Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the dividend income from the bonus shares of MMLSR (P) Ltd. held by the assessee was exempted under s. 11 for the asst. yr. 1972-73 and 1973-74 ?

High Court Of Delhi

CIT vs. Charat Ram Foundation

Sections 11, 13(2)(h), 13(3)(a), 13(3)(b), 13(3)(d)

Asst. years 1972-73, 1973-74

Arijit Pasayat, C.J. & D.K. Jain, J.

IT Ref. Nos. 149 to 152 of 1980

8th March, 2001

Counsel Appeared

Sanjeev Khanna with Ajay Jha, for the Petitioner : None, for the Respondent

JUDGMENT

ARIJIT PASAYAT, C.J. :

These four reference applications under s. 256(1) of the IT Act, 1961 (in short ‘Act’), relate to asst. yrs. 1972-73 and 1973-74. While two of the reference applications have been filed by the Revenue, two others have been filed by the assessee. Following question has been referred at the instance of Revenue, for opinion of this Court by the Appellate Tribunal Delhi Bench-C, Delhi (in short ‘Tribunal’) : “Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the dividend income from the bonus shares of MMLSR (P) Ltd. held by the assessee was exempted under s. 11 for the asst. yr. 1972-73 and 1973-74 ?”

So far as the assessee’s references are concerned following questions have been referred : “(1) Whether the Tribunal was correct in holding that the eight persons who subscribed their names to the memorandum of association of the assessee-society could be regarded as “founders” of an “institution” viz., the assessee-society, for the purposes of s. 13(3)(a) of the IT Act, 1961, for the asst. yrs. 1972-73 and 1973-74 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the various persons who had made contributions to the assessee-society could be regarded as persons who had made “substantial contributions” to the society within the meaning of s. 13(3)(b) of the IT Act, 1961, for the asst. yrs. 1972-73 and 1973-74 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting the assessee’s contention that only contributions received by the assessee-society during the previous years relevant to the asst. yrs. 1972-73 and 1973-74 could be taken into account in determining whether any one of the aforesaid persons had made substantial contributions to the society for the asst. yrs. 1972-73 and 1973-74 ?”

2. A brief reference to the factual position as highlighted in the statement of case would suffice. Assessee is a society, registered under the Societies Registration Act, 1860 (in short the “Societies Act”). It was formed when eight persons came together for the purpose of forming a society. It was registered as such on 12th Dec., 1957, by the Registrar of Societies, Delhi. Originally the name of the society was “Charat Ram & Sons Charitable Trust Society”. Subsequently the name was changed to “Charat Ram Foundation” w.e.f. 2nd Dec., 1960. It had acquired a number of shares in a company viz., Madan Mohan Lal Shri Ram (P) Ltd. (hereinafter referred to as the “company”). During the asst. yrs. 1957 and 1960, 1,000 shares each were purchased. In 1966, 1,404 shares were allotted as bonus shares. During the assessment years in question, assessee received several donations. Names of the donors and the amounts donated are as follows : Assessee was registered under s. 12A of the Act on 2nd Aug., 1975. For the asst. yrs. 1972-73 Income-tax Officer (in short “ITO”) determined taxable income as Rs. 57,368. The dividend income of Rs. 45,954 was held to be taxable as according to the ITO shares held by the trustees in the company exceeded the prescribed’ limit. Assessee had also claimed expenses of Rs. 2,09,946. The expenditure for charitable purpose was held to be only Rs. 56,000; as the ITO was of the view that provisions of s. 13 of the Act had been violated. Assessee carried that matter in appeal before the Appellate Assistant Commissioner (in short “AAC”). Before the said authority, assessee’s stand was that subscribers to the memorandum of association were not to be treated as “founders” within the meaning of s. 13 of the Act and further the ITO was not justified in holding about non-entitlement for exemption under s. 11 of the Act. AAC was of the view that since Bharat Ram Charat Ram (P) Ltd. had contributed Rs. 93,000 as donation to the assessee it was to be held that the company was to be considered as a person, who had made a substantial contribution within the meaning of s. 13(3)(b). It was held that in the list of shareholdings of the company, Lala Charat Ram, his wife and their relatives as well as Bharat Ram Charat Ram (P) Ltd. held 19,274 shares out of the total 80,000 shareholdings. This goes to 24.9 per cent and therefore, the shareholders of these persons as referred to in cls. (a) and (b) of s. 13(3) exceeded the 20 per cent limit and therefore, s. 13(1) (c)(ii) was applicable. It was also held that for the purpose of s. 13(4) or s. 13(2)(h) there was no scope for making a difference between original equity shares and the bonus shares. In essence, it was held that ITO was justified in applying the provisions of s. 13 to the assessee and rejecting its claim for exemption under s. 11 on the dividend income. Similar conclusions were arrived at for the asst. yr. 1973-74 except that the amounts involved were to be in those years. Matter was carried in appeals before the Tribunal. Considering stands of the parties it came to hold that the eight signatories to the memorandum of association could not be called “authors” of a trust. Looking to the objects of the society and the manner in which it was constituted and had been run it is not difficult to look upon the society as an “institution” within the meaning of s. 13(3)(b) of the Act. Persons who subscribed to the memorandum of association would be described as founders of the society. So far as the contributors are concerned, it was held that they had made substantial contribution. To put differently, it was held that the company could be described as a concern in which persons mentioned in s. 13(3)(a), (b) and (d) had substantial interest. Assessee’s stand that contributions should be relatable only to the previous year in question was not found tenable. So far as s. 13(2)(h) is concerned. It was held that the bonus shares of the company were to be exempted in terms of s. 11 of the Act. On being moved for reference, questions as set out above, have been referred for opinion of this Court.

