Case: Sri Agasthyar Trust, Madras Vs. Commissioner of Income Tax, Madras

1, 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 Kanjeevaram, 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."The aforesaid partnership deed whereby thewas 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 onthis clause containing the power of revocation was deleted. Onthe sole trustee executed a document purporting to be a declaration of trust. It referred to the carrying on of the partnership business by the earlier founders of the Trust and for establishment of the Trust for charitable and religious objects and then proceeded to make a declaration of trust specifying a number of objects, most of which were different from the ones contained in the partnership deed ofOne of the clauses in this deed ofwas 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 thein respect of the donation given to the Trust claimed exemption from tax under Sectionof 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 toobject, the Trust created by the deed datedcould 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 dateddid 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 years75 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 thethat the Trust had come into existence by virtue of the deed datedand the declaration of trust under a deed datedwas 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 dismissed4. By a detailed order, the Income Tax Tribunal came to the conclusion that the question as to whether the deed datedwas 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 datedneither the founders nor the trustees had any right, in law, to vary the objects of that Trust by executing another document datedThe 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 datedinasmuch as that a deed datedbeing regarded as void, continued to exist. After examining the objects of the Trust as contained in the deed datedthe 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 Act5. At the instance of the Revenue, in respect of the Assessment Years2, 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 datedand not by the deed dated?(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 datedand not with reference to the trust deed dated?(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 datedcontinued even after the dissolution of the partnership and thewas the Trust constituted by the deed dated?(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 thewas 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?"6. In respect of the assessment for subsequent years, viz.,4, 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 Years74 ?"The High Court in the judgment which is reported as CIT v. Shri Agastyar Trust (Mad)) 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 ofin 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 years74 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 years2. 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

Court's reasoning:
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 datedis of no consequence and is no more than a scrap of paper. The Trust as originally established by the deed datedremained unchanged or unaffected by the latter document datedAs the trust deed datedis of no consequence, now what has to be seen is whether, by reason of the partnership deed datedthe 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 datedand 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 datedin 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 datedafter the power to 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 therefrom18. In view of the aforesaid decision, it can be safely concluded that an irrevocable trust had been established by the partnership deed datedThe 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 asThe 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