COMMISSIONER OF INCOME TAX/WEALTH TAX vs BABULAL KHINCHAND TRUST

R. Jayasimha Babu J.

The question referred to us at the instance of the revenue is :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the trust is a valid charitable trust and in

directing the Wealth-tax Officer to redo the assessments in the light of the provisions of section 2 1(1) read with section 2 IA of the Wealthtax Act,

1957 ?

The trust referred to is one which was created under the deed dated October 10, 1986. The trust deed has not been produced before us. It is

agreed by learned counsel for the parties that the crucial part of the trust deed relevant for the purposes of this case is the part that there has been

set out in the Tribunal''s order. That part reads thus :

If, however, the settlor leaves no wife or children, the trust properties shall be applied for such charitable purpose as may be decided upon by the

trustees.

The Tribunal has held that the trust is created when the settlor leaves no wife or children as has in fact happened. The trust so created has been

held to be one which is charitable and the properties of the trust, it has been held by the Tribunal are properties which are required to be applied

for the charitable purposes such charitable purposes to be decided upon by the trustees.

It is not the case of the revenue that the income of the trust has been applied for any purpose which cannot be regarded as charitable purpose. The

Supreme Court in the case of Gangabai Charities Vs. Commissioner of Income Tax and another, held that the crux of the statutory exemptions u/s

11(i)(a) of the Act is not the income earned from the property held under the trust but the application of the said income for religious and charitable

purposes and that it is therefore necessary to indicate in the trust deed the broad objectives and the income derived from the properties is to be

utilised. The trust deed here clearly provides that the trust property shall be applied for such chari table purpose as may be decided upon by the

trustees. The discretion given to the trustee is not to choose any purpose, but only purposes which are charitable for which the trust properties and

income therefrom can be utilised.

The word ""properties"" in the trust deed, having regard to the context must be understood as including the income derived from the properties, as

the deed specifically provides that the trust property shall be applied for charitable purposes. The reference to the application would indicate that

the author of the trust intended that all that belonged to the trust is utilised for the purpose of charity. The mandate is therefore clear that the

properties of the trust which having regard to the context, should include the income from the properties, should be applied solely for charitable

purposes.

We, therefore, answer the question referred to us in favour of the assessee and against the revenue .