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Judgment
Srinivasan, J.—The assessee, at whose instance this reference has been made, is a wakf established by late Mirza Mohammed Ali Namazie
by a Wakfnama dated January 17, 1930. Under the deed, the wakif constituted himself, his son and his son-in-law as the mutawallis. The relevant
terms of the wakfnama are as follows :
The parties hereto of the second part and the survivor or survivors of them or other mutawallis for the time being of these presents all of whom are
hereinafter included in that expression, ''The mutawallis'', shall hold the said immovable properties hereinbefore transferred and conveyed upon
trust to permit the same the income thereof to be appropriated and used in property :
for the benefit of the poor relations of the wakif;
for celebrating Mohurrum and other religious festivals of the Shias;
for the conduct of marriages and burials of poor Mussalmans;
for the benefit of poor Syeds; and
for such other religious, pious or charitable purposes as are allowed by Mussalman law as applicable to the Shias in conformity with the
provisions of these presents;
The mutawallis shall set apart two-thirds or thereabouts, of the houses bearing No. 28/1 and 28/2, Angappa Naick Street, George Town,
Madras, for the residence and use of poor Mussalmans free or on a nominal rent;
(a) The inmates shall be selected by the mutawallis firstly from among the poor relations of the wakif being of Shia sect and of good character and
moral worth and only in the absence of such relations, shall the mutawallis be at liberty to select other poor persons of Shia sect and of good
character and moral worth;
(b) the mutawallis shall have absolute discretion to allot to any inmate or inmates such rooms as they, the mutawallis, may think fit and may at any
time or times remove such inmate or inmates from one set of rooms to another;
(c) The mutawallis may, upon proof to their satisfaction that any inmate has been guilty of insubordination, breach of regulations, immoral
or unbearing conduct or that the inmate had been or had become disqualified to be appointed as inmate, reject from the rooms such inmate and
take possession of the rooms occupied by him, her or them.
(a) The mutawallis shall first pay five per cent. of the gross income of the wakf properties, to the mutawallis who manage the wakf for
remuneration and out of the balance set apart 35 per cent. for :
(i) the payment of taxes, quit rent and other public charges,
(ii) the repairs, alterations, or additions to the wakf properties,
(iii) expenses incidental to the management, administration and conduct of the wakf.
(b) Ten per cent. shall be utilised for celebrating Mohurrum and two other festivals observed by the Shias in the year. The mutawallis may
themselves celebrate the said festivals or contribute the moneys to celebration of the said festivals by other persons or bodies.
(c) Thirty per cent. shall be distributed among the inmates of the said houses bearing No. 28/1 and 28/2, Angappa Naick Street, in such manner as
they, the mutawallis, may, in their discretion, think best.
(d) Twenty per cent. shall be applied by the mutawallis for the conduct of marriages and burials of poor Mussalmans and for the benefit of
deserving Syeds as the mutawallis in their discretion select.
Provided always that the mutawallis shall be at liberty from time to time to vary the distribution of the income among the objects of the wakf by
unanimous resolution of all the three mutawallis passed at meetings specially held for the purpose.
For the assessment year 1940-41, a claim was made by the wakf before the Income Tax Officer that the property was held in part at least for
charitable purposes and the income applied thereto was exempt u/s 4(3)(i) of the Indian Income Tax Act, 1922. The Income Tax Officer did not
accept the contention holding that the trust was not created for the benefit of general public or for a particular community, but primarily, for a few
relations and acquaintances of the donor and was not, therefore, for a charitable purpose. He also held that there was no legal obligation on the
part of the trustees to apply the trust fund towards charity as the trustees had been allowed absolute discretion in regard to the application of the
trust fund. On appeal, the order of the Income Tax Officer was confirmed. On further appeal, the Tribunal accepted the contention of the assessee
and held that the exemption provision was applicable. At the instance of the Commissioner of Income Tax, the question whether, on the terms of
the wakf, the assessee was entitled to exemption for any portion of the income of the wakf property u/s 4(3)(i) of the Indian Income Tax Act,
1922, was referred to the High Court. By judgment dated January 28, 1944, this court answered the question in the negative and against the
assessee. The said judgment is reported in COMMISSIONER OF Income Tax MADRAS Vs. AGA ABBAS ALI SHIRAZI., . Applying the
decision of a Full Bench of this court in COMMISSIONER OF Income Tax, MADRAS Vs. M JAMAL MOHAMAD SAHIB., , it was held that
a settlement for the settlor''s poor relations was not a settlement for charitable purposes within the meaning of section 4(3)(i) of the Indian Income
Tax Act, 1922. The court held that as the trustees were given the power to apply the whole of the income of the trust for the benefit of the settlor''s
poor relations, the trust could not be considered to be one for charitable purposes within the meaning of the said section.
