THE COMMISSIONER OF INLAND REVENUE, Appellant, and A. L. J. CROOS RAJ CHANDRA, R

043-NLR-NLR-V-67-THE-COMMISSIONER-OF-INLAND-REVENUE-Appellant-and-A.-L.-J.-CROOS-RAJ-CHANDRA-R.pdf


1965Present: Tambiah, J., and Sirlmane, J.THE COMMISSIONER OF INLAND REVENUE, Appellant, mid
L. J. CROOS RAJ CHANDRA, Respondent
8. C. 1/64—Income Tax BRA 316
Income tax—“ Trust of a public character ”—“ Charitable purpose ”—“ Includes ”—Income Tax Ordinance (Cap. 242), ss. 2, 7 (1) (d)—Trusts Ordinance,s. 9y (1).
Section 7 (1) (d) of the Income Tax Ordinance, before it was amended byAct No. 44 of 1958, was a3 follows :—
“ There shall be exempt from the tax the income of any institution ortrust of a public character established solely for charitable purposes.”
The term “ charitable purpose ’ is defined in section 2 of the Income TaxOrdinance as follows :—
*' * Charitable purpose * includes relief of the poor, education andmedical relief.”
Held, that the word “ includes ” in the context of the definition of “ charitablepurpose ” in section 2 of the Income Tax Ordinance must be given its ordinaryextensive meaning and should not bo construed as the equivalent of ‘‘ means ”,The word “established” in section 7 (1) (d) of the Income Tax Ordinanceread with the interpretation clause defining charitable purpose must be giventhe same meaning as the words “ charitable purposes ” mentioned in section99 of the Trusts Ordinance.
Commissioner of Income Tar. v. Baddrawathie Fernando Charitable Trust(63 N L. R. 409) and Ceylon Tea Propaganda Board v. Commissioner of IncomeTax (67 N. L. R. 1) not followed.
Held further, that a trust the objects of which are either for the benefit ofthe public or a section of the public is a trust of a public character within themeaning of section 7 (1) (d) of the Income Tax Ordinance. Even the per-formance of masses for the benefit of certain individuals necessarily benefitsa section of the public, namely, the worshippers at the churoh at which themasses are conducted.
Case stated under section 78 of the Income Tax Ordinance.
M. Kanagasunderam, Crown Counsel, for Appellant.
H. W. Jayewardene, Q.C., with Q. T. Samerawickreme, N. R. M.Daluivatte and B. Eliyaihamby, for Respondent.
Cur. adv. wit.
January 22, 1965. Tambiah, J.—
This is a case stated by the Board of Review under section 78 of theIncome Tax Ordinance (Cap. 242).
By Last Will No. 4691 of 14.12.1899, John Leo de Croos grantedand set apart the rents and profits of certain properties and directedthat out of the income and profits from these properties, charitablepurposes should be carried out in the following manner :—
(а)A girls1 school shall be built at Etukal on the land which the
testator had bought.*
(б)The Etukal cemetery of St. Sylvester shall be enclosed with a
substantial wall.
One of the altars in St. Mary’s Church, Negombo, shall be built
or got out from Europe at the testator’s expense, the expensethereof to be given to the Parish Priest.
Yearly alms giving and masses on a grand scale for the testator,
his father, his mother and his wife in the places where theyare buried shall be given and celebrated.
Ten masses for the testator’s mother, ten masses for the testator,
ten masses for his wife, to be celebrated. The expenses to besent to the Kandy Parish Priest to be divided among thechurches.
(/) Rupees two thousand to be given to Bishop Panjani for thebenefit of the church in his Diocese.
On the anniversary day of the death of the testator, his father,
mother and wife, clothes shall be distributed among beggars.
Once a month beggars shall be given a substantial feed.
To pay dowry suitable to the social position of each recipient
and to give in marriage girls whose parents are unable to affordthe dowry irrespective of religion, nationality, caste or classin each case from rupees one hundred to one thousand at thediscretion of the executor and no more.
The objects set out in sub-paragraphs (a), (6), (c) and (/) above, wereexecuted many years ago. Thereafter, the income and profits fromthe said properties were utilised for furthering the remaining objectsset out in the instrument of trust. The trust created by the said Willis known by the name of John Leo Trust and Will, hereinafter referredto as the “ John Leo Trust ”.
