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Issues: (i) Whether the Jaipur Charitable Trust was entitled to exemption for assessment years governed by Section 4(3)(i) of the Indian Income-tax Act, 1922 and Section 11 of the Income-tax Act, 1961; (ii) Whether the Dalmia Jain Charity Trust, renamed as Durga Trust, was entitled to exemption under the same provisions.
Issue (i): Whether the Jaipur Charitable Trust was entitled to exemption for assessment years governed by Section 4(3)(i) of the Indian Income-tax Act, 1922 and Section 11 of the Income-tax Act, 1961.
Analysis: The trust deed was construed in the light of the earlier decisions holding that the clauses authorising the trustees to establish and carry on commercial or industrial concerns were independent objects and not merely incidental to charitable objects. Under the settled principles governing exemption, where a trust deed contains several objects and any one of them is non-charitable while the trustees may apply the property to that object, the trust cannot be treated as held wholly for religious or charitable purposes. The later ruling in Surat Art Silk Cloth Manufacturers Association was held not to alter that conclusion on the facts of this trust deed.
Conclusion: The Jaipur Charitable Trust was not entitled to exemption and the answer was against the assessee.
Issue (ii): Whether the Dalmia Jain Charity Trust, renamed as Durga Trust, was entitled to exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922 and Section 11 of the Income-tax Act, 1961.
Analysis: The trust deed for this trust was found to be materially different. The impugned clauses did not authorise the trustees to carry on a business concern, and there were no corresponding clauses empowering business activity comparable to those in the Jaipur Charitable Trust deed. Read as a whole, the dominant purpose of the trust was charitable, and any profit-making result from some activities was incidental rather than the object of the trust. Applying the interpretation of charitable purpose under Section 2(15), the trust fell within the exemption scheme.
Conclusion: The Durga Trust was entitled to exemption and the answer was in favour of the assessee.
Final Conclusion: The references were decided partly against the assessee in relation to the Jaipur Charitable Trust and partly in its favour in relation to the Durga Trust, on the basis of the respective trust deeds and the settled tests governing charitable exemption.
Ratio Decidendi: Where a trust deed confers independent power to carry on commercial or business activity as one of its objects, the trust is not held wholly for charitable purposes; but where the business-like clauses are merely incidental to a predominantly charitable trust and do not authorise a separate profit-oriented object, exemption remains available.
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