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Commissioner of Income-tax Vs. Bengal Mills and Steamers Presbyterian Association - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 131 of 1977
Judge
Reported in[1983]140ITR586(Cal)
ActsIncome Tax Act, 1961 - Sections 11, 12 and 13; ;Societies Registration Act, 1860
AppellantCommissioner of Income-tax
RespondentBengal Mills and Steamers Presbyterian Association
Appellant AdvocateB.L. Pal and ;Ajit Sengupta, Advs.
Respondent AdvocateP.K. Paul, Amicus curiae
Cases ReferredDavies v. Perpetual Trustee Co. Ltd.
Excerpt:
- sudhindra mohan guha, j.1. in this reference at the outset we must put on record our deep appreciation for the services rendered by mr. pranab paul as an amicus curiae.2. this reference arises out of an application under section 256(1) of the i.t. act, 1961, at the instance of the commissioner in respect of the assessment for the years 1968-69 and 1969-70, the assesses, the bengal mills &steamers; presbyterian association (hereinafter referred to as 'the association') is a very old association havingibeen registered as a society under the societies registration act, 1860, as back as in the year 1906. the association was then formed by a few european residents of bengal for the purpose of carrying out the objects set out in clause 3 of the memorandum of association dated 25th january,.....
Judgment:

Sudhindra Mohan Guha, J.

1. In this reference at the outset we must put on record our deep appreciation for the services rendered by Mr. Pranab Paul as an amicus curiae.

2. This reference arises out of an application under Section 256(1) of the I.T. Act, 1961, at the instance of the Commissioner in respect of the assessment for the years 1968-69 and 1969-70, The assesses, the Bengal Mills &Steamers; Presbyterian Association (hereinafter referred to as 'the association') is a very old association havingibeen registered as a society under the Societies Registration Act, 1860, as back as in the year 1906. The association was then formed by a few European residents of Bengal for the purpose of carrying out the objects set out in Clause 3 of the memorandum of association dated 25th January, 1906. The main object set out in Clause 3(a) thereof is : 'to make provision for supplying and maintaining instruction and diffusion of useful knowledge and maintain the ordinances of religion among the European employees of the jute, cotton, paper and other industrial establishments in Bengal, and amongst the European officers and crews of vessels visiting the Port of Calcutta and the fostering of religious interests and activities among the same'.

3. The management of the association has been entrusted to a governing body called the court of governors, which shall ordinarily include at least one representative of the owners or managing agents of subscribing mills, one representative of the works managers, one representative of the European assistants at the mills and two representatives from St. Andrews Church, Calcutta, appointed by its Kirk Session.

4. At the meeting of the court of governors of the association held on 24th August, 1964, the association resolved to pay to the Kirk Session of St. Andrews Church a sum of Rs. 3,000 monthly in consideration of the latter undertaking to carry out the main objects of the association set out in Clause 3(a) of the memorandum of association, i. e., to maintain the ordinances of religion among the employees of the jute, cotton, paper and other industrial establishments in West Bengal and amongst the European officers/crews of vessels visiting the Port of Calcutta and fostering of religious interests and activities among the same. It was also unanimously approved at that meeting that any balance of income of the association over expenditure, which has not been earmarked for any specific purpose would be paid to the St. Andrews Church before the end of the financial year. For the first time in its existence the association was assessed to income-tax for the assessment year 1968-69, the first assessment year now under reference. For both the years in question the receipt of the association consisted of, (1) subscriptions received, (2) interest on investments, and (3) interest on fixed deposits. Deducting the expenses its total income was Rs. 45,667 for the assessment year 1968-69 and Rs. 41,284 for the assessment year 1969-70. The ITO rejected the claim of the association for exemption of its income under Section 11 of the I.T. Act, 1961.

