The Guru Estate Throughdwarkadas Guru... vs The Commissioner Of Income Tax Bihar

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 19 October 1962

Coram: J.C. Shah, J.L. Kapur, M. Hidayatullah

The Supreme Court of India delivered its judgment on 19 October 1962 in the matter titled The Guru Estate Throughdwarkadas Guru and Others versus The Commissioner of Income‑Tax, Bihar and Odisha. The judgment was authored by Justice J. C. Shah and the bench consisted of Justices J. C. Shah, J. L. Kapur and M. Hidayatullah. The petitioner in the case was the Guru Estate Throughdwarkadas Guru together with other members of the estate, while the respondents were the Commissioners of Income‑Tax for the States of Bihar and Odisha. The case was reported in the 1963 volume of the All India Reporter at page 1452 and also in the 1963 Supplement to the Supreme Court Reports (Part I) at page 667. The statutory provisions relevant to the dispute were sections 4(3)(i) and 4(3)(ii) of the Indian Income‑Tax Act, 1922 (11 of 1922) dealing with income from trusts and exemption from tax, as well as section 66(2) of the same Act which governs the jurisdiction of the High Court in reference proceedings.

According to the headnote of the judgment, the assessees were members of a joint Hindu family whose traditional occupation was that of Pandas, that is, priests who assisted devotees in performing worship and various ceremonies associated with the pilgrimage to the Jagannath temple at Puri. In the course of their duties, the Pandas collected sums of money from pilgrims under the designation “Annadan”. These collections were recorded in written documents called Annadan Patras, which bore the signatures of the contributing pilgrims. The assessees asserted that the amounts received as Annadan were exempt from income tax under sections 4(3)(i) and 4(3)(ii) of the Income‑Tax Act, 1922. Their position was based on the contention that the donations were made on the condition that the money would be used solely for the preparation of Bhog, the food offering in the Jagannath temple, and therefore constituted income derived from property held under a trust. Moreover, they argued that the income of any religious institution that arose from voluntary contributions for exclusively religious purposes was exempt from taxation under the same statutory provisions.

The income‑tax authorities rejected the petitioner’s claim and held that the Annadan amounts were taxable. On appeal, the Appellate Tribunal examined the facts and determined that the money paid by the pilgrims as Annadan was not employed exclusively for the purpose of offering Bhog. The Tribunal observed that the amounts were earned by the assessees in the course of their business as Pandas and that there was no evidence indicating that a trust had been intended or created by the pilgrims. Consequently, the Tribunal concluded that the assessees were not a religious institution and therefore were not entitled to exemption under section 4(3)(ii) of the Act.

Subsequently, a reference was made to the High Court under section 66(2) of the Act. The High Court held that it was unnecessary to decide whether the contributions made through the Annadan Patras gave rise to a trust. Even assuming that a religious trust had been created, the High Court characterized it as a private religious trust and therefore concluded that the income derived by the assessees from the Annadan contributions was not exempt from tax under sections 4(3)(i) and 4(3)(ii) of the Act. The High Court’s judgment affirmed that the amounts received under the Annadan Patras were not exempt because, on the Tribunal’s factual findings, they were not applied exclusively to religious or charitable purposes.

It was held that the High Court had committed an error by disregarding the conclusion of the Appellate Tribunal that no trust existed. The High Court nevertheless proceeded on the premise that the pilgrims had intended to create a trust, and further concluded that, even if such a trust were presumed, it would be a private trust rather than a public religious trust. According to the structure of the Indian Income‑tax Act, the responsibility for ascertaining factual matters lies exclusively with the Tribunal. Once the Tribunal has determined the facts, the High Court’s role is limited to advising the Tribunal on the legal principles that should be applied to those facts. In the present matter, the High Court tried to go beyond this advisory function. Instead of merely offering legal guidance on the Tribunal’s factual findings, the High Court exercised a jurisdiction that was essentially appellate in nature, a power that is not conferred by section 166 (2) of the Act, which reserves the authority to decide on the Tribunal’s findings solely to the appellate process.

The judgment concerned a series of civil appeals numbered 248 to 253 of 1662, which were heard on 19 October 1962. These appeals arose from the decisions of the Orissa High Court dated 1 April 1958 in special‑jurisdiction cases 6 of 1953, 42 to 45 of 1954, and 7 of 1956. Counsel for the appellants were A. V. Viswanatha Sastri, R. S. Mahanty and B. P. Maheshunri, while the respondent was represented by N. D. Karkhanies and R. N. Sachthey. The six appeals presented a common issue: whether the assessees, a Hindu Undivided Family that performed priestly duties as Pandas at the Jagannath temple in Puri, were required to include certain receipts known as “Annadan” in their taxable income for the assessment years 1946‑47 to 1951‑52. The assessees earned ordinary remuneration called “Daksina” or “Pranami” for their services, which was undisputedly assessable as profit from their vocation. In addition, they collected Annadan contributions from pilgrims through written instruments executed by the pilgrims. The assessees argued that these Annadan amounts were exempt from tax under sections 4 (3) (i) and (ii) of the Indian Income‑tax Act, contending that their estate functioned as a “Guru Gadi” established to propagate the worship of Lord Jagannath, and that the Annadan funds were to be used exclusively for “Bhog” (food offerings) in the temple. They further maintained that the Annadan receipts represented income of a religious institution derived from voluntary contributions and therefore qualified for exemption. To support this claim, the assessees relied on the Annadan Patras signed by the pilgrims, which stipulated that the contributions were to be used for temple offerings.

