Sarah Cherian Trust vs Income Tax Officer

M. Fathima Beevi, J.—The petitioner is a trust assessed under the Income Tax Act, 1961. For the assessment year 1974-75, the original assessment was completed u/s 143(1) of the Act. Subsequently, a notice dated July 26, 1978, was issued u/s 148, to reassess the income for the year. The income is alleged to have escaped assessment because of the claim for exemption u/s 11, which has been allowed. By exhibit P-1 assessment order dated December 19, 1978, the Income Tax Officer held that income received by the trust cannot be stated to be received specifically on behalf of or for the benefit of any one person in terms of the provisions made in Section 164(1) of the Act. The claim for deduction u/s 80C was also found not eligible. The total income was fixed as 65%.

Aggrieved by the order of assessment, the petitioner preferred a revision before the Commissioner. It was contended that the reopening was bad in law because no order of assessment was seen issued. The petitioner also claimed exemption on the ground that it was a charitable institution. The assessee further contended that the trust deed dated March 24, 1969, properly excluded the application of Section 164 of the Act. The Commissioner, by exhibit P-3 order, confirmed the action of the Income Tax Officer. The challenge in the writ petition is directed against exhibit P-3 confirming exhibit P-1.

According to the petitioner, the reopening of the assessment is illegal as the original assessment alleged to have been completed was not served on the petitioner. From a reference to the provisions of exhibit P-4 trust deed, it is clear that the trust was created for the benefit of Sarah Cherian, After her death, the trust was for charitable purposes as per Clause 11 of exhibit P-4. It is erroneous to hold that Section 164(1) would apply because the individual shares of the beneficiaries are indeterminate or unknown. Sarah Cherian was the sole beneficiary. The entire income accrued to her for her maintenance, protection and advancement in life. The balance left after maintenance, etc., of the said Sarah Cherian was earmarked for charitable purposes. Till her death, she was the sole beneficiary and after her death, the income was to be utilised for charitable purposes. Section 164 has, therefore, no application. Sarah Cherian died on July 22, 1973. The income up to that date has to be separately assessed. The income from that date was to be applied for charitable purposes and not for any named beneficiaries.

If the trust is construed as one for the exclusive benefit of the settlor''s relative, then proviso (3) to Section 164(1) would apply. The income is held under trust wholly for charitable and religious purposes. If the income is not exempted u/s 11 or 12 of the Act, the income is chargeable as income of an association of persons u/s 164(2) of the Act. The shares are known and implicit in the deed of trust.

The assessment for the year 1975-76 has been concluded by exhibit P-5 order of the Tribunal. The finding of the Appellate Tribunal regarding status has become final. For the year 1979-80, the petitioner was completely exempted from tax. Exhibits P-1 and P-3 are barred by res judicata. On these grounds, the petitioner has prayed for quashing exhibits P-1 and P-3 and for issuing a writ prohibiting the respondents from treating the petitioner as a discretionary trust and for consequential reliefs.

Counter-affidavit has been filed by the first respondent, the Income Tax Officer. For the assessment year 1974-75, the assessee filed a return dated August 22, 1974, showing a total income of Rs. 11,640. The assessment was completed u/s 143(1) on December 31, 1975. In pursuance of the notice issued u/s 142(1) on November 10, 1978, the assessee filed a return on November 29, 1978, claiming exemption u/s II of Rs. 11,640. The Commissioner in dismissing the revision has relied on the decisions of the Supreme Court in the case of Trustees of Gordhandas Govindram Family Charity Trust Vs. Commissioner of Income Tax, Bombay, and in the case of Abdul Sathar Haji Moosa Sait Dharmastapanam Vs. Commissioner of Agricultural Income Tax, Kerala, . The object of the trust includes maintenance and meeting the needs of any of the relatives of the donor at the absolute discretion of the managing trustee. This is no charitable purpose as defined in Section 2(15) of the Act. It cannot be said that the income is specifically received for and on behalf of one person. Even during the lifetime of Sarah Cherian, she was the sole beneficiary and the income left after meeting her maintenance was to be utilised for other purposes mentioned in the trust deed, one item of which was not charitable. The petitioner is not, therefore, entitled to the exemption u/s 11 and the challenge against exhibits P-1 and P-3 is without merit.

Exhibit P-4 trust deed was executed by Cherian with the intention that the income from the properties transferred should be utilised for the maintenance of his daughter Sarah Cherian and the balance, if any, for charitable purposes. The properties had been transferred to be held in trust according to the terms mentioned. The trust is called Sarah Cherian Trust. The donor was to be the managing trustee for his life. The managing trustee was entitled to dispose of, convert and invest the trust estate in such manner as he shall think best, for carrying out the objects of the trust. The managing trustee had the absolute discretion to sell, mortgage or dispose of the trust properties, convert the same into cash or invest the proceeds in any manner he deems fit for carrying out the objects of the trust. It is then provided in Clause 6 thus :

" The income from the properties shall be utilised for the maintenance, protection and advancement in life of Sarah Cherian and if there is any balance left after the maintenance, protection and advancement in life of the said Sarah Cherian, such amount shall be utilised from time to time for charitable purposes at the absolute discretion of the managing trustee for whatever charitable purposes which the managing trustee shall deem best. For the purpose of this trust, '' genuine charitable purposes '' shall include :

(i) maintenance and meeting the needs of any of the relatives of the donor at the absolute discretion of the managing trustee ;

(ii) giving grants to people who need medical aid ;

(iii) donations to charitable institutions ;

(iv) donations to religious institutions ; (v) helping those in need ;

(vi) donations to educational institutions ; and

(vii) helping individuals for educational purposes. "

Clause 11 provided that on the death of the said Sarah Cherian, the entire assets held by the trustees shall be administered by the trustees for charitable purposes as contemplated by Clause 6. Under Clause 12, it is clarified thus :

" It will be useful but not essential if the trustees will bear in mind that relieving distress and meeting the needs of individuals is more difficult but more rewarding to the giver than subscribing to organised institutions that cater to such needs. For, relieving distress on individual level involves more personal involvement and concern for the giver."

The Commissioner in exhibit P-3 has adverted to these clauses and concluded that the trust cannot by any accepted standards be regarded as a charitable trust. The reasoning for drawing such a conclusion is that the purposes of the trust include maintenance and meeting the needs of any other relatives of the donor at the absolute discretion of the managing trustee and a trust created primarily for the benefit of the members of the settlor''s family was not for charitable purposes. To support this conclusion, the decisions in the case of Trustees of Gordhandas Govindram Family Charity Trust Vs. Commissioner of Income Tax, Bombay, and in the case of Abdul Sathar Haji Moosa Sait Dharmastapanam Vs. Commissioner of Agricultural Income Tax, Kerala, had been relied upon.

Clause 10 of exhibit P-3 gives to the managing trustee the final voice in all matters concerning the utilisation of the income and disposal of the trust properties. It is open to the managing trustee to utilise the entire income for the maintenance and meeting the needs of any of the relatives of the donor at the absolute discretion of the managing trustee. Besides, the individual shares of the persons on whose behalf the income is received are also indeterminate.

We are, therefore, of the view that the conclusion arrived at and the reasoning adopted by the respondent in construing exhibit P-l as not a charitable trust are valid and unassailable. We do not, therefore, see any merit in this writ petition. It is accordingly dismissed.