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Commissioner of Income-tax Vs. Vanchi Trust and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Referred Case Nos. 38 and 39 of 1978
Judge
Reported in(1981)20CTR(Ker)26; [1981]127ITR227(Ker)
ActsIncome Tax Act, 1961 - Sections 11, 11(1), 12(1) and 12(2); Finance Act, 1972
AppellantCommissioner of Income-tax
RespondentVanchi Trust and anr.
Appellant Advocate P.K. Ravindranatha Menon, Adv.
Respondent Advocate N. Srinivasan and; P. Krishnamoorthy, Advs.
Excerpt:
- - the conclusion that emerges from the foregoing discussion is that the tribunal was perfectly right in holding that the donations in question received by the assessees do not form income in the hands of the two assessee-trusts and do not, therefore, attract the applicability of the provisions of sub-section (2) of section 12. the question referred in these two cases is accordingly answered in the negative, that is, in favour of the assessees and against the department......form the corpus of the trust are to be treated for the purpose of section 11 as income of the assessee-trust '2. the assessees (respondents) are two public charitable trusts to which the provisions of section 11 of the act are admittedly applicable. the relevant assessment year is 1971-72 for which the accounting period is the financial year ending march 31, 1971. during the course of the accounting year, the trustees in each case had received as donation from a different trust 3,000 shares in a limited company and a cash donation of rs. 5,000 subject to the stipulation made by the donor-trust and accepted by the assessee-trust that the subject-matter of the said donation should be held by the assessee-trust as corpus and only the income therefrom should be expended on charitable.....
Judgment:

Balakrishna Eradi, C.J.

1. In these two connected references made to this court under Section 256(1) of the I.T. Act, 1961 (hereinafter called ' the Act'), the Income-tax Appellate Tribunal, Cochin Bench--for short the ' Tribunal '--has referred the following question of law as arising out of the common order passed by it in R. A. No. 176 (Coch)/77-78 and R. A. No. 177 (Coch)/77-78 dated December 16, 1977 :

' Whether, on the facts and in the circumstances of the case, the donations from a trust to which Section 11 applies in cash and in the shape of shares in a limited company given with a direction that they should form the corpus of the trust are to be treated for the purpose of Section 11 as income of the assessee-trust '

2. The assessees (respondents) are two public charitable trusts to which the provisions of Section 11 of the Act are admittedly applicable. The relevant assessment year is 1971-72 for which the accounting period is the financial year ending March 31, 1971. During the course of the accounting year, the trustees in each case had received as donation from a different trust 3,000 shares in a limited company and a cash donation of Rs. 5,000 subject to the stipulation made by the donor-trust and accepted by the assessee-trust that the subject-matter of the said donation should be held by the assessee-trust as corpus and only the income therefrom should be expended on charitable purposes of the assessee-trust. The said stipulation is contained in two identically worded letters dated July 5, 1970, passed to the assessee-trust by the donor-trust. Annexare ' A ' is a copy of one of those letters.

3. The ITO finalised the assessment in each case by including in the income of the assessee-trust the cash receipt of Rs. 5,000 and the market value of the donated shares of the limited company which form the subject-matter of the donation. In doing so, the ITO took the view that the provisions of Section 12(2) of the Act were attracted to these cases and the contributions made to the assessee-trust by the donor-trust had to be deemed to be income derived by the assessee-trust from property by virtue of the operation of Section 12(2).

4. On appeals filed by the assessees the AAC upheld the contentions of the assessees that the donations in question could not be treated as income derived by the assessees in view of the specific stipulation contained in annex. ' A ' that the donation was to be held as corpus in the hands of the assessees. Though the department filed appeals before the Tribunal, the Tribunal confirmed the decisions of the AAC and dismissed those appeals. These references have thereafter been made to this court by the Tribunal at the instance of the department.

5. Section 12 of the Act as it stood at the relevant time (prior to the amendment introduced by the Finance Act, 1972) was in the following terms :

' 12(1) 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 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 charitable or religious institution by a 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 property for the purposes of that section and the provisions of that section shall apply accordingly. '

6. In order that Sub-section (2) of Section 12 should get attracted to a case, a contribution of the nature referred to in Sub-section (1) should have been made to the assessee-trust by another trust or charitable or religious institution to which the provisions of Sub-section (1) of Section 11 apply. This is clear from the use of the words ' where any such contributions as are referred to in Sub-section (1) are made to a trust...' Sub-section (1) refers to any income derived from voluntary contributions and applicable solely to charitable or religious purposes. Hence the contribution should be such as will constitute income in the hands of the trust by which it has been received. A contribution given and accepted with a specific stipulation that it shall be treated only as corpus of the receiving trust and not as income will not fall within the scope of Sub-section (1) of Section 12, and ipso facto it must follow that a voluntary contribution so made will not be taken in by the description ' such contributions as are referred to in Sub-section (1) ' contained in Sub-section (2). We find we are supported in this view by the decision of a Division Bench of the Allahabad High Court in Sri Dwarkadheesh Charitable Trust v. ITO : [1975]98ITR557(All) , wherein the learned judges had occasion to consider almost the identical point in similar circumstances. The same view has also been taken by the High Court of Gujarat in CIT v. Bal Utkarsh Society : [1979]119ITR137(Guj) . We are in respectful agreement with the aforesaid decisions. The conclusion that emerges from the foregoing discussion is that the Tribunal was perfectly right in holding that the donations in question received by the assessees do not form income in the hands of the two assessee-trusts and do not, therefore, attract the applicability of the provisions of Sub-section (2) of Section 12. The question referred in these two cases is accordingly answered in the negative, that is, in favour of the assessees and against the department.

7. The parties will bear their respective costs.


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