Charitable trust requires definite property and divestment; mere book entries cannot create interest liability or tax deduction.

A charitable trust requires a binding declaration, ascertainment and separation of definite property, and divestment of the settlor's beneficial ownership. Although the declaration of trust was accepted, the alleged setting apart of Rs. 2,00,000 was supported only by book entries and not by proof that the amount was actually available or clearly appropriated as a trust fund. On that footing, no valid trust was created and the trustees did not become creditors of the assessee. The claimed interest deduction also failed because there was no enforceable debt in favour of the trustees, so the assessee could not deduct the amount as interest under the income-tax law.

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Issues: (i) Whether a valid trust was created by setting apart the sum of Rs. 2,00,000 for charitable purposes so as to constitute the trustees creditors of the assessee. (ii) Whether the assessee was entitled to deduct Rs. 9,750 as interest under Section 10 of the Indian Income-tax Act.

Issue (i): Whether a valid trust was created by setting apart the sum of Rs. 2,00,000 for charitable purposes so as to constitute the trustees creditors of the assessee.

Analysis: A charitable trust requires a binding declaration, ascertainment and separation of definite property, and a statement of the objects for which the property is to be held. The declaration of trust was accepted as proved, but the crucial question was whether the property had been clearly identified and whether the settlor had divested himself of beneficial ownership. The transfers were effected only by book entries, and the evidence did not establish that the sum of Rs. 2,00,000 was available in cash or otherwise actually set apart as a definite trust fund. In the absence of such ascertainment and appropriation, the settlor retained beneficial control over the property.

Conclusion: No valid trust was created, and the trustees did not become creditors of the assessee.

Issue (ii): Whether the assessee was entitled to deduct Rs. 9,750 as interest under Section 10 of the Indian Income-tax Act.

Analysis: The deduction claim depended on proof that the amount represented interest payable to a creditor. Since the alleged trust failed for want of ascertainable trust property and divestment of ownership, there was no enforceable debt in favour of trustees. The entries in the books were therefore insufficient to support a claim for allowance as interest.

Conclusion: The assessee was not entitled to the deduction of Rs. 9,750.

Final Conclusion: The reference was answered against the assessee, with the claimed deduction disallowed because the alleged trust was not validly constituted.

Ratio Decidendi: For a charitable trust to be effective, the subject matter must be clearly ascertained and the settlor must have divested himself of beneficial ownership; mere book entries without proof of actual separation of property do not create a valid trust or an enforceable interest liability for income-tax purposes.

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