After the passing of the Muslim Wakfs Act, 1954 (Central Act XXIX of 1954), the Board of Wakfs included the assessee-wakf in the list of
wakfs published in the Fort St. George Gazette, Madras, dated May 20, 1959, in exercise of the powers conferred u/s 5 of the Act. As there was
no objection from anybody to the said publication, it became final and conclusive u/s 6 of the Muslim Wakfs Act, 1954. For the assessment years
1972-73 to 1974-75, the assessee raised a contention that in view of the inclusion of the wakf in the list of wakfs published under the Muslim
Wakfs Act and in view of the provisions of the Income Tax Act of 1961, the assessee was entitled to exemption u/s 11 of the Income Tax Act,
1961. The assessee contended that the judgment of this court on the earlier occasion will not bar its claim for exemption, which, according to the
assessee, should be decided on the facts prevailing during the relevant assessment years. The Income Tax Officer rejected the contentions of the
assessee and held that the claim for exemption was unsustainable That conclusion was affirmed by the Appellate Assistant Commissioner and on
further appeal by the Tribunal.
At the instance of the assessee, the Tribunal referred the following questions of law for the opinion of this court :
(1) Whether, on the facts and in the circumstances of the case, the assessee-wakf was not entitled to exemption u/s 11 of the Act ?
(2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to exemption u/s 11 read with section 13(1)(c)(ii), first
proviso, of the Income Tax Act, 1961 ?
Mr. Ramamani, learned counsel for the assessee, contended that on a fair reading of the entire document, it was clear that the object of the wakf
was only relief to the poor. According to learned counsel, it was only a case of preference to relations from among the poor people. It was also
submitted that the dominant purpose of the wakf was charitable and of general public utility. According to learned counsel, the ruling of the
Supreme Court in The Trustees of The Charity Fund, Esplanade Road, Fort, Bombay Vs. The Commissioner of Income Tax, Bombay, would
apply to the facts of this case. Learned counsel contended that a purpose which was recognised to be charitable under the personal law of the
parties, should be accepted to be a charitable purpose under the Income Tax Act also. It was further submitted by learned counsel for the
assessee that after the passing of the Muslim Wakfs Act, the Wakf Board exercised control and supervision over the performance of the wakfs by
the mutawallis and thus there was a change in the situation which obtained prior to the Act. Finally, it was submitted by learned counsel that just
because power was given to the mutawallis to utilise the entire income for a non-charitable object, the trust would not cease to be charitable so as
to fall outside the scope of section 11 of the Income Tax Act. According to him, if, in a particular year, the mutawallis exercised the power given to
them under the proviso and made a definite allocation of a portion of the income for recognised charitable purposes, thereby giving a definiteness
to that part of the income to be spent for charitable purposes, the wakf would be entitled to invoke the provisions of section 11 of the Income Tax
Act with reference to that part of the income. According to learned counsel, that matter has to be decided every year and the question whether any
part of the income was allocated specifically by the mutawallis for charitable purposes during the relevant year has to be decided by the Income
Tax Officer on the facts placed before him every year.
On the other hand, learned counsel for the Revenue Contended that the decision of this court in the assessee''s case for the year 1940-41 in
COMMISSIONER OF Income Tax MADRAS Vs. AGA ABBAS ALI SHIRAZI., referred to earlier is final and conclusive and as there is no
change in the situation whatever, the principle of res judicata would apply. According to him, the decision of this court is a binding precedent even
if it is not res judicata. Learned counsel proceeded to submit that a trust, in order to claim the exemption under the provisions of the Income Tax
Act, should be for a charitable purpose of general public utility as defined in the Income Tax Act. According to learned counsel, the principles of
the personal law of the parties would be of no help in view of the specific definition contained in the Income Tax Act. Learned counsel submitted
that the provision in the wakf deed giving discretion to the mutawallis to spend the entire income for any of the objects mentioned in the deed
would mean that the entire income could be spent for non-charitable purposes. According to learned counsel, the matter is not res integra and the
Supreme Court has repeatedly laid down that if a trust deed gives discretion to the trustees to spend the income from the trust either for charitable
purposes or for non-charitable purposes, such a trust would not fall u/s 11 of the Income Tax Act. He drew our attention to the decisions of the
Supreme Court in East India Industries (Madras) Private Limited Vs. Commissioner of Income Tax, Madras, , Yogiraj Charity Trust Vs.
