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PETITIONER: M/S. R.B. SHREERAM RELIGIOUS & CHARITABLE TRUST

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX, VIDARBHA, NAGPUR

DATE OF JUDGMENT:       16/07/1998

BENCH: SUJATA V. MANOHAR, S. RAJENDRA BABU

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Mrs. Sujata V. Manohar. J.      The  assessee   M/S.  R.B.   Shreeram   Religious   and Charitable Trust,  the appellant  before us, is a registered public trust.  For the  assessment year 1966-67 the assessee disclosed  in  its  income-tax  return,  a  deficit  of  Rs. 32,126/-. The  Income-tax officer,  however,  added  to  the income of  the assessee  voluntary contributions received by the assessee-trust  amounting to a sum of Rs. 4,55,000/- for the relevant  year. The  Income tax  officer held  that  the voluntary contributions amounting to Rs. 4,55,000/- received by the assessee during the relevant year were not applicable solely for  charitable and  religious purpose  and were also not actually  applied   as such.  In appeal,  the  Appellate Assistant Commissioner  held that  out of  the  sum  of  Rs. 4,55,000/-, a  sum of  Rs.4,00,000/- could not be treated as income  derived   from  voluntary  contributions.  Both  the revenue as well as the assessee filed appeals from the order of the  Appellate Assistant  Commissioner before the Income- tax Appellate  Tribunal. The  Tribunal  allowed  the  appeal filed by  the revenue  and dismissed the appeal filed by the assessee.      At the  instance of  assessee, a  reference was made to the High  Court under  Section 256(1) of the Income-tax Act. The questions before the High Court, as reframed by the High Court in the impugned judgement, were as follows:-      "(1) Whether  on the  facts and  in      the circumstances  of the  case and      having  regard   to  the   relevant      provisions of  the  I.T.  Act,  the      voluntary contributions aggregating      to Rs.  55,000/-  received  by  the      Assessee was  income liable  to  be      taxed under the I.T. Act, 1961?      (2) Whether on the facts and in the      circumstances  of   the  case   and      having  regard   to  the   relevant      provisions   of    the   I.T.   Act      voluntary contributions aggregating      to Rs.  4,00,000/- received  by the

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    assessee was  income liable  to  be      taxed under the I.T. Act, 1961?      (3) Whether on the facts and in the      circumstances of the case voluntary      contributions  aggregating  to  Rs.      55,000/- and  Rs.  4,00,000/-  were      exempt u/s  12(1) of  the I.T. Act,      1961?      (4) Whether on the facts and in the      circumstances  of   the  case   the      Tribunal  mis-directed   itself  in      holding that mere discharge of debt      whether existing  or new during the      year   from    out   of   voluntary      contributions of  Rs. 55,000/-  and      Rs. 4,00,000/- does not render it a      solely      charitable      purpose      admissible to exemption?      (5)  Whether   on  the   facts  and      circumstances of  the case the levy      of interest  under Section  139 and      215  of  the  I.T.  Act,  1961  was      justified in law?"      Question No.  5 is not pressed. The High Court answered the remaining  questions against  the assessee and in favour of the  revenue. Hence the present appeal is filed before us by the assessee-trust.      The amount  of Rs.  4,55,000/-  received  as  voluntary contributions consisted of the following:-      (1) A  cheque for Rs. 25,000/- from      Saraf  Mor   &  Co.   Ltd.,   dated      2.11.65.      (2) A  cheque for Rs. 10,000/- from      M/S. Ferro Alloys Corporation Ltd.,      dated 22.11.65.      (3) A  cheque for Rs. 20,000/- from      R.B.   Shreeram    Durgaprasad    &      Fetehchand    Narsinghdas,    dated      19.11.66.      These  three   cheques  constituted   the  sum  of  Rs. 55,,000/-  received   by  the  assessee-trust  as  voluntary contributions. The  assessee also  had, during  the material period, a  loan account  with M/s. R.B. Shreeram Durgaprasad (mining Firm). Amounts were lent to the assessee by the said mining firm  from time  to time.  At the  beginning  of  the relevant year pertaining to the assessment year 1966-67, the assessee owed  to the  said mining  firm a  sum of  Rs. 7.65 lakhs under  the said loan account. During the relevant year M/s. R.B.  Shreeram  Durgaprasad  &  Fetehchand  Narsinghdas (Export Firm)  gave to  the assessee  a  total  sum  of  Rs. 4,00,000/- which  was shown as debited to the account of the donor Export  firm. The  amount was  transferred to the said mining firm.  By the  transfer of  the said  amount  to  the mining firm,  the liability  of the  assessee-trust  to  the mining firm under the said loan account was reduced. The sum of Rs.55,000/-  was also similarly transferred to the mining firm, thus  reducing the liability of the assessee under the said loan account.      The   Income-tax    officer,   after    examining   the balancesheet of  the assessee for the years 1953-54 to 1966- 67 and  after examining the amounts lent under the said loan account to  the assessee-trust,  held that  out of the total income   earned   by   the   assessee-trust   amounting   to approximately Rs.24,00,000/-  was  these  assessment  years, only a  sum of  Rs.7,12,219/- was  invested in a Dharamshala