Since 1943 the assessee has been the sole trustee of the John LeoTrust. The income received by the assessee and the disbursementsmade by the assessee in each of the years preceding the three years ofassessment, viz., 1956-57, 1957-58 and 1958-59 are set out in paragraph 8of the petition in which the case is stated.
The case stated arises out of the assessment for the periods mentionedabove. The Board of Review, by their order, a copy of which is markedas XI, held that, excluding a sum of Rs. 835 the income derived by theassessee for the periods referred to, was exempt from Income Tax as itwas income from a trust of a public character established solely forcharitable purposes.
The questions of law on which the opinion of this court is sought areas follows :
(а)whether in respect of the years of assessment 1956-57, 1957-58
and 1958-59, there was a trust of a public character establishedsolely for charitable purposes.
(б)whether the whole of the income of the said trust is exempt from
being taxed under the Income Tax Ordinance.
The answers to the questions of law set out by the Board of Reviewdepend on the proper construction to be placed on the provisions ofsection 7 (1) (d) of the Income Tax Ordinance, before it was amended byAct No. 44 of 1958.
The said provisions are as follows :
“ There shall be exempt from tax the income from any institutionor trust of a public character established solely for charitable purposes.”
“ Charitable purposes ” is defined in the Income Tax Ordinance asfollows :
“ Charitable purposes include relief of the poor, education andmedical relief.”
The learned Crown Counsel conceded that the trust is of a publiccharacter. Further, the fact that the trust is of a public character isborne out by the objects set out which are either for the benefit of thepublic or a section thereof. Lord Greene M. R. in the case of Re Compton1,quoting from Tudor’s Charities (5th Edition, p. 11), put the mattersuccinctly as follows :
“ It is a universal rule that the law recognises no purpose as charit-able unless it is of a public character. That is to say a purpose…. must be directed to the benefit of the community or a
section of the community.”
i (1945) Ch. D. 123 at 128.
Citing this dictum with approval, Lord Radcliffe said (vide FalilAbdul Cctffoor v. The Income Tax Commissioner1) : “ There is no signi-ficant difference between the meaning of ‘ a public character ’ and themeaning of ‘ for the benefit of the public or any section of it Thetwo phrases are often used interchangeably in English decisions andtextbooks.”
A consideration of the various objects set out in the Will creatingthe John Leo Trust shows beyond any doubt that the objects mentionedtherein are either for the benefit of the public or a section of the public.Even the performance of masses for the benefit of certain individualsnecessarily benefits a section of the public, namely, the worshippersat the church at which the masses are conducted. Trusts for theperformance of masses are not void (vide Bourne v. Kerne 2) and benefitsa section of the public who take part in it. The fact that the JohnLeo Trust was of a public nature was not only rightly conceded bythe learned Crown Counsel but is also supported by authorities.
The only question that is pressed before us is whether the John LeoTrust was not established solely for charitable purposes within themeaning of section 7 (1) (d) of the Income Tax Ordinance before it wasamended.
As stated earlier, the phrase ‘‘ charitable purposes ” is defined soas to include relief of the poor, education and medical reliefs. It wascontended on behalf of the Crown that the word “ includes ” should beconstrued as “ means ” in this context. In support of his contention,the learned Crown Counsel relied on two cases, namely, the Commissionerof Income Tax v. Baddrawathie Fernando Charitable Trust3 and anunreported case, The Ceylon Tea Propaganda Board v. The Commissionerof Income Tax4. In both these cases, the Supreme Court, in effect,interpreted the word “ includes ”, in this context as the equivalent of“means”. For reasons which I would set out below, I am unable toagree with this construction.
In the first case, Weerasooriya J. said, (vide 63 N.L.R. at p. 413),“ We were referred by learned counsel on both sides to various definitionsin section 2 where the word ‘ includes ’ is used in different senses. Althoughthe word ‘ means ’ is used in some of the definitions, the word * includes ’appears to be used in other instances as the equivalent of ‘ means ’ — seefor example, the definition of ‘commissioner’, ‘receiver’, ‘trade’,and ‘ trustee ’. The word is also sometimes used in an extensive sense,as in the definition of ‘ business ‘ ordinance ’, and ‘ person The lackof uniformity in the sense in which the word ‘ includes ’ is used in section2 renders it unsafe, in my opinion, to construe the meaning of the wordin the definition of ‘ charitable purpose ’ by reference to the meaningwhich it bears when used in the definition of other terms.”
