[JUDICIAL COMMITTEE]

AND

ON APPEAL FROM THE SUPREME COURT OF CEYLON.

Charity - Class, gift for limited - Education - Limited primarily to members of donor's family - Whether of public character solely for charitable purposes - Family trust - Ceylon Income Tax Ordinance (No. 2 of 1932, as amended), s. 7 (1) (c).

Estoppel - Per rem judicatam - Revenue - Income tax - Decision granting exemption - Revenue not estopped from challenging exemption in subsequent years - Not "eadem quaestio."

Ceylon - Revenue - Income tax - Exemption - Trust - Whether public charitable or family trust - Decision granting exemption - Revenue not estopped from challenging exemption in subsequent years - Ceylon Income Tax Ordinance (No. 2 of 1932, as amended), s. 7 (1) (c).

By the terms of a trust deed executed in Ceylon in 1942 the trust income after the death of the grantor was to be applied by the board of trustees, the appellants, in their absolute discretion for all or any of a number of purposes which included "(2) ... (b) the education instruction or training in England or else-where abroad of deserving youths of the Islamic Faith" in any department of human activity. "The recipients of the benefits ... shall be selected by the board from the following classes of persons and in the following order:- (i) male descendants along either the male or female line of the grantor or of any of his brothers or sisters failing whom" youths of the Islamic Faith born of Muslim parents of the Ceylon Moorish Community permanently resident in Colombo or elsewhere in Ceylon.

Assessments to income tax having been made by the respondent, the Commissioner of Income Tax, on the income of the trust for the five years 1950-51 to 1954-55 the appellants, alleging that the trust was an "institution of a public character established solely for charitable purposes" within the meaning of section 7 (1) (c) of the Ceylon Income Tax Ordinance, 1932, as amended, claimed exemption thereunder from liability to tax. The Board of Review, constituted under the Ordinance, had in fact on an appeal by the appellants in respect of the assessment for the previous year 1949-50 decided that the trust income was exempt on the ground that the trust was of a public character established solely for charitable purposes:-

Held, (1) that the respondent was not estopped by the decision of the Board of Review for the year 1949-50 from challenging the appellants' claim to exemption for the subsequent years. A question of liability to tax for one year was always to be treated as inherently a different issue from that of liability for another year - as not eadem quaestio - even though there might appear to be similarity or identity in the questions of law on which they respectively depended, and the principle of res judicata did not apply. It was not the status of the tribunal itself, judicial or administrative, that formed the determining element for estoppel in cases of this kind but the limited nature of the question that was within the tribunal's jurisdiction (post, pp. 598, 599).

Broken Hill Proprietary Co. Ltd. v. Broken Hill Municipal Council [1926] A.C. 94, P.C., applied.

Inland Revenue Commissioners v. Sneath [1932] 2 K.B. 362; 48 T.L.R. 241, C.A. and Society of Medical Officers of Health v. Hope [1960] A.C. 551; [1960] 2 W.L.R. 404; [1960] 1 All E.R. 317, H.L. considered.

Hoystead v. Commissioner of Taxation [1926] A.C. 155; 42 T.L.R. 207, P.C., not followed; that case could not be treated as an authority on the question of estoppels in respect of successive years of tax assessment.

Held, (2) that in view of what was in effect the absolute priority to the benefit of the trust income which was conferred on the grantor's own family by clause (2) (b) (i) of the trust deed this was a family trust and not a trust of a public character solely for charitable purposes, and the income thereof was accordingly not entitled to the exemption claimed (post, p. 603).

In re Compton, Powell v. Compton [1945] Ch. 123; 61 T.L.R. 167; [1945] 1 All E.R. 198, C.A., Oppenheim v. Tobacco Securities Trust Co. Ltd. [1951] A.C. 297; [1951] 1 T.L.R. 118; [1951] 1 All E.R. 31, H.L., and In re Koettgen's Will Trusts [1954] Ch. 252; [1954] 2 W.L.R. 166; [1954] 1 All E.R. 581 considered.

Judgment of the Supreme Court of Ceylon (1959) 60 N.L.R. 361 affirmed.

APPEAL (No. 53 of 1959) from a judgment and decree of the Supreme Court of Ceylon (H. N. G. Fernando and Sinnetamby JJ.) (November 26, 1958) allowing an appeal by the present respondent, the Commissioner of Income Tax, Colombo, by way of case stated, from a decision (February 19, 1957) of the Board of Review constituted under the Income Tax Ordinance of Ceylon which had allowed an appeal by the present appellants, the trustees of the Abdul Gaffoor Trust, against a determination of the respondent confirming assessments to income tax made on the appellants in respect of the trust income for the years 1950-51 to 1954-55 inclusive.

The trust purposes, as set out in a trust deed of December 24, 1942, executed by the grantor, were as follows:

"(2) ... (a) A sum not exceeding one thousand rupees (Rs. 1,000/-) a month for the remuneration of the trustees and the expenses incurred by them in connection with the administration of the trust and for the payment of the costs of professional accountants solicitors counsel or agents or managers or other persons whomsoever for or relating to any services rendered or other things done in connection with matters relating to the trusts hereby created or the trust property.

