JUDGMENT D. P. WADHWA, J. :
Leave granted in Special Leave Petition.
2. These appeals arise out of the two judgments of the Punjab and Haryana High Court dt. 18th January, 1980 and 25th January, 1988. The first judgment arose out of the IT Ref. under s. 256(1) of the IT Act, 1961 (for short the IT Act) for the asst. yr. 1971-72, 1972-73 and 1973-74 and WT Ref. under s. 27(1) of the WT Act, 1957 (for short the WT Act) for the asst. yrs. 1973-74 and 1974-75; and second judgment is in reference under s. 256(1) of the IT Act for asst. yr. 1975-76.
The questions which arise from the references under the IT Act are :
"1. Whether, in view of cl. 41 of the trust deed, cl. 39 of the trust deed can be legally amended. If so, whether such amendment would give rise to a legally enforceable mandate, as contemplated by the first proviso to sub-s. (1) of s. 13 of the IT Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the interest income of the assessed-trust is exempt from tax under s. 11 r/w first proviso to sub-s. (1) of s. 13 of the IT Act, 1961 ?"
The question on which reference was sought under the WT Act is as under :
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessed-trust is exempt from wealth-tax under s. 21A of the WT Act, 1957 ?"
3. As to how these questions arose we may refer, in brief, to the facts of the case.
Assessee is a trust and was created by deed of trust dt. 28th March, 1942. Clause 41 of the trust deed provided for amendment to the provisions of the trust deed with regard to the conduct and management of the trust. It is as under :
"41. Except as to the names and aims and objects of the trust the trustees shall have the power by the majority of 75 per cent. of their total number to change, modify or amend any of the rules, regulations, any provisions hereinbefore contained with regard to the conduct and management of the trust and with regard to any matter in respect of which any power is confirmed or duty imposed."
When the trust deed was executed cl. 39 provided as under :
"39. All the monies with trustees or sub-committees except imprest sums to be determined by the trustees shall be invested by the trustees in such banks or securities in such manner as may be approved of by the trustees. The trustees may from time to time purchase immovable property with the surplus funds in their hands."
However, in pursuance of the powers conferred on the trustees by virtue of cl. 41 aforesaid the trustees passed a resolution on 14th March, 1971 amending cl. 39 of the trust deed. This new cl. 39 reads as under :
"That the trustees may from time to time purchase immovable property with the funds of the trust. The funds of the trust which are not required for immediate needs of the trust shall be kept with M/s Gokal Chand Rattan Chand Woollen Mills (P) Ltd. Provided that the trustees may keep not exceeding Rs. 2,00,000 in Government securities, bank account and/or cash in hand."
By virtue of this amendment to cl. 39, trust funds were invested in M/s Gokal Chand Rattan Chand Woollen Mills (P) Ltd. in shares and deposits. It is admitted case that the trustees of the assessees trust are interested in this concern. The dispute in the present appeals relates to the interest income received in each assessment year by the assessee from M/s Gokal Chand Rattan Chand Woollen Mills (P) Ltd. The assessee claimed exemption in respect of the interest income under s. 11 of the Act which exempts income from property held for charitable or religious purposes. The ITO did not agree with the contention of the assessee that the interest income was exempt under s. 11 of the Act. The ITO was of the view that the assessee had violated the provisions of s. 13 of the Act inasmuch as the trust funds had been invested in the concerns of the trustees in which they were having interest. According to him the assessee violated cls. (a) and (h) of sub-s. (2) of s. 13 of the Act. He was also of the view that the deposit made in M/s Gokal Chand Rattan Chand Woollen Mills (P) Ltd. carried interest at a much lower rate. Against the order of the ITO the assessee filed appeal before the AAC who agreed with the ITO and dismissed the appeal. The matter was taken by the assessee to the Tribunal, who, however, held that amendment made to cl. 39 of the trust deed was valid and that as this clause mandated that funds of the trust which were not required for immediate need of the trust shall be kept with M/s Gokal Chand Rattan Chand Woollen Mills (P) Ltd., there was no violation of the provisions of s. 13 of the IT Act. The Tribunal, therefore, allowed the appeal of the assessee. On references both under the IT Act and the WT Act, the High Court affirmed the view taken by the Tribunal and decided the questions in favour of the assessee and against the Revenue. This is how the matter has come before this Court on appeal by the Revenue.
4. We may refer to the relevant provisions of the IT Act and the WT Act.
Sec. 13 provides for exigencies when the provisions of s. 11 would not be applicable. Sec. 13 was amended by Finance Act, 1970, w.e.f. 1st April, 1971. It is stated that the Bill amending s. 13 was introduced on 14th March, 1971, the date on which cl. 39 of the trust deed was amended by the trustees. Sec. 13 of the IT Act was substituted by new section by the Finance Act 1970, w.e.f. 1st April, 1971. It is not necessary for us to quote in extenso the objects and reasons for substituting this new s. 13 and it would suffice if we reproduce the relevant para from the objects and reasons for purposes of our discussion. It is as under :
"Under one of the proposed amendments, all charitable or religious trusts or institutions created or established after the 31st March, 1962, will be denied the benefit of exemption from income-tax if any part of their income or property enures or is, during the previous year, applied, directly or indirectly, for the benefit of the author, founder, substantial contributor or relative aforesaid or for the benefit of any concern in which any such author, founder, substantial contributor or relative has substantial interest. In the case of trusts or institutions created or established before the 1st April, 1962, the exemption from tax will be denied only if their income is applied for the benefit of the author, founder, etc., otherwise than in compliance with a mandatory term of the trust or a mandatory rule governing the institution."
We may, now, reproduce the relevant provisions of s. 13 of the IT Act inserted by the Finance Act, 1970. As noted above s. 11 exempts the income from property held for charitable or religious purposes. Sec. 12 deals with the income of trusts or institutions from contributions.