Commissioner of Income Tax, New Delhi, , Dharmaposhanam Company, Kerala Vs. The Commissioner of Income Tax, Kerala, and Additional
Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, . It was also submitted by learned counsel for the
Revenue that the provisions of the Muslim Wakfs Act, 1954, have not brought about any change in the situation as the Wakf Board is not
empowered to interfere with the discretion of the mutawallis expressly conferred on them by the terms of the wakf deed.
We have already referred to the earlier decision of this court in the assessee''s case in COMMISSIONER OF Income Tax MADRAS Vs.
AGA ABBAS ALI SHIRAZI., . The principle on which that decision was based was first enunciated by Lord Tomlin as a member of the Judicial
Committee in Mohammad Ibrahim Riza Malak v. CIT AIR 1930 PC 226. In that case, the property was vested in the head of a community under
deeds of trust, but it was applicable to purposes, many of which were neither religious nor charitable. There was no suggestion that any part of the
property was set aside for charitable or religious purposes so that it could be identified as appropriated exclusively to such purposes. In those
circumstances, the Privy Council upheld the conclusion of the courts below that the income of the whole of the property was assessable to Income
Tax.
The above ruling of the Privy Council was relied on by the Supreme Court in East India Industries (Madras) Private Limited Vs. Commissioner
of Income Tax, Madras, . In that case, a trust was established for various objects, one of which was to manufacture, buy, sell and distribute
pharmaceutical, medicinal, chemical and other preparations and other articles. The objects included several charitable and religious purposes. A
clause in the trust deed provided that the objects should be independent of each other and that the trustees shall have discretion to apply the
property of the trust in carrying out all or any of such objects of the trust as the trustees may deem fit. The question was whether the property of
the trust was held wholly for religious or charitable purposes within the meaning of section 4 (3) (i) of the Indian Income Tax Act, 1922, and the
donations made by the appellant therein to the trust were, therefore, exempt from tax u/s 15B of the Indian Income Tax Act. The Supreme Court
held that as the carrying on of a business of manufacture, sale and distribution of pharmaceutical, medicinal and other preparations was neither
charitable nor religious in character and the trustees could, under the deed, validly spend the entire income of the trust on that non-charitable
object, the trust property was not held wholly for religious or charitable purposes within the meaning of section 4(3)(i) of the Indian Income Tax
Act and that the appellant therein was not entitled to claim deduction u/s 15B of the Indian Income tax Act in respect of donations made to the
trust. After referring to the clause in the trust deed giving discretion to the trustees, the Supreme Court observed thus : (p. 615)
In the present case, there is no special trust, that is to say, no particular item of property has been burdened with the performance of any specific
object of the trust. It is, therefore, manifest that under clause 5(i) of the trust deed it is open to the trustees to utilise the income for any one of the
objects of the trust to the exclusion of all other objects. In other words, 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. In our opinion,
this particular object of the trust is neither charitable nor religious in character. If the trustees can, under a trust held validly, spend the entire income
of the trust on this non-charitable object, it is difficult to hold that the trust property is held under a trust or other legal obligation wholly for religious
or charitable purposes within the meaning of section 4(3)(i) of the Act.
The Supreme Court rejected the contention urged on behalf of the assessee in that case that the charitable object, viz., running of hospitals and
dispensaries, was the dominant object of the trust and that the other noncharitable objects were subsidiary and were only for the purpose of
carrying out the dominant object. On an interpretation of the trust deed, the Supreme Court found that the charitable and non-charitable objects of
the trust were independent of each other and that there was no question of one being dominant and the other being subsidiary.
The above decision was followed by the Supreme Court in Yogiraj Charity Trust Vs. Commissioner of Income Tax, New Delhi, . The
Supreme Court held that the case before them fell within the ruling in East India Industries (Madras) Private Limited Vs. Commissioner of Income
Tax, Madras, and reiterated the proposition in the following terms : (p. 784)
The test 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 u/s 4(3)(i) of the Act is not ailable to the
assessee. (See Lakshmi Narain Lath Trust Vs. Commissioner of Income Tax, .
Again, in Dharmaposhanam Company, Kerala Vs. The Commissioner of Income Tax, Kerala, , the question before the Supreme Court was
whether the business of the appellant company in conducting kuries and money-lending was held in trust for a ""charitable purpose"" within the
meaning of section 2(15) of the Income Tax Act, 1961, and its income from that business was exempt from tax u/s 11(1)(a) of the Act. The
company was registered under the Companies Act as applied to Cochin and under clause 3 of the memorandum of association it was provided (at
p. 466) :
The objects of the company are :
(a) To raise funds by conducting kuries with company as foreman, receiving donations and subscriptions, by lending money on interest and by such
other means as the company deem fit.
