A) ABSTRACT / HEADNOTE

This case explores the core legal issue concerning the eligibility of a trust for income tax exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922. The appeal was brought by The Trustees of the Charity Fund, Esplanade Road, Fort, Bombay, challenging the decision of the Bombay High Court. The key contention surrounded whether the income generated from a trust deed created by Sir Sassoon David, Baronet of Bombay, was genuinely for public charitable purposes, or whether the clauses enabling preferential treatment to his family diluted its public character. The Supreme Court distinguished the trust’s objectives from purely private family benefits and held that the deed, despite preferential provisions, qualified as a public charitable trust. The apex court emphasized that the primary purpose of a trust must govern its classification and that incidental preferences do not negate its public utility. The judgment is significant in defining the threshold of public utility and charitable intent under income tax law.

Keywords: Charitable Trust, Income Tax Exemption, Section 4(3)(i), Public Utility, Preference Clause, Supreme Court

B) CASE DETAILS

i) Judgement Cause Title
The Trustees of the Charity Fund, Esplanade Road, Fort, Bombay v. The Commissioner of Income-tax, Bombay

ii) Case Number
Civil Appeal No. 396 of 1957

iii) Judgement Date
May 5, 1959

iv) Court
Supreme Court of India

v) Quorum
S.R. Das (C.J.), N.H. Bhagwati, M. Hidayatullah, JJ.

vi) Author
Justice S.R. Das, C.J.

vii) Citation
The Trustees of the Charity Fund v. The Commissioner of Income-tax, Bombay, [1959] Supp. 2 S.C.R. 923

viii) Legal Provisions Involved
Section 4(3)(i) of the Indian Income-tax Act, 1922

ix) Judgments overruled by the Case (if any)
None expressly overruled, but distinguished from Trustees of Gordhandas Govindram Family Charitable Trust v. CIT [1952] 21 ITR 231

x) Case is Related to which Law Subjects
Taxation Law, Trust Law, Constitutional Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The present appeal emerges from a reference made by the Income-tax Appellate Tribunal under Section 66(1) of the Indian Income-tax Act, 1922, concerning the applicability of Section 4(3)(i) which provides income tax exemption for properties held in trust for public charitable or religious purposes. The appellants, trustees of a trust established by Sir Sassoon David, managed a substantial corpus derived from securities valued at ₹24.25 lakhs. The trust deed, executed in 1922, included six sub-clauses delineating the charitable purposes. However, it also contained provisos mandating preference to family members and the Jewish community of Bombay. The Bombay High Court had previously held that these provisos overshadowed the charitable nature of the trust. On appeal, the Supreme Court was tasked with determining whether such preferences vitiated the charitable nature of the trust altogether.

D) FACTS OF THE CASE

Sir Sassoon David, along with four others, created a trust in 1922 by executing a Deed of Declaration of Trust. The trust corpus was invested in Government securities. Initially, the income was treated as exempt under Section 4(3)(i). However, in 1948, upon conversion of securities and consequent reassessment by the Income-tax Officer, exemption was denied. The Revenue initiated proceedings under Section 34 for escaped income and continued to assess the trust from 1948–49 to 1952–53. The tribunal set aside assessments for earlier years due to mere difference in opinion among officers but sustained them for the later years. The trustees appealed to the High Court, which ruled against them, leading to the present appeal before the Supreme Court.

The heart of the issue lay in Clause 13 of the trust deed. The clause authorized the use of net income for six categories of public welfare activities—relief of poor, education, healthcare, disaster relief, religious advancement, and other public good. Yet, the provisos directed the trustees to prefer the family of Sir Sassoon David and the Jewish community of Bombay. These preferences led the High Court to conclude that the trust lacked a truly public character.

E) LEGAL ISSUES RAISED

i) Whether the trust was wholly for religious or charitable purposes under Section 4(3)(i) of the Income-tax Act, 1922?

ii) If not wholly charitable, whether it was at least partly for charitable purposes to qualify for proportional exemption?

