Dwarka Prasad, Actg. C.J.
1. The Income-tax Appellate Tribunal, Delhi Bench 'A', hereinafter referred to as 'the Tribunal', has referred the following question to us for our decision :
'Whether on the interpretation of the provisions of Section 15B of the Indian Income-tax Act, 1922, the assessee is entitled to rebate in respect of donations made to Bangur High School, Arogya Bhawan Hospital and Bangur Hospital '
2. We have held by our order dated December 22, 1981, that the asses-see is entitled to rebate, in respect of donations made to Bangur High School, Arogya Bhawan Hospital and Bangur Hospital, under the provisions of Section 15B of the Indian I.T. Act, 1922 (hereinafter referred to as 'the Act'), and decided the reference in favour of the assessee. We now proceed to record the reasons for our aforesaid decision.
3. The facts which have given rise to this reference may be briefly stated:
There was an educational institution known as Darbar High School at Pali, which was wholly financed and run by the Rajasthan Government. As the number of students coming from different villages of Pali District was increasing, the existing building of the school was found to be inadequate to accommodate the growing number of students and the Maharaja Shri Umed Mills Ltd., Pali (hereinafter called 'the assessee'), agreed to construct a new building for the school and hand over the same to the State Government, subject to the condition that the name of the school was changed to Bangur High School. The work of construction of the new school building started in the year 1952 and was completed in the year 1954. A total sum of Rs. 1,34,935 was spent by the assessee on the construction of the new school building up to the end of the accounting year relevant to the assessment year 1954-55 and out of the amount so spent, a sum of Rs. 1,00,000 was debited by the assessee to its profit and loss account, in the accounting year corresponding to the assessment year 1954-55, as donation made to Bangur High School and a rebate was claimed in respect of the aforesaid sum of rupees one lakh under Section 15B of the Act. Similarly, donations were made by the assessee of a sum of Rs. 53,358 in the assessment year 1955-56 and a sum of Rs. 8,321 in the assessment year 1956-57 which represented the amount spent by the assessee over the construction of the new school building.
4. The Government of Rajasthan gave a certificate dated March 28,1958, to the assessee, stating that the school building of the Bangur High School, Pali, was constructed by the assessee in accordance with the sketches and plans furnished by the Government of Rajasthan and was handed over by the assessee to the State Government and was taken over by the State through its Education Department, for the benefit of the public in general and advancement of education in particular. It was also stated in the certificate that the school was run and maintained wholly and solely by the State Government and all proprietary rights in the movable and immovable property of the said Bangur High School vested in the State Government and the donor had nothing to do with it.
5. The ITO, who was the assessing authority, disallowed the claim of the assessee for exemption on two grounds, namely, that under Section 15B of the Act only sum, i.e., cash or cheque, could qualify for exemption and since the assessee had donated a building and not cash, exemption in respect of the alleged donation was not admissible. The second ground was that Section 15B of the Act permitted exemption in respect of donations to institutions or funds but the alleged donation was made to the State Government, which was neither an institution, nor a fund. The AAC, Jodhpur Range, Jodhpur, while deciding the appeals preferred by the assessee, accepted the contention of the assessee that the impugned donation was made to an institution and held that every Government school or college fell within the definition of an institution. The finding of the ITO on this ground was set aside and it was held that the impugned donation was specifically made to Darbar High School, whose name was later on changed to Bangur High School, Pali, although it was the State Government which accepted the donation on behalf of the said school. However, the AAC held that the impugned donation, which represented the amount spent by the assessee on the new school building, could not come within the purview of Section 15B of the Act as the sums in respect of which exemption was claimed were not actually paid to the donee and in the absence of delivery of cash, Section 15B could not be made applicable, to allow rebate for the amount spent by the assessee on the construction of the new school building.
