Full Judgment Text
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PETITIONER:
M/S. R.B. SHREERAM RELIGIOUS & CHARITABLE TRUST
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME-TAX, VIDARBHA, NAGPUR
DATE OF JUDGMENT: 16/07/1998
BENCH:
SUJATA V. MANOHAR, S. RAJENDRA BABU
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
Mrs. Sujata V. Manohar. J.
The assessee M/S. R.B. Shreeram Religious and
Charitable Trust, the appellant before us, is a registered
public trust. For the assessment year 1966-67 the assessee
disclosed in its income-tax return, a deficit of Rs.
32,126/-. The Income-tax officer, however, added to the
income of the assessee voluntary contributions received by
the assessee-trust amounting to a sum of Rs. 4,55,000/- for
the relevant year. The Income tax officer held that the
voluntary contributions amounting to Rs. 4,55,000/- received
by the assessee during the relevant year were not applicable
solely for charitable and religious purpose and were also
not actually applied as such. In appeal, the Appellate
Assistant Commissioner held that out of the sum of Rs.
4,55,000/-, a sum of Rs.4,00,000/- could not be treated as
income derived from voluntary contributions. Both the
revenue as well as the assessee filed appeals from the order
of the Appellate Assistant Commissioner before the Income-
tax Appellate Tribunal. The Tribunal allowed the appeal
filed by the revenue and dismissed the appeal filed by the
assessee.
At the instance of assessee, a reference was made to
the High Court under Section 256(1) of the Income-tax Act.
The questions before the High Court, as reframed by the High
Court in the impugned judgement, were as follows:-
"(1) Whether on the facts and in
the circumstances of the case and
having regard to the relevant
provisions of the I.T. Act, the
voluntary contributions aggregating
to Rs. 55,000/- received by the
Assessee was income liable to be
taxed under the I.T. Act, 1961?
(2) Whether on the facts and in the
circumstances of the case and
having regard to the relevant
provisions of the I.T. Act
voluntary contributions aggregating
to Rs. 4,00,000/- received by the
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assessee was income liable to be
taxed under the I.T. Act, 1961?
(3) Whether on the facts and in the
circumstances of the case voluntary
contributions aggregating to Rs.
55,000/- and Rs. 4,00,000/- were
exempt u/s 12(1) of the I.T. Act,
1961?
(4) Whether on the facts and in the
circumstances of the case the
Tribunal mis-directed itself in
holding that mere discharge of debt
whether existing or new during the
year from out of voluntary
contributions of Rs. 55,000/- and
Rs. 4,00,000/- does not render it a
solely charitable purpose
admissible to exemption?
(5) Whether on the facts and
circumstances of the case the levy
of interest under Section 139 and
215 of the I.T. Act, 1961 was
justified in law?"
Question No. 5 is not pressed. The High Court answered
the remaining questions against the assessee and in favour
of the revenue. Hence the present appeal is filed before us
by the assessee-trust.
The amount of Rs. 4,55,000/- received as voluntary
contributions consisted of the following:-
(1) A cheque for Rs. 25,000/- from
Saraf Mor & Co. Ltd., dated
2.11.65.
(2) A cheque for Rs. 10,000/- from
M/S. Ferro Alloys Corporation Ltd.,
dated 22.11.65.
(3) A cheque for Rs. 20,000/- from
R.B. Shreeram Durgaprasad &
Fetehchand Narsinghdas, dated
19.11.66.
These three cheques constituted the sum of Rs.
55,,000/- received by the assessee-trust as voluntary
contributions. The assessee also had, during the material
period, a loan account with M/s. R.B. Shreeram Durgaprasad
(mining Firm). Amounts were lent to the assessee by the said
mining firm from time to time. At the beginning of the
relevant year pertaining to the assessment year 1966-67, the
assessee owed to the said mining firm a sum of Rs. 7.65
lakhs under the said loan account. During the relevant year
M/s. R.B. Shreeram Durgaprasad & Fetehchand Narsinghdas
(Export Firm) gave to the assessee a total sum of Rs.