(b) A sum not exceeding in all one thousand rupees (Rs. 1,000/-) a month for the education instruction or training in England or elsewhere abroad of deserving youths of the Islamic Faith in such professions vocations occupations industries arts or crafts trades employments subjects lines or any other departments of learning or human activity whatsoever as the board may in its aforesaid discretion decide in the case of each such deserving, youth with a like discretion in the board from time to time [to] change modify or alter or completely discontinue in the case of each such youth either the object or objects of instruction education or training selected for him by the board (from among the objects enumerated above) or the place or places or countries whereat such education training or instruction is being given from time to time. The board may under a like discretion partially or wholly discontinue any assistance it may have given or may be giving in the case of any such youths. It shall be lawful for the board out of the said sum to pay for or provide the whole or any part of the cost of any such youth going abroad from or in returning to Ceylon once or oftener as the board may under such discretion aforesaid from time to time decide. The recipients of the benefits provided for in this clause shall be selected by the board from the following classes of persons and in the following order:

"(i) male descendants along either the male or female line of the grantor or of any of his brothers or sisters failing whom

"(ii) youths of the Islamic Faith not being male descendants as aforesaid of the grantor or of his brothers or sisters born of Muslim parents of the Ceylon Moorish Community permanently resident in the City of Colombo (wherever such youths may have been or be resident from time to time) failing whom

"(iii) youths of the Islamic Faith not being male descendants as aforesaid of the grantor or of his brothers or sisters born of Muslim parents of the Ceylon Moorish Community permanently resident anywhere else in the said Island of Ceylon other than

in Colombo (wherever such youths may have been or be resident from time to time).

"(c) A sum not exceeding two hundred and fifty rupees (Rs. 250/-) a month for the education of deserving youths of the Islamic Faith born of Muslim parents of the Ceylon Moorish Community permanently resident in Ceylon at either the University of Ceylon or any institution associated with or affiliated to it or the Ceylon Law College or any other scholastic or vocational or professional or agricultural or industrial or other technical institution public or private in Ceylon.

"(d) A sum not exceeding two hundred and fifty rupees (Rs. 250/-) a month for providing dowries for poor girls of the Islamic Faith wherever resident born of Muslim parents of the Ceylon Moorish Community permanently resident in the City of Colombo.

"(e) A sum not exceeding two hundred and fifty rupees (Rs. 250/-) a month for supplementing the income of the Ghaffooriyah Arabic School at Maharagama in the said Island founded [by] the grantor in the event of the funds already provided for the said school under the relative trusts proving insufficient.

"(f) A sum not exceeding one thousand rupees (Rs. 1,000/-) a month to be accumulated from month to month and distributed for charity once a year during the month of Ramadan.

"(g) any surplus or any sums not expended on any of the above objects shall be credited to a reserve fund to be used in such proportions to such extents at such time or times and from time to time in such manner as the board may in its absolute and uncontrolled discretion decide (1) for the purpose of meeting any unforeseen expenditure or contingency in connection with the trust property (2) in furtherance of all or any one or more of the various objects of the trust (3) for educating in a secondary school or secondary schools in Ceylon poor deserving boys of the Islamic Faith born of Muslim parents permanently resident in Ceylon (wherever such boys may have been or be resident from time to time) and (4) for the relief of poverty distress or sickness amongst members of the Islamic Faith in Ceylon."

The main questions raised in this appeal were: (1) Whether the decision of the Board of Review on appeal against an assessment made on the trustees for the year 1949-50 operated as res judicata in respect of subsequent years now in question. (2) Whether, during the years covered by the present assessments,

the trust was a trust "of a public character established solely for charitable purposes" and exempt from tax by virtue of section 7 (1) (c) of the Income Tax Ordinance.

The Supreme Court of Ceylon held (1) that the decision of the Board of Review on an appeal from a previous assessment did not operate as res judicata; and (2) that the income of the trust was not exempt from tax.

1961. March 1, 2, 7, 8. E. F. N. Gratiaen Q.C., Ceylon, Michael Nolan, M. Sanmuganathan and Basnayake for the appellants. The main question is whether as from the date of the grantor's death on November 1, 1948, this trust was an "institution of a public character established solely for charitable purposes" within the meaning of section 7 (1) (c) of the Income Tax Ordinance, 1932, as amended, and the income thereof exempt from income tax under that section. The question as to tax liability arose first in the year 1949-50, when the trustees obtained a ruling from the Board of Revenue that the trust income was exempt by virtue of the provisions of section 7 (1) (c). The present appeal raises the question whether the commissioner is entitled to claim that the trust income is liable to tax for the five subsequent years 1950-51 to 1954-55 inclusive.

Two questions therefore arise: (1) Whether the decision of the Board of Review, right or wrong, operates as res judicata in respect of the appellants' present claim for exemption. The appellants say that it does. While it is appreciated that res judicata will only apply to a judicial decision and not to the decision of an estimating authority, and that the contest must be in respect of the same subject-matter, the submission is that both those tests are satisfied in this case having regard to the functions of the Board of Review under the Ordinance, which equates them, it is submitted, to a court exercising strictly judicial functions; and they are judicial functions because the decision is whether the trustees are entitled to claim permanent exemption from tax. If it is not the same subject-matter, then the plea fails. (2) Whether, even if the plea of res judicata fails, the Supreme Court were wrong in holding that in this case the exemption was not available to the trustees.

The Commissioner of Income Tax, it is conceded, is clearly an estimating authority and not a court, and the doctrine of res judicata cannot possibly apply in Ceylon to a determination made by him: Income Tax Ordinance, ss. 2, 3 (2), 5, 6, 20, 54, 55, 61,

64, 65, 66, 67, 69. The jurisdiction of the Board of Review, however, is in sharp distinction when contrasted with the administrative functions of the commissioner: sections 70, 71, 73. The board gives its "decision" as opposed to a "determination": section 74. The board has no general estimating functions; and re finality, see section 75, and see also sections 77-83. Res judicata applies because the status and functions of the Board of Review are not merely not those of an estimating authority or of a revising body or of an administrative tribunal which substitutes its own assessment for that of another official, but, on the contrary, are of a judicial nature, and it makes final decisions subject only to the dissatisfied party's right to appeal to the Supreme Court and also to the Judicial Committee on a question of law. The decision of the Board of Review may properly be equated to a lis inter partes, as between the taxpayer on the one hand and the commissioner representing the Crown on the other affecting legal rights and liabilities.

