1956 (1) TMI 26 - HC - Income Tax

High Court Upholds Charitable Trust Validity, Emphasizes Intention to Benefit Charity

Commissioner of Income-Tax, West Bengal Versus Sardar Bahadur Sardar Indra Singh Trust

Commissioner of Income-Tax, West Bengal Versus Sardar Bahadur Sardar Indra Singh Trust - [1956] 29 ITR 781 Issues Involved:1. Validity of the trust for charitable purposes.2. Specificity and definiteness of the charitable objects.3. Discretion granted to trustees regarding the application of income.4. Potential illusory nature of the trust due to the settlor's reserved power to revoke.Detailed Analysis:1. Validity of the Trust for Charitable PurposesThe core issue was whether the trust created by the private limited company was valid under the Income-tax Act, specifically section 4(3)(i), which exempts income derived from property held for charitable purposes. The trust deed directed trustees to apply the income for charitable purposes at their discretion. The Tribunal held the trust valid, relying on the Bombay High Court decision in Chaturbhuj Vallabhdas v. Commissioner of Income-tax, which was not followed by the East Punjab High Court in Shadiram v. Ramkissen. The High Court agreed with the Tribunal, stating that charitable trusts are an exception to the rule requiring specific objects. The intention to benefit charity suffices, and the trust does not fail for uncertainty.2. Specificity and Definiteness of the Charitable ObjectsThe Income-tax Officer and Appellate Assistant Commissioner rejected the assessee's claim, citing vagueness in the trust deed's language, which stated that income was to be applied to 'such charitable purpose or purposes as the trustees may in their unfettered judgment deem to be the most deserving of support.' However, the Tribunal and the High Court held that such language does not invalidate the trust. The Court emphasized that a trust for charitable purposes is valid even if specific charities are not named, as long as there is a clear intention to benefit charity. The trustees' discretion to choose among charitable objects does not render the trust invalid.3. Discretion Granted to Trustees Regarding the Application of IncomeMr. Meyer, representing the Commissioner of Income-tax, argued that the trustees' discretion to apply the income 'from time to time and at such times and in such manner' made the trust illusory, as they could indefinitely postpone applying the income to any charitable purpose. The High Court rejected this argument, stating that the trustees are required to administer the trust reasonably. The Court can intervene if trustees fail to administer the trust or make payments for an unreasonable length of time. The trustees' discretion does not negate the obligation to apply the income for charitable purposes.4. Potential Illusory Nature of the Trust Due to the Settlor's Reserved Power to RevokeClause 6 of the trust deed allowed the settlor to revoke or vary the trust after April 1, 1951. Mr. Meyer argued that this, combined with the trustees' discretion, made the trust illusory, as the income could be accumulated and returned to the settlor without benefiting any charity. The High Court dismissed this concern, stating that the deed must be construed to give effect to its intention. The trust is presumed to intend what it says, and its provisions must be workable. The Court held that the trust was not illusory and upheld its validity.ConclusionThe High Court answered the reference in the affirmative, confirming the validity of the trust for charitable purposes and the exemption of its income from income-tax. The respondent was entitled to the costs of the reference. The judgment emphasized the Court's ability to enforce the administration of charitable trusts and the latitude allowed in specifying charitable objects.