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Sukhdeo Charity Estate Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Income-tax Reference No. 1 of 1974
Judge
Reported in(1984)42CTR(Raj)218; [1984]149ITR470(Raj)
ActsIncome Tax Act, 1961 - Sections 12 and 12(2)
AppellantSukhdeo Charity Estate
RespondentCommissioner of Income-tax
Appellant Advocate K.C. Bhandari, Adv.
Respondent Advocate J.P. Joshi, Adv.
Excerpt:
- section 2(k), 2(1), 7 & 40 & juvenile justice (care and protection of children) rules, 2007, rule 12 & 98 & juvenile justice act, 1986, section 2(h): [altamas kabir & cyriac joseph, jj] determination as to juvenile - appellant was found to have completed the age of 16 years and 13 days on the date of alleged occurrence - appellant was arrested on 30.11.1998 when the 1986 act was in force and under clause (h) of section 2 a juvenile was described to mean a child who had not attained the age of sixteen years or a girl who had not attained the age of eighteen years - it is with the enactment of the juvenile justice act, 2000, that in section 2(k) a juvenile or child was defined to mean a child who had not completed eighteen years of a ge which was given prospective prospect -.....bhatnagar, j.1. the income-tax appellate tribunal, jaipur bench, at the instance of m/s. sukhdeo charity trust, ladnu (hereinafter to be referred as 'the assessee-trust'), has referred the following question to this court under section 256(1) of the i.t. act, 1961 (hereinafter to be referred as the 'act of 1961'):'whether, on the facts and in the circumstances of the case, the tribunal was right in holding that a sum of rs. 1,00,000 received by the assessee-trust from benjamin & rahama elias memorial trust is liable to be included as part of the income of the assessee-trust under the provisions of section 12(2) of the act of 1961 '2. the facts of the case relevant for the purpose of answering the question under reference are as under :one sukhdeo sarawagi, before his death in the year.....
Judgment:

Bhatnagar, J.

1. The Income-tax Appellate Tribunal, Jaipur Bench, at the instance of M/s. Sukhdeo Charity Trust, Ladnu (hereinafter to be referred as 'the assessee-trust'), has referred the following question to this court under Section 256(1) of the I.T. Act, 1961 (hereinafter to be referred as the 'Act of 1961'):

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 1,00,000 received by the assessee-trust from Benjamin & Rahama Elias Memorial Trust is liable to be included as part of the income of the assessee-trust under the provisions of Section 12(2) of the Act of 1961 '

2. The facts of the case relevant for the purpose of answering the question under reference are as under :

One Sukhdeo Sarawagi, before his death in the year 1933, set' apart Rs. 6,08,000 in trust with instructions to the trustees to hold the same in trust for religious and charitable purposes. On January 25, 1963, atrust was constituted under the terms and conditions contemplated by the trust deed.

3. Aims and objects of the trust were set out as tinder :

'1. To acquire immovable property or properties in Calcutta or elsewhere by purchase, lease or otherwise and to sell, mortgage, lease out whole or part of the same except the properties being items Nos. 1 and 2 of the properties mentioned in the Schedule ' C ' hereto.

2. To erect temples and Thakur Bari at Sukhdeo Ashram, Ladnu, started by the donor and to improve the same.

3. To erect hospitals, schools and other religious institutions.

4. To meet the expenses of the ashram schools and hospitals already started and to be started hereafter and to develop and to improve the same.

5. Not to lend any of the trust funds to anybody.

6. Trustees shall not be entitled to utilise trust fund in any way for any purpose whatever.

7. Trustees shall be entitled from time to time to spend such amount from the trust fund as they may think fit and proper in the religious places.

8. Trustees shall be entitled to spend such money as they may think fit and proper for religious purposes.'

4. The scheme for water supply to the town of Ladnu was mooted by the trustees and aid of the Government of Rajasthan was solicited to implement the scheme. The Government of Rajasthan agreed to sanction an amount of Rs. 7 lakhs out of a total estimated cost of Rs. 10 lakhs, subject to the condition that the trustees would collect the balance amount of Rs. 3 lakhs in advance for the purpose.