4,00,000/- which was shown as debited to the account of the
donor Export firm. The amount was transferred to the said
mining firm. By the transfer of the said amount to the
mining firm, the liability of the assessee-trust to the
mining firm under the said loan account was reduced. The sum
of Rs.55,000/- was also similarly transferred to the mining
firm, thus reducing the liability of the assessee under the
said loan account.
The Income-tax officer, after examining the
balancesheet of the assessee for the years 1953-54 to 1966-
67 and after examining the amounts lent under the said loan
account to the assessee-trust, held that out of the total
income earned by the assessee-trust amounting to
approximately Rs.24,00,000/- was these assessment years,
only a sum of Rs.7,12,219/- was invested in a Dharamshala
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and the balance amounts were invested in other properties,
advances and investments. The Income-tax officer came to the
conclusion that the transfer of sum of Rs. 4,55,000/- to the
said mining firm cannot be considered as application of
money for religious or charitable purposes. The assessee had
contended that the amount received by way of loans from the
said mining firm had been utilised for the construction of a
Dharamshala. The Income-tax officer, however, held that the
amounts received as loans from the mining firm did not
necessarily go into the construction of a Dharamshala. The
funds of the assessee were allowed to grow side by side with
the loans from the mining firm.
Looking to the totality of circumstances the Income-tax
officer gave a finding of fact that the voluntary
contributions were not solely applicable to religious and
charitable purposes and were not actually applied as such.
This finding has been ultimately upheld by the Tribunal. The
Tribunal has also come to the conclusion that a close
scrutiny of the balance-sheet of the assessee-firm reveals
that the assessee used to transfer a substantial portion of
its income to an account called Dharamshala and other
Buildings Fund; and out of this Fund the investment in
Dharamshala covered only a part of the amount. In these
circumstances the use of voluntary contributions for
discharge of liability under the loan account could not be
considered as use of the money solely for charitable
purposes, especially because a part of the advance which had
been repaid was an advance of Rs. 2.51 lakhs by the mining
firm of which interest was not charged. In this view of the
matter the Tribunal held that the voluntary contributions
were not applicable entirely for religious and charitable
purposes and were not, in fact, applied entirely for
religious or charitable purposes. The high court, in view of
this finding of fact, has come to the conclusion that the
said amount of Rs.4,55,000/- has been rightly considered as
income of the assessee not exempt under Section 12(1) of the
income-tax Act as it stood at the relevant time.
Section 12 of the Income-tax Act as it stood at the
relevant time (Prior to its amendment in 1972) was as
follows:-
Section 12:
"Income of trusts or institutions
from voluntary contributions-(1)
Any income of a trust for
charitable or religious purposes or
of a charitable or religious
institution derived form voluntary
contributions and applicable solely
to charitable or religious purposes
shall not be included in the total
income of the trustees or the
institution, as the case may be.
(2) Notwithstanding anything
contained in sub-section (1), where
any such contributions as are
referred to in sub-section (1), are
made to a trust or a charitable or
religious institutions by trust or
a charitable or religious
institution to which the provisions
of Section 11 apply, such
contributions shall, in the hands
of the trust or institution
receiving the contributions, be
deemed to be income derived from
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property for the purposes of that
section and the provisions of that
section shall apply accordingly."
The assessee contends that Section 12(1) refers not to
the voluntary contributions themselves but to any income
derived from voluntary contributions so received. In other
words, according to the assessee, the exemption under
Section 12(1) is applicable to any amount realised as income
from out of investment of any voluntary contribution
received by the assessee during the year. Voluntary
contribution itself is not income at all. In support, the
assessee relies upon the definition of ’income’ under
Section 2(24) as in force at the relevant time. Section
2(24) at the relevant time did not expressly include in the
definition of ’income’ voluntary contributions received by a
public religious or charitable trust. The definition of
’income’ under Section 2(24) was, however, subsequently
amended by the Finance Act of 1972 by including in the
definition of ’income’ under sub-clause (ii)(a) of Section
2(24), voluntary contributions received by a trust created
wholly or partly for charitable or religious purpose or by
an institution established wholly or partly for such
purpose. The amended definition also excluded from the
definition of ’income’ those contributions which were made
with a specific direction that they shall form a part of the
corpus of the trust or the institution. The assessee,
therefore, contends that Section 12(1) prior to the
amendment of 1972 should be interpreted as referring only to
any income which accrues to the trust by investing voluntary
contributions which it has received.
