Our company trust builds quarters for our own workmen and staff. Is that a public charitable trust, and does a civil court decree rectifying the trust deed help for earlier years?
It depends on the deed, and a rectification decree does not reach back. The Supreme Court held that under the 1945 rectified deed the trustees were obliged to build quarters in particular for the workmen, staff and other employees of the settlor company and its allied concerns, who may include the affluent. That made the reference to workmen in general illusory, so the object was not public charitable and the whole trust failed the wholly charitable test. Under the 1955 rectified deed the objects were wholly charitable. The second decree operated only from assessment year 1956-57. The assessing officer could not go behind the decree, but could construe the deed as rectified.
Decided by the Supreme Court (Supreme Court of India; S.B. Majmudar and B.P. Jeevan Reddy JJ. Judgment by Majmudar J) on 1995-11-16, reported as (1996) 217 ITR 699; 1996 (7) SCC 349; AIR 1996 SC 620; (1996) 84 Taxman 248; (1995) 8 JT 364 (SC). It bears on section 11, section 2(15) of the Income Tax Act 1961, in Charitable Trusts & Exemption and Capital Gains Exemptions matters.
This is the leading Supreme Court authority on two questions that recur together for company trusts. First, who counts as the public. A fluctuating body of the settlor's own present and future employees is not a section of the public, following the Calcutta High Court in Mercantile Bank of India, and a clause that names workmen in general but then obliges the trustees to provide in particular for the company's own staff is read as confined to that group. Second, what a rectification decree does in tax. The officer may not sit in judgment on the decree or ask whether the conditions for rectification existed, but the decree takes effect from its own date for assessment purposes and does not rewrite completed years. So a trust that cures a defective object clause gets the benefit prospectively only. The Court also warns that one non-charitable object among many defeats the exemption entirely, because the property must be held wholly for charitable purposes.
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By a deed of 27 October 1941 J.K. Spinning and Weaving Mills settled on trustees two plots at Kanpur, obtained from the Improvement Trust at concessional rates, to build a settlement for its workmen with hospitals, schools, temples, mosques and recreation grounds. Clause 2(b)(i) required residential quarters, chawls or buildings to be erected for workmen in general and in particular for the workmen, staff and other employees of the company and allied concerns. The company sued under the Specific Relief Act and obtained a rectification decree in 1945, and a second decree on 10 May 1955 in a suit in which representative defendants were impleaded after public notice. The assessing officer reopened assessments for 1949-50 to 1965-66, held the trust was for employees only, and refused to give effect to the rectifications. The Appellate Assistant Commissioner agreed. The Tribunal dismissed the assessee's appeals for 1949-50 to 1955-56 but allowed those for 1956-57 to 1965-66, subject to the accumulation limit in section 11(1)(a) from 1962-63. Seven questions went to the Allahabad High Court, which answered all of them for the assessee. The Revenue brought seventeen appeals.
Seven appeals, for assessment years 1949-50 to 1955-56, were allowed and ten, for 1956-57 to 1965-66, dismissed. Under the deed as rectified in 1945, clause 2(b)(i) fell short of a public charitable object, so the property was not held wholly for religious or charitable purposes and there was no exemption under section 4(3)(i) of the 1922 Act for those years. The second rectification decree of 10 May 1955 operated prospectively from assessment year 1956-57 and did not rectify the 1941 deed from its execution. For 1956-57 to 1961-62 the income was exempt under section 4(3)(i), the 1955 deed being wholly charitable, and for 1962-63 to 1965-66 it was exempt under section 11 of the 1961 Act subject to the conditions there. The trust as rectified in 1955 was not void for uncertainty, and the assessing officer was not entitled to go behind the civil court decree of 10 May 1955 and adjudge the validity of the rectification.
On the character of the 1945 clause the Court read the two halves of the object together. Workmen in general, in the socio-economic conditions of Kanpur in 1945, might well have been a defined and needy class capable of being an object of charity, and the Court declined to accept the broader proposition that building a residential colony for workmen generally can never be public charity. But the clause went on to say in particular for the workmen, staff and other employees of the company and its allied concerns, which leaves the trustees no discretion and obliges them to build for that group, which may include affluent employees who are no object of charity. The general words therefore became illusory and the settlement was in substance for a defined group. That follows the Bombay decision the Court approved and the Calcutta decision in Mercantile Bank of India, where a fluctuating body of present and future officers, staff and employees of a company was held not to be the public or a section of it, since anyone from the highly paid secretary down to the lowest menial might benefit and relief given to a well-paid employee who suffers a misfortune is not relief of poverty. The Court also concurred with the second half of the Allahabad High Court's reasoning in J.K. Hosiery Factory on this very clause. Since one object was not public charitable, the property was not held wholly for charitable purposes, whatever the other sub-clauses said. The Explanation to section 4(3) did not help, because once the trustees are bound to use the property for the settlor's own workmen, the object is neither relief of the poor nor an object of general public utility but the utility of a defined class.
