Income Tax Appellate Tribunal - Delhi
Associated Agricultural Development ... vs Income-Tax Officer on 31 July, 1989
Equivalent citations: [1989]31ITD29(DELHI)
ORDER
S. Grover, Judicial Member
1. This second appeal is directed against the order dated 18th May, 1983 passed by the Commissioner of Income-tax (Appeals) Delhi-IV, New Delhi, in respect of-assessment year 1979-80. Though there are as many as 9 grounds of appeal taken, these can be categorised under three heads as follows:
(a) Whether the provisions of Sections 11, 12 and 2(24)(iia) of the Income-tax Act, 1961 affected the assessee's claim of exemption from taxation;
(b) Whether the sums totalling Rs. 14,05,340 received from National Agricultural Co-operative Marketing Federation of India (hereinafter shortly referred to as NAFED) could be said to bear the character of income and thus taxable or the amounts could be said to be towards the corpus or capital received and thus beyond the ambit of taxation; and
(c) Whether the levy of interest under Section 217 of the Act as also initiation of proceedings under Section 271(1)(c) and Section 273 of the Act were proper or the directions in the assessment in that regard were void ab initio and should be expunged.
2. To understand the dispute which travels from the inception of the appellant-assessee and for which the first assessment year was 1978-79, the history of the case must necessarily be brought in close focus which is as follows:
By a Resolution dated 12th of May, 1976 the Price Fixation Committee of the Government of India meeting at Bombay passed a Resolution that one Institution be created for carrying out research and development activities on various export-oriented agricultural produce especially onions to begin with, with a view to improve yield and quality of the produce. For the purpose it was further resolved that a development fund may be collected from the exporters out of the exports of onions. To start with it was decided that contribution @ Rs. 300 per Metric Ton towards the development fund shall be collected. Such rate of collection was, however, to be re-decided in the Price Fixation Committee meetings from time to time.
3. On the same day i.e. on 12th May, 1976 itself the Fifth Meeting of the Price Fixation Advisory Committee for fixing the price for the export of onions to all permissible destinations, was held at its Bombay office and the following members were present:
1. Shri S.P. Srivastava, ................ Chairman Regional Manager, NAFED, Bombay.
2. Mr. M.M. Ibrahim, M/s. Allanasons Pvt. Ltd. ................ Member
3. Mr. K.K. Ahmed Ismail, ................ "
M/s. Crescent Exporters.
4. Shri N.G. Lathia, ................ "
M/s. International Trading Co.
5. Shri Kumar Shah, ................ "
M/s. Jayaatilal Mangaldas & Sons.
6. Shri Rasik J. Doshi, ................ "
M/s. Onion Traders.
7. Shri K.H. Sheth, ................ Member M/s. J. Hemchand & Co.
The above names have been noticed with a purpose because of the argument raised by the learned Senior Departmental Representative, Shri Amitabh Kumar appearing for the Revenue, was that the composition of the Price Fixation Committee showed that most of its members were exporters themselves and, therefore, the collections to be made could not be termed as anything, but voluntary though the expression used more than once in various communications has been "collections to be made" or "levy" directed.
4. On 12th May, 1976 itself NAFED addressed a communication to all its Associated Shippers informing them that the price for export of Indian onions had been fixed with immediate effect as follows:-
Far East Ports (Malaysia & Singapore) Rs. 1325 per M.T. Nett OIF.
Packing 25 Kg. Nett.
Arabian Gulf Ports. Rs. 1325 per M.T. Nett CAP.
Packing 20/25 Kg. Nett.
Mauritius Rs. 1450 per M.T. Nett CAP.
Packing 25 Kg. Nett.
Iran Ports. Rs. 900 per M.T. Nett CAP
FOB Bombay
U.K. & Continent Ports: Rs. 900 -do-
Pink Onions Rs. 1100 -do-
The Shippers were further informed that the above-mentioned prices included Rs. 300 per M.T. to be contributed towards Development Fund by the Exporters to be collected by NAFED and that the said levy came into force with immediate effect for shipment of fresh orders of onions and was payable immediately after realisation of payments from banks on the opening of Letters of Credits. The shippers were further required to communicate the abovesaid price to their Exporters clientele, who were to confirm export orders directly with NAFED before opening Letters of Credits. It was further stated in the communication that shipments will be allowed only after receipt of mail confirmation of fresh L/Cs.
5. On 4th October, 1976 NAFED again informed all its Associated Shippers about changes of price for export of Indian onions and also intimated that against the earlier collection of Rs. 300 per M.T. towards 'Development Fund' the contribution henceforth was to be Rs. 100 and that the prices as also the collection rate was to be valid for shipment up to 31st October, 1976.
6. On 8th November, 1976 yet another communication followed from NAFED in which price for export of onions was modified inasmuch as whereas for Far East Ports the price was fixed at Rs. 1,025, for Arabian Gulf Ports it was increased to Rs. 1,625 whereas the Development Fund collection charges remained Rs. 100 per M.T. as earlier. Similar communications were addressed also on 10th of December, 1976 and 21st February, 1977 in which the Development Fund collection rate remained the same. Vide letter dated 29th of April, 1977 the rate came to be increased to Rs. 200 per M.T. On 1st March, 1983 the collection for Development Fund was intimated to be only Rs. 5 per M.T. These details are being incorporated to show that the variations regarding the rate of collection for Development Fund were being decided by the Price Fixation Committee depending on trade conveniences and the rates of Exports.
7. The assessee-foundation was registered under (The) Societies Registration Act, 1860 (Act XXI of 1860) on 3rd of November, 1977. The objects as stated in clause 3 of the memorandum are :-
(a) To undertake, carry on or help in the research and other scientific investigation into the growth and development of different varieties of various export-oriented agricultural produce.
(b) To establish Institutions, Laboratories, Research Centres, Model Farms, Study Teams for promoting better packaging, transport and shipping with a view to improve the life of the produce and to carry on experiments in that behalf and to provide funds for such work and to educate farmers and disseminate the knowledge and fruits derived by conduct training programmes, seminars, etc.
(c) To investigate and carry on research into demands for agricultural produce in various foreign countries and to conduct extensive research and develop in such varieties of agricultural produce and to see that the persons engaged in growth of agricultural produce are encouraged in growing sufficient quantity of agricultural produce for such requirement.
(d) To prepare, edit, print, publish and circulate books, papers and periodical bearing upon the growth and development of agricultural produce or other scientific and research activities connected therewith and to establish and maintain collections, libraries, statistics, scientific data and other information relating thereto.