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and the  balance amounts  were invested in other properties, advances and investments. The Income-tax officer came to the conclusion that the transfer of sum of Rs. 4,55,000/- to the said mining  firm cannot  be considered  as  application  of money for religious or charitable purposes. The assessee had contended that  the amount received by way of loans from the said mining firm had been utilised for the construction of a Dharamshala. The  Income-tax officer, however, held that the amounts received  as loans  from the  mining  firm  did  not necessarily go  into the  construction of a Dharamshala. The funds of the assessee were allowed to grow side by side with the loans from the mining firm.      Looking to the totality of circumstances the Income-tax officer  gave   a  finding   of  fact   that  the  voluntary contributions were  not solely  applicable to  religious and charitable purposes  and were  not actually applied as such. This finding has been ultimately upheld by the Tribunal. The Tribunal has  also come  to  the  conclusion  that  a  close scrutiny of  the balance-sheet  of the assessee-firm reveals that the  assessee used to transfer a substantial portion of its income  to  an  account  called  Dharamshala  and  other Buildings Fund;  and out  of this  Fund  the  investment  in Dharamshala covered  only a  part of  the amount.  In  these circumstances  the   use  of   voluntary  contributions  for discharge of  liability under  the loan account could not be considered  as  use  of  the  money  solely  for  charitable purposes, especially because a part of the advance which had been repaid  was an  advance of Rs. 2.51 lakhs by the mining firm of  which interest was not charged. In this view of the matter the  Tribunal held  that the  voluntary contributions were not  applicable entirely  for religious  and charitable purposes  and  were  not,  in  fact,  applied  entirely  for religious or charitable purposes. The high court, in view of this finding  of fact,  has come  to the conclusion that the said amount  of Rs.4,55,000/- has been rightly considered as income of the assessee not exempt under Section 12(1) of the income-tax Act as it stood at the relevant time.      Section 12  of the  Income-tax Act  as it  stood at the relevant time  (Prior to  its  amendment  in  1972)  was  as follows:-      Section 12:      "Income of  trusts or  institutions      from  voluntary   contributions-(1)      Any   income   of   a   trust   for      charitable or religious purposes or      of  a   charitable   or   religious      institution derived  form voluntary      contributions and applicable solely      to charitable or religious purposes      shall not  be included in the total      income  of   the  trustees  or  the      institution, as the case may be.      (2)    Notwithstanding     anything      contained in sub-section (1), where      any  such   contributions  as   are      referred to in sub-section (1), are      made to  a trust or a charitable or      religious institutions  by trust or      a    charitable     or    religious      institution to which the provisions      of   Section    11   apply,    such      contributions shall,  in the  hands      of   the   trust   or   institution      receiving  the   contributions,  be      deemed to  be income  derived  from