According to the document presented by the pilgrims, the declaration read as follows: “Coming to the sacred place of Sri Jagannathji and having his Darshan, I pay unto … (name of the Panda), Gaudbad sahi, Puri Town for the Bhog of Sree Jagannathji, Rs ……. The Pandaji will utilize this amount for the Bhog of Jagannathji and the Prasad will be enjoyed by himself and the people of the district to which I belong.” The pilgrim then signed the form, which was termed an “Atika Annadan.” The sums that were collected from the pilgrims under these Annadan Patras, which were also referred to as Atika Patras, were entered into a ledger called the Annadan Account. From this account the expenses incurred for the food offerings (Bhog) to the deity were paid. The assessors asserted that any surplus remaining in the Annadan Account was employed to purchase property in the name of the deity Jagannath. The Income‑Tax Officer rejected the claim of exemption, holding that the amounts received under the Annadan scheme could not escape taxation because, in his view, there was no written instrument establishing a valid trust, no authority to compel the assessors to spend the monies for religious or charitable purposes, and the assessors were not appointed as trustees in any written document. Consequently, the officer characterized the receipts as voluntary contributions that were not derived from property held under a trust or any other legal obligation.

Upon appeal, the Appellate Assistant Commissioner of the Cuttack Range affirmed the Income‑Tax Officer’s order. He observed that the assessors, acting as Pandas, managed a trust fund each year; however, no income was earned from that fund. He noted that only a portion of the fund was spent for the purpose for which the trust was purportedly created, while the balance was appropriated for the assessors’ own use, and therefore no income was derived from voluntary contributions solely applicable to religious or charitable purposes. The Income‑Tax Appellate Tribunal also confirmed the order and made extensive observations. It stated, “Except the bare assertion of the assessee before us, there is no evidence to show that the pilgrims understood either the character or the implication of the document they were signing. The assessee has not shown either that he gave receipts to the pilgrims indicating his trustee position and his undertaking to employ the receipts for the purposes of the supposed trust.” The Tribunal further noted that a major portion of the collected funds was spent on loans to pilgrims, charitable activities, expenses for feeding the pilgrims and other items, which, in its view, demonstrated that the money was not used exclusively for offering Bhog. It concluded that the manner in which pilgrims were attracted, brought to Puri, treated, taken to the temple, fed and ultimately induced to make a payment indicated that the assessors were carrying on a business of pilgrim traffic, and that the facts did not show any trust intended or created by the pilgrims. The Tribunal also observed that the

The Tribunal observed that the assessee could not be classified as an institution and therefore did not obtain exemption under section 4(3)(ii) of the Income‑Tax Act, because the objectives for which the Annadan fund was intended were not public objects and the contributions made by the pilgrims under the label of Annadan could not be described as being for the benefit of the public or for charitable purposes. The Tribunal further declined to prepare a formal statement of the case on any question of law, stating that such a submission would arise only from their own order, which in their view, when disposing of the appeal, demonstrated that “no trust was intended to be created as alleged by the assessee and that the assessee had not proved that they were under any obligation to devote the income to any particular use.” Accordingly, the assessee approached the High Court seeking an order under section 66(2) of the Indian Income‑Tax Act, requesting that the Tribunal be directed to state the case. The High Court directed the Tribunal to articulate the specific point of law that arose from the proceedings and to refer that point for decision, namely, “whether, on the facts of this case, the amounts received by the assessee under the Attika Patra are liable to tax.” At the hearing of the reference, the High Court expressed the opinion that it was unnecessary to discuss the broader issue of whether the contributions made through the Annadan Patra by the donor amounted to a trust or whether they constituted merely a device for handing the entire income to the Panda for his personal benefit. The Court further observed that, even if it were assumed—without deciding—that a religious trust had been created for the primary purpose of offering Bhog to Lord Jagannath at Puri by execution of the Annadan Patra, the essential question determining the assessability of this income for income‑tax purposes was whether such a trust qualified as a private religious trust or a public religious trust. The Court then proceeded to consider the appropriate tests for distinguishing a public trust from a private trust, and it held that the trust created by the Annadan Patra was, in fact, a private religious trust. Consequently, the Court held that the income derived by the assessee from that source was not exempt from liability to pay income‑tax under clause (i) or clause (ii) of subsection (3) of section 4 of the Indian Income‑Tax Act. For reference, the material portion of subsection (3) of section 4 of the Act, as it stood at the relevant time, provided: “Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them: (i) Subject to the provisions of clause (c) of subsection (1) of section 16, any income derived from property held under a trust or other legal obligation solely for religious or charitable purposes, where such purposes relate to anything done within the taxable territories and, in the case of property so held in part only for…”