(e) To appoint investigators to study in India or abroad administration and scientific problems in regard to the scientific research undertaken by the Foundation.
(f) To apply to Government's public bodies, local authorities, corporations and companies or other persons for and to accept grants of money, land, donation, gifts, subscriptions and other assistance with a view to promoting the objects of the Association.
(g) To undertake and execute any trust which may be conducive to any of the objects of the Association.
(h) To borrow or raise any money that may be required by the Association upon such terms as may be deemed advisable and in particular, by the issue of debenture, bills of exchange, promissory notes or other obligations or securities of the Association or mortgage or charge all or any parts of the property of the Association.
(i) To invest the money of the Association not required immediately.
(j) To purchase or take on lease or in exchange, hire or otherwise acquire any real and personal property and in particular any land, buildings, laboratories, machinery, plant, appliances and any rights or privileges necessary or convenient for the purposes of the Association and to construct, erect, alter, improve and maintain any building which may from time to time be required for the purposes of the Association and to manage, develop, sell, let, dispose of or mortgage or turn to account or otherwise deal with all or part of the said property.
(k) To pay all expenses preliminary or incidental to the formation of the Association and its registration.
(1) To collect and disseminate statistical and other technical information in respect of the agriculture in all its aspects.
(m) To do all aspects of scientific research in the field of agriculture expressly mentioned therein or otherwise conducive to the dominant and main objects of the Association provided however that none of the objects/activities of the Association will be undertaken for profit nor shall it involve any profit motive.
The names, addresses, occupation and designations of the then members of the governing body as required under Section 2 of (The) Societies Registration Act, which originally were 8 in number, were given and as appears from the addresses, but for two of them, the other members were from export business houses.
8. Article 6 of the Foundation stipulated that income and property of the Foundation whenever derived shall be applied solely towards the promotion of the objects of the Foundation as set forth in the memorandum and no portion thereof shall be paid or transferred directly or indirectly, by way of dividend, bonus or otherwise by way of profit to the members of the Foundation. Article 56 further provided that the Foundation/Association will be dissolved in accordance with Sections 13 and 14 of (The) Societies Registration Act. Reference to Section 14 is important because it provides that upon dissolution of any society registered under the said Act if there shall remain, after the satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid to or distributed among the members of the said society or any of them, but shall be given to some other society to be determined by the votes of not less than 3/5th of the members present personally or by a proxy at the time of the dissolution or by a court of original civil jurisdiction of the Distt. in which the chief building of the society is situated [as provided in Section 13 of (The) Societies Registration Act]. Such provisions clearly showed that the Foundation was not meant to be for the benefit of any person or persons much less the persons who formed the society.
9. As collection from the exporters was directed by the Price Fixation Committee immediately with the Resolution of 12th May, 1976 (supra) and collection was started from July 1976 the monies were with NAFED. Up to 31st March, 1977 collection for the said Development Fund as stipulated by the Resolution dated 12th May, 1976 amounted to Rs. 55,58,449-50. Contribution received from April 1977 to July 1977 were of the order of Rs. 58,22,650.
10. Madras office of NAFED intimated collection prior to July 1977 amounting to Rs. 4,17,803-27. There were other amounts collected prior to July 1977 to the tune of Rs. 13,39,723. As per the assessment order for the assessment year 1978-79 total amounts received by the assessee from NAFED up to 31st March, 1978 were of the order of Rs. 1,31,38,625-75.
11. The Income-tax Officer assessed the aforesaid amount as income of the Foundation in respect of assessment year 1978-79 by referring to the provisions of Section 2(24)(iia) of the Act. According to the assessing officer the Foundation was not recognised under Section 35(1)(ii) during the previous year relevant to the assessment year 1978-79 for which the accounts were closed on 31st March, 1978 and a subsequent approval of the Foundation could not cover the contributions made earlier and exemption granted.
12. In the mean time on 1st April, 1977 the NAFED through the Central Board of Direct Taxes, Government of India, Ministry of Finance, had forwarded an application to the Indian Council of Agricultural Research, New Delhi, for approval under Section 35(1)(ii) of the Income-tax Act, 1961 of the assessee-Foundation i.e. before its registration under (The) Societies Registration Act. In the application, a copy of which is given to us at pages 47 to 49 of the assessee's first paper book, it was stated that the Foundation had been set up for research and other scientific investigation into the growth and development of different varieties of various export-oriented agricultural produce etc. and prayed that the necessary approval may be granted so as to enable the Foundation to claim exemption under Section 10(21) of the Act.
13. Vide communication No. F. No. 203/54/77. II.II dated 13th April, 1977 the NAFED was informed that its application for approval of the Foundation under Section 35(1)(ii) of the Act had been sent to the ICAR, who was the prescribed authority and whose decision in the matter was final. The NAFED was, therefore, requested to contact the prescribed authority in the matter thereafter (a copy of the letter is at page 51 of the paper book).
14. On June 4/6th, 1977 the Chairman of the Central Board of Direct Taxes wrote to the Indian Council of Agricultural Research, Krishi Bhawan, New Delhi, that the latter's application for recognition of Associated Agricultural Development Foundation of India under Section 35(1)(ii) of the Income-tax Act, 1961 had been forwarded to the Indian Council of Agricultural Research, New Delhi.
15. Next comes the crucial letter No. F. No. 16(7)/77-CON. TECH. dated 5th July, 1977 from ICAR to the NAFED for recognition under Section 35(1)(ii) and we like to notice the contents as follows:
Sir, I am to refer to Central Board of Direct Taxes letter No. 205/54/77-ITA-II, dated the 17th June, 1977, addressed to you and copy endorsed to this Council regarding the recognition of National Agricultural Cooperative Marketing Federation of India Ltd., New Delhi under Section 35(1)(ii) of the Income-tax Act, 1961. The application has been examined in the Council and it is observed that the Institution has not yet set up the infrastructure facilities. It is therefore premature, at this stage to recommend the case of your Society for recognition under Section 35(1)(ii) the Central Board of Direct Taxes. You may approach the Council in the matter after having made some beginning in this regard.
Yours faithfully, Sd/- (O. Kempanna) Assistant Director General.
Apparently there was some confusion because whereas NAFED was seeking recognition of the assessee-Foundation reference in the letter was as though NAFED was seeking recognition.