5. The assessee-trust opened a separate account of 'Water Supply Scheme' in S.Y. 2018, corresponding to the assessment year 1962-63, by transferring a, sum of Rs. 33,138 from its charity fund account. A sum of Rs. 86,449.79 was transferred in the next year from the same account. The total amount in the water supply scheme thus reached Rs. 1,94,324.40. On March 3, 1964, the assessee-trust made a request through a letter to Benjamin & Raharna Elias Memorial Trust (hereinafter to be referred as 'the Calcutta trust') seeking donation for the purpose. On March 14, 1964, the assessee-trust issued a cheque for Rs. 1,85,000 in favour of the Government which was encashed by the latter on May 2, 1964.

6. The Calcutta trust, in response to that request, sent a cheque for Rs. 70,000 on March 31, 1964, and the amount was entered in the account of the water supply scheme on April, 1, 1964, as amount received by way ofdonation. The balance left in the water supply scheme account became Rs. 69,324.40 in S.Y. 2021. On March 23, 1965, the Calcutta trust sent another cheque of Rs. 1,00,000 in favour of the assessee-trust for the purpose of implementing the water supply scheme. This amount was also entered in the water supply scheme account, making the total amount in balance Rs. 1,69,324.40. The amount till the date of the assessment by the Income-tax Officer (for short 'the 1TO') for the assessment year 1965-66, was not spent by the assessee-trust.

7. The ITO was not satisfied by the return submitted by the assessee-trust. He was of the opinion that the contribution received from the charitable or religious institutions should be; deemed to be income derived from property irrespective of the fact whether the amount received from the other trust was spent or remained unspent. The ITO in terms of Section 12(2) of the Act of 1961, applicable in the case, held that the amount of Rs. 1,00,000 shall be treated as income of the assessee-trust and be taxed accordingly. Penalty notice was also issued for delay in filing the return as also for furnishing inaccurate particulars of income and concealment thereof.

8. The assessee-trust went in appeal before the Appellate Assistant Commissioner of Income-tax, B-Range, Jodhpur (for short 'the AAC'), in grievance of the order of the ITO concerning the amount of Rs. 1,00,000 received from the Calcutta trust: along with other points which are not relevant for the present purpose. The AAC affirmed the view of the ITO that the donation of Rs. 1,00,000 received from the Calcutta trust should be included in the income of the assessee-trust.

9. Feeling dissatisfied by the aforesaid order, the assessee-trust preferred an appeal before the Income-tax Appellate Tribunal, Jaipur Bench (for short 'the Tribunal'). After discussing the nature of the donation and the question of applicability of Section 12(2) of the Act in the case, the learned members of the Tribunal formed the opinion that the sum of Rs. 1,00,000 was rightly brought to tax under the provisions of Section 12(2) of the Act and consequently dismissed the appeal.

10. The assessee-trust filed an application before the Tribunal under Section 256(1) of the Act of 1961 with a prayer that as the matter involves a question of law it may be referred to the High Court. The Tribunal agreed with the assessee-trust that a question of law does arise. The statement of case and the question referred to above have been submitted by the Tribunal to this court.

11. It is evident from the material on record that it was the assessee-trust which undertook to collect an amount of Rs. 3,00,000 and deposit the amount of Rs. 2,85,000 with the Government of Rajasthan who in its turnwas to sanction a sum of Rs. 7,00,000 for the purpose. This is also evident that it was the assessee-trust who sent the letter to the Calcutta trust with a request that special aid may be given for implementing the scheme and a further reminder for the same. There is no dispute about the amount of Rs. 70,000, because the same was received by the assessee-trust before its assigning the cheque in favour of the Government of Rajasthan for a sum of Rs. 1,85,000. The dispute is regarding Rs. 1,00,000 received subsequent to the assigning of the aforesaid cheque in favour of the water supply scheme.

12. The controversy raised by the learned counsel for the Revenue is that the amount in balance in the account of the water supply scheme exceeded the required amount of Rs. 3,00,000 for which the assessee-trust had given an undertaking for the purpose of implementing the water supply scheme.

13. The learned counsel for the assessee-trust on the other hand submitted that the amount being in excess or not being forwarded to the Government would not matter much in the case because the same was credited in the account of the water supply scheme and the intention was to spend it for that purpose.