Section 4(3) of the Income‑Tax Act contained two sub‑clauses relevant to exemption. Clause (i) stated that any income derived from property held under a trust or any other legal obligation solely for religious or charitable purposes, and applied or finally set apart for such purposes, would be exempt. Clause (ii) provided that any income of a religious or charitable institution that arose from voluntary contributions and was applied exclusively to religious or charitable purposes would also be exempt. A plain reading of these clauses showed that the assessee’s income could be exempt only if it fell within one of those two categories. The income in question was not derived from property held under a trust or any similar legal obligation for the specified purposes, and the assessee was not a religious or charitable institution. The assessee consisted of members of a joint Hindu family who practiced the vocation of Pandas, and the Tribunal’s findings indicated that the receipts were not used exclusively for religious or charitable purposes. Consequently, the claim made by the assessee for exclusion of the Annadan Patra receipts from total income could not be sustained. This interpretation of the statutory provisions alone was sufficient to dispose of the appeals, but the Court felt it necessary to comment on the manner in which the High Court had exercised its jurisdiction, given the approach taken by that Court.

The Tribunal had held that the receipts termed “Annadan” were earned by the assessee in the ordinary conduct of their business as Pandas and that the evidence did not show any intention or creation of a trust by the pilgrims who made the payments. Under the framework of the Income‑Tax Act, the determination of facts is the function of the Tribunal, while the High Court’s role is to advise on the law applicable to the facts found by the Tribunal. Since the Tribunal concluded that the receipts constituted business income and that no trust was intended, the High Court was required to form its opinion on that factual basis. A factual finding of the Tribunal cannot be treated as final if it lacks evidential support, is based on a view of facts that cannot reasonably be entertained, or stems from a misconception, as explained in Edvard v. Bristow(1). The High Court had issued an order under section 66(2) on the ground that, in its view, it was irrelevant whether the pilgrims understood the true character or implications of the Annadan Patras they signed, and that a breach of trust by the assessee did not destroy the trust. However, the High Court could not disregard the Tribunal’s finding that no trust existed and that the Annadan Patra receipts represented income from “the business of pilgrim traffic.” Under the Income‑Tax Act, when a question of law arises from facts recorded by the Tribunal, the High Court may give its opinion only when properly referred, and it must not substitute its own factual conclusions for those of the Tribunal.

In this case, the Court explained that under the Income‑tax Act the High Court could express an opinion on a question of law only when the Tribunal had recorded findings of fact and the matter was properly referred under section 66(2). The Tribunal’s conclusion was reached after examining the evidence relating to how pilgrims were attracted to Puri, conveyed to the temple, provided with meals and eventually induced to make a payment, and from that evidence the Tribunal inferred that the receipts arose in the course of business. When the reference was heard, the High Court addressed a question that had not been referred by the Tribunal. Assuming, without a proper reference, that the pilgrims intended to create a trust by giving Annadan, the High Court held that the trust was a private trust. In doing so, the High Court attempted to exercise a jurisdiction that was not merely advisory concerning the Tribunal’s decision, which is the only jurisdiction conferred by section 66(2) of the Income‑tax Act, but instead a jurisdiction that was essentially appellate. The Tribunal had expressly found that no trust was intended or created by the pilgrims; consequently, no question could arise about the applicability of section 4(3)(i). The assessors were therefore entitled to contend that the Tribunal’s finding was unsupported by evidence or could not have been reached by a properly instructed judicial officer. A vague allegation was made in the application to the High Court for a statement of the case that the finding lacked evidence, but the High Court was not asked, under section 66(2), to direct the Tribunal to submit a statement on whether the finding of no trust was unsupported. On the question that had been properly referred, the High Court was bound to accept the Tribunal’s findings and to decide any legal issue that stemmed from them. Nevertheless, the High Court ignored the Tribunal’s finding that the Annadan receipts constituted income from the assessors’ business and, on the unfounded assumption that a trust had been created, characterized it as a private religious trust. By doing so, the High Court failed to answer the question that had been submitted to it. Normally, in circumstances such as these, the Court would have required a finding from the High Court on the question referred by the Tribunal; however, the Court had already expressed the view that pursuing that course would not serve any useful purpose. Accordingly, on the true meaning of section 4(3)(i), in the absence of any finding that the Annadan income derived from property held under a religious or charitable trust, the assessors’ claim for exemption could not succeed.

The Court observed that the petitioners’ reliance on the provision of section 4(3)(i) could not succeed, because the income in question was not derived from property held under a religious or charitable trust, and consequently the exemption claimed under that clause had to be denied. The Court further examined the petitioners’ alternative reliance on section 4(3)(ii) and held that this reliance also could not be sustained, since the petitioners were not established as a religious or charitable institution within the meaning of the statute. Accordingly, the Court concluded that both grounds on which the petitioners sought exemption from tax were untenable. As a result, the Court affirmed that the appeals filed by the petitioners must fail and ordered that they be dismissed. In addition, the Court noted that no order regarding the allocation of costs for these appeals would be made, and therefore the parties would bear their own expenses. The final disposition therefore comprised the dismissal of the appeals without any cost order.