H.E.H. NIZAM'S RELIGIOUS ENDOWMENT TRUST, HYDERABAD vs. COMMISSIONER OF INCOME-TAX, ANDHRA PRADESH, HYDERABAD

CIVIL APPEAL No. 491/1964Supreme Court[1966] 2 S.C.R. 38426 October 1965Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI9 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that for income to be exempted under Section 4(3)(i) of the Indian Income-tax Act, 1922, it must be actually applied or finally set apart for application for religious or charitable purposes within the taxable territories. The substantive part of Section 4(3)(i) requires income to be 'applied or accumulated for application'. The court interpreted 'applied' to mean income actually spent in taxable territories, and 'accumulated' to mean income set apart during the year for future spending on such purposes. This requires a conscious act by the trustees to set apart the income. The court found that the trust deed did not confer power on the trustees to set apart income for specific purposes during the settlor's lifetime, and no such setting apart had occurred. Therefore, the income was not eligible for exemption. The appeals were dismissed.

What were the facts?

The assessee, H.E.H. Nizam's Religious Endowment Trust, created a trust for four religious and charitable objects, two within and two outside taxable territories. The trust deed stipulated that during the settlor's lifetime, income would be accumulated, and after his death, spent on these objects. The Trustees were assessed to income tax for assessment years 1952-53 and 1953-54 on the trust property income. Their claim for exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922, was rejected by the Income-tax Officer, Appellate Assistant Commissioner, and Income-tax Appellate Tribunal. The High Court also upheld the revenue's position. The Trustees appealed to the Supreme Court, arguing that since the income was not yet allocated or set apart for specific purposes, their case fell under the substantive part of Section 4(3)(i).

What were the issues?

1. Whether income derived from trust property, where some objects are within taxable territories and some are outside, can be exempted under Section 4(3)(i) of the Indian Income-tax Act, 1922, when the income has not been allocated or set apart for specific purposes within the taxable territories. Assessee's contentions: The assessee argued that proviso (a) to Section 4(3)(i) applies only when trustees exercise their option to apply income to purposes outside taxable territories. In this case, as the option was not exercised, the substantive part of Section 4(3)(i) governed, allowing exemption. Revenue's contentions: The revenue contended that for exemption under Section 4(3)(i), the income must be actually applied or finally set apart for application for religious or charitable purposes within the taxable territories. The judgment does not explicitly record the revenue's specific arguments beyond what is implied by the court's reasoning.

Which sections of the Income-tax Act were involved?

Section 4(3)(i)

AI-generated summary — verify with the full judgment below

H.E.H. NIZAM'S RELIGIOUS ENDOWMENT TRUST, A HYDERABAD v. COMMISSIONER OF INCOME-TAX, ANDHRA PRAUESH, HYDERABAD October 26, 1965 [K. SUBBA R.Ao, J. C. SHAH ANDS. M. SIKRI, JJ.J Indian Income-Tax iAct, 1922 (Act 11 of 1922), s. 4(3) (i)-Trust far religious and charitable objects sonte within taxable territories and son1e outsid,e-Jnco1ne not allocated-Exen1ption, lf can be clabned. A trust was created for four religious and charitable objects, two of the objects were within taxable territories and the other two were out- side the taxable! territories. The income derived from the trust property was not allocated or set apart for the said purposes. The Trustees weire assessed to Income-tax on income derived on the Trust properly. The Trustees' claim for exemption under s. 4(3)(ii) of the Income-tax Act was not accepted by the Revenue and the High Court. In appeal to this Court the. Trustees contended that proviso (a) to s. 4(3) (i) of the Act would be attracted only when the Trustees exercised their option to apply the income to religious or charitable purposes outside the. taxable terri• tories, that in the present case the Trustees had not exercised the said op

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