3. So far as the question referred, at the instance of Revenue is concerned, in view of the decision of this Court in IT Refs. 307 and 308 of 1978 disposed of on 16th Feb., 2001 [reported as CIT vs. Sir Shri Ram Foundation (2001) 167 CTR (Del) 349] the question has to be answered in the affirmative, in favour of the assessee and against the Revenue.

4. So far as the first question referred, at the instance of assessee, is concerned, the question turns round the meaning of the expressions “founder” and “institution.” It is to be noted that the expression “institution” has not been defined. Stroud Judicial Dictionary (Third edition), Volume 2, p. 1471, defines “institution” as follows :

“The word “institution” in the phrase “charitable institution” has been held to mean institutions in the sense in which boards of trade and chambers of commerce are institutions. Such, for example, as a charity organisation society or a society for the prevention of cruelty to children [Minister of National Revenue vs. Trusts & Guarantee Co. (1940) AC 138]. The word denotes as observed by Lord Macnaghten in Mayor of Manchester etc. vs. McAdam 3 Tax Cases 497 (HL) “……. an undertaking formed to promote some defined purpose, having in view, generally, the instructions or education of the public. It is the body (so to speak) called into existence to translate the purpose as conceived in the mind of the founders into a living and active principle.” The word “institution” both in legal and colloquial use, admits of application to physical things. One of its meaning as defined in Websters’ Dictionary is “an establishment, especially of public charter or affecting a community”. The term is sometimes used and descriptive of an establishment or place where the business or operation of a society or association is carried on. At other times, it is used to designate the organised body. Looking to the objects of the society and the manner in which it was constituted and has been run, it is not difficult to look upon it as an “institution” within the meaning of s. 13(3)(b). The word “Founder” again is not defined. One perforce turns to the lexicons. Stroud’s Judicial Dictionary points out : (1) In law there are two manners of foundations……… (a) the incorporation and (b) the first gift of the Revenue is called the foundation, and he who gives it is the “founder” (Sutton’s Hospital 10 Rep. 330).” Much to the same effect is the meaning given in Chambers Twentieth Century Dictionary (1971) which defines the word “founder” as “one who founds, establishes or originates : an endower”. In our view the persons who subscribed to the memorandum of association of the assessee-society could therefore, be described as the “founders” of the assessee-society. The position has been rightly analysed by the Tribunal and, therefore, the answer to the question is in the affirmative, in favour of the Revenue and against the assessee.

5. Second question relates to the scope and ambit of the expression “substantial contribution”. The list of the contributors has been indicated by the AAC and the Tribunal. The total amount of investment was Rs. 5,42,285 by eleven donors. Argument of the assessee was that none of the eleven donors had made a substantial contribution in relation to their financial capacity or in relation to the contributions made by others similarly situated. As the expression “substantial contribution” may mean something quite different to a person who is affluent from what it may mean to a person who is not so. But the language of a taxing statute does not recognise such a differentiation. In the immortal words of Rowlatt, J. in Cape Brandy Syndicate vs. IRC (1921) 1 KB 64 : “In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” The principle has been followed in large number of cases. A few may be noted here. [Aphali Pharmaceuticals Ltd. vs. State of Maharashtra & Ors. AIR 1989 SC 2227, Goodyear India Ltd. vs. State of Haryana & Anr. AIR 1990 SC 781 Sutlej Cotton Mills Ltd. vs. CIT (1990) 90 CTR (SC) 130 : AIR 1991 SC 218, Saraswati Sugar Mills vs. Haryana State Board & Ors. with Upper Doab Sugar Mills Ltd. & Anr. vs. Union of India & Ors. AIR 1992 SC 224, Oswal Agro Mills Ltd. etc. etc. vs. Collector of Central Excise & Ors. etc. etc. AIR 1993 SC 2288, Calcutta Jute Manufacturing Co. & Anr. vs. CTO & Ors. AIR 1997 SC 2920]. Therefore the expression “substantial contribution” has to be understood in its ordinary or popular sense. Out of the 80,000 shares of the company 19,274 shares were held by the founders, substantial contributors and the relatives; the exact figures being 717, 12,174 and 6,383. To put it differently 24.69 per cent of the shares were held by these persons. Tribunal, therefore, rightly held that the persons mentioned in ss. 13(3)(a),(b) and (d) had a substantial interest. Question therefore, has to be answered in the affirmative. In favour of the Revenue and against the assessee.

So far as the third question is concerned, assessee’s stand before the Tribunal was that the contributions in order to become substantial contribution have to be invested during a particular previous year. The language of the provision is crystal clear and it is not permissible to read the expression “during the previous year” into s. 13(3)(b). That being the position, Tribunal was justified in its conclusions. The answer to the question, therefore, is answered in the affirmative, in favour of the Revenue and against the assessee.

All the four reference applications are accordingly disposed of.

[Citation : 250 ITR 64 ]

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