14. Section 12(2) of the Act of 1961, which has been applied by the ITO in taxing the amount of Rs. 1,00,000, deals with the income received by one charitable trust from another charitable trust. The provision in this context has undergone a change in the Act of 1961 and subsequently by the Finance Act of 1972 effective from April 1, 1973. The relevant assessment year, in the present case, is 1964-65 and, therefore, for the present purpose, provisions of the Act of 1961 would be applicable. However, in order to deal with the matter in its proper perspective it would be profitable to have an idea of the amendment in the relevant provisions of the Indian I.T. Act of 1922 (hereinafter to be referred as 'the Act of 1922') by the Act of 1961 and subsequent amendment of the relevant provisions by the Finance Act of 1972 (hereinafter to be referred to as 'the Act of 1972').

15. In the 1922 Act, all the voluntary contributions received by a charitable or religious trust were exempted from tax. In the 1961 Act a distinction was made between the voluntary contribution received by a charitable trust from individuals and other charitable trusts.

16. Section 12 of the 1961 Act (before amendment) read as tinder:

' 12. Income of trusts or institutions from voluntary contributions.--(7) 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 trust 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 a charitable or religious institution by a trust or a charitable or religions 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.'

17. This Section 12 when read together with Section 11 of the 1961 Act, discloses that unlike the Act of 1922 it does not permit unrestricted accumulation of the trust income. Section 11 of the 1961 Act imposes a restriction for accumulation of income in excess of 25% of the aggregate of the income from the trust property and voluntary donations deemed to be income under Section 12.

18. The purpose of enacting Sub-section (2) of Section 12 is not far to seek. It so appears that the legislature apprehended a situation that; a charitable trust having accumulated income in excess of that permitted by Section 11 might transfer that excess amount to another charitable trust with the intention to evade tax. By the Finance Act of 1972, the definition of the term 'income' was also made inclusive of voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution). With this amendment in the definition of the term 'income', the Finance Act of 1972 also amended Section 12 of the 1961 Act. Thus by the 1961 Act, the income of a charitable trust was made to stand on a footing different from the earlier provisions in that context and then the position was again changed by the Finance Act of 1972.

19. We would now discuss the implications of Section 12(2) of the 1961 Act and see whether the same has been rightly applied in the case of the assessee-trust with regard to the donation of Rs. 1,00,000 from the Calcutta trust. A bare reading of the two sub-sections of Section 12 make it clear that Sub-section (2) is dependent upon Sub-section (1). Sub-section (2) deals with the contributions referred to in Sub-section (1) but differentiates the contributions referred in Sub-section (1) from those received from another charitable or religious trust or institution. To put it in other words, Sub-section (2) is a proviso to Sub-section (1). Sub-section (2) is a deeming provision. The contributions mentioned therein do not automatically become taxable income. Section 12(2) only creates a fiction that such contributions would be deemed to be income derivedfor the purposes of Section 11. Section 11 contains a provision for taxation of accumulated income and imposes a limit of 25% to the income credited to a charitable or religious trust. Section 12 deals with the income derived from voluntary contributions. That is to say, it is only when the amount in question is income that provisions of Section 12 are attracted. If such an income is received by a charitable or religious trust or institution by another such trust or institution, provisions of Section 12(2) would be applicable.

20. It is quite clear from the material on record that a donation of Rs. 1,00,000 was received by the assessee-trust, a charitable and religious trust from another such trust at Calcutta. The crucial point involved in the matter is whether the donation so received by the assessee-trust falls within the definition of the term 'income' derived from voluntary contributions.

21. Mr. Joshi appearing on behalf of the Revenue emphasized that whatever be the nature of the donation of this amount at the time of the receipt, the subsequent conduct of the assessee-trust, i.e., keeping the money unspent, would amount to accumulation of income and, therefore, the assessee-trust cannot escape the liability for tax on that amount.

22. Mr. Bhandari, learned counsel for the assessee-trust, on the other hand, urged with vigour that merely because the amount has remained unspent, it cannot be considered to be income derived from voluntary contributions for the reason that the purpose behind it was the implementation of the water supply scheme. That the amount remaining unspent will not change the nature of donation and it is, therefore, corpus and not income.

23. The trend of the legislature depicted in the various amendments of the relevant provisions regarding donations to charitable and religious institutions or trusts evidences an interest to bring out the two situations. First being the anxiety of the Revenue to see that the trusts or institutions may not escape liability to be taxed in the guise of the donation being corpus and the other is the attempt or the legal device of the assessee-trust or institutions to get out of it by establishing the donation to be corpus.