16. On 2nd of June, 1979 NAFED addressed another letter to ICAR in which in terms it was clarified and stated that recognition was being sought for Associated Agricultural Development Foundation under Section 35(1)(ii) of the Income-tax Act, 1961 and a fresh application in the prescribed form was filled in and sent again. The relevant portion of this letter must be reproduced because the said communication coupled with the earlier communications resulted in the Notification No. 3163 /F. No. 203/86/79-IIA dated 29th January, 1980 published in Part II, Section (II) of the Gazette of India by which the assessee-Foundation was recognised for the purposes of Clause (ii) of Sub-section (1) of Section 35 of the Income-tax Act, 1961 as applied for and, therefore, it had the effect of the assessee's income being exempted under Section 10(21) of the Act:
TO BE PUBLISHED IN PART II SECTION (II) OF THE GAZETTE OF INDIA GOVERNMENT OF INDIA MINISTRY OF FINANCE (DEPARTMENT OF REVENUE) NEW DELHI, THE 29TH JANUARY, 1980 NOTIFICATION INCOME-TAX No. 3163/F.No. 203/86/79-IIA. II/ It is hereby notified for general information that the institution mentioned below has been approved by the Indian Council of Agricultural Research, the prescribed authority for the purposes of Clause (ii) of Sub-section (1) of Section 35 of the Income-tax Act, 1961.
INSTRUCTION ASSOCIATED AGRICULTURAL DEVELOPMENT FOUNDATION, NEW DELHI This notification is effective for a period of 2 years from 27-4-1979 to 26-4-1981.
Sd/-
(J.P. Sharma) Director to the Government of India.
The notification is clear that though it had retrospective operation, but it was only from 27th April, 1979 and not from any earlier date which makes the position clear that ICAR recognised and held that the assessee's activities commenced only on 27th April, 1979.
17. Between 1st April, 1978 to 31st March, 1979 i.e. for the assessment year 1979-80 the assessee had received Rs. 14,05,340 from NAFED.
18. Reverting back to the history, for the assessment year 1978-79 the assessee had claimed exemption in respect of the amounts received from NAFED on two counts, one was that the provisions of Section 35(1)(ii) of the Act saved it from taxation ; and (ii) that the provisions of Section 2(24)(iia) were not applicable, the contributions being neither voluntary nor the assessee being a Charitable Institution. The Income-tax Officer disallowed exemption on both the counts, first: by stating that the Foundation was not approved up to 27th April, 1979 and that the provisions of Section 2(24)(iia) also did not help the assessee as voluntary contributions received were not with a specific direction that these were to form part of the 'Corpus'. It must be clarified here that the assessee had all along asserted that the contributions were not voluntary, but that is an aspect which remained un-adjudicated by the Income-tax Appellate Tribunal, though for the assessment year 1978-79, the dispute travelled up to that stage. For the assessment year 1978-79, for the assessee reliance was placed on the Hon'ble Jurisdictional Delhi High Court judgment in the case of CIT v. State Trading Corpn. of India Ltd. [1973] 92 ITR 294 (hereinafter referred to as 'STC') for the contention that any money/contributions received even after the incorporation of the Foundation but before its Scientific Research activities commenced were in the nature of Corpus or Capital. The Tribunal, however, rejected the assessee's stand. In the above context it would be necessary to deal with the facts in the case of State Trading Corpn. of India Ltd. (supra) in a little greater detail so as to bring out clearly what the Delhi High Court had held viz. that unless business activities commenced a receipt or contribution for business would be in the nature of capital and can never assume the character of revenue receipt liable for tax. The State Trading Corporation of India Ltd. was incorporated as a company on 18th May, 1956, its entire share capital being subscribed by the Government of India. Its first accounts were closed on 30th June, 1957. It started its trading activities towards the beginning of July, 1956. By a letter dated 21st June, 1956, the Government of India, Ministry of Commerce and Industry, conveyed to the company a sanction of Rs. 2 lakhs "as grant-in-aid". This letter was captioned as follows :
State Trading Corporation - Initial establishment and miscellaneous expenditure - Transfer of funds - Sanctioned.
The amount in question was sanctioned before the company had commenced its trading activities. The amount was not spent at all and the company under intimation to the Government treated it as a capital reserve.
When the company was assessed to income-tax for the assessment year 1958-59, in respect of its first year of business for the accounting period ending on 30th June, 1957, the Income-tax Officer treated the sum of Rs. 2 lakhs as the assessee's income because, according to him, the grant-in-aid went towards reducing the revenue expenditure of the company thereby swelling its profit. The Income-tax Officer was of the view that the purpose for which the grant-in-aid was made determined its nature. If the grant was towards capital investment its nature was capital, if it was intended to reduce the assessee's burden of trading liabilities, it was revenue in character.
The AAC in the first appeal held that the grant-in-aid had been sanctioned before the assessee started its trading activities and in connection with its administration. The Tribunal found (i) that the grant-in-aid was received prior to the commencement of the business, and (ii) that it was a receipt of a casual and non-recurring nature and was exempt under Section 4(3)(vii) of the Income-tax Act, 1922. On a reference at the instance of the Revenue, the Hon'ble High Court held that there must be a business before there could be a business receipt and if an assessee received a sum before he started business it could not be treated as business receipt: it made no difference that the sum which was received might have some connection with the business which was later on to be carried on by the assessee. Since the receipt by the company of the grant-in-aid from the Government was one before the commencement of its business it had to be treated as one enabling the trading activity of the company being conducted and thus enabling that trading activity to commence. The receipt was not chargeable to tax. The receipt was also exempt from taxation since it was of a non-recurring nature and it could not be treated as a receipt arising from business because it was received before the business or trading activity of the company commenced.
The judgment in the above case being from jurisdictional High Court is binding and, therefore, reference by the Revenue's representative to the other High Court decisions on the issue would not make any material change because the principle is well settled that amounts received before commencement of business/trading activities which in the present case consisted of research related activities, cannot be considered as Revenue receipts liable to tax, but would be capital in nature which terminology is synonymous with the word 'Corpus' of a trust.
19. Though for the assessment year 1978-79 the question came to be decided against the assessee, but when for the assessment year under appeal i.e. 1979-80 it was pointed out and asserted for the assessee that the facts in the case of State Trading Corpn. of India Ltd. (supra) came to be wrongly noticed by the earlier Bench and that the contributions were received by the NAFED from the Exporters towards the Development Fund which necessarily formed corpus or capital of the assessee-Foundation and, therefore, beyond the scope of taxation till recognition under Section 35(1)(ii) was granted on 27th April, 1979 the contention assumed great importance. Delhi Bench 'A', as it was then constituted, thought it fit to propose the constitution of a larger Bench to the President on the ground that the matter required a deeper thought and if there was no difference between a "Development Fund" and "Corpus" then even voluntary contributions would qualify for exemption. The President accepted the same and was pleased to direct that the matter be heard by a larger Bench and that is how the present Full Bench came to be constituted and is disposing of the appeal for this year.
