Law:

Section:

Section 11 of the Income-tax Act, 1961 [Corresponding to section 4(3)(i) of the Indian Income-tax Act, 1922] - Charitable or religious trust - Exemption of income from property held under - Settlor "L" created a trust appointing himself and his relatives as trustees - Assessee trustees claimed exemption of income from trust properties under section 4(3)(1) of Act 1922 - However, one of effect of provision of trust deed was that trustees had full discretion to spend trust fund and in doing so they might spend their entire funds on one objects to exclusion of other and they might be able to spend entire funds for aid of settlor's family - Whether in view of above provision of trust deed, assessees were not entitled to exemption under section 4(3)(i) of Act 1922 - Held yes FACTS A trust was created by "L" by executing the indenture of trust. Four trustees were appointed; one was the settlor himself, the other trustee was the son of the settlor, and there were two other trustees who belonged to settlor's family. When the assessee-trustees filed their returns for the income of the trust properties they claimed that the income of the aforesaid trust should not be brought to tax as the said income was exempt under section 4(3)(i) of Act 1922. The ITO however, did not accept this plea. He observed that, as the income of the trust could also be utilised for aid to persons belonging to the settlor's family as well and as the whole of the income was not set apart for charitable purposes, the income of the trust did not qualify itself for exemption under the Act of 1922. When the ITO pointed out this drawback to the assessee, a supplementary trust deed was produced before him but the ITO did not find it sufficient to overcome the difficulty so far as the relevant assessment years were concerned as, in his view, the supplementary deed, which purported to introduce new clauses in the original indenture of trust, could not have retrospective operation. In the circumstances, the ITO rejected the plea about the exemption and brought the income of the trust to tax. On appeal the AAC after reading the objects of the trust, came to the conclusion that the dominant intention of the…

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