Document Fragment View

Matching Fragments

Per Shri T. V. Rajagopala Rao, Judicial Member - This is an appeal filed by the assessee against the revisionary order, dated 20-11-1986 pass by the Commissioner of Income-tax, Tamilnadu-III, Madras. The assessee is Sir M. Ct. Muthiah Chettair Family Trust. This trust appears to have come into existence under the terms of the trust deed dated 15-2-1945. Admittedly the assessee is a public charitable trust, as its objects are intended to serve wholly religious or charitable purposes. The assessee trust did not apply 75% of its income for charitable or religious purposes, but had sought permission from the Income-tax Officer to accumulate for the assessment years 1972-73 to 1981-82. There was a meeting of Board of Trustees of the assessee trust on 27-6-1972 and a copy of the proceedings of the meeting dated 27-6-1972 at 11 a. m. is give to us. As per the proceedings we understand that there were only two members in the board of trustees, viz., (i) Shri M. Ct. Muthaiah and (ii) Shri M. Ct. Pethachi. Shri M. Ct. Muthiah, who occupied the chair on that day and for those proceedings appears to have explained to the Board of Trustees the following matters and the approval of the proposals was obtained in that meeting. The matters discussed and the resolutions passed in that meeting are the following :-

(c) To meet all expenses necessary and incidental for carrying out the aforesaid purposes and for management of the Trust hereby constituted.
(d) Subject to availability of funds after providing for the aforesaid objects, to construct a school for education in "Rama Vilas" property and maintain and manage the school."

Having regard to the objects we are of the opinion that the donee trust also is a public charitable trust with similar objects as that of the donor trust. The Income-tax Officer, while framing the assessment for the assessment year 1982-83 found that since one of the objects for which accumulation in Form No. 10 was sought for and permitted is to give substantial donations to any relief fund by way of charity, the Income-tax Officer held that the accumulated funds were properly utilised or that the application of income of the donor trust is in order and granted exemption to the donor trust under section 11 of the Income-tax Act, 1961.

"Received with thanks from Sir M. Ct. Muthaiah Chettiar Family Trust a sum of Rs. 17,50,000 (Rupees Seventeen lakhs fifty thousand only) being the donation so kindly sent to us towards the corpus of the Trust".

The learned Commissioner firstly held that in the facts of the case decided by the Special Bench of the Tribunal, the donation of the amount is not towards the corpus of the trust. He further held that if it is a donation simpliciter, then the donated amount would have represented the income for the donee trust under section 12 of the Income-tax Act, 1961 attracting the provisions of section 11(2). The learned Commissioner held that in order to avoid the consequence, that is in order to avoid the obligation of spending the donated amount for the objects for which the accumulation was sought for in From No. 10 and in order to do away with the necessity of spending the whole of the accumulated amount for the objects of the donee trust and in order to obviate the donee trust from the necessity of filing Form No. 10 seeking accumulation if it is not able to spend 75% of its income in the assessment year 1982-83 itself, the donor trust made a corpus or spend it to any other objects, which may be a charitable object without complying with sub-section (3A) of section 11. The learned Commissioner exclaims as to what happened to the undertaking given in Form No. 10 for the application of income for a specified charitable object. He was of the opinion that by this method of inter-trust donation the very purpose of section 11 can be easily defeated. But for the permission granted to accumulate the income it would have been necessary for the donor to spend major portion of the amount derived as income on some charitable object to qualify for the exemption. The donor trust obtained the benefit of exemption by giving an undertaking that the accumulated amount would be spent for a particular charitable object. The donor trust obtained the benefit of exemption by giving an undertaking that the accumulated amount would be spent for a particular charitable object. the donor trust can make a contribution to another trust if the donee trust is going to spend it for the same object on the basis of which the donor trust obtained the exemption. But if the donee trust is going to receive it as corpus and when there is no compulsion on the part of the donee trust to spend any part of the donation to the specified charitable object though the donee may spend it for some other charitable object the condition requisite of section 11 is not satisfied and in such a case it cannot be said that the donor trust has applied the funds for the specified charitable object mentioned in Form No. 10 on the basis of which permission to accumulate the income was granted. The learned Commissioner of Income-tax further held that a corpus donation only increase the capital of the donee trust and the gifted amount cannot be utilised directly for the charitable object of the donee trust. Only the income which may arise out of the corpus can be utilised for the objectives of the donee trust. In this case the sum of Rs. 17.5 lakhs cannot be and is not meant to be used for the objectives of the donee trust as it had been received only as a corpus of the trust. By giving a corpus donation by one trust to another with the same objectives as that of the former it cannot be said that the donor trust is applying or utilising its income for charitable objects. The Special Bench decision rendered by the Tribunal does not apply to the facts to the case. Ultimately the Commissioner held that since the donor trust had not applied the accumulated income for the purpose for which it was accumulated and for the reasons already stated above and since the whole of the income which was not utilised, it should be taken to be the income of the donor trust for this year. He, therefore, directed that the amount of Rs. 17.5 lakhs should be treated as the income of the donor trust for the assessment year 1982-83 and he directed the Income-tax Officer to modify the assessment order and bring Rs. 17.5 lakhs to tax in the hands of the donor trust for the assessment year 1982-83. For that purpose he had set aside the assessment made by the Income-tax Officer.

Assessment year Gross income 25% of income Net amount required to be utilised   Rs.
Rs.
Rs.
1972-73 1,06,932
-
1,06,932 1973-74 1,52,853
-
1,52,853 1974-75 1,62,018
-
1,62,018 1975-76 60,943
-
60,943 1976-77 2,12,796 67,816 1,44,980 1977-78 2,31,230 67,031 1,64,199 1978-79 2,28,203 67,689 1,60,514 1979-80 1,86,541 53,688 1,32,953 1980-81 1,68,754 47,789 1,20,965 1981-82 2,09,349 64,974 1,54,375   17,19,619 3,58,887 13,60,732 In the above table, according to the assessee, there is no scope to consider Rs. 3,58,887, which represents 25% of the income derived by the donor trust from the assessment years 1976-77 to 1981-82 as its deemed income under the provisions of section 11(3) on the ground that such amounts were not spent for the objects for which they were accumulated. The learned counsel for the assessee also contended that the donor trust and the donee trust are public charitable trusts and they were having similar objects for charitable and religious purposes and this finding of fact was found by the Madras Special bench decision of the Tribunal in the assessees own case in M. Ct. Muthiah Chettiyar Family Trusts case (supra). It is also contended by the learned counsel for the assessee that contribution towards corpus of another trust amounts to utilisation. It is the ultimate argument of the learned counsel for the assessee that simply because the donor trust contributed towards the corpus of the donee trust the amount of Rs. 17.5 lakhs there is no scope to assume that it does not amount to utilisation and that by itself does not make the donor trust a defaulter under the provisions of section 11(3). It is argued that the donated corpus is available to the donee, which is a religious and charitable trust for its own purposes. The donee trust cannot utilise the corpus for any other purpose nor can it utilise the income arising from such corpus for any extraneous purpose. Keeping the corpus intact and utilising the income accruing from the corpus for religious and charitable purposes would itself amount to application of income arising from the corpus for religious and charitable purposes. It is further contended that corpus fund also can be treated to be held for religious and charitable purposes by the donee trust. Therefore the learned Commissioner of Income-tax is not at all correct in treating the corpus donation as non-utilisation for purposes of section 11(3) of the Income-tax Act and the impugned order, which is based upon the above said wrong notion, is completely vitiated and therefore it should be set aside and the appeal should be allowed.