6. Another head in respect of which exemption was claimed by the assessee relates to the payment of Rs. 3,600 in two assessment years 1955-56 and 1956-57 to the Rajasthan Arogya Bhawan Hospital at Bikaner. The claim was disallowed by the ITO on the ground that the impugned donation was made by the assessee in consideration of the hospital authorities agreeing to maintain and reserve two beds for the employees of the assessee and that the donation was an expenditure incurred for securing certain benefits by the assessee in the hospital. The AAC also agreed with the ITO in this respect and disallowed the exemption of the amounts given by way of donation to the Arogya Bhawan Hospital.
7. The third head under which exemption was claimed by the assessee was in respect of donations of Rs. 50,000 in each of the assessment years 1956-57 and 1957-58 by the assessee towards the construction of a hospital building at Pali, which, upon completion, was named as Bangur Hospital. The donations in this respect were also disallowed by the ITO as well as by the AAC on two grounds, namely, that the donations were made in consideration of reservation of three beds in the said hospital for the employees of the assessee. It was held that the donation was not unconditional but was in the nature of a contribution for getting three beds reserved for the employees of the assessee in the hospital. The other ground on which rebate under Section 15B of the Act was disallowed in respect of the donations to the Bangur Hospital was that there was no institution or hospital in existence at the time when the donation was made, as the amount was spent by the assessee on the construction of the hospital building and the institution, namely, the hospital came into existence later on.
8. The Tribunal heard all the appeals filed by the assessee, in respect of assessment years 1954-55, 1955-56, 1956-57 and 1957-58 together and by its consolidated order dated March 31, 1969, allowed the claim of the assessee in respect of exemption under Section 15B of the Act relating to the three items of donations made to Bangur High School, Pali, Arogya Bhawan Hospital, Bikaner, and Bangur Hospital, Pali. The Tribunal held that although the donations to the Bangur High School were made through the Government, yet the Government was merely an agent and the donation was made to the institution. It was held that as the object of the institution was educational, the assessee's claim for exemption was justified. As regards the donation made to the Arogya Bhawan Hospital, it was held by the Tribunal that the hospital was of charitable nature and as such the claim was allowable in respect of the donation made to it by the assessee. It was held that the substance for which the donation was made was to be seen and not the form and even if the assessee spent the amount in making the construction of the hospital building, it was, in substance, a donation in cash. As the expenditure was made for the purpose of construction of the building for Bangur Hospital, the assessee was held to be entitled to rebate under Section 15B in respect of the two amounts of Rs. 50,000, in the assessment years 1956-57 and 1957-58. The reference, which has been made to us by the Tribunal, arises out of its aforesaid consolidated order dated March 31, 1969.
9. Section 15B of the Act, which we are required to interpret, for the purpose of deciding this reference, runs as under :
' 15B. Exemption on account of donations for charitable purposes.--(1) The tax shall not be payable by an assessee in respect of any sums paid by him on or after the 1st day of April, 1953, as donations to any institution or fund to which this section applies or in respect of any sums paid by him on or after the 1st day of April, 1960, as donations to the Government or to any local authority to be utilised for any charitable purpose as defined in Sub-section (3) of Section 4 ;
Provided that in the case of a company this exemption shall apply only in respect of income-tax and not in respect of super-tax payable by it :
Provided further that this exemption shall not apply-
(a) if the aggregate of the sums so paid by the assessee is less than two hundred and fifty rupees,
(b) to any sums paid in excess of seven and a half per cent, of the assessee's total income as reduced by any portion thereof exempt from tax under any other provisions of this Act, or one hundred and fifty thousand rupees, whichever is less.
(2) This section applies to any institution or fund established in the taxable territories for a charitable purpose-
(i) the income whereof is exempt under Clause (i) of Sub-section (3) of Section 4;
(ii) which is not expressed to be for the benefit of any particular religious community ;
(iii) which maintains regular accounts of its receipts and expenditure; and
(iv) which is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (XXI of 1860), or under Section 26 of the Indian Companies Act, 1913 (VII of 1913), or is a university established by law or is any other educational institution recognised by Government or by a University or affiliated to any university; or
(v) which is an institution financed wholly or in part by the Government or a local authority.
