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Commissioner of Income-tax, Bombay City-iv Vs. Gem and Jewellery Export Promotion Council - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 232 of 1973
Judge
Reported in(1983)34CTR(Bom)57; [1983]143ITR579(Bom); [1983]13TAXMAN13(Bom)
ActsIncome Tax Act, 1961 - Sections 2(15), 11(1) and 12(1)
AppellantCommissioner of Income-tax, Bombay City-iv
RespondentGem and Jewellery Export Promotion Council
Excerpt:
.....contributions was clearly justified in..........the object for which it had been sanctioned. the assets acquired wholly or substantially out of government grants-in-aid would not, without the prior sanction of the central govt., be disposed of, encumbered or utilised for purposes other than those for which the grant was sanctioned.2. in the relevant assessment year 1967-68, the previous year corresponding to which ended on march 31, 1967, the assessee-company received rs. 1,00,000 as grants-in-aid from the government subject to the above-mentioned conditions. during that year the company also received subscriptions from its members amounting to rs. 1,19,000. the income and expenditure account for that year showed a surplus of rs. 70,672.33. in the assessment year 1968-69 the excess of income over expenditure was rs. 17,432.49.3......
Judgment:

Chandurkar, J.

1. The assessee is a company established for the advancement of an object of general public utility, i.e., to support, protect maintain, increase and promote exports of gems and jewellery including pearls, precious and semi-precious stones, diamonds, synthetic stones, imitation jewellery, gold, and non-gold jewellery and articles thereof. It was to undertake market studies in individual foreign countries and carry out such other object as may be necessary for the promotion of export of gems and jewellery. There is no dispute that the assessee-company is a company whose income is applicable only to charitable purposes as defined in s. 2(15) of the I.T. Act, 1961. The assessee-company receives grants-in-aid from the Govt. of India. Some of the conditions on which these grants-in-aid are given as follows :

(i) The funds should be kept with the State Bank of India; the total expenditure should not be more than the expenditure approved by the Central Govt. for each protect; separate accounts should be kept for code and non-code projects and the accounts were to be audited by the chartered accountants approved by the Government.

(ii) Any amount unspent was to be surrendered to the Government by the end of the financial year unless allowed to be adjusted against the next year's grant.

(iii) The grant should be spent upon the object for which it had been sanctioned. The assets acquired wholly or substantially out of Government grants-in-aid would not, without the prior sanction of the Central Govt., be disposed of, encumbered or utilised for purposes other than those for which the grant was sanctioned.

2. In the relevant assessment year 1967-68, the previous year corresponding to which ended on March 31, 1967, the assessee-company received Rs. 1,00,000 as grants-in-aid from the Government subject to the above-mentioned conditions. During that year the company also received subscriptions from its members amounting to Rs. 1,19,000. The income and expenditure account for that year showed a surplus of Rs. 70,672.33. In the assessment year 1968-69 the excess of income over expenditure was Rs. 17,432.49.

3. The ITO brought to tax the sum of Rs. 70,672 less a deduction of 25% under s. 11(1)(a) of the I.T. Act, 1961. A similar assessment was also made for the next year.

4. In the appeal against this assessment, the assessee-company took the stand that the grants-in-aid from the Government were in the nature of voluntary contributions and hence exempt under s. 12(1) of the Act. This contention was accepted by the AAC who directed exclusion of the grants-in-aid and amounts received from the Government for working out the surplus under s. 11(1)(a) of the Acts for each of the two years under consideration.

5. The Department filed appeal for these years before the Income-tax Appellate Tribunal and the Department's case was that the grants-in-aid could not be considered as voluntary contribution for the purpose of s. 12(1) of the Act having regard to the fact that the grants were made subject to conditions referred to earlier. The Tribunal confirmed the view of the AAC that the amounts given by the Government were voluntary contributions and were not in the nature of any price paid for any benefit or privilege nor they were for any consideration. The conditions imposed by the Government, according to the Tribunal, did not change the nature of the payment which was initially a voluntary contribution, the order of the AAC was, therefore upheld.

6. Arising out of that order of the Tribunal, the following question has been referred to this court under section 256(1) of the Act :

'Whether, On the facts and in the circumstances of the case, the grants received by the assessee from the Government for each of the years under consideration were voluntary contributions and, therefore, exempt under section 12(1) of the Income-tax Act, 1961 ?'

