Govinda Bhat, J.
1. The learned Judge set out the statement of the case which ran as follows : The assessment year is 1965-66. the accounting year is the calendar year 1964. the assesse is a public limited company carrying on business in the manufacture and sale of wollen and cotton fabrics. During the accounting year relevent to the assessment year 1965-66, the assesses-company donated cloth manufactured by it to various institutions, to the extent of the value of Rs. 6, 834. the company claimed exception in respect of the sadi donations in 'kind' under section 88 of the Income-tax Act, 1961.
2. The Income-tax Officer disallowed the claim of the assessee as the donation was not made in cash but in kind.
3. The assessee field an appeal to the Appellate Assistant Commissioner of Income-tax, Banglore, who allowed the claim of the assessee.
4. Aggrieved by the order of the Appellate Assistant Commissioner the department filed an appeal to the Appellate Tribunal. It was contended that under section 88 of the Income-tax Act, 1961, rebate is admissible only no donations made in the shape of money payment and not on donations made in kind, Section 88 of the Income-tax Act, it was urged, refers to 'any sums paid.. as donations.'
5. The assessee relied on a decision of the Bombay High Court in the case of Commissioner of Income-tax v. Associated Cement Co. : 68ITR478(Bom) . wherein it was held by thier Lordships that in order that an assessee may be entitled to the rebate under section 15B in respect of 'sums paid as donations' the donations need not be in the shape of actual cash.
6. IN the case the assessee had experience in constructing rotary kilns for cement making. It constructed as a donation, an experimental rotary kiln for the BOmbay University on the request of the University which was carrying on research work in chemicals, at a cost of Rs, 6,000. and claimed rebate in respect of the amount of Rs, 6,000 under section 15B. It was held by their Lordships that rebate was property allowable under section 15B of the Act.
7. The department's stand was that the case stood distinguishable inasmuch as there was a request from the Bomaby University for a rotary kiln. To this the reply of the assessee's; earned counsel was that, in the context of the tax law, the stock-in-trade constituted money and while calculating the total income of an assessee the value of the closing stock has always to be taken into consideration. thus, even if the donation is made in kind there is no escape form this concept and as such the donations made in kind, could well fall within the preview of section 88 of the Income-tax Act, 1961. It was further stated that it was not that the donations were made by the assessee on its own choosing. there was a request made and in pursuance of the request made to the assesses-company cloth was supplied to various institutions, the value whereof amounted to Rs. 6,834. the Appellate Tribunal examined the correspondence, the originals of which were produced before it, and found that it was the actual position. the Appellate Tribunal accordingly held that the assessee's case was covered by the aforesaid decisions, It as held that the assesses -company was entitled to rebate under section 88 of the Income-tax Act.
8. From the aforesaid order of the Appellate Tribunal, the following question of law arises :
'Whether, on the facts and in the circumstances of the case, the donation of cloth of the value of Rs, 6,834 given by the assesses-company was eligible for exemption under section 88 of the Income-tax Act, 1961?'
9. S. R. Rajasekhara Murtyy and Balakrishna for the Commissioner.
10. Hanumantha Rao (for king and partridge) for the assessee.
[After setting out the statement of the case the learned Judge continued.]
11. This is a reference under section 256(1) of the Income-tax Act, 1961, hereinafter called 'the Act', made at the instance of the commissioner of Income-tax, Myasore. the question of law referred for the opinion of this court is :
'Whether, on the facts and in the circumstances of the case, the donation of cloth of the value of Rs, 6,834 given by the assessee company was eligible for exemption under section 88 of the Income-tax Act, 1961?'