The decision of the Board of Review was made on a fundamental question which directly arose for decision in respect of the year 1949-50 and which is equally a fundamental issue in relation to the claim for exemption for the later years of assessment. The order of the board annulling the determination of the commission in regard to the first year of assessment was on the basis of a decision that the appellants were entitled to permanent exemption under section 7 (1) (c).

Reference may be made first to a group of cases where the persons performing the functions of commissioners and Special Commissioners were held to be estimating authorities and not exercising judicial functions. Those cases are perfectly applicable to the commissioner here, but not to the Board of Review. In Inland Revenue Commissioners v. Sneath¹ the Special Commissioners were administrative officers charged with the duty of making an assessment for a particular year as soon as the matter came before them. They were clearly not a court; they had no seisin of any lis between the parties. In Sneath's case¹ there was only a decision as to what was the proper formula in arriving at an assessment. See also Inland Revenue Commissioners v. Brooks.² In Patuck v. Lloyd³ there is an independent assessment to be made each year, and they are not bound to follow their own previous decision; which is conceded. The functions

1 [1932] 2 K.B. 362, 378, 379, 386, 388; 48 T.L.R. 241, C.A.

2 [1915] A.C. 478, 482, 485; 31 T.L.R. 89, H.L.

3 (1944) 171 L.T. 340, 341, C.A.

of the board in British Imperial Oil Co. Ltd. v. Federal Commissioner of Taxation⁴ were held to be purely judicial and not administrative; thereafter an amending Act was passed expressly equating the board's decisions with the assessments of the commissioner - their decisions are really made by law decisions of an administrative board. In Federal Commissioner of Taxation v. Munro⁵ Knox C.J. (dissenting) held that the amendment did not alter the position, but that view was rejected by the High Court and when that case came on appeal to the Privy Council: Shell Company of Australia Ltd. v. Federal Commissioner of Taxation⁶; it was held that the board are merely in the same position as the commissioner, namely, another administrative tribunal. On a true analysis, however, the functions of the Board of Review in the Ceylon Ordinance are far more comparable to the board under the original Australian Act, and in Ceylon the commissioner is the final administrative officer; after him there is only the judicial authority of the Board of Review, subject to appeal on law. Hoystead v. Commissioner of Taxation⁷ is relied on for the purposes of the present case; that case and Broken Hill Proprietary Co. Ltd. v. Broken Hill Municipal Council⁸ are correct and can be readily differentiated. [Reference was made to Spencer Bower on Res Judicata (1924), p. 9, r. 5.]

The present case is uncomplicated, for the appellants say that they have been assessed by the commissioner to tax for the year 1949-50 upon a computation which section 7 (1) (c) prohibits, and they have a decision in their favour. In the following years they make again the same complaint and ask for a quashing on the ground that the commissioner was for the identical fundamental reason not entitled to assess them at all. The question on the second occasion involves the determination of the same fundamental identical question. On eadem quaestio, see Badar Bee v. Habib Merican⁹; the same principle applies even in the context of a taxing statute. A similar case is Sankaralinga v. Commissioner of Income Tax.¹⁰ See also Society of Medical Officers of Health v. Hope¹¹; none of the grounds of the decision in that case affects the submissions made for the appellants here. [Reference was also made to Hoystead's case below¹²

4 (1925) 35 C.L.R. 422, 432, 435.

5 (1926) 38 C.L.R. 153.

6 [1931] A.C. 275, 293, 295; 47 T.L.R. 115, P.C.

7 [1926] A.C. 155, 171, 172; 42 T.L.R. 207, P.C.

8 [1926] A.C. 94, 100, P.C.

9 [1909] A.C. 615, 619, 623, P.C.

10 A.I.R. (1930) Mad. 209, 214.

11 [1960] A.C. 551, 556, 560, 561, 569; [1960] 2 W.L.R. 404; [1960] 1 All E.R. 317, H.L.

12 (1921) 29 C.L.R. 537, 552.

and to Halsbury's Laws of England, 3rd ed., vol. 15, p. 181, para. 355.]

Turning now to the question of charity, it is conceded that if in Ceylon there is no valid charitable trust with the necessary public element, then the trust would fail and be completely invalid. [Reference was made to the Trusts Ordinance of Ceylon (Legislative Enactments, 1938 Rev., c. 72), ss. 99, 110 (1) (5).] The narrow point here is whether one particular purpose could be adopted or resorted to in a certain situation - whether that lacked the public element. There was admittedly a direction that not more than Rs. 1,000 a month should be spent on the education abroad of deserving youths of the Islamic Faith. That, admittedly, was a public charity; but there was a direction that preference should be given to people of that class in particular order, and the first category was descendants of the grantor himself or of his brothers and sisters. It is not sought to bring this case within the "Founder's Kin" cases. Whether the special preference to members of the family circle divests the trust of its public character is the simple issue. There was no suggestion at any stage that this was a colourable provision so far as the author of the trust is concerned. It is clear that there is no express intention to confine the benefits of clause 2 (b) to the family circle.