1 {1961) 63 N. L. R. 56 at 65.* {1919) A. C. 815.
* {1961) 63 N. L. R. 409.
*(1963) 67 N. L. R. 1.
Both in the Commissioner of Income Tax v. BaddrawaXhie FernandoCharitable Trusts (supra) and The Ceylon Tea Propaganda Board v. TheCommissioner of Inland Revenue (supra), this court construed the word“ includes ” as “ means Therefore it is necessary to consider at somelength the meaning of this word in this context.
Whenever the word “ includes ” is used in a statute, the normalmeaning to be attached to the word is that it enumerates categories ofclasses which will not be included in the concept of the term whichprecedes it (vide Ludovici v. Nicholas Appu1; The Corporation of Ports-mouth v. Smith2 and Emperor v. Ramanjiya3).
In the case of Dilworth v. Commissioner for Land and Income Tax4the Privy Council was called upon to interpret the word “ includes ”in the following sentence in section 2 of the Land and Income AssessmentAct of 1891 (an Act of New Zealand) : “ charitable purpose includesdevises, bequests and legacies of real or personal properties respectivelyof whatever description to public institutions such as libraries, museums,institutions for the promotion of science, arts, colleges, schools or hospitals,etc.” Section 3 of the same Act exempted charitable devices or bequestsfrom Income Tax. In interpreting these words, Lord Watson whodelivered the opinion of the Judicial Committee said, (vide 1899 AppealCases, at 105, 106) " Section 2 is, beyond all question, an interpretationclause and must have been intended by the Legislature to be taken intoaccount in construing the expression ‘ charitable device or bequests *,as it occurs in section 3. It is not said in terms that a * charitablebequest ’ shall be one or other things which are enumerated, but itshall include them.”
" The word ‘ include ’ is generally used in interpretation clauses inorder to enlarge the meaning of words or phrases occurring in the bodyof the statute and when so used these words or phrases must be construedas comprehending, not only such things as they signify according totheir natural import, but also those things which the interpretationclause declares that they shall include. But the word ‘ includes ’ issusceptible of another construction, which may become imperative, ifthe context of the Act is sufficient to shew that it was not merely employedfor the purpose of adding to the natural significance of the words orexpressions defined. It may be equivalent to ‘ mean and include ’and in that case it may afford an exhaustive explanation of the meaningwhich, for the purpose of the Act, must invariably be attached to thesewords or expressions.”
A careful perusal of section 2 of the Income Tax Ordinance shows thatthere is a clear cut scheme which underlies the definitions and that thereis no haphazard arrangement or lack of uniformity in which the term“ includes ” is used. In this section, there are some terms definedby the use of the word “ means ”. In such cases, it is meant to be an
1 (1900) 4 N. L. R. p 12 at 15.* 2 I. L. R. (Madras) 6 at p 7.
» 13 Q. B. D. 195.* (1899) A. C. 99.
exhaustive definition. Examples of such words are “ active partner ”,“ assessable income ”, “ assessor ”, “ assistant assessor ”, “ authorisedrepresentative ”, “ banker ”, etc. The word “ includes ” is used in somedefinitions as the equivalent of means but, in such cases, it is significantthat the word that precedes the word “ includes ” is aLso placed afterthe word “ includes Thus for example, the word “ receiver ” is definedas follows : “ Receiver includes any receiver, or liquidator, etc.” Theword “ trade ” is defined as follows : “ Trade includes trade and manufac-ture, etc.” The word “ trustee ” is defined as follows : “ Trustee includesany trustee, guardian, curator, etc.”
When there are words or phrases preceding the word “ includes ”and the same words or phrases are placed immediately after it, it becomesnecessary, in the context, to construe the word “ includes ” as equivalentof “ means and includes ”.
Under the third category the function of the word “ includes ” ismerely enumerative. In such cases, the term is placed preceding theword “ includes ” and is followed by a number of other terms which, incommon parlance, may not connote the term which precedes the word“includes”. Thus, the word “business” is defined as “Businessincludes agricultural undertakings”. In common parlance, agriculturalundertakings will not be construed as business. It is in this sensethat the phrase “ charitable purposes ” is to be construed.