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    property for  the purposes  of that      section and  the provisions of that      section shall apply accordingly."      The assessee  contends that Section 12(1) refers not to the voluntary  contributions themselves  but to  any  income derived from  voluntary contributions  so received. In other words,  according  to  the  assessee,  the  exemption  under Section 12(1) is applicable to any amount realised as income from  out   of  investment  of  any  voluntary  contribution received  by   the  assessee   during  the  year.  Voluntary contribution itself  is not  income at  all. In support, the assessee  relies  upon  the  definition  of  ’income’  under Section 2(24)  as in  force at  the relevant  time.  Section 2(24) at  the relevant time did not expressly include in the definition of ’income’ voluntary contributions received by a public religious  or charitable  trust.  The  definition  of ’income’ under  Section  2(24)  was,  however,  subsequently amended by  the Finance  Act of  1972 by  including  in  the definition of  ’income’ under  sub-clause (ii)(a) of Section 2(24), voluntary  contributions received  by a trust created wholly or  partly for  charitable or religious purpose or by an  institution   established  wholly  or  partly  for  such purpose. The  amended  definition  also  excluded  from  the definition of  ’income’ those  contributions which were made with a specific direction that they shall form a part of the corpus of  the  trust  or  the  institution.  The  assessee, therefore,  contends   that  Section   12(1)  prior  to  the amendment of 1972 should be interpreted as referring only to any income which accrues to the trust by investing voluntary contributions which it has received.      In order  to examine  whether  this  interpretation  is correct it  is necessary to read Section 12 as a whole. sub- section (1)  of section  12 excludes  from the  income of  a trust for  charitable or  religious purposes, income derived from  voluntary   contribution  and   applicable  solely  to charitable  and  religious  purposes.  However,  under  sub- section (2)  such income will be deemed to be income derived from property  for the  purposes  of  section  11  when  the voluntary contribution  is made by a charitable or religious institution or  trust to  another  religious  or  charitable institution or  trust. Sub-section  (2),  therefore,  is  an exception to  sub-section (1).  The language  of sub-section (2) makes  it clear  that the  subject-matter of sub-section (2) as well as sub-section (1) is the voluntary contribution itself. When  such a  voluntary contribution  is made  to  a religious or charitable trust by another similar trust, then such a  contribution in  the hands  of the  receiving  trust shall be deemed to be its income derived from property under Section 11,  and the  provisions of  Section 11  will apply. Therefore, when  sub-sections (1) and (2) are read together, the phrase  ’income derived  from voluntary contribution’ in sub-section (1)  refers to  income in  the form of voluntary contributions  received   by  the   recipient  religious  or charitable trust.  It has  no reference  to the income which may later on be derived from such voluntary contributions as and when  such contributions  are invested,  as contended by the  assessee.  Also  when  under  section  12(2)  voluntary contribution from one charitable trust to another charitable trust is  treated as  income of  the recipient,  there is no reason why  under section 12(1), voluntary contribution from others to  the charitable  trust should  not be  treated  as income.      In this  connection our  attention has  been drawn to a number of  decisions of  various High  Courts  dealing  with interpretation  of   Section  12(2).  In  the  case  of  Sri

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Dwarkadheesh Charitable Trust V. Income-tax Officer, Company Circle, "C"  Ward, Kanpur  (98 ITR  557), the Allahabad High Court while interpreting Section 12(2) observed that section 12 is  confined to  voluntary contributions  which should be treated as  income. The  Allahabad High  Court was concerned with a  case where the donor specified that the contribution was towards  the corpus  of the receiving trust’s funds. The Allahabad  High   Court  held   that  since   the  voluntary contribution was  made expressly  towards the  corpus of the trust, it  could not  be considered  as income. Hence it was not covered by section 12(2) which covers only income in the form of  voluntary contributions.  The same  view  has  been taken by  the Gujarat  High Court in Commissioner of Income- tax, Gujarat-IV  v. Bal  Utkarsh Society  (119 ITR 137). The Gujarat High  Court, following  the Allahabad  High  Court’s decision in  sri Dwarkadheesh  Charitable Trust  (Supra) has also  observed   that  Section   (12(1)   covers   voluntary contributions which are received as income.  Sub-section (2) would apply if the voluntary contribution is from one public charitable trust  to another.  However, when  the  voluntary contribution  is   expressly  towards   the  corpus  of  the receiving trust,  it  cannot  be  considered  as  income.  A similar view  has been  taken by  the Kerala  High Court  in Commissioner of  Income-Tax V.  Vanchi Trust  & another (127 ITR 227),  and by  the Delhi  High court  in Commissioner of Income-Tax, Delhi-II  V. Eternal  science of  man’s  Society (128 ITR  456). (See  also Sukhdeo  Gharity Estate, Ladnu V. Commissioner of  Income-tax, Rajasthan,  Jaipur 149  ITR 470 [Raj]).      The Madras  High Court  in the  case of Commissioner of Income-Tax, Tamil  Nadu-IV  v.  Shri  Billeswara  Charitable Trust (145  ITR 29)  was also  concerned with a case where a charitable  trust  had  received  a  donation  form  another charitable trust  towards its  corpus. The Madras High Court also held  that this  cannot be  treated as  income  of  the receiving trust. However, in the course of its judgment, the Madras High  Court has  observed that  Section 12(1)  refers only  to   the  income   which  is  derived  from  voluntary contribution i.e.  voluntary  contribution,  when  invested, would fetch income. This income is covered by the provisions of Section  12(1). Therefore,  voluntary contribution itself would not  be income.  These observations  do not seem to be correct since  they do not take into account the language of sub-sections (1)  and (2) of section 12 read as a whole. The definition of  income under  section 2(24) of the Income-tax Act as  it stood  at the  relevant  time  was  an  extensive definition.  Although it did not expressly include voluntary contributions received  by was  of income  by a religious or charitable trust,  as the  definition was not exhaustive, it would cover  income  in  all  forms.  The  fact  that  by  a subsequent  amendment  of  section  2(24),  such  income  is expressly included,  does not  make any  difference  to  the interpretation of Section 12.      Our attention  was also  drawn to  a  decision  of  the Travancore-Cochin High  Court in  the case  of  Rev.  Father Prior,  Sacred  Heart’s  monastery  v.  Income-Tax  Officer, (Ernakulam), and  others (30  ITR 451). That case turns upon the provisions of the Cochin Income-tax Act and the language used  in   the  relevant  sections  therein.  It  does  not, therefore, throw any light on the present question.      Hence Section  12(1) refers  to any income derived by a trust for  religious or  charitable purpose  in the  form of voluntary contributions.   If  such voluntary  contributions are applicable  solely to  charitable or religious purposes, they shall not be included in the total income of the trust.