In order to examine whether this interpretation is
correct it is necessary to read Section 12 as a whole. sub-
section (1) of section 12 excludes from the income of a
trust for charitable or religious purposes, income derived
from voluntary contribution and applicable solely to
charitable and religious purposes. However, under sub-
section (2) such income will be deemed to be income derived
from property for the purposes of section 11 when the
voluntary contribution is made by a charitable or religious
institution or trust to another religious or charitable
institution or trust. Sub-section (2), therefore, is an
exception to sub-section (1). The language of sub-section
(2) makes it clear that the subject-matter of sub-section
(2) as well as sub-section (1) is the voluntary contribution
itself. When such a voluntary contribution is made to a
religious or charitable trust by another similar trust, then
such a contribution in the hands of the receiving trust
shall be deemed to be its income derived from property under
Section 11, and the provisions of Section 11 will apply.
Therefore, when sub-sections (1) and (2) are read together,
the phrase ’income derived from voluntary contribution’ in
sub-section (1) refers to income in the form of voluntary
contributions received by the recipient religious or
charitable trust. It has no reference to the income which
may later on be derived from such voluntary contributions as
and when such contributions are invested, as contended by
the assessee. Also when under section 12(2) voluntary
contribution from one charitable trust to another charitable
trust is treated as income of the recipient, there is no
reason why under section 12(1), voluntary contribution from
others to the charitable trust should not be treated as
income.
In this connection our attention has been drawn to a
number of decisions of various High Courts dealing with
interpretation of Section 12(2). In the case of Sri
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Dwarkadheesh Charitable Trust V. Income-tax Officer, Company
Circle, "C" Ward, Kanpur (98 ITR 557), the Allahabad High
Court while interpreting Section 12(2) observed that section
12 is confined to voluntary contributions which should be
treated as income. The Allahabad High Court was concerned
with a case where the donor specified that the contribution
was towards the corpus of the receiving trust’s funds. The
Allahabad High Court held that since the voluntary
contribution was made expressly towards the corpus of the
trust, it could not be considered as income. Hence it was
not covered by section 12(2) which covers only income in the
form of voluntary contributions. The same view has been
taken by the Gujarat High Court in Commissioner of Income-
tax, Gujarat-IV v. Bal Utkarsh Society (119 ITR 137). The
Gujarat High Court, following the Allahabad High Court’s
decision in sri Dwarkadheesh Charitable Trust (Supra) has
also observed that Section (12(1) covers voluntary
contributions which are received as income. Sub-section (2)
would apply if the voluntary contribution is from one public
charitable trust to another. However, when the voluntary
contribution is expressly towards the corpus of the
receiving trust, it cannot be considered as income. A
similar view has been taken by the Kerala High Court in
Commissioner of Income-Tax V. Vanchi Trust & another (127
ITR 227), and by the Delhi High court in Commissioner of
Income-Tax, Delhi-II V. Eternal science of man’s Society
(128 ITR 456). (See also Sukhdeo Gharity Estate, Ladnu V.
Commissioner of Income-tax, Rajasthan, Jaipur 149 ITR 470
[Raj]).
