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Additional Commissioner of Income-tax Vs. Abhai Maligai - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 207 of 1974 (Reference No. 83 of 1974)
Judge
Reported in[1978]113ITR737(Mad)
ActsIncome Tax Act, 1961 - Sections 80G(2) and 88(6)
AppellantAdditional Commissioner of Income-tax
RespondentAbhai Maligai
Appellant AdvocateNalini Chidambaram, Adv.
Respondent AdvocateK. Srinivasan, Adv.
Cases ReferredHajee K. Assainar v. Commissioner of Income
Excerpt:
.....the temple to construct a museum in the campus of the temple at their cost and hand it over to the temple, the assessees constructed the building at their cost and handed it over to the temple on november 30, 1968. when the assessees did so, they clearly intended that they should have the benefit of section 80g(2)(b) of the act for they had requested the temple to give them a letter acknowledging the donation of the building for being produced before the income-tax authorities, evidently to claim the rebate. 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..........of the income-tax act, 1961, was disallowed on the ground that there is no cash donation to the temple. the income-tax officer treated the amount as income in assessing the assessee to tax. on appeal before the appellate assistant commissioner the assessee coatended that the donation, under the circumstances of the case, does not cease to be so merely because a building was erected with the assessee's money. theassessee further contended that the entire agreement must be taken note of and that in substance there was donation of money with which the building was erected and rebate ought to have been allowed. 3. section 80g(1) of the income-tax act, 1961, lays down that : ' in computing the total income of an assessee, there shall be deducted, in accordance with and subject to the.....
Judgment:

Varadarajan, J.

1. This tax case arises out of a reference made by the Income-tax Appellate Tribunal, Madras Bench, under Section 256(1) of the Income-tax Act, 1961. The question of law referred for the opinion of this court is this:

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 18,529 is qualified for being considered for purposes of deduction under Section 80G{2)(b) of the Income-tax Act, 1961 '

2. The claim of the assessee, Messrs. Abhai Maligai, Tiruchirapalli, in the return for the assessment year 1969-70 for deduction or rebate of Rs. 18,529 being fifty per cent. of the amount said to have been spent for constructing a museum building in the Southern Prakaram of Sri Ranganathaswami Temple at Srirangam and electrification thereof, made under Section 80G(2)(b) of the Income-tax Act, 1961, was disallowed on the ground that there is no cash donation to the temple. The Income-tax Officer treated the amount as income in assessing the assessee to tax. On appeal before the Appellate Assistant Commissioner the assessee coatended that the donation, under the circumstances of the case, does not cease to be so merely because a building was erected with the assessee's money. Theassessee further contended that the entire agreement must be taken note of and that in substance there was donation of money with which the building was erected and rebate ought to have been allowed.

3. Section 80G(1) of the Income-tax Act, 1961, lays down that :

' In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section,--

(i) in a case where the aggregate of the sums specified in Sub-section (2) includes any sum specified in Sub-clause (vii) of Clause (a) thereof, an amount equal to the whole of such sum plus fifty per cent. of the balance of such aggregate; and

(ii) in any other case, an amount equal to fifty per cent. of the aggregate of the sums specified in Sub-section (2). '

4. The sums referred to in Sub-section (1)(i) shall be those mentioned in Sub-section (2) and Clause (b) of the Sub-section is :

' 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 Oificial Gazette to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States. '

5. There was no dispute that Sri Ranganathaswami Temple, Srirangam, has been declared by the Central Government by a notification dated October 25, 1966, published in the Gazette of India as a temple of historic and archaeological importance and a place of public worship of renown throughout Tamil Nadu for the purpose of Section 88(6) of the Income-tax Act, 1961, as it stood before Section 88 was omitted by Finance (No. 2) Act of 1967, with effect from 1st April, 1968. The Appellate Assistant Commissioner found that Sri Ranganathaswami Temple has been declared as a historically and archaeologically important place of worship of renown in Tamil Nadu. Relying upon the decision of the Bombay High Court in Commissioner of Income-tax v. Associated Cement Co. Ltd. : [1968]68ITR478(Bom) , he accepted the assessee's claim for rebate and directed the Income-tax Officer to allow the necessary relief in respect of the sum of Rs. 18,529 treating it as a donation eligible for relief. In the revenue's appeal, the Income-tax Appellate Tribunal, Madras Bench, rejected the contention urged on behalf of the revenue that the construction of the museum building would not amount to renovation or repair of the temple falling within the meaning of Section 80G(2)(b) of the Act. The Tribunal agreed with the Appellate Assistant Commissioner that the case is governed by the principle enunciated in Commissioner of Income-tax v. Associated Cement Co. Ltd. : [1968]68ITR478(Bom) and that the assessees arc entitled to rebate. The Tribunal found that in substance what the assessees gave was the money spent by them for the construction of the museum building.