The following authorities show that membership of a family as a qualification has only been held to divest the trust of its public character if the membership of the particular family of the author of the trust - or employees of a named company - was an essential part of the qualification: In re Compton, Powell v. Compton¹³ - the present case is distinguishable because no member of the family circle can qualify for the benefit under clause 2 (b) unless he is a deserving youth of the Islamic faith; Oppenheim v. Tobacco Securities Trust Co. Ltd.¹⁴ - if the appellants are to succeed, it must be on the basis that the instrument confers a benefit on a section of the community with express preference for members of the family qualified themselves within the larger class; In re Cox, decd., Baker v. National Trust Co. Ltd.¹⁵ - which is another case where the only beneficiaries within the bequest were employees and ex-employees; it does not carry

13 [1945] Ch. 123, 129; 61 T.L.R. 167; [1945] 1 All E.R. 198, C.A.

14 [1951] A.C. 297, 303, 305; [1951] 1 T.L.R. 118; [1951] 1 All E.R. 31, H.L.

15 [1955] A.C. 627, 638; [1955] 3 W.L.R. 42; [1955] 2 All E.R. 550, P.C.

the matter further. Whether the present case comes entirely within In re Koettgen's Will Trusts¹⁶ or not, that case was correctly decided and the question is whether there are valid grounds for differentiating it from this case. If it was quite obvious that nobody but the preferred beneficiaries could come in, then it would be confined and that would make the difference.

In summary, there was res judicata because (1) the Board of Review was a judicial tribunal (see the British Imperial Oil Co. case¹⁷ charged with the duty of determining issues between commissioners representing the Crown and the taxpayer which arose from the Income Tax Ordinance. (2) There was a lis inter partes - between the Crown and the trustees. (3) The annulment of the 1949-50 assessment necessarily involved a decision that the trustees were exempt from liability under the Income Tax Ordinance. The claims particularised in the assessments for 1950-51 to 1954-55 seek to re-open that decision and thus to reagitate the same question.

On the question of charity: (1) The only persons who can benefit are deserving youths of the Islamic Faith - plainly a section of the public. (2) Relationship to the grantor gives no right to benefit: his relations can only benefit if - and because - they come within (1) above. (3) Therefore the mere fact that they are preferred does not affect the character in which they benefit, i.e., as members of a section of the public. Lastly, the discretion of the trustees (or the board) must be exercised properly, and the court will interfere if it is not so exercised: see Tudor on Charities, 5th ed., p. 250.

Sir John Senter Q.C. and Walter Jayawardena for the respondent. The basic reasons given by Mr. Gratiaen for seeking to establish that the decision of the Board of Review in respect of the 1949-50 assessment was res judicata are wrong. No question of res judicata arises as regards the Board of Review in Ceylon; until the matter reaches the Supreme Court it is not judicial at all. Once an appeal has been set in motion by notice, the function of the Special Commissioners in this country is purely a function of valuation, and the position of the Board of Review in Ceylon is analogous to that of the Special Commissioners here. [Edwards (Inspector of Taxes) v. Bairstow¹⁸ was referred to.] The commissioner and the Board of Review are part of the administration of assessment. The fact that an annual Finance

16 [1954] Ch. 252; [1954] 2 W.L.R. 166; [1954] 1 All E.R. 581.

17 35 C.L.R. 422.

18 [1956] A.C. 14, 33; [1955] 3 W.L.R. 410; [1955] 3 All E.R. 48, H.L.

Act is necessary in England makes no essential difference. The Ceylon Ordinance has been changed from time to time, so that Mr. Gratiaen's point about the nature of the legislation, and that there is here a permanent exemption which cannot be changed, is a most unrealistic view. It is not right to differentiate the Income Tax Ordinance of Ceylon from the structure of the income tax legislation of this country. The Board of Review is really in the same position as the Special Commissioners here and they have no judicial functions; that is my main point. None of the refinements indicated for the appellants make it a judicial body. Rex v. Income Tax Special Commissioners¹⁹ is a striking example of the Special Commissioners being a valuing body, and of their resemblance to the functions of the Board of Review in Ceylon. Under the law as it stands the duty of the board is to act as valuers and to state what is the amount of the tax due, and nothing else. See also Inland Revenue Commissioners v. Sneath.²⁰ There was no lis at all - the function of the High Court is to determine whether the Special Commissioners were right. The earlier decision of the Board of Review does not operate as res judicata in respect of the assessments under appeal.

On the charity point, the reasoning of the Supreme Court is clearly right - that it would be possible for the trustees, without imputing bad faith to them, to accumulate under clause 2 (g) of the trust deed and to apply the whole of that for the benefit of the founder's children without any breach of trust. Reliance is placed on Oppenheim v. Tobacco Securities Trust Co. Ltd.²¹ The Board should not give any extension to this trust which clearly has not the requisite element of public benefit. The trustees could use their discretion in a way which would wholly destroy the public character of the trust. The instrument was not, and is not, established solely for charitable purposes within the meaning of section 7 (1) (c) of the Ordinance, and the assessments appealed against were rightly made.

Jayawardena following. Under the relevant sections of the Income Tax Ordinance the question is: What are the tribunals deciding? - that is the true test in Sneath's case,²² Hope's case²³ and the Broken Hill case.²⁴ The appeal is on the amount of the assessed income for the relevant years - that is the subject-matter

19 [1936] 1 K.B. 487; 52 T.L.R. 143, C.A.

20 [1932] 2 K.B. 362, 385.

21 [1951] A.C. 297.

22 [1932] 2 K.B. 362.

23 [1960] A.C. 551.