24. The word 'income' has been defined in the Act itself. The definition of course is inclusive. 'Corpus' is a Latin word and the English meaning of it is a 'body'. In Random House Dictionary, college edition, page 301, one of the meanings of 'corpus' is 'a principal or capital sum, as opposed to interest or income'. Similar is the meaning of the word 'corpus' in Black's Law Dictionary, 5th edition, page 310, Thus, a capital amount in the form of money, movable or immovable property and the donationsreceived by a charitable trust for specific purposes may be said to be corpus or remained ay capital in a fund in contrast to income.

25. It depends upon the given circumstances of the case, having regard to the motive, intention and nature of the voluntary contribution by one charitable or religious trust to another trust of the same nature, as to whether the donation would constitute corpus or capital of the receiving trust or would fall within the ambit of its Income. Before discussing in detail the circumstances and nature of the contribution in the present case, we consider it proper to look to various cases enunciating the principles to be kept in mind while dealing with cases of this type.

26. The question as to whether a particular amount in the hands of the assessee, the wife of the ruler of Kalsia State and the sister of the Maharaja of Nabha State was income or capital came for consideration before their Lordships of the Allahabad High Court in the case of Rani Amrit Kunwar v. CIT : [1946]14ITR561(All) . The assessee residing at Dehra Dun in British India with her sons and daughters received some amount from the State of her husband and some amount from the State of her brother. The amount received from her husband was wholly taxable, as income deemed to have accrued to the assessee in British India under Section 4(2) of the 1922 Act, for the reason that the payments were made for the purpose of meeting the assessee's household and living expenses and the education of her children. However, the amount received from the Nabha State, for which the assessee was not to account for, was not considered to be an income and, therefore, not liable to be taxed.

27. In the case of CIT v. Thakar Das Bhargava : [1960]40ITR301(SC) the assessee, an advocate, agreed to defend certain accused persons in a criminal trial on the condition that he would be provided with the sum of Rs. 40,000 for a public charitable trust which he would create. When the trial was over the assessee was paid a sum of Rs. 32,000. Subsequently he created a trust for that amount by executing a trust deed. The question arose whether that amount was the professional income of the assessee. The desire on the part of the assessee to create a trust out of the moneys paid to him created no trust nor did it give rise to any legally enforceable obligation, In this view of the matter, the amount coming in the hands of the advocate was considered to be his professional income because it was with that income that he subsequently created a trust.

28. The case of CIT v. Sitaldas Tirathdas : [1961]41ITR367(SC) related to the maintenance paid to the wife and children by the assessee. Their Lordships of the Supreme Court observed that the true test for the application of the rule of diversion of income by an overriding charge is, whether the amount sought to be deducted, in truth, never reached the assessee ashis income. The assessee was not held entitled to the deduction claimed by him because it was a case in which the wife and the children of the assessee, who continued to be the members of his family, received a portion of his income after he had received it as his own and, therefore, their Lordships of the Supreme Court held that the obligation, no doubt, there is in every case, but it is the nature of the obligation which is the decisive fact.

29. In the case of P.H. Divecha v. CIT : [1963]48ITR222(SC) their Lordships of the Supreme Court laid down the test that to constitute income, profits or gains, there must be a source from which the particular receipt has arisen, and a connection must exist between the quality of the receipt and the source. It further observed that it is not the motive of the person who pays that is relevant. More relevance attaches to the nature of the receipt in the hands of the person who receives it, though in trying to find out the quality of the receipt one may have to examine the motive out of which the payment was made.

30. In the case of H.H. Maharani Shri Vijayakuverba Saheb of Morvi v. CIT : [1963]49ITR594(Bom) the ruler of a native State abdicated in favour of his son in January, 1948. From April, 1949, onwards, his son paid him a monthly allowance. The allowance was not paid under any custom or usage. A voluntary payment which is made entirely without consideration and is not traceable to any source which a practical man may regard as a real source of his income, but depends entirely on the whim of the donor was not held to fall in the category of income. The reason given by their Lordships was that as the payments were commenced long after the ruler had abdicated, they were not under a legal or contractual obligation as the allowances were not made under a custom or usage or as a maintenance allowance and, therefore, were not assessable as income.

