Charitable trust income exemption applies only from the date property is dedicated to religious or charitable objects.

Income is exempt under Section 4(3)(i) only where it is derived from property already held under trust or legal obligation wholly for religious or charitable purposes. Surplus received before 7 October 1940 did not qualify because it arose under the earlier settlement and was payable to the assessee personally; later application to charitable objects did not retroactively create exempt trust income. By contrast, the deed of 7 October 1940 dedicated the assessee's rights to religious and charitable objects, and the post-deed surplus was treated as income from property impressed with such a trust. Exemption was therefore confined to the period after the deed.

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Issues: (i) Whether the surplus income received by the assessee up to 7 October 1940 was income derived from property held under trust or other legal obligation wholly for religious or charitable purposes so as to be exempt under Section 4(3)(i) of the Indian Income-tax Act. (ii) Whether the surplus income attributable to the period after execution of the deed of trust dated 7 October 1940 was exempt under Section 4(3)(i) as income derived from property thereafter held upon religious and charitable trusts.

Issue (i): Whether the surplus income received by the assessee up to 7 October 1940 was income derived from property held under trust or other legal obligation wholly for religious or charitable purposes so as to be exempt under Section 4(3)(i) of the Indian Income-tax Act.

Analysis: The exemption depended on a nexus between the income and property itself held under trust wholly for religious or charitable purposes. The surplus accruing before 7 October 1940 arose from the 1908 settlement, but under the earlier decree it was payable to the assessee personally and had not been dedicated by him for the relevant period. The mere later application of the money to charitable objects did not convert the income into income from property held in trust for such purposes.

Conclusion: The claim for exemption for the surplus income attributable to the period before 7 October 1940 failed and was against the assessee.

Issue (ii): Whether the surplus income attributable to the period after execution of the deed of trust dated 7 October 1940 was exempt under Section 4(3)(i) as income derived from property thereafter held upon religious and charitable trusts.

Analysis: The deed of 7 October 1940 dedicated the assessee's right, title and interest for ever to religious and charitable objects. The objects stated in the deed were construed as charitable in substance, and the post-deed surplus was treated as income derived from property impressed with a religious and charitable trust or legal obligation. The court held that the statutory requirement was satisfied for the period after the deed came into effect.

Conclusion: The surplus income attributable to the period after 7 October 1940 was exempt and was in favour of the assessee.

Final Conclusion: The exemption was confined to the post-deed portion of the surplus income, while the pre-deed portion remained taxable.

Ratio Decidendi: Income is exempt under Section 4(3)(i) only when it is derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and where the trust obligation attaches only from a later date, exemption is available only for the income attributable to the period after such dedication.

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