Sec. 13 in relevant part, reads as under :
"13. Sec. 11 not to apply in certain cases. - (1) (Nothing contained in s. 11 or s. 12) shall operate so as to exclude from the total income of the previous year of the person in receipt thereof -
(a) x x x (b) x x x (bb) x x x
(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof -
(i) x x x
(ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-s. (3) :
Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-cl. (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-s. (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution."
x x x "(2) Without prejudice to the generality of the provisions of cl. (c) of sub-s. (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-s. (3), -
(a) if any part of the income or property of the trust or institution is, or continues to be, lent to any person referred to in sub-s. (3) for any period during the previous year without either adequate security or adequate interest or both;
x x x
(h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971) in any concern in which any person referred in sub-s. (3) has a substantial interest.
It may not be necessary to quote sub-s. (3) of s. 13 of the IT Act, as it is admitted that M/s Gokal Chand Rattan Chand Woollen Mills (P) Ltd. is a person referred to in the sub-section in which the trustees were having substantial interest and would fall under s. 13(1) and (2).
Sec. 21A of the WT Act, in relevant part, is as under :
"21A. Assessment in cases of diversion of property, or of income from property, held under trust, for public charitable or religious purposes. - Notwithstanding anything contained in cl. (i) of sub-s. (1) of s. 5, where any property is held under trust for any public purpose of a charitable or religious nature in India and -
(i) any part of such property or any income of such trust (whether derived from such property or from voluntary contributions referred to in sub-cl. (iia) of cl. (24) of s. 2 of the IT Act) is used or applied, directly or indirectly, for the benefit of any person referred to in sub-s. (3) of s. 13 of the IT Act, or
(ii) any part of the income of the trust (whether derived from such property or from voluntary contributions referred to in sub-cl. (iia) of cl. (24) of s. 2 of the IT Act), being a trust created on or after the 1st day of April, 1962, enures, directly or indirectly, for the benefit of any person referred to in sub-s. (3) of s. 13 of the said Act, or
(iii) any funds of the trust are invested or deposited, or any shares in a company are held by the trust, in contravention of the provisions of cl. (d) of sub-s. (1) of s. 13 of the IT Act, wealth-tax shall be leviable upon, and recoverable from, the trustee or manager (by whatever name called) in the like manner and to the same extent as if the property were held by an individual who is a citizen of India and resident in India for the purposes of this Act, but without excluding the value of any asset under sub-s. (1) of s. 5, and at the maximum marginal rate :
Provided that in the case of a trust created before the 1st day of April, 1962, the provisions of cl. (i) shall not apply to any use or application, whether directly or indirectly, of any part of such property or any income of such trust for the benefit of any person referred to in sub-s. (3) of s. 13 of the IT Act, if such use or application is by way of compliance with a mandatory term of the trust."
5. The answer to the questions referred to the High Court would depend on the interpretation of the first proviso to s. 13(1)(c)(ii) of the IT Act and to the first proviso to s. 21A of the WT Act both of which have been quoted above. It is to be seen if the provisions of the trust deed particularly cl. 39 as amended fall within the ambit of the proviso trust was created before the commencement of the IT Act, 1961 which came into force on 1st April, 1962 and cl. 39 of the trust deed as it stood at that time did not make mandatory provision regarding the investments of the funds of the trust in a concern in which the trustees had an interest. What this cl. 39 as it originally stood required was that all monies shall be invested in such banks or securities in such manner as may be approved by the trustees. The trustees were also authorised to purchase even property from the surplus funds in their hands. By virtue of the power conferred on the trustees by cl. 41 of the trust deed this cl. 39 was amended by resolution of the trustees dt. 14th March, 1971. Now, cl. 39 as amended mandated the trustees to keep the funds of the trust with M/s Gokal Chand Rattan Chand Woollen Mills (P) Ltd. in which company admittedly the trustees were interested.
The requirements of the proviso with which we are concerned are (1) trust should have been created before 1st April, 1962 and (2) the trustees apply the funds of the trust in a concern in which they themselves are interested if there was a mandatory provision in the trust deed for such purpose. The question which squarely falls for consideration is if the second condition should have been there in the trust deed before 1st April, 1962 when the IT Act came into force or if such a condition could be added subsequently in the trust deed after this date if the propounder of the trust in the trust deed so authorised the trustees to amend the trust deed allowing the trustees to invest the funds of the trust in a concern in which they might be interested. To us it appears the answer is quite obvious that such a mandate in the trust deed should have existed before 1st April, 1962 and could not have been brought in by amending the trust deed at a later stage after that crucial date even if the trust deed to bring in the mandatory condition or requirement for them to invest funds of the trust in concern in which they might be interested. Any other interpretation would set at naught the proviso and would defeat the very purpose for which the proviso was added in s. 13. If we accept any other interpretation then the trustees even today could amend the trust deed and bring in their case to fall within the proviso.
6. Mr. Verma, learned counsel for the assessee, referred to a few judgments of this Court to contend that in case there was doubt as to interpretation of any provision of the fiscal statute or that there could be two views possible the one which favours the assessee should be preferred. It is not necessary for us to refer to the settled principles on the interpretation of statutes as we are clear in our mind that purport of the proviso is in no way obscure and proviso would apply only if the trust created before 1st April, 1962 mandated at that time that the trustees could invest the funds of the trust in a concern in which they were interested being the persons referred to in cl. (c)(ii) of sub-s. (1) and sub-s. (2) by virtue of sub-s. (3) of s. 13 of the Act.
7. Accordingly, we allow the appeals, set aside the judgments of the High Court and answer the questions in the negative, in favour of the Revenue and against the assessee. No costs.