F) PETITIONER/ APPELLANT’S ARGUMENTS

i) The counsels for the Petitioner submitted that the primary objectives under Clause 13 of the trust deed clearly satisfied the criteria of public utility, as set out under Section 4(3)(i). They emphasized that sub-clauses (a) to (f) of the clause broadly covered relief of poverty, education, and advancement of religion. They further contended that preference clauses did not convert the trust into a private family arrangement, since preference was to be exercised within a class already defined by public interest—i.e., poor and indigent members of any community.

The petitioners argued that the trust was comparable to that upheld in In re Koettgen’s Will Trusts [1954] Ch. 252, where the court allowed preferences within a public class of beneficiaries as long as the foundational character of the trust remained public. They further distinguished the case from Trustees of Gordhandas Govindram Family Charitable Trust v. CIT [1952] 21 ITR 231, asserting that in that case the beneficiaries were narrowly limited to family members, while in the present case, family members were only one of many within the public pool of eligible persons.

G) RESPONDENT’S ARGUMENTS

i) The counsels for the Respondent submitted that the first proviso to Clause 13 skewed the distribution of trust income exclusively in favour of Sir Sassoon David’s relatives, thereby nullifying the trust’s public character. They pointed out that trustees were under a mandatory obligation to prefer family members and that they could legally spend the entire income of the trust on them alone without violating the deed.

They emphasized the language of the second proviso, which required at least half the income to be used for the Jewish community of Bombay, including Sir Sassoon’s relatives. They argued this established a class of primary beneficiaries that lacked public utility. The department cited Trustees of Gordhandas Govindram Family Charitable Trust v. CIT as a precedent to argue that trusts primarily favoring relatives could not claim exemption.

H) RELATED LEGAL PROVISIONS

i) Section 4(3)(i) of the Indian Income-tax Act, 1922
“Any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes shall not be included in the total income…”
Read the provision here

I) JUDGEMENT

a. RATIO DECIDENDI

i) The Supreme Court held that the primary clause (Clause 13) of the trust deed outlined objectives that undoubtedly qualified as public charitable purposes. The preferences given to family members under the provisos did not disqualify the trust from the benefit of Section 4(3)(i). The Court relied heavily on the reasoning in In re Koettgen’s Will Trusts [1954] Ch. 252, stating that preferences within a public class do not convert a trust into a private one. The emphasis should be on the eligibility criteria at the primary stage. Since the family members could only be chosen from the larger public class, the public character of the trust remained intact.

b. OBITER DICTA

i) The Court observed that mere potential for abuse or misapplication by the trustees does not alter the legal nature of a valid charitable trust. Also, the Court stressed the importance of interpreting the deed as a whole rather than isolating the provisos.

c. GUIDELINES 

• In determining whether a trust is for public charitable purposes, courts must assess the primary class of beneficiaries.

• Preferential treatment within a public class does not invalidate the charitable nature of the trust.

• Courts should interpret deeds in totality rather than letting subsidiary clauses outweigh core purposes.

• A trust must be assessed by the character of its objects, not by how income might hypothetically be spent.

J) CONCLUSION & COMMENTS

The Supreme Court reasserted the principle that a charitable trust must be judged by its dominant purpose. Preferences in favour of specific classes—such as relatives—do not per se render a trust non-charitable if the foundational object serves a broader public purpose. This judgment stands as a landmark clarification on income tax exemption for public charitable trusts, providing key judicial safeguards for genuinely charitable institutions against arbitrary denial of tax benefits. It also serves as a persuasive precedent for interpretation of modern trusts that balance public good with founder preferences.

K) REFERENCES

a. Important Cases Referred

[1] In re Koettgen’s Will Trusts, [1954] Ch. 252
[2] Trustees of Gordhandas Govindram Family Charitable Trust v. Commissioner of Income-tax, [1952] 21 ITR 231

b. Important Statutes Referred

[3] Indian Income-tax Act, 1922, Section 4(3)(i) – Read here
[4] Bombay Public Trusts Act, 1950 – Read here