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Had such  voluntary  contribution  been  considered  as  not income at  all, the  need for  section 12(1)  would not have arisen.      Undoubtedly by  a subsequent  amendment in  1972 to the definition  of   ’income’  under  Section  2(24),  voluntary contributions not  being contributions towards the corpus of such a  trust, are included in the definition of ’income’ of such a  religious or charitable trust. Section 12 as amended in  1972   also  expressly   provides  that   any  voluntary contribution received by a trust for religious or charitable purposes, not  being contribution  towards the corpus of the trust, shall, for the purpose of Section 11, be deemed to be income derived  from property  held by  the trust wholly for charitable or  religious purposes.   This, however, does not necessarily imply  that prior  to the  amendment of  1972, a voluntary contribution  which was  not towards the corpus of the receiving  trust, was not income of the receiving trust. It was.   Even  prior prior  to the  amendment of  1972, any income received  by a  religious or  charitable trust in the form of  a voluntary  contribution would  be income  of  the trust unless  such contribution  was expressly  made towards the corpus  of the  trust’s fund.   Section  12,  therefore, prescribed that  such income  would not  be included  in the total income  of the  trust if  it was  applicable solely to charitable or  religious purposes.   It  would, however,  be treated as  income from  property under  Section 11 if it is received from another charitable or religious trust.      The assessee  has relied  upon a  departmental circular No.20/10/67-IT(AI) dated 1.5.1967 which deals with exemption of income  of a  charitable trust under Section 11(1) of the Income-tax Act,  1961.   Departmental circular,  inter alia, states  that   provisions  of  Section  11(1)  will  not  be applicable to  capital receipts.   It states, "The donations received by charitable trust from the members of the public, being capital  receipts, cannot be regarded as income of the trust.   Accordingly, the  donations received  by the  trust should be  excluded from  the income  of the  trust for  the purpose of calculating the accumulation limit of 25 per cent except in  cases covered by Section 12(2) of Act"  The Board circular was  not dealing  with Section  12.  It was dealing with  the  application  of  Section  11(1).    The  Circular correctly pointed  out that Section 11(1) would be attracted to cases  covered under section 12(2).  Under Section 12(1), as it  stood then,  income by  way of voluntary contribution was totally  exempt provided it was applicable for religious or charitable purposes.  The Board Circular, therefore, must be read  only as  interpreting  Section  11(1)  and  not  as interpreting Section  12(1) which was not the subject-matter of the Board Circular.      To get  the benefit  of Section 12(1), the assessee was required to  show that  the voluntary  contribution which it had  received   was  applicable   solely  for  religious  or charitable purposes.   The  Tribunal, as  well as  the  High Court,  relying  upon  the  Tribunal,  have  held  that  the voluntary contribution  amounting to  Rs.4,55,000/- was  not applied and  was not  wholly  applicable  for  religious  or charitable purposes.   In  this  view  of  the  matter,  the assessee, on  the facts  of the present case, cannot get the benefit of Section 12(1).      The appeal  is,  therefore,  dismissed.    There  will, however, be no order as to costs.