24 [1926] A.C. 94.

of the appeal, and what happened to the assessment for the earlier year is irrelevant. The commissioner and the Board of Review are by the Ordinance given the same powers - to confirm, reduce, etc. The board does not act in a judicial capacity; one of the marks of a court in Ceylon is absent - they do not act on legal evidence. The earlier decision on the 1949-50 assessment was not res judicata.

On the charity point, the question always is: What can the trustees legally do? Can the provisions of the instrument here be separated into different trusts? There is not one class from whom a selection is to be made; the grantor's descendants are in a separate class by themselves. The trustees here are not bound to apply the funds for charitable purposes. [Reference was made to Income Tax Commissioner v. Aga Abbas Ali Shiraji²⁵ and Morice v. Bishop of Durham.²⁶] This is not a charitable trust even under English law, and if there are certain objects which do not pass the test of public character in the normal sense, the trust fails to qualify for the exemption. The onus is on the assessees to show that the assessment was wrong, and they have not discharged it in this case.

Gratiaen Q.C. in reply. The decision of the Board of Review is a judicial decision which binds both parties because it is fundamental to the claim for exemption in a subsequent year. The decision in Hoystead's case²⁷ was perfectly right and is in no way inconsistent with the judgment in the Broken Hill case,²⁸ and is an excellent illustration of the way in which estoppel by judgment as opposed to estoppel by res judicata could arise in a tax case. [Reference was also made to Munro's case,²⁹ Brook's case³⁰ and Sneath's case.³¹]

As to charity, there is in Ceylon a statutory adoption of the English principles in deciding what is "the public" or "a section of the public." The only issue here on charity is whether what would otherwise have been a trust of a public character has been divested of that character because of the direction that preference should be given to members of the family. The founder did intend to establish a trust of a public character, and if it is in substance for the public benefit, then there is a public trust, but if in substance clause 2 (b) is in effect a private family trust, it

25 (1944) I.L.R.(Mad.) 837.

26 (1804) 9 Ves. 399.

27 [1926] A.C. 155.

28 [1926] A.C. 94.

29 38 C.L.R. 153.

30 [1915] A.C. 478.

31 [1932] 2 K.B. 362.

is conceded that the appeal must fail. Upjohn J. in Koettgen's case³² was perfectly right.

April 17. The judgment of their Lordships was delivered by LORD RADCLIFFE. This appeal from a judgment of the Supreme Court of Ceylon concerns five assessments to income tax for the revenue years 1950-51 to 1954-55 which have been made upon the income of a trust, styled the Abdul Gaffoor Trust, of which the appellants are the trustees. The appellants' case is that these assessments ought to be discharged because the trust is an "institution or trust of a public character established solely for charitable purposes" within the meaning of section 7 (1) (c) of the Ceylon Income Tax Ordinance, 1932 (No. 2 of 1932, as subsequently amended), and its income is accordingly exempt from liability to the tax. For the moment it is sufficient to note that by virtue of the interpretation section of the Ordinance, section 2, "charitable purpose" is to be held to include "relief of the poor, education and medical relief."

The trust in question was set up by a deed dated December 24, 1942, executed by one Noor Deen Hadjiar Abdul Caffoor, the grantor, of the one part and certain persons of the other part who were to act as the intended trustees. The trust property was stated to be of the value of Rs. 2,050,000, lawful money of Ceylon, at the date of the deed. The overriding trust in the deed was that during the life of the grantor the trustees were to apply the whole of the income for such purposes and in such manner as the grantor himself should in his absolute direction direct, whether or not such purposes should fall within those directed by the deed to be operative after the grantor's death. It is plain, therefore, that until his death, which took place on November 1, 1948, the current trust income was not in any sense devoted to charitable purposes. Accordingly, it can be argued that for this reason alone the Abdul Gaffoor Trust is not capable of being described as "established solely for charitable purposes." This argument was placed before the Supreme Court by the respondent and was there rejected on the ground that the word "established" had no essential connection with the date of the founding trust deed, and that the critical test for the purposes of the exemption of income from tax was the nature of the trusts that were operative in the year to which the claimed exemption related. The respondent's submission was repeated to their Lordships on the ground that it was desired to keep the point open.

32 [1954] Ch. 252.

The point was not fully developed in argument and, for reasons which will shortly appear, their Lordships find it unnecessary to express any opinion upon it.

Once the grantor was dead his overriding trust came to an end. The trust income thereafter was to be held by the trustees upon trust, after reserving a sum of Rs. 1,000 a month for upkeep and maintenance of the trust property, for all or any of a number of enumerated purposes which were set out in subheads (a) to (g) inclusive of paragraph 2 of the trust deed. The application of the income for or among these purposes was left to the absolute and uncontrolled discretion of a board, to be set up under the trust, consisting of the trustees and certain other named persons.

It is more convenient to set out these trust purposes in full as expressed in the deed than to try to reduce the expression of them by abridgement. [His Lordship stated the relevant terms of the trust deed as set out above and continued:]

If one accepts, as their Lordships do, the Supreme Court's reading of the words "for charity" in subhead (f) as meaning no more than "for the relief of the poor," it appears that in any year after the grantor's death the whole of the trust income, after allowing for administrative expenses, was destined to be applied for purposes that can broadly be described as serving education or the relief of poverty or of sickness or distress. Prima facie, these would qualify as charitable purposes.