(b) To do the needful for the promotion of charity, education, industries, etc., and public good..
Article 58 of its articles of association provided that its profits shall not be divided amongst its members but that ""the profit left after meeting the
expenses of the company will be utilised for promoting education, industry, social welfare and such other purposes of common good as are
resolved by the general meeting"". In 1965, the memorandum and articles were altered and after amendment, clause 3(b) of the memorandum read :
to do the needful for the promotion of charity, education, medical relief and other matters of public good"" and article 58 provided that the profit
will be utilised ""for purposes of common good like charity, education and medical relief as are resolved by the general meeting"". The question
which arose before the Supreme Court related to the assessment years 1962-63 to 1968-69. The Supreme Court held that both before and after
the amendment, some objects were charitable and some objects were non-charitable, all enjoying an equal status and it was open to the appellant
therein, in its discretion, to apply its income from conducting kuries and money-lending to any of the objects and as no definite part of its income
was related to charitable purposes only, the entire claim to exemption failed for the assessment years 1962-63 to 1965-66 as well as for the years
1966-67 to 1968-69.
Yet another occasion arose before the Supreme Court to reiterate the principle referred to above in Additional Commissioner of Income Tax,
Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, . The following observations of the Supreme Court are quite apposite (p. 11) :
The law is well settled that if there are several objects of a trust or institution, some of which are charitable and some non-charitable and the
trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to
be regarded as charitable and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive,
each and every one of the objects must be charitable in order that the trust or institution might be upheld as a valid charity : vide Mohd. Ibrahim
Riza Malak v. CIT [1930] LR 57 IA 260 and East India Industries (Madras) Private Limited Vs. Commissioner of Income Tax, Madras, . But if
the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely
ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity : vide Commissioner
of Income Tax, Madras Vs. Andhra Chamber of Commerce, . The test which has, therefore, to be applied is whether the object which is said to
be non-charitable is a main or primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is
charitable.
In view of the decisions of the Supreme Court referred to above, there can be no doubt that the wakf in question is not one that could fall
within the ambit of section 11 of the Income Tax Act. A feeble attempt was made by learned counsel for the assessee to submit that the dominant
object of the wakf is charitable inasmuch as the wakf had reserved only 30 % of the income for the benefit of his poor relations. This argument is
fallacious for two reasons. In the first instance, the wakif had not reserved 70% of the entire income for charitable purposes. There is a clear
direction in the wakf deed to the mutawallis to take 5% of the income for their remuneration and set apart 35% for payment of taxes, etc., and
repairs and other expenses incidental to the management of the wakf. Thus, 40% of the income is excluded and it is not available for charitable
purposes. What has been reserved for charitable purposes is only 30% which is equivalent to 30% reserved for non-charitable purposes.
Secondly, the objects set out in the deed are independent of each other. None of them is connected with any other object. It is not as if the
charitable objects are dominant objects and the other objects are ancillary or incidental to the dominant objects.
We do not find any support from the terms of the document for the contention that the object of the wakf was to give relief to the poor in
general and that there was only a direction to prefer relations of the wakif from among the poor. Learned counsel for the assessee wanted to bring
this case within the ruling of the Supreme Court in The Trustees of The Charity Fund, Esplanade Road, Fort, Bombay Vs. The Commissioner of
Income Tax, Bombay, . In that case, the deed of trust provided that the net income of the trust fund after defraying all the necessary expenses
relating to the management of the trust, should be applied for all or any of the following purposes : ""(a) the relief and benefit of the poor and
indigent members of Jewish or any other community of Bombay or other parts of India or of the world either by making payments to them in cash
or providing them with food and clothes and/or lodging or residential quarters or in giving education including scholarships to or setting them up in
life or in such other manner as to the said trustees may seem proper; or ... (b) the institution, maintenance and support of hospitals and schools,
colleges or other educational institutions; or ... (c) the relief of any distress caused by the elements of nature such as famine, pestilence, fire,
tempest, flood, earthquake or any other such calamity; or ... (d) the care and protection of animals useful to mankind; or ... (e) the advancement of
religion; or ... (f) other purposes beneficial to the community not falling under any of the foregoing purposes ...."" There was a proviso that ""in
applying the income as aforesaid, the trustees shall give preference to the poor and indigent relations or members of the family of the founder of
the. trust including therein distant and collateral relations. It was further provided that in the application of the income of the said charitable trust
fund, the said trustees shall observe the following proportions, viz., that not less than half the income of the said funds should at all times be applied
