A. K. A. S. Trust v. State of Tamil Nadu — 1977 DIGILAW 197 (MAD)

Judgment :- SETHURAMAN J. This is a petition under section 54(1) of the Tamil Nadu Agricultural Income-tax Act, 1955, filed by the assessee, a trust. The trust or wakf was created by a registered deed No. 904 of 1893, by two Hanifa Mahomedans by name, A. N. Maricar and A. K. Maricar. The trust property consisted of two villages in the District of Thanjavur. At this stage, we may give the substance of the trust deed as it appears in the judgment of the Privy Council in the case of this very trust in Mutu K. A. Ramanandan Chettiar v. Vava Levvai Marakayar 1917 (32) MLJ 101; ILR 40 Mad 116, 120 (PC) "The deed begins with a recital that the property, consisting of two villages of the total value of Rs. 20, 000, is given for the purpose of charity, and then states that out of the gross yields the melvaram, repairs, salaries for servants, maganam, and other important expenses are to be defrayed; and the balance of the income is to be divided in three shares. From two shares out of the three shares of the income, the dharmakartas or trustees appointed by the deed and their successors are to take Rs. 10 per mensem as salary for discharging their duties; and as regards the remainder of the two shares, the direction to the trustees is as follows 'You should perform annually without failure the customary ...... pattah (meaning fateha), kuthum (meaning Khatam), etc., for our ancestors and for us after our decease. You should annually give in the month of Ramzan to the mesakins or the poor ujjivanam i.e., food, udumanam, i.e., clothes, sadaka meaning alms, jaggath, etc. The surplus should be divided in equal shares once a year by our heirs or their sons, grandsons in existence from generation to generation inclusive of you.' The third share of the income after paying the expenses is to be utilised in purchasing other immovable property which is to be added to the said charity properties and dealt with according to the above terms ....... The dharmakartas and the successors, the heirs, and the descendants are not to receive more than the shares allotted to them out of the income; and they will not be entitled to alienate the properties, nor will the properties be liable for their debts." * There was a dispute between the legal heirs of the original authors of the trust as to their share in the two-thirds of the surplus. A suit was filed in the court of the District Munsif of Nagapattinam. By his judgment in O.S. Nos. 181 of 1956, 182 of 1956 and 24 of 1958 dated February 11, 1959, he held that there were 26 legal heirs entitled to specific shares in the residue of the trust income as per the deed and directed the manager to render all accounts as prayed in the said suit. A compromise agreement was entered into between the trustee-manager and the beneficiaries on August 31, 1970, wherein a statement of account was prepared and the respective share of the beneficiaries out of the surplus for the period January 5, 1956, to June 30, 1969, was worked out. The total income of the wakf during that period came to Rs. 95, 533.66. 1/3rd of the same was taken to the 'reserves' as provided in the deed. After providing a sum of Rs. 15, 000 towards charities enjoined by the wakf, the balance of Rs. 49, 989.08 was divided between the beneficiaries in specified shares When the assessment for the assessment year 1971-72, which is now under consideration was taken up, the assessing officer following an earlier decision of the Tribunal dated February 27, 1970, in ITA Nos. 321 and 222 of 1969, assessed the entire income in the hands of the trust in one single assessment. Though the assessee claimed that there was loss as per the income and expenditure account filed along with the return, the assessing officer did not accept the result so shown by the assessee. The amount applied for charity was exempted under section 4(b). The assessee appealed to the Appellate Assistant Commissioner of Agricultural Income-tax contending that separate assessments should have been made of each beneficiary and that the income of all the beneficiaries could not be clubbed together in one single assessment. There was an alternative contention that the Agricultural Income-tax Officer had not made out any case for rejection of accounts. The assessee appealed to the Appellate Assistant Commissioner of Agricultural Income-tax contending that separate assessments should have been made of each beneficiary and that the income of all the beneficiaries could not be clubbed together in one single assessment. There was an alternative contention that the Agricultural Income-tax Officer had not made out any case for rejection of accounts. The Appellate Assistant Commissioner confirmed the clubbing of the income in one assessment on the ground that no distribution was made to the beneficiaries and that the trustee was in fact the sole owner. The result was that the Appellate Assistant Commissioner dismissed the appeal filed by the assesseeThereafter, there was an appeal to the Appellate Tribunal and the contention taken before the Tribunal was that the earlier decision of the Tribunal that the wakf was not for charitable purposes within the meaning of section 4(b) had to be reviewed and that the decision of the Privy Council holding that the document creating the trust was valid dedication (wakf) had not been brought to the notice of the Tribunal. There was also another contention based on the decision of this court in Sri Sadaya Pillai Trust v. Agricultural Income-tax Officer. The Agricultural Income-tax Tribunal held that the Agricultural Income-tax Officers were justified in considering that the assessee was not eligible for the exemption from assessment of the whole of the income under section 4(b) of the Act. On the contention against the validity of common assessment aggregating the income of all the beneficiaries in the assessee's hands, the Tribunal took the view that the right of a beneficiary arose only after payment for the charitable purposes was ascertained and on the decision of the trustees to purchase or not to purchase any property out of the 1/3rd income and that the question of applying the rate applicable to each beneficiary did not, therefore, arise. It, therefore, held that separate assessment of all beneficiaries was not possible because the share income of each sharer was not determined. It is this order of the Tribunal dated November 7, 1973, that is challenged in the present revision petition The learned counsel for the petitioner took before us two points. The first