5. Aggrieved by the assessments the association preferred appeals before the AAC, who, by a consolidated order, held that the association's income was rightly assessed and the association was not entitled to the claim under Section 11 of the I.T. Act, 1961. The assessee came before the Tribunalin a further appeal. The Tribunal rejected the contention of the departmental representative that the association was not holding any properties on trust wholly for religious purposes so as to attract exemption under Section 11 of the I.T. Act, 1961. The Tribunal was also unable to agree with the view of the authorities below and the departmental representative that since the memorandum of association does not disclose that any properties were settled on trust for the purposes specified in Clause 3(a) of the said memorandum of association, it cannot be said to be holding any properties on trust so as to attract the exemption under Section 11 of the I.T. Act, for properties to be regarded as being held on charitable or religious trust, it is not necessary, in the opinion of the Tribunal, that the properties should have been dedicated for charitable or religious purposes at the very inception of the association for the purpose of administering the trust. It is further observed by the Tribunal that it may be that at the time of formation of the association, there were no properties settled on trust or dedicated for those religious objects. But when the association, in course of time acquired properties by way of donations or otherwise, it was under a legal obligation to hold those properties in trust for religious purposes set out in its memorandum of association. The attention of the Tribunal was drawn to Expln. 1 to Section 13 which lays down, inter alia, that for the purpose of Sections 11, 12 and 13 'trust' includes any other legal obligation. Therefore, in the opinion of the Tribunal, since the association was under legal obligation to hold the properties as and when acquired by it, for the religious purposes specified in the objects clause of its memorandum of association, there can be no difficulty in holding that cash and other properties as and when acquired by the association, were invested with the character of trust properties.

6. The Tribunal also rejected the contention of the departmental representative that the beneficiaries of alleged trust were not an identifiable and well-defined section of the public but a fluctuating or floating of mass individuals, and, therefore, the income of the association was in any case not entitled to the benefit of exemption under Section 11 in view of the prohibition enacted in Section 13(a). The Tribunal further rejected the contention of the departmental representative that the trust, if there was any, was for private religious purposes and the income thereof did not enure to the benefit of the public and that the association was, therefore, not entitled to the exemption under Section 11 in respect of the income in view of the prohibition contained in Section 13(a). The Tribunal accordingly held that the objects of the association were clearly religious in character and there was no vagueness about these objects. The Tribunal could not agree with the findings of the AAC that giving donation to St. Andrews Church was the only charitable activity of the association.

7. Lastly, the Tribunal accepted the alternative contention advanced on behalf of the association, namely, that the association's receipts by way of contribution from the member mills were not of income character and, therefore, not assessable to tax and that even if they were of income character they were exempt from tax under Section 12 of the I.T. Act, 1961.

8. On the above facts and circumstances the following two questions were referred to this court for its opinion :

'(1) Whether, on the facts and in the circumstances of the case, and on a proper construction of clause 3(a) of the memorandum of association of the assessee-association, the Tribunal is right in holding that the beneficiaries of the trust, under which the properties are held by the said association, are a definite and identifiable section of the public, that the said trust is not 'a trust for private religious purposes which does not enure for the benefit of the public', within the meaning of Section 13(a) of the Income-tax Act, 1961, as it stood in the relevant assessment years, and that the income of the assessee-association from the properties held by it under trust is entitled to exemption under Section 11 of the Income-tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, and on a proper construction of the rules and regulations of the assessee-association, the Tribunal is correct in holding that the contributions made to the assessee-association by the member mills are voluntary and not of income character and that in any case the assessee-association is entitled to ex-emption under Section 12 of the Income-tax Act, 1961, in respect of the contributions received by it from the member mills ?'

9. Mr. Balai Pal, the learned advocate for the Revenue, places before us Sections 5 and 6 of the Indian Trusts Act, 1882, for the purpose of showing what are the ingredients for the creation of a valid trust. Section 5 of the Act lays down that no trust in relation to immovable property is valid unless declared by a non-testamentary instrument in writing signed by the author of the trust or the trustee and registered, or by the will of the author of the trust or of the trustee. Section 6 of the Act reads as follows :

'Subject to the provisions of Section 5, a trust is created when the author of the trust indicates with reasonable certainty by any words or acts, (a) an intention on his part to create thereby a trust, (b) the purpose of the trust, (c) the beneficiary, and (d) the trust-property and (unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust-property to the trustee.'

10. On the basis of these two sections, it is contended by Mr. Pal that in the case of a trust of immovable property only a declaration is necessary. The declaration itself vests the property in the trustee and is a 'transfer'. A document to be a deed of trust must contain the words 'transfer andvests the property in the trustee' as the legal owner, although no particular form of expression is necessary. But it is essential that property must be transferred at the time of creation of the trust.