Explanation.--An institution or fund established for the benefit of scheduled castes, backward classes, scheduled tribes or of women and children shall not be deemed to be an institution or fund expressed to be for the benefit of a religious community within the meaning of Clause (ii); (2A) For the removal of doubts, it is hereby declared that in respect of sums paid as donations on or after the 1st day of April, 1948, and before the 1st day of April, 1953, the provisions of Sub-sections (1) and (2) shall apply as if the amendments made by Clause (c) of Section 3 of the Finance Act, 1953, had not been made ;
(3) The amount by which the tax payable by an assessee is reduced on account of an exemption under this section shall not in any case exceed half the amount in respect of which the exemption is allowed under this section. '
10. The argument of Mr. J. P. Joshi, learned counsel for the Revenue, before us is that exemption under the aforesaid provision is available only in respect of 'any sums' paid by the assessee as donations to 'any institution ' or 'fund,' to which the section applies and, according to thelearned counsel, the amounts in respect of which exemption has been claimed by the assessee were spent either in the construction of the new school building now known as the Bangur High School at Pali or in the construction of the hospital building which came to be known as Bangur Hospital, Pali, but no amount was paid by the assessee to the aforesaid institutions in cash by way of donations and as such the rebate under the provisions of Section 15B of the Act should not have been allowed by the Tribunal. According to the learned counsel, 'sum' is a quantity of money or currency and may be cash or cheque, but could not be building material or cost of construction of building, either for the purpose of a hospital or a school.
11. In 'Words and Phrases' (Permanent edition), vol. 40A, published by West Publishing Co., Saint Paul, it has been mentioned with reference to the word 'sum' that though popularly it is used to denote money, the word means value or the price value of the property. In our view, in the ultimate analysis what is of importance is the substance of the transaction and not the mere form thereof. If the assessee would have made a cash grant for a charitable purpose, either of a school or a hospital, and the State Government would have constructed the school building or the hospital building out of the amount donated by the assessee, the sum so paid by the assessee would have been certainly exempted under Section 15B of the Act. But if the donor, instead of handing over the cash amount of donation to the State Government for the purposes of the institution agreed to get the construction of the school building or the hospital building made out of the said grant under the supervision of the State Government officials and in accordance with the sketch plans and designs supplied by the State Government, it would be difficult to say that the situation is in any manner so different as to make the amount spent by the donor over the construction of the school or the hospital building not fall within the provisions relating to exemption contained in Section 15B of the Act.
12. In CIT v. Associated Cement Co. Ltd. 0043/1967 : 68ITR478(Bom) a similar question came up before their Lordships of the Bombay High Court. In that case the assessee, who had experience in constructing rotary kilns for cement making, instead of donating Rs. 6,600 in cash, had donated a rotary experimental kiln, for the purposes of carrying on rotary research work in chemicals, to the University of Bombay. It was held that Section 15B of the Act was attracted to such a donation and that rebate was properly allowed. The same argument which has been advanced before us by the learned counsel for the Revenue, was also made before the Bombay High Court in that case, namely, that the manner in which the donation was given showed that it was not a sum of money which was paid by theassessee but the donation was of movable property, i.e., kiln, and that the said donation did not fall within the words 'any sums paid by the assessee'. Their Lordships of the Bombay High Court made the following observations while rejecting the aforesaid contention (p. 485):
'The contention advanced places reliance upon the very words of the section and to that extent, is technical in the extreme, but if one were to look to the substance of this transaction, there is no doubt that in substance what the assessee-company gave to the University of Bombay was ultimately a sum of Rs. 6,600. That amount ultimately went out of its coffers and in another shape was received by the University of Bombay, If instead of passing the two resolutions, which it did and then undertaking the preparation of the kiln and supplying the kiln to the University, the assessee had made out a cheque for that amount, handed it over to the University, got it re-endorsed in their favour and then had undertaken the preparation of the kiln, we suppose that the Department would have no objection. Rather than resorting to such an obvious device the assessee considered that the amount of Rs. 6,600, which it had donated to the University was with the consent of the University at its disposal and utilised it for the preparation of the kiln. In substance, therefore, the amount was paid to the University, though ultimately because of the exertions of the assessee, the kiln came to be prepared out of that amount and was handed over to the University. In our opinion, looking to the substance of this transaction there is no doubt that the sum of Rs. 6,600 was paid by the assessee-company as a donation to the University of Bombay. Any other construction upon this transaction would, in our opinion, be unnecessarily limiting the language of the section as well as its purpose......'