as one of the objects was not of a public charitable nature it could not be held that the entire trust was wholly for religious or charitable purposes
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Handle my notice → Ask a CA on WhatsAppIt depends on the deed, and a rectification decree does not reach back. The Supreme Court held that under the 1945 rectified deed the trustees were obliged to build quarters in particular for the workmen, staff and other employees of the settlor company and its allied concerns, who may include the affluent. That made the reference to workmen in general illusory, so the object was not public charitable and the whole trust failed the wholly charitable test. Under the 1955 rectified deed the objects were wholly charitable. The second decree operated only from assessment year 1956-57. The assessing officer could not go behind the decree, but could construe the deed as rectified. This was decided by the Supreme Court (Supreme Court of India; S.B. Majmudar and B.P. Jeevan Reddy JJ. Judgment by Majmudar J) and bears on section 11, section 2(15) of the Income Tax Act 1961. It is reported as (1996) 217 ITR 699; 1996 (7) SCC 349; AIR 1996 SC 620; (1996) 84 Taxman 248; (1995) 8 JT 364 (SC). This is the leading Supreme Court authority on two questions that recur together for company trusts. First, who counts as the public. A fluctuating body of the settlor's own present and future employees is not a section of the public, following the Calcutta High Court in Mercantile Bank of India, and a clause that names workmen in general but then obliges the trustees to provide in particular for the company's own staff is read as confined to that group. Second, what a rectification decree does in tax. The officer may not sit in judgment on the decree or ask whether the conditions for rectification existed, but the decree takes effect from its own date for assessment purposes and does not rewrite completed years. So a trust that cures a defective object clause gets the benefit prospectively only. The Court also warns that one non-charitable object among many defeats the exemption entirely, because the property must be held wholly for charitable purposes. If it applies to you, the first step is this: Read every limb of the object clause. One object that is not public charitable takes the exemption away for the whole trust, however charitable the rest.
By a deed of 27 October 1941 J.K. Spinning and Weaving Mills settled on trustees two plots at Kanpur, obtained from the Improvement Trust at concessional rates, to build a settlement for its workmen with hospitals, schools, temples, mosques and recreation grounds. Clause 2(b)(i) required residential quarters, chawls or buildings to be erected for workmen in general and in particular for the workmen, staff and other employees of the company and allied concerns. The company sued under the Specific Relief Act and obtained a rectification decree in 1945, and a second decree on 10 May 1955 in a suit in which representative defendants were impleaded after public notice. The assessing officer reopened assessments for 1949-50 to 1965-66, held the trust was for employees only, and refused to give effect to the rectifications. The Appellate Assistant Commissioner agreed. The Tribunal dismissed the assessee's appeals for 1949-50 to 1955-56 but allowed those for 1956-57 to 1965-66, subject to the accumulation limit in section 11(1)(a) from 1962-63. Seven questions went to the Allahabad High Court, which answered all of them for the assessee. The Revenue brought seventeen appeals. The matter was decided on 1995-11-16 by the Supreme Court (Supreme Court of India; S.B. Majmudar and B.P. Jeevan Reddy JJ. Judgment by Majmudar J). On those facts the Supreme Court held as follows. Seven appeals, for assessment years 1949-50 to 1955-56, were allowed and ten, for 1956-57 to 1965-66, dismissed. Under the deed as rectified in 1945, clause 2(b)(i) fell short of a public charitable object, so the property was not held wholly for religious or charitable purposes and there was no exemption under section 4(3)(i) of the 1922 Act for those years. The second rectification decree of 10 May 1955 operated prospectively from assessment year 1956-57 and did not rectify the 1941 deed from its execution. For 1956-57 to 1961-62 the income was exempt under section 4(3)(i), the 1955 deed being wholly charitable, and for 1962-63 to 1965-66 it was exempt under section 11 of the 1961 Act subject to the conditions there. The trust as rectified in 1955 was not void for uncertainty, and the assessing officer was not entitled to go behind the civil court decree of 10 May 1955 and adjudge the validity of the rectification.