6. It is seen from the records that the executive officer of the temple had requested the assessees by letter dated February 15, 1968, to construct the museum building at their cost and hand over the same to the temple, and the assessees accordingly constructed the building and handed it over to the temple on November 30, 1968, and had requested the temple to give them a letter acknowledging donation of the building for production before the income-tax authorities, evidently to claim rebate under Section 80G(2)(b) of the Act.

7. Explanation 5 to Section 80G(2) of the Act was inserted by the Finance Act, 1976, with effect from 1st April, 1976, probably with the object of getting over the effect of decisions such as the one rendered by the Bombay High Court in the aforesaid Commissioner of Income-tax v. Associated Cement Co. Ltd. : [1968]68ITR478(Bom) . The Explanation reads thus :

' For the removal of doubts, it is hereby declared that no deduction shall be allowed under this section in respect of any donation unless such donation is of a sum of money. '

8. The learned counsel for the revenue relied upon the decision in Jogendra Nath Naskar v. Commissioner of Income-tax , the Supreme Court has extracted the following observation of Lord Sterndale M. R. in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 2 KB 403 :

' I think it is clearly established in Attorney-General v. Clarkson [1900] 1 QB 156 that subsequent legislation on the same subject may be looked to in order to see what is the proper construction to be put upon an earlier Act where that earlier Act is ambiguous. I quite agree that subsequent legislation, if it proceeds upon an erroneous construction of previous legislation, cannot alter that previous legislation; but if there be any ambiguity in the earlier legislation, then the subsequent legislation may fix the proper interpretation which is to be put upon the earlier.'

9. Reliance was placed on this passage in the judgment of the Supreme Court by the learned counsel for the revenue for strict interpretation of Clause (b) of Sub-section (2) of Section 80G of the Act and it was contended that the donation must be of a sum of money and could not be in kind for qualifying for the rebate.

10. On the other hand, the learned counsel for the assessees invited our attention to a decision of a Bench of the Kerala High Court in Hajee K. Assainar v. Commissioner of Income-tax : [1971]81ITR423(Ker) , to which one of us was a party. There the learned judges have observe3 at page 427 thus :

' As has been already noticed the Explanation in question was introduced in Section 271(1) of the Act by virtue of an amendment of that section effected by Section 40 of the Finance Act, 1964. It is expressly statedin Section 1(2) of the Finance Act, 1964, that Sections 3 to 55 thereof shall be deemed to have come into force only on the 1st day of April, 1964. It is, therefore, clear that the intention of Parliament was that the amendments in question introduced by Section 40 of the Finance Act were to be effective only from April 1, 1964. The learned counsel for the revenue, however, contends that since the provisions of the Explanation relate only to matters of procedure they will govern the penalty proceedings taken against the assessee in the present case which culminated in the order passed by the Inspecting Assistant Commissioner of Income-tax on February 20, 1965. It is no doubt true that if a statute deals merely with matters of procedure and does not affect the rights of parties the new procedure will, prima facie, apply to all pending as well as future actions. But, where rights and procedure are dealt with together, the intention of the legislature may well be that the old rights are to be determined by the old procedure and that only the new rights under the substituted section are to be dealt with by the new procedure. If the procedural alteration is closely and inextricably linked with the changes simultaneously introduced in another part of the statute dealing with substantive rights and liabilities, it is not possible to give retrospective operation to the amendment regarding procedure unless the legislature has indicated such an intention either by express words or by necessary implication. It appears to us to be clear that the two changes introduced in Section 271(1) of the Act by the Finance Act, 1964, consisting of the deletion of the word ' deliberately ' which occurred in Clause (c) and the insertion of the Explanation at the end of the said sub-section are very closely inter-connected and they form integral parts of one scheme. This is manifest from the fact that the deeming provision contained in the Explanation obviously proceeds on the basis that for the purposes of the latter part of Clause (c) of Section 271(1)(c) the mere furnishing of inaccurate particulars of income by an assessee is sufficient and that it is not necessary to establish for the purposes of Section 271(1)(c) that the assessee has 'deliberately' furnished inaccurate particulars of his income. It is, therefore, reasonable to infer that the intention of Parliament is that the Explanation should apply only to cases governed by Clause (c) of Section 271(1) as it stands after its amendment by the Finance Act, 1964.

By the deletion of the word ' deliberately ' which originally occurred in Clause (c) of Section 271(1) a substantial alteration has been effected in the structure and content of the offence. This amendment certainly does affect rights of parties and, in view of the express mention in Section 1(2) of the Finance Act, 1964, that it will come into effect only on April 1, 1964, it cannot apply to concealments, etc., which took place prior to that date. The penalty proceedings in the present case relate to the assessment year1956-57, and, hence, they are governed only by the provisions of Section 271(1)(c) as they stood at the relevant time. Since we have held that the Explanation will apply only to cases governed by the amended provisions of Clause (c) it must follow that the new rule of evidence introduced by the Explanation has no application to the present case. '

11. We are of the opinion that Explanation 5 to Section 80G(2), which was added with effect from 1st April, 1976, could not be made applicable to this case which related to the assessment year 1969-70. According to Section 80G(2)(b) the sums should be ' 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 '.