20. Shri Ganesan, appearing for the assessee, made three-fold submissions as follows:-
(i) That monies received by the Foundation society up to 27th April, 1979 could not be considered as income because there was no difference between money received on capital count and "corpus of a trust";
(ii) The provisions of Section 2(24)(iia) were not applicable; and
(iii) The assessee could not be termed as a charitable trust within the ambit of the provisions of the Income-tax Act, 1961 nor the amounts received through NAFED could be considered as voluntary contributions.
21. At this stage it is necessary to bring in close focus the provisions of the Income-tax Act, 1961, which are relevant to the questions involved in this case. Such provisions are Sub-section (15) and Sub-section (24) read with Sub-clause (iia) of Section 2 ; Sub-section (21)of Section 10; Sections 11, 12 and 13 ; (we, however, are not reproducing Sections 11 and 13 because the provisions are well-known and there being no controversy, about their interpretations as far as the present case go); Sub-clause (ii) of Sub-section (1) of Section 35 ; and Clauses (i) and (ii) of Sub-section (4) of Section 43, as follows :--
Section 2. In this Act, unless the context otherwise requires,--
(15) 'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility.
(24) 'income' includes -
(i) profits and gains ;
(ii) dividend;
(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution).
Explanation: For the purposes of this sub-clause, 'trust' includes any other legal obligation;
Section 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-
(21) any income of a scientific research association for the time being approved for the purpose of Clause (if) of Sub-section (1) of Section 35 which is applied solely to the purposes of that association.
** ** **
12. Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of Section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and Section 13 shall apply accordingly.
Section 35. (1) In respect of expenditure on scientific research, the following deductions shall be allowed --
(ii) any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research : Provided that such association, university, college or institution is for the time being approved for the purposes of this clause by the prescribed authority.
Section 43. In Sections 28 to 41 and in this section, unless the context otherwise requires --
(4) (i) scientific research means any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries;
(ii) references to expenditure incurred on scientific research include all expenditure incurred for the prosecution, or the provision of facilities for the prosecution, of scientific research, but do not include any expenditure incurred in the acquisition of rights in, or arising out of, scientific research.
22. Shri R. Ganesan, referring us to the provisions of Section 12 submitted that in the first place it had to be a trust for charitable or religious purposes or an institution established wholly for such purposes which had received voluntary contributions to come within the ambit of taxing provisions of the Income-tax Act, 1961. His assertion was that keeping in view that (the) Societies Registration Act, 1860 had made a clear distinction between scientific and charitable societies for registration purposes it must be inferred that there was no scope at all for taxing receipts or surplus of receipt over expenses of a scientific research association which in fact the assessee is. For the Revenue, Shri Amitabh Kumar, very effectively referring to us the provisions of Sub-sections (15) and (24) of Section 2 submitted that the concept sought to be propounded by Shri Ganesan was wholly incorrect. He argued that the purpose of Section 35 was to allow deduction to the contributor on scientific research and had nothing to do with the taxation at all. Accepting that Section 12 referred to "trust" wholly for charitable or religious purposes and further only voluntary contributions in relation to such trust was taxable and not contribution towards corpus, submitted that definition of "charitable purpose" as given in Sub-section (15) of Section 2 includes advancement of any other object of general public utility which term must be held to encompass Scientific Research Institutions. Further referring us to the Explanation to Clause (iia) of Sub-section (24) of Section 2 he submitted that the Legislature left no scope for any controversy inasmuch as it is clarified that for the purposes of Sub-clause (iia) trust included any "other legal obligation" and in this context the assessee was an entity- invested with an obligation to receive moneys and spend for Scientific Research and therefore 'other legal obligation'. Further repelling Mr. Ganesan's assertion that the contribution in the assessee's case could not be said to be voluntary inasmuch as these were fixed by the Price Fixation Committee of the Government of India and were collected as levy, he submitted that if the proposition as convassed for the assessee was to be accepted then even voluntary contributions could be easily held to be levy and beyond the scope of Section 12 because a person may say that' 'I shall contribute to a trust a part of my income which should be considered as a levy". His argument was that self-contribution would remain voluntary contribution whatever may be the terminology used. In this connection, he laid emphasis on the composition of the Price Fixation Committee and submitted that when Exporters themselves were to determine the quantum of contribution towards the Development Fund and when there were variations at their instance it would be totally clouded view of the matter if one was to hold the contributions as anything, but voluntary in nature by the Exporters for a Development Fund created to help them and when contributions were being allowed as deduction under Section 35(1)(ii) of the Act. Mr. Ganesan, on the other hand, very strenuously emphasised that once it is accepted that the Price Fixation Committee was an agency of the Government of India, the extent of participation and influence of the Exporters in determining rate of contribution in relation to their exports had no meaning and the contribution, therefore, must be held to be levy and "directed collection".
23. In our view, however, keeping in focus the Government's policy that Price Fixation was to be with the consent of the concerned persons and further keeping in view that as a fact the composition of the Price Fixation Committee projected complete control of the Exporters, and again considering that the collection rates were being varied depending upon the price of export rates fixed, the collection was voluntary in nature and, therefore, there was no escape for the assessee from such position.
24. We are also accepting Mr. Amitabh Kumar's contention that the insertion of Explanation to Sub-clause (iia) to Sub-section (24) of Section 2 made all the difference and if there could be said to be any ambiguity or scope for argument that provisions of Sub-section (15) of Section 2 did not take care of the type of cases before us the Explanation in terms stated that other legal obligations which terminology was incorporated in trusts, was also liable for taxation, if the saving provision built in Sub-clause (iia) of Sub-section (24) of Section 2 did not come to the assessee's rescue. Therefore, the crucial point to be determined in this case is whether the contribution could be said to be forming part of corpus as the term has been used in the said sub-clause.
25. Mr. Ganesan referring us to page 62 of his paper book where minutes of the First Advisory Committee of the assessee held on 3rd of January, 1979 are detailed submitted that the action of the ICAR of recognising the assessee as a Scientific Research Institute with effect from 27th of April, 1979 could not be said to be rationale because till January 1979 the assessee was finding it difficult to fulfil its initial obligation of starting research activities which required sufficient funds. What the assessee was doing till 31st March, 1978 was sought to be demonstrated by referring to the receipt and expenditure account for the period ending 31st March, 1978 as also statement of affairs as on 31st March, 1979 which projected fixed deposits, interest on such deposits, certain sundry advances etc., but projected no research activities on which any substantial expenditure was incurred.
