BHRIGURAJ CHARITY TRUST VS COMMISSIONER OF INCOME, TAX
1999 P T D 2839
[228 I T R 50]
[Delhi High Court (India)]
Before Devinder Gupta, M. K. Sharma and K. S. Gupta, JJ
BHRIGURAJ CHARITY TRUST
Versus
COMMISSIONER OF INCOME, TAX
Income-tax References Nos. 137 to 142 of 1976, decided on 30/05/1997.
Income-tax
---Charitable purposes---Charitable trust---Object of trust not wholly charitable ---Amendment of trust deed---Suit filed in Civil. Court---Suit decreed on 5-10-1972 by Civil Court permitting rectification of trust deed with retrospective effect from 9-3-1949---Rectification has no retrospective effect and would operate prospectively from date of rectification---Trust not entitled to exemption for assessment years 1965-66 to 1969-70 and 1971-72- Indian Income Tax Act, 1961, Ss. 11 & 12.
For the assessment years 1965-66 to 1969-70 and 1971-72, the assessee claimed exemption from tax under sections 11 and 12 of the Income Tax Act, 1961, on the ground that it was a public charitable trust. The Income-tax Officer, after examining the trust deed, held that the objects of the trust were not wholly and exclusively charitable but only partly charitable, and assessed the income of the charitable trust to tax for the assessment years in question. The Appellate Assistant Commissioner dismissed the appeals filed by the assessee. On appeal to the Tribunal, the assessee filed copies of the plaint, judgment and decree in a suit filed for rectification of the trust-deed in question under the provisions of section 26 of the Specific Relief Act, 1963. The assessee's suit had been decreed on October 5, 1972, by the Civil Court permitting rectification of the trust-deed with retrospective effect from March 9, 1949. The Tribunal admitted -the additional documents and set aside the order of the Appellate Assistant Commissioner and remanded the case to the Appellate Assistant Commissioner to dispose of the appeal on the merits in accordance with law. The Appellate Assistant Commissioner again dismissed the appeals and observed that the decretal order passed by the Civil Court was not binding on the income-tax Authorities, that the judgment in Jaipur Charitable Trust's case (1971) 81 ITR 1 (Delhi) would apply to the facts of the case and that the assessee was not entitled to exemption under, sections 11 and 12 of the Act. The Tribunal also dismissed the appeals and agreed with the view expressed by the Appellate Assistant Commissioner holding that the compromise decree passed by the Civil Court could not have .a binding effect on the income-tax Authorities and the income-tax Authorities were entitled to go behind the decree to get the real facts particularly when the decree was a consent decree. The Tribunal also considered the retrospective nature of the amendment of the trust-deed and held that the rectification deed could not have any effect on the deeds already done in good faith by the trustees in the relevant assessment years. The Tribunal further held that the decision in Jaipur Charitable Trust's case (1971) 81 ITR 1 (Delhi) fully applied to the facts of the case in respect of the amendment to the trust-deed and the trust was not entitled to exemption. On a reference:
Held, that since the decree was passed by the Civil Court on April 5, 1972, permitting rectification of the trust-deed, the-same would have only prospective operation and would not affect the assessment years in question, which were prior to the date of the Civil Court's decree. Therefore, the assessee was not a public charitable trust and the income of the trust was not entitled to exemption under sections 11 and 12 of the Act for the assessment years 1965-66 to 1969-70 and 1971-72.
CIT v. Kamla Town Trust (1996) 217 ITR 699 (SC) rel.
CIT v. Jaipur Charitable Trust (1971) 81 ITR 1 (Delhi); Jagdamba Charity Trust v: CIT (1981) 128 ITR 377 (Delhi) and Yogiraj Charity Trust v. CIT (1976) 103 ITR 777 (SC) ref.
G.C. Sharma for the Assessee.
R.D. Jolly with Ms. Prem Lata Bansal for the Commissioner.
JUDGMENT,
DEVINDER GUPTA, J.---These income-tax references raise the question of the entitlement of Bhriguraj Charity Trust, New Delhi, to exemption from income-tax for the assessment years 1965--66 to 1969-70 and 1971-72 under the provisions of section 11 of the Income Tax Act, 1961.
