Commissioner of Income Tax vs Palghat Shadi Mahal Trust

K.S. Paripoornan, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal, Cochin Bench, has referred the following two questions of law for the decision of this court :

"(1) Whether, on the facts and in the circumstances of the case, is the assessee a charity entitled to exemption under the Income Tax Act ?

(2) Whether, on the facts and in the circumstances of the case, is the Tribunal right in holding that the benefit of the trust enures to the public at large and not to any particular religious community ?"

The respondent is an assessee to Income Tax. It is a trust. It claimed exemption u/s 11 of the Income Tax Act, 1961, for the assessment year 1976-77. The trust deed is dated April 14, 1975. It was claimed that there was a clarificatory resolution regarding the trust deed, dated April 20, 1975. The Income Tax Officer held that the assessee is not entitled to the benefit of Section 11 of the Income Tax Act. In appeal, the Appellate Assistant Commissioner, by order dated October 13, 1981, held that the object of the trust is for constructing Shadi Mahal which involves an activity of profit, that it is for a particular religious community, that Clause (xiv) of the trust deed which gives unbridled powers to the trustees strikes at the very foundation of the trust and on these premises, affirmed the decision of the Income Tax Officer declining to grant exemption u/s 11 of the Income Tax Act. The assessee carried the matter in second appeal before the Income Tax Appellate Tribunal. The Appellate Tribunal, on a perusal of the relevant clauses of the trust deed, along with the later resolution dated April 20, 1975, held that the benefit of the trust enures to the public at large and not to any particular religious community. It further held that the object of the trust is not only to found the Shadi Mahal but also for founding and running other institutions and carrying on any other activity which would be considered charitable under the Muslim law and since charity under the Muslim law is not confined to Muslims, but extended to all communities, there is no infirmity in the object of the trust. The respondent/assessee was held entitled to the benefit u/s 11 of the Act. Thereafter, at the instance of the Revenue, the Income Tax Appellate Tribunal has referred the questions of law, formulated hereinabove, for the decision of this court.

We heard counsel. The Income Tax Appellate Tribunal, in forwarding the statement of the case to this court, by order dated May 26, 1984, did not forward the correct copy of the resolution of the Trust Board dated April 20, 1975. So, this Bench, by order dated June 23, 1989, directed the Income Tax Appellate Tribunal to forward the relevant or appropriate resolution of the Trust Board dated April 20, 1975, relied on by the Appellate Tribunal in its appellate order dated July 6, 1983. Accordingly, the Income Tax Appellate Tribunal has, by communication dated July 4, 1989, forwarded annexure-C which purports to be the clarificatory resolution of the Trust Board dated April 20, 1975. We perused the copy of the trust deed dated April 14, 1975 (annexure-B) as also annexure-C, copy of the proceedings of the special general body meeting of the Shadi Mahal Trust dated April 20, 1975.

The main thrust of the argument by the Revenue was that the trust is not entitled to the exemption u/s 11 of the Act. It was argued that the trust is not a public trust and that the benefit of the trust is confined only to a particular community. Counsel for the Revenue stated that all the trustees belong to the Muslim community and the main object of the trust was the construction of the Shadi Mahal to benefit the particular community. The preamble is clear on that aspect and there is unfettered power in the trustees to change the character of the trust as per Clause (xxv) and the trustees have got absolute power to divert the funds'' to any one of the purposes as per Clause (x) of the deed. So, it was argued, that by reading the preamble, Clause (x), the clarificatory resolution dated April 20, 1975, and Clause (xiv) together, there is no obligation on the trustees to set apart the income or spend it compulsorily for any charitable purpose, and whatever may be the effect of Clause (x) of the deed, it is completely nullified by the preamble and also by Clause (xxv) of the deed, and in this view, the respondent-trust cannot be considered to be a public trust entitled to the exemption u/s 11 of the Act