26. Next Mr. Ganesan laid great emphasis on the crucial date of 27th of April, 1979. Though we have already referred to the same while detailing the sequence of events and the fact that though approval by the ICAR was granted to the assessee as a Scientific Research Institution Under Section 35(1)(ii) of the Act. On 29th January, 1980 it was made effective from 27th of April, 1979. Mr. Ganesan's focus on the said date assumes importance because though the assessee had earlier written to the ICAR that it had commenced research activities, but it was informed that such could not be the case in the absence of proper infrastructure. In other words, unless the assessee-Foundation was recognised as an approved scientific research institute it could not be an entity which could be properly defined because it is not even the Revenue's case that it could fit in in any definition under Section 1.1, 12 or 2(24)(iia) or Section 2(15) of the Act, but as a Scientific Research Institute under obligation to do research as obliged by the Resolution of May 1976 passed by the Price Fixation Committee. Under such circumstances any receipt or contribution could be in the nature of capital or corpus earmarked for the activities to be commenced after approval of the assessee as research institution.
27. Though we have already dealt with certain aspects of the case inasmuch as we have adjudicated the assessee's contentions regarding it being outside the ambit of the taxing provision of Income-tax Act, 1961, that the contributions could not be said to be voluntary and that the Income-tax Act does not take within its purview scientific research institution as taxable entities, we like to deal with the primary objection for the Revenue at this stage because it was very strongly urged that there was no necessity or occasion for this Bench to depart from the view taken by the Tribunal in respect of assessment year 1978-79, all facts having been considered and the dispute also admittedly arising from the date of inception of the Foundation.
28. Mr. Amitabh Kumar, in support of his contention that earlier view of the Tribunal should not be departed, referred us to the following judicial precedents:-HA. Shah & Co. v. CIT [1956] 30 ITR 618 (Bom.); CIT v. Dalmia Dadri Cement Ltd. [1970] 77 ITR 410 (Punj. & Har.); CIT v. Brij Lal Lohia and Mahabir Prasad Khemka [1972] 84 ITR 273 (SC) and CIT v. L.G. Ramamurthi [1977] 110 ITR 453 (Mad.).
29. In the first case the Hon'ble Bombay High Court held that if no fresh facts were brought on record, it was not open to the Tribunal to take a different view on the same set of facts though principles of res judicata does not apply to tax matters. In the case of Dalmia Dadri Cement Ltd. (supra) the Hon'ble Punjab and Haryana High Court held that though as a general rule the principle of res judicata is not applicable to decisions of Income-tax authorities and an assessment for a particular year is final and conclusive between the parties only in relation to the assessment for that year, such rule is subject to limitations, for there should be finality and certainty in all litigations including the one arising out of Income-tax Act and an earlier decision on the same question cannot and should not be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due enquiry, if no fresh facts are placed before the Tribunal.
30. The Hon'ble Supreme Court judgment in the case of Brij Lal Lohia and Mahabir Prasad Khemka (supra) which was cited for the Revenue, on the other hand, supports the assessee's case that when new facts and evidence is brought before the Tribunal, it can and should take a different approach than the one which may have been adopted in the earlier year. Again in L.G. Ramamurthi's case (supra) the Hon'ble Madras High Court held that no Tribunal on fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts, but if another Bench of the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more Members for which there is a provision in the Income-tax Act itself. The relevant provision in this regard are Section 255(3) of the Act.
31. We have already narrated the facts and circumstances which prompted the suggestion for constituting a larger Bench under Section 255(3) of the Act and which came to be accepted by the President of the Tribunal and, therefore the agitation for the Revenue that there was no occasion for re-considering the question decided by the Tribunal in respect of assessment year 1978-79 is totally un-warranted and unjustified. In any case, the Larger Bench was not constituted to take a different view than the one adopted for the earlier year, but to give a deeper thought to the question and decide that part of the issue which remained un-adjudicated for the earlier year which was whether the contribution to the assessee-Foundation through the agency of NAFED before its recognition by the ICAR which was the prescribed authority for the purpose, could be said to be capital and/or corpus and, therefore, outside the purview of taxation in view of the judgment of the Hon'ble Jurisdictional Delhi High Court in the case of State Trading Corpn. of India Ltd. (supra).
32. Mr. Amitabh Kumar next submitted that if a sum could not be considered as income under Section 28 of the Act it did not necessarily follow that it was outside the ambit of taxation altogether. He very effectively referred us to the provisions of Section 2(24)(iia) to submit that though contribution can never said to be income as known in normal parlance, but still these are made taxable which indicate that Section 28 only provide taxability of a specie and does not cover the whole gamut of taxation as stipulated under the Act. Since we accept such contention in view of the provisions of the Income-tax Act, 1961 and there being no resistance to accepting such proposition from the assessee, we do not propose to deal with this aspect in any greater length.
33. We have already expressed our opinion that in view of the composition of the Price Fixation Committee and the authority which such Committee had, the collection of the fund could not be said to be, but voluntary. In such view of the matter it is not necessary to further deal with Shri Amitabh Kumar's argument that agreement between the Exporters and NAFED made contribution voluntary.
34. Next Shri Amitabh Kumar joining the issue with Shri Ganesan, submitted that when as early as in June 1976 the assessee had itself taken the stand that it had commenced research activities, any contribution thereafter assumed the character of income receipts. This aspect also we have dealt with and have opined that when the Prescribed Authority did not consider that the assessee had the necessary infrastructure to commence research activities and denied recognition as a Scientific Research Association on that ground as applied under Section 35(1)(ii), it could not be said that the assessee had come into being as a Scientific Research Association. Therefore, our decision that it was only with effect from 27th April, 1979 that the assessee became an activated Scientific Research Institution and its related activities commenced from that day cannot be said to be wrong or diluted by any assertion from whatever quarter it may have come.
35. Next it was argued for the Revenue that the Hon'ble Delhi High Court judgment in the case of State Trading Corpn. of India Ltd. (supra) was only an authority for the proposition that receipts which could otherwise may be treated as Revenue in character could not be taxed till activities commenced and such pre-commencement receipts would assume the character of capital receipt. We have already dealt with the Hon'ble Delhi High Court judgment in detail. At this stage it is sufficient to reiterate that the principle of law laid down is that before activities of a given entity commence there can be no question of any receipt being considered as Revenue in character. In the present case also, therefore, before 27th April, 1979 receipts of the Foundation, which as held by us above, were voluntary contributions, were towards capital of the Foundation which term is synonymous with corpus. In the present case, we have seen as a fact that the assessee was treating contributions as capital, there being no related research activities as such before the said crucial date of 27th April, 1979.