11. In support of his argument, he places reliance on the decision of the Privy Council in the case of Chambers v. Chambers . He specially draws our attention to p. 624 of the report (48 CWN) wherein it is laid down that there can be no trust unless the subject-matter is clearly ascertainable. Section 8 of the statute declares that 'the subject-matter of trust must be property transferable to the beneficiary'. According to Mr. Pal no valid trust was created under Clause 3 of the memorandum of association dated 25th of January, 1906, as there was no transfer of property in favour of the so called trust created.

12. In support of his contention that there was no setting apart or transfer of any ascertained property in favour of the trust, Mr. Pal cites the decision of the Bombay High Court in the case of Hanmantram Ramnath v. CIT : [1946]14ITR716(Bom) . Herein, it is held that as there was no setting apart of ascertained property and no evidence to show that the settlor had divested himself of the ownership, the entries in the account books did not create a valid trust and the assessee was not entitled to claim a deduction of the interest credited in the books to the trust account from the income under Section 10 of the Indian I.T. Act, 1922.

13. Reliance was placed next on the decision of the Privy Council In re Turstees of the Tribune [1939] 7 ITR 415. It is held hereunder that the fact that the settlor thought that the object of the trust was beneficial to the public would not by itself make the object one of general public utility and that under the Indian Act the test of general public utility is applicable not only to trust in the English sense but is to be applied to property held under trust 'or other legal obligation', a phrase which would include 'Moslem wakfs and Hindu endowments'. It is further laid down that in determining whether an object is of general public utility in countries to which English ideas may be inapplicable, the standard of the customary law and common opinion amongst the community to which the parties interested belong must be applied.

14. The next branch of argument of Mr. Pal is that there was no existence of any binding relationship between the association and the creators of the trust. According to him, under Section 6 of the Trusts Act, a trust cannot be created in favour of a society or an association unless there is in existence of any binding relationship between the society and the creator of the trust by which the association gets an interest in the property settled. He makes a reference to the decision of the Madhya Pradesh High Court in the case of Smt. Krishna Kumari v. Board of Revenue, : AIR1971MP201 . At p. 263 of the report, it is observed that no trust could be deemed to have been created in favour of the society unless there came into existence a binding relationship between the society and the proprietors of the bank by which the society got an interest in the property of the bank. Merely by registration of the society it cannot be said that any interest was created in favour of the society. The proprietors of the bank still had the power not to transfer the bank to the society and in that case the society would have had no connection with the bank and would not have been in a position to say that it was a beneficiary in any sense. The High Court was accordingly of the opinion that the society got an interest in the properties of the bank only on the date when it was transferred in favour of the society on 2nd October, 1955. Thus, it was contended by Mr. Pal that tinder Clause 3(a) of the memorandum of association dated 21st May, 1906, the object might be set out for the purpose of the trust but no property having been transferred hereunder in favour of the trust, it was not a valid trust.

15. A trust in respect of movables is created by a declaration of intention creating such a trust, the purpose of the trust, the beneficiary and the trust property and the transfer of trust-property to the trustee or trustees.