Charitable purpose is a concept which has a definite meaning underthe Statute Law of Ceylon. The terms that follow the word “ includes ”enumerate those classes which may not be included in the term “ chari-table trusts ”. I am fortified in my view on the construction to be placedon the words “ charitable purpose ” by the dictum of Lord Radcliffe,who delivered the opinion of the Privy Council in Falil Abdul Gajfoor v.The Commissioner of Income Tax (supra). He said, “ It is necessary nowto turn to the question of exemption. To qualify at all there must bean income of an ‘ established * trust. Having regard to the nature ofthe Adbul Caffoor Trust, it cannot be validly established unless it fallswithin the definition of ‘ charitable trusts ’ which is contained in section99 (1) of the Trusts Ordinance, 1918. This definition includes anytrust * for the benefit of the public or any section of the public ’, fallingwithin any one of a number of categories which extend to such purposesas the relief of poverty and the advancement of education or knowledge.To satisfy the definition contained in the Income Tax Ordinance, therefore,the Abdul Caffoor trust must be a charitable trust ‘ of a public character5 ;to be a subsisting charitable trust at all, it must be trust for thebenefit of the public or some section of it.
In order to determine this question, their Lordships think that thefollowing principles may safely be applied in the interpretation of theCeylon Ordinance. First, the general principles of English Law thatgovern charitable trusts can be invoked. It seems plain that boththe conception of a trust itself and the conception of what constitutes a
charitable trust have been influenced by the English Law. Secondly,there is no necessity to include the general principles of English Lawthat appear to be specially associated with English local conditions orEnglish history ; or which now appear to be anomalous incidents ofthe general law. Thirdly, there is no significant difference betweenthe meaning of ‘ of a public character ’ and the meaning of * for thebenefit of the public or any section of it The two phrases are oftenused interchangeably in English decisions and textbooks—see e.g., thequotation from Tudor’s Charities (5th Edition, p. 11) cited by Lord GreeneM. R. in Re Compton’s case. It is a universal rule that the law recognisesno purpose as charitable unless it is of a public character. That is tosay, a purpose must be directed to the benefit of the public or a sectionof the community. Charitable trusts must be ‘ trusts of a public nature *(vide Lord MacNaughton’s dictum in Pemsel’s case). Fourthly, althougheducational purposes are themselves charitable purposes, no trust underwhich beneficiaries are defined by reference to purely personal relation-ships with a name can be a valid charitable gift. If, therefore, personsfor whose benefit an educational trust is created, derive their title tothe benefit by proving their qualifications in this way, whether as descen-dants of a named person or an employee of a named company, the trustmust be regarded merely as a family trust and not as one for the benefitof the community (vide Re Compton (supra) ; Oppenhiem v. TobaccoSecurities Trust Co. Ltd.). ”
Although the relevant part of this dictum is obiter, I would respectfullyagree with the views expressed by Lord Radcliffe on the identicalprovisions of the Income Tax Ordinance that this Court has been calledupon to interpret. The views taken by Lord Radcliffe accord with thewell-known rules and canons of construction that should be applied ininterpreting statutes. When the Legislature has provided an inter-pretation clause, one should not embark on a voyage of discovery toseek the supposed intention of the draughtsman who, for a variety ofreasons, might have omitted certain portions for earlier definitions orincluded them later on in order to make the meaning of certain wordsclear.
Some of the reasons given by Weerasooriya J., in the interpretationadopted by him may be examined. In the course of his judgment,Weerasooriya J., states as follows : “ In defining * charitable purposes ’in section 2 of the Income Tax Ordinance, the draughtsman left outentirely the purposes mentioned in category (c) of the definition of acharitable trust in section 99 (1) of the Trusts Ordinance (namely theadvancement of religion, or the maintenance of religious rites andpractices) ”.
From this omission he infers that the definition of “ charitable purpose ’ *in section 2 of the Income Tax Ordinance was intended to exclude fromits ambit the advancement of religion or the maintenance of religiousrites and practices. Weerasooriya J. further stated : “ I am confirmed
in this opinion by the distinction drawn in section 7 (1) (c), as originallyenacted, between religious and charitable purposes, which were treatedas separate categories. Section 7 (1) (c) drew a distinction between areligious and a charitable institution. In view of these distinctions,it would ho-ve been incongruous if ‘ charitable purpose ’ in section 2 wasdefined as including religious purposes.”
