Charitable trust exemption survives a preference clause when income remains confined to charitable objects.

A trust remains wholly charitable where the deed dedicates income to charitable objects and a preference clause applies only among otherwise eligible charitable beneficiaries. The Bombay High Court held that directing preference to the settlor's caste, family, or relatives at the selection stage did not alter the dominant charitable intention or convert the trust into a private benefit arrangement, because the income continued to be confined to charitable application. The trust property therefore qualified as held wholly for religious or charitable purposes, and exemption under section 4(3)(i) of the Indian Income-tax Act was available.

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Issues: Whether, on a true construction of the trust deed, the property was held wholly for religious or charitable purposes so as to attract exemption under section 4(3)(i) of the Indian Income-tax Act.

Analysis: The trust deed dedicated the income to specified charitable objects. The proviso requiring preference to members of the settlor's caste, family, and relatives operated only at the stage of selecting among otherwise eligible charitable beneficiaries. It did not alter the essential charitable character of the trust or destroy the dominant charitable intention. The preference clause did not make the trust one for private or non-charitable benefit, because the application of income remained confined to charitable purposes.

Conclusion: The trust property was held wholly for religious or charitable purposes, and the income was exempt under section 4(3)(i) of the Indian Income-tax Act. The question was answered in the affirmative, in favour of the assessee.

Final Conclusion: A charitable trust does not lose exemption merely because the deed directs preference to a specified class of otherwise eligible beneficiaries when the funds continue to be applied only to charitable objects.

Ratio Decidendi: A preference clause among charitable beneficiaries does not defeat exemption if the dominant purpose of the trust remains charitable and the income is confined to charitable application.

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