31. In the case of CIT v. Keshri Singh the assessee by his efforts persuaded the Maharaja of Jaipur to deposit an amount for purchase of shares from a company. There was no prior understanding or promise of remuneration or reward by way of brokerage but taking all the facts and circumstances into consideration, their Lordships felt persuaded to hold that the amount paid by the company was in appreciation of the services rendered by the assessee in persuading the Maharaja of Jaipur, who was admittedly his close acquaintance. The receipt by the assessee was hold to be income assessable to tax.

32. In the case of CIT v. Motor and General Finance Ltd. : [1974]94ITR582(Delhi) the amounts received towards deposit and as advance from sub-distributor to be returned to the sub-distributor after adjustmentagainst payments was considered to be capital receipt despite the fact that by operation of the statute of limitation, the sub-distributor might not, be able to recover the amount.

33. In the case of Sri Dwarkadheesh Charitable Trust v. ITO : [1975]98ITR557(All) the amount in dispute in the assessment proceedings was voluntary contributions made by one charitable trust to another charitable trust with a specific direction that the voluntary contributions so made would form part of the corpus of the donee-trust and accepted by the donee-trust as such and, therefore, the voluntary contributions were not held to constitute income within the meaning of Section 12(1) of the Act. The reasoning given was that the subject-matter of the donation became part of the corpus or capital of the donee-trust and did not constitute income of the receiving trust. The donations were hence considered to be outside the purview of Section 12(2) and could not, therefore, be dealt with as if they were income from property held under trust within the meaning of Section 11. Their Lordships, were pleased to make the following observations in that case (p. 561):

'If a charitable trust makes a gift of property which constitutes its own capital or corpus, it will be income in the hands of the receiving trust. The receiving trust will be free to apply or spend the property which is the subject-matter of gift for any of the purposes for which it can spend money or property; though the property was capital in the hands of the donor-trust, it will be deemed to be income in the hands of the receiving trust. But, if the donor trust makes the gift on the express condition that the subject-matter will constitute capital or corpus of the receiving trust, and the donee-trust accepts the gift or donation subject to the condition that it will form part of the capital or corpus of the donee-trust, the subject-matter of the donation becomes part of the corpus or capital of the donee-trust. In such a case the subject-matter of the donation will hot constitute, or be deemed to be, the income of the receiving trust.'

34. In the case of CIT v. Tollygunge Club Ltd. : [1977]107ITR776(SC) coming before their Lordships of the Supreme Court, the respondent, a social and sports club, conducted horse races with amateur riders, and charged fees for admission into the enclosure of the club at the time of the races. By virtue of a resolution passed at a general meeting of the respondent for levying surcharge of eight annas over and above the admission fees, the proceeds of which were to go to the Red Cross Fund. This resolution was varied by another resolution to the effect that the surcharge should be earmarked 'for local charities and not solely for the Indian Red Cross'. Every entrant was issued two tickets, one an admission ticket for admission to the enclosure of the club, and the other, a separateticket in respect of the surcharge of eight annas for local charities. The question arose whether receipts on account of the surcharge were to be treated as the respondent's income. The Tribunal and the High Court on a reference held in favour of the assessee. The matter went to the Supreme Court and the decision of the High Court was affirmed and it was held that the surcharge was not a part of the price for admission but was a payment made for the specific purpose of being applied to local charities. Their Lordships were pleased to enunciate the following principle (p. 781) :

'It is settled law that a trust may be created by any language sufficient to show the intention and no technical words art: necessary and it may even be created by the use of words which are primarily words of condition. The only requisites which must be satisfied are that there should be 'purposes independent of the donee to which the subject-matter of the gift is required to be applied and an obligation on the donee to satisfy those purposes'. '

35. The word 'voluntary' in its very inception connotes the absence of any obligation on the part of the donor. The intention of the donor in such voluntary contribution is either specific, i.e., with instructions to use the amount for specific purpose or it may be gathered from the facts and circumstances or the correspondence, if any, in the matter. In case there is 'specific direction there is no difficulty to understand the motive or intention.' However, when it is to be gathered from the circumstances, the nature of the donation when the donor parts with the same, and the intention and motive of the recipient play an important role. If the donor is not forced to enter into the dealing, the nature of the donation will not change its form so as to make the amount of donation an income in the hands of the recipient.