The first main point taken on behalf of the appellants is that as between themselves and the respondent the question of exemption has been conclusively decided in their favour by a decision of the Board of Review, constituted under the Income Tax Ordinance, which decision was given on December 22, 1954, upon an appeal made by them to that board against assessment for the revenue year 1949-50. It is not in dispute that this decision was given or that the ground upon which exemption was allowed was that the income was that of a trust of a public character established solely for charitable purposes.

The appellants, therefore, are seeking to treat the decision of the Board of Review as setting up an estoppel per rem judicatam on the question of the trust income's right to be exempted from tax. This plea has not hitherto prevailed in the various hearings in Ceylon, it has been rejected in turn by the Commissioner of Income Tax, acting under section 69 of the Ordinance, by the Board of Review, acting under section 73, and by the Supreme Court, under section 74. For the reasons which will appear their Lordships are also of opinion that it cannot succeed.

The grounds for rejecting the estoppel in the courts of Ceylon have been stated either as "the previous decision of the Board of Review which relates to an assessment for a year previous to the years of assessment which are now before us is not binding on us" (Decision of the Board of Review, paragraph 2) or as depending upon the question whether the Board of Review performs judicial and not merely administrative functions or, to put it in yet another way, upon the question whether the board was intended to function as a court of competent jurisdiction to decide litigation between the subject and the Crown (judgment of the Supreme Court). These different ways of approaching the issue reflect differences of formulation which are to be found in judgments in this country on similar or analogous issues. It is to be observed, however, that such differences could well lead to different conclusions in certain circumstances; for, if the fundamental reason why there is no estoppel is based upon the idea that the Board of Review does not possess adequate status as a judicial court of competent jurisdiction, it might seem to follow that a decision of the Supreme Court on the other hand when given on a case stated to it would set up an estoppel per rem judicatam in respect of tax for other years; whereas if the essence of the matter is that a question of liability to tax for one year is always to be treated as inherently a different issue from that of liability for another year, even though there may appear to be similarity or identity in the questions of law on which they respectively depend, it would seem to be the consequence on the contrary that a Supreme Court decision would be no more capable of setting up an estoppel than would one made by the Board of Review, whatever its precise status as a judicial tribunal.

In their Lordships' opinion the question of estoppel cannot be decided merely by inquiring to what extent the Board of Review exercises judicial functions. The critical test is not the bare issue whether or not such a board exercises judicial power, an issue which can indeed arise in other contexts, such as the constitutional question decided in Shell Company of Australia Ltd. v. Federal Commissioner of Taxation.¹ What is important here is that the Board of Review is a tribunal set up under the Income Tax Ordinance for the purpose of deciding income tax appeals at a certain stage of their prosecution, and that decisions given with regard to such appeals are effective only within the limited jurisdiction that the Ordinance creates for all tribunals

1 [1931] A.C. 275; 47 T.L.R. 115, P.C.

that deal with the matter of an appeal. All such appeals remain in one sense a part of the process of assessment since all the tribunals, including the Supreme Court, have independent power to increase or reduce the assessment under appeal. While, therefore, it is unexceptionable to say that the Board of Review when exercising its powers under section 73 is acting in a sense judicially, that the dispute which it has to determine is at any rate somewhat analogous to a lis inter partes and that the assessor who made the assessment or some other representative of the Commissioner (section 73 (3)) resembles a party hostile to the appellant, these considerations are not those that are critical to the issue of estoppel. The critical thing is that the dispute which alone can be determined by any decision given in the course of these proceedings is limited to one subject only, the amount of the assessable income for the year in which the assessment is challenged. It is only the amount of that assessable income that is concluded by an assessment or by a decision on an appeal against it (see section 75). Although, of course, the process of arriving at the necessary decision is likely to involve the consideration of questions of law, turning upon the construction of the Ordinance or of other statutes or upon the general law, and the tribunal will have to form its view on those questions, all these questions have to be treated as collateral or incidental to what is the only issue that is truly submitted to determination (cf. Reg. v. Hutchings².

It is in this sense that in matters of a recurring annual tax a decision on appeal with regard to one year's assessment is said not to deal with "eadem quaestio" as that which arises in respect of an assessment for another year and, consequently, not to set up an estoppel. It is precisely that point that was raised and accepted by this Board in 1926 in Broken Hill Proprietary Co. Ltd. v. Broken Hill Municipal Council,³ where it is said: "The decision of the High Court related to a valuation and a liability to a tax in a previous year, and no doubt as regards that year the decision could not be disputed. The present case relates to a new question - namely, the valuation for a different year and the liability for that year. It is not eadem quaestio, and therefore the principle of res judicata cannot apply."

The Broken Hill decision⁴ is in itself a striking application of the principle involved, since the earlier judgment which it was

2 (1881) 6 Q.B.D. 300, C.A.

3 [1926] A.C. 94, 100, P.C.

4 Ibid.

sought to set up as an estoppel was one given by the High Court of Australia on a rating assessment referred to it by way of appeal under the tax procedure. It underlines the point that it is not the status of the tribunal itself, judicial or administrative, that forms the determining element for estoppel in cases of this kind but the limited nature of the question that is within the tribunal's jurisdiction. The judgment of the High Court that had been given in the earlier year was explicitly directed to the construction of a particular section of the rating Act and to the correct measurement of the liability in the light of that construction. Precisely the same point arose in the later year and was ultimately decided by this Board in a sense contrary to that which had previously been adopted.