for the benefit of the members of the Jewish community of Bombay only (including the relations of the founder) and Jewish objects and particularly
in giving donations to the members of the Jewish community of Bombay on the anniversary of the death of the founder and his wife which falls on
the twenty-second day of June and the remaining income for the benefit of all persons and objects including Jewish persons and objects and in
such proportions as the said trustees may think proper ... ""The Supreme Court held that the deed of trust constituted a valid public charitable trust
and as the relations or the members of the family of the founder did not figure as direct recipients of any benefits under sub-clauses (b) to (f) of
clause 13 of the deed of trust and the circumstance that in selecting the beneficiaries under sub-clause (a), preference had to be given under the
provisions to the relations or members of the family of the founder could not affect that public charitable trust and that the income from the property
came within the scope of section 4(3)(i) of the Indian Income Tax Act and was exempt from taxation. We do not agree with learned counsel for
the assessee that the deed of wakf in this case is similar to the one dealt with by the Supreme Court in the aforesaid case and that the provision for
the relations of the wakif gives only a preference from among the poor. Apart from the fact that the first object in the deed of wakf is expressly for
the benefit of the poor relations of the wakif, the provision by which 2/3rds of the house bearing door Nos. 28/1 and 28/2, Angappa Naick Street,
George Town, Madras, was reserved for the residence and use of poor Mussalmans free or on a nominal rent contained an express direction to
the mutawallis to select the inmates firstly from among the poor relations of the wakif. The said clause goes on to state that only in the absence of
such relations, the mutawallis shall be at liberty to select other poor persons of this sect. This is not a case of preference, but a clear case of the
relations of the wakif being made the direct recipients of the benefits of the trust. As regards 30% of the income reserved for the benefit of the
poor relations, clause 2(c) of the wakf deed directs that the said 30% shall be distributed among the inmates of the house referred to above.
Reading the relevant clauses together, there is no doubt that the wakif intended to benefit his poor relations by reserving a definite percentage of
the income to be spent for them and giving liberty to the mutawallis to spend the whole income for their benefit, if they so desired. There is no
difficulty in rejecting the contention put forward by learned counsel for the assessee that the relations of the wakif are not the direct recipients of the
benefit from the trust and that they could come in only as members of the general class of poor people.
Learned counsel for the assessee places reliance on the decision of the Supreme Court in Commissioner of Income Tax, Kerala Vs.
Dharmodayam Co., and contends that the provisions in the deed of wakf giving liberty to the mutawallis to utilise the entire income for any of the
objects mentioned in the deed, will not make the trust a non-charitable one, when admittedly some of the objects are for charitable purposes. In
the case cited by learned counsel, the first question that arose for consideration was whether the business of kuries conducted by a company
registered under the Companies Act, whose sources of income, were interest on securities, income from property and kuries or chit funds, was
itself held by the assessee under a trust for religious or charitable purposes and not one conducted on behalf of a religious or charitable institution.
On the facts and in the circumstances of the case, the Supreme Court affirmed the view taken by the Kerala High Court that the business in kuries
was one held in trust for a charitable purpose by the company. Another contention put forward by the Revenue in that case was based on article
39 of the articles of association of the company which empowered the general meeting to set apart the entire profit or a substantive part of it for
reserves. It was contended by the Revenue that the conferment of such a power would vitiate the charitable nature of the trust. The Supreme Court
found on the facts that the company which was registered on January 21, 1959, under the Cochin Companies Act, had never engaged itself in any
industry or any other activity of public interest. The Supreme Court considered that the provision in the articles of association was only in
pursuance of the notorious practice to include a variety of activities in the memorandum and articles of association of the company, only a few of
which were in fact undertaken or intended to be undertaken in order to obviate the necessity for applying for amendment of the articles from time
to time and helped ruling out a possible challenge on the ground that the company had acted beyond its powers in undertaking a particular form of
activity. It was found as a fact that the only activity in which the company in that case was engaged over the years was the conduct of kuries. On
the basis of the said finding, the Supreme Court rejected the contention of the Revenue with the following observations (p. 537) :
The apprehension that in exercise of the power conferred by article 39 of the articles of association, the general meeting may set apart the entire
profit or a substantive part of it for reserves is unfounded. If and when the affairs of the respondent take that shape, the department will have ample
powers and opportunity to deny the exemption to the respondent. For the time being it is enough to state that the High Court has found that the
respondent has spent the income for charitable purposes. The answer to the second question must, therefore, be that the power to set apart
reserves under article 39 will not, without more, vitiate the charitable nature of the institution.