The Madras High Court in the case of Commissioner of
Income-Tax, Tamil Nadu-IV v. Shri Billeswara Charitable
Trust (145 ITR 29) was also concerned with a case where a
charitable trust had received a donation form another
charitable trust towards its corpus. The Madras High Court
also held that this cannot be treated as income of the
receiving trust. However, in the course of its judgment, the
Madras High Court has observed that Section 12(1) refers
only to the income which is derived from voluntary
contribution i.e. voluntary contribution, when invested,
would fetch income. This income is covered by the provisions
of Section 12(1). Therefore, voluntary contribution itself
would not be income. These observations do not seem to be
correct since they do not take into account the language of
sub-sections (1) and (2) of section 12 read as a whole. The
definition of income under section 2(24) of the Income-tax
Act as it stood at the relevant time was an extensive
definition. Although it did not expressly include voluntary
contributions received by was of income by a religious or
charitable trust, as the definition was not exhaustive, it
would cover income in all forms. The fact that by a
subsequent amendment of section 2(24), such income is
expressly included, does not make any difference to the
interpretation of Section 12.
Our attention was also drawn to a decision of the
Travancore-Cochin High Court in the case of Rev. Father
Prior, Sacred Heart’s monastery v. Income-Tax Officer,
(Ernakulam), and others (30 ITR 451). That case turns upon
the provisions of the Cochin Income-tax Act and the language
used in the relevant sections therein. It does not,
therefore, throw any light on the present question.
Hence Section 12(1) refers to any income derived by a
trust for religious or charitable purpose in the form of
voluntary contributions. If such voluntary contributions
are applicable solely to charitable or religious purposes,
they shall not be included in the total income of the trust.
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Had such voluntary contribution been considered as not
income at all, the need for section 12(1) would not have
arisen.
Undoubtedly by a subsequent amendment in 1972 to the
definition of ’income’ under Section 2(24), voluntary
contributions not being contributions towards the corpus of
such a trust, are included in the definition of ’income’ of
such a religious or charitable trust. Section 12 as amended
in 1972 also expressly provides that any voluntary
contribution received by a trust for religious or charitable
purposes, not being contribution towards the corpus of the
trust, shall, for the purpose of Section 11, be deemed to be
income derived from property held by the trust wholly for
charitable or religious purposes. This, however, does not
necessarily imply that prior to the amendment of 1972, a
voluntary contribution which was not towards the corpus of
the receiving trust, was not income of the receiving trust.
It was. Even prior prior to the amendment of 1972, any
income received by a religious or charitable trust in the
form of a voluntary contribution would be income of the
trust unless such contribution was expressly made towards
the corpus of the trust’s fund. Section 12, therefore,
prescribed that such income would not be included in the
total income of the trust if it was applicable solely to
charitable or religious purposes. It would, however, be
treated as income from property under Section 11 if it is
received from another charitable or religious trust.
The assessee has relied upon a departmental circular
No.20/10/67-IT(AI) dated 1.5.1967 which deals with exemption
of income of a charitable trust under Section 11(1) of the
Income-tax Act, 1961. Departmental circular, inter alia,
states that provisions of Section 11(1) will not be
applicable to capital receipts. It states, "The donations
received by charitable trust from the members of the public,
being capital receipts, cannot be regarded as income of the
trust. Accordingly, the donations received by the trust
should be excluded from the income of the trust for the
purpose of calculating the accumulation limit of 25 per cent
except in cases covered by Section 12(2) of Act" The Board
circular was not dealing with Section 12. It was dealing
with the application of Section 11(1). The Circular
correctly pointed out that Section 11(1) would be attracted
to cases covered under section 12(2). Under Section 12(1),
as it stood then, income by way of voluntary contribution
was totally exempt provided it was applicable for religious
or charitable purposes. The Board Circular, therefore, must
be read only as interpreting Section 11(1) and not as
interpreting Section 12(1) which was not the subject-matter
of the Board Circular.
To get the benefit of Section 12(1), the assessee was
required to show that the voluntary contribution which it
had received was applicable solely for religious or
charitable purposes. The Tribunal, as well as the High
Court, relying upon the Tribunal, have held that the
voluntary contribution amounting to Rs.4,55,000/- was not
applied and was not wholly applicable for religious or
charitable purposes. In this view of the matter, the
assessee, on the facts of the present case, cannot get the
benefit of Section 12(1).
The appeal is, therefore, dismissed. There will,
however, be no order as to costs.