Retrospective rectification of a trust deed can bind tax authorities, but charitable exemption still depends on actual conduct.

A trust deed may be rectified under section 26 of the Specific Relief Act, and if the court makes that rectification retrospective, the amended deed binds both the trustees and the income-tax authorities. The revenue cannot disregard the court-directed amendment and proceed on the basis of the original deed. For exemption under sections 11 and 12 of the Income-tax Act, the amended deed may support charitable status, but exemption still depends on the trust's actual conduct and application of income during the relevant years. If the trustees in fact acted on objectionable clauses or pursued profit-making activities, exemption may still be denied on the statutory test of charitable purpose.

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Issues: (i) Whether a trust deed could be rectified under section 26 of the Specific Relief Act and, if rectified, whether the amended deed would bind the income-tax authorities retrospectively; (ii) whether the trust was entitled to exemption under sections 11 and 12 of the Income-tax Act, 1961 on the basis of the amended deed.

Issue (i): Whether a trust deed could be rectified under section 26 of the Specific Relief Act and, if rectified, whether the amended deed would bind the income-tax authorities retrospectively.

Analysis: A trust deed is an instrument capable of rectification under section 26 of the Specific Relief Act. Where a court has ordered rectification and made it retrospective, the parties to the trust are bound by the amended document. The income-tax authorities are not entitled to ignore the court-directed amendment and proceed on the basis of the original deed once the amended deed governs the legal obligation under which the trustees hold the property.

Conclusion: The rectification order was effective for the trust and had to be given effect to by the income-tax authorities.

Issue (ii): Whether the trust was entitled to exemption under sections 11 and 12 of the Income-tax Act, 1961 on the basis of the amended deed.

Analysis: After deletion of the objectionable clauses, the amended deed supported recognition of the trust as a public charitable trust for purposes of sections 11 and 12. At the same time, exemption under the Income-tax Act depends not only on the objects stated in the deed but also on the actual application of income during the relevant years. If the trustees in fact acted on the basis of the earlier objectionable clauses or engaged in activities involving profit, exemption could still be denied under the statutory definition of charitable purpose.

Conclusion: The exemption claim was to be allowed on the amended deed, but the factual question whether the trust's activities during the relevant years attracted the profit-making embargo remained open for fresh determination.

Final Conclusion: The trust deed, as retrospectively rectified, could not be ignored, and the assessee's claim to exemption was accepted in principle, but the extent of exemption required reconsideration on the actual conduct of the trust during the relevant accounting years.

Ratio Decidendi: A retrospectively rectified trust deed binds the trustees and the revenue authorities, but income-tax exemption for a charitable trust still depends on the statutory conditions being satisfied in fact during the relevant period, including the absence of activities involving profit.

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