On the other hand, counsel for the respondent-assessee argued that the clarificatory resolution was passed to clarify the clause occurring at page 5 of the deed, that it is the predominant clause in the deed, that whatever may be the effect of Clauses (x) and (xxv), the preamble taken along with the clarificatory resolution dated April 20, 1975, casts a mandatory duty on the trustees to spend a considerable portion of the income for development of the Shadi Mahal and for other religious and charitable purposes. It is further stated that this is not a case where the trustees have a discretion to spend all or the entire income for any one of the purposes to the exclusion of all other purposes mentioned in Clause (x) of the deed. The main object of the trust is to construct the Shadi Mahal and also to spend the income for other religious and charitable purposes. It is stated that the obligation to establish other institutions for the educational, social and economic advancement of Muslims is only ancillary or incidental to the said purposes. In advancing this argument, counsel for the assessee laid stress on the fact that there is always a distinction between the corpus and object of the trust, as also the power vested in the trustees to administer and spend the income of the trust for specific purposes.

The arguments before us covered a wide range. We are afraid that the Appellate Tribunal has not clearly borne in mind the distinction between the corpus and object of the trust as also the powers Vested in the trustees to administer and apply the income of the trust for specified purposes. The nature and. purport of the document should be understood by reading the document as a whole. The deed dated April 14, 1975, should be read in the light of the clarificatory resolution dated April 20, 1975. The clarification dated April 20, 1975, is for the clause occurring at "page 5" of the original deed. The Tribunal has proceeded on the basis that the clarification is for Clause (x) of the deed. It does not appear to be so. In page 5 of the original deed which was produced before us by the assessee''s counsel, the preamble occurs. What is the effect of the clarification dated April 20, 1975, if it occurs at page 5 of the deed, as an explanation or clarification to the preamble, is entirely a matter to be decided on an interpretation of the document as a whole. The Appellate Tribunal has not sufficiently applied its mind to the role of the preamble in the trust deed, its legal effect, the extent to which the preamble can be relied on, as also the legal impact of Clauses (x) and (xxv) of the deed. Larger questions arise for consideration : Should the various enacting clauses in the deed be understood only in the light of the preamble or should the preamble be considered along with other clauses ? Is there any ambiguity in Clauses (x) and (xxv) of the deed which calls for any aid from the preamble ? Are there inconsistent clauses in the deed or any ambiguity in the deed which calls for interpretation ? What is the principle to be adopted in interpreting the various clauses in the deed ? Is it open to the assessee to clarify the trust deed and more particularly on the basis of the resolution passed on April 20, 1975 ? If so, to what extent and in what manner ? What is the corpus of the trust ? What is its object ? What are the powers of the trustees as per the deed ? The original deed of trust, produced before us, seems to have been presented for registration only on July 8, 1975, and registered on that day. If the trust deed is dated April 14, 1975, and the clarificatory resolution was passed on April 20, 1975, one would normally expect that the clarification is also incorporated in the original deed, before registration, since registration was done later. As to why it was not done is anybody''s guess. This requires evaluation and appraisal. These and other vital aspects have not been adverted to by the Appellate Tribunal ; nor have the questions considered from a proper angle. We are of the view that, in the absence of a proper interpretation of the deed (in the light of the clarificatory resolution dated April 20, 1975), the decision of the Appellate Tribunal cannot be said to be correct, proper or justified in law.

We are, therefore, of the view that the reasoning and the resultant conclusion of the Appellate Tribunal are vitiated, in that the proper aspects to be borne in mind and the principles of law to be applied in interpreting the trust deed, have not been borne in mind in rendering the decision. The Appellate Tribunal has failed to pose the correct question that arose for consideration and posed wrong aspects and came to the conclusion it did which is vitiated.

We, therefore, decline to answer the questions referred to us. At the same time, we direct the Income Tax Appellate Tribunal to hear the appeal afresh and decide the matter in accordance with law and in the light of the observations contained hereinabove.

The reference is answered accordingly.

A copy of this judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.