R. JAYASIMHA BABU J.
At the instance of the Revenue, the following question of law has been referred for our decision
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee's wealth is exempt from the levy of wealth-tax under section 5(1)(i) of the Wealth-tax Act, 1957 ?"
The assessee, Gangabai Charities Trust, was constituted under a deed dated September 9, 1957, executed by one Smt. Gangabai, mother of K. Seetharama Rao, who is the trustee appointed under the deed. The assessment years in question are, 1975-76, 1976-77, 1986-87 and 1987-88. The question set out above arises out of the assessments for wealth-tax of the trust for all these years.
The property in question is a building known as "Dharmaprakash" situated in Purasawalkam in the city of Madras. That building has been described in the judgment of this court in the case of Addl. CIT v. Gangabai Charities. The building as stated therein consists of a mandapam and other portions. The buildings are sought for celebrating weddings and reception for which, they are let out on rent. The building was constructed with a nucleus of a trust fund provided by Smt. Gangabai who was at that time in her 90's. The fund was administered by her son, Seetharama Rao, the owner of a hotel of the same name Dharmaprakash. Though Gangabai's funds amounted to Rs. 34, 000 the funds which went into the completion of the building amounted to Rs. 6 lakhs. These facts are not in dispute.
This building was assessed to wealth-tax for all the years up to 1975. When an appeal was preferred against the order of assessment made for the year 1975-76, the appellate authority allowed the appeal against the order of the Income-tax Officer who had held that the assessee was not entitled to the benefit of exemption, the appeal having been allowed on the ground that the property was held in trust for religious and charitable purpose for the benefit of the public. The appellate authority in its decision on the appeal filed by the assessee, against the assessment for the year 1975-76 held that the assessee was entitled to exemption. For all the other assessment years in question, similar orders were passed by the appellate authority and the Tribunal has affirmed the view of the appellate authorityThe deed of trust under which the trust was constituted, and the purposes for which the property was put to use are enumerated in the judgment of the Supreme Court in the case of Gangabai Charities v. CIT. The terms of that trust deed being material the document as set out in the judgment of the apex court is extracted below:
"NOW THIS INDENTURE WITNESSETH that in pursuance of the premises the settlor above named doth hereby declare that the plot of land above-mentioned and more particularly described in the schedule below was purchased by her for Rs. 24, 000 on September 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 cloth hereby create an irrevocable trust of the said property for the purposes aforesaid.
The settlor further declares that immediately after such purchase 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 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.
That the trustee shall have, as the construction proceeds, power to make any suitable alterations in the plan already submitted by him and sanctioned by the Corporation of Madras, in such manner as may seem necessary to him and that the trustee may after the completion of the building let or allow the said building or such portion or portions of the said building for the use of the public for social, cultural, religious, educational, etc., purposes, free or at such rents and on such terms and conditions as he thinks proper in the interests of the trust ; for holding and conducting religious discourses, for running schools for the development of Sanskrit learning, free or at such rents and on such terms and conditions as the trustee thinks reasonable and proper in the interests of the trust.'"
The Supreme Court, interpreting the terms of that document for the purpose of deciding the claim of the assessee for exemption of its income under the Income-tax Act held that it was not possible from the terms of the document to conclude that, the trust was set out wholly for charitable and religious purposes. The Supreme Court also held that the purposes set out in the document were not the objectives of the trust but only the objects of those who wish to put the trust property to use. The court held
"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 of the public to be used by them for religious, charitable and/or cultural and social purposes"
The court also noticed that there was no mention in the trust deed as to how the income derived from the trust property is to be utilised. It further noticed that the public use the building on payment of rent to the trustees. The trust deed however was silent as to what was to be done with the money so collected, and there was no mandate in the trust deed that the income derived from the trust property is to be spent on religious or charitable purposes. Though the document was examined by the apex court and earlier by this court in a proceeding arising under the Income-tax Act, the interpretation of the trust deed cannot be any different for the purposes of wealth-tax. The document is but one, and the interpretation that it has received from the apex court, is the interpretation which is required to be considered and adopted for the purpose of considering the claim of the assessee for exemption under the Wealth-tax Act, although the Wealth-tax Act does not contain a definition of "charitable purposes" unlike the Income-tax Act. As to what is the effect of the document, so interpreted for the purpose of wealth-tax is of course to be considered de hors the result of the assessee's claims under the Income-tax Act, by applying the provisions of the Wealth-tax ActThe assessee would be entitled to exemption under the Wealth-tax Act if it is able to show that the property held by the assessee is held under a trust or other legal obligation for any public purpose of a charitable or religious nature, in India. Thus in order to claim the benefit of section 5(1) of the Act, it must be demonstrated that
(i) the property is held by the assessee under a trust or other legal obligation ;
(ii) the purpose for which it is held is a public purpose ;
(iii) such public purpose is of a charitable and religious nature, in India
Section 5(1) does not use the word "wholly" and it is possible to construe that section as being applicable to cases where the property is not held exclusively for charitable or religious purposes.
It was so held by the Bombay High Court in the case of Trustees of K. B. H. M. Bhiwandiwalla Trust v. CWT, wherein the court adopted the test of primary or predominant purpose and held that even if some of the objects can be regarded as not being charitable and religious, if the primary or predominant object was charitable or religious, exemption can be claimed. The court therein held that if the trustees had a discretion to use the property for any purpose and are not obliged to use the same primarily for religious or charitable purpose, the exemption could not be availed of.
The Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Manufactures Association, while considering the claim for exemption of the income of the trust under the Income-tax Act, observed
"the law is well settled that if there are several objects of a trust or institution, some of which are charitable and some non-charitable and the trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust or institution might be upheld as a valid charity : Vide Mohd. Ibrahim v. CIT  57 IA 260 and East India Industries (Madras) P. Ltd. v. CIT. But if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity : vide CIT v. Andhra Chamber of Commerce."