13. The same view was taken by the Mysore High Court in CIT v. Bangalore Woollen, Cotton and Silk Mills Co. Ltd. : 91ITR166(KAR) . In that case the assessee, which was a company carrying on business in the manufacture and sale of woollen and cotton fabrics, made donations of cloth of the value of Rs. 6,834 to charitable institutions. The decision of the Bombay High Court in Associated Cement Company's case 0043/1967 : 68ITR478(Bom) was relied upon by the learned judges of the Mysore High Court and it was observed as under (p. 169) :
' The literal construction of the above provision undoubtedly supports the contention of the learned counsel for the Department. But any such construction would lead to undue hardship in the case of business concerns which make donations out of their stock-in-trade at the request of the charitable institutions as in the instant case. Shri Balakrishna was unable to state as to why Parliament should have restricted the rebate to caseswhere donations are made in cash only and 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). '
14. In CIT v. Amonbolu Rajiah : 102ITR403(AP) the facts were that by an arrangement with the Zillah Parishad, the assessee through a contractor constructed a school building, providing necessary funds for the construction of the school building as donation. The school building after construction was taken possession of by the Zillah Parishad and was run by it. It was held by their Lordships of the Andhra Pradesh High Court that the amount paid by the assessee to the contractor would amount to payment of money to the Zillah Parishad itself for construction of the school building and that the arrangement was intended to ensure that the amount was actually spent in the construction of the school building and as such the assessee was entitled to exemption under Section 88(1) of the I.T. Act, 1961, corresponding to Section 15B of the Act. It was observed that if on facts it was found that, in substance, what was donated was a sum of money and not immovable or movable property then the exemption would be available. Their Lordships held that once it was found that the land, on which the building was constructed belonged to the Zillah Parishad, then there could be no difficulty in holding that any accretion made to the immovable property would belong to the Zillah Parishad. It was observed that the arrangement indicated that the intention was to donate the money, earmarked for the purpose of constructing the school building, and as such the conclusion of the Tribunal that what was donated was not the school building but money, was justified.
15. In CIT v. Traub (India) P. Ltd. : 118ITR525(Bom) another Bench of the Bombay High Court reiterated its earlier decision in Associated Cement Co.'s case 0043/1967 : 68ITR478(Bom) and it was again emphasised that the court must look to the substance of the transaction in considering the claim of an assessee for deduction and it was observed that a donation in kind was also not precluded for the purposes of allowance of rebate. In the last mentioned case : 118ITR525(Bom) the assessee manufactured automatic lathe and donated its 1000th lathe to the Government Poly-technical Institute at Aundh at a function arranged for the purpose and it was held that the fact that the assessee had donated the amount in kind and not in cash would not make any difference in allowing the deduction claimed.
16. In CIT v. Khandelwal Laboratories Private Ltd. : 118ITR531(Bom) the assessee carrying on business of manufacture and sale of pharmaceutical goods, instead of money, made donations of goods in the shapeof medicines of the value of Rs. 44,945 to the National Defence Fund. The view taken in Associated Cement Co.'s case 0043/1967 : 68ITR478(Bom) was again followed by the Bombay High Court and it was held that it makes no difference if instead of taking cash from the Defence Department in respect of the value of medicines supplied and giving the same back to the Department by way of donation, the assessee did not take payment in cash against its bills and donated the medicines manufactured by it.