36. As we have accepted the argument that since Price Fixation Committee itself determined collection charges to be collected from the Exporters and the later were in majority in the said Committee and, therefore, contributions were voluntary in nature, we are not dealing with the related arguments of the Revenue, at this stage again.
37. Next we like to refer to the Hon'ble Rajasthan High Court judgment in the case of Sukhdeo Charity Estate v. CIT [1984] 149 ITR 470/19 Taxman 222 which in fairness was brought to our notice by Shri Amitabh Kumar, in which it has been held that if the intention of the donor and the donee is to treat the money as capital to be spent, the fact that amount could not be spent for a particular period could not effect the character and nature of the money as such. To put in other words, money paid or donation made as capital could not assume a different character and become taxable receipts simply because these could not be spent within a given time. This proposition can be said to be a double edged sword inasmuch as a revenue contribution also would not assume the character of capital if the intention is otherwise. In the present case, however, both the contributors and the NAFED which was a collecting agency had resolved to set up a Development Fund for setting up a Scientific Research Institution and till that Institution could be said to have been established, contributions could not assume the character of revenue receipts and the crucial date in that regard being 27th April, 1979.
38. We have already dealt with the facts and the principle laid down by the Hon'ble Jurisdictional Delhi High Court and if that is applied it must necessarily follow that before 27th April, 1979, money received by the assessee from all quarters including contributors and NAFED formed its capital base which in other words, can be termed as corpus also.
39. Though we have dealt with more or less with all aspects of the case and the arguments of the parties, we like to briefly refer again to (the) Societies Registration Act, 1860 because of the persistence with which Mr. Ganesan sought to support his case of being outside the ambit of taxation under the Income-tax Act, 1961. It is correct that in the said Act scientific and charitable societies are separately mentioned for registration purposes, but in view of the extended definition of the term 'trust' in Sub-clause (iia) of Sub-section (24) of Section 2 of the Act, the definition under the Registration Act loses its significance. Therefore, Mr. Ganesan's claim of being outside the purview of Income-tax Act, 1961, is rejected.
40. Independent of the above, in view of the assessee's own stand before the ICAR that it wanted recognition to get the benefits of Section 10(21) of the Act it must be held that Mr. Ganesan's argument contradicted the assessee. Here, we like to observe that though alternative contentions are not strange bed fellows, but sometime these have the effect of demolishing each other. For it would be a strange alternative contention if a person has to take the plea that he could not be termed as a trespasser because when he entered the place there was sign of "To-Let" and at the same time contending that he was miles away when he was supposed to have tres-passed.
41. Another contention of Mr. Ganesan, which must be dealt with and rejected is with regard to his submission that since trusts are referred to in Chapter III and Scientific Research Institution in Chapter IV of the Income-tax Act, 1961 these are two different species and distinguished from each other. We have already referred to the provisions of Section 2(24)(iia) above and have held that in view of the extended definition of the term 'trust' Mr. Ganesan's claim of total immunity under the Act was uncalled for. Besides, the mere fact that two types of assessees as taxable entities arc mentioned and find place under two different chapters of the Act can hardly be a ground for seeking immunity as prayed. For example, Section 2 is headed as "definitions" and again in Section 43 definitions are given of certain terms relevant to income from profits and gains of business or profession. It would be too much to accept that in view of specific Section 2, definitions under Section 43 have no relevance.
42. In view of our discussions and expressed views, we hold that the sum of Rs. 14,05,340 was not taxable in the assessee's hands for the assessment year 1979-80 as it did not bear the character of income because till 27th April, 1979 when the assessee-Foundation was recognised as a Scientific Research Institution it could and received only capital or corpus for its activities.
43. In view of the above decision, the assessee's other contentions in relation to levy of interest under Section 217 and direction regarding penalty proceedings under Sections 271(1)(c) and 273 have become academic and therefore, not dealt with.
44. In the result, the assessee's appeal is allowed.
G. Krishnamurthy, President
1. I have gone through the order proposed by my learned brother and I am in full agreement with the conclusion reached but I would like to add my reasons for agreeing with the conclusion.
2. This matter was already decided for the immediately preceding assessment year by the Income-tax Appellate Tribunal against the assessee and in favour of the Revenue. More or less this Bench was constituted more with a view to find out whether that decision accords with and is in conformity with the view expressed by the jurisdictional High Court in the case of State Trading Corpn. of India Ltd. (supra) or whether any facts which were present at that time were loss sight of to be considered or whether any further facts had come to light. The Bench of the Tribunal while dealing with the earlier year 1978-79 considered the facts as presented to them and arrived at the conclusion that the contributions in the present case were received by the assessee without any specification as to treat them as part of the corpus of the foundation nor the assessee was recognised by the prescribed authority as a scientific organisation referred to in Section 35(1)(ii) of the Income-tax Act and consequently they were taxable as income within the meaning of Section 2(24)(iia). For arriving at this view the learned Bench distinguished the ruling of the Delhi High Court in the case of State Trading Corpn. of India Ltd. (supra) by pointing out that what was received in that case was subsidy from the Government before its incorporation and that the said receipt of subsidy could not be treated as receipt derived from the business because it was received before the business or the trading activity of the company commenced. Actually reliance was placed by the assessee for the earlier year on this decision for the proposition that moneys received before starting of business could not be treated as trading receipts but only be treated as capital receipts and as in this case the prescribed authority had recognised the assessee for the purpose of exemption Under Section 35(1)(ii) only with effect from 27-4-1979, the amounts received prior to that date could not be said to be receipts received during the course of business but before the commencement of the business and therefore could not be treated on revenue account but only on capital account. The Bench did not accept this view because according to it, the amount of the subsidy received from the Government was before its incorporation. This is factually incorrect. In the case of State Trading Corpn. of India Ltd. (supra) the subsidy was received after its incorporation but before the commencement of the trading activities. The question that arose before the High Court was whether such receipts could be regarded as trading receipts. The answer of the High Court was that those receipts could not be regarded as trading receipts at all because they were received before the commencement of trading activities and the proposition of law laid down was that any amount received before the commencement of the trading activities could not be deemed to be a receipt received during the course of business. This is one factual mistake, which the earlier Bench had committed, which appeared to us to have influenced its decision to a great extent.
