Holding

The trust does not meet the requirements of Section 11(l)(a) of the Income Tax Act, 1961 and therefore its income is not exempt.

Summary

The Supreme Court examined whether the income of Ganga Bai Charities, a trust that owned a building let out as a marriage hall and operated a printing press, qualified for exemption under Section 11(l)(a) of the Income Tax Act, 1961. The trust argued that its income was wholly applied to religious, charitable, cultural and social purposes, while the tax authorities contended that the trust deed did not specify how the income would be used. The Court held that the statutory exemption depends not merely on the source of income but on the actual application of that income to charitable or religious purposes, which must be expressly stipulated in the trust deed. The deed only described the intended use of the building by the public and did not mandate that the income be spent on charitable activities. Consequently, the trust failed to satisfy the conditions of Section 11(l)(a) and was not entitled to the exemption. The appeal was dismissed with costs.

Issues considered

Whether the income of Ganga Bai Charities is exempt under Section 11(l)(a) of the Income Tax Act, 1961.
Whether the trust deed sufficiently indicates that the trust is wholly for charitable or religious purposes.
Whether the trust deed mandates that the income derived from the trust property be applied to charitable or religious purposes as required by Section 11(l)(a).

Legislation cited

Income Tax Act, 1961s. 11(l)(a), s. 256(1)

Subjects

income taxcharitable trustSection 11 exemptiontrust deed constructionreligious purposetax exemptionSupreme Court

Judgment

A GANGABAI CHARmES
v.
COMMISSIONER OF INCOME-TAX AND ANR.

JULY 24, 1992

B [KULDIP SINGH AND YOGESHWAR DAYAL, JJ.]

Income Tax Act; 1961-Section JJ(l)(a)-Construction of trust '>-----·
deed-Kalyana Mandapam and Printing press---lncome derived by trust-
Whether exemption entitled,
c
A trust, namely, "Ganga Bai Charities" was created on 13.9.1958, to
construct and provide a building for the benefit of the public to be used
for religious, charitable cultural and social purposes.
- "
)...-.
The founder of the trust contributed Rs. 34,000 to the trust fund. ·
D With that fund a plot of land was purchased and the construction of a
building was begun. The fund was augmented by her son from his own
contributions as well as from outside donations.

The building was completed at the cost of about Rs. six lakhs and it
E was being let out as a marriage mandapam to be used by the members of '-.-
I
the public. The income derived fro~/letting out the Kalyana Mandapam
r.ame to Rs.1,06,392.00 in the year ending March 31, 1963. For the sub-
sequent years also the income was substantial. The trust was also running
a printing press and sizeable income was being from the press. ...
F income-tax proceedings were initiated against the trust.
~-
The appellant-trust contended that the income derived from the
property was being held wholly for religious and charitable purposes and
as such was.exempt under Section 11 ofthe Income Tax Act.
G The Income-tax Officer holding that the· income earned by the trust
was taxable, rejected the contention of the trust.

On appeal the Appellate Assistant Commissioner reversed the In-
>--
come-tax Officer's order, holding that the trust was a charitable trust and
H its income was entitled to exemption under Section 11 of the Act.
626
GANGABAI v. C.I.T. 627

---{ J On further appeal by the department, the Tribunal upheld that .A
decision or the Commissioner but remitted the assessment to the Income·
tax Officer to find out as to what extent in each year the trust income or
accumulations were expended for charitable purposes.

The Income Tax Appellate Tribunal referred the following question
to the High Court under Section 256(1) of the Act:· B

"Whether it had been rightly held that the income of the trust would
be entitled to exemption under Section 11 of the In-come Tax Act, 1961?"