12. The assessment year is 1965-66, and the relevant accounting year is the calendar year 1964. the assessee is a public limited company carrying on the business of manufacture and sale of wollen and cotton fabrics. During the relevant accounting year, the assesses-company donated cloth manufactured by it to various charitable institutions of the value of Rs. 6, 834. the assessee claimed exemption in respect of the said amount under section 88 of the Act. the Income-tax Officer disallowed the claim as the donation was not made in cash, but in kind. the Appellate Assistant Commissioner of Income-tax, bangalore, on the apeal preferred by the assesses-company, allowed the claim of the assessee. The said order was affirmed by the Income-tax Appellate Tribunal, Banglore, Bench, following the decision of the Bombay High Court in Commissioner of Income-tax v. Associated Cement Co. Ltd. : 68ITR478(Bom) Sri Balakrishna, learned cousel for the department, relying on the language of section 88 of the Act as it stood at the relevant period, submitted that the decision of the Bombay High Court dose not lay down the correct law. he urged that the expression used in section 88 is 'any sums paid by the assessee in the previous year', and that the said expression cannot comprehened within its ambit donations made in kind.
13. The learned counsel for the assessee invited our attention to the circular dated 14th march, 1960, issued by the Central Board of Revenue which, inter alia, states that :
'The Board has decided that when as assessee makes a donation out of his stock-in trade, for example cloth in the case of textile mills or suger in the case of suger mills, the benefit of section 15B of the 1922 Act may be given to such donations also and that the value of the stock-in=trade donated should be included in the sale and the contra debit to the profit and loss account should be treated as the sum donated.'
14. Sri Balakrishna, learned counsel for the department, invited our attention to a subsequent circular of the Central Board of Direct Taxes dated 17th January, 1964, by which the circular dated 14th march, 1960, has been cancelled, the circular dated march 14m 1960, having been cancelled by the circular dated January 17,1964 the learned counsel for the assessee is not entitled to rely on the earlier since the relevant year of accounting is the calendar year 1964, Sub-section (1) of section 88 of the Act as it stood at the relevant period read thus :
'88. Donations for charitable purposes, etc, - (1) Subject to the provisions of this section, the assessee shall be entitled to a deduction form the amount of income-tax on his total income with which he is chargeable for any assessment year -
(a) where the assessee is a company, of an amount equal to the income-tax calculated at the average rate of income-tax or at the rate of twenty-seven and a half per cent., whichever is less, and
(b) in the case of nay other assessee, of an amount equal to the income-tax calculated at the average rate of income-tax,
(i) as donations to the national Defence fund set up by the Central Government; or
(i-a) as donations to the Jawaharlal Nehru Memorial Fund referred to in the dee of declaration of trust adopted by the national committee at its meeting held on the 17th day of August, 1964;
(i-b) as donations to the prime Minister's Drought Relief fund;
(ii) as donations to any other fund or nay institution to which this section applies' or
(iii) as donations to Government or to nay local authority made on or after the 1st April, 1960, to be utilised for any charitable purpose,'
15. The literal construction of the above provision undoubtedly supports the contention of the learned counsel for the department. But nay such construction would lead to undue hardship in the case of business concerns which make donations out of thier stock-in-trade at the request of the charitable institutions as in the instant case. Sri balakrishna as unable to state as to why parliament should have restricted the rebate to cases where donations are made in cash only nad not to donations made in kind out of the stock in trade of the assessee. If the assessee had given a cheque as donation and for the same amount prepared a bill of sale, it could have obtained the benefit of section 88(1). the decision in Associated Cement Company's case : 68ITR478(Bom) . rendered on 5th October 1967m has held the filed all these years. the department did not take up the matter in appeal to the Supreme Court. the said decision was rendered subsequent to the Board's circular dated January 17, 1964, referred to above, So far as the State of maharashtra is concerned, the Board's Circler dated January 17,1964, can have no validity and it is the decision of the High Court that prevails. As observed by the Bombay High Court, one has to look to the substance of the transaction and the purpose underlying section 88(1) of the Act and if that is done, we have no doubt that the assessee is entitled to the decoction of the sum of Rs. 6,834 which represents the value of the cloth donated to various charitable institutions.
16. In the result, for the reason stated above, we answer the question in the affirmative and in favour of the assessee. The assessee is entitled to its costs. Advocate's fee Rs. 250.
17. Question answered in the affirmative.