1980 (5) TMI 18 - HC - Income Tax

Trusts denied tax exemption; court rectifies deed. Tribunal to reassess eligibility.

Yoosuf Sagar Abdulla And Sons Pvt. Limited, Jagdamba Charity Trust and Another Versus Commissioner Of Income-Tax, Delhi (Central)

The trusts, Yogiraj Charity Trust and Jagdamba Charity Trust, were denied income-tax exemption as they were not considered public charitable trusts. The ... Charitable Trust Issues Involved:1. Whether the income of the trust was exempt u/s 11 and 12 of the Income-tax Act, 1961, on the ground that the trust was a public charitable trust.2. Applicability of s. 26 of the Specific Relief Act for rectification of the trust deed.3. Effect of the rectified trust deed on the exemption claim.Summary:Issue 1: Exemption u/s 11 and 12 of the Income-tax Act, 1961The trusts, Yogiraj Charity Trust and Jagdamba Charity Trust, were denied income-tax exemption on the grounds that they were not trusts for religious or charitable purposes. The refusal was based on the fact that, although many objects of the trust were charitable, at least one was not, and the trustees could utilize the entire income on non-charitable objects. This was confirmed by previous judgments, including CIT v. Jaipur Charitable Trust and affirmed by the Supreme Court in Yogiraj Charity Trust v. CIT. The Tribunal held that the income of the trust was not exempt under sections 11 and 12 of the Income-tax Act, 1961, as the trust was not a public charitable trust.Issue 2: Applicability of s. 26 of the Specific Relief ActThe author of the trust, Ram Krishna Dalmia, filed a suit for rectification of the trust deed u/s 26 of the Specific Relief Act, claiming that the original deed did not express the real intention due to a mistake. The court granted a decree for rectification, deleting the offending clauses retroactively. The court found that the intention was to create a charitable trust, but due to some infelicitous words, the document did not reflect this intention correctly. The court held that the rectification was necessary to bring out the true intention of the author.Issue 3: Effect of the Rectified Trust DeedThe court held that the rectified trust deed, which had retrospective effect, should be considered for the exemption claim. The I.T. Dept. could not ignore the court's order of rectification. However, the exemption depends not only on the objects of the trust deed but also on the actual application of the income to charitable purposes. The court noted that during the relevant accounting years, the trustees might have acted according to the original trust deed, which included non-charitable clauses. Therefore, the Tribunal needs to re-determine whether the trust's activities between 1949 and 1972 were in line with the amended trust deed.Conclusion:The court answered that the claim for exemption u/s 11 and 12 of the Income-tax Act, 1961, should be allowed in light of the amended trust deed. However, the extent of the exemption depends on whether the trust's activities during the relevant years were conducted according to the amended deed. The matter was left open for re-determination by the Tribunal.