CAOMMISSIONER OF INCOME TAX, Appellant, and BADDRAWATHIE FERNANDO CHARITABLE TRU

083-NLR-NLR-V-63-CAOMMISSIONER-OF-INCOME-TAX-Appellant-and-BADDRAWATHIE-FERNANDO-CHARITABLE-TRU.pdf


W rtlfiKftBOOBllfA, J.—Commissioner of Income Tax v.
Baddrawathie Fernando Charitable Trust
409
Present: Weerasooriya, Jand Sansonl, J.
COMMISSIONER OF INCOME TAX, Appellant, andBADDRAWATHIE FERNANDO CHARITABLE TRUST, Respondent
S. C._ 1 of 1959—Income Tax Case Stated
Income tax—Trust for charitable purposes—Can religious trust be included ?—Meaningof expression “ charitable purposes ” prior to 1st April 195S—Income TaxOrdinance (Cap. 188), ss. 2, 7(1) (c), 7(1) (d)—Income Tax (Amendment) Act,No. 44 of 1958—Trusts Ordinance (Cap. 72), s. 99 (1).
By section 7 (1) (c) of the Income Tax Ordinance as amended byOrdinance No. 27 of 1934 :—
“ There shall be exempt from tax the income of any institution or trust ofa public character established solely for charitable purposes.”
Held, that the expression “ charitable purposes ” in section 7 (1) (c), read withthe definition of charitable purpose ” in section 2 prior to its amendment on1st April 1959 by the Income Tax (Amendment) Act No. 44 of 1958, excludedfrom its ambit purposes for the advancement of religion or for the maintenanceof religious rites and practices.
(^/ASE stated under section 74 of the Income Tax Ordinance (Cap. 88)on the application of the Commissioner of Income Tax.
V. Tennekoon, Senior Crown Counsel, with Mervyn Fernando, CrownCounsel, for the Appellant.
H. V. Perera, Q.C., with. S. Nadesan, Q.C., and N. Nadarasa, for theassessees-respondents.
Cur. adv. vult.
March 3, 1961. Weerasooriya, J.—
This is a case stated under section 74 of the Income Tax Ordinance(Cap. 188) on the application of the Commissioner of Income Tax.
By deed No. 1388 dated the 30th January, 1952, one W. D. Fernando(since deceased) transferred to himself, his three sons, two daughtersand another, as trustees of the Baddrawathie Fernando Charitable Trust,certain premises known as Urumutta Estate valued at Rs. 600,000/- andsubject to a mortgage of .Rs. 180,000/-. The Baddrawathie Fernando
18—um'
8—J. N. R 1430—2,033 (3/62)
410
WEERASOORIYA, J.—Commissioner of Income Tax v.
Baddrawathie Fernando Charitable Trust
Charitable Trust was constituted by a separate deed, No. 1389, executedby him at the same time. The following are the objects of the trust,as set out in clause 2 of that deed :—
(а)to aid and assist in Ceylon and elsewhere causes identified with
the advancement and propagation of the Buddha Dharma inparticular ;
(б)for the advancement of the teaching of Buddhist Philosophy and
Buddhist Pali Scriptural Texts at recognised places of learning .
for the maintenance of Buddhist rites and practices associated with
the worship of the Triple Gem ;
for the endowment and maintenance of deserving pious Buddhist
monks ;
for the maintenance and endowment of Buddhist Missionary en-
terprise in foreign lands, such as the propagation and preachingof the Buddha Dharma in foreign lands where Buddhism doesnot form the religion of the majority of the people, and
(/) for any purpose beneficial or of interest to the Buddhist religionnot falling within the preceding categories.
Clause 4 of deed No. 1389, in so far as is material to this case, providesthat the trustees shall stand possessed of the trust estate upon trust:—
** to apply the nett income thereof in discharge of the mortgagedebt now existing in respect of the said ‘Urumutta Estate’ created byMortgage Bond No. 2771 dated 14th August 1950 attested by J. S.Paranavitana Notary Public and after the discharge and cancellationof the said mortgage debt, the Trustees shall stand possessed of theTrust Estate upon trust to apply the nett income thereof for andtowards all or any of the objects of the Trust in such proportions asthe Trustees shall in their absolute discretion think fit and thereafterto accumulate any income not required for the aforesaid purposesor any of them with power in the absolute discretion of the Trusteesto invest such accumulation in immovable property or in securitiesexpressly mentioned in section 20 of the Trusts Ordinance No. 9 of 1917and to hold such accumulation and/or investment upon the Trust termsand conditions contained herein ….”
