles in the way of Shri Verma for the respondent which militat e against his submission that the said clause when read as a whole does create a public charitable trust in favour of workmen in general. The first hurdle is that the term workmen in general as employed in the clause is too general and vague but even assuming that in the context of the residential quarters, chawls or buildings to be constructed for them on the lands situated at Kanpur which are settled in trust by the Settlor Company, it would refer to workmen in Kanpur town, even then the more substantial hurdle in the way of the respondent is projected by the fact that there is an obligation cast on the trustees to construct these residential quarters, chawls or buildings in particular for the workmen, staff and other employees of the company or other allied concerns under the management of and in which the directors of the company may for the time being be interested and for their respective families and dependents. In the light of the words in particular as found in this clause, Dr. Gauri Shankar, learned senior counsel for Revenue rightly submitted, that they represent a scheme of priority for workmen of the Settlor Company and not a scheme of preference. In other words the trustees are bound under an obligation to construct residential quarters etc. first for the workmen or employees of the Settlor Company or its allied concerns. They have no choice in the matter. They cannot in their discretion select an outside workman as recipient of the benefit under the scheme of the Trust Deed. In effect the general class of beneficiaries constituted by the words workmen in general gets whittled down and circumscribed by the words in particular for workmen of the company etc.. Thus in substance it becomes a trust for the benefit of a well defined smaller class of beneficiaries, namely, employees or workmen of the company and its allied concerns and it fails to meet the requirement of a genuine or public or charitable trust. We are in agreement with this submission of Dr. Gauri Shankar. Once such an obligation is cast on the trustees the public character of the endowment gets whittled down and in substance becomes the settlement for an identified group of persons. In this connection we may profitably refer to a Division Bench judgment of the Bombay High Court in the case of Commissioner of Income-Tax, Bombay City II v. Walchand Diamond Jubilee Trust 1958 (34) ITR 228 wherein Chagla, C.J., spoke for the Bench. In that case the question was whether the provision made in Trust Deed to utilise the accumulated income of the property of the trust on charitable objects like giving scholarships to deserving students or giving medical relief s of the nature and kind such as starting maternity homes etc., or giving monetary help to the poor and needy persons and for providing relief to the poor and distressed in time of famine would get adversely affected and would cease to be a charitable object if preference was to be given to such persons as are eligible under the aforesaid provisions who are at the time or have in the past been employees of Premier Construction Co. Ltd. and of the associated companies and their relative s and dependents as the trustees may in their discretion think expedient andour view aforesaid is the correct test evolved by the High Court. Applying the said test to the clause in question we find that though residential quarters, chawls or buildings are to be constructed for the workmen in general and who, as we have already shown earlier, may be a well defined class of workmen residing in Kanpur and who may be poor and needy in the light of their socio-economic conditions as prevailed in 1945 when the clause was drafted, once we turn to the second part of this clause which lays down in clearest terms that in particular the quarters are to be constructed for the workmen staff and other employees of the company and of its allied concerns, it becomes clear that no discretion is left with the trustees and on the contrary they are enjoined, called upon and under an obligation to construct these quarters, chawls and buildings necessrily for the workmen, staff and other employees of the company and its allies. It is also easy to visualise that other employees of the company may include even affluent employees who may not necessarily constitute an object of charity . Once this conclusion flows from the wording of the clause, it becomes clear that reference to workmen in general becomes illusory and the settlement can be said to be in substance meant only for catering to the needs of a well defined group of persons, namely, workmen, staff and other employees of the company and its allied concerns and in that case on the aforesaid ratio of the decision of the Bombay High Court, which we approve, the object clause in question would fall short of creating any public charitable trust. In this connection we may also refer to two decisions, one of Calcutta High Court and another of Allahabad High Court, to which our attention was drawn by Dr. Gauri Shankar for the Revenue. In the case of Mercantile Bank of India (Agency), Ltd., (supra) a Division Bench of the Calcutta High Court speaking through Derbyshire, C.J., held that in order to constitute a valid charitable trust it should be for the benefit of the public or the specified section of it. A fluctuating body of private individuals such as the present and future officers and members of the staff and other employees of a company could not be a part of the general public or of any section of the public and therefore the income of the trust fund was not exempt from the payment of income-tax under Section 4(3)(i). It was further observed that Andrew Yule &Co. Ltd., and their subsidiary concerns for whose employees benefit was conferred under the deed employed a large number of persons. The trust was for the benefit of the past, present and future officers, members of the staff and other employees of those concerns. Anyone from the Secretary or some other highly paid member of the staff down to the lowest menial may be included within the benefit of this fund. Necessitous circumstances might include the case of a superior employee earning some thousands of rupees per month, who owing to some misfortune - say the burning down of his house, or the loss of his property - might find himself suddenly in Necessitous circumstances, and in need of money to replace his lost property. The learned Judge could see no reason why the administrators of the fund should not be in a position to make a grant to such a person to make up his loss. It might be a most desirable thing to do and the administrators might justly think that they had used some of the funds to the best advantage. But such use cannot be said to be for the relief of poverty. Even if (as had been argued) the administrators are bound to use this fund solely "to relieve persons suffering from indigence, ill-health or other Necessitous circumstances, " it was impossible to say that the fund is - to use the words of the section - "property held in trust wholly for charitable purposes." A Division Bench of the Allahabad High Court in the case of J.K. Hosiery Factory (supra) had an occasion to consider the very same clause of the rectified deed of 1945.It is of course true that the said decision was rendered in assessment proceedings of the firm wherein respondent- assessee was a partner and not in the assessment proceedings of the respondent firm itself. Still the interpretation placed on the very same Trust Deed as rectified in 1945 in proceedings to which respondent-assessee was a party in another capacity cannot be said to be totallywe have discussed earlier the term workmen in general when read in the context socio-economic situation prevailing in 1945 in this country and when also considered in the context of construction of residential quarters, chawls or buildings in Kanpur may partake the character of a well defined class of workmen in Kanpur city who ma y be poor and needy, still as the trustees are enjoined to construct residential quarters, Chawls or buildings in particular for the workmen, staff and other employees of the company it follows that other employees of the company who are the beneficiaries may not necessarily be poor or needy or affluent. We, therefore, concur with the second part of the reasoning of Allahabad High Court in the aforesaid judgment though we are not in a position to subscribe to the general proposition that construction of residential colonies for workmen in general cannot by itself be regarded as an object of public charity. As a result of the aforesaid discussion, therefore, it must be held that rectified clause 2(b)(i) of 1945 deed fell short of projecting an object of a public charitable nature and it could not be said that under the rectified deed of 1945 the trust properties were held by respondent-trust wholly for religious or charitable purposes. It is of course true that rest of the sub-clauses of clause 2(b) did refer to charitable objects but as one of the objects was not of a public charitable nature it could not be held that the entire trust was wholly for religious or charitableour view the said Explanation cannot be of any avil to the respondent-assessee so far as the rectified deed of 1945 is concerned. The emphasis in the Explanation is on charitable objects of general public utility like relief of poor, education, medical relief and advancement of any other object of general public utility. Once it is held that clause 2(b)(i) of 1945 rectification deed imposed an obligation on the trustees to utilise the trust property for the benefit of the settlor companys own workmen and employees, it would cease to be projecting an object of providing relief to poor workmen only. Nor would it advance any other object of general public utility but would be confined to the utility of a well defined class of employees and workmen of the settlor company and its allied concerns only. For all these reasons, therefore, it is not possible to accept the submission of Shri Verma, learned senior counsel for respondent-assessee based on this Explanation. This contention, therefore, stands rejected.