So, on the present appeal, the earlier decision of the Board of Review governing the 1949-50 assessment was based upon a construction of section 7 (1) (c) of the Income Tax Ordinance as applied to the income of the Abdul Gaffoor Trust; and the same point of construction now arises again but in respect of assessments of that income for other and later years. In their Lordships' opinion it is not possible to distinguish the principle of the Broken Hill decision⁴ from that which should prevail in the present case on any such ground as that here the earlier decision related to the taxpayer's "status" as an exempt person while in the Broken Hill case⁴ the decision "merely" related to the correct amount of the assessment; for in truth, as has been explained, in all these cases which arise under income tax or rating appeal procedure the decision is essentially as to the correct amount (if any) of the assessment, and in the one case as much as in the other the decision was based upon a question of law, the proper interpretation of one of the provisions of the taxing Act.

To apply the principle of the Broken Hill decision⁴ to the case now before their Lordships is to bring it into line with what seems to be by now the regular course of authority with regard to appeals in successive years against income tax or rating assessments: see Inland Revenue Commissioners v. Sneath⁵; Patuck v. Lloyd⁶; Reg. v. Hutchings⁷; Society of Medical Officers of Health v. Hope.⁸ It may be that the principles applied in these cases form a somewhat anomalous branch of the general law of estoppel Per rem judicatam and are not easily derived from or

4 [1926] A.C. 94, 100, P.C.

5 [1932] 2 K.B. 362; 48 T.L.R. 241, C.A.

6 (1944) 171 L.T. 340, C.A.

7 6 Q.B.D. 300.

8 [1960] A.C. 551; [1960] 2 W.L.R. 404; [1960] 1 All E.R. 317, H.L.

transferred to other branches of litigation in which such estoppels have to be considered; but in their Lordships' opinion they are well established in their own field, and it is not by any means to be assumed that the result is one that should be regretted in the public interest.

The decision of this Board in Hoystead v. Commissioner of Taxation⁹ is not consistent with this line of authority, and the appellants naturally relied upon it in their argument. What happened in that case was that an assessment to federal land tax in Australia for the year 1918-19 had been the subject of appeal, and a case was stated for the opinion of the High Court on a point of law that determined the assessment, the correct interpretation of the taxing statute with regard to joint interests in land taken by the assessees under their father's will.

There was a later appeal in respect of the assessment for the year 1920-21; and the question that was brought to this Board was whether the Commissioner of Taxation was estopped in the matter of that assessment by the judgment that had been delivered by the High Court in the earlier proceedings. The Board decided that he was. Unfortunately, however, the argument that the determination of an assessment for one year could not set up an estoppel upon an assessment for another year, an argument that was accepted by the Board at almost the same time in the Broken Hill case,¹⁰ does not appear either to have been presented to the Board or to have been noticed or adjudicated upon in the opinion which was delivered by Lord Shaw. It is not possible to explain why the matter was dealt with in this way; and it is fair to note that in the majority judgment of the High Court, which was reversed on the appeal, there is a reference, though a passing one, to the point of "eadem quaestio." In the result, however, the attention of the Board in delivering its opinion was wholly occupied with a discussion of what is quite a different issue in connection with estoppel, whether there can in law be estoppel per rem judicatam in respect of an issue of law which, though fundamental to the issue, has been conceded and not argued in an earlier proceeding.

Their Lordships are of opinion that it is impossible for them to treat Hoystead's case ll as constituting a legal authority on the question of estoppels in respect of successive years of tax assessment. So to treat it would bring it into direct conflict with the

9 [1926] A.C. 155; 42 T.L.R. 207, P.C.

10 [1926] A.C. 94.

11 [1926] A.C. 155.

contemporaneous decision in the Broken Hill case¹²; and to follow it would involve preferring a decision in which the particular point was either assumed without argument or not noticed to a decision, in itself consistent with much other authority, in which the point was explicitly raised and explicitly determined.

For these reasons their Lordships are satisfied that the respondent is not estopped by the 1954 decision of the Board of Review from challenging the appellants' claim that the income of the Abdul Gaffoor Trust is exempt from tax under section 7 of the Income Tax Ordinance.

It is necessary now to turn to the question of exemption. To qualify at all there must be income of an "established" trust. Having regard to the nature of the Abdul Gaffoor Trust it cannot be validly established unless it falls within the definition of "charitable trust" which is contained in section 99 (1) of the Trusts Ordinance, 1918. This definition includes any trust "for the benefit of the public or any section of the public" falling within any one of a number of categories which extend to such purposes as the relief of poverty and the advancement of education or knowledge. To satisfy the definition contained in the Income Tax Ordinance, therefore, the Abdul Gaffoor Trust must be a charitable trust "of a public character"; to be a subsisting charitable trust at all it must be a trust for the benefit of the public or some section of it.

In order to determine this question their Lordships think that the following principles may safely be applied in the interpretation of the Ceylon Ordinance. First, the general principles that govern the English law as to the validity of charitable trusts can be invoked. It seems plain that both the conception of a trust itself and the conception of what constitutes a charitable trust have been much influenced by English law. Secondly, there is no necessity to include in those general principles rules of the English law that appear to be specially associated with English local conditions or English history, or which appear to be now accepted as anomalous incidents of the general law. Thirdly, there is no significant difference between the meaning of "of a public character" and the meaning of "for the benefit of the public or any section of it." The two phrases are often used interchangeably in English decisions and textbooks - see, e.g., the quotation from Tudor on Charities, 5th ed., p. 11, employed by Lord Greene M.R. in In re Compton¹³ - "a universal rule that

12 [1926] A.C. 94.