For the year of assessment 1952/53 the trustees were assessed to incometax on the income of the trust estate on the basis that such income wasnot exempt under section 7 (1) (c) of the Income Tax Ordinance inasmuchas the trust was not established solely for charitable purposes. Oneof the trustees unsuccessfully appealed against this assessment, firstto the Commissioner of Income Tax and thereafter to the Board of Review
The mortgage debt was not fully discharged until the 16th November,1956. The income of the trust estate for the period 1st April, 1956, tothe 16th November, 1956? was Rs. 37,300/-^ and for the period 17th,
WEERASOORIYA, J.—Commissioner of Income Tax «.
Saddrawalhie Fernando Charitable Trust
411
November, 1956, to the 31st March, 1957, Rs. 21,879/-. The trusteeswere assessed to income tax for the year of assessment 1967/58 on theincome of these two periods. One of the trustees appealed to the Com-missioner of Income Tax against the assessment to income tax amountingto Rs. 11,350/- in respect of the latter period. The Commissioner, actingunder section 72 of the Income Tax Ordinance, referred the appeal to theBoard of Review for decision. The Board of Review allowed the appeal,and the present case stated is against the decision of the Board.
The questions of law submitted for the opinion of this Court in thecase stated are—
Whether the income of the trust created by deeds Nos. 1388 and
1389 is exempt from income tax under section 7 (1) (c) of theIncome Tax Ordinance.
Whether the words “ charitable purposes ” in section 7 (1) (c)
include religious purposes such as are indicated in deedNo. 1389 dated 30.1.52.
Can the trust be regarded in law as having been established solely
for charitable purposes in view of clause 4 of deed No. 1389which stipulates that the income of the trust property wasfirstly to be applied for the discharge of the mortgage debtthen existing.
•
In considering these questions, the provisions of the IncomeTax Ordinance which call for notice are paragraphs (c) and (d) of section7 (1) and the definition of “ charitable purpose ” in section 2. Asoriginally enacted, paragraphs (c) and (d) of section 7 (1) read as
follows—
“ 7(1) There shall be exempt from tax—
(a)
(*)
any income derived from property held under trust or other
legal obligation for religious or charitable purposes in so faras such income is applied for such purposes within the Island ;
the income of a religious or charitable institution derived from
voluntary contributions and applied solely to religious orcharitable purposes within the Island.”
These paragraphs were subsequently repealed by the Income Tax Amend-ment Ordinance, No. 27 of 1934, and the following new paragraphs sub-stituted therefqr—
the income of any institution or trust of a public character es-
tablished solely for charitable purposes ;
the income of any religious body or institution whether established
under any instrument in writing or not.”
412WEEB.ASOOB.XYA, J.—Commissioner of Income Tax v.
Baddrawathie Fernando Oharitable Trust
.Paragraphs (c) and (d) have since then undergone further legislativechanges with which we are, however, not concerned for the .purposes ofthis case. The first two questions in the case stated refer to section7 (1) (c) as substituted by Ordinance No. 27 of 1934, and any referencehereinafter in this judgment to section 7 (1) (c) will be to the substitutedsection 7 (1) (c) unless otherwise stated.
' The expression “ of a public character ” used in section 7 (1) (c) toqualify the word “ trust ”, as well as the equivalent expression “ for thebenefit, of the public or any section of the public ” in section 99 (1) of theTrusts Ordinance (Cap. 72), appear to be statutory adaptations of theconcept of English law that “ a purpose is not charitable unless it isdirected to the public benefit ”—per Lord Simonds in Oppenheim v.Tobacco Securities Ltd?- Senior Crown Counsel Mr. Tennekoon, whoappeared for the Commissioner of Income Tax, did not deny that theseveral purposes specified in paragraphs {a) to (/) of clause 2 of the trustdeed No. 1389 are religious purposes or that they are directed to thepublic benefit as well. Hence it is not necessary to consider the argu-ments advanced before the Board of Review on behalf of the Commis-sioner. of Income Tax (and rejected by the Board) that the purposesspecified in paragraph (/) cannot be regarded as directed to the publicbenefit and are, therefore, not charitable pmq»oses. Question (1), which,perhaps, was formulated as a separate question in view of this argument,does not now arise for decision except on the basis of the answers toQuestions (2) and (3).
