Charitable trust exemption denied where deed allowed trustees to apply income to non-charitable objects.

A trust is not treated as wholly charitable for exemption under section 4(3)(i) of the Indian Income-tax Act, 1922, where its deed contains both charitable and non-charitable objects and gives trustees discretion to apply income to any of them. The exemption is available only when the property is held wholly for religious or charitable purposes, or when any non-charitable element is merely incidental to the primary charitable purpose. Mere actual spending on charitable objects does not cure a deed that authorises use of the fund for non-charitable purposes. On that basis, the trust was denied exemption.

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Issues: Whether the income of a trust having both charitable and non-charitable objects, with discretion vested in the trustees to apply the income to any of those objects, is exempt under section 4(3)(i) of the Indian Income-tax Act, 1922.

Analysis: Exemption under section 4(3)(i) is available only where the property is held wholly for religious or charitable purposes, or where any non-charitable feature is merely ancillary or incidental to the primary charitable object. Where the deed contains distributive objects and empowers the trustees to apply the income to any of them, including objects that are not charitable in law, the trust cannot be treated as wholly charitable. Mere expenditure of income on charitable purposes does not cure a deed that authorises application of the fund to non-charitable purposes in the first instance.

Conclusion: The trust was not entitled to exemption under section 4(3)(i), because one of its objects was non-charitable and the trustees had full discretion to apply the income to such object.

Ratio Decidendi: A trust fails to qualify for exemption where its deed includes a non-charitable object and vests the trustees with discretion to apply the income to that object, since the property cannot then be said to be held wholly for religious or charitable purposes.

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