13 [1945] Ch. 123, 128; 61 T.L.R. 167; [1945] 1 All E.R. 198, C.A.

the law recognises no purpose as charitable 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." Charitable trusts must be "trusts of a public nature" (see Lord Macnaghten in Income Tax Special Purposes Commissioners v. Pemsel¹⁴. Fourthly, although educational purposes are themselves charitable purposes, no trust under which the beneficiaries are defined by reference to a purely personal relationship with a named propositus can be a valid charitable gift. If, therefore, persons for whose benefit an educational trust is created, derive their title to their benefits by proving their qualify cations in this way, whether as descendants of a named person or as employees of a named company, the trust must be regarded merely as a family trust and not as one for the benefit of a section of the community (see In re Compton¹⁵; Oppenheim v. Tobacco Securities Trust Co. Ltd.¹⁶.

Their Lordships do not think that it would be consistent with these principles to apply to the law of Ceylon any doctrine that had as its foundation the ancient English institution of educational provision for "Founders Kin" in certain schools and colleges, or old English decisions about charitable relief for poor relations of a testator. The former provisions were commonly accepted as validly instituted, though there seems to be virtually no direct authority as to the principle upon which they rested, and they should probably be regarded as belonging more to history than to doctrine: the latter are today treated as no more than an anomaly in the general law.

Is, then, the Abdul Gaffoor Trust a charitable trust? It was not disputed that to determine this it is necessary to treat the whole trust income as if it were appropriated for the purposes specified in clause 2 (b). This is so because the form in which the various trust sub-heads are expressed is such that no definite sum of money is dedicated to any one, and the power given by sub-head (g) makes it possible for the whole of the income to be carried to a reserve fund which could then be expended as from time to time the Board thought proper in the exclusive implementation of the purposes of sub-head (b). To test whether any particular trust is a charitable one what must be asked is whether the income is bound with certainty to be applied to charitable purposes, not whether it may be so applied. Unless, therefore,

14 [1891] A.C. 531, 580; 7 T.L.R. 657, H.L.

15 [1945] Ch. 123.

16 [1951] A.C. 297; [1951] 1 T.L.R. 118; [1951] 1 All E.R. 31, H.L.

sub-head (b) itself declares a valid charitable purpose, no part of the trust comes within the exempting provision of the Ordinance.

There are several material constituents in this particular purpose. The money is to be used for "education, instruction or training" in any department of human activity. Their Lordships will assume, without deciding, that this could be called an educational purpose. The recipients of the benefit are "deserving youths of the Islamic Faith." So long, however, as there are male descendants in either the male or female line of the grantor, or any of his brothers or sister for whose education the board are prepared to provide or reserve money on the ground that they qualify as deserving youths of the Islamic Faith, no other youth of that Faith can obtain any benefit under the trust purpose. They can only come in "failing" the line of the descendants.

It was argued with plausibility for the appellants that what this trust amounted to was a trust whose general purpose was the education of deserving young people of the Islamic Faith, and that its required public character was not destroyed by the circumstance that a preference in the selection of deserving recipients was directed to be given to members of the grantor's own family. Their Lordships go with the argument so far as to say that they do not think that a trust which provides for the education of a section of the public necessarily loses its charitable status or its public character merely because members of the founder's family are mentioned explicitly as qualified to share in the educational benefits or even, possibly, are given some kind of preference in the selection. They part with the argument, however, because they do not consider that the trust which is now before them comes within the range of any such qualified exception. Considering what is in effect the absolute priority to the benefit of the trust income which is conferred on the grantor's own family by clause (i) of sub-head (b), the only fair way to describe this trust is as a family trust under which the income is made available to provide for the education or training of relatives of the propositus, in this case the grantor himself, provided only that they are young, deserving and of the required Faith. These conditions do not make it the less a family trust. Such a trust is not a trust of a public character solely for charitable purposes.

In the Supreme Court judgment much consideration was given to the English decision In re Koettgen's Will Trusts,¹⁷ the facts of which have much in common with those of the present case. The

17 [1954] Ch. 252; [1954] 2 W.L.R. 166; [1954] 1 All E.R. 581.

trust there created was expressed to be for the promotion and furtherance of commercial education; the persons eligible were British-born subjects without sufficient means to obtain at their own expense an education for a higher commercial career; and in selecting beneficiaries the trustees were directed to give preference to employees or members of the families of employees of a named company. It is evident that the court's decision, which upheld the trust as a valid trust for charitable purposes, turned on the exact construction which was given to the words of the will. It was argued that the trust was one "primarily for the benefit of the employees ... and their families, and that it was only if there were insufficient employees or members of their families that the public could come in as beneficiaries under the trust." The judge says in his judgment that he did not accept that as the true construction of the clause in question; if he had accepted it, it is evident that he would have rejected the trust as a charitable bequest. The construction that he adopted as correct was that the primary class of beneficiaries consisted of persons without sufficient means to obtain commercial education at their own expense, and that the preference given merely amounted to a duty in the trustees to select employees or members of their families, if available, out of this primary class.

It is not necessary for their Lordships to say whether they would have put the same construction on the will there in question as the judge did, or whether they regard the distinction which he made as ultimately maintainable. The decision edges very near to being inconsistent with Oppenheim's case,¹⁸ but it is sufficient to say that the construction of the gift which was there adopted does not tally with the construction which their Lordships are bound to place upon the trust which is now before them. Here the effect of the wording of clause 2 (b) (i) is to create a primary disposition of the trust income in favour of the family of the grantor.

For the reasons which have been set out above their Lordships will humbly advise Her Majesty that the appeal should be dismissed. The appellants must pay the respondent's costs of the appeal.

Solicitors: Smiles & Co.; T. L. Wilson & Co.

C. C.

18 [1951] A.C. 297.