Gujarat H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 57,754could not be brought to tax as capital gains in the hands of the assessee ?

Counsel Appeared

S.N. Shelat with G.N. Shah, for the Revenue : K.H. Kaji, for the Petitioner

AHMADI, J. :

This reference at the instance of the Revenue raises the following two question for our determination: “

(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 57,754could not be brought to tax as capital gains in the hands of the assessee ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to relied under s. 80G in respect of donation of 150 shares of Alembic Chemical Works co. Ltd. of the value of Rs. 1,70,000 to the two trusts Arogyavardhini Trust and Ujjwal Trust ?”

A few facts which have relevance may now be set out. The assessee, Dhirajben, was carrying on business in partnership with her husband and son in the name and style of Nirayu Associates w.e.f. 1st January, 1970. She had 10per cent share in the profits and losses of the partnership, the remaining 90per cent share being equally divided between her husband and son. The capital was also contributed by the partners in the ratio of their shares in the profits and losses of the firm. The firm, which was orginally established to start a brewery, decided some time in 1972 to deal in shares for which additional capital was brought in by the partners in the ratio of their shares in the partnership business. The assessee brought 206 shares of Alembic Chemical Works Co. Ltd. and 366 shares of Alembic Glass Industries Ltd. by way of her share in the capital of the firm. On the basis of the market value of these shares, the ITO worked out the capital gains at Rs. 57,754 and brought the daid amount to tax. The AAC agreed with the view taken by the ITO and dismissed the assessee’s appeal in this behalf. The Tribunal, however, came to the conclusion that there was no “transfer” within the meaning of s. 2(47) of the IT Act, 1961 (hereinafter called “the Act”) as no consideration was received by the assessee or had accured to her within the meaning of s. 48 of the Act and hence no taxable capital gain had resulted to the assessee. The assessee’s appeal was therefore, allowed.

Question No. (1) referred to us concerns this view of the Tribunal which is challenged in this reference by the Revenue.

So far as the first question is concerned, we must answer it in the negative, that is, in favour of the Revenue and against the assessee as it is common ground that the point is covered by the decision of a Division Bench of this Court in CIT vs. Kartikey Sarabhai (1981) 24 CTR (Guj) 184 : (1981) 131 ITR 42.

The facts which have given rise to question No. (2) reproduced earlier are that the assessee, Dhirajben, donated shares of the value of Rs. 1,70,000 to the two trusts in question in the asst. yr. 1972-73, corresponding to accounting year ending on March 31, 1971, and claimed a deduction in respect of the said donation under s. 80G of the IT Act, 1961. The ITO came to the conclusion that donation in kind did not qualify for deduction under s. 80G of the Act, since what was transferred to the two trusts were shares and not money. The AAC. in appeal (the copy annexed in the paper book of the AAC’s order relates to some other case but we were given a typed copy of the AAC’s order by the learned counsel for the assessee at the hearing of this reference and we have taken the same on record), after referring to the decisions in CIT vs. Associated Cement Co. Ltd. (1968) 68 ITR 166 (Bom) and CIT vs. Bangalore Wollen, Cotton and Silk Mills Co. (1973) 91 ITR 166 (Mys) and CIT vs. Amonbolu Rajiah (1976) 102 ITR 403 (AP), came to the conclusion that donation in kind would qualify for deduction under s. 80G of the Act and accordingly allowed the appeal and granted the deduction sought. 5. The Revenue filed cross- objections in the appeal filed by the assessee in so far as the point raised in question No. (1) is concerned and the Tribunal in appeal held that donation in kind did not disqualify the assessee from claiming relief under s. 80G of the Act. It is this view, which found favour with the AAC as well as the Tribunal, that is challenged by the Revenue in this reference.

