Trust with mixed charitable and non-charitable objects fails wholly charitable purpose test for income-tax exemption

A trust deed that empowers trustees to apply income, and even corpus with unanimous consent, to both charitable and non-charitable objects does not satisfy the requirement that property be held wholly for charitable purposes. The court treated the assessee as bound by its concession that two objects were non-charitable and rejected the argument that those objects were merely subsidiary, because they were independent objects capable of direct application of trust funds. The preamble could not override the operative clauses of the deed. Exemption under section 4(3)(i) of the Indian Income-tax Act, 1922 was therefore unavailable.

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Issues: Whether the assessee-trust was entitled to exemption under section 4(3)(i) of the Indian Income-tax Act, 1922 when the trust deed contained both charitable and non-charitable objects and the trustees had discretion to apply the income to any of those objects.

Analysis: The trust deed empowered the trustees to apply income, and even corpus with unanimous consent, towards a range of objects, some of which were not charitable in law. The court treated the assessee as bound by its concession before the Tribunal that two objects were non-charitable and held that the question could not be reopened in reference. Once some objects were non-charitable and the trustees could apply funds to those objects at their discretion, the property could not be said to be held wholly for religious or charitable purposes. The suggestion that the objectionable objects were merely subsidiary was rejected because they were independent objects capable of direct application of trust funds. The preamble did not neutralise the non-charitable objects, since the deed specifically authorised spending on all enumerated objects as drafted.

Conclusion: The assessee was not entitled to exemption under section 4(3)(i) of the Indian Income-tax Act, 1922, and the reference was answered against the assessee.

Ratio Decidendi: Where a trust deed authorises application of trust income to both charitable and non-charitable objects at the trustees' discretion, the trust is not held wholly for charitable purposes and exemption for charitable property is unavailable.

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