point taken was that this trust is wholly a charitable trust so that the income was entirely exempt from assessment under the provisions of section 4 of the Tamil Nadu Agricultural Income-tax Act. The first point taken was that this trust is wholly a charitable trust so that the income was entirely exempt from assessment under the provisions of section 4 of the Tamil Nadu Agricultural Income-tax Act. Section 4, to the extent relevant, runs as follows "Subject to the provisions of this Act, the total agricultural income of any previous year of any person comprises all agricultural income derived from land situated within the State which is received by him or which accrues to him within or without the State, but does not include (b) any agricultural income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied thereto." * According to the learned counsel, the present case falls within the first part of clause (b) of section 4. We have already referred to the Privy Council decision in Mutu K.A.Ramanandan Chettiar v. Vava Levvai Marakayar 1917 (32) MLJ 101; ILR 40 Mad 116, 124 (PC). The circumstances under which that case of this very trust or wakf reached the Privy Council are as follows The descendants of the original grantors or authors of the trust became indebted and there were decrees obtained against them from courts. The decree-holders attached the lands covered by the present trust. The lands were released on a claim filed by the descendants and others. The decree-holder brought a suit for declaration that he was entitled to bring the properties to sale in execution of his decree and he pleaded that the deed was not a valid trust and that it was executed to defeat and defraud the creditors. In considering the appeal against the judgment of this court holding that the trust deed was a valid trust and that the trust had not been executed for the purpose of defeating or defrauding creditors, their Lordships took the view that "Having regard to all the circumstances of the case, the dominating purpose and intention of the grantors in executing this deed evidently was to provide adequately for these charities. That was their main and paramount object. That was their main and paramount object. The secondary and subsidiary object was to secure for their families and descendants any surplus that might remain over after the needs of the charities had been satisfied.....The provisions of the deed carry out these objects, and that being so, it is, in their Lordships' view, only right to hold that the effect of the instrument is not to give the trust property in substance to the family of the grantors, but to give it in substance to the charitable purposes named in it." * The learned counsel for the petitioner submitted that in view of this passage, it would be clear that the decision of the Privy Council was that the trust was wholly for charitable purpose. We are unable to agree with the submission. The Privy Council clearly points out that the document was in substance partly for charity and partly for the maintenance of the members of the family and that both the grants were perpetual grants. Hence it is not possible to spell out from the decision of the Privy Council that the trust has been wholly held to be for a charitable purpose. Having regard to the terms of the document and having regard to the decision of the Privy Council referred to above we are satisfied that the claim for exemption as if the trust was wholly for charitable purposes has to fail The claim of exemption as if the trust was wholly for charitable purposes has to fail for another reason also. In the trust deed there is clear provision that 1/3rd of the income was set apart for investment in immovable properties for the purpose of augmenting the trust. As part of the income has to be applied for purposes of investment and not for the performance of any charity it is clear that the trust cannot be held to be a trust wholly for charitable purposes In Abdul Sathar Haji Moosa Sait Dharmastapanam v. Commissioner of Agricultural Income-tax the Supreme Court had occasion to consider a similar question as to whether the trust could be said to be wholly for charitable purposes when 1/4th income from the properties were earmarked for the purpose of augmenting the corpus. That case also arose under section 4(b) of the Kerala Agricultural Income-tax Act, 1950, which is in pari materia with the provisions of the Madras Act. That case also arose under section 4(b) of the Kerala Agricultural Income-tax Act, 1950, which is in pari materia with the provisions of the Madras Act. The Supreme Court negatived the contention of the assessee that the trust was wholly for charitable purposes. Following that decision also it is clear that in the present case the trust cannot be held to be a trust wholly for charitable purposesDuring the course of the argument the learned counsel for the assessee admitted that the assessee had got exemption, on the basis of the trust being a partial one to the extent of the income applied for charitable purposes. On a proper construction of the trust deed the grant of exemption under section 4(b) to the extent of the amount spent for charitable purposes is correct The second contention taken on behalf of the assessee was that the assessee will be eligible for the assessment on the basis of section 8 of the Tamil Nadu Act. Section 8, in so far as it is material, runs as follows "8(1)(a). In the case of agricultural income taxable under this Act which the court of wards, administrator-general or official trustee or any receiver, administrator, executor, trustee, guardian or manager appointed by or under any law or by an order of court or by written agreement is entitled to receive on behalf of any person, the tax shall be levied upon and recoverable from the court of wards, administrator-general, official trustee, or from such receiver, administrator, executor, trustee, guardian or manager, as the case may be, in like manner and to the same amount as it would be leviable upon and recoverable from the person on whose behalf such agricultural income is receivable, and all the provisions of this Act shall apply accordingly." * This provision would apply in a case where the income is received on behalf of a beneficiary. The point to be considered is whether the income has been received on behalf of the beneficiaries in the present case From the judgment of the district munsif, to which we have made reference already, it is clear that there are 26 sharers. Subsequently, the number of sharers appears to have increased