36. A question of this nature came for consideration before their Lordships of the Supreme Court in the case of CIT v. Bijli Cotton Mills (P.) Ltd. : [1979]116ITR60(SC) . The assessee, a private company manufacturing and selling yarn, realised certain amounts on account of 'Dharmada'. 'Dharmada', in common parlance, means anything given in charity or for religious or charitable purpose. The customers were to pay at 1 anna per bundle of 10 Ibs. of yarn and 2 annas per bale of cotton towards the 'Dharmada' funds. A separate account, known as the 'Dharmada account', was maintained in which the realisations on account of Dharmada were credited and payments made therefrom were debited. The Tribunal held that the amounts could not be regarded as having been received or held by the respondent under a trust for charitable purposes, because the trust was void for vagueness and uncertainty and the realisations partook of the character of trading receipts. On a reference, the High Court held that the amounts in question were not the respondent's income liable to tax, as the amounts were paid by its customers specifically on account of 'Dharmada', the amounts were never treated by it as trading receipts or surcharge on the sale price, and 'Dharmada ' was a customary levy prevailing in certain parts of the country. The reasoning given by the High Court were that the amounts were received and held by the respondent under an obligation to spend them for charitable purposes only, with the result that those amounts were not its trading receipts. 'Dharmada' was also considered to be a voluntary payment by a customer in addition to the (price for the) goods which he purchased from the respondent. It was not considered to be involuntary inasmuch as it was out of his own volition that he purchased yarn or cotton from the respondent. Their Lordships were pleased to observe as under (Headnote):

' none of the following facts would lead to the inference that no obligation to utilise the amounts exclusively for charitable purposes could be said to have been created: (a) the compulsory nature of the payment, (b) the fact that the respondent had some discretion as regards the manner in which and the time when the respondent should spend the Dharmada amounts for charitable purpose, or (c) the fact that the respondent did not keep the amounts in a separate bank account'.

37. The principle enunciated in the case of Sri Dwarkadheesh Charitable Trust [1975] 98 ITR 357 was followed by the Kerala High Court in the case of CIT v. Vanchi Trust : [1981]127ITR227(Ker) . Donations by one trust to another in the form of shares and cash were made with a stipulation that the subject-matter of the donation should be held by the donee-trust as corpus and only the income therefrom to be expended for charitable purposes. Donations were not considered to be the income of the donee-trust and were, therefore, not held to be covered by Section 12(2) of the Act.

38. The case of Sri Dwarkadheesh Charitable Trust : [1975]98ITR557(All) was again relied on by the Delhi High Court in the case of CIT v. Eternal Science of Man's Society : [1981]128ITR456(Delhi) In that case, the charitable trust made a voluntary contribution of shares in certain companies to the assessee, the recipient charitable society, with specific conditions attached thereto, viz., that the donation (shares) does constitute the corpus of the donee-trust or be held as an accretion to the corpus of the donee-trust. Their Lordships were also pleased to observe that the voluntary contribution did not constitute income in the hands of the recipient charitable society, the donation fell outside Section 12(1) of the 1961 Act, and, therefore, outside the ambit of Section 12(2) and was not to be deemed to be income from property held under trust for the purposes of Section 11 and was to be excluded from the taxable income.

39. The learned counsel for the Revenue strenuously contended that in the present case there being no specific direction by the. donor-trust regarding the property to be treated as corpus in the hands of the donee-trust, the amount has rightly been considered to be income liable to tax. Mr. Joshi strengthened his argument by the fact that the amount was not spent towards the purpose it was meant for and had remained in the hands of the donee-trust.

40. It is noteworthy that the Act nowhere provides that whatever is received by a person or a trust must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision. However, if the receipt is in the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act, lies upon the assessee.

41. In the light of these principles, we would now deal with the aims and objects of raising the demand by the assessee-trust, the correspondence entered between the assessee-trust and the Calcutta trust and the way in which the amount was treated by the former.

