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Hyderabad Race Club Vs. Addl. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 136 of 1976
Judge
Reported in[1979]120ITR185(AP)
ActsIncome Tax Act, 1961 - Sections 80G(1), 80G(2) and 80G(4)
AppellantHyderabad Race Club
RespondentAddl. Commissioner of Income-tax
Appellant AdvocateS. Parvatha Rao, Adv.
Respondent AdvocateP. Rama Rao, Adv.
Excerpt:
.....taxation - assessment - sections 80 g (1), 80 g (2) and 80 g (4) of income tax act, 1961 - out of total income of rs. 403084 appellant paid a sum of rs. 80000 to andhra pradesh police families welfare fund and claimed a deduction of 55% of this amount which would come to rs. 44000 - income tax officer declined to give this relief and reduced deducted amount to rs. 22169 - in appeal contention of appellant was upheld and deduction of rs. 40308.40 was allowed - in further appeal appellate tribunal revived order of income tax officer - whether appellate tribunal was correct in holding that in terms of sub-section (4) appellant was entitled to deduction of a sum of rs. 22169 only being 55% of 10% of total income - while computing total income of an assesse and for arriving at deductible..........1961, the assessee was entitled to deduction of a sum of rs. 22,169 only being 55% of 10% of the total income? ' 2. this question arose while making the assessment for the assessment year 1969-70. therefore, the question will have to be answered in the light of the law as it then existed. we are not concerned with the later amendments to section 80g. 3. a plain reading of the section itself leads to no alternative but to answer the question in favour of the assessee and to hold that he was entitled to deduction of a larger sum than rs. 22,169. the tribunal was clearly wrong in taking the view that sub-section (4) of section 80g entitled the assessee to a deduction of only 55% of 10% of the total income. 4. the material facts and figures may be briefly noted. the assessee is the.....
Judgment:

A. Sambasiva Rao, C.J.

1. The question which the Income-tax Appellate Tribunal has referred to the High Court at the instance of the assessee is :

' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in holding that in terms of Sub-section (4) of Section 80G of the Income-tax Act, 1961, the assessee was entitled to deduction of a sum of Rs. 22,169 only being 55% of 10% of the total income? '

2. This question arose while making the assessment for the assessment year 1969-70. Therefore, the question will have to be answered in the light of the law as it then existed. We are not concerned with the later amendments to Section 80G.

3. A plain reading of the section itself leads to no alternative but to answer the question in favour of the assessee and to hold that he was entitled to deduction of a larger sum than Rs. 22,169. The Tribunal was clearly wrong in taking the view that Sub-section (4) of Section 80G entitled the assessee to a deduction of only 55% of 10% of the total income.

4. The material facts and figures may be briefly noted. The assessee is the Hyderabad Race Club which is an association of persons and for the assessment year 1969-70 it was assessed as such. The total income of the club computed for the assessment year was Rs, 4,03,084. It is seen from the statement of the case that the club paid a sum of Rs. 80,000 to the Andhra Pradesh Police Families Welfare Fund. The Tribunal found that this donation comes within the scope of Sub-clause (iv) of Clause (a) of Sub-section (2) of Section 80G. The club claimed a deduction of 55% of this amount which would come to Rs. 44,000. However, in view of Sub-section (4), which limits the deduction to 10% of the gross total, the club limited its claim for deduction only to Rs. 40,308'40 which is 10% of its total assessed income of Rs. 4,03,084. The ITO declined to give this relief. He reduced the deductible amount to Rs. 22,169 holding that the assessee-club was entitled only to a deduction representing 55% of 10% of its total income. In appeal, the AAC rejected this view and upheld the assessee's contention and claim and allowed deduction of Rs. 40,308.40. In further appeal, the Appellate Tribunal reversed this decision of the AAC, revived that of the ITO and reduced the deductible amount to Rs. 22,169, The Tribunal pointed out that the donation made by the assessee comes under Section 80G of the I.T. Act. In its view, though Section 80Gsays that the assessee is entitled to a deduction of 55% of the aggregate sums specified in Sub-section (2), that will have to be computed in the manner indicated in Sub-section (4). Sub-section (4) in its turn limits the amount of donation for the purpose of calculation of the deduction allowable under Sub-section (1). Without saying anything further and without giving any more reasons, the Tribunal came to the conclusion that the ITO was quite right in restricting the admissible deduction to 55% of 10% of the total income as, it thought, was limited by Sub-section (4).

