Charitable purpose test: income not applied to hospital or dispensary fails exemption under Section 4(3) due to private religious features.

Whether income of a trust not applied to a hospital and dispensary qualified for exemption under Section 4(3) was decided by applying the charitable purpose test and the public benefit requirement; the deed was parsed and the hospital/dispensary treated as public charitable purposes but temple worship, feeding and related provisions were found to be private religious objects due to settlor's reserved control, exclusionary clauses and absence of public beneficial interest or access. The court held that income not applied to the hospital and dispensary did not satisfy Section 4(3) and therefore was not exempt for the year in question.

---

---

Issues: Whether, on a proper construction of the deed of settlement dated 11th March 1938, so much of the income of the Sreemati Charusila Trust Estate as is not applied for the purpose of constructing and maintaining the female hospital (including the dispensary) is exempt from tax under Section 4(3) of the Income-tax Act.

Analysis: The Court examined the trust deed provisions governing the temple, the installation and worship of the settlor's private deity and the image of her religious preceptor, the settlor's reserved rights (residence in Charunibas, shebaitship and controlling power during her lifetime), the composition and powers of the trustees and temple committee, the rules as to distribution of food and festivals, and the distinct provisions relating to the hospital and dispensary. The Court applied the statutory test in Section 4(3) distinguishing property held wholly for religious or charitable purposes (or income finally set apart thereto) from private religious trusts whose benefits do not enure for the public. The Court found that the deed expressly treats the hospital and dispensary as public charitable purposes but contains no language vesting any beneficial interest in the public, or granting the public a right of access or worship in the temple, or directing the distributions to the public; several provisions (settlor's control during lifetime, exclusion of pronamis from public claim, rules subject to alteration) indicate an intention that the temple worship and associated feeding are for the settlor's private religious objects. The Court rejected authorities and textual passages relied on to the contrary where they were not supported by the judgments cited or where the deed contained repugnant terms. A subsequent deed executed after the accounting year could not affect the position for the year in question.

Conclusion: The income of the trust not applied to the hospital and dispensary is not exempt under Section 4(3) of the Income-tax Act; the trustees have failed to establish that such income is for public charitable or religious purposes. This conclusion is against the assessee.

---