Bombay H.C : Whether, on the facts and in the circumstances of the case, the sums 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 IT Act, 1961 ?

Counsel Appeared

Dilip Dwarkadas with S.H. Paralkar, for the Assessee : G.S. Jetly with Dinesh H. Parekh, for the Revenue

S.P. BHARUCHA, J.:

This reference under s. 256(1) of the IT 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 sums 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 IT Act, 1961 ? ” Involved in the reference is the asst. yr. 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.

In the assessment of the assessee for the year in question, the ITO called upon the assessee to explain the surplus, that is, the excess of the permissible limit of accumulation of income prescribed by s. 11(1) of the IT Act, 1961. He did not accept the assessee’s contention that the said donations fell outside the provisions of s. 12(2) of the said Act and brought to tax the surplus. The assessee appealed. The AAC held that the ITO 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 AAC’s order to the Tribunal. The appeal was allowed. The question that is posed to us arises out of the Tribunal’s order.

The answer to be given to the question depends upon the interpretation of sub-ss. (1) and (2) of s. 12 of the IT 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 included in the total income of the trustees or the institution, as the case may be. (2) Notwithstanding anything contained in sub-s. (1), where any such contributions as are referred to in sub-s. (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 s. 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-s. (2) of s. 12 of the IT Act, 1961, apply to “such contributions as are referred to in sub-s. (1)” thereof. Sub-s. (1) refers to contributions which are “voluntarycontributions 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-s. (2) of s. 12. Accordingly, such contribution cannot be deemed to be income derived from property for the purposes of s. 11 of the said Act and the provisions of s. 11 will not apply.

6. Mr. Jetly, learned counsel for the Revenue, submitted that the contributions referred to in sub-s. (2) of s. 12 of the IT Act, 1961, will be deemed to be income derived from property for the purposes of s. 11 of the said Act and all the conditions for exemption under s. 11 will apply. Sub-s. (2) of s. 12 refers to contributions in sub-s. (1) thereof. In the instant case, the provisions of s. 11 had not been complied with and the Tribunal was right in the view that it took. Mr. Jetly’s submission begs the question. The question is: what are ” such contributions as are referred to in sub-s. (1) ” ?

Those are, as we have stated, ” voluntary contributions and applicable solely to charitable or religious purposes “.

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.

We are supported in the construction that we have placed upon sub-s. (2) of s. 12 of the IT Act, 1961, by the judgments of the Gujarat and Kerala High Courts in CIT vs. Bal Utkarsh Society (1979) 10 CTR (Guj) 54 : (1979) 119 ITR 137 (Guj) and in CIT vs. Vanchi Trust (1981) 20 CTR (Ker) 26 : (1981) 127 ITR 227 (Ker).

The same conclusion has been arrived at, though upon a different construction of the provisions of sub-s. (2) of s. 12 of the IT Act, 1961, by the Allahabad High Court in Sri Dwarkadheesh Charitable Trust vs. ITO (1975) 98 ITR 557 (All) and the Delhi High Court in CIT vs. Eternal Science of Man’s Society (1981) 128 ITR 456 (Del).

Mr. Dwarkadas, learned counsel for the assessee, pointed out that it had been urged before the Tribunal on behalf f the assessee that s. 12(1) of the IT 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 IT Ref. No. 428 of 1975 (R. B. Shreeram Religious & Charitable Trust vs. CIT (1988) 172 ITR 373). The Bench (of which one of us was a member) found the submission that s. 12(1) referred only to the income derived from voluntary contributions and not to the voluntary contributions themselves unacceptable.

Mr. Dwarkadas submitted that the amendment effected in 1972 to s. 12 and s. 2(24) of the IT Act, 1961, clarified the position in regard to which contributions constituted income. Having regard to our construction of the provisions of s. 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.

In the result, the question is answered in the negative and in favour of the assessee.

No order as to costs.

[Citation : 172 ITR 382]