Bombay High Court
Champa Charitable Trust vs Commissioner Of Income-Tax on 5 December, 1994
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the assessee, the Income-tax Appellate Tribunal, Bombay Bench "B", Bombay, has referred the following question of law to this court for opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that section 13(1)(c)(ii) is attracted in the case of the assessee and that the assessee is not, therefore, entitled to exemption under section 11 of the Income-tax Act, 1961 ?"
2. The assessee is a charitable trust. In September, 1975, the assessee-trust had received a donation of Rs. 1,00,000 from one Shri Laherchand Uttamchand Trust Fund. The assessee-trust, in its turn, gave a donation of Rs. 50,000 during the previous year relevant to the assessment year 1976-77 and Rs. 55,001 during the previous year relevant to the assessment year 1977-78 to the very same trust, i.e., Shri Laherchand Uttamchand Trust Fund. The Income-tax Officer completed the assessments for the two years treating the assessee as a charitable trust entitled to exemption under section 11 of the Income-tax Act, 1961 ("the Act"). The Commissioner of Income-tax, on perusal of the record of the case under section 263, felt that the above order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. In his opinion, the said Shri Laherchand Uttamchand Trust Fund having donated a sum of Rs. 1,00,000 to the assessee in September, 1975, became a "substantial contributor" to the assessee-trust within the meaning of section 13(3)(b) of the Act and the assessee-trust in its own turn having given a donation of Rs. 50,000 and Rs. 56,001 to the very same trust, i.e., Shri Laherchand Uttamchand Trust Fund, during the previous years relevant to the assessment years 1976-77 and 1977-78, the provisions of section 13(1)(c)(ii) of the Act were attracted and, as such, it was not entitled to any exemption under section 11 of the Act. He, therefore, initiated proceedings for suo motu revision by issue of a notice under section 263 of the Act and after hearing the assessee, held that by making donation to the assessee-trust, the donor, Shri Laherchand Uttamchand Trust Fund ("LU Trust"), became a person who has made a substantial contribution to the assessee-trust within the meaning of section 13(3)(b). The assessee appealed to the Tribunal against the order of the Commissioner. At the time of hearing of the appeal before the Tribunal, it was contended by the assessee that section 13(1)(c)(ii) is not applicable if the person, though a substantial contributor, happened to be a trust. In other words, the submission of the assessee was that the expression "person" used in the said provision would not include a trust too. The Commissioner of Income-tax did not accept the above contention of the assessee and held that since part of the income or property of the assessee-trust during the relevant two years, had been used or applied directly for the benefit of the LU Trust, which was a "person" within the meaning of section 13(3)(b) of the Act, the provisions of section 13(1)(c)(ii) were attracted in the case of the assessee-trust and, hence, it was not entitled to exemption under section 11 of the Act. The assessee appealed to the Tribunal against the order of the Commissioner of Income-tax. Before the Tribunal, it was reiterated on behalf of the assessee that section 13 of the Act will be attracted if the funds of one charitable trust are used for the benefit of another charitable trust, although the latter might have made substantial contribution to the former. The contention of the Revenue, on the other hand, was that as the term "person" as defined in section 2(31) of the Act, includes a "trust", the same meaning has to be attributed to the expression "person" appearing in section 13 of the Act. That being so, according to the Revenue, LU Trust was a "person" who had made a substantial contribution to the assessee-trust within the meaning of section 13(3)(b) of the Act and donations by the assessee-trust to it did fall under section 13(1)(c)(ii) of the Act. The Tribunal accepted the contention of the Revenue and rejected the contention of the assessee that the definition of "person" occurring in section 2(31) is not applicable to the word "person" occurring in section 13 of the Act. In view of this finding, the Tribunal confirmed the order of the Commissioner and dismissed the appeal of the assessee. Hence, this reference at the instance of the assessee.
3. Section 11 of the Act exempts from tax certain income from property held for charitable or religious purposes. This exemption does not apply in certain cases specified in section 13 of the Act. Section 13, so far as relevant, at the material time read as under :
"13. Section 11 not to apply in certain cases. - (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof - ...
(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof - . . . .
(ii) if any part of such income or any property of the trust or institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) :
Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : . . . .
(2) Without prejudice to the generality of the provisions of clause (c) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3), - . . . .
(g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3) :
Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property so diverted does not exceed one thousand rupees;
(h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971) in any concern in which any person referred to in sub-section (3) has a substantial interest.
(3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely :-
(a) the author of the trust or the founder of the institution;
(b) any person who has made a substantial contribution to the trust or institution, [that is to say, any person whose total contribution up to the end of the relevant previous year exceeds five thousand rupees]; . . . . ."
4. The bracketed part in clause (b) of section 13(3) was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1977, and hence, applies to assessments for the assessment year 1977-78 only. This amendment is, however, not relevant for the purposes of the present case where the contribution of Shri Laherchand Uttamchand Trust Fund was Rs. 1,00,000, far in excess of the above amount. It is clear from a reading of section 13, which opens with the non obstante clause "Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of a person" that this section has an overriding effect over sections 11 and 12 and on contravention of any of the provisions thereof or on the happening of any of the contingencies specified therein, the income of the person would not be excluded from the total income of such person despite fulfilment of the conditions of section 11 or 12 of the Act. There is no dispute about the fact that Laherchand Uttamchand Trust Fund had made a substantial contribution to the assessee-trust and the contribution so made up to the end of the previous years relevant to the assessment years under consideration being Rs. 1,00,000 far exceed Rs. 5,000. There is also no dispute about the fact that sums of Rs. 50,000 and Rs. 56,001 were used or applied by the assessee-trust for the benefit of the said Laherchand Uttamchand Trust in the previous years relevant to the assessment years 1976-77 and 1977-78, respectively. Apparently, in such a situation, sub-section (3) of section 13 is attracted. This position is not disputed by counsel for the assessee also. The only contention of the assessee is that the expression "person" appearing in section 13(1) does not include a "trust" and that the said Laherchand Uttamchand Trust being a charitable trust, the question of applying the said mounts directly or indirectly for the benefit of such trust cannot arise. The term "person" has been defined in clause (31) of section 2 of the Act to include : (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. It is not disputed before us that a "trust" is also a "person" within the meaning of section 2(31) of the Act. If that is so, we fail to understand how a different meaning can be ascribed to the same expression "person" appearing in the various sub-sections and clauses of section 13 of the Act. That being so, the assessee-trust having applied a substantial part of its income or property (even more than the total contribution of Laherchand Uttamchand Trust to it), the provisions of section 13(1)(c)(ii) of the Act are clearly attracted as the said trust is a "person" falling under clause (b) of section 13(3) of the Act. Any other construction of the expression "person" appearing in section 13(3) of the Act will defeat the very purpose of section 13(1)(c)(ii) of the Act, because it would be possible for the assessees in that event to circumvent the provisions of section 13(1)(c)(ii) by channelising the donations through trusts.
5. In that view of the matter. we do not find any infirmity in the finding of the Tribunal. We, therefore, answer the question referred to us in the affirmative and in favour of the Revenue.
6. In the facts and circumstances of the case, we make no order as to costs.