1992 (7) TMI 1 - SC - Income Tax

Supreme Court denies tax exemption for charity trust due to unclear income usage

The Supreme Court dismissed the appeal by Gangabai Charities seeking exemption under section 11(1)(a) of the Income-tax Act, 1961. The Court found that ... Settlor provides funds for religion, charitable purposes, and the funds are utilised to construct a building from which the trust derives income -Whether it has been rightly held that the income of the trust would be entitled to exemption under section 11 of the Income-tax Act, 1961 Issues:1. Entitlement to exemption under section 11(1)(a) of the Income-tax Act, 1961 for Gangabai Charities.Analysis:The Supreme Court considered the appeal regarding the entitlement of Gangabai Charities to exemption under section 11(1)(a) of the Income-tax Act, 1961. The trust was created by Gangabai through a deed of trust to construct a building for public benefit for religious, charitable, cultural, and social purposes. The trust fund was initially contributed by Gangabai and later augmented by her son and outside donations for the construction of the building. The Income-tax Officer initially held that the trust's income was taxable, but the Appellate Assistant Commissioner reversed this decision, granting exemption under section 11 of the Act. The Tribunal upheld this decision but remitted the assessment to determine the extent of income used for charitable purposes. The High Court, however, ruled against the trust's entitlement to exemption under section 11 of the Act.The Supreme Court analyzed the trust deed's contents to ascertain if the trust met the conditions for exemption under section 11(1)(a) of the Act. The Court noted that while the trust derived income from the property, the charitable or religious purposes of the trust were disputed by the Revenue. The trust deed indicated the building was for public use for various purposes, but it did not explicitly state that the trust itself was created for charitable or religious objectives. The Court emphasized that the statutory exemption required clear indication in the trust deed of the income's utilization for religious and charitable purposes, which was lacking in this case. The trust deed did not specify how the income from the property was to be utilized for charitable purposes, as the public paid rent to use the building without a provision for income allocation towards charitable activities.The Court found that the trust deed did not fulfill the requirements of section 11(1)(a) of the Act due to the absence of clear provisions for income utilization for charitable purposes. The Court agreed with the High Court's judgment, dismissing the appeal. Additionally, the Court rejected the request for remand based on the involvement of a judge who previously advised the Income-tax Department, emphasizing that the High Court's decision was based on detailed arguments and judicious reasoning. The Court affirmed the High Court's decision and dismissed the appeal with costs amounting to Rs. 10,000.