5. Sri Parvatha Rao challenges the correctness of the construction laid by the Tribunal on Section 80G and particularly on Sub-section (4). According to him, Sub-section (1), as it stood in the assessment year 1969-70, permits deduction of an amount equal to 55% in the case of assessees like the present assessee. That 55% is of the aggregate of the sums specified in Sub-section (2). The aggregate of the sums which come under Sub-section (2) donated by the assessee-club during the assessment year was Rs. 80,000. But Sub-section (4) puts a ceiling on the deduction permissible under Sub-section (1) in so far as the donations which come under Sub-Clauses (iv) and (v) of Clause (a) and Clause (b) of Sub-section (2) at 10% of the gross total income or two hundred thousand rupees whichever is less. Since 55% of the donation of Rs. 80,000 is Rs. 44,000 which is more than 10% of the gross total income of the assessee for that year, the assessee is entitled to a deduction of Rs. 40,308.40 which is 10% of the gross total income.

6. On the other hand, Sri P. Rama Rao, learned standing counsel for the revenue, contends that Sub-section (4) of Section 80G must be read independently of Sub-section (1). Thus read, so argues the learned standing counsel, it follows that only 55% of 10% of the gross total income can be deducted.

7. We cannot accept the revenue's contention. We are firmly of the opinion that the Tribunal has misconstrued the scope of Sub-sections (1), (2), (3) and (4) of Section 80G. Section 80G is under the caption ' Deduction in respect of donations to certain funds, charitable institutions, etc.', Sub-sections (1), (2), (3) and (4), which are material for the present consideration, are as follows :

' 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, an amount equal to,--

(a) where the assessee is a company, fifty per cent., and

(b) in the case of any other assessee, fifty-five per cent., of the aggregate of the sums specified in Sub-section (2).

(2) The sums referred to in Sub-section (1) shall be the following, namely :--

(a) any sums paid by the assessee in the previous year as donations to-

(i) the National Defence Fund set up by the Central Government; or

(ii) the Jawaharlal Nehru Memorial Fund referred to in the Deed of Declaration of Trust adopted by the National Committee at its meeting held on the 17th day of August, 1964; or

(iii) the Prime Minister's Drought Relief Fund ; or

(iv) any other fund or any institution to which this section applies; or

(v) the Government or any local authority, to be utilised for any charitable purpose ;

(b) any sums paid by the assessee in the previous year as donations for the renovation or repair of any such temple, mosque, gurdwara, church or other place as is notified by the Central Government in the Official Gazette to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States.

(3) No deduction shall be allowed under Sub-section (1) if the aggregate of the sums referred to is Sub-section (2) is less than two hundred and fifty rupees.

(4) The deduction under Sub-section (1) shall not be allowed in respect of such part of the aggregate of the sums referred to in Sub-clauses (iv) and (v) of clause (a) and in clause (b) of Sub-section (2) as exceeds ten per cent, of the gross total income (as reduced by any portion thereof on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), or two hundred thousand rupees, whichever is less :...... '