42. There is no dispute on the point that the Ladnu Water Supply Scheme was mooted by the assessee-trust. for implementing the scheme. It is also not disputed that the Government of Rajasthan agreed to sanction an amount of Rs. 7,00,000 out of the estimated expenditure amount of Rs. 10,00,000. This was however, to be done by the Government on the condition that the assessee-trust would collect Rs. 3,00,000 and contribute in advance Rs. 2,85,000. A separate account was opened for the water supply scheme and the assessee-trust transferred the amount from its charity trust to that account as stated earlier. The letter written by the assessee-trust to the Calcutta trust on March 5, 1964, reads as under :

'We are to state that with a view to supply water to the locality of Ladnu (Rajas than), we proposed to the Government concerned to sanction a grant for the purpose. The Government has been pleaded enough to sanction an amount of Rs. 7 lakhs out of the total estimated cost of Rs. 10 lakhs which it would require in order to complete the said water supply arrangement. The Government would pay the said amount only when we could collect the deficit amount of Rs. 3 lakhs in advance for the purpose. We have accordingly given our undertaking to the Government that we would collect Rs. 2,85,000 and deposit with the Government beforehand,

We would, therefore, request you to pay your substantial donation to the fund in this respect. '

43. A cheque for Rs. 70,000 was sent by the Calcutta trust on March 31, 1964, in response to this letter of request. That amount was credited in the account of the water supply scheme and was included in the amount of Rs. 1,85,000 paid to the Government by way of cheque and, therefore, there was no dispute regarding its receipt.

44. The Calcutta trust on March 23, 1965, while forwarding the cheque for Rs 1 lakh sent the covering letter which reads as under :

'The matter has been very carefully considered by us and while we regret that we are not in a position to donate the full amount required by you, we enclose herewith a cheque for Rs. 1 lakh which we trust will enable you to execute the scheme as expeditiously as possible,

In due course, we shall be grateful if you would inform us of the completion of the water supply scheme.'

45. In the account books maintained by the assesses-trust this amount along with the amount remaining unspent towards the scheme was credited in separate account maintained for the water supply scheme. It is thus clear that the assessee-trust requested the Calcutta trust for donation for the specific purpose of utilizing it towards the implementation of the Ladnu Water Supply Scheme. It is abundantly clear that the intention of the donor was that the amount may be used for charitable purpose and so was the intention of the recipient trust. The letter from the Calcutta trust dated January 24, 1971, has been produced by the assessee-firm which reads as under:

'BENJAMIN & RAHAMA ELIAS MEMORIAL TRUST

National Tobacco Building

1 & 2, Old Court House Corner,

Ref. No.............

Calcutta, 24/1/1971,

To

Sukhdeo Charity Estate, Ladnu,

68, Nalini Sett Road,

Calcutta-7.

Dear Sirs,

This is to inform you that the payment of Rs. 1,70,000 (Rs. 70,000 on 31-3-64 and. Rs 1,00,000 on 23-3-65), made to you was specifically meant to execute the Water Supply Scheme at Ladnu. Since you had undertakento deposit the requisite amount with the Government of Rajasthan for the above scheme, the said contribution by us was routed through you.

Yours faithfully,

For Benjamin & Rahama Elias Memorial Trust,

sd/-

Trustee.'

46. It is true that there is more amount in credit in the account of the water supply scheme because of the receipt of this one lakh rupees more than what was required for, i.e., three lakhs rupees to be contributed by the assessee-trust. The argument of the learned counsel for the assessee-trust is that in anticipation of receiving voluntary contributions from others, the assessee-trust transferred the amount from its own charity funds towards that scheme and, therefore, this amount was to be deposited towards the amount so advanced by the assessee-trust. The argument has no force for the reason that while transferring the amount, the assessee-trust had not so mentioned it in its accounts nor any intention of adjusting the amount can be gathered from the facts and circumstances of the case. However, that in itself will not make any difference nor would it be sufficient to hold that the amount received initially from the Calcutta trust to be spent for the specific purpose so as to be taken as corpus, changed its nature and became income because it remained unspent. It can in no way be taken to be accumulation of money in the hands of the recipient trust.

47. It is the intention of the donor and the donee at the initial stage which has to be taken into consideration in matters of this type. Even if the recipient subsequently conducts in a way that the initial intention goes away, still that will not change the nature of the amount.