In this connection it is important to bear in mind that there can bea religious purpose or performance of religious rites purely for the benefitof a particular person or specified individuals in view of the religiouspractices prevailing in this country. Thus, a person may create a trustand direct the trustee to give a specified sum to a particular individual orother named individual so as to enable them to perform pilgrimages toa particular shrine. A more common example is for a person to create atrust and earmark a certain portion of the income for the performanceOx special rites to the Gods in order to obtain favours for himself orhis close relations. The Hindus often perform “ arichinai ” which ispurely intended to invoke the blessings of the deity for the benefit of anindividual. Such trusts do not benefit the public or a section of the publicand therefore is not a public religious purpose. As contended by thecounsel for the appellant, a distinction must be drawn between a publicreligious purpose and a private religious purpose. It was perhaps theintention of the draughtsman not to exempt charities which wereintended to benefit only an individual or particular named individuals.Since the term charitable purpose is sufficient enough to include publicreligious purposes or performances of religious rites for public purposes,to avoid tautology, the draughtsman might have omitted religiouspurposes. Further, by onytting the words “ religious purposes ” thedraughtsman might have intended not to exempt private charities whichwere intended only to benefit a particular individual or individuals andwhich did not confer any benefit on the public or a section of the public.
In the case of The Ceylon Tea Propaganda Board v. The Commissioner,of Income Tax (supra) similar views were advanced by Fernando J.,in construing the relevant words of the Income Tax Ordinance referredto earlier. In the course of his judgment, he said : “ The categorisationof charitable purposes into four divisions stated in Pemsel's case was notunfamiliar to the Legislature of Ceylon, for we find in section 99 of theTrusts Ordinance that the same four categories are included in thedefinition of charitable trusts with alterations apparently considerednecessary for the Law of Ceylon. It is most likely that the same definitionof charitable trust was examined at the tune of the enactment of theIncome Tax Ordinance, and if there had been any intention that theexpression ‘ charitable purpose ’ should have the same wide meaningas in the Trusts Ordinance, it is strange that the old definition wasneither incorporated in the Income Tax Ordinance nor adopted byreference.”
The reasons given by me earlier apply equally to the observationsmade by Fernando J. When the phrase “ charitable purpose ” was wideenough to catch up all categories set out in section 99 of the TrustsOrdinance, it was quite unnecessary for the draughtsman to include againall the specialized categories referred to in the Trusts Ordinance. If theintention of the draughtsman was not to exempt charities, which werecreated for the performance of the religious rites purely for the benefitof an individual or individuals, the omission of the phrase “ religiouspurpose ” in the definition of section 2 of the amended Income TaxOrdinance can well be understood.
In both cases referred to above, the dictum of Lord Radcliffe in AbdulCaffioor’s case was not referred to or considered. Counsel for the appellantsubmitted that at the time these decisions were delivered, the decision ofthe Privy Council was not available in Ceylon. I am of the view thatthe phrase “ established ” in section 7(1) (d) of the Income Tax Ordinanceread with the interpretation clause defining charitable purpose in section2 of the Income Tax Ordinance must be given the same meaning as thewords “ charitable purposes ” set out in section 99 of the TrustsOrdinance.
The inclusion of all the different categories of charitable purposesas defined in section 99 of the Trusts Ordinance in the Income TaxAmendment Act 11 of 1958 does not show that a deliberate change wasbrought about by this amending Act. Category C of section 99 of theTrusts Ordinance was specially included in the definition of charitablepurposes in the Income Tax Act. To avoid all doubts such a changecould have been brought about regarding the construction to be placedon section 2 of the Income Tax Ordinance before it was amended.
Even if one should entertain any doubts, taxing statutes must beconstrued strictly (vide John Cox v. Harris Rabbit1). As I had occasionto state earlier (vide 64 N.L.R. 403) express and unambiguous language isabsolutely indispensable in statutes passed for the purpose of imposinga tax. In a taxing statute, if two constructions are possible, one infavour of the assessee and the other in favour of the assessor, the courtshould adopt the construction favourable to the assessee.
The first question of law referred to us, therefore, must be answeredin the affirmative. If the first question is answered in the affirmative,as conceded by the learned Crown Counsel, it necessarily follows thatthe second question should also be answered in the affirmative. I holdthat the Board of Review was not justified in asking the assessee to paythe sum of Rs. 835. The appeal is dismissed with costs.
Shumane, J.—I agree.
Appeal dismissed.
1 {1877-78) L. R. 3 A. C. p. 474.