1983 (3) TMI 136 - AT - Wealth-tax

Trust denied income tax exemption, but exempt from wealth tax for public religious purposes.

The High Court held that the trust was not constituted for charitable or religious purposes under the Income-tax Act, denying income tax exemption. ... Charitable Or Religious Trust, High Court, Income Tax Act Issues Involved:1. Entitlement to exemption under Section 11 of the Income-tax Act, 1961.2. Entitlement to exemption under Section 5(1)(i) of the Wealth-tax Act, 1957.Issue-wise Detailed Analysis:1. Entitlement to exemption under Section 11 of the Income-tax Act, 1961:The Commissioner (Appeals) had allowed the assessee's appeal, granting exemption under Section 11 of the Income-tax Act, 1961. This decision was based on a previous Tribunal decision in the assessee's favor for the assessment years 1963-64 to 1969-70. However, the Madras High Court, in its judgment dated 17-12-1980, held that the trust was not constituted for charitable or religious purposes within the meaning of Section 11 read with Section 2(15) of the 1961 Act. The High Court found that there was no specification of objects for which the trust was established, and therefore, the trust income was not exempt from income-tax. Consequently, the Tribunal reversed the Commissioner (Appeals)'s decision, directing that the trust income is not exempt from the levy of income-tax.2. Entitlement to exemption under Section 5(1)(i) of the Wealth-tax Act, 1957:The assessee argued that the Wealth-tax Act did not contain a definition of 'charitable purpose' similar to the one in Section 2(15) of the Income-tax Act, 1961. Therefore, the High Court's decision, based on the definition of 'charitable purpose' under the Income-tax Act, should not apply to wealth-tax assessments. The assessee contended that under Section 5(1)(i) of the Wealth-tax Act, any property held under trust for any public or charitable purpose would be exempt from wealth-tax, irrespective of the income application.The Tribunal analyzed whether the trust assets could be considered held on trust for any charitable or religious purpose under Section 5(1)(i). It was noted that Section 5(1)(i) exempts 'any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India' from wealth-tax. The Tribunal found that the absence of a definition of 'charitable purpose' in the Wealth-tax Act meant the trust's claim for exemption should be considered without reference to the Income-tax Act's definition.The Tribunal held that the High Court's judgment, which denied exemption under Section 11 due to the lack of a specific charitable purpose, did not preclude exemption under Section 5(1)(i) of the Wealth-tax Act. The Tribunal emphasized that the Wealth-tax Act does not require the same scrutiny of the trust's activities for profit as the Income-tax Act. It was sufficient if the general object of the trust was charitable or religious.The Tribunal also referenced the Bombay High Court's judgment in Trustees of K.B.H.M. Bhiwandiwalla Trust v. CWT, which contrasted the language of the Income-tax Act and the Wealth-tax Act. The Bombay High Court had held that under the Wealth-tax Act, the word 'wholly' was omitted, indicating that if the trust's objects were primarily or predominantly of a public charitable nature, the corpus would qualify for exemption. Applying this principle, the Tribunal concluded that the trust property in question was held for public religious purposes, qualifying for exemption under Section 5(1)(i).The Tribunal thus endorsed the Commissioner (Appeals)'s view that the trust property was exempt from wealth-tax under Section 5(1)(i), dismissing the revenue's appeals regarding wealth-tax assessments.Conclusion:The Tribunal allowed the revenue's appeal concerning income-tax (IT Appeal No. 1651 (Mad.) of 1980) and dismissed the revenue's appeals concerning wealth-tax (WT Appeal Nos. 714 and 70 (Mad.) of 1981), affirming the exemption of the trust property from wealth-tax under Section 5(1)(i).