48. In the case of Bijli Cotton Mills (P.) Ltd. v. CIT : [1971]81ITR400(All) under the peculiar circumstances, under the then existing arrangements governing the supply of yarn to the market, a number of quota-holders were selected and were granted a specific quota of yarn, to be supplied by the manufacturers, which they sold in the market. Subsequently, the manufacturers were required to sell their stocks directly to wholesale dealers, with the result that the quota-holders were excluded altogether. In order to prevent the hardship caused to the quota-holders, an order was made by the Textile Commissioner requiring the manufacturer to recover from the wholesale dealer the wholesale price of the yarn at the controlled rate and to pay to the quota-holders, to whom it would have originally sold the yarn, that part of the sum which represented the excess over the mill price, the sale being for this purpose deemed to have been made by the manufacturer on behalf of the quota-holders. Whenever amounts from this account were paid to the quota-holders, they were debited to the saidaccount. Later on, the company transferred this balance to the credit of its profit and loss account. In the changed circumstances of the case, none of the former quota-holders were forthcoming to claim the amounts. The law of limitation made it possible for the assessee not to pay the said amounts. The question was whether that was a taxable income of the manufacturer. The question was referred to the High Court. It was held that under the arrangement it was never intended that the quota-holder's margin of profit should ever form a constituent part of the profits accruing to the assessee and that the assessee should have any title thereto at any stage. From the outset, the excess over the ex-mill price was impressed with the character of trust money to be held by the assessee on behalf of the quota holders.

49. Their Lordships were pleased to propound the following principle (Headnote):

' It is well-settled that the taxability of a receipt is fixed with reference to its character at the moment it is received and that merely because the recipient treats it subsequently in his own accounts as his own does not alter that character. The consideration applied by the Tribunal that the amount belonging to the quota-holders could not be recovered by them by reason of limitation must be regarded as one of little importance.'

50. Applying the principles of the aforesaid decisions to the facts and circumstances of the present case, the only conclusion that can be drawn would be that it was for the specific purpose of the implementation of the water supply scheme that the demand was raised by the assessee-trust and it was in response to that demand that the Calcutta trust made a voluntary contribution with a specific intention and implied instructions that the amount was meant for the water supply scheme. It was with this object and intention that the assessee-trust received the amount and credited it in the separate accounts maintained for the purpose. The amount therefore, by no stretch of imagination can be said to be income as envisaged by Section 12(1) so as to attract the provisions of Sub-section (2) of that section.

51. It would be profitable to refer also to the case of CIT v. Shri Billeswara Charitable Trust : [1984]145ITR29(Mad) . Their Lordships were pleased to take into consideration the significance of the expression 'income derived from voluntary sources' and observed as under (p. 31)

'The word 'derived' connotes obtaining or drawing or taking or receiving from a source. When something is stated to be derived from something else, the latter is a source, while the former is that which flows from that source. A voluntary contribution understood that way is notby itself income. It id that from which income flows. By implication, therefore, voluntary contributions may be regarded as non-income without anything more indicated in Section 12(1) of the Act,'

52. Reliance was placed on the principles enunciated in the cases of CIT v. Vanchi Trust : [1981]127ITR227(Ker) and CIT v. Eternal Science of Man's Society [1981] 128 ITR 436. Their Lordships further observed that it does not matter for the non-income character of the vuluntary contributions that they are applied or expended or appropriated to defray the current expenses of charity. According to their Lordships, the essence of a windfall or voluntary contributions as opposed to income is that it is expected. The characteristic of income is that it is a periodical monetary return coming in with regularity or at least expected regularity.

53. The principles enunciated in the various cases referred to above, when applied to the present case, leave no room for debate that the intention of the donor-trust as well as the donee-trust was to treat the money as capital to he spent for the Ladnu Water Supply Scheme. It is of no significance whether the amount had since been paid to the State Government or kept in the account of the above-referred scheme by the assessee-trust. From whatever angle it may be seen, the deposited amount cannot be said to be income in the hands of the recipient trust.

54. The conclusion, therefore, is that on the facts and circumstances of the case, the Tribunal was not right in holding that the sum of rupees one lakh received by the assessee-trust from the Calcutta trust was liable to be included as part of the income of the assessee-trust under the provisions of Section 12(2) of the Act of 1961.

55. We, therefore, answer the question referred to us in the negative, i.e., in favour of the assesses and against the Revenue. The costs are made easy.


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