1965 (10) TMI 22

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....terest and other income thereof . . . (c) During the lifetime of the settlor the balance of the income shall be accumulated and shall be added to the corpus of the trust fund. (d) On and after the death of the settlor the trustees shall hold the accumulated corpus of the trust fund upon trust to spend the income thereof for any one or more of the following religious or charitable objects in such shares and proportions and in such manner as the trustees shall in their absolute discretion deem proper. (i) For annual religious offerings to the sacred places of the Muslims outside India, in Hedjaz and Iraq, viz., Mecca, Madina, Najaf Karbala, Kazamain, Sirraman Raa and Mashad (in Iran) and Baghdad and Basra. (ii) For help, either in lump sum or by way of monthly allowances, to the Khuddam or the servants who are looking after the sacred shrines and also by way of charity to pious people residing at these holy places. (iii) For the upkeep of the sacred buildings constructed in the lifetime of the settlor such as, masjids (mosques), Azakhana (mourning house, built to commemorate the name of His Exalted Highness's late mother), two Askurkhanas (where the Alam sits inside the....

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....ears 1952-53 and 1953-54, the trustees were assessed to income-tax on the income during the relevant previous years arising from the said trust property. The trustees claimed exemption under section 4(3)(i) of the Act. The Income-tax Officer, on appeal the Appellate Assistant Commissioner, and on further appeal the Income-tax Appellate Tribunal, Hyderabad, concurrently held that the assessee was not entitled to the exemption under the said section. At the instance of the assessee, the following question was referred to the High Court under section 66(1) of the Act : " Whether the income arising from property settled upon trust under the deed of settlement, dated September 14, 1950, or any part thereof is exempt from tax under section 4(3)(i) of the Indian Income-tax Act, 1922 ? " A Division Bench of the Andhra Pradesh High Court, Hyderabad, consisting of Seshachelapati and Venkatesam JJ., on a consideration of the relevant provisions of the deed and the Act, came to the conclusion that on the terms of section 4(3)(i) of the Act, the trust was not entitled to the exemption. Hence the appeals. Mr. Narasaraju, learned counsel for the assessee, contended that proviso (a) to section....

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....ct, 1953 (25 of 1953), and the income therefrom is applied to such purposes without the taxable territories ; and (ii) where the property is held under trust or other legal obligation created after such commencement, and the income therefrom is applied without the taxable territories to charitable purposes which tend to promote international welfare in which India is interested, the Central Board of Revenue may, by general or special order, direct that it shall not be included in the total income. " Under this section a particular class or kind of income is exempted from taxation. It is settled law that the burden is on the revenue authorities to show that the income is liable to tax under the statute ; but the onus of showing that a particular class of income is exempt from taxation lies on the assessee. To earn the exemption, the assessee has to establish that his case clearly and squarely falls within the ambit of the said provisions of the Act. A brief history of clause (i) of section 4(3) of the Act will be useful in the interpretation of its terms. The present clause (i) was substituted for the following clause by the Income-tax (Amendment) Act, 1953, with effect from A....

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....d or finally set apart ". " Applied " means that the income is actually applied for the said purposes in the taxable territories ; and " accumulated " means that the income is set apart during the year for future spending on the said purposes. The expression " accumulated for a purpose " involves a conscious act in praesenti and posits a clear indication on the part of the trustee to set apart the income for that purpose. It is, therefore, manifest that under clause (i), only income from the property wholly or in part held in trust actually applied or set apart for application for future spending on religious or charitable purposes within the taxable territories is exempted from inclusion in the total income. As has been pointed out by Craies in his book on Statute Law, 6th edition, at page 217, " The effect of an excepting or qualifying proviso according to the ordinary rules of construction, is to except out the preceding portion of the enactment, or to qualify something enacted therein, which but for the proviso would be within it. " The proviso to clause (i) excepts the two classes of income subject to the condition mentioned therein from the operation of the substantive claus....