On the character of the 1945 clause the Court read the two halves of the object together. Workmen in general, in the socio-economic conditions of Kanpur in 1945, might well have been a defined and needy class capable of being an object of charity, and the Court declined to accept the broader proposition that building a residential colony for workmen generally can never be public charity. But the clause went on to say in particular for the workmen, staff and other employees of the company and its allied concerns, which leaves the trustees no discretion and obliges them to build for that group, which may include affluent employees who are no object of charity. The general words therefore became illusory and the settlement was in substance for a defined group. That follows the Bombay decision the Court approved and the Calcutta decision in Mercantile Bank of India, where a fluctuating body of present and future officers, staff and employees of a company was held not to be the public or a section of it, since anyone from the highly paid secretary down to the lowest menial might benefit and relief given to a well-paid employee who suffers a misfortune is not relief of poverty. The Court also concurred with the second half of the Allahabad High Court's reasoning in J.K. Hosiery Factory on this very clause. Since one object was not public charitable, the property was not held wholly for charitable purposes, whatever the other sub-clauses said. The Explanation to section 4(3) did not help, because once the trustees are bound to use the property for the settlor's own workmen, the object is neither relief of the poor nor an object of general public utility but the utility of a defined class. In the words reproduced by the source cited on this page: "as one of the objects was not of a public charitable nature it could not be held that the entire trust was wholly for religious or charitable purposes"
It was decided by the Supreme Court on 1995-11-16 and is reported as (1996) 217 ITR 699; 1996 (7) SCC 349; AIR 1996 SC 620; (1996) 84 Taxman 248; (1995) 8 JT 364 (SC). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 11, section 2(15), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Seven appeals, for assessment years 1949-50 to 1955-56, were allowed and ten, for 1956-57 to 1965-66, dismissed. Under the deed as rectified in 1945, clause 2(b)(i) fell short of a public charitable object, so the property was not held wholly for religious or charitable purposes and there was no exemption under section 4(3)(i) of the 1922 Act for those years. The second rectification decree of 10 May 1955 operated prospectively from assessment year 1956-57 and did not rectify the 1941 deed from its execution. For 1956-57 to 1961-62 the income was exempt under section 4(3)(i), the 1955 deed being wholly charitable, and for 1962-63 to 1965-66 it was exempt under section 11 of the 1961 Act subject to the conditions there. The trust as rectified in 1955 was not void for uncertainty, and the assessing officer was not entitled to go behind the civil court decree of 10 May 1955 and adjudge the validity of the rectification. It arises in Charitable Trusts & Exemption and Capital Gains Exemptions matters, on section 11, section 2(15) of the Income Tax Act 1961, and was decided by Supreme Court of India; S.B. Majmudar and B.P. Jeevan Reddy JJ. Judgment by Majmudar J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not draft or defend a clause that says workmen in general and then in particular the company's own employees; the second half will be treated as the real object. If you obtain a rectification decree, expect its benefit only from the year of the decree onwards, and do not build a claim for earlier years on it. Meet an officer who attacks the decree itself by pointing out that he cannot go behind it, while accepting that he is free to construe the deed as rectified and decide whether its objects are charitable.
Still good law. The propositions that a body of the settlor's own employees is not a section of the public, that one non-charitable object defeats the wholly charitable requirement, and that a rectification decree binds the officer but operates from its own date, are settled and the source page records the decision as widely followed. It construes section 2(15) and section 11 as they then stood; section 2(15) has since been amended, with provisos restricting the last limb, and the exemption now carries registration and other conditions the judgment does not address. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The library had carried a second page for this same judgment at /caselaw/case/cit-v-kamla-town-trust-employees-not-public-charity/; the two have been merged and that address now redirects here. The harvested page is clipped: a large block from the middle is not reproduced, and it contains the Court's detailed reasoning on the Revenue's contention that the 1955 decree was beyond the civil court's power, on question (d) whether the rectified trust was void for uncertainty, and on question (e) whether the officer could go behind the decree. The conclusions on all of those are set out and are given above, but the reasoning behind them was not read. The batch line gave the year as 1996, which is the year of the reports; the judgment is dated 16 November 1995 and that date is used. The earliest years turn on section 4(3)(i) of the Income-tax Act, 1922 rather than the 1961 Act; the corresponding provisions are section 11 read with section 2(15), which are given in the sections field. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Seven appeals, for assessment years 1949-50 to 1955-56, were allowed and ten, for 1956-57 to 1965-66, dismissed. Under the deed as rectified in 1945, clause 2(b)(i) fell short of a public charitable object, so the property was not held wholly for religious or charitable purposes and there was no exemption under section 4(3)(i) of the 1922 Act for those years. The second rectification decree of 10 May 1955 operated prospectively from assessment year 1956-57 and did not rectify the 1941 deed from its execution. For 1956-57 to 1961-62 the income was exempt under section 4(3)(i), the 1955 deed being wholly charitable, and for 1962-63 to 1965-66 it was exempt under section 11 of the 1961 Act subject to the conditions there. The trust as rectified in 1955 was not void for uncertainty, and the assessing officer was not entitled to go behind the civil court decree of 10 May 1955 and adjudge the validity of the rectification.
TaxSphere, “CIT v Kamla Town Trust”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-kamla-town-trust-employees-not-public-charity/ (validity last checked 2026-08-29)
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