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PETITIONER: COMMISSIONER OF TAXES, ASSAM

       Vs.

RESPONDENT: M/S.  JALANNAGAR SOUTH ESTATE LTD.& ORS.

DATE OF JUDGMENT04/08/1971

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. GROVER, A.N.

CITATION:  1971 AIR 2135            1972 SCR  (1)  17

ACT: Assam Agricultural Income-tax Act (Assam Act 9 of 1939)  and Rules  made  thereunder,  s. 8 and r.  2-Contribution  to  a charity  trust-If exemption can be claimed with  respect  to amount. Exemption granted by Assistant Commissioner-Larger deduction claimed by assessee in appeal to Board-Jurisdiction of Board to  express opinion on correctness of finding  of  Assistant Commissioner as to the right to claim exemption.

HEADNOTE: The assessees made donations to a Charity Trust and  claimed that  the amount should be considered as  "amounts  actually spent  for  charitable  purposes" under r. 2  of  the  rules framed  under the Assam Agricultural Income-tax  Act,  1939, and therefore exempt from assessment to tax.  The Income-tax Officer  rejected  the claim but on  appeal,  the  Assistant Commissioner  granted exemption to the extent of 60% of  the amounts  donated.   The Department bad no further  right  of appeal, but the assessees exercised their right of appeal to the Board of Revenue claiming full exemption.  The Board  of Revenue  held that, (1) the assessees were not  entitled  to any  exemption  under  the  Act, but as  the  order  of  the Assistant Commissioner had become final, the assessees  were entitled  to retain the exemption granted; and (2)  even  if they  were entitled to some exemption, what was granted  was more than what they were entitled to. The High Court, on reference, held that : (1) the Board  was not  competent  in  the assessees’ appeal  to  question  the finding  of  the  Assistant Commissioner  that  the  amounts donated  to  the  Charity  Trust  were  actually  spent  for charitable  purposes and (2) the Board was not justified  in holding   that  only  60%  of  the  amounts  donated,   were admissible as deduction Allowing the appeals, HELD : (1) Since there was no right of appeal to the Depart- ment  an  exemption granted by  the  Assistant  Commissioner could  not  be  interfered  with by  the  Board,  but  while considering whether the assessees were entitled to the  full exemption  claimed, the Board had to examine the true  legal position  under  the Act and the rules for  the  purpose  of deciding  the  matter  in issue.  Therefore  the  Board  was competent  to determine whether the  Assistant  Commissioner

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took the correct view in law. [20B-D] (2)Under  r.  2  (1)  read with s. 8 (g)  of  the  Act  an assessee is entitled to deduct from his income only the  sum actually spent by him for charitable purposes as defined  in the  rule.   Assuming  that  an  assessee  may  rely  on  an expenditure through an agency and not 18 by  himself, and that the objects of the Charity  Trust  are charitable purposes as defined, it had to be established  to the satisfaction of the assessing authority that the amounts were  actually  spent for such  charitable  purposes.   Mere contribution to a charity fund would not entitle an assessee to  the  exemption when it was not proved that  the  Charity Trust had in fact expended the amounts donated for any  such charitable purpose. [20G,H;21A-E]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeals No.  1873  to 1876 of 1967. Appeals  by special leave from the judgment and order  dated August 8, 1966 of the Assam and Nagaland High Court in  Ref. Nos. 2 to 4 of 1965. S.T.  Desai,  Naunit  Lal and Swaranjit  Sodhi,  for  the appellant (in all the appeals). M.C.  Chagla,  S. C. Majumdar and R.  K. Jain,  for  the respondents (in all the appeals). The Judgment of the Court was delivered by Hegde  J,-These  appeals  by special leave  arise  from  the decision  of  the High Court of Assam and  Nagaland  in  Tax References Nos. 2 to 4 of 1965 on its file wherein the  High Court  of Assam and Nagaland answered the two  questions  of law  referred to it by the Assam Board of Revenue  under  S. 28(2) of the Assam Agricultural Income-tax Act, 1939  (Assam Act  IX of 1939) (to be hereinafter referred to as the  Act) in  the  negative.   The  two  questions  referred  for  the advisory opinion of the High Court are               (1)Whether  on the  facts and  in  the  cir-               cumstances of the case the Board was competent               in course of appeals preferred by the assessee               to   question   the   finding   of   Assistant               Commissioner  of Taxes to the effect that  the               amount  donated  to Jalan Charity  Trust  were               amounts   actually   spent   for   ’Charitable               purposes’   within   the  meaning   of   Assam               Agricultural Income-Tax Act.               (2)Whether  on  the facts and in  the  circum-               stances of the case the Board was justified in               holding  that only 60 per cent of the  amounts               actually spent by the assessee for ’Charitable               purposes’  from  the Agricultural  income  was               admissible as deduction under Rule 2(2) of the               Rules  framed  under  the  Assam  Agricultural               Income-Tax Act. 19 Aggrieved by the decision of the High Court Commissioner  of Taxes, Assam has brought this appeal. We  shall  now  briefly  set out  the  facts  necessary  for deciding  the points in controversy in these appeals.   Each of  the three assessees with whom we are concerned in  these appeals  had  given certain donations to the  Jalan  Charity Trust in the relevant assessment years, which in the case of two the assessees is 1955-56 and in the case of the third is 1955-56  and  1957-58.  The question  for  consideration  is