16. As stated earlier, it was the specific case of the Department that since the memorandum of association did not disclose that any properties were settled on trust for the purposes specified in Clause 3(a) of the said memorandum, the association could not be said to be holding any properties on trust so as to attract the exemption under Section 11 of the Act. It is true that no properties were settled on trust at the time of the creation of the trust in the year 1906 but at the meeting of the court of governors of the association held on 24th August, 1964, the association resolved to pay to the Kirk Session of St. Andrews Church a sum of Rs. 3,000, monthly, in consideration of the latter undertaking to carry out the main objects of the association, that is, to maintain the ordinances of religion among the employees of the various industrial establishments in West Bengal and amongst the European officers and crews of vessels visiting the Port of Calcutta. It further appears that for the assessment years in question the receipts of the association consisted of : (1) subscriptions received, (2) interest on investments, and (3) interest on fixed deposits. Deducting the expenses its total income was Rs. 45,667 for the assessment year 1968-69 and Rs. 41,284 for the assessment year 1969-70. In the circumstances the Tribunal was of the view that there had been subsequent transfer of properties in favour of the trust created by Clause 3 in the year 1906. As to the question whether property can be subsequently transferred, Mr. Pranab Paul, learned counsel relies on the decision of this court in the case of CIT v. Tollygunge Club Ltd. : [1971]79ITR179(Cal) . In this case the Tollygunge Club Ltd., a socialand sporting club, had as one of its activities, running gymkhana racing, i. e., horse races, in which amateur riders took part. In 1945, a resolution was passed at a general meeting of the company to charge a flat rate of Rs. 4-8-0 for admission to the races plus a surcharge of 8 annas for the Red Cross Fund. By a later resolution it was decided that the surcharge of 8 annas on entrance tickets be earmarked for 'local charities' and not solely for the 'Red Cross'. Two separate tickets were issued in respect of these amounts. One ticket stated that the ticket-holder has to be admitted and the price is indicated as Rs. 4-50 inclusive of tax. The other ticket stated that the surcharge on admission to Tollygunge Gymkhana Races for local charities of the Rs. 4-8-0 enclosure, was written on the ticket as surcharge Rs. 0-8-0. The receipts from the surcharge were not credited to the profit and loss account but were credited directly to the charity account. It was not disputed that the amount realised by way of surcharge has been disbursed to local charities. The ITO held that the surcharge levied on the entrance tickets were receipts of a revenue nature and could not be excluded from the total income of the assessee merely on the ground that later on it was applied towards charity. On appeal it was also held that it would be a part of its revenue receipts. The Tribunal held that the assessee's receipts from the surcharge levied on the admission tickets for purposes of charity fc were not the assessee's income and cannot be included in the assessee's total taxable income. On a reference, it was observed by My Lord Mr. Justice Sabyasachi Mukharji, speaking for the Bench, (at p. 186 of the report) that it is necessary to examine, in the facts and circumstances of the case, whether any trust was created. The relevant passage may be quoted here:

'Section 6 of the Indian Trusts Act states, subject to the provisions of Section 5, which deals with immovable property, a trust is created when the author of the trust indicates with reasonable certainty by any words or act, (a) an intention on his part to create thereby a trust, (b) the purposes of the trust, (c) the beneficiary, and (d) the trust property and transfers the trust property to the trustee. Here the purposes and the beneficiary have been mentioned. The intention has also been expressed. Section 8 of the Indian Trusts Act which deals with the subject-matter states that the subject-matter of the trust will be a property transferable to the beneficiary. The question is, what property is transferable to the beneficiary? Section 5 of the Transfer of Property Act deals with the transfer of property and Section 6 deals with what may be transferred.

It is true that it has been observed by Bhagwati J. in the judgment of the Supreme Court in the case of Jugalkishore Saraf v. Raw Cotton Co. : [1955]1SCR1369 , that the words 'in the present or in the future' in Section 5 of the Transfer of Property Act, qualify the word 'convey ' and not the word 'property'. But a transfer of propertynot in existence operates as a contract to be performed in future which is specifically enforceable as soon as the property comes into existence.'

17. It, thus, appears that a Division Bench of this court was pleased to hold that a transfer of property not in existence operates as a contract to be performed in future which is specifically enforceable as soon as the property comes into existence. The decision of the Division Bench of this court referred to above was affirmed by the Supreme Court in the case of CIT v. Tollygunge Club Ltd. : [1977]107ITR776(SC) . It is also held in Benarasi-lal Rajgharia v. Central Bank of India [1972] 76 CWN 807 , that a trust may and often does arise out of a contract. If the parties, by an agreement, intend to create a trust in respect of a property and the property is subsequently transferred to the proposed trustee by a conveyance, the court will treat the two deeds as part of the same transaction and hold that by the combined operation of the deeds a trust came into effect. Having regard to the point of law discussed above, the Tribunal was justified in holding that the cash and other properties as and when acquired by the association were invested with the character of trust properties.