The decision of Question (2), which is the substantial issue in thiscase, turns on the true construction of the expression “ charitable pur-poses ” in section 7 (1) (c) of the Income Tax Ordinance in the lightof the following definition of “ charitable purpose ” in section 2 : * ** cha-ritable purpose ” includes relief of the poor, education, and medical relief’.The three objects specified in this definition, while undoubtedly charitablein the legal sense, do not comprise all the objects which are now generallyregarded as falling within that expression. In Income Tax SpecialPurposes Commissioners v. Pemsel 2, Lord Macnaghten classified charityin its legal sense as consisting of trusts for the relief of poverty, trustsfor the advancement of education, trusts for the advancement of re-ligion and trusts for other purposes beneficial to the community notfalling under any of the preceding heads. This classification of charityis incorporated in section 99 (1) of the Trusts Ordinance which is as. follows :—
* The expression “ charitable trust ” includes any trust for thebenefit of the public or any section of the public within or withoutthe Island of any of the following categories—*
(a) for the relief of poverty ; or. (6) for the advancement of education or knowledge ; or
1 (1951) 1 A. E. R. 31.
8 (1891) A. G. 531.
413
WEERASOORIYA, J.—Commissioner of Income Tax v.
Baddrawathie Fernando Charitable Trust
for the advancement of religion or the maintenance of religions’
rites and practices ; or
for any other purposes beneficial or of interest to mankind not
falling within the preceding categories.’
It was contended for the respondent that notwithstanding the omission,of religious purposes from the definition of “ charitable purpose ” insection 2 of the Income Tax Ordinance, the use of the word “ includes ”in the definition shows that the purposes mentioned therein are notexhaustive. The Board of Review not only accepted this contentionbut also stated as their view that the expression “ charitable purposes ”in section 7 (1) (c) comprises " all purposes coming within the wellrecognised legal definition of that term and they, accordingly, acceptedthe further contention for the respondent that a purpose for the advance-ment of religion or for the maintenance of religious rites and practices isincluded in the expression. If I may say so with respect, I do not agreewith this view.
It will be noted that in defining “ charitable purpose ” in section2 of the Income Tax Ordinance the draftsman left out entirely thepurposes mentioned in category (c) of the definition of a charitable trustin section 99 (1) of the Trusts Ordinance (namely, the advancement ofreligion or the maintenance of religious rites and practices) while, ofthe purposes which, though not specifically mentioned, may be regardedas falling under category (d), he selected only medical relief, and omittedthe others. It is difficult-to conceive of the draftsman having beenoblivious of the provisions of section 99 (1) of the Trusts Ordinance, whichis the earlier Ordinance, when he came to define “ charitable purpose ”in section 2 of the Income Tax Ordinance. I do not doubt, therefore,that these omissions were deliberate. I think that the definition of“ charitable purpose ” in section 2 was intended to exclude from itsambit the advancement of religion or the maintenance of religious ritesand practices. I am confirmed in this opinion by the distinction drawnin section 7 (1) (c), as originally enacted, between religious and charitablepurposes, which were treated as separate categories. Section 7 (1) (c)drew a distinction between a religious and a charitable institution.
In view of these distinctions it would have been incongruous if “ charitablepurpose ” in section 2 was defined as including religious purposes. Iam not impressed by the argument that after the amendments to theoriginal sections 7 (1) (c) and 7 (1) (d) by Ordinance No. 27 of 1934, towhich I have already drawn attention, the definition of “ charitablepurpose ” in section 2, though remaining unaltered, assumed a newsignification which it did not bear prior to the' amendments.
We were referred by learned counsel on both sides to various definitionsin section 2 where the word “ includes ” is used in different senses. Al-though the word “ means ” is used in some of the definitions, the word
2*J. X. R 1430 (2/62)
414
WEERASOORIYA, J.—Commissioner of income Tax V.
Baddrawathie Fernando Charitable Trust
** inoludes ” appears to be used in other instances as the equivalent of“ means ”—see, for example, the definition of “ Commissioner ", “ re-ceiver ", “ trade " and “ trustee The word is also sometimes usedin an extensive sense, as in the definition of “ business ", Ordinance "and “ person ". The lack of uniformity in the sense in which the word“ includes " is used in section 2 renders it unsafe, in my opinion, to construethe meaning of the word in the definition of “ charitable purpose "by reference to the meaning which it bears when used in the definitionof other terms.