The relevant part of s. 80G reads as under: “80G (1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section,— (i) in a case where the aggregate of the sums specified in sub- s. (2) includes any sum specified in sub-cl. (vii) of cl. (a) thereof, an amount equal to the whole of such sum plus fifty per cent. of the balance of such aggregate ; and (ii) in any other case, an amount equal to fifty per cent. of the aggregate of the sums specified in subs. (2). (2) The sums referred to in sub-s. (1) shall be the following, namely :— (a) any sums paid by the assessee in the previous year as donations to ……… (iv) any other fund or any institution to which this section applies….”

6. There is no dispute that the trusts to which donations are made are institutions to which s. 80G applies. Explanation 5 was added at the foot of s. 80G by the Finance Act, 1976, w.e.f. 1st April, 1976. The said Explanation reads us under : Explanation 5.—For the removal of doubts, it is hereby declared that no deduction shall be allowed under this section in respect of any donation unless such donation is of a sum of mooney .”

7. The learned counsel for the Revenue vehemently contended before us that this Explanation was brought on the statute book of clear the doubt that had arisen because of some judicial pronouncements which had taken the view that donations in kind would qualify for deduction under s. 80G of the Act. In this connection he invited our attention to para. 61 of the memorandum explaining the provisions of the Finance Bill, 1976, which reads as under (1976) 102 ITR (ss.) 178, 193) : “61. Donations in kind not to qualify for tax concession.—Donations made to certain funds, charitable institutions, etc., qualify for tax concession under s. 80G of the IT Act. The deduction under this section is available in respect of the ‘sums’ paid by the taxpayer to funds, charitable institutions, etc., referred to in that section, and not to donations in kind. The existing provisions in s. 80G of the IT Act have, however, been interpreted in certain judicial pronouncements to include even donations in kind. As donations in kind were not intended to qualify for this concession, it is proposed to make a provision for the removal of doubts clarifying that no deduction will be allowed under s. 80G unless the donation is a sum of money, that is to say, it is made in cash (or be cheque, bank draft, etc.) and not in kind.” Paragraph 62 of the said memorandum says that the proposed amendment will take effect from April 1, 1976. It was, therefore,argued by the learned counsel for the Revenue that as the proposed amendment was brought to remove the doubt which certain judicial pronouncements had created and was clarificatory in nature, it must be held to have retrospective effect and, therefore, according to the learned counsel, only donations in cash would qualify for tax concession under the said provision.

The key words in sub-s.(2) of s. 80G are “any sums paid by the assessee……as donations.” According to the dictionary meaning, the word “sum” in the context would mean an amount expressible to the currency of the country or a quantity of money. Thus, on a plain reading of sub s. (2) of s. 80G the irresistible conclusion is that the concession would be admissible only if the donation is in a sum of money and not in kind. The AAC as well as the Tribunal have, however, came to the conclusion that donation in kind would qualify for deduction under s. 80G on the basis of the three decisions referred to earlier. We shall now proceed to consider if the authorities below had correctly read the decisions on which they based their conclusion that donations in kind would qualify for concession or deduction under s. 80G of the Act.