7. The only argument advanced on behalf of the Revenue by Mr. Joshi is that while making contributions the Government imposed certain conditions and having regard to the fact that the conditions governed the grants, the grants could not to be considered to be a donation or a voluntary contribution or, in other words, it was not a pure and simple gift by the Government. The relevant provisions is in s. 12(1) as it was prior to the amendment by Finance Act of 1972, that provisions reads as follows :

'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 be included in the total income of the trustees or the institutions, as the case may be.'

8. As already pointed out, it is not in dispute that the company in question is one established for charitable purpose. Now it is well known that grants-in-aid are made by the Government to provide certain institutions with sufficient funds to carry on their charitable activities. The institutions or associations to which the grant is made have no right to ask for the grant. It is solely within the discretion of the Government to make grants to institutions of a charitable nature. The Government does not expect any return for the grants given by it to such institutions. There is nothing which is required to be done by these institutions for the Government, which can be considered as consideration for the grant. To borrow the language of the Lord President. In Society of Writers to Her Majesty's Signet v. IRC [1886] 2 TC 257, who was considering the meaning of the words 'voluntarily contributed', in the context of an exemption for property acquired by or with funds voluntarily contributed to any body, corporate or incorporate, within a period of 30 years immediately preceding, in s. 11 of the Customs and Inland Revenue Act, 1885, the meaning of the word 'voluntary' is 'money gifted-voluntarily contributed in the sense of being gratuitously given'. While dealing with the meaning of the words 'voluntarily contributed', the learned Lord President observed as follows (p. 273) :

'In one sense, all money paid willingly, without compulsion, is voluntarily contributed; but that certainly cannot be the meaning of this section. When a man pays his debts, if he is an honourable man, he pays them quite willingly, and not as a matter of obligation only. But as a matter of honour. At all the events he does it quiets voluntarily; and everything that is paid under a contract is paid voluntarily, unless some dispute arises about the meaning or effect of the contract. But surely that is not the meaning of the word 'voluntarily' in this clause of exemption. There is another meaning of the word which seems much more appropriate, and that is, money gifted-voluntarily contributed in the sense of being gratuitously given. Which, then, of these meanings are we to take in the present case I think the meaning of the statute undoubtedly is that, if anybody, any property purchased with that money, if it be given within a certain period, shall be exempt from liability.'

9. It is difficult to see how any of the conditions attached to the grant affects, in the instant case, the voluntarily nature of the contribution. The conditions referred to above and relied upon by the learned counsel for the Revenue are merely intended to see that the amounts are properly utilised. These conditions did not, therefore, detract from the voluntary nature of the grant.

10. Mr. Joshi has relied on a decision in IRC v. National Book League : [1958]34ITR461(Cal) . The National Book League was a company limited by guarantee and was a body established for charitable purposes only. But it had its headquarters in London. The league provided limited club facilities for its members. In December, 1951, the League resolved to increase its then subscriptions of pound 1-1 sh. for London members and 10 sh. 6d. for county members except in the case of members who entered into deeds of covenant to remain members and to pay their annual subscriptions at the then existing rates for a least seven years. More than two thousand members entered into such covenants with the League. The League claimed exemption from tax under s. 447(1)(b) of the Income-tax Act. 1952, for the years 1951-52 and 1952-53 on payments received by the League by virtue of the deeds of covenant. The Special Commissioners held that the benefits given by the League to its members were trifling and illusory and that the League was entitled to exemption from tax.

11. This decision of the Special Commissioners was reversed by Vaisey J. In appeal by the League, the Court of Appeal held that as the benefits conferred on the members by the League were not minimal and negligible and the members, who had entered into these covenants, had not paid the converted sum without any condition or stipulation on the part of the League, such members could not accordingly be treated as donors of the covenanted sums and such sums were not pure income profit in the hands of the charity and were not entitled to exemption from tax.

12. There is hardly any similarly between the facts in that case and the facts in the instant case. It was found in that case that the arrangement brought about the convenient amounted to a contract and that the covenantors would continue to have the advantage of membership at a lower subscription rate than other person and that they would be immune from the possibility of increase of subscription rate during the whole period of the covenant. It is obvious, therefore, that the amounts in question in that case were consideration for those privilege and that is how the sums paid were not held entitled to exemption.

13. The conditions in the instant case, as already pointed out, are merely to see that the funds are properly applied and accounted for. There is no element of any consideration anywhere for the grant. It is clear, therefore, that the finding recorded by the AAC and the Tribunal that the grants-in-aid were voluntary contributions was clearly justified in law.

14. In that view of the matter. The question referred has to be answered in the affirmative and against the Revenue. The question is accordingly answered. The assessee to get costs of this reference.


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