Trust income exemption fails where charitable funds may be applied to objects outside the taxable territories.

Income from trust property was held outside the exemption under section 4(3)(i) of the Indian Income-tax Act, 1922 because the trust deed allowed application of funds to objects that could be carried out outside the taxable territories. Although the trust was genuine and charitable in character, the statutory benefit required the income to be wholly applied, or accumulated for application, only to religious or charitable purposes relating to acts within the taxable territories. Accumulation was treated as part of the application requirement, and the exemption failed where it could not be shown with certainty that the income would be confined to in-territory purposes.

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Issues: Whether income derived from property held under trust was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922 when part of the trust objects required expenditure outside the taxable territories and the income was being accumulated pending future application.

Analysis: The trust deed created a genuine trust for religious and charitable purposes, and the objects described in the deed were charitable in character. However, the statutory exemption under section 4(3)(i) applied only where the income from property held under trust was applied or accumulated for application to religious or charitable purposes relating to anything done within the taxable territories. The trust deed authorised the trustees, in their discretion, to apply the fund to objects some of which were to be effectuated outside India. Accumulation was treated as ancillary to eventual application, and the statutory language was held to govern both actual application and accumulation. Since it could not be predicated with certainty that the income would be wholly applied within the taxable territories, the exemption was not available.

Conclusion: The income was not exempt under section 4(3)(i) of the Indian Income-tax Act, 1922, and the answer to the referred question was in the negative, in favour of the Revenue.

Ratio Decidendi: For exemption under section 4(3)(i), income from trust property must be shown to be wholly applied or accumulated for application only to religious or charitable purposes relating to acts within the taxable territories; a trust conferring discretion to apply the fund to objects partly outside those territories falls outside the exemption.

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