10. The Bombay High Court on CIT vs. Associated Cement Co. Ltd.(supra), was concerned with the claim of deduction under s. 15B of the Indian IT. Act, 1922. In that case the University of Bombay through its Department of Chemical Technology wrote on December 26, 1962, to the chairman of the board of directors of the assessee- company a letter saying that their professor of chemical engineering was carrying out important laboratory experiments on certain chemicals and for that purpose he desired to institute pilot plant experiments on the problem. One of the items of the pilot plant was a “rotary experimental kiln” and in connection with that, the letter stated, that he had learnt that the assessee-company fabricated all their rotary kilns for cement making in their own workshop. He requested that the directors of the assessee-company should be persuaded to arrange for the fabrication of a small rotary experimental furnace for the university Department to enable them to complete an investigation of national importance which was in progress. In response to this request the board of directors of the assessee-company passed a resolution of June 26, 1953, sanctioning a sum of Rs. 5,000 for the “pilot kiln- Department of Chemical Technology, University of Bombay”. The preparation of the pilot kiln, however, cost Rs. 6,600 and hence for the extra cost of Rs. 1,600, a second resolution was passed by the assessee-company sanctioning the said amount. By these two resolutions the assessee-company sanctioned a total sum of Rs. 6,600, being the cost of the pilot kiln, manufactured for the university Department. They claimed a rebate for this expenditure under s. 15B of the Indian IT Act, 1922. The ITO held that it was not admissible but the AAC, in appeal, set aside the said order, holding that the donation either in cash or in kind would entitle the assessee to rebate. The Tribunal upheld this view of the AAC. On behalf of the Department emphasis was placed on the words “any sums paid by him…… as donations” appearing in s. 15B of the Indian IT Act, 1922, which words are also reproduced in sub-s. (2) of s. 80G of the IT Act, 1961, and it was argued that since what was transferred to the University Department was a pilot-kiln, it was not donation in a sum of money but donation of movable property and, therefore, the assessee-company was not entitled to the concession sought under the said provision. Their Lordships of the Bombay High Court observed that the contention. advanced placed reliance upon the very words of the section and was to that extent extremely technical but their Lordships said (at p. 485 of 68 ITR) “……if one were to look to the substance of this transaction, there is no doubt that in substance what the assessee- company gave to the University of Bombay was ultimately a sum of Rs. 6,600.” It was pointed out that if, instead of passing the two resolutions, which the assessee-company did and then undertaking the preparation of the kiln and supplying the kiln to the University, the assessee had made out a cheque for that amount, handed it over to the University, got it reendorsed in their favour and then had undertaken the preparation of the kiln, the Department would not have had any objection to the claim of concession made by the assessee-company. It is, therefore, clear from this decision that according to their Lordships in substance what was donated to the University was a sum of Rs. 6,600, and not movable property although the assessee-company undertook the job of manufacturing the pilot- kiln out of the said amount of Rs. 6,600 for the University. That is why in the concluding part of the judgment it is observed (at p. 486) : “In our opinion, looking to the substance of this transaction there is no doubt that the sum of Rs. 6,600 was paid by the assessee-company as a donation to the University of Bombay.” It is obvious from this observation that according to their Lordships of the Bombay High Court, the expression “any sums paid” would mean payment in cash and since, having regard to the nature of the transaction, in substance it was a transaction whereby a sum of Rs. 6,600 was paid by the assessee-company as donation to the University, it was held that the assessee was entitled to the concession under s. 15B of the Indian IT Act, 1922. This decision is not an authority for the proposition that the expression “any sums paid” would also take within its fold payment made in kind.

11. In CIT vs. Bangalore Wollen Cotton and Silk Mills Co. (supra), the assessee, a public limited company, carrying on business in the manufacture and sale of wollen and cotton fabrics, donated cloth manufactured by it of the value of Rs. 6,834 to different institutions. The assessee-company claimed exemption in reespect of the said donations under s. 88 (now s. 80G) of the IT Act, 1961. The ITO disallowed the claim on the ground that the donation was not in cash but in kind. The AAC, however, allowed the assessee’s claim. The Tribunal relied on the decision in Associated Cement Company’s case (supra) and held that the assessee-company was entitled to rebate. The High Court of Mysore answered the question raised for determination in favour of the assessee, inter alia, on the ground that the decision in Associated Cement Company’s case (supra), rendered on October 5, 1967, had held the field for several years and the Department had not chosen to carry the matter in appeal to the Supreme Court. It also endorsed the view that for the purpose of determining whether an assessee is entitled to rebate for the donation given by it, one has to look to the substance of the transaction and if the substance of the transaction reveals that what is donated is a sum of money, the rebate must be granted to the assessee.