3. Secondly it was argued before the Bench that NAFED after collecting the amounts from various exporters of onion made over the funds so collected to the assessee by nomenclaturing them as towards development fund meaning thereby development of scientific research and therefore they were towards corpus as the word corpus is to be understood in Section 2(24)(iia) and this aspect was totally missed by the Bench because there was no discussion about this aspect in their order. It was on a consideration of these deficiencies in the earlier order that a Special Bench was constituted to consider whether a deviation from the earlier view was possible or not. To start with, we have already pointed out that the argument of the assessee based upon Delhi High Court's decision in State Trading Corpn. of India Ltd.'s case (supra) was factually misquoted, which needed correction and then reappreciation in the light of the corrected facts.
4. We have already mentioned that the Delhi High Court decision is an authority for the proposition that any amounts received before the commencement of business activity could not be regarded as a trading receipt. The Delhi High Court decision did not say that because what was received from the Government was a subsidy and therefore it was not taxable. In this case the controversy that arose between the assessee and the department was as to when the business activities commenced. My learned Brother has already noticed that according to the Departmental Representative the activities of research commenced sometimes in 1976 but the view canvassed on behalf of the assessee was that that could not be a correct view because when the assessee applied to the prescribed authority for the grant of exemption Under Section 35 of the Income-tax Act, the prescribed authority had specifically pointed out that the infrastructure facilities not having been setup by them, it was premature to recognise the assessee Under Section 35(1)(ii) and that the assessee was advised to again approach after having made some beginning in this regard. This was the reply given by the prescribed authority on 5-7-1977 in response to the application made by the assessee on 13-4-1977. Subsequently the assessee made another application on 2-6-1979 and it is only thereafter that the prescribed authority granted recognition on 29-1-1980 with retrospective effect from 27-4-1979. This means that the prescribed authority did not recognise the activities of research started by the assessee before 27-4-1979, as amounting to research for the purposes of Section 35(1)(ii) and directed the assessee to approach the prescribed authority after making some beginning in this regard, which meant that no beginning was made till that time. Such being the factual position, we have got to now turn to Section 35(3) to find an answer to the question posed before us as to when the assessee could be said to have commenced its activities. Sub-section (3) of Section 35 states :--
(3). If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted, or any asset is or was being used for, scientific research, the Board shall refer the question to the prescribed authority, whose decision shall be final.
This section clearly postulates that a question could arise as to whether an activity would or would not constitute scientific research and anticipating the scope of such a controversy, the Legislature deliberately provided that the matter shall be referred to the prescribed authority and made the decision of the prescribed authority final in this regard because that was the duly constituted authority, properly equipped to decide as to when and to what extent an activity constituted scientific research. It is therefore not open, in the face of Sub-section (3) of Section 35, for any one to suggest that the activity for scientific research, commenced from a date earlier than the date decided by the prescribed authority. When the decision of the prescribed authority on this 'question is unquestionable and when that authority determines the date as 27-4-1979, it is not open for us to say or for the department to contend that the research activities, within the meaning of Section 35, were started anterior to that date. Therefore the argument that the assessee had started research activities prior to 27-4-1979 is not capable of being accepted as correct. Now what is the consequence of this finding in the light of the Delhi High Court decision. The Delhi High Court decision says that any money received prior to the commencement of the activity is on capital account. The earlier Bench of the Tribunal, though it referred to the decision of the Delhi High Court in State Trading Corpn. of India Ltd.'s case (supra) did not decide this issue in any clear manner. After referring to the principle laid down by the Delhi High Court, the earlier Bench did not say as to how that principle was inapplicable to the facts of this case but closed the discussion by saying that that decision was distinguishable on facts particularly after having noted the facts incorrectly. 5. Another mistake that appeared to us to have crept into the order of the earlier Bench was the following finding in para 10 of its order :--
As to the claim of capital receipt, we do not find any substance. The lower authorities recorded a specific finding to the effect that no indication was made regarding the nature of the contributions. In the face of this specific finding, we are unable to change the nature and form of the receipt. The donations were rightly received by the assessee-Foundation after its incorporation and within the relevant previous year. As such, we see no reason to interfere in this regard. The decision of the Hon'ble High Court of Delhi in the case of State Trading Corpn. of India Ltd. (supra) relied on behalf of the assessee is distinguishable on facts as in that case the STC received the subsidy from the Govt. of India before its incorporation. Their Lordships held that the said receipt of the subsidy cannot be treated as receipt arising from the business because it was received before the business or trading activities of the company commenced. Similarly, their Lordships of the Calcutta High Court in the case of Tea Producing Co. of India Ltd. (supra) laid down the preposition that an assessee could not have carried on the business before it came into existence, and, therefore, the benefit of loss incurred prior to the date of incorporation cannot be availed of. The assessee-Foundation in this case received the donation after its incorporation and within the relevant previous year. These donations were not assessed as income from business. On facts the above cited cases are distinguishable and are rejected.
It will be seen from the above that the earlier Bench had held that the lower authorities recorded a specific finding to the effect that there was no indication regarding the nature of the contributions and in the absence of such a specific finding, the Bench felt that it was unable to change the nature and the form of the receipt. This again is factually incorrect. The resolutions passed by NAFED and the letters that were exchanged between NAFED and the assessee and the contentions raised before the authorities below were that these sums were received towards "development fund". The authorities refused to grant exemption solely on the ground that they were not specified as to form part of the corpus inferring thereby that amounts received towards the development fund do not form part of the corpus. The authorities believed that there should be a specific direction that the contributions should form part of the corpus and if they formed part of the development fund, that would not amount to forming part of the corpus. This being a mis-statement of fact, it needed to be corrected and then the issue had to be judged in the light of the correction. As was mentioned in the order of my learned Brother these funds were definitely earmarked towards development fund. The development fund of a scientific research is nothing but corpus. Though the expression "corpus" is not defined in the Income-lax Act, in the context in which the expression "corpus" is used, it should be understood as forming part of the capital. To the same effect is the decision of the Allahabad High Court in the case of Sri Dwarkadheesh Charitable Trust v. ITO [1975] 98 ITR 557 and of Rajasthan High Court in Sukhdeo Charity Estate's case (supra). In other words, a fund which is to be kept up and built up as a fixed capital to be used for any purpose other than as capital and the income from which alone is to be applied for the purpose of the Trust. Though there are several meanings of the expression "corpus", the meaning that is most apposite for the purposes of Section 2(24)(iia) is "fixed capital". In a scientific research organisation, the moneys received towards development fund is nothing but a capital and therefore corpus. This aspect has not been dealt with at all by the earlier Bench as we have endeavoured to indicate above. Furthermore, by letter dated 24-11-1977 the NAFED informed the assessee that the funds to be transferred to it should be utilised for research. This cannot but mean that the amount was towards corpus. Secondly on 14-3-1978 the NAFED had written to the Secretary of the assessee, a letter making its intention more explicit, in the following manner :--
National Agricultural Cooperative Marketing Federation India Limited Head Office : Sapna Building, 54, East of Kailash P.B. No. 3580 Ref. No. HO/AC/77-78 Dated 14-3-1978 The Secretary, Associated Agricultural Development Foundation, New Delhi Sub: Development Fund In continuation of the letter of even No. dt. 24-11 -1977 please find enclosed cheque No. 423740 of dt. as contribution of various exporters to your Corpus Fund to enable you to take the steps in the field of Agricultural Research and Development. A list of the donors is enclosed for your kind information and necessary action at your end. Please acknowledge the receipt.