18. It is also contended by Mr. Balai Pal that the beneficiaries under the so-called trust are not an identifiable and well-defined section of the public but a fluctuating or floating of mass individuals and, therefore, the income of the trust is not entitled to the benefit of exemption under Section 11 of the Act, It goes without saying that the exemption under Section 11 of the Act does not extend to private religious trust which does not enure to the public benefit. It is contended by Mr. Pal that the trust intended for the religious or spiritual benefit of a fluctuating and indefinite mass of individuals such as the European crews and officers of vessels calling at the port of Calcutta can only be regarded as a 'trust' for private religious purposes which does not enure for the benefit of the public within the meaning of Section 13(a) of the Act. On this point, the Tribunal with reference to the decision in Ahmedabad Rana Caste Association v. CIT : [1971]82ITR704(SC) , was of the view that the section of the community sought to be benefited must be sufficiently definite and identifiable by some common quality of a public and impersonal nature. Applying the test, the Tribunal regarded the beneficiaries specified in Clause 3(a) of the memorandum of association, namely, European employees of the jute, cotton, paper and other industrial establishments in Bengal and European officers and crews of vessels visiting the port of Calcutta as a definite and identifiable section of the public. These beneficiaries, in the opinion of the Tribunal, are all identifiable by a common quality of an impersonal nature, namely, the common quality of belonging to the European stock and the common quality of being the European employees of the industrial establishments in Bengal and the European crew and officers and ships calling at the Port of Calcutta.

19. In support of his argument, Mr. Pal relies on the decision of the House of Lords in the case of Oppenheim v. Tobacco Securities Trust Co. Ltd. [1951] 1 All ER 31. In this case, on March 24, 1930, J.P. and his wife, E.M.P., executed a settlement whereby they assigned to a trustee certain investments in the B.A. Co. Ltd. and certain real property to' be held on certain trusts during the joint lives of the settlors and the life of the survivor of them and thereafter on trust to apply the income of the trust premises 'in providing for or assisting in providing for the education of children of employees or former employees of B.A. Co. Ltd....or any of its subsidiary or allied companies in such manner and according to such schemes or rules or regulations as the acting trustees shall in their absolute discretion from time to time think fit and also at the discretion from time to time of the acting trustees to apply all or any part of the corpus of the said trust for the like purposes'. In this case, after the death of J.P. and his wife, E.M.P., the question arose whether the trust was charitable. Lord Simonds, at p. 33 of the report, observes that it is a clearly established principle of the law of charity that a trust is not charitable unless it is directed to the public benefit. This is sometimes stated in the proposition that it must benefit the community or a section of the community. Negatively, it is said that a trust is not charitable if it confers only private benefits.

20. At p. 34 of the report his Lordship proceeds on to state that the difficulty arises where the trust is not for the benefit of any institution either then existing or by the terms of the trust to be brought into existence, but for the benefit of a class of persons at large. Then the question is whether that class of persons can be regarded as such a 'section of the community' as to satisfy the test of public benefit. These words 'section of the community' have no special sanctity, but they conveniently indicate that the possible beneficiaries must not be numerically negligible, and that the quality which distinguishes them from other members of the community, so that they form by themselves a section of it, must be a quality which does not depend on their relationship to a particular individual. It is for this reason that a trust for the education of members of a family or, as In re Compton [1945] 1 All ER 198 , of a number of families, cannot be regarded as charitable. A group of persons may be numerous, but, if the nexus between them is their personal relationship to a single propositus or to several propositi, they are neither the community nor a section of the community for charitable purposes.

21. Mr. Pal next refers to the judgment of Lord Normand wherein it is stated (at p. 37) that if there is no public element to be found in the bare nexus of common employment, all attempts to build up the public element out of circumstances which have no necessary relation with it, but areadventitious, accidental and variable, must be unavailing when the truster has chosen to define the selected class solely by the attribute of common employment.

22. The dissenting judgment of Lord MacDermott at p. 41, may be referred to. It is held by his Lordship that the common employment of the beneficiaries would not be a quality which constituted them a section of the community so as to afford to the trust the necessary public character to render it charitable, and, there being for this purpose no distinction between the employees and their children, the gift was void for perpetuity.