The question involved is whether the trust is a charitable trust within the meaning of sections 11 and 12 of the Income Tax Act, 1961_. The claim of the assessee has been that it was a public charitable trust. The Revenue was of the opinion that it is a private charitable trust not entitled to exemption provided under sections 11 and 12 of the Act. The Income-tax Officer after examining the trust-deed held that the objects of the trust were not wholly and exclusively charitable but only partly charitable. Following the same view, which had been taken in the earlier assessment years, where exemption was claimed and was not allowed, the Income-tax Officer brought the income to tax for the assessment years in question. The assessee's appeals were dismissed by the Appellate Assistant Commissioner after following the decision of this Court in CIT v. Jaipur Charitable Trust (1971) 81 ITR 1. An appeal was preferred by the assessee before the Tribunal. The assessee filed additional documents for consideration of the Tribunal, which included a copy of the plaint, judgment and decree in a suit filed for rectification of the trust-deed in question under the provisions of the Specific Relief Act. The assessee's suit had been decreed on October 5, 1972, by the Civil Court permitting rectification of the trust-deed with retrospective effect from March 9, 1949. The Tribunal admitted the additional documents. The order of the Appellate Assistant Commissioner was set aside by the Tribunal. The cases were remanded with directions to dispose of the appeals on the merits in accordance with law. The Appellate Assistant Commissioner again dismissed the appeals. He observed that the decretal order passed by the sub-Judge would not be binding upon the income-tax authorities and held that the judgment of this Court in Jaipur Charitable Trust's case (1971) 81 ITR 1 will apply with full force to the facts of the case and that the assessee was not entitled to exemption under sections 11 and 12 of the Income-tax Act. The assessee preferred appeals to the Tribunal. The Tribunal also dismissed the appeals. The Tribunal agreed with the view expressed by the Appellate Assistant Commissioner holding that the compromise decree passed by the Civil Court could not have a binding effect on the income-tax authorities and the income-tax authorities are entitled to .go behind the decree to get the real facts particularly when the decree was a consent decree. The Tribunal also considered the retrospective nature of the amendment of the trust-deed and held that rectification deed cannot have any effect on the deeds already done in good faith by the trustees in the relevant assessment years. The Tribunal also held that the decision of the Delhi High Court in Jaipur Charitable Trust's case (1971) 81 ITR 1 would fully apply to the facts of the case in respect of the amendment to the trust-deed and the trust was not entitled to exemption. The following question has been referred to this Court for opinion in these references:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income of the trust was not exempt under sections 11 and 12 of the Income Tax Act, 1961, on the ground that the trust was not a public charitable trust ?"
The question whether the rectification order of the Civil Court would be binding upon the Income-tax Department when the assessee-trust armed with the rectification order claimed exemption from income-tax under section 11 of the Income Tax Act, 1961, was examined by this Court in Jagdamba Charity Trust v. CIT (1981) 128 ITR 377. The trust-deed in that case was got rectified by the assessee from the Civil, Court, however, a suit had to be filed by the assessee in the light of the judgment of this Court in Jaipur Charitable Trust's case (1971) 81 ITR 1, which had held that due to the provisions in certain clauses of the trust-deed, the trust was non- charitable and was not entitled to exemption under the Income-tax Act: In the plaint it was stated that since some doubts regarding the validity of some clauses of the deed had been raised, therefore, it was necessary that the deed should be rectified. The Court granted a decree and directed that the trust- deed be rectified. This Court took the view that the word "instrument" used in section 26 of the Specific Relief Act has a very wide meaning and includes every document by which any right or liability is, or is purported to be created, transferred, limited extended, extinguished or recorded. It was also held that the law obliges the trustees to act in accordance with the terms of the trust-deed and they cannot commit a breach thereof and there is no reason why a trust-deed cannot be rectified under section 26 of the Specific Relief Act. It was also held that since there was an order of the Civil Court binding on the author and the trustees they could administer the trust only in terms of the amendment directed by the Court and thus, the trustees were and must be deemed from the beginning to have been under a legal obligation to hold the properties only for the purpose and for the object and with the power set out in the trust-deed as amended. Therefore, whatever might have been the correctness or otherwise of the order passed by the Civil Court under section 26 of the Specific Relief Act, 1963, it was not open to the Income-tax officer to say that the trustees could administer the trust in accordance with the original deed and that the claim for exemption had to be dealt with on the basis of the original deed. Similarly it was not open to the Income-tax officer to say that in the relevant accounting year the trustees had held the property subject to the terms of the original and not the amended deed. The decision of this Court in Jagadamba Charity Trust (1981) i28 ITR 377 was upheld by the Supreme Court in CIT v. Kamla Town Trust (1996) 217 ITR 699. It was held that the decision of the Delhi High Court is based upon the correct legal position in connection with the proceedings for rectification of instruments like the trust-deed, initiated before the competent Civil Court under the relevant provisions of the Specific Relief Act. On the, question whether rectification had prospective or retrospective effect, the Supreme Court in Kamla Town Trust's case (1996) 217 ITR 699 held that the rectification had no retrospective effect and would operate prospectively from the date when the rectification saw the light of the day.
On the ratio of the decision of Kamla Town Trust's case (1996) 217 ITR 699 (SC), since the decree was passed by the Civil Court on April 5, 1972, the same will have only prospective operation and will not affect the assessment years in question, which are prior to the date of the Civil Court's decree.
The claim of the trust for exemption under the Act in relation to the earlier assessment years was considered and negatived in Jaipur Charitable Trust's case (1971) 81 ITR 1 (Delhi), which position was affirmed in Yogiraj Charity Trust v. CIT (1976) 103 ITR 777 (SC). Thus, we hold that the assessee's claim for exemption for the assessment years in question, namely, 1965-66 to 1969-70 and 1971-72, are governed by the earlier decisions of this Court in Jaipur Charitable Trust's case (1971) 81 ITR 1 and Yogiraj Charity Trust's case (1976) 103 1TR 777 (SC). We, therefore, answer the question referred to us in the negative (sic) and in favour of the Revenue. There will be no order as to costs. .
M.B.A./3042/FCReference answered.