12. The Tribunal found that the construction of the museum building would amount to renovation or repair of the temple falling within Section 80G(2)(b) of the Act. The revenue has not questioned the correctness of this finding of the Tribunal. Therefore, it is not necessary to go into the question whether the construction of the museum building in the southern prakaram of the temple would amount to renovation or repair of the temple. The facts established by the material on record are that, at the request of the executive officer of the temple to construct a museum in the campus of the temple at their cost and hand it over to the temple, the assessees constructed the building at their cost and handed it over to the temple on November 30, 1968. When the assessees did so, they clearly intended that they should have the benefit of Section 80G(2)(b) of the Act for they had requested the temple to give them a letter acknowledging the donation of the building for being produced before the income-tax authorities, evidently to claim the rebate.

13. In Commissioner of Income-tax v. Associated Cement Co Ltd. : [1968]68ITR478(Bom) , referred to, the University of Bombay wrote to the chairman of the board of directors of the assessee-company to persuade the directors of the company to arrange for the fabrication of a small rotary experimental furnace for the department of chemical technology. The assessee put up a kiln ai a total cost of Rs. 6,600 for which they passed two resolutions. The Income-tax Officer held that the rebate under Section 15B of the old Act was not admissible. But the Appellate Assistant Commissioner differed from him and directed rebate being allowed, and that order was confirmed by the Tribunal on appeal. What was urged in the High Court on behalf of the revenue was that the donation was of immovable property, the kiln, and not a sum of money. The learned judges of the Bombay High Court have observed in their judgment at page 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 had 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. '

14. The learned counsel for the revenue relied upon the decision of a Bench of the Andhra Pradesh High Court in Commissioner of Income-tax v. Amonbolu Rajiah : [1976]102ITR403(AP) , where the assessee entered into an arrangement with a zilla parishad to donate necessary funds in order to construct a school building, and a contractor was appointed and the assessee was advancing various amounts from time to time to the contractor for the construction of the school building. The assessee debited the total amount advanced to the school account. The zilla parishad took possession of the building from the contractor and commenced the school. The assessee claimed exemption from the tax on the total amount under Section 88 of the Act, as it stood before its omission. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim on the ground that the donation was not made in cash. But the Income-tax Appellate Tribunal differed from them and allowed the claim holding that the donation was made in cash. The Tribunal also found that the donation in kind was not precluded for the purpose of allowance of rebate under Section 88 of the Act. The High Court held that the Tribunal's view that donation in kind was not precluded for the purpose of allowance in rebate in terms of Section 88 of the Act cannot be said to be correct. Referring to the decision of the HighCourt of Bombay in Commissioner of Income-tax v. Associated Cement Co. Ltd. : [1968]68ITR478(Bom) mentioned above, the learned judges have observed in that judgment that they fail to see from the judgment in that case how one can deduce that a donation in kind can also earn rebate under Section 88 of the Act and that, on the other hand, the finding of the Bombay High Court was that in substance it was the amount that was donated and not the kiln. The learned judges, however, agreed with the Tribunal about the assesses being entitled to rebate. They have observed in their judgment--See : [1976]102ITR403(AP) :

' We, however, agree with the conclusion of the Tribunal that in the instant case what was donated was not the school building but was actually the money. When once it is found that the land on which the building was constructed belonged to the zilla parishad, then there would be no difficulty in holding that any accretion to the immovable property would be that of the zilla parishad.

In this case it is not clear whether the contractor was appointed by the assessee or by the zilla parishad. If the contractor was appointed by the zilla parishad, then the matter is very easy. The amount paid by the assessee to such contractor would amount to payment of the money to the zilla parishad itself because the contractor would be an agent of the zilla parishad. On the other hand, if, as it appears from the statement of facts, the contractor was appointed under an arrangement made between the zilla parishad and the assessee, even then the amount paid by the assessee to the contractor would amount to a payment to the zilla parishad for the purpose of constructing the building. The arrangement was intended to ensure that the amount was actually spent for the construction of the building and nothing more.'

15. With respect, we are inclined to agree with the view of the Bench of the Bombay High Court that what should be looked into is the substance of the transaction. When the Explanation had not been added, the super-imposition of a contractor between the assessees and the temple should not, in our opinion, affect the transaction, for the substance of the transaction has to be looked into. The museum building has been constructed in the southern prakaram of the temple and it would be an accretion to the temple retiring 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 todonation of a sum of money falling within Section 80G(2)(b) of the Act. We are, therefore, of the opinion that the Tribunal rightly held that the assessees are entitled to rebate.

16. Accordingly, we answer the question referred to us against the revenue and in favour of the assessees. The revenue shall pay the costs of this reference to the assessees. Advocate's fee Rs. 250.


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