23. Mr. Pal also makes a reference in the case of Davies v. Perpetual Trustee Co. Ltd. [1959] 2 All ER 128 ; [1959] AC 439 . In this case a codicil, dated April 3, 1895, to the will, which was made in 1894, of a testator, who died in New South Wales in 1897, provided : 'I give and devise Block 70B to the Presbyterians the descendants of those settled in the colony hailing from or born in the north of Ireland to be held in trust for the purpose of establishing a college for the education and tuition of their youth in the standards of the Westminster Divines as taught in the Holy Scriptures.' It was held that the gift was not charitable because it lacked the necessary element of public benefit, as the beneficiaries were not the community or a section of the community, the nexus between them being simply their personal relationship to several propositi, i. e., certain persons living at the date of the testator's death.

24. The matter was set at rest by the Supreme Court in the case of Ahmedabad Rana Caste Association v. CIT : [1971]82ITR704(SC) , on which the Tribunal relied. In this case, the assessee, an association of persons, held properties for various purposes including management of the movable and immovable properties of the Rana caste or community of the city of Ahmedabad, doing acts to improve the education of the community, giving medical help to the community, etc. , Under the constitution of the assessee, the beneficiaries were members of the Rana caste or community who were natives of Ahmedabad and other members of the community accepted by the caste according to its old custom and usage and staying in Ahmedabad. The question was whether for the purpose of exemption under Section 4(3)(i) of the Indian I.T. Act, 1922, and Section 11(1)(a) of the I.T. Act, 1961, the beneficiaries constituted a section of the public. It is held that between the members of the Rana caste or community of Ahmedabad and those who had to get admitted to that community according to custom and usage there was a common quality which united them, namely, of being members of the Rana caste or community. The mere fact that a person of the Rana community who was not an original native of Ahmedabad had to prove his credentials according to the custom and usage of that communityto get admitted into that community did not introduce a personal element which would detract from the impersonal nature of the common quality. It is also held by the Supreme Court that it is well established that an object beneficial to a section of the public is an object of general public utility (underlining* is ours). To serve a charitable purpose it is not necessary that the object should be the benefit of the whole of mankind or all persons in a country or State. It is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. The section of the community sought to be benefited must be sufficiently definite and identifiable by some common quality of a public or impersonal nature.

25. Applying this test, the Tribunal came to the conclusion that the beneficiaries specified in Clause 3(a) of the memorandum of association, namely, European employees of the various mills and crews of vessels visiting the Port of Calcutta as a definite and identifiable section of; the public. In its opinion, those beneficiaries are all identifiable by a common quality of an impersonal nature, viz., the common quality of belonging to the European stock and the one common quality of being European employees of the industrial establishments in Bengal and European crew and officers of ships calling at the Port of Calcutta.

26. The decision referred to by Mr. Pal, of the Gujarat High Court, in the case of Addl. CIT v. Ahmedabad Mill Owners' Association : [1977]106ITR725(Guj) , is distinguishable on the fact that all the members and their employees and those who are connected with members formed a substantial part of the recipients of the benefits contemplated by the objects in Rule 3. If a substantial part of the objects is to benefit its own members, the body of persons is not established for charitable purposes only. If the trust property is applicable to purposes, many of which are neither religious nor charitable then the income of the whole property is assessable to income-tax.

27. Reference has also been made to the decision of the Gujarat High Court in the case of CIT v. Chudgar Ranchhodlal Jethalal : [1979]116ITR56(Guj) . In this case, the assessee-firm doing business in cotton collected along with the sale price of cotton a sum termed 'laga receipt'' at the rate of eight annas per Rs. 100 of the price of cotton sold through its constituents which was shown on the liabilities side of its balance-sheet. The assessee-firm contended before the ITO that the amount of 'laga receipt' collected by it was not liable to tax as it was held by way of trust for application to charitable purposes, but the ITO added the amount of 'laga receipts' to the income of the assessee-firm. On appeal, the AAC excluded the ' laga receipts' from the taxable income of the assessee-firm. Onfurther appeal to the Tribunal, the Revenue contended that the assessee-firm retained dominion over the amount collected by it and no trust was created and, therefore, it amounted to assessee's income but the Tribunal confirmed the order of the AAC. On a reference to the High Court, it was held that, on the facts and circumstances of the case, having regard to the nature of the impost, it was a diversion of the amount before it became the income of the assessee. The very nature of the impost described as gam laga, which term had a definite connotation in the sense that it was an impost either under the statute or under custom, indicates that the payment made by the brokers to the assessee-firm was impressed initially with an obligation in the nature of trust at the time of payment. Therefore, the amounts collected by the assessee-firm as 'laga receipts' were not includible in its total income. In the case under reference, receipts had not been diverted before it became the income of the assessee. So, the question of inclusion in the total income of the assessee on this score cannot arise. In this view of the matter, the Tribunal is perfectly justified in rejecting the contention of the departmental representative that the trust intended for the religious or spiritual benefits of a fluctuating and indefinite mass of individuals can only be regarded as a trust for private religious purposes.

