Case: Yogiraj Charity Trust Vs. Commissioner of Income Tax, New Delhi

These appeals by special leave are from the judgment dated 26 May, 1970 of the High Court ofquestion referred to the High Court under section 66(1) ofthe Income Tax Act, 1922 referred to as the Act was ason the facts and in the circumstances of the case the income of the trust which was spent on the religious and charitable purposes within the taxable territories was exempt under section 4 (3) (i) of the Indian Income Tax Act,main judgment was delivered in Income Tax Reference No. 40 ofHigh Court answered the question in the negative. The trust in Income Tax Reference No. 40 of 1965 w as taken as typical of all the cases. The deed of trust dated 12 April, 1948 was made by Ramkrishna Dalmia. The trust was called "Jaipur Charitable Trust". In Jaipur Charitable Trust Rs. 10, 000 was given on trust on the terms and conditions set out in the deed.The objects of the trust in clause 5(a) are, inter alia, asTo open, found, construct, establish, take over, equip, promote, conduct, maintain, support, subsidise, grant aids and make donations to schools, colleges, Pathshalas, boarding houses, reading clubs, libraries, art, music or literary societies and other institutions, educational or otherwise, associations, printing presses, journals, newspapers, periodicals, and other publications for imparting or developing religious, commercial, industrial, legal medical, engineering scientific or other knowledge or training.(ii) To give stipends, scholarships, traveling expenses allowances and monetary aids to students and scholar s in India and abroad, engaged in any of the pursuits referred to in sub-clause (i).(iii)To found, construct, maintain, support, assist or grant aids or subscriptions to temples, prayer or congregational halls or other buildings for cultural, social or religious discourses.(iv) To open, found conduct, maintain, or contribute to the opening and maintaining of such institutions where work at living wages can be provided to poor and deserving people and also be conducive to the development of industries and benefit of the poor.(v) To open, found, establish, equip, finance, assist, maintain or contribute to religious, commercial technical, industrial, or commercial concerns, institutions, association s or bodies imparting any type of training or providing employment to persons.(vi) To give donations, subscriptions or contributions to any other Charitable Trust in Jaipur State orare other objects to help widows, orphans, lunatics, indigent persons and to give relier to the poor and distressed, to build, equip, take over, conduct, maintain and grant aids to dispensaries, maternity homes, hospital s, lunatic asylums, to construct, erect and maintain bridges, ghats, to give relief by subscription or otherwise during famines, flood, earthquake, pestilence, to help or maintain institutions for the cultural, social or economic advancement of any country orthe purpose of carrying out the trust the trustees are empowered in clause 5(b), inter alia, (a) to purchase or otherwise acquire any property, rights leases, concession; (b) to purchase or acquire, start establish, equip or close any business undertaking or industry; (c) purchase, acquire or undertake the whole or any part of property and liabilities on any person, firm orproperty of the Trust is vested in the trustees. Clause (9) of t he Trust Deed provides that the Trustees shall carry out the aforesaid objects from out of the net income of the Trust left after meeting the expenses of management and all charges and outgoings so far as such income shall permit, and shall not utilize the income or any portion thereof for any other objects or purpose.Section 4(3) (i) of the Act is asincome, profits or gains falling within the following classes shall not be included in the tot al income of the person receiving them;(i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto:Provided that such income shall be included in the total income.(a) xx xx xx(b) in the case of income derived from business, carried on behalf of a religious or charitable institution, unless the income is applied wholly for the purpose of the institutions and either-(i) the business is carried on in the course of the actual carrying out of a primary purpose of the institution, or(ii) the work in connection with the business is mainly carried on by beneficiaries of the institution.(iii)any income of a religious or charitable institution derived from voluntary contributions and applicable solely to religious or charitablepurpose under section 4(3) of the Act includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) of section 4(3) applies and shall operate to exempt from the provisions of the Act that part of the income from property held under trust or other legal obligation for private religious purposes which does not ensure for the benefit of the public.The terms of the Trust Deeds in all the cases are similar. The pattern of financial dealings of the various Trusts is also the same.

Court's reasoning:
This Court in East India Industries (Madras) Private Limited v. C.I.T.(1) found that one of the objects of the t rust was not for charitable or religious purposes. The object was to manufacture, buy, sell and distribute a pharmaceutical medicinal, chemical and other preparations. The other objects were charitable in nature. The Trust Deed in East India Industries (Madras) Pvt. Limited (supra) case conferred power on the trustees to apply the whole or any part of the trust property or fund for all or any other purposes of the trust. This Court found that there was no special trust and no particular item of property had been burdened with the performance of any specific object of the trust. It was open to the trustees to utilize the income for any one of the objects of the trust to the exclusion of all other objects. It would not be a violation of the trust if the trustees devoted the entire income to the carrying on of a business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations. This Court held that the trust property could not be said to be wholly for religious or charitable purposes within the meaning of section 4(3) (i) of the Act. The present appeals are all of the type of East India Industries (Madras) Private Limited (supra) case and fall within the ruling in thattest is that if one of the objects of the trust deed is not of a religious or charitable nature and the trust deed confers full discretion on the trustees to spend the trust funds for an object other than of a religious or charitable nature, the exemption under section 4(3) (i) of the Act is not available to the assessee. (See Lakshmi Narain Nath Trust v. Commissioner of Income Tax(2).