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whether  those  donations  can be considered  as  "  amounts actually  spent for charitable purposes under rule  2(1)  of the rules framed under the Act. The  agricultural income of the assessee was computed at  60 per cent of the total net income ascertained, by the Income- tax  Officer under the Indian Income-tax Act, 1922.  ]Before the Income-tax Officer the assessees claimed exemption under S.  15-B  of  the Indian Income-tax Act in  respect  of  the donations made by them to the Jalan Trust, but that  Officer did  not  grant the exemption asked for  but  reserved  that question  for  decision  to a latter date as  he  wanted  to examine  the nature of those donations.  He  determined  the income  of the assessees for the years in  question  without taking  into consideration those donations.  Thereafter  the Agricultural  Income-tax  Officer proceeded  to  assess  the agricultural  income of the assessees.  Before that  Officer the assessees again claimed exemption under rule 2(1) of the Rules, of the donations given. by them to the Jalan  Charity Trust.  That  Officer refused to grant the  exemption  asked for.  Thereafter the assessees took up the matter in  appeal to  the Assistant Commissioner.  The Assistant  Commissioner granted to each of the assessees exemption to the extent  of 60 per cent of the amounts donated.  Then the assessees took up  the  matter  in  appeal to the  Board  of  Re  venue.The Department  had no right to appeal against the order of  the Assistant  Commissioner.  The Board of Revenue came  to  the conclusion  that  the assessees were ’not  entitled  to  any exemption under the Act but all the same as the order of the Assistant  Commissioner  had  become  final  in  respect  of exemption given, the assessees were entitled   to retain the exemption    granted   by   the   Assistant    Commissioner. Alternatively  it also came to the conclusion that even  if the assessees were entitled to any exemption under 20 the Act and the Rules, the exemption granted to them by  the Assistant Commissioner was more than what they were entitled to.   Thereafter the assessees moved the Board to  refer  to the High Court for its. opinion the two questions  mentioned eerlier. There  is  no substance in the first  question  referred  to above.  It is true that the exemption granted by the  Assis- tant Commissioner could not be interfered with by the  Board of Revenue.  But all the same while considering whether  the assessees were entitled to the further exemption claimed  by them  the  Board of Revenue had to examine  the  true  legal position  under  the Act and the Rules for  the  purpose  of deciding the matter in issue before it.  In our opinion  the High Court was wholly in error in opining that the Board  of Revenue  was  not competent to determine the  true  position under  law  in  view  of  the  decision  of  the   Assistant Commissioner.   The  High  Court overlooked  the  fact  that pronouncing  on the, claim made by the assessees before  the Board of Revenue, the Board had to examine the legality  ,of the claim.  It is one thing to say that the Board could  not reverse  the decision of the Assistant Commissioner,  which, had become final but it is entirely a different thing to say that  the  Board was not competent to consider  whether  the Assistant Commissioner took a correct view of the law or not when the true position in law is necessary to be  determined for deciding the issue before it. Now  coming  to  the  second  question  unlike  S.  15-B  of the.Indian  Income-Tax  Act, 1922, which exempts  any  sums, paid to an institution or a fund coming within the scope  of that section upto the prescribed limit, under Rule 2(1) read with S. g(g) of the Act, the assessee is entitled to  deduct

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from  his income only those sums actually spent by  him  for charitable purposes.  Charitable purpose. under that rule is defined as including relief to the poor, education,  medical relief  and the advancement of any other (object  of  public utility. Under  rule  2(1) read with S. 8(g) before an  assessee  can claim  any  exemption,  he  has to  establish  that  in  the relevant year; he had actually spent for one or the other of the charitable purposes mentioned in that rule the amount in respect  of Which he claims examination.  Mere  contribution to’ a fund would not entitle him to the exemption claimed, 21 It  is true that the assessees in these cases are proved  to have  contributed certain amounts to the Jalan  Trust  Fund. It  may also be true-about which we express no  opinion-that the  objects of Jalan Trust are similar to those  mentioned’ in rule 2(i).  But there is no proof in these cases that the Jalan  Trust had expended the amounts donated by the  asses- sees  to  that fund for any charitable  purpose  during  the relevant  years.   From  the materials placed  before  the Court,,  it appears that Jalan Trust had spent in the  years in question. some amounts for charitable purposes.  But  the amount  spent  is  much less than  the  donations  received. Further   the  assessees  have  not  established  any   cor- relationship  between the amounts spent by the  Jalan  Trust and  the amounts donated by them to the Trust.  Under  these circumstances  it is not necessary for us to decide  whether the actual spending referred to in rule 2.(i) must be by the assessees  themselves, or it may also be through some  other agency.   In  our  opinion before the  assessees  can  claim exemption  under  rule, 2(1) in regard to any  amount,  they have  to  establish  to the satisfaction  of  the  assessing authority  that  they  had actually spent  that  amount  for charitable purposes.  No such proof is forthcoming in. these cases. For  the reasons mentioned, above these appeals are  allowed and  the answers given by the High Court are revoked and  in place  of those answers We answer both the questions in  the affirmative and in favour of the Revenue.  The asses-sees to pay costs of the Commissioner-one hearing fee., V.P.S.                            Appeals    allowed. 22