28. Next, it is to be seen whether the Tribunal is correct in its finding that the contributions made to the assessee-association by the member mills are voluntary and not of income character. The Tribunal was of the view that there was no legally enforceable obligation on the part of the subscribing mills to make the contributions. It was also noticed that several mills which were formerly making contributions to the association stopped doing so, and there was no legally enforceable obligation on the part of the mills to make the contributions nor had the association any claim or right to the recurrence of the contributions with unfailing regularity and in those circumstances the contributions were non-recurring in character and could not be regarded as income. In this connection, Mr. Balai Pal refers to the decision of the Allahabad High Court in the case of Rani Amrit Kunwar v. CIT : [1946]14ITR561(All) . It was held there that under the Indian I.T. Act, 1922, income in order to be taxable need not arise from any business activity, investment or an enforceable obligation to pay but may arise from voluntary or customary payments. Nor is it necessary that-it should be the result of some outlay on the part of the assessee. The decision referred to in this connection has got no application to the facts and circumstances of this case which were fully discussed before. Moreover, it was made clear at p. 574 of the report that such income if it be casual would be excluded for the purpose of income-tax. The Relevant lines may be quoted :

'The conclusion, therefore, I have reached is that, in construing the word 'income' in the Indian Income-tax Act, 1922, one has to ask oneself whether, having regard to all the circumstances surrounding the particular payments and receipts in question, what is received is of the character of income according to the ordinary meaning of that word in the English language or whether it is merely a casual receipt or mere windfall.'

29. Last of all, Mr. Balai Pal refers to the decision in the case of IRC v. New University Club [1887] 2 TC 279. In this case, club property acquired within thirty years by, (i) money raised on debentures, and (ii) entrance fees and subscriptions. Exemption claimed on the ground that the property was acquired by or with funds voluntarily contributed within the period of thirty years immediately preceding, according to the meaning of Sub-section (6) of Section 11 (48 & 49 Vict. Cap 51). It was held that the entrance fees and subscriptions were payments of money for value received, or to be received, in consideration of the right to enjoy the benefits and privileges of the club.

30.Consequently, in both cases the payments made were not sums 'voluntarily contributed' within the meaning of Sub-section (6).

31. On the basis of such decision, it is contended by Mr. Pal that the Tribunal was not right in holding that the association's receipts by way of contribution from the member-mills were not of income character and, therefore, not assessable to tax.

32. It is made clear in Section 12 of the I.T. Act, that the income of a charitable or religious trust derived from investments or other property held under trust is covered by Section 11, This section also exempts the income of such trust derived from voluntary contributions and applied solely to charitable or religious purposes. It may be mentioned in this connection that under the Act of 1922 all voluntary contributions received by charitable or religious trusts were unconditionally exempt from tax. But Section 12 of the 1961 Act provides that any voluntary contributions (other than those made with a specific direction that they shall form part of the corpus of the trust) shall be deemed to be income derived from property held under charitable or religious trust and the provisions of Sections 11 and 13 shall apply accordingly. In this view of the matter, in our opinion, the Tribunal was right in holding that the association's receipts by way of contributions from the mills were not of income character and, therefore, they were not assessable to tax. The Tribunal also held that if such receipts, for argument's sake, be held to be of income character, they were exempt from tax under Section 12 of the I.T. Act, 1961.

33. In view of the foregoing findings, we answer both the questions in the affirmative and in favour of the assessee. There will be no order as to costs.

Sabyasachi Mukharji, J.

34. I agree.


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