According to Lord Watson in Dilworth v. Commissioner of Stamps andDihvorth v. Commissioner for Land and Income Tax “ includes ” is aword which is “ very generally used in interpretation clauses to enlargethe meaning of words or phrases occurring in the body of a statute, andwhen it is so used these words or phrases must be construed as compre-hending not only such words as they signify according to their naturalimport but also those things which the interpretation clause declaresthey shall include Applying this dictum to the present case, andhaving regard to the definition of ** charitable purpose " in section 2 ofthe Income Tax Ordinance, the expression “ charitable purpose ” insection 7 (1) (c) would mean purposes appertaining to the relief of thepoor (being .the primary or ordinary meaning of the expression) and alsoeducation and medical relief which, though not within the primary orordinary meaning, the definition declares that the expression shall include;but there would appear to be no ground for extending the expressionfurther, so as to include religious purposes as well.
With effect from the 1st April, 1959, the following new definition ofthe expression ** charitable purpose " in section 2 was introduced by theIncome Tax (Amendment) Act, No. 44 of 1958 :—
* “ charitable purpose ” means a purpose for the benefit of the publicor any section of the public in or outside Ceylon of any of the followingcategories :—
(а)the relief of poverty ;
(б)the advancement of education or knowledge ;
the advancement of religion or the maintenance of religious rites
and practices or the administration of a place of publicworship ;
any other purpose beneficial or of interest to mankind not falling
within any of the preceding categories.’
In this new definition, so radically different from that which it replaced,the word “ means " is used instead of the word “ includes ", and all thecategories of a charitable trust in section 99 (I) of the Trusts Ordinancehave been brought within the expression “ charitable purpose ". I amunable to derive from the terms of the new definition any assistance inthe elucidation of the particular point under consideration, which is,
*(1899) A. C. 99.
WEERASOORIYA, J.—Commissioner of Income Tax v.
jBaddratoatfrie Fernando Charitable Trust
415
what meaning should be given to “ charitable purposes ” in section7 (1) (c) in the light of the definition of “ charitable purpose ” in section2 as it stood prior to the 1st April, 1959.
In my opinion Question (2) should be answered in the negative. Itfollows that Question (1) also has to be answered in the negative. Asfor Question (3), this does not seem to arise for decision because, inview of the answer to Question (2), none of the objects in olause 2 ofdeed No. 1389 are charitable purposes. I may state, however, that inregard to this question learned Senior Crown Counsel contended that thetrust was established once and for all when deed No. 1389 was executed,and that even if the objects in clause 2 of it constitute charitable purposes,the directions in clause 4 that the nett income of the trust property mustbe applied towards the discharge of the mortgage debt before the incomecould be applied to all or any of the objects as set out in clause 2, tookaway from the trust the essential quality of being one established solelyfor charitable purposes. A similar argument was considered in Com-missioner of Income Tax v. Trustees of the Abdul Gaffor Trust1, wherethe clause in the trust deed specifying the objects of the trust containeda proviso that during the lifetime of the grantor the trustees shall applythe nett rents, profits, dividends and income for such purposes and insuch manner as he may in his absolute discretion direct, whether suchpurposes fell within the objects specified earlier or not; and the questionthat arose was whether the income of the trust property in respect of aperiod subsequent to the grantor’s death was exempted from tax undersection 7 (1) (c). My brother H. N. G. Fernando expressed the view inthat case (in a judgment with which my brother Sinnetamby agreed)that “ the language in section 7 (1) (c) is only intended to denote a trusthaving for the time being legal effect or operation, its purposes beingsolely charitable ”.
In the case before us, since the mortgage debt has been wiped out,the directions in clause 4 of deed No. 1389 relating to the application ofthe income towards the discharge of the mortgage debt are now notoperative and should be ignored in considering the present legal effectof the deed ; and they no longer, in my opinion, stand in the way of thetrust being construed as one established solely for charitable purposesprovided, of course, the purposes in clause 2 are charitable purposes,which (for the reasons already stated) I hold they are not.
In accordance with the decision of Questions (1) and (2) the trusteesare liable to pay income tax amounting to Rs. 11,350/- for the year ofassessment 1957/1958 on the income from the trust property for the period17th November, 1956, to the 31st March, 1957.
The respondent will pay the appellant’s costs of the proceedings inthis Court.
Sajtsoni, J.—I agree.
1 (1958) 60 N. L. R. 361.
Appeal allowed.