and there was an agreement saying that there are 36 sharers, who are entitled to a share in the surplus of the trust income. Subsequently, the number of sharers appears to have increased and there was an agreement saying that there are 36 sharers, who are entitled to a share in the surplus of the trust income. If the income is receivable on behalf of these 36 sharers then under section 8(1)(a) extracted above, the assessment will have to be in like manner and to the same extent as it would be leviable upon and recoverable from a particular sharer on whose behalf the income was receivable. From the order of the Appellate Tribunal it appears that there are claims for assessment amongst these 36 sharers. It is unnecessary for us to go into the question as to the number of sharers with reference to each year. The learned counsel for the assessee relied, before the Tribunal, on a decision of the Supreme Court in Commissioner of Income-tax v. Managing Trustees, Nagore Durgha in support of his contention that there must be as many assessments as there are sharers. That was a case which arose under the following circumstancesThe Nagore Durgha which was consecrated by a Muslim saint received large income from the properties endowed to it and offerings made by devotees. Under a scheme settled by the Madras High Court the management and administration of the affairs of the Durgha vested hereditarily in a board of 8 trustees called nattamaigars, who elected one among themselves as managing trustee for a period of three years. At the end of each fasli the managing trustee had to prepare a balance-sheet, ascertain the net amount available, after meeting the expenses of the Durgha, for payments to the descendants of the foster-son of the saint, who were called kasupangudars, declare the amount due to each kasupangudar, prepare a list and pay the amount. At the relevant time there were 640 kasupangudars. The question that arose for decision before the Supreme Court was whether in regard to the surplus divisible and payable to the kasupangudars the provisions of section 41 of the Indian Income-tax Act, 1922, which is similar to section 8(1)(a) of the present Act, could be stated to apply. The Supreme Court pointed out that where persons were in management of the charities like the one before it, they were really in the position of managers and not actual trustees. The Supreme Court pointed out that where persons were in management of the charities like the one before it, they were really in the position of managers and not actual trustees. The Supreme Court further pointed out that the doctrine of vesting is not imported into the scheme. Regarding the Muslim wakf, the Supreme Court pointed out at page 324 that "In the case of a Muslim wakf the property vests in the Almighty; even so the mutawallis are brought under the section. A reasonable interpretation of the section is that all the categories of persons mentioned therein are deemed to receive the income on behalf of another person or persons or manage the same for his or their benefit. None of them has any beneficial interest in the income ; he collects the income for the benefit of others. In this view, even if the nattanmaigars were trustees in whom the properties of the Durgha vested, they should be deemed to have received the income only on behalf of the kasupangudars in definite shares." * The Tribunal has distinguished this case as if it did not apply to the present one on the ground that the facts in the present case are not the same as in the case of Nagore Durgha and the issues raised in that case are not the same as in the case on hand. The issue under consideration in the case of Nagore Durgha was the justification, or otherwise of the departmental action of assessing persons in a single assessment. The question is the same here. We do not consider that the Tribunal has properly understood the principle laid down by the Supreme Court. From the passage extracted already it is clear that in the case of a trust deed like the one before us the income is received only on behalf of the beneficiaries especially when the shares of the beneficiaries are ascertained and clearly defined. In these circumstances, we do not consider that there is any scope for distinguishing the said decision as if it does not apply to the facts of the present case. In the case before the Supreme Court, the sharers were specific, viz., 640. In the present case also the sharers are specific. In these circumstances, we do not consider that there is any scope for distinguishing the said decision as if it does not apply to the facts of the present case. In the case before the Supreme Court, the sharers were specific, viz., 640. In the present case also the sharers are specific. Only the shares have to be ascertained in each year according to the circumstances prevailing in the particular year having regard to the number of descendants of the original author of the trust. The Tribunal has proceeded on the basis that the question as to whether the income is received on behalf of the beneficiaries is problematic on the facts because the existence of the surplus itself will not be known until the trustees have actually spent the monies for charitable purposes in each year. We do not consider that this consideration would in any manner affect the applicability of section 8(1)(a). If the trustees in any particular year spend the whole of the income on charitable purposes, then, there will be no income left in the hands of the assessee for assessment. If, on the other hand, the trustees have spent only part of the amount on such charitable purposes, then, the surplus income will have to be divided among the beneficiaries and to that extent there will be an assessment either in the hands of the trustees in their vicarious capacity or in the hands of the beneficiaries directly, in accordance with the respective sharesFor the foregoing reasons we hold that the assessee is justified in his claim that the assessment should be made in the hands of the trustees only in a representative capacity in accordance with the provisions of section 8(1)(a) and the whole of the income cannot be clubbed in the hands of the trustee as if it is a single unit of assessment. We also find that the Tribunal has remanded the matter to the Agricultural Income-tax Officer and the Agricultural Income-tax Officer would work out the shares in accordance with the directions given above and make separate assessments. This tax revision petition is allowed accordingly in part and there will be no order as to costs.