- The High Court answered the question in the negative and in favour
or the department, against which these appeals were filed by the assessee-
trust by special leave before this Court.
C

On the question, whether the Gangabai Charities, a trust was en-
titled to exemption under Section ll(l)(a) or the Income Tax Act, 1961,
this Court dismissing the appeals of the assessee-trust, D
HELD : 1.01. The crux of the statutory exemption under Section
l(l)(a) of the Income Tax Act, 1961 is not the income earned from property
held under the trust but the actual application of the said income for
religious and charitable purposes. It is, therefore, necessary to indicate in E
the trust-deed the broad objectives for which the income derived from the
property is to be utilised. There is no mention in the trust-deed as to how
the income derived from the trust property is to be utilised. The public
uses the building on payment or rent to the trustees. What is to be done
with the money so collected has not been provided in the trust deed. There
is no mandate in the trust deed that the income derived from the trust F
property is to be spent on religious or charitable purposes. [632C-D]

1.02. On a careful reading of the trust~deed it is not possible to
cull-out in clear terms a specific charitable/religious object to conclude
that the trust was set up wholly for or religious purposes. The "religious, G
charitable, cultural and social" purposes referred to in the deed are not
avowed as the objectives of the trust.itself. What the founder of the trust ·
intended to convey was that ihe building to be constructed out of the funds
provided by her and supplemented from other sources, must be heed for
the benefit of the public for being used by them for religious, charitable,
cultural or social purpose~. [631 F·G] H
628 SUPREME COURT REPORTS [1992) 3 S.C.R.

A 1.03. The intention of the founder was to provide a building for the
benefit for the benefit of the public to be used by them for religious,
\
' ,_
charitable and/or cultural and social purposes. It is nowhere stated in the
trust deed that the trust itself bas been created for the purpose of carrying
out any of such objectives. The holding and conducting of religious dis-
B courses and the running of schools for the development of Sanskrit have
also been mentioned from the point of view of the users of the trust
property. These are some, of the purposes for which the public can be
permitted to use the property. [6318-6328)

1.04. On a proper construction of the trust deed it does not meet the
C requirements of Section ll(l)(a) of the Act. [632E]
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 10803 to
10805 of 1983.
-
From the Judgment and Order dated 17.12.1980 of the Madras High ).-. ,
D Court in Ta,"C Cases Nos. 261 of 1974 and 9 & 10 of 1977.

K. Parasaran, G. Umapathy, Mrs. Indu Malini Ananthachari for C.S.
Vaidyanathan for the Appellant.

Ranbir Chandra for Ms. A Subhashini for the Respondent.
E
The Judgment of the Court was delivered by

KULDIP SINGH, J. The question for our consideration in these
appeals is whether Gangabai Charities, a trust operating in the city of
Madras, is entitled to exemption under Section ll{l)(a) of the Income Tax
F Act, 1961 (the Act).

Gangabai executed a document dated September 13, 1958 which was
"'· described as a deed oftrust. The trust was named as "Ganga Bai Charities".
In the trust-deed Ganga Bai gave effect to her desire to construct and
provide a building for the benefit of the public to be used for religious,
G charitablet ·cultural and social purposes. She contributed Rs34,000 to the
trust fund. With that fund a plot of land was purchased and the construc-
tion begun. The fund was augmented by her son Seetha Rama Rao from
his own contributions as well as from outside donations. The building was
completea at the cost of about Rs. ~IX lakhs. Ever since the construction
H of the building it is being let out as a marriage mandapam to be used by
/ ,.,..
...
GANGABAI v. G.l.T. [KULDIP SINGH, J.) 629

---I, the members of the public as such. The income derived from letting out A
the Kalyana Mandapam came to Rs.1,06,392.00 in the year ending March
31, 1%3. For the subsequent years also the income was substantial. The
trust was also running a printing press and sizable income was being earned
from the press.