The test which has, therefore, to be applied is whether the object which is non-charitable is an independent principal object of the trust or institution or is only ancillary or incidental to the dominant or primary charitable objectThe test so laid down by the Supreme Court for the purpose of the Income-tax Act, is equally applicable to a consideration of the claim for exemption under section 5(1) of the Wealth-tax Act. The object of granting exemption from wealth-tax is to save the property held under legal obligation or trust for public purpose of a charitable or religious nature in India from the burden of wealth-tax, such properties are not to be so burdened in view of the worthy purpose for which the property is utilised and the public benefit arising out of such user. Exemption from wealth-tax is not intended to be extended to properties which though capable of being used for charitable or religious purposes, could also, at the discretion of the trustee used for other purposes, even to the exclusion of user for charitable or religious purposes. Mere use of the words "charitable or religious" in the deed of trust or other document is, therefore, not conclusive as regards the exigibility or otherwise of the property owned by such a trust for levy of wealth-tax. Further, as observed by the Supreme Court, if there are a number of objects in the trust deed some of which are capable of being regarded as charitable or religious purposes, the mention of other purposes which may be ancillary or incidental thereto but not by themselves charitable or religious, would not disentitle the trust or the property from being regarded as created for or held for charitable or religious purposes.
The terms of the trust deed therefore, are crucial for the purpose of deciding as to whether the assessee is entitled to the exemption claimed. Though the focus of enquiry for the purpose of exemption from wealth-tax under section 5(1), is not the owner but the property, it must be shown that the property is burdened with an obligation to be utilised primarily for charitable or religious purposes. If under the terms of the document under which the property is held, the property can be utilised at the discretion of the trustee, for other purposes, even to the exclusion of the religious and charitable purposes, section 5(1) would not be attracted, and no exemption can be claimed thereunderThe trust deed in unambiguous terms provides, inter alia, as under:
"That the trust property, more particularly described in the schedule below shall be used for religious, charitable, social, cultural and other allied purposes."
The purposes for which the property can be put to use, therefore, are not confined to religious or charitable use, nor can it be said that the pre-dominant purpose for which the property will be used are religious and charitable. The property can be used for social, cultural and other allied purposes at the sole discretion of the trustee. That is made clear by the last paragraph of the document wherein it is provided that the trustee may let or allow the said building or such portion or portions of the said building for the use of the public for social, cultural, religious, educational, etc., purposes, free or at such rents and on such terms and conditions as he thinks proper in the interests of the trust. It is also provided that he may make the building available for holding and conducting religious discourses for running schools for the development of Sanskrit learning, free or at such rents and in such terms and conditions as the trustee thinks reasonable and proper in the interest of the trust.
Wide discretion is, therefore, vested in the trustee to decide upon the use to which the building shall be put and he is not required to use the building only for charitable and religious purposes. The use of the building can be cultural and social purposes. As noticed by this court ill the case of Addl. CIT v. Gangabai Charities, the building is being let out for wedding celebrations and rents are being collected for that purpose. The use of the building for any other purpose which may be regarded as cultural or social is permissible in terms of the deed. Learned counsel for the Revenue submitted that the property must be held exclusively for charitable or religious purposes and that the predominant object of the trust which owns the property must also be unambiguously charitable and religious in nature before any claim for exemption under section 5(1)(i) can be granted. While we agree with him that the property must be held for religious and charitable purposes but subject to such purpose being predominant purpose and not necessarily exclusive purpose, we cannot subscribe to the proposition that the object of the trust must be exclusively charitable or religious. The focus in section 5 of the Wealth-tax Act, is the property and as long as the property is held in the character mentioned therein, exemption can be claimed. It is quite conceivable that a trust which has many purposes also owns several properties some of which may be burdened for use solely for religious or charitable purposes, while others may not be. Exemption cannot be denied on the ground that the objects of the trust are not predominantly religious and charitableLearned counsel for the assessee submitted that the decision rendered by this court in the earlier case which arose under the Income-tax Act and which case was ultimately decided by the Supreme Court is not relevant for the purpose of deciding the assessee's claim under the Wealth-tax Act, Counsel in this context referred to the decision of the Bombay High Court in the case of CWT v. State Bank of India.
Please Login To View The Full Judgment!
no doubt true that the claim made under the Wealth-tax Act must be decided in terms of the provisions of that Act and not in terms of the Income-tax Act. Counsel is right to that extent. However, we cannot accept the further submission made for the assessee that the interpretation of the material document by the apex court and earlier by this court are also to be ignored while considering the assessee's claim for exemption under the Wealth-tax Act. Counsel for the assessee also submitted that the interpretation of the document by this court in the case reported in Addl. CIT v. Gangabai Charities, supports the assessee's claim. We are unable to agree with him on that submission. The construction of the trust deed by the apex court is very relevant for the purpose of considering the nature and effect of the document and in our opinion it has to be looked into, and relied upon for the purpose of deciding as to whether the terms of that document are such as to permit a claim being made in terms of section 5(1) of the Wealth-tax Act for exemption. Learned counsel for the assessee further contended that the emphasis in section 5(1) of the Act is on public purpose and that even if the purpose is social or cultural so long as it is of a public character, exemption can be claimed. We are unable to agree with that submission. The purpose mentioned in that section is public purpose of a charitable or religious nature and not any other purposeThe question that has been referred for our decision is, therefore, required to be and is answered by us in the negative, in favour of the Revenue and against the assessee. The Revenue is entitled to costs in a sum of Rs. 1, 000.