That decision cannot, therefore, help the assessee in the present case, which falls squarely within the ruling of the Supreme Court in Additional
Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, and the other three cases already referred to.
Learned counsel for the Revenue invoked the principle of res judicata by virtue of the earlier decision in the case of the assessee in CIT v. Aga
Abbas Ali Shirazi [1947] 12 ITR 179 . He invited our attention to the judgment of this court in Commissioner of Income Tax, (Central), Madras
Vs. Shri Agastyar Trust, . The trust, which was the subject-matter of consideration in that case, was considered by the Supreme Court in East
India Industries (Madras) Private Limited Vs. Commissioner of Income Tax, Madras, , to which we have already made a reference in detail and it
was held that the trust was not entitled to the benefit of exemption u/s 4(3) of the Indian Income Tax Act, 1922. The decision of the Supreme
Court related to the assessment years 1957-58 to 1961-62. For the subsequent years 1962-63 to 1974-75, the assessee made a claim for
exemption u/s 11 of the Income Tax Act of 1961. It was contended on behalf of the assessee that the principle of estoppel or res judicata could
not apply to decisions rendered under the Income Tax Act and that the question has to be decided with reference to the facts and circumstances
prevailing in the relevant assessment years. There was also a contention that the Supreme Court had proceeded on an erroneous basis that the trust
in that case was constituted for the first time under a document dated July 1, 1944, overlooking the fact that the trust had been constituted earlier in
the year 1941 under a deed of partition. Apart from holding that the decision of the Supreme Court was binding on this court in view of article 141
of the Constitution of India, it was pointed out by this court that no new facts were brought to light and that no subsequent event had taken place
after the decision of the Supreme Court. On the applicability of the principle of res judicata to proceedings under the Income Tax Act, the Bench
observed as follows (p. 620 of 149 ITR) :
Though the principle of estoppel or res judicata cannot strictly apply to the decision rendered in proceedings under the Income Tax Act. on a
reference, they have a binding effect both on the assessee as well as on the Revenue if the point on which the decision has been given is the same.
But that principle will not apply if the facts are variable from year to year and the new facts warrant a different and contrary decision. In
V.V.R.N.M. Subbayya Chettiar Vs. Commissioner of Income Tax, Madras, , the Supreme Court observed that where a case was decided mainly
with reference to the question of onus of proof, the decision must be confined to the year of assessment to which the case related and it is open to
the assessee to show in subsequent years by proper evidence that a different or contrary decision is warranted on the facts of that case. In
Sankaralinga Nadar (T. M. M.) and Bros. v. CIT AIR 1930 Mad 209; 4 ITC 226, a Full Bench of this court, dealing with the question as to how
far the principle of res judicata applies to the decisions of courts on a reference, had expressed the view that where the question relating to
assessment does not vary with the income every year but depends on the nature of the property or on any other question on which the rights of the
parties to be taxed are based, that is, whether a certain property is trust property or not, it has nothing to do with the fluctuations in the income and
that such questions, if decided by a court on a reference made to it, would be res judicata in that the same question cannot be subsequently
agitated. The Full Bench has relied on the decision in Hoystead v. Commissioner of Taxation [1926] AC 155, wherein their Lordships of the Privy
Council observed (p. 165) :
''Very numerous authorities were referred to. In the opinion of their Lordships it is settled, first, that the admission of a fact fundamental to the
decision arrived at cannot be withdrawn and a fresh litigation started, with a view to obtaining another judgment upon a different assumption of
fact; secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal
quality of that fact. Parties are not permitted to begin fresh litigations because of new views that they may entertain of the law of the case, or new
versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents
or the weight of certain circumstances.. Thirdly, the same principle-namely, that of setting to rest rights of litigants, applies to the case where a
point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also, a
defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not
been taken.''
The decisions in (1945) 13 ITR 430 , Kamlapat Moti Lal Vs. Commissioner, Income Tax, and Commissioner of Income Tax, Central Vs. L.G.
Ramamurthi and Others, , all take the same view. Thus, it appears to be well-established that a decision on the question as to whether a certain
trust is a charitable trust or not which has nothing to do with the fluctuations in its income year after year, will operate as res judicata and the same
question cannot subsequently be reagitated.