The Income-tax Officer took the view that the income earned by the B
trust was taXa.ble. The contention of the trust that the income derived from
the property was being held wholly for religious and charitable purposes
and as such was exempt under Section 11 of the Act, was rejected. On
appeal the Appellate Assistant Commissioner reversed the Income-tax
Officer and held that the Ganga Bai Charities was a charitable trust and C

- its income was entitled to exemption under Section 11 of the Act. On
further appeal by the department, the tribunal upheld the decision of the
Commissioner but remitted the assessment to the Income-tax Officer to
find out as to what extent in each year the trust income or accumulations
were expended for charitable purposes. The. Income Tax Appellate
Tribunal referred the following question to the High Court under Section D
256(1) of the Act:-

"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?"
E
The High Court by its judgment dated December 17, 1980 answered

--
the question in the negative and against the assessee. These appeals by way
of special leave are against the judgment of the High Court.

Section ll(i)(a) of the Act, to the relevant extent, is reproduced
hereunder:- F
~/
11. Income from property held for charitable or religious pur-
poses - (I) Subject to the provisions of sections 60 to 63, the
following income shall not be included in the total income of
the previous year of the person in receipt of the income- G
(a) income derived from property held under trl!st wholly for
.charitable or religious purposes, to the extent to which such
income is applied to such purposes in India..........

The above quoted provisions make it clear that a trust has to satisfy H
I
630 SUPREME COURT REPORTS (1992) 3 S.C.R.

A the following conditions in order to claim benefit of Section ll(l)(a) of the
Act:-

(1) The income is derived from property held under the trust.

(2) The trust is wholly for charitable or religious purposes.
B
(3) The exemption is permissible to the extent to which such
income is applied to such purposes in India.

The appellant-trust has been created under a deed of trust dated
May 30, 1978 and as such we have to look into the contents of the trust
C deed of find out as to whether the conditions precedent for claiming
exemption under section ll(l)(a) of the Act are satisfied. The tribunal and
the High Court have also based their conclusions on the interpretation of
the trust deed.
-
It is not disputed that the appellant-trust derived the income from
D the property held under it but the existence of other conditions necessary
to claim exemption under Section ll(l)(a) of the Act have been seriously
disputed by the Revenue before us. We have minutely examined the trust
deed and have given our thoughtful consideration to its contents. The
relevant paragraphs of the trust deed from where the purposes of the trust
E can be spelled out are reproduced hereunder:-

"WHEREAS the Settlor, has long cherished a desire to con-
struct and provide a building in Purasawalkam, Madras for the
benefit of the Public to be used by them for religious, charitable
and/or cultural and social purposes, to secure religious benefit
F for hereself and satisfy a long felt need of the Public in this
part of this city."

"NOW THIS INDENTURE WITNESSTH that in pursuance
of the premises the settlor above named doth hereby declare
that the plot of land above mentioned and more particularly
G desribed in the schedule below was purchased by her for
Rs.24,000 on 9.9.1957 for the express purpose of constructing
a building thereon and dedicating the same for use by the public
inter alia for Religious, Charitable. and Cultural purposes and ~ '
doth hereby create an irrevocable Trust of the said property
H for the purposes aforesaid."
GANGABAI v. C.l.T. [KULDIP SINGH, J.) 631

--.{ "The settlor further declares that immediately after such pur- A
chase she, the settlor relinquished all her rights thereto and
dedicated the said plot of land for the use of the public for the
purposes above-mentioned and put the said plot of land in the
possession of her son Shri K. Seetharama Rao, with a direction
to construct a building thereon for the use of the public for B
religious, charitable, social, cultural and other allied purposes."

"That the Trust property, more particularly described in the
schedule below shall be used for religious, charitable, social,
cultural and other allied purposes".
c
- "That the Trustee shall have, as the construction proceeds,
power to make any suitable alterations in the plan already
submitted by him and sanctioned the Corporation of Madras,
in such manner as to him may seem necessary and that the
Trustee may after the completion of the building let or allow D
the said building or such portion of portions of the said building
for the use of the public for social cultural, religious educational
etc., purposes, free or at such rents and such terms and condi-
tions as he thinks proper in the interests of the Turst; for
holding and conducting religious discourses, for running
--( schools for the development of Sanskrit learning free or at such E
rents and on such terms and conditions as the Trustee things

--
reasonable and proper in the interests of the Tr:ust".