12. Again, in CIT vs. Amonbolu Rajiah (supra), this question raised its head in the backdrop of the fact that the assessee, by arrangement with the zilla parishad, agreed to donate necessary funds in order to construct a school building on a piece of land owned by the zilla parished on which it intended to construct a patashala. A contractor was appointed for constructing a school building on the land and the assessee from time to time advanced various amounts to the said contractor to meet the cost of construction of the school building. Between April 13, 1964, and October 28, 1964, a total sum of Rs. 16,557 came to be advanced by the assessee for the said purpose. This amount was debited by the assessee to the school account. The zilla parished took possession of the school building from the contrator and started a girls school therein. For the amount of Rs. 16,557 paid by the assessee from time to time to meet the cost of construction of the school building, the assessee claimed exemption from tax under s. 88 of the IT Act, 1961. The ITO as well as the AAC rejected the claim on the ground that only donation in cash would attract s. 88 of the Act and since in the instant case what was donated was the superstructure raised on the zilla parishad’s land,it could not be said that the donation was in cash. The Tribunal, on appeal took a contrary view. It held that in fact and in substance, the donation was made in cash and, therefore, it squarely fell within the purview of s. 88 of the Act. On a reference to the High Court, their Lordships, after reproducing s. 88 of the Act, observed that even a casual reading of this provision would indicate that in order to attract the provisions of s. 88, what must have been paid should be “sums” which can only mean payment in cash. After pointing out the dictionary meaning of the word “sum”, their Lordships made the following observations :”Thus, a plain reading of the section would only mean that it is only in a case where any sum is paid by way of donation to a local authority that the assessee would be entitled to rebate. On the other hand, if he donates a building or a thing which may have money value, merely because that donation is in kind it cannot be brought within the fold of s. 88. The conclusion of the Tribunal, therefore, that donation in kind is not precluded for the purpose of allowance of rebate in terms of s. 88 of the Act cannot be said to be correct. It is contrary to the plain language of s. 88.”

After referring to the Bombay High Court decision in Associated Cement Company’s case (supra), their Lordships observed that it was not possible to deduce from the observations made in that judgment that a donation in kind can also earn rebate under s. 88 of the Act. On the facts of the case before the Bombay High Court, what was held was that in substance the transaction was a money transaction and what was donated was a sum of Rs. 6,600 and not in kiln. Referring to the headnote in the Bombay decision, which reads: “Held also, that in order that an assessee may be entitled to the rebate under s. 15B in respect of ‘sums paid as donations’, the donations need not be in the shape of actual cash.”

13. Their Lordships observed as under (p.406 of 102 ITR): “With due respect to the author who gave that heading to that judgment, we are bound to say that it is misleading. The learned judges have not said anything of that kind. The judgment, on the other hand, on facts, found that it was cash which was donated and not a kiln. We do not, therefore, agree with the view taken by the Tribunal that even if it be taken that the donation was of the building itself after having been constructed by the assessee, the rebate would still be admissible.”

14. Strong exception has been taken in a subsequent decision of the Bombay High Court in CIT vs. Trap (India) (P) Ltd. (1979) 118 ITR 525 (Bom), to the aforesaid observations made in regard to the headnote in Associated Cement Company’s case (supra), in the following words (p. 529 of 118 ITR): “Accordingly, the Division Bench of the Andhra Pradesh High Court held that, under s. 88 of the IT Act, 1961 (now s. 80G), in order to claim the benefit of the section, the donation to the Government or local authority must be given in cash and not in kind. It may be mentioned that the reference was from the decision of the Tribunal which had applied CIT vs. Associated Cement Company’s case (supra) and observed that donation in kind was not precluded for the purpose of allowance of rebate under s. 88 of the Act. With respect to the learned judges of the Andhra Pradesh High Court which constituted the Division Bench, it would appear to us that it was not the Tribunal or the person who prepared the headnote who had misread the decision of the Bombay High Court in CIT vs. Associated Cement Company’s case (supra), but the learned judges of the Andhra Pradesh High Court. In Associated Cement Company’s case the Division Bench of the Bombay High Court had expressly observed at a number of places in the judgment and found that the assessee had spent Rs.6,600 out of its own coffers, prepared the kiln and then handed over the kiln to the university pursuant to the earlier request made by the university for the donation of the kiln. It is impossible to read Associated Cement Company’s case and to hold that it was found as a fact that Rs. 6,600 were handed over to the university.”