8. Now, a donor, if it is a company, is entitled to a deduction of 50% and if it is any other assessee to 55% of the aggregate of the sums donated under the different heads mentioned in Sub-section (2). Sub-section (2) enumerates the different types of donations which receive the benefit of deduction given under Sub-section (1). Reading Sub-sections (1) and (2) together, it is clear that an assessee is entitled to a deduction of 50% if it is a company and 55% if it is any other assessee, of the aggregate of the donations given by it under any or all of the heads mentioned in Sub-section (2). However, as Sub-section (1) itself expressly states, this deduction shall be in accordance with and subject to the provisions of Section 80G. If the aggregate sum of donations is less than Rs. 250, no deduction is permissible as per the provisions of Sub-section (3). Sub-section (4) in its turn puts a ceiling limit on the deductible amounts donated for the purposes mentioned in Sub-Clauses (iv) and (v) of Clause (a) and in Clause (b) of Sub-section (2) that they shall not exceed 10% of the gross total income or two hundred thousand rupees, whichever is less. It is patent from the language of Sub-section (4) that it cannot be read de hors or independently of Sub-section (1). Its very language demonstrates that Sub-section (4) is only a qualification attached to the deduction permissible under Sub-section (1). But that qualification is limited only to donations for the purposes mentioned in Sub-clauses (iv) and (v) of Clause (a) and in Clause (b) of Sub-section (2). The ceiling on the deduction laid down by Sub-section (4) is thus applicable to donations for these purposes only. That ceiling is 10% of the gross total income or two hundred thousand rupees, whichever is less.

9. Reading all these provisions together, the following comprehensive picture emerges. In respect of any of the donations mentioned in Sub-section (2) an assessee is entitled to a deduction either of 50% or 55%, as the case may be. But in cases of donations for purposes under Sub-clauses (iv) and (v) of Clause (a) and Clause (b), the deduction shall not exceed 10% of the gross total income or two hundred thousand rupees, whichever is less. Therefore, while computing the total income of an assessee and for arriving at the deductible amount under Section 80G, the assessing officer will have to first find out the aggregate of the sums donated for the purposes mentioned in Sub-section (2). Then, he will have to calculate 50% of the aggregate amount of the donations in the case of companies and 55% in the case of other assessees. If that amount is more than 10% of the gross total income or two hundred thousand rupees in cases of donations under Sub-clauses (iv) and (v) of Clause (a) and Clause (b), he will have to limit the deductible amount only to 10% of the gross total income or two hundred thousand rupees, whichever is less. If the aggregate of these three categories of donations does not exceed 10% of the gross total income or two hundred thousand rupees, then the assessing officer is bound to give deduction of the sums which constitute 50% or 55%, as the case may be. There is no warrant at all to read Sub-section (4) independently of Sub-section (1) and Sub-section (2). Doing so would be violating the very language of Sub-section (4) which, in so many terms, declared that it is only a qualification to Sub-section (1).

10. Such being the correct manner of giving deduction in respect of donations under Section 80G, the Tribunal went wrong in holding that the assessee-club in this case is entitled to a deduction only of 55% of 10% of its gross total income during that year. Since the donation given by the assessee-club admittedly conies under Sub-clauses (iv) and (v) of Clause (a) of Sub-section (2), 55% of that donation amount should be calculated. That 55% of the donated amount of Rs. 80,000 comes to Rs. 44,000. Since the total income of the assessee during the year was Rs. 4,03,084, the relief by way of deduction can only be limited as per the provisions of Sub-section (4), to Rs. 40,308.40, which represents 10% of the gross total income. Therefore, the assessee is clearly entitled to a deduction of Rs. 40,308.40 and not Rs. 22,169 which represents 55% of 10% of the total income, The latter figure is wholly inconsistent with the provisions of Section 80G. As we have pointed out, there is no warrant anywhere in Section 80G, much less in Sub-section (4) for deducting only 55% of 10% of the total income. The concept of 55% deduction is stated only in Sub-section (1) and Sub-section (4) prescribes only the ceiling limit at 10% of the total income. Therefore, the answer to the question is that the assessee was not entitled to a deduction of a sum of Rs. 22,169 only, being 55% of 10% of the total income but is, on the other hand, entitled to a deduction of Rs. 40,308.40.

11. In the result, the question referred to us is answered in the negative and in favour of the assessee. The assessee will have his costs from the revenue. Advocate's fee Rs. 250.


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