On a careful reading of the above quoted paragraphs of the trust-
deed it is not possible to cull-out in clear terms a specific charitable/reli- F
gious object to conclude that the trust was set up wholly for charitable or
religious purposes. The "religious, charitable , cultural and social" purposes
referred to in the deed are not avowed as the objectives of the trust itself.
What the founder of the trust intended to convey was that the building to
be constructed out of the funds provided by her and supplemented from
other sources, must be held for the benefit of the public for being used by G
them for religious, charitable, cultural or social purposes. We cannot read
--( the contents of above quoted paragraphs as the objects of the trust, these
are only the objects of those who wish to put the trust property to use. On
a careful consideration of the language of the trust deed, we are of the view
that the intention of the founder was to provide a building for the benefit H
632 SUPREME COURT REPORTS [1992) 3 S.C.R.

A of the public to be used by them for religious, charitable and/or cultural )--
and social purposes. It is no where stated in the trust deed that the trust
itself has been created for the purpose of carrying out any of such objec-
tives. The holding and conducting of religious discourses and the running
of schools for the development of Sanskrit have also been mentioned from
the point of view of the users of the trust property. These are some of the
B purposes for which the public can be permitted to use the property.

The crux of the statutory exemption under Section ll(l)(a) of the
Act is not the income earned from property held under the trust but the
actual application of the said income for religious and charitable purposes.
C It is, therefore, necessary to indicate in the trust-deed the broad objectives
for which the income derived from the property is to be utilised. There is
no mention in the trust-deed as to how the income derived from the trust
property is to be utilised. The public uses the building on payment of rent
-
to the trustees. What is to be done with the money so collected has not
D been provided in the trust deed, There is no mandate in the trust deed that
the income derived from the trust property is to be spent on religious or
charitable purposes.

We are satisfied that on a proper construction of the trust deed it
does not meet the requirements of Section ll(l)(a) of the Act. We find no
E infirmity in the judgment of the High Court. We entirely agree with the ",-.-
reasoning and the conclusions reached therein. /

Mr. Prasaran invited our attention to paragraphs 5 and 6 of the
special leave petition wherein it is stated that Mr. Justice V. Balasubrah-
F manyan who delivered the judgment in this case on behalf of the two-Judge
Bench of the High Court had given opinion in this case as special counsel
for the Income-tax Department and in the said opinion the Department
was advised to go to the High Court by seeking a reference. It was also
opined that the trust was ineligible for the exempltion for the reasons which
were given therein. It is further mentioned in the special leave petition that
G the petitioner came to know about this aspect only after the judgment was
pronounced on December 17, 1980. None of the parties brought this aspect
to the notice of the learned Judge at the hearing or at any time before or
after the conclusion of the hearing. Mr. Prasaran contends that it would be
in the interests of justice if the matter be remanded back to High Court
H for rehearing. We are not inclined to agree with the learned counsel. The
\
GANGABAI v. C.I.T. [KULDIP SINGH, J.) 633

tribunal pronounced its order on February 28, 1974 and the High Court A
decided the reference seven years thereafter. The opinion must have been
given immediately after the tribunal's order and as such due to- lapse of
time the learned Judge could not have remembered the 'routine opinion'
he gave as a busy lawyer several years ago. The judgment was delivered by
the High Court after hearing detailed arguments from both sides. All the
points raised by the assessee have been dealt with and decided on the basis ' B
of judicious reasoning. In any case we have heard Mr..K. Prasaran, learned
Senior Advocate for the appellant and have examined the trust deed ,
minutely and ~efully. The view taken by the High Court is the only view
which can be taken in this case and we affirm the sa_me.
{c
The appeal is, therefore, dismissed with costs. We quantify the costs
as Rs. 10,000.

V.P.R. Appeals dismissed.

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