Learned counsel for the assessee, however, points out that the doctrine of res judicata or estoppel by record does not apply to the proceedings
arising under the Income Tax Act and, therefore, the finding or decision rendered by the Income Tax authorities in one year may be departed from
in a subsequent year and relies on the decision of the Supreme Court in A. Ranganathan Vs. Controller of Estate Duty, and the decision of the
Calcutta High Court in COMMISSIONER OF Income Tax, WEST BENGAL Vs. BRIJLAL LOHIA AND ANOTHER., , in his support. But
the view taken in the above cases has been clarified in subsequent cases by saying that the Income Tax Officer is not bound by the rule of res
judicata or estoppel by record and that he can reopen a question previously decided only if fresh facts come to light on investigation that would
entitle him to come to a conclusion different from the one previously reached or if the earlier decision had been rendered without taking into
consideration material evidence.
While expressing our agreement with the above observations, we find that in the present case, the assessee has not placed any fresh facts or
circumstances which would warrant a fresh consideration of the question relating to the nature of the trust.
Section 11(1)(a) and (b) of the Income Tax Act, 1961, is almost a reproduction of section 4(3)(i) of the Act of 1922. The change in the
definition of ""charitable purpose"" in the later Act is of no consequence in the present case and does not in any way invalidate the decision of this
court in COMMISSIONER OF Income Tax MADRAS Vs. AGA ABBAS ALI SHIRAZI., . Under similar circumstances, the Supreme Court
held in Commissioner of Income Tax, Kerala Vs. Dharmodayam Co., referred-to earlier, that the judgment of the Kerala High Court in
DHARMODAYAM CO. Vs. COMMISSIONER OF Income Tax, KERALA., rendered u/s 4(3) of the Income Tax Act, 1922, did not lose its
validity even after the changes made in the definition of ""charitable purpose"" in the 1961 Act u/s 2(15).
The contention of learned counsel for the assessee that once the mutawallis exercise their power under the provision and fix the percentage of
the income to be spent for charitable purposes set out in the deed, that part of the income defined for ""charitable purpose"" would be entitled to
exemption during the relevant assessment year, has to be rejected as the trust in question falls outside the purview of section 11(1) of the Income
Tax Act, 1961. It is only in a case where the income is derived from a property held under trust wholly or in part for charitable or religious
purposes, the exemption provision would come into play. If the trust is outside the purview of section 11 of the Income Tax Act, the income from
the property thereof will not be entitled to exemption. Learned counsel for the assessee places reliance on the observations of the Supreme Court
in Commissioner of Income Tax Kerala and Coimbatore Vs. Krishna Warriar, . In that case, a physician who was running a business in ayurvedic
drugs under the name and style of ""Arya Vaidya Sala"" created a trust in respect of his properties including the Arya Vaidya Sala by his will and
gave directions to the trustees appointed under the will to utilise 60% of the profits of the business for 20 years and 85% thereafter for religious
and charitable purposes. The question which arose before the Supreme Court was whether the 60% of the income from the trust properties was
exempt from assessment to Income Tax u/s 4(3)(i) of the Indian Income Tax Act, 1922. The Supreme Court answered that question in the
affirmative and confirmed the judgment of the High Court of Kerala. It was held that the business was held in trust for charitable purposes and that
it was not a business conducted on behalf of a religious or charitable institution. While construing section 4 (3) (i) of the Income Tax Act, the
Supreme Court made the following observation, on which learned counsel for the assessee places strong reliance (p. 183) :
In our view, the expression ''in part'' does not refer to an aliquot part; if half a house is held in trust wholly for religious or charitable purposes, it
would be covered by the first part of the substantive clause of clause (i), for in that event the subject-matter of the trust is only the said half of the
house and that half is held wholly for religious or charitable purposes. The expression ''in part'', therefore, must apply to a case other than a
property a part of which is wholly held for religious or charitable purposes. In India, there are a variety of trusts wherein there is no complete
dedication of the property but only a partial dedication. A property may be dedicated entirely to a religious or charitable institution or to a deity.
This is an instance of complete dedication. A property may be dedicated to a deity, subject to a charge that a part of the income shall be given to
the grantor''s heirs. A property may be given to an individual subject to, or burdened with, a charge in favour of an idol or a religious institution or
for charitable purposes. An owner of property may retain the property for himself but carve out a beneficial interest therefrom in favour of the
public by way of easement or otherwise. There may be many other instances, where though there is a trust, it involves only a partial dedication of
the property held under trust in the sense that only a part of the income of that property is utilised for religious or charitable purposes. The
dichotomy between the two expressions ''wholly'' and ''in part'' is not based upon the dedication of the whole or a fractional part of the property,
but between the dedication of the said property wholly for religious or charitable purposes or in part for such purposes. If so understood, the two
limbs of the substantive clause fall into a piece. The first limb deals with a property or a part of it held in trust wholly for religious or charitable
purposes, and the second limb provides for such a property held in trust partly for religious or charitable purposes. On the said reading of the
provision it follows that the entire business of Arya Vaidya Sala is held in trust for utilising 60 per cent. of its profits, i.e., a part of the income, for
religious or charitable purposes. The present case, therefore, falls squarely within the scope of the substantive part of clause (i) of section 4(3) of
the Act.