Yours faithfully, Sd/-
Chief Accounts Officer (Emphasis by us) This shows that the contribution of various exporters was explicitly and specifically towards corpus fund to enable the assessee to take steps in the field of research and development. What more evidence is needed to show that the contributions were specifically made towards corpus and therefore satisfied the requirement of Section 2(24)(iia). This aspect also was missed by the earlier Bench.
6. Now the Departmental Representative had raised a very brilliant argument, which impressed us and we would like to deal with it. Before that we should refer to Section 2(24)(iia) where the inclusive definition of income was given. It is necessary to refer to it again here :-
2. In this Act, unless the context otherwise requires, -
** ** **
(24)"income" includes-
** ** **
(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes, not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution.
This definition says that voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes, would be deemed to be income if those contributions were not to form part of the corpus. The argument of the learned Departmental Representative is that even if it is agreed that the contributions were voluntary, even if it is conceded for the sake of argument that there was no trust or any other legal obligation, the fact remains that the assessee is an institution established wholly or partly for the purposes of carrying out scientific research and thus was invested with a legal obligation. The benefits of scientific research are meant to improve the lot of the people, meant to increase the production of onions, increase the capacity of exports and in the ultimate analysis increase the Foreign Exchange earnings and to reduce the price for domestic use. There may be several other benefits accruing from the research carried on on onions. Since all those benefits accrue to the good of the general public, that activity satisfies fully the requirements of charitable purposes as defined in Section 2(15) of the Income-tax Act. The definition given for 'charitable purpose' in Section 2(15) includes the relief of the poor, education, medical relief and the advancement of any other object of general public utility. Here by the scientific research to be carried out by the assessee, the general public is going to get enormous benefit and therefore the general public utility is being advanced and that is the object of the scientific research. Such being the object of the scientific research, to advance the general public utility, the institution must be said to be existing for a charitable purpose. The expression "charitable purpose" used in this definition must have the same meaning as is ascribed to it in Section 2(15) of the Income-tax Act and not elsewhere in any other enactment, be it the Societies Registration Act of 1860. Since there is no escape from the definition of "charitable purpose" in Section 2(15) for the purpose of finding out its meaning for the purpose of Section 2(24)(iia), the assessee being an institution established for a charitable purpose, the argument of the learned counsel for the assessee that Section 2(24)(iia) does not apply to it, cannot be accepted and once it is held that the assessee is an institution established for a charitable purpose, the voluntary contributions received by it would become income, if they are not to form part of the corpus by a specific direction given by the donors. Since there is no specific direction by the donors, namely, the NAFED or the various exporters from whom NAFED had collected the contributions, they constituted income and therefore the decision taken by the earlier Bench cannot be assailed or deviated from as incorrect.
7. We fully, appreciate this argument and give due credit to the learned Departmental Representative for having advanced this brilliant argument. We agree with him for the aforementioned reasons that the assessee is an institution established for a charitable purpose within the meaning of the expression "charitable purpose" as defined in Section 2(15) as falling under the residuary clause therein, namely, "the advancement of any other object of general public utility". But the question then remains whether the contributions received carried with it a specific direction to form part of the corpus of the institution. As we have already explained this question has to be answered in favour of the assessee and against the Revenue in the sense that these contributions carried with them a specific direction that they shall form part of the corpus of the institution i.e. to repeat that they were towards development fund and the letter dated 14-3-1978 clearly specified that it was to form "corpus fund". There is no difference between corpus fund, development fund or capital no more than a difference between tweodledee and tweedledum. Furthermore a scientific research organisation held to be so for the purpose of Section 35 (though from a date falling outside the accounting year), cannot be said to be an organisation existing for carrying on any business activity because Section 2(24)(iia) is again to be read along with Section 12, which says by incorporating the entire definition of Section 2(24)(iia) into Section 12, that such contributions would be deemed as income derived from property held under trust wholly for charitable or religious purposes for the purpose of Section 11. In other words, if there are voluntary contributions received by a trust, that income shall not be subjected to tax if the conditions prescribed in Section 11 are satisfied. Section 11 prescribes that the income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India, shall not be included in the total income. If it is accumulated, then subject to the limits of accumulation also the income so derived shall not be included in the total income. There is another interdiction to the application of Section 11 by Section 13, which says that if any part of the income from the property so held is used for private religious purposes, which does not esnure for the benefit of the public or is established for a particular religious community or caste or if the income enures for the benefit of any person, who created the trust and so on so forth, the exemptions shall not be available. It is not necessary for us to refer to entire Section 13 here for our present purpose. If it is the case of the Revenue that Section 2(15) is attracted, Section 11 also becomes applicable to the facts of this case because if Section 2(15) is applicable to the institution, that institution falls within the meaning of Section 11 and if Section 11 is applicable without interdiction of Section 13, even, though the contributions were voluntary, they cannot be treated as income because they earn exemption under Section 11. So by the combined reading and interaction of Sections 2(15), 2(24)(iia) and Section 12, there is no scope for saying that the contributions received by the assessee can be income taxable under the Income-tax Act, either on the count that they are voluntary contributions (in which case Section 12 would apply) or on the count that they form part of the corpus (in which case neither Section 2(24)(iia) nor Section 12 would apply).
8. It is on a consideration of these factors .that I felt I should agree with the conclusion reached by my learned Brother.
V.P. Elhence, Judicial Member
9. I entirely agree with the conclusion and with the reasoning as supplemented above.