15. In a subsequent decision the same Division Bench of the Bombay High Court in CIT vs. Khandelwal Laboratories (P) Ltd. (1979) 12 CTR (Bom) 239 : (1979) 118 ITR 531, reiterated its view that the decision of the Andhra Pradesh High Court in Amonbolu Rajiah’s case (supra) proceeded on a fallacious reading of the decision of the Bombay High Court in Associated Cement Company’s case (1968) 68 ITR 478 (Bom). With respect to the learned judges constituting the Division Bench of the Bombay High colurt we are unable to agree that in Associated Cement Company’s case, the High Court reached the conclusion that even donation in kind would attract the concession admissible under s. 15B of the Indian IT Act, 1922. If such was the view of the Bombay High Court in the said case, there was no point in examining the facts of the particular case for the purpose of finding out the substance of the transaction. It was only because their Lordships were of the opinion that on a plain reading of the section, donations in cash only would qualify for rebate under s. 15B that they examined the substance of the actual transaction and ultimetely came to the conclusion that looking to the substance of the transaction “there is no doubt that the sum of Rs. 6,600 was paid by the assessee-company as a donation to the University of Bombay.” In our opinion, the Bombay High coourt in Associated Cement Company’s case did not lay down that even transactions in kind would entitle an assessee-company to rebate under s. 15B of the Indian IT Act, 1922. Although the headnote reproduced from Associated Cement Company’s case, does not in terms state that donations in kind would entitle the donor to rebate , it tends to create the impression because of the use of the words “the donations need not be in the shape of actual cash”, that it can be in kind also. We are of the opinion that the Andhra Pradesh High Court correctly read the ratio of the decision of the Bombay High Court iin Associated Cement Company’s case (supra), and we are in respectful agreement with the view expressed by them in Amonbolu Rajiah’s case (supra).

16. A Division Bench of this Court in Saurashtra Cement & Chemical Industries Ltd. vs. CIT (1979) 11 CTR (Guj) 129 : (1980) 123 ITR 669, had an occasion to consider the question of rebate under s. 80G of the Act in the background of the following facts. The assessee-company which was engaged in the manufacture of cement donated cement bags worth Rs. 1,051 to public charitable trust in Baroda and claimed rebate under s. 80G of the Act. The claim was disallowed by the ITO on the ground that the donation was in kind and not in cash as required by s. 80G of the Act. The AAC upheld the claim as in his opinion the assessee would have been entitled to deduction if it had made a cash donation instead of donating cement bags. The Tribunal also upheld the assessee’s contention and confirmed the order of the AAC. The Revenue contended before the High Court that the order of the AAC as well as the Tribunal could not be sustained because the donation of cement bags to the charitable institution being a donation in kind could not fall within the purview of s. 80G of the Act. Relying on the decision in Associated Cement Company’s case (supra), this Court held that the transaction in substance was a money transaction and the donation was virtually a donation in cash and thereupon upheld the view taken by the Tribunal as in its opinion the said view was not unreasonable or perverse.

