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

Citation: [1966] 2 S.C.R. 384 · Decided: 26-10-1965 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Judgment (excerpt)

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 
option, and that therefore their case was directly governed by the sub' 
stantive part of cl. (i) of s. 4(3) of the Act. 
B 
c 
D 
HELD: Under cl. (i) of s. 5(3) of the Act only income from the 
property wholly or in part held in trust actually applied or set apart for 
E 
application for future spending on religious or charitable purposes within 
the taxable territories is exempted from incluo;ion in the total income 
(390 G-H] 
The substantive part of cl. (i) of s. 4(3) fo in two parts : the first 
part relates tG the income derived from prol""rty held under trust wholly 
for religiGus or charitable purposes and the second part to income derived 
from property held in part only for such purpose. The words "applied or F 
finally set apart for application" in the sec,>nd part indicate that unless 
the income from ,the. said property is applied or finally set apart for the 
purposes within the taxable territories, the said income does not earn the 
exemption. There cannot be. any reason :why a different meaning should 
be given to the expression "applied or accumulated for applicati0n" in the 
first part of the clause, for, on principle, there cannot be anv possible 
distinction between such income from 
the property wholly held 
under the trust or a part of the property held in trust. The 
G 
w·ords "applied" and Haccumulated", therefore. must mean "applied or 
finally set apart''. "Applied" means that the income is actually applied 
for the said purposes in the taxable territories; and "accumulated" means 
that the income is set apart during the year for future spending on the 
said purposeis. 
The expression "accumulated for a purpose" involves a 
conscious act in presenti and posits a clear indication on the part of the 
trustee to set apart the. income: for that purpose (390 B-G] 
H 
Till the Trustee set apart the accumulation for the purposes within the 
taxable territories, it cannot be said that the: purposes are within the tax-
able territori.,;. [392 CJ 
' ., 
NIZAM's TRUST v. C.I.T. (Subba Rao, J.) 
• 
385 
A 
Mohan1n1ad lbrahiln Riza v. 
lnco1ne-tax 
Comniissioner, 
Nagpur, 
(1930) L.R. 57 I.A. 260. referred to. 
C1v1r. APPELLATE JURISDICTION: Civil Appeal Nos. 491, 492 
of 1964. 
Appeal by special leave from the judgment and order dated 
'. 
B September 14, 1962 of the Andhra Pradesh High Court in Case 
Referred No. 4 of 1961. 
D. Narsaraju, Anwarullah Pasha, J. B. Dadachanji, 0. C. 
{ 
Mathur and Ravinder Narain, for the appellant. 
,. 
A. V. Viswmtatha Sastri, N. D. Karkhanis, R.H. Dhebar and 
rt 
f'.t. 
-··~ 
.\-
w 
' 
C R. N. Sachthey, for the respondent. 
The Judgment of the Court was delivered by 
Subba Rao, J. 
This appeal by special leave raises the question 
of the true construction of the provision of s. 4(3 )(i) of the 
Indian Income-tax Act, 1922, hereinafter called the Act. 
D 
The relevant facts may be briefly stated. 
By an indenture 
E 
F 
G 
H 
dated September 14, 1950, H.E.H. the Nizam of Hyderabad 
created a trust known as "H.E.H. the Nizam's Religious Endow· 
ment Trust", hereinafter referred to as the Trust, under which he 
settled certain securities of the face value of Rs. 40 lakhs for 
implementing the objects described in the Trust deed. Under the 
Trust deed three trustees were appointed, including the se

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