Valid trust deed and charitable business exemption upheld for maternity-home income, with management salary allowed as deduction.

A registered trust deed that, read as a whole, clearly identified the trust property, beneficiaries and objects was treated as sufficient to transfer the maternity homes and Versova property to the trustees and create a valid trust. The business of running the maternity homes, being itself settled upon trust for charitable purposes, was held to fall within the substantive exemption for trust property, so its income was exempt from tax. Salary paid to Dr. Mrs. Divekar for managing the hospitals was treated as ordinary business expenditure and deductible in computing the trustees' income.

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Issues: (i) whether the trust deed validly transferred the maternity homes and the Versova property to the trustees so as to create a valid trust; (ii) whether the income from running the maternity homes, being business settled upon trust, was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922; and (iii) whether the salary paid to Dr. Mrs. Divekar was allowable as a deduction in computing the income of the trustees as an association of persons.

Issue (i): whether the trust deed validly transferred the maternity homes and the Versova property to the trustees so as to create a valid trust.

Analysis: The trust deed was a registered non-testamentary instrument signed by the settlors, who were also trustees. Reading the deed as a whole, the intention to create a trust, the trust property, the beneficiaries, and the objects were clearly identified. The absence of express words of present transfer was not decisive, because the operative recitals and the declaration that the trustees would hold the properties showed that the transfer was effected by the deed itself. The Court applied a substance-over-form approach and held that the requirements of sections 5 and 6 of the Indian Trusts Act, 1882 were substantially satisfied.

Conclusion: The transfer was valid and the trust was duly created, in favour of the assessee.

Issue (ii): whether the income from running the maternity homes, being business settled upon trust, was exempt under section 4(3)(i) of the Indian Income-tax Act, 1922.

Analysis: The deed showed that not only the immovable property but also the business of running the two maternity homes was settled upon trust. Where business itself is held under trust for charitable purposes, it falls within the substantive part of section 4(3)(i), and the limitations in proviso (b) apply only to business carried on on behalf of a charitable institution, not to business itself held in trust. On that construction, the income derived from the maternity-hospital business was within the statutory exemption.

Conclusion: The income was exempt from tax, in favour of the assessee.

Issue (iii): whether the salary paid to Dr. Mrs. Divekar was allowable as a deduction in computing the income of the trustees as an association of persons.

Analysis: The deed expressly provided for payment to Dr. Mrs. Divekar for managing the hospitals. That payment formed part of the normal expenditure incurred in carrying on and managing the business of the maternity homes and had to be deducted before determining the income assessable in the hands of the trustees.

Conclusion: The salary was an admissible deduction, in favour of the assessee.

Final Conclusion: The reference was answered wholly in favour of the assessee, with the trust recognized as valid, the maternity-hospital business held exempt as trust property, and the management salary treated as deductible expenditure.

Ratio Decidendi: A registered trust deed that, read as a whole, clearly manifests an intention to create a trust and identifies the trust property, objects, and beneficiaries is effective to transfer property and create a valid trust; and where a business itself is held under trust for charitable purposes, its income falls within the substantive exemption and is not controlled by the proviso governing business carried on on behalf of a charitable institution.

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