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Commissioner Of Income-Tax vs Palghat Shadi Mahal Trust on 24 October, 1998

Kerala High Court
Commissioner Of Income-Tax vs Palghat Shadi Mahal Trust on 24 October, 1998
Equivalent citations: 1999 236 ITR 722 Ker
Author: J Koshy
Bench: O Prakash, J Koshy


JUDGMENT

J.B. Koshy, J.

1. In these income-tax reference cases at the instance of the Revenue, under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act), a common question regarding eligibility of exemption under Section 11 of the Act to the assessee is referred for considera-tion. The assessee, the Palghat Shadi Mahal Trust, is a trust constituted by a deed of trust dated April 14, 1975, and is registered under Section 12A of the Income-tax Act by the Commissioner of Income-tax as per order dated October 28, 1976. It claimed exemption under Section 11 of the Act as a charitable institution. The assessment years involved are 1976-77, 1977-78, 1978-79, 1979-80, 1980-81, 1983-84. 1984-85 and 1985-86. For the assessment year 1976-77, the Tribunal held that the assessee is a charitable trust and that the benefit of the trust enures to the public at large and not to any particular religious community and that there is no infirmity in the objects of the trust and, therefore, held that the trust was a charitable trust entitled to exemption under Section 11 of the Income-tax Act. In the trust deed, the object of the trust is stated as follows :

“Whereas the said trustees being desirous of constituting a trust for the purpose of constructing and establishing at Palghat a Shadi Mahal and other institutions for the educational, social and economic advancement of the Muslims and for religious and charitable objects recognised by Muslim law, have agreed to create such a trust.”

2. The Tribunal noticed that the trust deed is dated April 14, 1975, but on April 20, 1975, it was resolved by the trustees as follows :

“The managing trustee and the treasurer are hereby authorised and shall be entitled to open accounts in the bank in the name of Palghat

Shadi Mahal Trust Chit Committee, operate the same and close down the same as and when necessary jointly or individually.”

Considering the various clauses the Tribunal held that the clarificatory resolution dated April 20, 1975, is to be read with the original deed dated April 14, 1975, and must be deemed to have been incorporated in the original deed itself, and the trust is entitled to exemption under Section 11 of the Act.

3. In CIT v. Palghat Shadi Mahal Trust [1990] 181 ITR 287, a Division Bench of this court in a reference at the instance of the Revenue found that the reasoning of the Tribunal was not correct and the Income-tax Tribunal was directed to hear the appeal afresh and decide the matter in accordance with law. Thereafter, the Tribunal reconsidered the matter and held that the clarificatory resolution has no impact on the trust though that resolution is a bona fide one. The Tribunal held as follows :

“In other words, even if the trust deed along with the preamble, the clarificatory resolution and the other enacting clauses found in the trust deed are read together, it is not possible to give effect to the clarificatory resolution.”

4. The Tribunal again held :

“Even if a liberal construction is placed on the document as a whole at the most it could only be said that access to other communities and general charitable purposes as adumbrated in the clarificatory resolution dated April 20, 1975, can only take its seat in the rear, as the primary purpose of the Trust is for the betterment of the members of the Muslim community and for charitable purposes recognised under the Mohammedan law.”

5. The contention of the Revenue was that in view of Section 13(1)(b) of the Act, since the charitable institution is created or established for the benefit of the religious community, namely, Muslim community, the assessee is not entitled to the benefit of Section 11 of the Act. Section 13(1)(b) reads as follows :

“13. (1) Nothing contained in Section 11 or Section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof–. . .

(b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste.”

However, the Tribunal found that in view of Explanation 2 to Section 13 the assessee will not come within the ambit of Section 13(1)(b) of the Act. The above Explanation 2 reads as follows :

“A trust or institution created or established for the benefit of Sche-dule Castes, backward classes, Scheduled Tribes or women and children

shall not be deemed to be a trust or institution created or established for the benefit of a religious community or caste within the meaning of Clause (b) of Sub-section (i).”

According to the Tribunal, the Muslim community is a backward one as recognised by the Kerala Government and, therefore, the trust is created mainly for the benefit of a backward community, that is, the Muslim community, and in view of the same Section 13(1)(b) has no application and the assessee will be entitled to the benefit of Section 11 of the Act. This view was followed with regard to other accounting years also.

6. Even though one and the same question is to be decided in these cases regarding application of Section 11 of the Act and interpretation of Explanation 2 to Section 13 on the same set of facts for the same assessee, the questions are framed in different words. For the assessment years 1976-77 to 1979-80, 1983-84 and 1984-85 the question referred is :

“Whether, on the facts and in the circumstances of the case, the assessee is a charitable institution whose income is exempt under Section 11 of the Income-tax Act, 1961 ?”

For the assessment years 1978-79 to 1980-81, the question referred is :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to exemption under Section 11 of the Income-tax Act, 1961 ?”

7. For the assessment year 1986-87, the question referred is :

“Whether, on the facts and in the circumstances of the case, is the assessee a charitable institution entitled to exemption under Section 11 even if the assessee has applied or accumulated its income as provided under the provisions of the Income-tax Act ?”

Learned standing counsel for the Revenue argues that the word used in Explanation 2 is Scheduled Castes, Scheduled Tribes, backward classes, etc. It is used in the plural. Unless the trust is created for Scheduled Castes, Scheduled Tribes or backward classes as a whole, the benefit of Explanation 2 cannot be claimed. In other words, if a trust is created for a particular Scheduled Caste or one of the backward classes, Explanation 2 is not applicable and more than one caste at least should be there as beneficiaries.

8. It is not disputed that the Muslim community is considered as backward caste in the Kerala State. The educational concessions were given to Muslims in Kerala as a whole treating it as a backward caste. Annexure-B is the Gazette notification published by the Kerala State showing the list of Scheduled Castes, the Scheduled Tribes and backward classes. Muslim is appearing as item 43 in the Second Schedule as one of the backward classes. Therefore, the entire Muslim community is declared as one of the backward classes. Considering the constitutional mandate and object of Explanation 2, we cannot accept the contention of learned standing counsel that even though Muslim is a backward class, since the benefit is intended only for one of the backward classes, that is, the religious community of Muslims, Explanation 2 is not applicable. According to us, Explanation 2 is clear and unambiguous, If the trust is intended for the benefit of Scheduled Castes, Scheduled Tribes or backward classes, Explanation 2 is applicable and the benefit of exemption under Section 11 cannot be denied on the ground of Section 13(1)(b) of the Act. All members of the Muslim community as a whole are declared as a backward community in Kerala State and are entitled for the benefit of the scheme. It is not intended for one individual Muslim or one sub-group of the Muslim community. Even if the trust is intended for the benefit of all the members of one caste in the Scheduled Castes it will be covered Explanation 2. Narrower interpretation is not possible in such cases. As found by the Tribunal, since the trust is intended for the benefit of all the members of one of the backward classes, the Muslim religious community which is admittedly declared as backward in the Kerala State, we see no reason to accept the contention of learned senior standing counsel for the Revenue and we are of the view that the assessee-trust is entitled to the benefit of Section 11 of the Act and the benefit cannot be denied on the ground of Section 13(1)(b) in view of Explanation 2 to the above section.

9. Therefore, we answer the questions in the affirmative, that is, in favour of the assessee and against the Revenue.

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