From the resume of the case law discussed above it becomes crystal clear that the provisions of 80G of the Act would be attracted only if the donation is in cash and not in kind. However, in order to decide whether a donation is in cash or in kind, the Court must look to the substance of the donation and not merely to the form in which it is made. If on the facts, having regard to the substance of the transaction, the Court is satisfied that it is essentially a donation in cash, the rebate under s. 80G would be admissible to the assessee. If it is a donation in kind, pure and simple, it would clearly fall outside the purview of s. 80G of the Act. None of the decisions cited above took the view that a transaction of donation in kind would qualify for rebate under s. 80G if the Act. If such was the view of the Bombay High Court in Associated Cement Company’s case (1968) 68 ITR 478, there was no need for the Court to examine the substance of the transaction for the purpose of deciding whether it was a transaction in cash. It was only after the Court came to the conclusion that in substance it was a transaction in cash that it had upheld the assessee’s claim for rebate under s. 15B of the Indian IT Act, 1922. The Mysore High Court as well as the Andhra Pradesh High Court have followed the view expressed by the Bombay High Courts in the aforesaid case. They too have taken the view that if it is found that in substance the transaction is a money transaction, the provisions of s. 88 (now s. 80G) of the IT Act, 1961, would be attracted. However, it does appear from para. 61 of the memorandum explaining the provisions of the Finance Bill, 1976, that an impression was created that the judicial pronouncements went to the length of saying that even donations in kind would fall within the purview of s. 80G of the Act. According to the observations of the Andhra Pradesh High Court we are of the opinion that none of the judicial pronouncements, referred to earlier, have laid down in categorical terms that donations in kind fall within the purview of s. 80G of the Act. All that the decisions have stated is that the Courts must examine the substance of the donations and if on an examination of the relevant evidence it finds that the donation is of a sum of money, it may grant rebate sought by the assessee. The insertion of Expln. 5 by the Finance Act, 1976, w.e.f. 1st April, 1976, was merely to clarify this doubt which had arisen on account of an erroneous reading of the judicial pronouncements on the pointed. Assuming for the sake of argument that Expln. 5 is retrospective in effect, as contended by the learned counsel for the Revenue, it does not alter the position inasmuch as even before the insertion of the Explanation the view was that only donations in cash would qualify for rebate under s. 80G of the Act. We therefore, do not consider it necessary to examine in detail the contention of the learned counsel for the Revenue that Expln. 5 inserted by the Finance Act, 1976, has retrospective application. Even without the insertion of Expln. 5, as pointed out earlier, Courts have taken the view that s. 80G is attracted only if the donation is in cash and not in kind. The only rider the Courts placed was that before concluding whether the donation in question was in cash or in kind, the substance of the donation should be looked into and if it is be extended to the assessee.

In the instant case the AAC as well as the Tribunal have taken the view, with respect, on an erroneous reading of the decision in Associated Cement Company’s case (supra) as well as the subsequent two decisions, that a donation in kind would entitle an assessee to rebate under s. 80G of the Act. In our view, that conclusion recorded by the AAC as well as the Tribunal is erroneous in law. The statement of the case does not disclose a finding of fact that the transaction or donation was in substance in cash. The facts merely disclosed that shares worth Rs. 1,70,000 were donated by the assessee to the two trusts in question. In the absence of a finding of fact that the donation in substance was a donation in cash, the ratio of Associated Cement Company’s case (supra) cannot be involved in aid of the assessee. The question formulated for our opinion also speaks of donation of 150 shares of Alembic Chemical works co. Ltd. of the value of Rs. 1,70,000 to the two trusts in question. Throughout, the submission before the authorities below has been on the premise that donation in kind also would qualify the assessee for rebate under s. 80G of the Act.

Therefore, it was not contended by the assessee before the authorities below that in substance the donation was in cash and the statement of the case also does not bring into focus any such contention having been raised before the authorities below by the assessee. This is, therefore, in our opinion, the ratio in Associated Cement Company’s case (supra) and the subsequent two decisions cannot come to the rescue of the assessee. We are, therefore, of the opinion that both the AAC as well as the Tribunal were in error in holding that donation in kind would also qualify the assessee for rebate under s. 80G of the Act. We, therefore, answer question No. (2) in the negative, that is, against the assessee and in favour of the Revenue.

Before we part, we must mention that the learned counsel for the assessee desired that the assessee should be given am opportunity to prove that in substance the donation was in cash and not in kind. We are afraid we cannot permit the assessee to make out a totally new case at this belated stage which would run counter to the stand taken before the authorities below. The statement of case clearly shows that the assessee donated shares and not cash.

We therefore, cannot accede to the assessee’s request to permit her to a second round of litigation by remanding the case with a view to giving her an opportunity to make out a case, hitherto not pleaded, that the donation, though ex facie of shares, was in substance of cash.

For the above reasons, both the questions formulated by the Tribunal for our opinion reproduced earlier are answered in the negative, that is, aginst the assessee and in favour of the Revenue and the reference is disposed of accordingly with costs.

[Citation : 141 ITR 875]