Charitable trust interpretation: a defined share of residuary income applied to charity qualified for income-tax exemption.

A bequest using the word "charity" without qualification was treated as a charitable purpose in its recognised legal sense, so the absence of the word "public" did not take it outside the statutory exemption. The direction to apply three-fourths of the residuary income for charity was also sufficient to create a trust for a defined charitable portion of the residue. Income attributable to that dedicated share was therefore regarded as income from property held wholly for charitable purposes and was exempt from assessment. The assessee succeeded on the substantive question of exemption for the specified portion of the residuary income.

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Issues: (i) Whether the word "charity" in clause 15 of the will denoted a charitable purpose within the meaning of Section 4(3)(i) of the Income-tax Act, 1922; (ii) Whether three-fourths of the income of the residuary estate was income from property held wholly for charitable purposes and therefore exempt from assessment.

Issue (i): Whether the word "charity" in clause 15 of the will denoted a charitable purpose within the meaning of Section 4(3)(i) of the Income-tax Act, 1922.

Analysis: The expression "charity", when used without qualification, was held to bear its recognised legal meaning and to import a general charitable intention confined to objects recognised as charitable in law. The absence of the word "public" did not make the bequest uncertain or outside the statutory definition, because a general use of the term "charity" necessarily connotes public benefit and does not extend to private or merely benevolent objects.

Conclusion: The word "charity" in clause 15 denoted a charitable purpose within the statutory meaning, and the objection to exemption on that ground failed.

Issue (ii): Whether three-fourths of the income of the residuary estate was income from property held wholly for charitable purposes and therefore exempt from assessment.

Analysis: The clause directed the trustee to utilise three-fourths of the residuary income for charity, leaving the remaining one-fourth subject to an alternative power in favour of certain descendants. A clearly defined portion of the residue could itself constitute property held under trust wholly for charitable purposes. For that portion, the statutory exemption applied to income derived from property so held, and it was unnecessary to identify a separate specific asset when the trust fixed the charitable application of a defined share of the residue.

Conclusion: Three-fourths of the residuary income was exempt under Section 4(3)(i) as income from property held wholly for charitable purposes, and the answer was in the assessee's favour.

Final Conclusion: The reference was answered in favour of exemption for the specified portion of the residuary income, and the assessee succeeded on the substantive question referred.

Ratio Decidendi: A trust direction to apply a defined share of income for "charity" is, absent limiting language, a valid charitable trust for purposes of the income-tax exemption, and income derived from the portion so dedicated is exempt as income from property held wholly for charitable purposes.

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