17. In Addl. CIT v. Abhai Maligai  113 ITR 737 the Madras High Court also expressed its agreement with the view taken by the Bombay High Court in Associated Cement Co.'s case 0043/1967 : 68ITR478(Bom) and held that what should be looked into is the substance of the transaction. In that case, the assessee spent a sum of Rs. 18,529 for the construction of a museum building in the temple of Shri Ranganathaswami at Srirangam, which was acknowledged as a temple of historical and archaeological importance and a renowned place of public worship, and for electrification thereof. Varadarajan J. (as he then was) observed that construction of a building as an accretion to the temple and on the land belonging to the temple amounted to donation which qualified for exemption. It was observed as under (at p. 744) :
' The museum building has been constructed in the southern prakaram of the temple and it would be an accretion to the temple requiring no deed of transfer of the building by the assessees to the temple after its completion, for the building has been constructed on the land belonging to the temple. Instead of handing over the money either in cash or by way of a cheque to the temple and then getting it back and carrying out the work of construction of the building with that money, the assessees had themselves contributed their physical effort and put up the museum building with the funds set apart for that purpose. Therefore, the transaction in effect would amount to donation of a sum of money falling within section 80G(2)(b) of the Act. '
18. In Saurashtra Cement & Chemical Industries Ltd. v. CIT : 123ITR669(Guj) the assessee which was a company manufacturing cement,made a donation of cement bags to a public charitable trust in Baroda. Itwas observed by their Lordships of the Gujarat High Court that the contention advanced on behalf of the Revenue was too technical and it is thesubstance of the transaction which counts and although in actual practicethe assessee-company gave cement bags, since it was manufacturing cementitself, in substance the transaction was to make a donation in cash for thevalue of the cement bags.
19. In the case before us, the school building was constructed on the land belonging to the State Government and according to the plans and sketches supplied by the State and under the supervision of the P.W.D. authorities of the State Government. After the completion of the school building, the same was handed over to the State Government and it is the State Government which is solely running the school in the new building, with its own finances. Thus, looking to the substance of the matter, the construction of the new school building by the assessee represented donation of money by it to the institution through the agency of the State Government. It would be of little consequence that either the assessee would have given the sums which represented the donation in cash and the State Government would have got the building constructed through its public works department or that the assessee got the building constructed and handed over the same to the State Government upon its completion, as it would appear as if the assessee had paid in cash the cost of construction including building material and labour charges, etc., to the State Government for the purposes of the institution. The arrangement which was arrived at by the State Government and the assessee in this case appears to have been caused on account of the anxiety of the assessee to ensure that the amount donated by it was actually spent in the construction of the school building.
20. The argument which has prevailed with us in respect of the school building that the substance of the matter should be looked into and not merely the form thereof, is applicable with equal force to the construction of the Bangur Hospital as well. It cannot be doubted that the hospital is an institution of charitable nature, established for social welfare. According to Webster's Third New International Dictionary, an ' institution ' means an establishment or foundation, especially of a public character, a building occupied by such organisation or establishment. To our mind, it is again a matter of form that the institution, i.e., the hospital, came into existence after the building in which it was housed was completed. If the donation is made for the purpose of an institution of a charitable nature, having a social or educational purpose, then it matters little whether the institution came into existence only after the completion of the building, for the construction of which the donation is made.
21. It cannot be said in the present case that the assessee had any profit motive in making the donations to any of the three institutions. If some beds were reserved in the Arogya Sadan Hospital or the Bangur Hospital for the employees of the assessee-company, it could not be held that the donation was given in consideration of something done or meant to be done to the assessee. The Arogya Sadan Hospital as well as the Bangur Hospitalare public charitable institutions, as found by the Tribunal, and the object of making the donations appears to be purely of a charitable nature, namely, providing relief to the poor including the employees of the assessee and reservation of a few beds for patients, who may be recommended by the assessee's officers, could not take the donations out of the purview of Section 15B of the Act. It is the public generally which was to get benefit out of the donations made by the assessee to the Arogya Sadan Hospital and the Bangur Hospital and if the employees of the assessee were also benefited thereby, it was not of much consequence so long as the general public was not denied or refused the benefit of the hospital facilities;
22. We, therefore, find no reason to take a different view from the one taken by the Tribunal on the aforesaid question.
23. We answer the question in favour of the assessee and against the Department.
24. Reference answered in the affirmative.