Bombay High Court
Trustees Of Kilachand Devchand ... vs Commissioner Of Income-Tax, Bombay ... on 26 March, 1987
Equivalent citations: [1988]172ITR382(BOM)
Author: S.P. Bharucha
Bench: S.P. Bharucha
JUDGMENT
S.P. Bharucha J.
1. This reference under section 256(1) of the Income-tax Act, 1961, is made at the instance of the Revenue. It raises the following question :
"Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,50,000 and Rs. 40,000 received by the assessee-trust from the donors, Dharma Vijay Agency and Kilachand Devchand Charity Trust, as voluntary contributions on capital account constituted 'income' under the Income-tax Act, 1961 ?"
2. Involved in the reference is the assessment year 1967-68, the previous year for which ended on December 31, 1966. The assessee is a society registered under the Societies Registration Act, 1860. It has charitable objects. On November 11, 1965, a public charitable trust called the Kilachand Devchand Charity Trust made an offer of a capital donation of Rs. 40,000 to the assessee, which offer was accepted. On December 7, 1965, a public charitable trust called Dharma Vijay Agency made an offer of a capital donation of Rs. 2,50,000 to the assessee, which offer was also accepted. Pursuant to the condition of the offers, the donations were added to the assessee's capital.
3. In the assessment of the assessee for the year in question, the Income-tax Officer called upon the assessee to explain the surplus, that is, the excess of the permissible limit of accumulation of income prescribed by section 11(1) of the Income-tax Act, 1961. He did not accept the assessee's contention that the said donations fell outside the provisions of section 12(2) of the said Act and brought to tax the surplus. The assessee appealed. The Appellate Assistant Commissioner held that the Income-tax Officer had erred in taxing the said donations, aggregating to Rs. 2,90,000, as deemed income in the assessee's hands. The Revenue appealed from the Appellate Assistant Commissioner's order to the Income-tax Appellate Tribunal. The appeal was allowed. The question that is posed to us arises out of the Tribunal's order.
4. The answer to be given to the question depends upon the interpretation of sub-section (1) and (2) of section 12 of the Income-tax Act, 1961, which read thus :
"12. (1) Any income of a trust for charitable or religious purposes or of a charitable or religious institution derived from 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 institution by a 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 property for the purposes of that section and the provisions of that section shall apply accordingly."
5. The provisions of sub-section (2) of section 12 of the Income-tax Act, 1961, apply to "such contributions as are referred to in sub-section (1)" thereof. Sub-section (1) refers to contributions which are "voluntary contributions and applicable solely to charitable or religious purposes". Donations of a capital nature may be voluntary. They cannot, however, be applied to charitable or religious purposes. It is the income thereof that must be so applied. A contribution made expressly to the capital or corpus of a trust, though voluntary, does not, therefore, fall within the purview of sub-section (2) of section 12. Accordingly, such contribution cannot be deemed to be income derived from property for the purposes of section 11 of the said Act and the provisions of section 11 will not apply.
6. Mr. Jetly, learned counsel for the Revenue, submitted that the contributions referred to in sub-section (2) of section 12 of the Income-tax Act, 1961, will be deemed to be income derived from property for the purposes of section 11 of the said Act and all the conditions for exemption under section 11 will apply. Sub-section (2) of section 12 refers to contributions in sub-section (1) thereof. In the instant case, the provisions of section 11 had not been complied with and the Tribunal was right in the view that it took.
6. Mr. Jetly's submission begs the question. The question is : what are "such contributions as are referred to in sub-section (1)" ? Those are, as we have stated, "voluntary contributions and applicable solely to charitable or religious purposes".
7. In the view that we take, the Tribunal was in error in holding that the aggregate sum of Rs. 2,90,000 constituted income in the hands of the assessee.
8. We are supported in the construction that we have placed upon sub-section (2) of section 12 of the Income-tax Act, 1961, by the judgments of the Gujarat and Kerala High Courts in CIT v. Bal Utkarsh Society [1979] 119 ITR (Guj) and in CIT v. Vanchi Trust [1981] 127 ITR 227 (Ker).
9. The same conclusion has been arrived at, though upon a different construction of the provisions of sub-section (2) of section 12 of the Income-tax Act, 1961, by the Allahabad High Court in Sri Dwarkadheesh Charitable Trust v. ITO [1975] 98 ITR 557 and the Delhi High Court in CIT v. Eternal Science of Man's Society [1981] 128 ITR 456.
10. Mr. Dwarkadas, learned counsel for the assessee, pointed out that it had been urged before the Tribunal on behalf of the assessee that section 12(1) of the Income-tax Act, 1961, applied only to the income derived from contributions and not to the contributions themselves. He did not press the contention before us because of the judgment of this court delivered at Nagpur on January 20, 1987, in Income-tax Reference No. 428 of 1975 R. B. Shreeram Religious & Charitable Trust v. CIT - [1988] 172 ITR 373. The Bench (of which one of us was a member) found the submission that section 12(1) referred only to the income derived from voluntary contributions and not to the voluntary contributions themselves unacceptable.
11. Mr. Dwarkadas submitted that the amendment effected in 1972 to section 12 and section 2(24) of the Income-tax Act, 1961, clarified the position in regard to which contributions constituted income. Having regard to our construction of the provisions of section 12, it is unnecessary to go into this submission, as also the submission that the said donations were casual and not of a recurring nature and, therefore, exempt.
12. In the result, the question is answered in the negative and in favour of the assessee. No order as to costs.