In that case, a definite portion of the income from the property was carved out by the founder of the trust even at the time of creation of the
trust and expressly provided for in the document by which the trust was created. No discretion or liberty was given to the trustees to change the
proportion or alter the percentage fixed for charitable purposes. On these facts, the Supreme Court held that the property was one held in trust ill
part for charitable purposes. That decision cannot apply to the facts of the present case. Moreover, the assessee has not placed any materials in
these proceedings to the effect that the mutawallis had, by an irrevocable resolution, fixed the percentage of income to be spent for charitable
purposes. Even if such a resolution is passed by the mutawallis, the question whether such income would be exempt u/s 11 of the Income Tax Act,
would still have to be considered.
In support of the contention that a purpose which is charitable under the personal law of the parties has to be accepted as such for the
purposes of the Income Tax Act, learned counsel relies upon the observations of the Privy Council in The Trustees of the Tribune, In re [1939] 7
ITR 415. In that case, the Privy Council approved of the statement of the law enunciated by Sir Raymond West in Fatima Bibi v. Advocate-
General (ILR 6 Bom 42) in the following terms (p. 422) :
But useful and beneficial in what sense ? The courts have to pronounce whether any particular object of a bounty falls within the definition; but
they must in general apply the standard of customary law and common opinion amongst the community to which the parties interested belong.
The above observations cannot be taken out of context and made use of by the assessee in the present case. In that very case, the Privy
Council held that the test of ""general public utility"" prescribed under the Indian Income Tax Act was applicable not only to trusts in the English
sense but also the properties held under trust ""or other legal obligation"" including Muslim wakfs and Hindu endowments and that the admissibility of
claiming exemption from Income Tax should be determined-by the language of the special provision made by the Indian Income Tax Act in that
behalf. We agree with learned counsel for the Revenue that unless a trust falls within the definition contained in the Income Tax Act and satisfies the
conditions prescribed in section 11, it cannot claim exemption from liability to pay Income Tax.
The only other matter that is left to be considered is whether the passing of the Wakfs Act, 1954, has brought about any change in the
situation. Learned counsel for the assessee refers to the various sections in the Wakfs Act which provide for supervision and control over the
functions of the mutawallis by the Wakf Board. Learned counsel also draws our attention to the provisions for preparation of a budget by the
mutawallis and submission of the same to the Wakf Board and the audit of accounts of the wakf besides the provision prescribing duties of the
mutawallis which include carrying out the directions given by the Wakf Board. We cannot agree with learned counsel for the assessee that the
provisions of the Wakfs Act would change the character of the trust vis-a-vis the provisions of the Income Tax Act. As rightly pointed out by
learned counsel for the Revenue, the function of the Wakf Board is to ensure that the income and other property of the wakfs are applied to the
objects and for the purposes for which such wakfs were created or intended, and the Wakf Board cannot take a mutawalli to task if he acts in
pursuance of the deed of wakf and spends the entire income for one of the purposes mentioned therein, exercising the discretion given to him under
the deed. The enactment of the Wakfs Act in 1954 will not have any impact on the character of the trust in question for purposes of the Income
Tax Act which has to be determined in accordance with the provisions of the Income Tax Act. Hence, the first question is answered against the
assessee and we hold that the assessee was not entitled to exemption u/s 11 of the Income Tax Act.
As regards question No. (2), the answer is consequential. Section 13 is only an exception to section 11 of the Income Tax Act. If a trust is
covered by the provisions of section 11 of the Income Tax Act, the income thereof will not be exempt from liability to tax under the circumstances
set out in section 13 of the Income Tax Act. The relevant portion of section 13 of the Income Tax Act reads as follows :
(1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in
receipt thereof - ......
(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof - ......
(ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or
applied,
directly or indirectly for the benefit of any person referred to in sub-section (3) :
Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall
not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the
benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a
mandatory rule governing the institution : ......
The proviso to clause (c)(ii) of section 13(1) of the Income Tax Act can obviously apply only to a trust which will fall u/s 11 of the Act. As we
have held that the wakf in question is not a trust covered by section 11 of Income Tax Act, it follows that the second question has also to be
answered against the assessee. Hence, the second question is answered in the negative and against the assessee.
The assessee will pay the costs of the reference to the Revenue.